Document:

Exhibit 10.1

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER, dated as of April 14, 2004
(this “Agreement”), is entered into by and among PDS Gaming Corporation, a
Minnesota corporation (the “Company”), PDS Holding Co., LLC, a Nevada limited
liability company (“Parent”), and PDS Acquisition Sub, LLC, a Nevada limited
liability company of which Parent is the sole member (“Merger Sub”).

 

RECITALS

 

A.                                   The
Board of Directors of the Company, and the respective Managers and Members of
each of Parent and Merger Sub, have approved, adopted and, together with the
currently constituted Special Committee of the Board of Directors of the
Company (the “Special Committee”), deem it advisable to consummate, the merger
of Merger Sub with and into the Company (the “Merger”), upon the terms and
subject to the conditions set forth in this Agreement and in accordance with
the applicable provisions of the Minnesota Business Corporation Act (“MBCA”)
and Chapter 92A of the Nevada Revised Statutes (“NRS”), whereby, inter
alia, each issued and outstanding share of the common stock of the
Company, $0.01 par value per share (the “Company Common Stock”), other than the
Excluded Shares (as defined in Section 1.5(a) hereof and employed
consistently throughout this Agreement) and the Dissenting Shares (as defined
in Section 1.6(a) hereof and employed consistently throughout this
Agreement), will be converted into the right to receive the Merger
Consideration (as defined in Section 1.5(a) hereof and employed consistently
throughout this Agreement).

 

B.                                     Pursuant
to Section 92A.150 of the NRS, the Merger must be approved by those
members of Merger Sub owning a majority of the interests in the current profits
of Merger Sub owned by all of the members of Merger Sub.  Pursuant to subdivision 2 of
Section 302A.613 of the MBCA, the Merger must be approved by the holders
of a majority of the issued and outstanding shares of Company Common
Stock.  The parties hereto have agreed
to consummate the Merger only if it receives the approval of (i) the
holders of a majority of the issued and outstanding shares of Company Common
Stock and (ii) the holders of a majority of the issued and
outstanding shares of Company Common Stock other than the Excluded Shares
(collectively, the “Two-Tiered Shareholder Approval”).

 

C.                                     Parent,
Merger Sub and the Company desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the consummation of the Merger.

 

In consideration of the foregoing and the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereby agree
as follows:

 

ARTICLE 1

THE MERGER

 

Section 1.1                                      The Merger.  At the Effective Time (as defined in
Section 1.2 hereof and employed consistently throughout this Agreement),
and in accordance with,

 

 

and subject to, the terms and conditions of this Agreement and the
applicable provisions of the MBCA and Chapter 92A of the NRS, Merger Sub will
be merged with and into the Company, the separate legal existence of Merger Sub
will thereupon cease, and the Company shall be the surviving organization in
the Merger (as such, sometimes hereinafter referred to as the “Surviving
Corporation”).  At the Effective Time,
the Merger will have the other effects provided for in the applicable
provisions of the MBCA and Chapter 92A of the NRS.  Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the property, rights, privileges, powers,
immunities and franchises of the Company and Merger Sub will vest in the
Surviving Corporation, and all debts, liabilities, obligations and duties of
the Company and Merger Sub will become the debts, liabilities, obligations and
duties of the Surviving Corporation.

 

Section 1.2                                      Effective Time
of the Merger.  Promptly following
the receipt of the Two-Tiered Shareholder Approval of the Merger and the
satisfaction or waiver of all other conditions precedent to the consummation of
the Merger set forth in Article 6 of this Agreement, the Company and
Merger Sub shall execute in the manner required by the MBCA and deliver for
filing to the Secretary of State of the State of Minnesota, and shall execute
in the manner required by Chapter 92A of the NRS and deliver for filing to the
Secretary of State of the State of Nevada, articles of merger with respect to
the Merger (the “Articles of Merger”). 
The Merger will become effective upon the filing of (i) the
Articles of Merger with the Minnesota Secretary of State, in accordance with
Section 302A.641 of the MBCA, and (ii) the filing of the Articles of
Merger with the Nevada Secretary of State, in accordance with
Section 92A.240 of the NRS.  The
term “Effective Time “ shall mean the date and time when the Merger becomes
effective.

 

Section 1.3                                      Articles of
Incorporation and Bylaws of the Surviving Corporation.  The Articles of Incorporation and Bylaws of
the Company as in effect immediately prior to the Effective Time will be the
Articles of Incorporation and Bylaws of the Surviving Corporation, until
amended in accordance with the laws of the State of Minnesota and the
applicable provisions of such Articles of Incorporation and Bylaws,
respectively.

 

Section 1.4                                      Board of
Directors and Officers of the Surviving Corporation.  At the Effective Time, the Board of
Directors of the Surviving Corporation shall consist of the following three
persons:  Johan P. Finley, Lona M. B.
Finley and Peter D. Cleary, each of such directors to hold office, subject to the
applicable provisions of the Articles of Incorporation and Bylaws of the
Surviving Corporation, until the expiration of the term for which such director
was elected and until his or her successor is elected and has qualified or as
otherwise provided in the Articles of Incorporation or Bylaws of the Surviving
Corporation.  The officers of the
Company immediately prior to the Effective Time will be the officers of the
Surviving Corporation until their respective successors are chosen and have
qualified or as otherwise provided in the Bylaws of the Surviving Corporation.

 

Section 1.5                                      Conversion of
Ownership Interests.  The manner and
basis of converting the issued and outstanding shares of Company Common Stock
and the issued

 

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and outstanding units of limited liability company membership interest
in Merger Sub shall be as follows:

 

(a)                                  At the Effective
Time, each share of Company Common Stock that is issued and outstanding
immediately prior to the Effective Time, other than (i) Dissenting Shares
and (ii) shares of Company Common Stock (“Excluded Shares”) held of record by
Parent or Merger Sub immediately prior to the Effective Time, will, by virtue
of the Merger and without any action on the part of the Company, the holder
thereof or any other person, be converted entirely into and represent solely
the right to receive, as provided in Section 1.8 hereof, (i) as of the
Effective Time, an amount in cash equal to $1.25 (the “Initial Merger
Consideration”), and (ii) a nontransferable, deferred payment right consisting
of the right to receive, without interest thereon, an amount in cash equal to
$0.50 on each of the first three anniversaries of the date when the Merger
becomes effective, subject to the right of the Surviving Corporation, in its
sole discretion, to prepay all, but not less than all, of the amounts then
outstanding under all such nontransferable, deferred payment rights, net of a
present value discount, as follows: if said prepayment is made anytime (A) on
or prior to the first such anniversary, the Surviving Corporation shall pay in
cash with respect to such right the amount of $1.36; (B) after the first such
anniversary, but on or prior to the second such anniversary, the Surviving
Corporation shall pay in cash with respect to each such right, in addition to
the $0.50 payable on the first such anniversary, the amount of $0.93; and (C)
after the second such anniversary, but prior to the third such anniversary, the
Surviving Corporation shall pay in cash with respect to each such right, in addition
to the $0.50 payable on each of the first and second such anniversaries, the
amount of $0.50 (the “Residual Merger Consideration”; together with the Initial
Merger Consideration, the “Merger Consideration”), in each case, prorated for
fractional shares, if any.  Any payment
made pursuant to this Section 1.5(a) and Section 1.8 hereof will be
made net of applicable withholding taxes to the extent such withholding is
required by law.  Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time, the
issued and outstanding shares of Company Common Stock shall have been changed
into a different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of such shares, the Merger Consideration will be correspondingly
adjusted on a per share basis to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.

 

(b)                                 At the Effective Time,
each issued and outstanding share of Company Common Stock that is held of
record by Parent or Merger Sub immediately prior to the Effective Time, shall
continue to exist from and after the Effective Time as an issued and
outstanding share of the Common Stock, $0.01 par value per share, of the
Surviving Corporation (“Surviving Corporation Common Stock”), with all the
rights, privileges, franchises, immunities and other attributes and
characteristics under the MBCA appertaining thereto as appertained thereto
immediately prior to the Effective Time, all of which shares of Surviving
Corporation Common Stock will constitute the only issued and outstanding shares
of capital stock of the Surviving Corporation immediately after the Effective
Time (other than the 100 shares referenced in Section 1.5(c) hereof).

 

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(c)                                  At the Effective
Time, all units of limited liability company membership interest in Merger Sub
that are issued and outstanding immediately prior to the Effective Time will,
by virtue of the Merger and without any action on the part of the holder
thereof, Merger Sub or any other person, be converted into and become the right
to receive, in the aggregate, 100 newly issued shares of Surviving Corporation
Common Stock.  From and after the
Effective Time, each outstanding certificate of interest, if any, representing
such units will be deemed for all purposes to evidence ownership of the
proportional quotum of such newly issued shares of Surviving Corporation Common
Stock; the holder of any such units, whether or not so certificated, shall be
entitled, from and after the Effective Time, to receive from the Surviving
Corporation a duly executed stock certificate or certificates evidencing the
holder’s ownership of the corresponding number of newly issued shares of
Surviving Corporation Common Stock, determined in accordance with the
provisions of this Section 1.5(c), provided that, the Surviving
Corporation shall be required to deliver such a stock certificate or
certificates to the holder of any such units as formerly were so certificated
only upon delivery by said holder to the Surviving Corporation of all of the
certificates of interest evidencing the holder’s ownership of such units.

 

Section 1.6                                      Dissenters’
Rights.

 

(a)                                  Notwithstanding
Section 1.5 hereof, shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time, if any, which are held of record or
beneficially owned by a person who has properly exercised and preserved and
perfected dissenters’ rights with respect to such shares pursuant to Sections
302A.471 and 302A.473 of the MBCA and has not withdrawn or lost such rights
(“Dissenting Shares”), will not be converted into or represent the right to
receive the Merger Consideration for such shares, but instead will be treated
in accordance with the provisions of Sections 302A.471 and 302A.473 of the MBCA
unless and until such person effectively withdraws or loses such person’s right
to payment under Section 302A.473 of the MBCA (through failure to preserve
or protect such right, or otherwise). 
If, after the Effective Time, any such person shall effectively withdraw
or lose such right (through failure to preserve or protect such right, or
otherwise), then each such Dissenting Share held of record or beneficially
owned by such person will thereupon be treated as if it had been converted, at
the Effective Time, into the right to receive the Merger Consideration, without
interest.

 

(b)                                 Each person holding of
record or beneficially owning Dissenting Shares who becomes entitled, pursuant
to the provisions of Sections 302A.471 and 302A.473 of the MBCA, to payment of
the fair value of such Dissenting Shares shall receive payment therefor (plus
interest determined in accordance with Section 302A.473 of the MBCA) from
the Surviving Corporation, and/or from the Disbursing Agent referred to in
Section 1.8 hereof on behalf of the Surviving Corporation, pursuant to
such provisions.

 

(c)                                  The Company shall
give Parent prompt notice upon receipt by the Company at any time prior to the
Effective Time of any notice of intent to demand the fair value of any shares
of Company Common Stock under Section 302A.473 of the

 

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MBCA, and any withdrawal of any such notice of intent to demand such
fair value.  The Company agrees that it
will not, except with the prior written consent of Parent, negotiate,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand at any time prior to the Effective Time.

 

Section 1.7                                      Stock Options.  The Company will, promptly on or after the
date of this Agreement, take all such actions as it is permitted or required to
take under the terms of its stock option plans to cancel, prior to the Effective
Time, all outstanding options (collectively, the “Stock Options” and,
individually, a “Stock Option”) to purchase shares of Company Common Stock
heretofore granted under any employee or nonemployee director stock option plan
by the Company, and to pay, promptly, and in any event within ten days, after
the date the Merger is effective, in cancellation of each such Stock Option
(whether or not such Stock Option is then exercisable) to the optionee cash in
the amount, if any, by which $2.61 exceeds the per share exercise price of such
Stock Option, multiplied by the number of shares of Company Common Stock then
subject to such Stock Option (the “Stock Option Settlement Amount”), but
subject to all required tax withholdings by the Company.  Each holder of a then outstanding Stock
Option that the Company does not have a right to cancel pursuant to the terms
of the applicable stock option plan or agreement (if any), upon execution of a
cancellation agreement (a “Stock Option Cancellation Agreement”) with the
Company, which the Company shall use reasonable efforts to obtain from each
such holder prior to or promptly after the consummation of the Merger, shall
have the right to receive in cancellation of such Stock Option (whether or not
such Stock Option is then exercisable) a cash payment from the Company
promptly, and in any event within ten days, after the later of the consummation
of the Merger or the execution of a Stock Option Cancellation Agreement, in an
amount equal to the Stock Option Settlement Amount, without interest, but
subject to all required tax withholdings by the Company.  Each Stock Option that is subject to a Stock
Option Cancellation Agreement shall be canceled upon payment to the optionee of
the Stock Option Settlement Amount for such Stock Option.  The Company hereby represents to Parent and
Merger Sub that the Committee appointed pursuant to Section 2 of each of
the Company’s 1993 Stock Option Plan and 2002 Stock Option Plan (collectively, the
“Stock Option Plans”) has determined that the Merger is an Event as defined in
Section 8 of each such Plan.

 

Section 1.8                                      Payment For
Shares.

 

(a)                                  Prior
to the Effective Time, Parent will designate Wells Fargo Bank or any other bank
or trust company located in the United States having capital and surplus
exceeding $500,000,000 that is reasonably satisfactory to the Company (the
“Disbursing Agent”) to receive cash in an amount equal to the product of (i)
the number of shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than the Excluded Shares), and (ii) the
amount of the Initial Merger Consideration (such amount being hereinafter
referred to as the “Exchange Fund”).

 

(b)                                 (i)                                     At the Closing (as
defined in Section 2.1 hereof, and employed consistently throughout this
Agreement), Merger Sub shall irrevocably deposit with the Disbursing Agent the
full amount of the Exchange Fund.  At or
before the

 

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Effective Time, Parent will deliver irrevocable written instructions to
the Disbursing Agent in form and substance reasonably satisfactory to the
Company to make, out of the Exchange Fund, the payments of the Initial Merger
Consideration in accordance with Section 1.8(c) hereof.  Such irrevocable instructions may authorize
the Disbursing Agent to invest amounts in the Exchange Fund as Parent directs,
provided that all such investments shall be in obligations of or guaranteed by
the United States of America, in commercial paper obligations receiving the
highest rating from either Moody’s Investors Service, Inc. or Standard &
Poor’s Corporation, or in certificates of deposit, bank repurchase agreements
or bankers’ acceptances issued by commercial banks with capital and surplus
exceeding $500,000,000 (collectively, “Permitted Investments”); provided,
however, that the maturities of Permitted Investments will be such as to permit
the Disbursing Agent to make prompt payments to persons entitled thereto
pursuant to this Section 1.8.  The
Exchange Fund will not be used for any other purpose except as expressly
provided in this Agreement.  Any net
profit resulting from, or interest or income produced by, the Permitted
Investments will remain in the Exchange Fund. 
Parent and the Surviving Corporation jointly and severally agree to
cause the Exchange Fund to be promptly replenished to the extent of any net
losses incurred as a result of the Permitted Investments.

 

(ii)                                  In
addition, if after the Effective Time any person holding of record or
beneficially owning Dissenting Shares shall become entitled to receive payment
for such Dissenting Shares pursuant to Sections 302A.471 and 302A.473 of the
MBCA, Parent will deliver irrevocable written instructions to the Disbursing
Agent to pay either to such person or to the Surviving Corporation the amount
to which such person is entitled pursuant thereto, provided that the payment
from the Exchange Fund with respect to any Dissenting Share will not exceed the
Initial Merger Consideration, and provided further that such instructions will,
if sums are to be paid to the Surviving Corporation, be accompanied by a
certificate of the Surviving Corporation that any sums so paid will be remitted
by the Surviving Corporation to the shareholder or beneficial owner entitled
thereto in accordance with Section 302A.473 of the MBCA.

 

(iii)                               Any
amount remaining in the Exchange Fund one year after the Closing Date may be
refunded to the Surviving Corporation, at its option; provided, however, that
Parent and the Surviving Corporation (subject to applicable abandoned property,
escheat and similar laws) will jointly and severally continue to be liable for
any payments required to be made thereafter to holders of Dissenting Shares
pursuant to Section 1.5(a) hereof or Section 302A.473 of the MBCA.

 

(c)                                  As
soon as practicable after the Effective Time, the Disbursing Agent will mail to
each holder of record of a stock certificate or certificates which, immediately
prior to the Effective Time, represented issued and outstanding shares of
Company Common Stock (other than Dissenting Shares and Excluded Shares) a
letter of transmittal in form reasonably acceptable to the Surviving
Corporation (a “Letter of Transmittal”), for execution and return by such
holder to the Disbursing Agent, accompanied by instructions for use in
effecting the surrender of such stock certificate or certificates in exchange
for (i) the Initial Merger Consideration for each of such holder’s issued and
outstanding shares of Company Common Stock pursuant to Section 1.5(a)

 

6

 

hereof, and (ii) a Certificate of Deferred Payment Right evidencing the
holder’s right pursuant to Section 1.5(a) hereof to receive the Residual
Merger Consideration with respect to each such share from the Surviving
Corporation, in the form prepared by the Company and delivered to the
Disbursing Agent (each, a “DPR Certificate”). 
The Disbursing Agent, as soon as reasonably practicable following
receipt of any such stock certificate or certificates together with a duly
executed Letter of Transmittal and any other items specified in the Letter of
Transmittal, will pay by cashier’s check of the Disbursing Agent to the
person(s) entitled thereto (subject to any required withholding of taxes by the
Surviving Corporation) the amount (rounded up or down to the nearest whole
$.01, for which purpose $.005 shall be rounded up to the nearest whole $.01)
resulting from multiplying (A) the number of shares of Company Common Stock
represented by the stock certificate or certificates so surrendered (including
fractional shares) by (B) the amount of the Initial Merger Consideration, and
will deliver to the holder concurrently with such cashier’s check the
applicable DPR Certificate addressed to such holder and executed by the
Surviving Corporation.  No interest will
be paid or accrued on the cash payable upon the surrender of any such stock
certificate or certificates.

 

(d)                                 In the event any such
stock certificate or certificates shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such stock
certificate or certificates to have been lost, stolen or destroyed, the amount
to which such person would have been entitled under Section 1.8(c) hereof
but for failure to deliver such stock certificate or certificates to the
Disbursing Agent will nevertheless be paid to such person; provided, however,
that the Surviving Corporation may, in its sole discretion and as a condition
precedent to such payment, require such person to give the Surviving Corporation
a written indemnity agreement in form and substance reasonably satisfactory to
the Surviving Corporation and, if reasonably deemed advisable by the Surviving
Corporation, a bond in such sum as it may reasonably determine as indemnity
against any claim that may be had against the Surviving Corporation or Parent
with respect to the stock certificate or certificates alleged to have been
lost, stolen or destroyed.

 

Section 1.9                                      No Further
Rights or Transfers.  At the
Effective Time, all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time, other than the Excluded Shares, will
be canceled and cease to exist eo  instante, and each holder of a
stock certificate or certificates that represented shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other
than the Excluded Shares) will cease to have any rights as a shareholder of the
Company with respect to the shares of Company Common Stock represented by such
stock certificate or certificates, except for (i) the right to surrender such
stock certificate or certificates in exchange for the payment of the Initial
Merger Consideration as provided pursuant to Section 1.5(a) hereof and the
issuance and delivery to such holder of a DPR Certificate obliging the
Surviving Corporation to pay to such holder the Residual Merger Consideration
with respect to all such shares or, (ii) the right to preserve and perfect such
holder’s right to receive payment for such holder’s shares pursuant to Section 302A.473
of the MBCA and Section 1.6 hereof if such holder has validly exercised
and not withdrawn or lost such right. 
No transfer of shares of Company Common Stock issued

 

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and outstanding immediately prior to the Effective Time will be made on
the stock transfer books of the Surviving Corporation in connection with the
Merger.

 

Section 1.10                                Additional Actions.  If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Merger Sub or the Company or otherwise to effectuate
the purposes of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of Merger Sub or the Company, all such deeds, bills of sale, assignments
and assurances and to take and do, in the name and on behalf of Merger Sub or
the Company, all such other actions and things as may be necessary or desirable
to vest, perfect or confirm any and all right, title and interest in, to and
under such rights, properties or assets in the Surviving Corporation or
otherwise to effectuate the purposes of this Agreement.

 

ARTICLE 2

THE CLOSING

 

Section 2.1                                      Generally.  Subject to the provisions of Articles 6 and 7
hereof, the closing (the “Closing”) of the transactions contemplated hereby
will occur on August 27, 2004, or at such other time and date as the
Company and Parent may mutually agree upon (the “Closing Date”).  The Closing will be held at the offices of the
Company located at 6171 McLeod Drive, Las Vegas, Nevada, or at such other
place as the Company and Parent may mutually agree.

 

Section 2.2                                      Deliveries at
the Closing.  Subject to the
provisions of Articles 6 and 7 hereof, at the Closing:

 

(a)                                  The Company and
Merger Sub will cause the Articles of Merger to be filed as provided in
Section 1.2 hereof and will take any and all other lawful actions and do
any and all other lawful things necessary or desirable to cause the Merger to
become effective; and

 

(b)                                 Subject to the right
of the Surviving Corporation to receive a refund of amounts remaining in the
Exchange Fund one year after the Closing Date under Section 1.8 hereof,
Merger Sub will irrevocably deposit with the Disbursing Agent the full amount of
the Exchange Fund.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth on the Company Disclosure Schedule appended to
this Agreement (the “Company Disclosure Schedule”), the Company hereby
represents and warrants to Parent and Merger Sub as follows:

 

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Section 3.1                                      Organization
and Qualification; Subsidiaries.

 

(a)                                  Each of the Company
and its subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted.  The Company has heretofore delivered to
Parent accurate and complete copies of the Articles of Incorporation and Bylaws
(or similar governing documents), as currently in effect, of the Company and
each of its subsidiaries.  Neither the
Company nor any of its subsidiaries is in violation of its Articles of
Incorporation or Bylaws (or similar governing documents).

 

(b)                                 Each of the Company
and its subsidiaries is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not reasonably be
expected to have a Company Material Adverse Effect.  The term “Company Material Adverse Effect” shall, for the
purposes of this Agreement, mean any change or effect that, individually or in
the aggregate, is or is reasonably likely to be materially adverse to the
business, assets, operations, results of operations, prospects or financial
condition of the Company and its subsidiaries, taken as a whole, other than any
changes or effects arising out of (i) general economic conditions, (ii) the
financial markets or (iii) the entering into or the public disclosure of this
Agreement or the transactions contemplated hereby.

 

Section 3.2                                      Capitalization
of the Company and its Subsidiaries.  

 

(a)                                  The authorized
capital stock of the Company consists of (i) 2,000,000 shares of preferred
stock, $0.01 par value per share, none of which are issued and outstanding as
of the date hereof; and (ii) 20,000,000 shares of common stock, $0.01 par value
per share, 3,812,222 of which are issued and outstanding as of the date
hereof.  All of the outstanding shares
of Company Common Stock have been validly issued and are fully paid,
nonassessable and free of preemptive rights. 
Except as set forth supra or as set forth in Section 3.2 of
the Company Disclosure Schedule, as of the date hereof, there are outstanding
(i) no shares of capital stock or other voting securities of the Company, (ii)
no securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of the Company, (iii) no options, warrants
or other rights to acquire from the Company and, no obligations of the Company
to issue, any capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of the Company and (iv)
no equity equivalent interests in the ownership or earnings of the Company or
its subsidiaries (collectively “Company Securities”).  Section 3.2 of the Company Disclosure
Schedule identifies, as of the date hereof, the holder of each outstanding
Stock Option issued pursuant to the Stock Option Plans, the number of shares of
Company Common Stock issuable upon the exercise of each such Stock Option and
the exercise price and expiration date thereof and, except as set forth in
Section 3.2 of the Company Disclosure Schedule, no options currently
outstanding have been granted other than pursuant to the Stock Option
Plans.  As of the date hereof, except as
set forth in Section 3.2 of the Company Disclosure Schedule, there

 

9

 

are no outstanding obligations of the Company or its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
Company Securities.  Except as set forth
in Section 3.2 of the Company Disclosure Schedule, there are no
shareholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company.

 

(b)                                 Except as set forth in
Section 3.2 of the Company Disclosure Schedule, all of the outstanding capital
stock of the Company’s subsidiaries is owned by the Company, or one of its
subsidiaries, directly or indirectly, free and clear of any Lien (as defined infra)
or any restriction on the right to vote or sell the same (except as may be
provided as a matter of law).  All of
the outstanding shares of capital stock of the Company’s subsidiaries are duly
authorized, validly issued, fully paid and nonassessable, and were issued free
of preemptive rights in compliance with applicable corporate and securities
laws.  There are no securities of the
Company’s subsidiaries convertible into or exchangeable for, no options,
warrants or other rights to acquire from the Company or its subsidiaries and no
other contract, understanding, arrangement or obligation (whether or not
contingent) providing for the issuance, purchase or sale, directly or
indirectly, by the Company or any of its subsidiaries of, any capital stock or
other ownership interests in or any other securities of any subsidiary of the
Company.  There are no outstanding
contractual obligations of the Company’s subsidiaries to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of the Company. 
For purposes of this Agreement, “Lien” means, with respect to any asset
(including, without limitation, any security), any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.

 

(c)                                  The Company Common
Stock constitutes the only class of equity securities of the Company or its
subsidiaries registered or required to be registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).

 

Section 3.3                                      Authority
Relative to this Agreement; Enforceability.  The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby.  The execution and
delivery of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby have been unanimously recommended by
the Special Committee and duly and validly authorized by a unanimous vote of
the Board of Directors of the Company, and no other corporate proceedings on
the part of the Company or its subsidiaries are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby, except the
obtaining of the Two-Tiered Shareholder Approval of (i) this Agreement,
and (ii) the Merger (collectively, the “Merger Voting Items”).  The Special Committee is composed
exclusively of directors that have no employment or other pecuniary
relationship with the Company, other than in their capacity as members of its
Board of Directors or any committee thereof. 
This Agreement has been duly and validly executed and delivered by the
Company and, assuming due authorization, execution and delivery by each of
Parent and Merger Sub, constitutes a valid, legal and binding agreement of the
Company enforceable against the Company in accordance with its terms, except
that (i) such enforcement may be subject

 

10

 

to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, affecting creditors’ rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.

 

Section 3.4                                      SEC Reports;
Financial Statements.  The Company
has filed all required forms, reports and documents with the Securities and
Exchange Commission (the “SEC”) for the periods beginning on or after
January 1, 1999 (such filings, along with any other filings made by the
Company with the SEC pursuant to the Securities Act (as defined infra)
or the Exchange Act are hereinafter referred to as “Company SEC Reports”), each
of which has complied in all material respects with all applicable requirements
of the Securities Act of 1933, as amended (the “Securities Act”), and the
Exchange Act, each as in effect on the dates such forms, reports and documents
were filed.  None of such Company SEC
Reports contained when filed any untrue statement of a material fact or omitted
to state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The consolidated financial statements of the
Company included in the Company SEC Reports have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”) applied on a
consistent basis (except as may be indicated in the notes thereto), and fairly
and accurately present in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended, except, in the case of unaudited interim
financial statements, for normal year-end audit adjustments and the fact that
certain information and notes have been condensed or omitted in accordance with
the applicable rules of the SEC.  The
Company has no material liabilities, whether accrued, absolute, fixed or contingent,
which are required by GAAP to be reflected or reserved against or otherwise
disclosed in the Company’s financial statements, except as reflected or
reserved against or otherwise disclosed in the financial statements of the
Company contained in the Company SEC Reports or which have arisen in the
ordinary course of the Company’s business since the date of the latest of such
reports, and except for any such liabilities that would not have a Company
Material Adverse Effect.

 

Section 3.5                                      Information
Supplied.  None of the information
contained in or incorporated by reference in the proxy statement (the “Proxy
Statement”) relating to the meeting of the shareholders of the Company to be
called pursuant to Section 5.3(c) hereof (including all adjournments thereof,
the “Shareholders Meeting”) will, at the date the definitive Proxy Statement is
mailed to shareholders of the Company or (as amended or supplemented) at the
time of the Shareholders Meeting (and, if adjourned, at the time of each
adjourned meeting), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation or warranty is made by
the Company with respect to statements made or incorporated by reference

 

11

 

therein based on written information supplied by Parent or Merger Sub
for inclusion or incorporation by reference therein.  The Proxy Statement insofar as it relates to the Shareholders
Meeting will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.

 

Section 3.6                                      Consents and
Approvals; No Violations.

 

(a)                                  Except as set forth
in Section 3.6 of the Company Disclosure Schedule with respect to the
gaming industry regulatory agencies referenced therein, and except for filings,
permits, authorizations, consents and approvals as required under, and other
applicable requirements of, the Exchange Act and state securities or blue sky
laws, and the filing of the Articles of Merger as required by the MBCA and
Chapter 92A of the NRS, no filing with or notice to, and no permit, authorization,
consent or approval of, any court, arbitrator or tribunal, or administrative,
regulatory or other governmental body, agency or authority, foreign or domestic
(a “Governmental Entity”), is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the
transactions contemplated hereby.

 

(b)                                 Except as set forth in
Section 3.6 of the Company Disclosure Schedule, neither the execution,
delivery and performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby will (i) conflict with
or result in any breach of any provision of the respective Articles of
Incorporation or Bylaws (or similar governing documents) of the Company or any
of its subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation, acceleration or Lien)
under, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party, or by
which any of them or any of their respective properties or assets may be bound
or (iii) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, except in the case of (ii) or (iii), for
violations, breaches or defaults that would not have a Company Material Adverse
Effect.

 

Section 3.7                                      Absence of
Changes.  Except as set forth in
Section 3.7 of the Company Disclosure Schedule, since December 31,
2003, there has not been:  (i) any
events, changes or effects with respect to the Company or its subsidiaries that
would reasonably be expected to have a Company Material Adverse Effect or that
are outside the ordinary course of the Company’s business; (ii) any
declaration, payment or setting aside for payment of any dividend (except to
the Company or any subsidiary wholly-owned by the Company) or other
distribution by the Company or any of its subsidiaries, or any redemption,
purchase or other acquisition, by the Company or any of its subsidiaries, of
any shares of capital stock or securities of the Company or any subsidiary of
the Company; (iii) any return of any capital or other distribution of assets to
shareholders of the Company or any subsidiary of the Company (except to the
Company or any subsidiary wholly-owned by the Company); (iv) any acquisition
(by merger, consolidation, acquisition of stock or assets or otherwise), by the
Company or any of its subsidiaries of any person or business; (v) any material
change by the Company to its

 

12

 

accounting policies, practices, or methods; (vi) any amendment to the
Articles of Incorporation or Bylaws or other organizational documents of the
Company or any of its subsidiaries; (vii) any sale or transfer by the Company
of any material portion of its assets or of any material asset, except in the
ordinary course of its business and consistent with past practice; (viii) any
pledge by the Company or any of its subsidiaries of any of its assets or
subjection of any of its assets to any Lien, except in the ordinary course of
business and consistent with past practice; (ix) any commencement or settlement
of material legal proceedings by the Company or any of its subsidiaries; (x)
any action taken by a Governmental Entity which affects, in any material
respect, the business of the Company, except, in the case of each of the
foregoing clauses (i) through (x), as expressly contemplated by this Agreement
or as disclosed in the Company SEC Reports.

 

Section 3.8                                      Litigation.  Except as set forth in Section 3.8 of
the Company Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened, against
the Company or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity or otherwise.  Except as set forth in Section 3.8 of the Company Disclosure
Schedule, none of the Company or its subsidiaries is subject to any outstanding
order, writ, injunction or decree of any Governmental Entity that would
reasonably be expected to have a Company Material Adverse Effect or would
reasonably be expected to prevent or materially delay the consummation of the
transactions contemplated hereby.

 

Section 3.9                                      Compliance
with Applicable Law.  Except as set
forth in Section 3.9 of the Company Disclosure Schedule, the Company and
its subsidiaries hold all material permits, licenses, findings of suitability,
authorizations, variances, exemptions, orders and approvals as required from
all Governmental Entities, and have filed all material required notifications,
registrations and listings with all Governmental Entities, all of which are in
full force and effect (the “Company Permits”), except for failures to hold such
permits, licenses, findings of suitability, authorizations, variances,
exemptions, orders and approvals and failures to have filed such notifications,
registrations and listings, which would not reasonably be expected to have a
Company Material Adverse Effect.  The
Company and its subsidiaries are in compliance in all material respects with
the terms of the Company Permits.  The
Company has not received any notice from any Governmental Entity that the
businesses of the Company and its subsidiaries are being conducted in violation
of any law, ordinance or regulation of any Governmental Entity, except for
violations or possible violations which are not material to the Company’s
business.  To the knowledge of the
Company, no investigation or review by any Governmental Entity with respect to the
businesses of the Company or its subsidiaries is pending or threatened nor has
any Governmental Entity indicated to the Company an intention to conduct the
same.

 

Section 3.10                                Brokers.  Other than The Seidler Companies, Inc.
(“TSC”), the financial advisor retained by the Company in connection with the
transactions contemplated by this Agreement, no broker, finder or investment
banker is entitled to any brokerage, finder’s or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.

 

13

 

Section 3.11                                Taxes.

 

(a)                                  For
purposes of this Agreement, a “Tax” or, collectively, “Taxes” means any and all
federal, state, local and foreign taxes, assessments and other governmental
charges, duties, impositions and liabilities, including, without limitation,
gross receipts, income, profits, sales, use, occupation, value added, ad
valorem, transfer, gains, franchise, withholding, payroll, recapture,
employment, excise, unemployment insurance, social security, business license,
business organization, stamp, environmental and property taxes, together with
all interest, penalties and additions imposed with respect to such amounts.  For purposes of this Agreement, “Taxes” also
includes any obligations under any agreements or arrangements with any other
person with respect to Taxes of such other person (including pursuant to
U.S.  Treasury Regulations
§ 1.1502-6 or comparable provisions of state, local or foreign Tax law)
and including any liability for Taxes of any predecessor entity.

 

(b)                                 The Company and each
of its subsidiaries have (i) filed all federal, state, local and foreign Tax
returns and reports required to be filed by them prior to the date of this
Agreement (taking into account all applicable extensions), (ii) paid or accrued
all Taxes due and payable, and (iii) paid or accrued all Taxes for which a
notice of assessment or collection has been received (other than amounts being
contested in good faith by appropriate proceedings), except, in the case of
clauses (i), (ii) and (iii), for any such filings, payments or accruals that do
not have, and are not reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. 
There are no audits pending or known by the Company to be contemplated
with respect to the Company’s Tax returns as of the date of this
Agreement.  Neither the Internal Revenue
Service nor any other taxing authority has asserted any claim for Taxes, or to
the knowledge of the Company, is threatening to assert any claims for Taxes,
which claims, individually or in the aggregate, are reasonably likely to have a
Company Material Adverse Effect.  The Company
and each of its subsidiaries have withheld or collected and paid over to the
appropriate governmental authorities (or are properly holding for such payment)
all Taxes required by law to be withheld or collected, except for amounts that
do not have, or are not reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. 
Neither the Company nor any of its subsidiaries has made an election
under Section 341(f) of the Internal Revenue Code of 1986, as amended (the
“Code”), except for any such elections that are not reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect.  There are no Liens for Taxes upon the assets
of the Company or any of its subsidiaries (other than Liens for Taxes that are
not yet due or that are being contested in good faith by appropriate
proceedings), except for Liens that do not have, and are not reasonably likely
to have, individually or in the aggregate, a Company Material Adverse
Effect.  No extension of a statute of
limitations relating to any Taxes is in effect with respect to the Company and
its subsidiaries as of the date of this Agreement.

 

(c)                                  Neither the Company
nor any of its subsidiaries has been a member of an affiliated group of
corporations filing a consolidated federal income Tax return (or a group of
corporations filing a consolidated, combined or unitary income Tax return under
comparable provisions of state, local or foreign tax law) for any taxable

 

14

 

period, other than a group the common parent of which was the Company
or any subsidiary of the Company.

 

(d)                                 Neither the Company
nor any of its subsidiaries has any obligation except with respect to the
Company and its subsidiaries under any agreement or arrangement with any other
person with respect to Taxes of such other person (including pursuant to U.S.
Treasury Regulations § 1.1502-6 or comparable provisions of state, local
or foreign tax law), including with respect to any liability for Taxes of any
predecessor entity, except for obligations that do not have, and are not
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect.

 

(e)                                  Neither the Company
nor any of its subsidiaries has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

Section 3.12                                Required Shareholder
Vote.  The Two-Tiered Shareholder
Approval is the only approval by the Company’s shareholders required under
applicable law, including, without limitation, the MBCA, for the adoption and
approval of the Merger Voting Items.

 

Section 3.13                                No Existing
Discussions.  As of the date of this
Agreement, neither the Company nor any of its affiliates is engaged, directly
or indirectly, in any discussions or negotiations with any party (other than
Parent or Merger Sub) with respect to a Takeover Proposal (as defined in
Section 5.2(a) hereof).

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF

PARENT AND MERGER SUB

 

Except as set forth on the Parent Disclosure Schedule appended to
this Agreement (the “Parent Disclosure Schedule”), Parent and Merger Sub,
jointly and severally, hereby represent and warrant to the Company as follows:

 

Section 4.1                                      Organization.

 

(a)                                  Each of Parent and
Merger Sub is duly organized, validly existing and in good standing as a
limited liability company under the laws of the State of Nevada and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. 
Each of Parent and Merger Sub has heretofore delivered to the Company
accurate and complete copies of its Articles of Organization and Operating
Agreement (if any) as currently in effect.

 

(b)                                 Each of Parent and
Merger Sub is duly qualified or licensed and in good standing to do business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a Parent Material
Adverse Effect.  The term “Parent
Material Adverse Effect” shall, for the purposes of this Agreement, mean

 

15

 

any change or effect that, individually or in the aggregate, is or is
reasonably likely to be materially adverse to the business, assets, operations,
results of operations, prospects or financial condition of Parent and Merger
Sub, taken as a whole, other than any changes or effects arising out of (i)
general economic conditions, (ii) the financial markets or (iii) the
entering into or the public disclosure of this Agreement or the transactions
contemplated hereby.

 

Section 4.2                                      Authority
Relative to this Agreement; Enforceability.  Each of Parent and Merger Sub has all necessary power and
authority as a limited liability company to execute and deliver this Agreement
and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement
by each of Parent and Merger Sub and the consummation by each of Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by the unanimous vote of its respective managers and members and no
other limited liability company proceedings on the part of either Parent or
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.  This
Agreement has been duly and validly executed and delivered by Parent and Merger
Sub and, assuming due authorization, execution and delivery by the Company,
constitutes the valid, legal and binding agreement of each of Parent and Merger
Sub enforceable against each of Parent and Merger Sub in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors’ rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.

 

Section 4.3                                      Information
Supplied.  None of the information
supplied by Parent or Merger Sub in writing for inclusion in the Proxy
Statement will, at the time that the definitive Proxy Statement is mailed to
the shareholders of the Company or (as amended or supplemented) at the time of
the Shareholders Meeting (and, if adjourned, at the time of each adjourned
meeting), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

 

Section 4.4                                      Consents and
Approvals; No Violations.

 

(a)                                  Except as set forth
in Section 4.4 of the Parent Disclosure Schedule with respect to the
gaming industry regulatory agencies referenced therein, and except for such
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act and state
securities or blue sky laws, and the filing of the Articles of Merger as
required by the MBCA and Chapter 92A of the NRS, no filing with or notice to,
and no permit, authorization, consent or approval of, any Governmental Entity
is necessary for the execution and delivery by either of Parent or Merger Sub
of this Agreement or the consummation by either of Parent or Merger Sub of the
transactions contemplated hereby, except where the failure to obtain 

 

16

 

such permits, authorizations, consents or approvals or to make such
filings or give such notices would not have a Parent Material Adverse Effect.

 

(b)                                 Neither the execution,
delivery and performance of this Agreement by either Parent or Merger Sub nor
the consummation by either Parent or Merger Sub of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the respective Articles of Organization or Operating Agreement (if
any) of either Parent or Merger Sub, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, lease, license, contract, agreement
or other instrument or obligation to which either Parent or Merger Sub is a
party or by which either of them or any of their respective properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to either of Parent or Merger Sub or any
of their respective properties or assets, except, in the case of (ii) or (iii),
for violations, breaches or defaults that would not have a Parent Material
Adverse Effect.

 

Section 4.5                                      Financing.  Parent has received a written financing commitment,
a copy of which has previously been delivered to the Company, in the amount of
$5.5 million from Cochran Road, LLC (the “Financing Commitment”), and shall
have sufficient funds available to pay the Initial Merger Consideration as of
the Effective Time.  As of the Effective
Time, Merger Sub shall, as the result of one or more capital contributions made
to it by Parent, have liquid assets and net worth in an amount equal to not
less than the amount of the Exchange Fund.

 

Section 4.6                                      No Litigation.  There is no suit, claim, action, proceeding
or investigation pending or, to the knowledge of either Parent or Merger Sub,
threatened, against either Parent or Merger Sub or any of their properties or
assets before any Governmental Entity or otherwise which would reasonably be
expected to have a Parent Material Adverse Effect or would reasonably be
expected to prevent or materially delay the consummation of the transactions
contemplated by this Agreement.  Neither
Parent nor Merger Sub is subject to any outstanding order, writ, injunction or
decree of any Governmental Entity that could reasonably be expected to have a
Parent Material Adverse Effect or would reasonably be expected to prevent or
materially delay the consummation of the transactions contemplated hereby.

 

Section 4.7                                      Brokers.  Other than Libra Securities, LLC, no broker,
finder or investment banker is entitled to any brokerage, finder’s or other fee
or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of either Parent or
Merger Sub.

 

Section 4.8                                      Beneficial
Ownership of Shares.  Except as set
forth in Section 4.8 of the Parent Disclosure Schedule and
Section 3.2 of the Company Disclosure Schedule, as of the date hereof,
none of Parent, Merger Sub, Johan P. Finley, Lona M. B. Finley and
Peter D. Cleary or any of their respective affiliates beneficially owns
(as defined in Rule 13d-3 promulgated under the Exchange Act) any outstanding
shares of Company

 

17

 

Common Stock, or any securities convertible into or exchangeable for
shares of Company Common Stock.

 

Section 4.9                                      Ownership of
Parent and Merger Sub; Holding of Excluded Shares.  As of the date hereof, Parent is the sole
owner of all of the issued and outstanding equity interests in Merger Sub, and
The Finley Family Trust, dated July 10, 2001, of which Johan P. Finley and
Lona M.B. Finley are the sole settlors, beneficiaries and trustees (the
“Trust”), is the owner of 25%, and Johan P. Finley is the owner of 75%, of the
issued and outstanding equity interests in Parent.  From and after the date hereof and prior to the Closing, Parent
will be the sole holder of an equity interest in Merger Sub, and no person
other than Johan P. Finley, the Trust and Peter D. Cleary will hold an equity
interest in Parent, or rights convertible into or exchangeable for an equity
interest in Parent (other than Jess M. Ravich, with respect to a debt
instrument to be issued to him by Johan P. Finley that is exchangeable into
equity interests in Parent owned by Mr. Finley upon the satisfaction of certain
conditions, including, without limitation, the obtaining by Mr. Ravich of all
required approvals from applicable gaming regulatory authorities).  Prior to the Closing, Johan P. Finley and
Lona M. B. Finley shall have transferred to Parent all of the issued and
outstanding shares of Company Common Stock beneficially owned or held of record
by them on the date of this Agreement, other than 60,200 shares of Company
Common Stock held of record by them in the capacity of custodian or trustee for
their minor children.

 

Section 4.10                                No Prior Activities
of Merger Sub.  Except for
obligations incurred in connection with its formation, organization and
financing or the negotiation and documentation of this Agreement and the
documents referenced herein and the consummation of the transactions
contemplated hereby, Merger Sub has neither incurred any obligation or
liability nor engaged in any business or activity of any type or kind
whatsoever or entered into any agreement or arrangement with any other person.

 

ARTICLE 5

COVENANTS

 

Section 5.1                                      Conduct of
Business.  

 

(a)                                  Conduct of
Business by the Company.  Except as
expressly set forth in this Agreement or as consented to in writing by Parent,
during the period from the date of this Agreement to the Effective Time, or
until the earlier termination of this Agreement pursuant to the terms of
Article 7 hereof, the Company shall use, and shall cause its subsidiaries
to use, reasonable commercial efforts to carry on their respective businesses
in the usual, regular and ordinary course, consistent with past practice and in
compliance in all material respects with all applicable laws and regulations,
and to preserve their current relationships with customers, vendors and
lenders.

 

(b)                                 Negative Covenants.  Without limiting the generality of the
foregoing, and except as expressly set forth in this Agreement or as consented
to in writing by Parent (which consent shall not be unreasonably withheld or
delayed), between the date of this Agreement and the Effective Time, or until
the earlier

 

18

 

termination of this Agreement pursuant to the terms of Article 7
hereof, the Company shall not, and shall not permit any of its subsidiaries to:

 

(i)                                     amend its Articles
of Incorporation or Bylaws (or other similar governing instruments);

 

(ii)                                  authorize for
issuance, issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other securities or equity equivalents (including, without limitation, any
stock options or stock appreciation rights), except for the issuance and sale
of shares of Company Common Stock pursuant to options previously granted;

 

(iii)                               split, combine or
reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, make any other actual,
constructive or deemed distribution in respect of its capital stock or
otherwise make any payments to shareholders in their capacity as such, or
redeem or otherwise acquire any of its securities or any securities of any of
its subsidiaries;

 

(iv)                              adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
subsidiaries (other than with respect to the Merger);

 

(v)                                 alter, through merger,
liquidation, reorganization, restructuring or any other fashion, the corporate
structure or ownership of any subsidiary, except that the Company may establish
one or more subsidiary companies to facilitate financing in the ordinary course
of business;

 

(vi)                              (A) incur or assume any
long-term or short-term debt (including, without limitation, obligations under
conditional sale or title retention agreements, obligations assumed as deferred
purchase price, capitalized lease obligations, obligations under swap or
hedging agreements, performance bonds or letters of credit) or issue any debt
securities, except in the ordinary course of business consistent with past
practice;  (B) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary course of business consistent with past practice;  (C) other than in the ordinary course of
business consistent with past practice, make any loans, advances or capital
contributions to or investments in any other person (including, without
limitation, subsidiaries of the Company and employees and customers of the
Company);  (D) pledge or otherwise
encumber shares of capital stock of the Company or its subsidiaries;  (E) mortgage or pledge any of its material
assets, tangible or intangible, or create any material Lien thereupon (other
than tax Liens for taxes not yet due), other than in the ordinary course of
business consistent with past practice; or (F) forgive any material debts owing
to the Company or its subsidiaries;

 

19

 

(vii)                           except as set forth in
Section 5.1 of the Company Disclosure Schedule or as may be required
by law, enter into, adopt, amend (except for immaterial or ministerial matters)
or terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any director, officer or employee
in any manner, or increase in any manner the compensation or fringe benefits of
any director, officer or employee, or pay any benefit not required by any plan
and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock appreciation rights or performance units);
provided, however, that this paragraph shall not prevent the Company or its
subsidiaries from entering into or terminating and settling employment
agreements, severance agreements or other compensation arrangements with
employees in the ordinary course of business and consistent with past practice;

 

(viii)                        except as set forth in Section 5.1 of
the Company Disclosure Schedule, acquire, sell, lease or dispose of any
material amount of assets in any single transaction or series of related
transactions, other than in the ordinary course of business consistent with
past practice;

 

(ix)                                except as may be required as a result of a
change in law or in GAAP, change any of the accounting principles or practices
used by it;

 

(x)                                   except as set forth in Section 5.1 of
the Company Disclosure Schedule, (A) acquire or agree to acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof or any equity interest
therein; (B) enter into any contract or agreement, other than in the ordinary
course of business consistent with past practice, that would be material to the
Company and its subsidiaries, taken as a whole; or (C)  authorize any new capital expenditure or
expenditures, other than in the ordinary course of business consistent with
past practice, provided that none of the foregoing shall limit any capital
expenditure required pursuant to existing contracts;

 

(xi)                                settle or compromise any pending or
threatened suit, action or claim (A) that relates to the transactions
contemplated hereby or (B) the settlement or compromise of which would result
in payments by the Company and its subsidiaries in the aggregate of $1,000,000
or more;

 

(xii)                             adopt a shareholder rights plan or any
similar plan or instrument or take any similar action that would have the
effect of impairing or delaying the consummation of the Merger;

 

(xiii)                          pay, discharge, or satisfy any material
claim, liability, or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the ordinary course of business
consistent with past practice, or fail to pay or otherwise

 

20

 

satisfy
(except if being contested in good faith) any material accounts payable,
liabilities, or obligations when due and payable;

 

(xiv)                         pay or incur any obligation to pay any fee
relating to the Merger to a broker, finder or investment banker, other than
TSC; or

 

(xv)                            agree in writing or otherwise to take any of the actions described in
this Section 5.1(b).

 

Section 5.2                                      Other
Potential Acquirors.  

 

(a)                                  During the period
commencing with the date of this Agreement and ending with the Effective Time
or earlier termination of this Agreement in accordance with the provisions of
Article 7 hereof, the Company shall not, and shall not permit any of its
subsidiaries to, nor authorize or permit any officer, director or employee of,
or any investment banker, attorney or other advisor or representative of, the
Company or any of its subsidiaries (“Representatives”) to, directly or
indirectly:  (i) solicit, initiate,
or encourage the submission of, any Takeover Proposal (as defined infra)
or any inquiries with respect thereto, or take any other action to facilitate
the making of, or that reasonably may be expected to lead to the making of, any
Takeover Proposal, (ii) engage in negotiations or discussions with, or furnish
any information or data to, or afford access to the properties, books or records
of the Company or its subsidiaries to, any third party relating to an actual or
potential Takeover Proposal, or (iii) enter into any agreement with respect to
any Takeover Proposal or recommend any Takeover Proposal.  For purposes of this Agreement, “Takeover
Proposal” means any written proposal or offer (whether or not delivered to the
Company’s shareholders generally) for a merger, consolidation,
recapitalization, liquidation, dissolution or similar transaction, purchase of
substantial assets, tender offer or other business combination involving the
Company or any of its subsidiaries, other than the transactions contemplated by
this Agreement, or any proposal or offer to acquire in any manner, directly or
indirectly, a substantial equity interest in, or a substantial portion of the
assets or business of, the Company or any of its subsidiaries, other than
pursuant to the transactions contemplated by this Agreement.

 

(b)                                 Notwithstanding
anything to the contrary contained in Section 5.2(a) hereof or otherwise
in this Agreement, and so long as the Company is otherwise in compliance with
the provisions of Section 5.2(a) hereof, if the Company and its Board of
Directors or the Special Committee prior to the Shareholders Meeting determine
in good faith after discussion with their respective counsel that a specific
unsolicited Takeover Proposal would likely result in a Superior Proposal (as
defined in Section 5.2(d) hereof), and the Board of Directors or the
Special Committee determines in good faith that the failure to participate in
discussions or negotiations with or to furnish information to the Potential
Acquiror (as defined infra), would be inconsistent with the Board of
Directors’ fiduciary duties to the Company’s shareholders under applicable law,
then the Company and its Board of Directors or Special Committee:  (i) may participate in discussions or
negotiations (including, as a part thereof, making any counterproposal they
deem appropriate) with and furnish information to any third party making such
Takeover Proposal (a “Potential Acquiror”), and (ii) may take and disclose to
the Company’s

 

21

 

shareholders a position with respect to any tender or exchange offer by
a third party in connection with such Takeover Proposal, and amend or withdraw
such position, pursuant to the requirements of Rules 14d-9 and 14e-2
promulgated under the Exchange Act.

 

(c)                                  Any non-public
information furnished by the Company to a Potential Acquiror pursuant to
Section 5.2(b) hereof shall be furnished pursuant to a confidentiality
agreement in form and substance reasonably acceptable to the Company.

 

(d)                                 Neither the Board of
Directors of the Company nor the Special Committee shall approve or recommend,
or propose to approve or recommend, or enter into any agreement (other than a
confidentiality agreement meeting the requirements of paragraph (c) supra)
with respect to, any Takeover Proposal unless the Board and the Special
Committee determine in good faith, after receiving advice from their financial
advisor(s), that such Takeover Proposal would, if completed in accordance with
its terms, result in a Superior Proposal. 
For purposes of this Agreement, “Superior Proposal” means a written
Takeover Proposal made by a third party: 
(i) which the Board of Directors of the Company and the Special
Committee determine, based on such matters as they reasonably deem pertinent,
including, without limitation, the likelihood of consummation, the relevant
trading markets, and the liquidity of any securities offered in connection with
the Takeover Proposal, is superior as compared with the Merger from a financial
point of view, and (ii) with respect to which, if the Takeover Proposal (x) is
subject to a financing condition or (y) involves consideration that is not
entirely cash or does not permit shareholders to receive the payment of the
offered consideration in respect of all shares at the same time (unless there
is a cash payment at closing of at least $2.61 per share), the Company’s Board
of Directors and the Special Committee have been furnished with the written
opinion of the financial advisor to the Special Committee that (in the case of
clause (x)) the Takeover Proposal is readily financeable and (in the case of
clause (y)) the Takeover Proposal provides a higher value per share, from a
financial point of view, than the consideration per share to be paid to the
Company’s shareholders pursuant to the Merger. 
Notwithstanding anything to the contrary in this Section 5.2, no
Takeover Proposal otherwise satisfying the criteria of a Superior Proposal
shall be deemed to be a Superior Proposal if the Potential Acquiror or, in the
case of an entity, any of its owners or key executives (collectively,
“Unlicensed Persons”), does not possess, at the time said Takeover Proposal is
made to the Company, all required regulatory licenses and approvals, including,
without limitation, gaming industry licenses and approvals from all gaming
regulators in all jurisdictions in which the Company and/or its affiliates then
conduct business, necessary in order for said Potential Acquiror to lawfully
conduct a business similar to that then conducted by the Company in each such
jurisdiction, unless the Special Committee affirmatively determines, prior to
the Company’s entering into any agreement (other than a confidentiality
agreement meeting the requirements of paragraph (c) supra) with the
Potential Acquiror with respect to said Takeover Proposal, that it is
significantly more probable than not that all such applicable licenses and
approvals will be obtained by all of the Unlicensed Persons prior to
September 1, 2004.

 

(e)                                  Except as provided in
this Section 5.2, neither the Board of Directors of the Company, nor the
Special Committee, shall (x) withdraw or modify, or

 

22

 

propose to withdraw or modify, in a manner adverse to Parent or Merger
Sub, the Board of Directors’ approval or recommendation of the Merger or this
Agreement, (y) approve any letter of intent, agreement in principle,
acquisition agreement or similar agreement (other than a confidentiality
agreement in connection with a potential Superior Proposal which is entered
into by the Company in accordance with Section 5.2(c) hereof) relating to
any Takeover Proposal, or (z) approve or recommend, or propose to approve or
recommend, any Takeover Proposal. 
Notwithstanding the foregoing or anything else to the contrary contained
in this Agreement, in response to a Superior Proposal which was not solicited
on or subsequent to the date of this Agreement by the Company, any of its
subsidiaries or any of the Representatives, and which did not otherwise result
from a breach of Section 5.2(a) hereof, the Board of Directors of the
Company may, subject to the immediately following two sentences, terminate this
Agreement pursuant to and subject to the terms of Section 7.1(g) hereof
and, concurrently with such termination, cause the Company to enter into an
agreement with a Potential Acquiror with respect to a Superior Proposal (a
“Superior Proposal Agreement”), but only if the Board of Directors of the
Company determines, after consultation with its counsel, that failure to
terminate this Agreement and accept the Superior Proposal would be inconsistent
with the fiduciary duties of the members of such Board of Directors to the
Company’s shareholders under applicable law. 
Such actions may be taken by the Company’s Board of Directors only if it
has delivered to Parent prior to or on the date of the Shareholders Meeting
written notice of the intent of the Company’s Board of Directors to take the
actions referred to in the preceding sentence, together with a copy of the
related Superior Proposal Agreement and a description of any terms of the
Takeover Proposal not contained therein. 
The Company’s Board of Directors shall not terminate this Agreement and
enter into a Superior Proposal Agreement pursuant to this Section 5.2(e)
until the end of the third business day following delivery of such notice to
Parent, after which, the Company’s Board of Directors, taking into account such
matters as they deem pertinent (including, without limitation, the likelihood
of consummation, the relevant trading markets, and the liquidity of any
securities offered in connection with the Takeover Proposal, as well as any
indications from Parent that it will make an alternative proposal), may proceed
with such Superior Proposal and enter into a Superior Proposal Agreement with
the Potential Acquiror in connection therewith.

 

(f)                                    The Company
promptly, and in any event within 48 hours, shall advise Parent orally and in
writing of the submission of any Takeover Proposal, the identity of the person
making any such Takeover Proposal and the material terms of any such Takeover
Proposal; provided, however, that Parent shall not interfere with the Company,
the Board of Directors of the Company or the Special Committee with respect to
any such Takeover Proposal (including any deliberations related to any such
Takeover Proposal or any matter related thereto).  The Company shall keep Parent fully informed of the status and
material terms of any such Takeover Proposal.

 

Section 5.3                                      Preparation of
Proxy Statement; Shareholders Meeting.  

 

(a)                                  As promptly as
reasonably practicable after the execution of this Agreement, the Company shall
file the Proxy Statement with the SEC. 
The Company shall obtain and furnish the information required to be
included in the Proxy Statement 

 

23

 

and shall respond promptly to any comments made by the SEC with respect
to the preliminary Proxy Statement and cause the definitive Proxy Statement and
form of proxy to be mailed to the Company’s shareholders at the earliest
practicable date, subject to the provisions of Section 5.3(c) hereof.  Parent shall be responsible for preparing
the first draft of the Proxy Statement and delivering it to the Company not
later than April 25, 2004, shall otherwise cooperate in the preparation of
the Proxy Statement and shall furnish the Company with all information relating
to it and Merger Sub for inclusion in the Proxy Statement as the Company may
reasonably request.  The Company agrees,
as to information with respect to the Company, its officers, directors,
shareholders and subsidiaries contained in the Proxy Statement, and Parent
agrees, as to information with respect to Parent and Merger Sub and their
managers, members and officers contained in the Proxy Statement, that such
information, at the date the definitive Proxy Statement is mailed to the
shareholders of the Company and (as amended or supplemented) at the time of the
Shareholders Meeting (and, if adjourned, at the time of each adjourned
meeting), will not be false or misleading with respect to any material fact, or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.  Parent and its
counsel shall be given the opportunity to review the Proxy Statement and all
amendments and supplements thereto prior to their being filed with the SEC, and
the Company shall not make any such filing without consulting with Parent and
including such modifications as Parent reasonably requests.  The Company will advise Parent, promptly
after it receives notice thereof, of the time when the Proxy Statement has been
cleared by the SEC or any request by the SEC for an amendment of the Proxy
Statement or comments from the SEC thereon and proposed responses thereto or
requests by the SEC for additional information, and Company shall timely
furnish copies thereof to Parent.  The
Company, on the one hand, and Parent, on the other hand, agree to promptly
correct any information provided by said party for use in the Proxy Statement,
if and to the extent that it shall have become materially false or misleading,
and the Company further agrees to take all steps reasonably necessary to cause
the Proxy Statement as so corrected to be filed promptly with the SEC and to
use all reasonable efforts to cause the definitive Proxy Statement to be
disseminated to the Company’s shareholders, in each case, as and to the extent
required by applicable laws, rules and regulations.

 

(b)                                 Parent and its
affiliates (to the extent required by law) shall prepare, together with the
Company, a Rule 13E-3 Transaction Statement on Schedule 13E-3 (together
with all supplements and amendments thereto, the “Schedule 13E-3”) with
respect to the transactions contemplated by this Agreement, and shall cause the
Schedule 13E-3 to be filed with the SEC concurrently with the filing of
the Proxy Statement.  The Company shall
promptly furnish to Parent all information concerning the Company as may
reasonably be requested by Parent in connection with the preparation of the
Schedule 13E-3.  The Company shall
promptly supplement, update and correct any information provided by it for use
in the Schedule 13E-3, if and to the extent that such information is or
shall have become incomplete, false or misleading.  In any such event, Parent shall take all reasonable steps
necessary to cause the Schedule 13E-3 as so supplemented, updated or
corrected to be filed with the SEC and Parent and Company shall take all
reasonable steps to cause same to be disseminated to the holders of Company
Common Stock, in each case, as and to the extent required by applicable

 

24

 

federal securities laws.  The
Company and its counsel shall be given an opportunity to review and comment on
the Schedule 13E-3 and each supplement, amendment or response to comments
by the staff of the SEC with respect thereto prior to its being filed with or
delivered to the SEC and Parent shall consider any such comments in good
faith.  Parent agrees to provide the
Company and its counsel with copies of any comments that Parent or its counsel
may receive from the staff of the SEC concerning the Schedule 13E-3
promptly after receipt thereof.

 

(c)                                  As soon as reasonably
practicable following the clearance of comments from the staff of the SEC
regarding the Proxy Statement, the Company shall call and hold the Shareholders
Meeting, which shall be the Company’s Annual Shareholders Meeting for 2004, for
the purpose of obtaining the Two-Tiered Shareholder Approval of the Merger
Voting Items, and transacting such other Company business as is appropriate for
the Company’s 2004 Annual Shareholders Meeting.  The notice of the Shareholders Meeting mailed to the Company’s
shareholders shall be accompanied by a copy of the definitive Proxy Statement,
and shall be mailed to the Company’s shareholders not less than twenty days
prior to the date of the Shareholders Meeting. 
The Company, through its Board of Directors, shall recommend to its
shareholders approval of the Merger Voting Items, provided, however, that the
Company’s Board of Directors may withdraw, modify or amend its recommendation
if it shall determine in the reasonable and customary exercise of its fiduciary
duties to the Company’s shareholders under applicable law that such
recommendation should not be made. 
After the delivery to the Company’s shareholders of copies of the
definitive Proxy Statement, the Company shall use its reasonable best efforts
to solicit proxies from its shareholders in connection with the Shareholders
Meeting, and otherwise to secure the vote or consent of its shareholders in
favor of each of the Merger Voting Items, in each case, conformably with
applicable laws, rules and regulations, unless the Company’s Board of Directors
shall determine in good faith, in the reasonable and customary exercise of its
fiduciary duties to the Company’s shareholders under applicable law, that such
solicitation should not be made.  In the
event that the Shareholders Meeting is adjourned one or more times, references
in this paragraph and elsewhere in this Agreement to “the Shareholders Meeting”
shall be deemed to apply, mutatis  mutandis, to each adjourned
meeting.

 

Section 5.4                                      Access to
Information; Confidentiality.  Upon
request by Parent and permission granted by the Company, which shall not be
unreasonably withheld or delayed, the Company shall, and shall cause its
subsidiaries to, afford Parent and its lenders and other investors, and the
officers, employees, managers, accountants, counsel, financial advisors and
other representatives of Parent and its lenders and other investors, reasonable
access, during normal business hours during the period prior to the Effective
Time, and in a manner reasonably designed to minimize disruption to the
operations of the Company and its subsidiaries, to all their respective
personnel, properties, books, contracts, agreements, commitments, Tax returns
and records and, during such period, the Company shall, and shall cause each of
its subsidiaries to, furnish promptly to Parent (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws and
(b) all other information concerning its business, properties and
personnel as Parent may reasonably request. 
Except as required by law, Parent will hold, and will cause its

 

25

 

lenders and other investors and their respective officers, employees,
managers, accountants, counsel, financial advisers and other representatives
and affiliates to hold, as confidential any such information disclosed by the
Company or its subsidiaries pursuant to this Section 5.4 as is
non-public.  Such access shall be
terminated upon termination of this Agreement in accordance with the provisions
of Article 7 hereof.

 

Section 5.5                                      Reasonable
Efforts; Notification.  

 

(a)                                  Each of the Company
and Parent agrees (and shall cause their respective subsidiaries) to use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate the transactions
contemplated by this Agreement, including, without limitation: (i) the securing
of all Governmental Approvals (as defined in Section 5.12 hereof) in
accordance with the provisions of Section 5.12 hereof, (ii) the obtaining
of all necessary actions or nonactions, licenses, consents, approvals or
waivers from third parties other than Governmental Entities, (iii) the
execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully effectuate the purposes of, this
Agreement and (iv) the defending of any lawsuits or other legal proceedings,
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby, including the exerting of all reasonable
efforts necessary to lift, rescind or mitigate the effect of any injunction or
restraining order or other order adversely affecting the ability of any party
hereto to consummate the transactions contemplated hereby.  Parent hereby agrees to use its commercially
reasonable best efforts to complete the financing contemplated by, and on
substantially the terms set forth in, the Financing Commitment.  In the event that such financing is or
becomes unavailable, Parent shall exert reasonable efforts to obtain
alternative financing on substantially the same terms set forth in the
Financing Commitment or on other commercially reasonable terms.

 

(b)                                 The Company shall give
prompt written notice to Parent, and Parent shall give prompt written notice to
the Company, of (i) any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate in any Material Respect (as defined in
Section 8.3(c) hereof and employed consistently throughout this
Agreement), (ii) the failure by it to comply with or satisfy in any Material
Respect any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement, or (iii) the occurrence of an event or events
which, individually or in the aggregate, is reasonably likely to have a Company
Material Adverse Effect, or Parent Material Adverse Effect, as applicable.  The Company shall give prompt written notice
to Parent (i) of the commencement of, or, to the extent the Company has
knowledge thereof, the threat of, any litigation involving or affecting the
Company or any subsidiary, or any of their respective properties or assets, or,
to the Company’s knowledge, any employee, agent, director or officer of the
Company or any subsidiary, in his or her capacity as such, which, if pending on
the date hereof, would have been required to have been disclosed by the Company
in or pursuant to this Agreement and (ii) of any material development in
connection with any litigation disclosed by the Company in or pursuant to this
Agreement or in the Company SEC Reports. 
Each of Parent and the Company hereby represents that, as of the date
hereof, it does not have any actual knowledge of a breach of

 

26

 

 

the representations and warranties being made by such other party in or
pursuant to this Agreement.

 

Section 5.6                                      Stock Options.  Each Stock Option outstanding pursuant to
the Stock Option Plans or otherwise, whether or not then exercisable, shall be
canceled as of the Effective Time and thereafter only entitle the holder
thereof, upon surrender thereof, to receive the amount specified in
Section 1.7 hereof, which cancellation shall be in accordance with the terms
of the Stock Option and the applicable Stock Option Plan.  Prior to the Effective Time, the Company
shall mail to each person who is a holder of outstanding Stock Options granted
pursuant to the Stock Option Plans or otherwise a letter in a form reasonably
acceptable to Parent which describes the treatment of and payment for such
options pursuant to Section 1.7 hereof and this Section 5.6 and
provides instructions for use by the optionee in obtaining payment for such
options hereunder.

 

Section 5.7                                      Takeover
Statutes; Inconsistent Actions.  If
any “fair price,” “moratorium,” “control share,” “business combination,”
“shareholder protection” or similar or other anti-takeover statute or
regulation (including, without limitation, Sections 302A.671, 302A.673 and
302A.675 of the MBCA) shall become applicable to the Merger or any of the other
transactions contemplated hereby, as impediments to the consummation thereof,
the Company and the Board of Directors of the Company shall grant such
approvals and use their reasonable best efforts to take all such actions so
that the Merger and the other transactions contemplated hereby may be
consummated on the terms contemplated hereby and otherwise eliminate to the
extent practicable the effects of such statute or regulation on the Merger and
the other transactions contemplated hereby.

 

Section 5.8                                      Indemnification;
Exculpation.

 

(a)                                  All rights to
indemnification, expense advancement and exculpation existing in favor of any
present or former director or officer of the Company or any of its subsidiaries
(each, an “Indemnified Person”), as provided in the Articles of Incorporation,
Bylaws or similar organizational documents of the Company or any of its
subsidiaries or by law as in effect on the date hereof, will survive the Merger
for a period of four (4) years after the Effective Time (or, in the event any
relevant claim is asserted or made within such four-year period, until final
disposition of such claim) with respect to matters occurring at or prior to the
Effective Time (including actions with respect to the consummation of the
transactions contemplated by this Agreement), and no action taken by the
Surviving Corporation or any other person during such period will be deemed to
diminish the obligations of the Surviving Corporation set forth in this
Section 5.8(a).  Parent hereby
guarantees the payment and performance of the Surviving Corporation’s
obligations set forth in this Section 5.8(a).  Each Indemnified Person is intended to be a third party
beneficiary of this Section 5.8(a) and may specifically enforce its
terms.  This Section 5.8(a) shall
not limit or otherwise adversely affect any rights any Indemnified Person may
have under any separate agreement with the Company or under the Company’s
Articles of Incorporation or Bylaws.

 

(b)                                 The obligations of
Parent and the Surviving Corporation contained in this Section 5.8 shall
be binding on the respective successors and assigns of Parent and

 

27

 

the Surviving Corporation.  If
Parent, the Surviving Corporation or any of their successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or organization of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of Parent or the Surviving Corporation, as the
case may be, shall assume the obligations set forth in this Section 5.8.

 

Section 5.9                                      Fees and
Expenses.  Except as expressly
provided in Section 7.5 and Section 8.12 hereof, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.  The Company
shall not pay any such costs and expenses as may be incurred by any individual
shareholder of the Company in his, her or its capacity as such.

 

Section 5.10                                Public Announcements.  Parent and Merger Sub, on the one hand, and
the Company, on the other hand, will not issue any press release or other
public statements with respect to the transactions contemplated by this
Agreement, including the Merger, without first obtaining the prior consent of
the other party; provided, however, that in the event of any press release that
may be required by applicable law, court process, or by obligations pursuant to
any listing agreement with the NASDAQ SmallCap Market, the parties will exert
reasonable best efforts to consult with each other before issuing, and to
provide each other an advance opportunity to review and comment upon, any such
press release or other public statement.

 

Section 5.11                                Officer and Director
Insurance.  Prior to the Effective
Time, the Company shall procure appropriate “tail insurance coverage” to cover
the Company’s current officers and directors for claims based on conduct
occurring prior to the Effective Time, but made after such time, which coverage
shall be substantially similar to the officer and director liability coverage
currently maintained by the Company. 
The Surviving Corporation shall maintain such coverage for a period of
not less than four (4) years following the Effective Date or, in the event such
coverage is not available for such four-year period, such maximum lesser period
as is available, but not for less than three years.  The Surviving Corporation shall take no action that would lead to
the termination or modification of such coverage prior to the expiration of
such tail period.  Notwithstanding the
foregoing, in the event that the aggregate amount of the annual premiums for
the coverage otherwise required pursuant to this Section 5.11 exceeds 175%
of the amount of the annual premium paid as of the date hereof by the Company
for such coverage or equivalent coverage, the Surviving Corporation shall use
all reasonable efforts to maintain the most advantageous policies of tail
insurance coverage obtainable for annual premiums equal in aggregate to no more
than 175% of the amount of the annual premium paid as of the date hereof by the
Company for such coverage.

 

Section 5.12                                Governmental
Approvals.  Each of Parent and the
Company shall exert reasonable efforts to promptly prepare and file all
necessary documentation to effect all applications, notices, petitions and
filings, in order to obtain as promptly as practicable all permits,
registrations, licenses, findings of suitability, consents, variances,

 

28

 

exemptions, orders, approvals and authorizations of all Governmental
Entities which are necessary or advisable to consummate the transactions
contemplated by this Agreement (the “Governmental Approvals”), and shall file
initial applications and documents related to all such Governmental Approvals
within such time as is necessary for such Governmental Approvals to be granted
on or before the Closing Date, and shall act reasonably and promptly thereafter
in responding to additional requests made by the applicable Governmental
Entities in connection therewith.

 

Section 5.13                                Voting Agreement.  Parent hereby agrees that at the
Shareholders Meeting, and at any other meeting of the Company’s shareholders,
however called, and in any action by consent of the shareholders of the
Company, occurring prior to the Effective Time, it shall, and shall cause its
affiliates that own any Company Common Stock to, vote, (i) in favor of the
Merger Voting Items, and (ii) against any proposal for any recapitalization,
merger, sale of assets or other business combination between the Company and
any person or entity, other than the Merger, or any action or agreement that
would result in the breach of any covenant, representation or warranty or any
other obligation or agreement of the Company under this Agreement, or which
would result in any of the conditions to the Company’s obligations under this
Agreement not being fulfilled, provided that, notwithstanding the foregoing,
Parent and its affiliates that own any Company Common Stock shall be entitled
to vote in favor of a Superior Proposal.

 

Section 5.14                                Indemnification by
Company.  The Company shall
indemnify Parent and Merger Sub, and each of their current and former managers,
members, officers, directors, employees, agents and representatives
(individually, an “Indemnitee,” and, collectively, the “Indemnitees”), to the
fullest extent permitted by applicable law, but only with respect to any actual
out-of-pocket costs or expenses, including judgment awards and amounts paid in
settlement, incurred by an Indemnitee directly in connection with the defense
of any claim asserted against an Indemnitee which is directly based on an
allegation that an Indemnitee has induced or acted in concert with the Company
or any of its directors to act contrary to or in violation of any duty under
applicable law, to which the Company and any of its directors are subject, to
the extent, but only to the extent, such allegation directly relates to the
negotiation, execution, delivery or performance of this Agreement by the
parties hereto (an “Indemnifiable Matter”). 
Promptly after receipt by an Indemnitee of notice of the assertion of
any claim or the commencement of any action against such Indemnitee in respect
to which indemnity or reimbursement may be sought under this Section 5.14
(an “Assertion”), such Indemnitee shall notify the Company in writing of the
Assertion, but the failure to so notify shall not relieve the Company of any
liability it may have to such Indemnitee hereunder except to the extent that
such failure shall have actually prejudiced the Company in defending against
such Assertion.  In the event that
following receipt of notice from the Indemnitee, the Company notifies the
Indemnitee that the Company desires to defend the Indemnitee against such
Assertion, the Company shall have the right to defend the Indemnitee by
appropriate proceedings and shall have the sole power to direct and control
such defense.  If any Indemnitee desires
to participate in any such defense it may do so at its sole cost and expense;
provided that if the defendants in any such action shall include the Company
and/or its officers or directors as well as an Indemnitee and such Indemnitee
shall have received the written advice of counsel that there exist defenses
available to

 

29

 

such Indemnitee that are materially different from those available to
the Company and/or such officers or directors, the Indemnitee shall have the
right to select one separate counsel (and one local counsel in such
jurisdictions as are necessary) reasonably acceptable to the Company to
participate in the defense of such action on its behalf, at the expense of the
Company.  If any Indemnitee retains such
counsel, then, to the extent permitted by law, the Company shall periodically
advance to such Indemnitee its reasonable legal and other out-of-pocket
expenses relating to the Indemnifiable Matter (including the reasonable cost of
any investigation and preparation incurred in connection therewith).  No Indemnitee shall settle any Assertion
without the prior written consent of the Company (which consent shall not be
unreasonably withheld or delayed), nor shall the Company settle any Assertion
in which an Indemnitee is named as a defendant without either (i) the written
consent of all Indemnitees against whom such Assertion was made (which consents
shall not be unreasonably withheld or delayed), or (ii) obtaining an
unconditional general release from the party making the Assertion for all
Indemnitees as a condition of such settlement. 
The provisions of this Section 5.14 are intended for the benefit
of, and shall be enforceable by, the respective Indemnitees.

 

Section 5.15                                Retention of Proxy
Solicitation Firm.  The Company
hereby agrees to retain, promptly after the filing of the preliminary Proxy
Statement with the SEC, Integrated Corporate Relations, Inc., or a national
proxy solicitation/shareholder relations firm of comparable stature, to assist
the Company in the solicitation of proxies to be voted at the Shareholders
Meeting.

 

ARTICLE 6

CONDITIONS PRECEDENT

 

Section 6.1                                      Conditions to
Each Party’s Obligations to Effect the Merger.  The respective obligation of each party hereto to effect the
Merger is subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:

 

(a)                                  Shareholder
Approval.  The Two-Tiered
Shareholder Approval shall have been obtained with respect to each of the
Merger Voting Items.

 

(b)                                 No Injunctions or
Restraints.  No litigation brought
by a Governmental Entity shall be pending, and no litigation shall be
threatened by any Governmental Entity, which seeks to enjoin or prohibit the
consummation of the Merger, and no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.

 

(c)                                  Consents and
Approvals.  All licenses, permits,
consents, approvals, waivers, findings of suitability, authorizations,
qualifications and orders of, and all declarations, registrations and filings
with, all Governmental Entities and other third parties as are required in
connection with the Merger and the consummation of the transactions
contemplated hereby, including, without limitation, the Governmental Approvals,
shall have been obtained or made, as applicable, by the Company or Parent and
shall be in full force and effect.

 

30

 

Section 6.2                                      Additional
Conditions to Obligations of Parent and Merger Sub.  The obligations of Parent and Merger Sub to
effect the Merger and to consummate the other transactions contemplated hereby
are also subject to the following conditions, any of which may be waived in the
sole and absolute discretion of Parent:

 

(a)                                  Representations
and Warranties.  The representations
and warranties of the Company set forth in this Agreement shall be true and
correct in all Material Respects as of the date of this Agreement, and shall be
true and correct in all Material Respects as of the Closing Date as though made
on and as of the Closing Date (provided that those representations and
warranties which address matters only as of a particular date shall remain true
and correct in all Material Respects as of such date), and Parent shall have
received a certificate of an executive officer of the Company to that effect.

 

(b)                                 Agreements and
Covenants.  The Company shall have
performed or complied in all Material Respects with all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Closing Date, and Parent shall have received a certificate of
an executive officer of the Company to that effect.

 

(c)                                  Certificates and
Other Deliveries.  The Company shall
have delivered, or caused to be delivered, to Parent (i) a certificate of good
standing from the Secretary of State of the State of Minnesota and of
comparable authority in other jurisdictions in which the Company and its
subsidiaries are incorporated or qualified to do business stating that each is
a validly existing corporation in good standing therein; (ii) duly adopted
resolutions of the Board of Directors of the Company and the Special Committee
unanimously approving the execution, delivery and performance by the Company of
this Agreement and the instruments contemplated hereby, certified by the
Secretary of the Company; (iii) a report of the inspector(s) of election of the
Shareholder Meeting certifying that each of the Merger Voting Items has been approved
by the Two-Tiered Shareholder Approval and (iv) a true and complete copy of the
Articles of Incorporation or comparable governing instruments, as amended, of
the Company and its subsidiaries certified by the Secretary of State of the
state of incorporation or comparable authority in other jurisdictions, and a
true and complete copy of the Bylaws or comparable governing instruments, as
amended, of the Company and its subsidiaries certified by the Secretary of the
Company and its subsidiaries, as applicable.

 

(d)                                 No Company Material
Adverse Effect.  From the date of
this Agreement through and including the Effective Time, no event or events
shall have occurred which, individually or in the aggregate, have a Company
Material Adverse Effect.

 

(e)                                  Dissenting Shares.  Written notices of intent to demand the fair
value of their shares of Company Common Stock, pursuant to
Section 302A.473 of the MBCA, shall not have been filed with the Company
for more than five percent (5%) of the shares of Company Common Stock
outstanding on the date of the Shareholder Meeting.

 

31

 

Section 6.3                                      Additional
Conditions to Obligations of the Company. 
The obligations of the Company to effect the Merger and to consummate
the other transactions contemplated hereby are also subject to the following
conditions, any of which may be waived in the sole and absolute discretion of
the Company:

 

(a)                                  Representations
and Warranties.  The representations
and warranties of Parent and Merger Sub set forth in this Agreement shall be
true and correct in all Material Respects as of the date of this Agreement, and
shall be true and correct in all Material Respects as of the Closing Date as
though made on and as of the Closing Date (provided that those representations
and warranties which address matters only as of a particular date shall remain
true and correct in all Material Respects as of such date), and the Company
shall have received a certificate of the Manager of Parent to that effect.

 

(b)                                 Agreements and
Covenants.  Parent and Merger Sub
shall have performed or complied in all Material Respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and the Company shall have received a
certificate of the Manager of Parent to that effect.

 

(c)                                  Opinion of
Financial Advisor.  The Special
Committee shall have received an opinion of TSC to the effect that, as of the
date of execution of this Agreement, the Merger Consideration to be received by
the Company’s shareholders (other than the holders of the Excluded Shares) is
fair to such shareholders from a financial point of view.

 

ARTICLE 7

TERMINATION, AMENDMENT AND WAIVER

 

Section 7.1                                      Termination.  This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Shareholders Meeting:

 

(a)                                  by mutual written
consent of the Company and Parent, if the Board of Directors of the Company and
the Manager of Parent so determine for any reason;

 

(b)                                 by Parent (provided
that neither Parent nor Merger Sub is then in Material Breach (as defined infra
in this Section 7.1 and employed consistently throughout this Agreement)
of any representation, warranty, covenant or agreement contained herein), upon
a Material Breach of any representation, warranty, covenant or agreement on the
part of the Company set forth in this Agreement, continuing (except in the case
of the covenants of the Company in Section 5.2(a) hereof, for which no
cure period shall be permitted) for thirty (30) days following notice to the
Company by Parent of such Material Breach and of a nature such that the
conditions set forth in Section 6.2(a) or 6.2(b), as the case may be,
would be incapable of being satisfied by the then scheduled Outside Date (as
defined infra in this Section 7.1 and employed consistently
throughout this Agreement);

 

(c)                                  by the Company
(provided that the Company is not then in Material Breach of any
representation, warranty, covenant or agreement contained

 

32

 

herein), upon a Material Breach of any representation, warranty,
covenant or agreement on the part of either Parent or Merger Sub set forth in
this Agreement, continuing (except for the representations and warranties of
Parent and Merger Sub contained in Section 4.5 hereof, for which no cure
period shall be permitted) for thirty (30) days following notice to Parent by
Company of such Material Breach and of a nature such that the conditions set
forth in Section 6.3(a) or Section 6.3(b), as the case may be, would
be incapable of being satisfied by the then scheduled Outside Date;

 

(d)                                 by either Parent or
the Company, if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the consummation of the Merger and such order, decree or
ruling or other action shall have become final and nonappealable;

 

(e)                                  by either Parent or
the Company, if the Merger shall not have occurred by October 31, 2004
(including as may be extended pursuant to the provisions of this
subsection (e), the “Outside Date”), unless the failure to consummate the
Merger is the result of a breach of any covenant or agreement set forth in this
Agreement or a Material Breach of any representation or warranty set forth in
this Agreement by the party seeking to terminate this Agreement, provided that
either Parent or the Company may extend the Outside Date, but no more than
three times in the aggregate, and each time by no more than one month, but in
no event beyond January 31, 2005, by providing written notice of such
extension to the other party between three (3) and five (5) business days prior
to the next scheduled Outside Date, if (i) the Merger shall not have been consummated
by such date because the requisite Governmental Approvals required under
Section 6.1(c) of this Agreement have not been obtained and are still
being pursued, and (ii) the party requesting such extension has satisfied all
the conditions to Closing required to be satisfied by it and has not violated
any of its obligations under this Agreement in a manner that was the cause of
or resulted in the failure of the Merger to occur on or before the Outside
Date; upon any such extension, the right of Parent or the Company to terminate
this Agreement pursuant to this paragraph (e) shall be suspended until the next
scheduled Outside Date;

 

(f)                                    by Parent, if the
Board of Directors of the Company (i) withdraws or modifies adversely its
recommendation of the Merger following the receipt by the Company of a Takeover
Proposal, or (ii) recommends a Takeover Proposal to the Company’s shareholders,
provided that any disclosure that the Board of Directors of the Company is
compelled to make with respect to the receipt of a Takeover Proposal in order
to comply with its fiduciary duties or the requirements of Rules 14d-9 or 14e-2
promulgated under the Exchange Act shall not constitute the withdrawal or an
adverse modification of such Board’s recommendation, so long as the Company has
otherwise complied in all Material Respects with Section 5.2 hereof;

 

(g)                                 by the Company, if, as
the result of a Superior Proposal, the Board of Directors of the Company
determines, in its good faith judgment and in the exercise of its fiduciary
duties to the Company’s shareholders under applicable law, that the failure to
terminate this Agreement and accept such Superior Proposal would be
inconsistent

 

33

 

with such fiduciary duties, and the Company has otherwise complied in
all material respects with Section 5.2 hereof; or

 

(h)                                 by Parent, if prior to
the Shareholders Meeting, any other person (including a syndicate or group as
described in Section 13(d)(3) of the Exchange Act) acquires more than 20%
of the issued and outstanding shares of Company Common Stock at an average
value per share in excess of $2.61.

 

For purposes of Sections 7.1(b), (c) and (e) hereof, “Material Breach”
shall mean, with respect to any representation, warranty, covenant or agreement
contained herein, a breach or violation thereof in any Material Respect.

 

Section 7.2                                      Effect of
Termination.  In the event of
termination of this Agreement by either the Company or Parent as provided in
Section 7.1, this Agreement shall forthwith become void and have no
effect, without any liability or obligation on the part of Parent, Merger Sub
or the Company or their respective officers, directors or managers, except as
set forth in the penultimate sentence of Section 5.4, Section 5.9,
Section 5.14, Section 7.5 and Article 8, all of which shall
survive such termination, and except to the extent that such termination
results from the willful breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.

 

Section 7.3                                      Amendment.  This Agreement may be amended by the parties
at any time before or after approval hereof by the shareholders of the Company;
provided, however, that after such shareholder approval there shall not be made
any amendment that by law requires further approval by the shareholders of the
Company without the further approval of such shareholders.  This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties.

 

Section 7.4                                      Extension;
Waiver.  At any time prior to the
Effective Time, a party may, subject to the provisions of Section 7.3
hereof, (a) extend the time for or waive the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) waive compliance
with any of the agreements or conditions contained in this Agreement.  Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing, signed on behalf of such party. 
The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of those
rights.

 

Section 7.5                                      Termination
Fee; Expense Reimbursement.

 

(a)                                  The Company agrees
that in order to compensate Parent and Merger Sub for the direct and
substantial damages suffered by them in the event of termination of this
Agreement under certain circumstances, which damages cannot be determined with
reasonable certainty, the Company shall pay to Parent a termination fee on the
following terms and conditions (the “Termination Fee”):  (i) if this Agreement is terminated by the
Company pursuant to Section 7.1(g), or by Parent pursuant to
Section 7.1(f)

 

34

 

or Section 7.1(h), the Company shall pay to Parent, concurrently
with such termination, a Termination Fee in an amount equal to the sum of (x)
$500,000 and (y) the amount of Parent’s and Merger Sub’s reasonable
professional and advisory fees and other out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement and the
financing thereof, and not previously paid by the Company as contemplated by
Section 8.12 hereof; and (ii) if this Agreement is terminated by either
the Company or Parent pursuant to any other clause of Section 7.1, the
Company shall pay to Parent, concurrently with such termination, a Termination
Fee equal to the amount, up to an aggregate maximum of $500,000, of Parent’s
and Merger Sub’s reasonable professional and advisory fees and other
out-of-pocket expenses incurred in connection with the transactions
contemplated by this Agreement and the financing thereof, and not previously
paid by the Company as contemplated by Section 8.12 hereof.

 

(b)                                 All payments under
this Section 7.5 shall be made by wire transfer of immediately available
funds to an account designated by Parent to the Company.

 

(c)                                  The Company
acknowledges that the agreements contained in this Section 7.5 are an
integral part of the transactions contemplated by this Agreement, and that
without these agreements Parent and Merger Sub would not enter into this Agreement.  Accordingly, if the Company fails to
promptly pay to Parent any amounts owing pursuant to this Section 7.5 when
due, the Company shall in addition thereto pay to Parent all costs and expenses
(including fees and disbursements of counsel) incurred in collecting such
amounts, together with interest on such amounts (or any unpaid portion thereof)
from the date such payment was required to be made until the date such payment
is received by Parent at the prime rate as in effect from time to time during such
period as published in the Wall Street Journal.  Payment of the Termination Fee described in this Section 7.5
shall constitute the sole and exclusive remedy of Parent and Merger Sub against
the Company for any damages suffered or incurred by either of them in
connection with a termination of this Agreement, except for a termination due
to the Company’s willful breach of its obligations under this Agreement.  It is specifically agreed by all the parties
hereto that the amount to be paid to Parent pursuant to this Section 7.5
represents reasonable liquidated damages and is not a penalty.

 

ARTICLE 8

GENERAL PROVISIONS

 

Section 8.1                                      Nonsurvival of
Representations and Warranties. 
Except as provided in Section 7.2 hereof in connection with the
termination of this Agreement, none of the representations, warranties,
covenants and agreements contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the termination of this
Agreement or the Effective Time, as applicable.  Notwithstanding the foregoing, this Section 8.1 shall not
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.

 

Section 8.2                                      Notices.  All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, sent by overnight courier (with proof of
delivery) or transmitted by

 

35

 

facsimile (with machine confirmation) to the parties addressed as
follows (or at such other address for a party as shall be specified by like
notice), effective, respectively, on (i) the date of personal delivery, (ii)
the date so delivered by overnight courier, or (iii) the date so transmitted by
facsimile:

 

(a)                                  if to Parent or
Merger Sub, to:

 

PDS Holding Co.

6171 McLeod Drive

Las Vegas, Nevada  89120-4048

Attention:  Johan P. Finley

Facsimile:  (702) 740-8696

 

with a copy to:

 

Bryan Cave LLP

120 Broadway, Suite 300

Santa Monica, CA 90401-2386

Facsimile:  (310) 576-2200

Attention:  Brian A. Sullivan, Esq.

 

(b)                                 if to the Company, to:

 

PDS Gaming Corporation

6171 McLeod Drive

Las Vegas, Nevada 89120-4048

Attention:  Chairman, Special Committee
of the Board of Directors

Facsimile:  (702) 740-8696

 

with a copy to:

 

Dorsey & Whitney LLP

50 South Sixth Street, Suite 1500

Minneapolis, Minnesota 55402-1498

Attention:  Jack Kramer, Esq.

Facsimile:  (612) 340-2868

 

Section 8.3                                      Definitions.  For purposes of this Agreement:

 

(a)                                  an “affiliate” of any
person means another person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first person;

 

(b)                                 “knowledge” means
actual awareness of a fact, event, circumstance or occurrence, or such
awareness thereof as would be reasonable to impute to an executive officer of a
comparable company with comparable responsibilities by virtue of such
responsibilities, by any of the executive officers of the Company or Parent, as
the case may be;

 

36

 

(c)                                  “Material Respect”
shall mean (i) when used in connection with a representation, warranty,
covenant, agreement or condition to be complied with or satisfied by the
Company or Parent or Merger Sub, as the case may be, that is qualified by
materiality or by Company Material Adverse Effect or Parent Material Adverse
Effect, as the case may be, any respect (taking into account such
qualifications as to materiality or Company Material Adverse Effect or Parent
Material Adverse Effect, as the case may be); and (ii) when used in
connection with a representation, warranty, covenant, agreement or condition to
be complied with or satisfied by the Company or Parent or Merger Sub, as the
case may be, which is not so qualified by materiality or by Company Material
Adverse Effect or Parent Material Adverse Effect, as the case may be, any
material respect;

 

(d)                                 “person” means an
individual, corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity; and

 

(e)                                  a person is a
“subsidiary,” with respect to any other person, if the second person owns,
directly or indirectly, an amount of the voting securities or other voting
interests of the first person which is sufficient to elect at least a majority
of the first person’s board of directors or other governing body or, if there
are no such voting interests, more than 50% of the equity interests of the
first person.

 

Section 8.4                                      Interpretation.  When a reference is made in this Agreement
to a Section or Schedule, such reference shall be to a Section of, or
a Schedule to, this Agreement unless otherwise indicated.  The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. 
Whenever the words “include,” “includes” and “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation.”  The use in this Agreement
of the masculine, feminine or neuter gender, or the singular or plural number,
shall not limit the scope of any provision of this Agreement.  In the event that any party hereto effects,
after the date hereof, a change in its form of legal organization, including,
without limitation, the Parent Conversion (as defined in Section 8.8
hereof), each reference herein to said party shall be deemed to refer as
applicable to said party in each of its successive forms of legal organization,
and each reference herein to the governing body (or members thereof), an
ownership class or a specific officership of said party shall, if literally
inapposite at any point in time as the result of a change in said party’s form
of legal organization after the date hereof (as so changed, the “Successor”),
be deemed to refer, as applicable, to the governing body (or members thereof),
ownership class or specific officership of the Successor most nearly
corresponding to the referenced governing body, ownership class or specific
officership of said party.

 

Section 8.5                                      Counterparts;
Facsimile Delivery.  This Agreement
may be executed in one or more counterparts, all of which shall be considered
one and the same Agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered personally
or by facsimile to the other parties.

 

37

 

Section 8.6                                      Entire
Agreement; No Third-Party Beneficiaries. 
This Agreement, including the Company Disclosure Schedule and the
Parent Disclosure Schedule, constitutes the entire agreement, and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement and, except for
the provisions of Article 1 and Sections 5.6, 5.8, 5.11 and 5.14, are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.

 

Section 8.7                                      Governing Law.  This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Nevada,
regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.

 

Section 8.8                                      Assignment;
Corporate Conversion of Parent. 
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of
law or otherwise, by any of the parties without the prior written consent of
the other parties; provided that, without any such consent, (i) Parent or Merger
Sub may assign its rights under this Agreement to a wholly-owned direct or
indirect subsidiary of Parent or Merger Sub, so long as the assignor remains
liable for all obligations of the assignor and such wholly-owned direct or
indirect subsidiary of assignor under this Agreement, and (ii) Parent may
effect a conversion from a Nevada limited liability company to a Nevada
corporation pursuant to Section 92A.105 of the NRS.  The Company acknowledges that it has been
advised by Parent that Parent intends to effect such a conversion from a Nevada
limited liability company to a Nevada corporation prior to the Closing Date
(the “Parent Conversion”).  Subject to
the forepart of this Section 8.8, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.

 

Section 8.9                                      Enforcement.  The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached.  It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court of the United States located in the District of
Nevada or in any Nevada state court located in the County of Clark, this being
in addition to any other remedy to which they may be entitled at law or in
equity.  In addition, each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of
any federal court located in the District of Nevada or any Nevada state court
in the event any dispute between or among the parties arises out of this
Agreement or any of the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal or state court sitting in the State of Nevada.

 

Section 8.10                                Personal Liability.  This Agreement shall not create or be deemed
to create or permit any personal liability or obligation on the part of any
direct or indirect shareholder of the Company or member of Parent or Merger
Sub, or any officer, director,

 

38

 

employee, partner, manager, agent, representative, trustee or investor
of any party hereto or any affiliate thereof.

 

Section 8.11                                Severability.  If any term or provision of this Agreement
or the application thereof to any party or set of circumstances shall in any
jurisdiction and to any extent, be finally held invalid or unenforceable, such
term or provision shall only be ineffective as to such jurisdiction, and only
to the extent of such invalidity or unenforceability, without invalidating or
rendering unenforceable any other terms or provisions of this Agreement or
under any other circumstances, and the parties shall then negotiate in good
faith a substitute term or provision which comes as close as possible to the
invalidated or unenforceable term or provision, and which puts each party in a
position as nearly comparable as possible to the position it would have been in
but for the finding of invalidity or unenforceability, while remaining valid
and enforceable.

 

Section 8.12                                Periodic Payment of
Expenses.  At the request of Parent
made from time to time, the Company shall pay to or on behalf of Parent and
Merger Sub the amount of the reasonable professional and advisory fees and
other out-of-pocket expenses incurred by Parent and Merger Sub in connection
with the transactions contemplated by this Agreement and the financing thereof,
subject to the limitations set forth in Section 7.5(a)(ii) hereof, as and
when such expenses are incurred, promptly after submission to the Special
Committee of documentation suitably evidencing the nature and amount of such
expenses.

 

[REST
OF PAGE INTENTIONALLY LEFT BLANK]

 

39

 

IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement and Plan of Merger to be signed by their respective representatives
thereunto duly authorized, all as of the date first written above.

 

	
   

  	
  “COMPANY”

  
	
   

  	
   

  
	
   

  	
  PDS GAMING CORPORATION,

  
	
   

  	
  a Minnesota corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ James L. Morrell

  
	
   

  	
   

  	
  James L. Morrell

  
	
   

  	
   

  	
  Chairman, Special Committee of the Board of Directors

  
	
   

  	
   

  
	
   

  	
  “PARENT”

  
	
   

  	
   

  
	
   

  	
  PDS HOLDING CO., LLC,

  
	
   

  	
  a Nevada limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Johan P. Finley

  
	
   

  	
   

  	
  Johan P. Finley

  
	
   

  	
   

  	
  Manager

  
	
   

  	
   

  
	
   

  	
  “MERGER SUB”

  
	
   

  	
   

  
	
   

  	
  PDS ACQUISITION SUB, LLC

  
	
   

  	
  a Nevada limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Johan P. Finley

  
	
   

  	
   

  	
  Johan P. Finley

  
	
   

  	
   

  	
  Manager

  

 

40

 

AGREEMENT AND PLAN OF MERGER

 

COMPANY DISCLOSURE SCHEDULE

 

SECTION 3.2

 

See subjoined list
of outstanding Stock Options issued pursuant to the Stock Option Plans, which
is current as of the date of the Agreement and Plan of Merger.

 

See  Section 4.8
of the  Parent
Disclosure Schedule for additional information concerning stock
options of certain beneficial owners.

 

PDS GAMING CORPORATION

STOCK OPTION PLAN SUMMARY

Period Ended 4/13/04

 

	
  Grant

  Date

  	
   

  	
  Expiration

  Date

  	
   

  	
  Holder of

  Stock Option

  	
   

  	
  Type

  	
   

  	
  Price Per

  Share

  	
   

  	
  Unexercised

  Options

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4/26/94

  	
   

  	
  04/26/04

  	
   

  	
  JOEL KOONCE

  	
   

  	
  NQ

  	
   

  	
  $

  	
  5.00

  	
   

  	
  10,000

  	
   

  
	
  9/7/95

  	
   

  	
  09/07/05

  	
   

  	
  PETER CLEARY

  	
   

  	
  NQ

  	
   

  	
  $

  	
  2.50

  	
   

  	
  50,000

  	
   

  
	
  11/1/95

  	
   

  	
  11/01/05

  	
   

  	
  PETER CLEARY

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.63

  	
   

  	
  4,000

  	
   

  
	
  11/1/95

  	
   

  	
  11/01/05

  	
   

  	
  LONA FINLEY

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.79

  	
   

  	
  7,500

  	
   

  
	
  3/5/1996

  	
   

  	
  03/05/06

  	
   

  	
  JAMES MORRELL

  	
   

  	
  NQ

  	
   

  	
  $

  	
  2.50

  	
   

  	
  10,000

  	
   

  
	
  8/4/1997

  	
   

  	
  08/04/07

  	
   

  	
  JAMES LLOYD

  	
   

  	
  ISO

  	
   

  	
  $

  	
  4.38

  	
   

  	
  1,000

  	
   

  
	
  11/3/1997

  	
   

  	
  11/03/07

  	
   

  	
  TIMOTHY JONES

  	
   

  	
  ISO

  	
   

  	
  $

  	
  7.63

  	
   

  	
  1,000

  	
   

  
	
  12/8/1997

  	
   

  	
  12/08/07

  	
   

  	
  ROMEO LAUGUICO

  	
   

  	
  ISO

  	
   

  	
  $

  	
  7.75

  	
   

  	
  1,000

  	
   

  
	
  1/19/1998

  	
   

  	
  01/19/08

  	
   

  	
  BETTY ANDERSON

  	
   

  	
  ISO

  	
   

  	
  $

  	
  6.25

  	
   

  	
  1,000

  	
   

  
	
  2/2/1998

  	
   

  	
  02/02/08

  	
   

  	
  WILLIE APOSTOL

  	
   

  	
  ISO

  	
   

  	
  $

  	
  5.88

  	
   

  	
  1,000

  	
   

  
	
  2/9/1998

  	
   

  	
  02/09/08

  	
   

  	
  JESUS BONALES

  	
   

  	
  ISO

  	
   

  	
  $

  	
  6.88

  	
   

  	
  1,000

  	
   

  
	
  2/16/1998

  	
   

  	
  02/16/08

  	
   

  	
  TIMOTHY JONES

  	
   

  	
  ISO

  	
   

  	
  $

  	
  6.75

  	
   

  	
  500

  	
   

  
	
  3/23/1998

  	
   

  	
  03/23/08

  	
   

  	
  DANIEL GALLARDO

  	
   

  	
  ISO

  	
   

  	
  $

  	
  7.75

  	
   

  	
  1,000

  	
   

  
	
  5/14/1998

  	
   

  	
  05/14/08

  	
   

  	
  PETER CLEARY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  9.13

  	
   

  	
  15,000

  	
   

  
	
  5/14/1998

  	
   

  	
  05/14/08

  	
   

  	
  JOEL KOONCE

  	
   

  	
  NQ

  	
   

  	
  $

  	
  9.13

  	
   

  	
  5,000

  	
   

  
	
  5/14/1998

  	
   

  	
  05/14/08

  	
   

  	
  JIM MORRELL

  	
   

  	
  NQ

  	
   

  	
  $

  	
  9.13

  	
   

  	
  5,000

  	
   

  
	
  9/8/1998

  	
   

  	
  09/08/08

  	
   

  	
  JOYCE BELVEAL

  	
   

  	
  ISO

  	
   

  	
  $

  	
  5.50

  	
   

  	
  1,000

  	
   

  
	
  2/1/1999

  	
   

  	
  02/01/09

  	
   

  	
  JOHAN FINLEY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  2.89

  	
   

  	
  25,000

  	
   

  
	
  2/1/1999

  	
   

  	
  02/01/09

  	
   

  	
  PATRENA RAMEY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  2.63

  	
   

  	
  6,000

  	
   

  
	
  5/14/1999

  	
   

  	
  05/14/09

  	
   

  	
  JOEL KOONCE

  	
   

  	
  NQ

  	
   

  	
  $

  	
  2.94

  	
   

  	
  5,000

  	
   

  
	
  5/14/1999

  	
   

  	
  05/14/09

  	
   

  	
  JIM MORRELL

  	
   

  	
  NQ

  	
   

  	
  $

  	
  2.94

  	
   

  	
  5,000

  	
   

  
	
  6/30/1999

  	
   

  	
  06/30/09

  	
   

  	
  PETER CLEARY

  	
   

  	
  NQ

  	
   

  	
  $

  	
  4.37

  	
   

  	
  25,000

  	
   

  
	
  6/30/1999

  	
   

  	
  06/30/09

  	
   

  	
  PETER CLEARY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  4.37

  	
   

  	
  50,000

  	
   

  
	
  8/4/1999

  	
   

  	
  08/04/09

  	
   

  	
  MELISSA SWEITZER

  	
   

  	
  ISO

  	
   

  	
  $

  	
  4.63

  	
   

  	
  2,000

  	
   

  
	
  11/22/1999

  	
   

  	
  11/22/09

  	
   

  	
  TONDA MCKEAN

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.63

  	
   

  	
  1,000

  	
   

  
	
  2/1/2000

  	
   

  	
  02/01/10

  	
   

  	
  JOHAN FINLEY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.75

  	
   

  	
  25,000

  	
   

  
	
  4/10/2000

  	
   

  	
  04/10/10

  	
   

  	
  GINA GARNER

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.41

  	
   

  	
  6,000

  	
   

  
	
  5/12/2000

  	
   

  	
  05/12/10

  	
   

  	
  JAMES MORRELL

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.34

  	
   

  	
  5,000

  	
   

  
	
  5/12/2000

  	
   

  	
  05/12/10

  	
   

  	
  JOEL KOONCE

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.34

  	
   

  	
  5,000

  	
   

  
	
  6/29/2000

  	
   

  	
  06/29/10

  	
   

  	
  PATRICK CRUZEN

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.22

  	
   

  	
  10,000

  	
   

  
	
  9/5/2000

  	
   

  	
  09/05/10

  	
   

  	
  EVELYN MURPHY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.69

  	
   

  	
  2,000

  	
   

  
	
  11/20/2000

  	
   

  	
  11/20/10

  	
   

  	
  STAN BANKS

  	
   

  	
  ISO

  	
   

  	
  $

  	
  2.00

  	
   

  	
  10,000

  	
   

  
	
  2/1/2001

  	
   

  	
  02/01/11

  	
   

  	
  JOHAN FINLEY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  2.13

  	
   

  	
  25,000

  	
   

  
	
  2/14/2001

  	
   

  	
  02/14/11

  	
   

  	
  DENNIS SIZEMORE

  	
   

  	
  ISO

  	
   

  	
  $

  	
  2.06

  	
   

  	
  10,000

  	
   

  
	
  2/19/2001

  	
   

  	
  02/19/11

  	
   

  	
  LESLIE BROWNING

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.88

  	
   

  	
  2,000

  	
   

  
	
  5/11/2001

  	
   

  	
  05/11/11

  	
   

  	
  JOEL KOONCE

  	
   

  	
  NQ

  	
   

  	
  $

  	
  3.85

  	
   

  	
  5,000

  	
   

  

 

1

 

	
  Grant

  Date

  	
   

  	
  Expiration

  Date

  	
   

  	
  Holder of

  Stock Option

  	
   

  	
  Type

  	
   

  	
  Price Per

  Share

  	
   

  	
  Unexercised

  Options

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5/11/2001

  	
   

  	
  05/11/11

  	
   

  	
  JAMES MORRELL

  	
   

  	
  NQ

  	
   

  	
  $

  	
  3.85

  	
   

  	
  5,000

  	
   

  
	
  5/11/2001

  	
   

  	
  05/11/11

  	
   

  	
  PATRICK CRUZEN

  	
   

  	
  NQ

  	
   

  	
  $

  	
  3.85

  	
   

  	
  5,000

  	
   

  
	
  5/30/2001

  	
   

  	
  05/30/11

  	
   

  	
  CLAUDIA K. CORMIER

  	
   

  	
  ISO

  	
   

  	
  $

  	
  3.35

  	
   

  	
  15,000

  	
   

  
	
  7/16/2001

  	
   

  	
  07/16/11

  	
   

  	
  SIMON BURGESS

  	
   

  	
  ISO

  	
   

  	
  $

  	
  3.65

  	
   

  	
  7,800

  	
   

  
	
  8/1/2001

  	
   

  	
  08/01/11

  	
   

  	
  RICK LAMAN

  	
   

  	
  ISO

  	
   

  	
  $

  	
  3.15

  	
   

  	
  40,000

  	
   

  
	
  9/10/2001

  	
   

  	
  09/10/11

  	
   

  	
  MIGUEL G. GARCIA

  	
   

  	
  ISO

  	
   

  	
  $

  	
  4.11

  	
   

  	
  1,000

  	
   

  
	
  12/17/2001

  	
   

  	
  12/17/11

  	
   

  	
  TINA HELJULA

  	
   

  	
  ISO

  	
   

  	
  $

  	
  2.75

  	
   

  	
  2,000

  	
   

  
	
  2/1/2002

  	
   

  	
  02/01/12

  	
   

  	
  JOHAN FINLEY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  4.60

  	
   

  	
  25,000

  	
   

  
	
  2/28/2002

  	
   

  	
  02/28/12

  	
   

  	
  LONA FINLEY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  4.16

  	
   

  	
  7,500

  	
   

  
	
  2/28/2002

  	
   

  	
  02/28/12

  	
   

  	
  PETER CLEARY

  	
   

  	
  ISO

  	
   

  	
  $

  	
  3.78

  	
   

  	
  10,000

  	
   

  
	
  5/10/2002

  	
   

  	
  05/10/12

  	
   

  	
  JAMES MORRELL

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.75

  	
   

  	
  5,000

  	
   

  
	
  5/10/2002

  	
   

  	
  05/10/12

  	
   

  	
  JOEL KOONCE

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.75

  	
   

  	
  5,000

  	
   

  
	
  5/10/2002

  	
   

  	
  05/10/12

  	
   

  	
  PATRICK CRUZEN

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.75

  	
   

  	
  5,000

  	
   

  
	
  5/29/2002

  	
   

  	
  05/29/12

  	
   

  	
  MELISSA SWEITZER

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.82

  	
   

  	
  4,000

  	
   

  
	
  6/6/2002

  	
   

  	
  06/06/12

  	
   

  	
  TIM JONES

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.20

  	
   

  	
  1,200

  	
   

  
	
  6/6/2002

  	
   

  	
  06/06/12

  	
   

  	
  JIM LLOYD

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.20

  	
   

  	
  1,000

  	
   

  
	
  6/6/2002

  	
   

  	
  06/06/12

  	
   

  	
  ROMEO LAUGUICO

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.20

  	
   

  	
  1,000

  	
   

  
	
  6/6/2002

  	
   

  	
  06/06/12

  	
   

  	
  MIGUEL G. GARCIA

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.20

  	
   

  	
  1,000

  	
   

  
	
  12/16/2002

  	
   

  	
  12/16/12

  	
   

  	
  JEFF WILLIAMSON

  	
   

  	
  ISO

  	
   

  	
  $

  	
  1.51

  	
   

  	
  2,500

  	
   

  
	
  12/29/2003

  	
   

  	
  12/29/13

  	
   

  	
  JAMES MORRELL

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.93

  	
   

  	
  5,000

  	
   

  
	
  12/29/2003

  	
   

  	
  12/29/13

  	
   

  	
  JOEL KOONCE

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.93

  	
   

  	
  5,000

  	
   

  
	
  12/29/2003

  	
   

  	
  12/29/13

  	
   

  	
  PATRICK CRUZEN

  	
   

  	
  NQ

  	
   

  	
  $

  	
  1.93

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  498,000

  	
   

  

 

2

 

AGREEMENT AND PLAN OF MERGER

 

COMPANY DISCLOSURE SCHEDULE

 

SECTION 3.6

 

Gaming Industry Regulatory Agencies

 

Barona Gaming Commission

Cabazon Band of Mission Indians Gaming Commission

California Gambling Control Commission

Colorado Division of Gaming

Cherokee Tribal Gaming Commission

Department of Justice, U.S. (Johnson Act Registration Only)

Dry Creek Gaming Commission

Hopland Gaming Commission

Illinois Gaming Board

Indiana Gaming Commission

Iowa Racing and Gaming Commission

Middletown Rancheria Gaming Commission

Minnesota Department of Public Safety

Mississippi Gaming Commission

Nevada State Gaming Control Board and Nevada Gaming Commission

New Jersey Division of Gaming Enforcement and Casino Control Commission

New Mexico Gaming Control Board

Paskenta Band of Nomlaki Indians

Picayune Rancheria Tribal Gaming Commission

Pueblo of Sandia Gaming Commission

Sac & Fox Tribe of the Mississippi in Iowa Gaming Commission

 

See Section 3.9 of the  Company Disclosure Schedule for
additional information.

 

3

 

AGREEMENT AND PLAN OF MERGER

 

COMPANY DISCLOSURE SCHEDULE

 

SECTION 3.7

 

Nothing to disclose.

 

4

 

AGREEMENT AND PLAN OF MERGER

 

COMPANY DISCLOSURE SCHEDULE

 

SECTION 3.8

 

Nothing to disclose.

 

5

 

AGREEMENT AND PLAN OF MERGER

 

COMPANY DISCLOSURE SCHEDULE

 

SECTION 3.9

 

The Company has filed in the normal course an application with the Colorado
Division of Gaming to renew its Limited Gaming License/Mfg.Distributor Type
2, which expires on May 20, 2004 unless renewed.   Documents and other information will be provided in connection
with the transactions contemplated by the Agreement and Plan of Merger (the
“Going Private Transaction”), including a request for approval of change of
ownership.  That request will be
reviewed as part of the license renewal process.

 

The Company has filed in the normal course an application with the Mississippi
Gaming  Commission to renew the Manufacturer/Distributor License held
by PDS Gaming Corporation-Mississippi, which expires on November 20, 2004
unless renewed.  That application has
been supplemented with an application for approval of the Going Private
Transaction.  The Mississippi Gaming
Commission’s approval of the Going Private Transaction is required before the
Going Private Transaction can be consummated and will be integral to the
license renewal process.

 

The Company has filed an application with the Nevada State Gaming
Control Board for approval of the Going Private Transaction.  Approval by the Nevada gaming authorities is
required before the Going Private Transaction can be consummated.

 

The Company has filed in the normal course an application with the New
Jersey Casino  Control Commission to renew its Casino Service
Industry License.  That filing
effectively continues the license until the renewal has been determined.  If the renewal application had not been filed,
the license would have expired on October 31, 2004.  The substance of the Going Private
Transaction will be reviewed as part of the license renewal process.

 

6

 

AGREEMENT AND PLAN OF MERGER

 

COMPANY DISCLOSURE SCHEDULE

 

SECTION 5.1

 

Nothing to disclose.

 

7

 

AGREEMENT AND PLAN OF MERGER

 

PARENT DISCLOSURE SCHEDULE

 

SECTION 4.4

 

Gaming Industry Regulatory Agencies

 

Barona Gaming Commission

Cabazon Band of Mission Indians Gaming Commission

California Gambling Control Commission

Colorado Division of Gaming

Cherokee Tribal Gaming Commission

Department of Justice, U.S. (Johnson Act Registration Only)

Dry Creek Gaming Commission

Hopland Gaming Commission

Illinois Gaming Board

Indiana Gaming Commission

Iowa Racing and Gaming Commission

Middletown Rancheria Gaming Commission

Minnesota Department of Public Safety

Mississippi Gaming Commission

Nevada State Gaming Control Board and Nevada Gaming Commission

New Jersey Division of Gaming Enforcement and Casino Control Commission

New Mexico Gaming Control Board

Paskenta Band of Nomlaki Indians

Picayune Rancheria Tribal Gaming Commission

Pueblo of Sandia Gaming Commission

Sac & Fox Tribe of the Mississippi in Iowa Gaming Commission

 

See Sections 3.6 and 3.9 of the Company
Disclosure Schedule for related information.

 

1

 

AGREEMENT AND PLAN OF MERGER

 

PARENT DISCLOSURE SCHEDULE

 

SECTION 4.8

 

See  Section 3.2
of the Company Disclosure Schedule for additional information
concerning stock options held by the following individuals.

 

Johan P. Finley

 

Mr. Finley beneficially owns 954,786 shares of Common Stock.  That number includes 11,200 shares held as
co-trustee for a minor child also claimed by Mr. Finley’s spouse, Lona M.B.
Finley, as co-trustee.  It also includes
50,000 shares of Common Stock issuable to Mr. Finley upon exercise of options
that are currently exercisable or that will become exercisable within 60 days
of March 5, 2004.  It does not
include the shares held by Lona M.B. Finley, as shown below.

 

Lona M.B. Finley

 

Mrs. Finley beneficially owns 278,786 shares of Common Stock.  That number includes 49,000 shares held by
Mrs. Finley as custodian for her minor children and 11,200 held as co-trustee
for a minor child also claimed by her spouse, Johan Finley.  It also includes 10,500 shares of Common
Stock issuable to Mrs. Finley upon exercise of options that are currently
exercisable or that will become exercisable within 60 days of March 5,
2004.  It does not include the shares
held by Johan Finley, as shown above.

 

Peter D. Cleary

 

Mr. Cleary beneficially owns 151,207 shares of Common Stock.  That number includes 133,000 shares of
Common Stock issuable to Mr. Cleary upon exercise of options that are currently
exercisable or that will become exercisable within 60 days of March 5,
2004.

 

2Exhibit 10.15

 

REVOLVING
CREDIT AGREEMENT

 

This Revolving Credit Agreement (the “Agreement”)
is made and entered into as of the date set forth below by and between the
undersigned borrower (the “Borrower”)
and U.S. Bank, N.A. (the “Bank”).

 

ARTICLE I
DEFINITIONS

 

1.1                                 Definitions.  Except as otherwise provided, all accounting terms will be
construed in accordance with generally accepted accounting principles
consistently applied and consistent with those applied in the preparation of
the financial statements referred to in paragraph 4.14, and financial data
submitted pursuant to this Agreement will be prepared in accordance with such
principles.  As used herein:

 

	
  (a)

  	
   

  	
  “Assets”
  means the sum of all assets including Loan Loss Reserves of the Subsidiary
  Bank determined in accordance with generally accepted accounting principles
  applicable to banks, consistently applied.

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  “Adjusted Assets”
  means the sum of all assets excluding Loan Loss Reserve and intangibles of
  the Subsidiary Bank determined in accordance with generally accepted
  accounting principles applicable to banks, consistently applied.

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  “Loan Loss Reserves”
  means the loan loss reserves of the Subsidiary Bank as reported in the most
  recent call reports of the Subsidiary Bank.

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  “Debt Service Coverage Ratio”
  means (b) “Debt Service Coverage Ratio” means, for any period of
  determination, the ratio of (i) the consolidated net income of the Borrower
  and its Subsidiaries, plus goodwill amortization expense of the Borrower and
  its Subsidiaries, plus interest expense of the Borrower, minus cash dividends
  of the Borrower; to (ii) interest expense of the Borrower, plus all required
  principal payments in respect of the indebtedness of the Borrower, and in
  each case as calculated in accordance with generally accepted accounting
  principles.

  
	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  “Nonperforming Loans”
  means the sum of (i) those loans 90 days or more past due (either principal
  or interest) and (ii) those loans classified as “non-accrual” or
  “renegotiated” as reported in the most recent call reports of the Subsidiary
  Bank.

  
	
   

  	
   

  	
   

  
	
  (f)

  	
   

  	
  “Other Real Estate”
  means the value of all real estate owned by the Subsidiary Bank and (i)
  classified as such by the examiners of any Regulatory Authority as reported
  in the most recent examination reports of the Subsidiary Bank or (ii) listed
  as such in the most recent report to any Regulatory Authority, whichever is
  most current.

  
	
   

  	
   

  	
   

  
	
  (g)

  	
   

  	
  “Primary Capital”
  means the sum of Total Tangible Equity and Loan Loss Reserves.

  
	
   

  	
   

  	
   

  
	
  (h)

  	
   

  	
  “Regulatory Authority”
  means any state, federal or other authority, agency or instrumentality
  including, without limitation, the Comptroller of the Currency, Federal
  Deposition Insurance Corporation, Federal Reserve Board and Office of Thrift
  Supervision, responsible for examination and oversight of the Borrower or any
  Subsidiary.

  
	
   

  	
   

  	
   

  
	
  (i)

  	
   

  	
  “Regulatory Capital”
  means (i) Tier 1 leverage, (ii) Tier 1 risk-based and (iii) total risk-based
  capital, each as defined in the applicable regulations.

  
	
   

  	
   

  	
   

  
	
  (j)

  	
   

  	
  “Subsidiary” or “Subsidiaries” means
  the Subsidiary Bank and any entity of which the Borrower owns, directly or
  through another Subsidiary, at the date of determination, more than 50% of
  the 

  

 

1

 

	
   

  	
   

  	
  outstanding stock having ordinary voting power for the election of
  directors, irrespective of whether or not at such time stock of any other
  class of classes might have voting power by reason of the happening of any
  contingency.

  
	
   

  	
   

  	
   

  
	
  (k)

  	
   

  	
  “Subsidiary Bank” or “Subsidiary Banks”
  means, whether one or more, now owned or subsequently acquired

  
	
   

  	
   

  	
  [list banks]

  
	
   

  	
   

  	
   

  
	
  (l)

  	
   

  	
  “Total Loans”
  means the aggregate outstanding principal amount of all loans shown as Assets
  of the Subsidiary Bank as reported in the most recent call reports of the
  Subsidiary Bank.

  
	
   

  	
   

  	
   

  
	
  (m)

  	
   

  	
  “Total Tangible Equity”
  means the total amount of the capital stock, surplus and undivided profits
  accounts less intangibles, all of which will be determined in accordance with
  generally accepted accounting principles applicable to banks, consistently
  applied.

  

 

ARTICLE II
LOANS

 

2.1                                 Revolving Credit Facility.  From time to time prior to June 30,
2004 or the earlier termination hereof pursuant to Article VI, the
Borrower may borrow from the Bank up to the aggregate principal amount outstanding
at any one time of up to $6,000,000.00. 
All revolving loans hereunder will be evidenced by a single promissory
note of the Borrower payable to the order of the Bank in the principle amount
of $6,000,000 (the “Note”).  Although the Note will be expressed to be
payable in the amount of $6,000,000 the Borrower will be obligated to pay only
the amount of loans actually disbursed hereunder, together with accrued
interest on the outstanding balance at the rates and on the dates specified
therein and such other charged provided for herein.

 

2.2                                 Advances and Paying Procedure.  The Bank is authorized and directed to
credit any of the Borrower’s accounts with the Bank (or to the account the
Borrower designates in writing) for all loans made hereunder, and the Bank is
authorized to debit such account or any other account of the Borrower with the
Bank for the amount of any principal or interest due under the Note or other
amounts due hereunder on the due date with respect thereto.

 

2.3                                 Mandatory Prepayment.  If Robert J Weatherbie and/or Michael L
Gibson ceases for any reason to be active in the management of the Subsidiary
Bank for a period of 30 consecutive days or more, and is not replaced by an
individual of comparable ability and experience, the Borrow will promptly give
the Bank written notice thereof and upon demand by the Bank, the Borrower will
repay the loans made hereunder, and any other loans from the Bank to the
Borrower, on the date specified in such demand.

 

ARTICLE III
CONDITIONS TO BORROWING

 

3.1                                 Conditions to Borrowing.  The Bank will not be obligated to make (or
continue to make) advances hereunder unless (i) the Bank has received executed
originals of the Note and all other documents or agreements applicable to the
loans described herein, including but not limited to the documents specified in
Article V (collectively with this Agreement the “Loan Documents”), in form and content satisfactory to the
Bank; (ii) the Bank has received confirmation satisfactory to it that the Bank
has properly perfected security interest, mortgage or lien, with the proper
priority; (iii) the Bank has received certified copies of the Articles of
Incorporation and by-laws and a certificate of status of the Borrower and the
Subsidiaries; (iv) the Bank has received a certified copy of a resolution or
authorization in form and content satisfactory to the Bank authorizing the loan
and all acts contemplated by this Agreement and all related documents, and
confirmation of proper authorization of all guaranties and other acts of third
parties contemplated hereunder; (v) if required by the Bank, the Bank has been
provided with an opinion of the Borrower’s counsel in form and content
satisfactory to the Bank confirming the matters outlined in Section 4.2
and such other matters as the Bank requests; (vi) no default exists under this
Agreement or under any other Loan Documents, or under any other agreements by
and between the Borrower and the Bank; and (vii) all proceedings taken in
connection with the transactions contemplated by this Agreement and all
instruments, authorizations and other documents applicable thereto, will be
satisfactory to the Bank and its counsel.

 

2

 

3.2                                 Security.  The loans provided for hereunder will be secured by all of the
common and preferred stock of each Subsidiary Bank now owned or hereafter
acquired by the Borrower, except directors qualifying shares, if any (“Director Shares”).

 

ARTICLE IV.
WARRANTIES AND COVENANTS

 

During the term of this Agreement, and while
any part of the credit granted the Borrower is available or any obligations
under any of the Loan Documents are unpaid or outstanding, the Borrower
warrants and agrees as follows:

 

4.1                                 Accuracy of Information.  All information, certificate or statements given
to the Bank pursuant to this Agreement and the other Loan Documents will be
true and complete when given.

 

4.2                                 Organization and Authority.  This Agreement and the other Loan Documents
are the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their terms.  The execution, delivery and performance of this Agreement and the
other Loan Documents (i) are within the Borrower’s power; (ii) have been duly
authorized by proper corporate action; (iii) do not require the approval of any
Regulatory Authority or other governmental agency; and (iv) will not violate
any law, agreement or restriction by which the Borrower is bound.  The Borrower is a validly existing corporation
in good standing under the laws of its state of organization, and has all
requisite power and authority, corporate or otherwise, and possesses all
licenses necessary, to conduct its business and own its properties.

 

4.3                                 Subsidiaries.

 

	
  (a)

  	
   

  	
  The Borrower has Subsidiaries consisting of
  the Subsidiary Bank and

  
	
   

  	
   

  	
  [name of other banks that are not a
  Subsidiary Bank or non-bank subsidiary].

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Team Bank,
  National Association (i) has issued and outstanding 100,000 shares of common
  stock, par value $10.00 per share, which are duly authorized, validly issued,
  fully paid and non-assessable, of which the Borrower owns 100,000 shares,
  free and clear of any liens, charges, encumbrances, rights of redemption,
  preemptive rights or rights of first refusal of any kind or nature
  whatsoever, except liens in favor of the Bank; and (ii) has no shares of
  capital stock (common or preferred), or securities or other obligations
  convertible into any of the foregoing, authorized or outstanding and has no
  outstanding offers, subscriptions, warrants, rights or other agreements or
  commitments obligating it to issue or sell any of the foregoing.

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  Colorado
  Springs National Bank formerly known as Colorado National Bank (i) has issued
  and outstanding 100,000 shares of common stock, par value $10.00 per share,
  which are duly authorized, validly issued, fully paid and non-assessable, of
  which the Borrower owns 100,000 shares, free and clear of any liens, charges,
  encumbrances, rights of redemption, preemptive rights or rights of first
  refusal of any kind or nature whatsoever, except liens in favor of the Bank;
  and (ii) has no shares of capital stock (common or preferred), or securities
  or other obligations convertible into any of the foregoing, authorized or
  outstanding and has no outstanding offers, subscriptions, warrants, rights or
  other agreements or commitments obligating it to issue or sell any of the
  foregoing.

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  N/A (i) has issued and outstanding N/A
  shares of common stock, par value $N/A per share, which are duly authorized,
  validly issued, fully paid and non-assessable, of which the Borrower owns N/A
  shares, free and clear of any liens, charges, encumbrances, rights of
  redemption, preemptive rights or rights of first refusal of any kind or
  nature whatsoever, except liens in favor of the Bank; and (ii) has no shares
  of capital stock (common or preferred), or securities or other obligations
  convertible into any of the foregoing, authorized or outstanding and has no
  outstanding offers, subscriptions, warrants, rights or other agreements or
  commitments obligating it to issue or sell any of the foregoing.

  

 

3

 

	
  (e)

  	
   

  	
  N/A (i) has
  issued and outstanding N/A shares of common stock, par value $N/A per share,
  which are duly authorized, validly issued, fully paid and non-assessable, of
  which the Borrower owns N/A shares, free and clear of any liens, charges,
  encumbrances, rights of redemption, preemptive rights or rights of first
  refusal of any kind or nature whatsoever, except liens in favor of the Bank;
  and (ii) has no shares of capital stock (common or preferred), or securities
  or other obligations convertible into any of the foregoing, authorized or
  outstanding and has no outstanding offers, subscriptions, warrants, rights or
  other agreements or commitments obligating it to issue or sell any of the
  foregoing.

  

 

4.4                                 Litigation and Compliance with Laws.  The Borrower and the Subsidiaries have
complied in all material respects with and will continue to comply with all
applicable federal and state laws and regulations:  (i) that regulate or are concerned in any way with its or their
banking and trust business, including without limitation those laws and
regulations relating to the investment of funds, lending of money, collection
of interest, extension of credit, and location and operation of banking
facilities; or (ii) otherwise relate to or affect the business or assets of
Borrower or any of the Subsidiaries or the assets owned, used or occupied by
them.  Except to the extent previously
disclosed to Bank, there are no claims, actions, suits, or proceedings pending,
or to the best knowledge of Borrower, threatened or contemplated against or
affecting Borrower or any of the Subsidiaries, at law or in equity, or before
any Regulatory Authority, or before any arbitrator or arbitration panel,
whether by contract or otherwise, and there is no decree, judgment or order of
any kind in existence against or restraining Borrower or any of the
Subsidiaries, or any of their officers, employees or directors, from taking any
action of any kind in connection with the business of Borrower or any of the
Subsidiaries.  Except to the extent
previously disclosed to the Bank, neither Borrower nor any of the Subsidiaries
has (i) received from any Regulatory Authority any criticisms, recommendations
or suggestions of a material nature, and Borrower has no reason to believe that
any such is contemplated, concerning the capital structure of any of the
Subsidiaries, loan policies or portfolio, or other banking and business
practices of any of the Subsidiaries that have not been resolved to the
satisfaction of such Regulatory Authorities or (ii) entered into any memorandum
of understanding or similar arrangement with any Regulatory Authority relating
to any unsound or unsafe banking practice or conduct of any violation of law
respecting the operations of the Borrower or the operations of any of the
Subsidiaries.

 

4.5                                 F.D.I.C. Insurance.  Each Subsidiary Bank is insured as to
deposits by the Federal Deposit Insurance Corporation and no act has occurred
which could adversely affect the status of any Subsidiary Bank as an insured
bank.

 

4.6                                 Corporate Existence; Business Activities; Assets.  The Borrower will and will cause each
Subsidiary to (i) preserve its corporate existence, rights and franchises; (ii)
not make any material change in the nature or manner of its business
activities; (iii) not liquidate, dissolve, merge or consolidate with or into
another entity or change its form of organization; and (iv) not sell, lease,
transfer or otherwise dispose of all or substantially all of its assets.

 

4.7                                 Use of Proceeds; Margin Stock; Speculation.  [Choose
one or more]  Advances by the
Bank hereunder will be used by the Borrower:

 

	
  ý

  	
   

  	
  (i)

  	
   

  	
  to refinance existing indebtedness;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ý

  	
   

  	
  (ii)

  	
   

  	
  for general corporate purposes;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (iii)

  	
   

  	
  to inject capital into one or more existing Subsidiary Banks;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (iii)

  	
   

  	
  to acquire the capital stock of certain entities; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (iv)

  	
   

  	
  other acquisition fees and expenses.

  

 

The Borrower will not use any of the loan proceeds to purchase or carry
“margin” stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System).  No part of any
of the proceeds will be used for speculative investment purposes, including,
without limitation, speculating or hedging in the commodities and/or futures
market.

 

4.8                                 Environmental Matters.  Except as disclosed in a written
schedule attached to this Agreement (if no schedule is attached,
there are no exceptions), there exists no uncorrected violation by the Borrower
of any federal, state or local laws (including statutes, regulations,
ordinances or other governmental restrictions and requirements) relating to the

 

4

 

discharge of air pollutants, water pollutants or process waste water or
otherwise relating to the environment or Hazardous Substances as hereinafter
defined, whether such laws currently exist or are enacted in the future
(collectively “Environmental Laws”).  The term “Hazardous
Substances” will mean any hazardous or toxic wastes, chemicals or
other substances, the generation, possession or existence of which is
prohibited or governed by any Environmental Laws.  The Borrower is not subject to any judgment, decree, order or
citation, or a party to (or threatened with) any litigation or administrative
proceeding, which asserts that the Borrower (i) has violated any Environmental
Laws; (ii) is required to clean up, remove or take remedial or other action
with respect to any Hazardous Substances (collectively “Remedial Action”); or (iii) is required to
pay all or a portion of the cost of any Remedial Action, as a potentially
responsible party.  Except as disclosed
on the Borrower’s environmental questionnaire provided to the Bank, there are
not now, nor to the Borrower’s knowledge after reasonable investigation have
there ever been, any Hazardous Substances (or tanks or other facilities for the
storage of Hazardous Substances) stored, deposited, recycled or disposed of on,
under or at any real estate owned or occupied by the Borrower during the
periods that the Borrower owned or occupied such real estate, which if present
on the real estate or in soils or ground water, could require Remedial
Action.  To the Borrower’s knowledge,
there are no proposed or pending changes in Environmental Laws which would
adversely affect the Borrower or its business, and there are no conditions
existing currently or likely to exist while the Loan Documents are in effect
which would subject the Borrower to Remedial Action or other liability.  The Borrower currently complies with and
will continue to timely comply with all applicable Environmental Laws; and will
provide the Bank, immediately upon receipt, copies of any correspondence,
notice, complaint, order or other document from any source asserting or
alleging any circumstance or condition which requires or may require a
financial contribution by the Borrower or Remedial Action or other response by
or on the part of the Borrower under Environmental Laws, or which seeks damages
or civil, criminal or punitive penalties from the Borrower for an alleged
violation of Environmental Laws.

 

4.9                                 Restriction on Indebtedness.  The Borrower will not and will not permit
any of the Subsidiaries to create, incur, assume or have outstanding any indebtedness
for borrowed money (including capitalized leases) except (i) indebtedness under
the Note issued under this Agreement; (ii) other indebtedness to the Bank;
(iii) fed funds transactions in the ordinary course of business; (iv)
indebtedness owing to any Federal Home Loan Bank (or any successor thereto);
and (v) any other indebtedness outstanding on the date hereof, and shown on the
Borrower’s financial statements delivered to the Bank prior to the date hereof,
provided such other indebtedness shall not be renewed, extended or increased.

 

4.10                           Restriction on Liens.  The Borrower will not and will not permit
any of the Subsidiaries to create, incur, assume or permit to exist any
mortgage, pledge, encumbrance or other lien or levy upon or security interest
in any of the Borrower’s property now owned or hereafter acquired, except (i)
taxes and assessments which are either not delinquent or which are being
contested in good faith with adequate reserves provided; (ii) easements,
restrictions and minor title irregularities which do not, as a practical
matter, have an adverse effect upon the ownership and use of the affected
property; (iii) liens in favor of the Bank or its affiliates; and (iv) other
liens disclosed in writing to the Bank prior to the date hereof.

 

4.11                           Restriction on Contingent Liabilities.  The Borrower will not and will not permit
any of the Subsidiaries to guarantee or become a surety or otherwise
contingently liable for any obligations of others, except pursuant to the
deposit and collection of checks, the issuance or confirmation of letters of
credit by any Subsidiary Bank and similar matters in the ordinary course of
banking business.

 

4.12                           Insurance.  The Borrower will maintain and cause each Subsidiary to maintain
insurance to such extent, covering such risks and with such insurers as is
usual and customary for businesses operating similar properties, and as is
satisfactory to the Bank, including insurance for fire and other risks insured
against by extended coverage, public liability insurance and workers’
compensation insurance.

 

4.13                           Taxes and Other Liabilities.  The Borrower will pay and discharge, and
cause each Subsidiary to pay and discharge when due, all of its taxes,
assessments and other liabilities, except when the payment thereof is being
contested in good faith by appropriate procedures which will avoid foreclosure
of liens securing such items, and with adequate reserves provided therefor.

 

4.14                           Financial Statements and Reporting.  The financial statements and other
information previously provided to the Bank or provided to the Bank in the
future are or will be complete and accurate and prepared in accordance

 

5

 

with generally accepted accounting principles.  There has been no material adverse change in
the Borrower’s financial condition since such information was provided to the
Bank.  The Borrower will, and will cause
each Subsidiary to (i) maintain accounting records in accordance with generally
recognized and accepted principles of accounting consistently applied
throughout the accounting periods involved; (ii) provide the Bank with such
information concerning its business affairs and financial condition (including
insurance coverage) as the Bank may reasonably request; and (iii) without
request, provide the Bank with the following information:

 

	
  (a)

  	
   

  	
  As soon as
  available, and in any event within 90 days after the end of each fiscal year
  of the Borrower, the Borrower’s annual financial statements in form and
  substance acceptable to the Bank; and

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Within 45
  days of the end of each quarter, quarterly call reports prepared on FFIEC
  forms, or any successors thereto, of each Subsidiary Bank prepared in
  accordance with the guidelines of any Regulatory Authority that regulates each
  Subsidiary Bank; and

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  Within 45
  days of the end of each quarter, a compliance certificate in form and
  substance acceptable to the Bank, certifying compliance with the financial
  covenants contained herein;

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  As soon as
  available, copies of all reports or materials submitted or distributed to
  shareholders of the Borrower or filed with the SEC or other Regulatory
  Authority or with any national securities exchange; and form FRY-9C or form
  FRY-9P, as appropriate, which are the financial statements of the Borrower as
  delivered to the Federal Reserve System;

  
	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  Promptly
  after the furnishing thereof, copies of any statement or report furnished to
  any other holder of obligations of the Borrower or any Subsidiary pursuant to
  the terms of any indenture, loan or similar agreement and not otherwise
  required to be furnished to the Bank pursuant to any other clause of this
  paragraph 4.14; and

  
	
   

  	
   

  	
   

  
	
  (f)

  	
   

  	
  Promptly,
  and in any event within 10 days, after the Borrower has knowledge thereof, a
  statement of the chief financial officer of the Borrower describing: (i) any
  event which, either of itself or with the lapse of time or the giving of
  notice or both, would constitute a default hereunder or under any other
  material agreement to which the Borrower or any Subsidiary is a party,
  together with a statement of the actions which the Borrower proposes to take
  with respect thereto; and (ii) any pending or threatened litigation or
  administrative proceeding of the type described in paragraph 4.4; and

  
	
   

  	
   

  	
   

  
	
  (g)

  	
   

  	
  Notice of
  any memorandum of understanding or any other agreement with any banking
  regulatory agencies, or cease and desist order, immediately after entered
  into by or issued against Borrower or any Subsidiary; and

  
	
   

  	
   

  	
   

  
	
  (h)

  	
   

  	
  Promptly
  after request therefore, any other information concerning the business
  affairs and financial condition of the Borrower or any Subsidiary as the Bank
  may reasonably request.

  

 

4.15                           Information.  The Borrower will make available for review by the Bank, promptly
upon Bank’s request, financial statements, call reports and any other records
or documents of the Borrower or the Subsidiary Bank.  The Borrower and the Subsidiaries will obtain the consent of any
person or Regulatory Authority which it deems necessary or appropriate for disclosure
of the information described above.

 

4.16                           Financial Covenants.  The Borrower will:

 

(a)          be “well capitalized”
(as defined in 12 C.F.R. 325,103(b)(2), and determined as if the Borrower were
a bank to which said regulation were applicable) on a consolidated basis at all
times

 

	
  ý

  	
   

  	
  If this is checked, the phrase “adequately capitalized” shall be
  substituted for the phrase “well capitalized” in the above clause

  
	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  If this is checked, clause (a) does not apply to the Borrower, as it
  is not analyzed on a consolidated basis

  

 

6

 

(b)         cause each Subsidiary
Bank to be “well capitalized”, as defined in 12 C.F.R. 325,103 (b) (2), at all
times

 

4.17                           Inspection of Properties and Records; Fiscal Year.  The Borrower will permit representatives of
the Bank to visit and inspect any of the properties and examine any books and
records of the Borrower and the Subsidiaries including without limitation the
stock transfer records of the Subsidiary Bank, at any reasonable time and as
often as the Bank may reasonably desire. 
The Borrower will not change its fiscal year.

 

4.18                           Issuance of Stock.  The Borrower will not permit any Subsidiary
Bank to issue any additional shares of common or preferred stock, or any
options, warrants or other common stock equivalents, or sell or issue
securities or obligations convertible into such (“New Stock”), whether in the form of stock dividends or stock
splits or otherwise, unless such New Stock will be issued to the Borrower and
delivered by the Borrower to the Bank, together with any additional documents
required by the Bank, as additional collateral to secure the loan provided for
hereunder.

 

4.19                           Acquisitions and Investments.  Neither the Borrower nor any of the
Subsidiaries will acquire any other business or make any loan, advance or
extension of credit to, or investment in, any other person, corporation or
other entity, including investments acquired in exchange for stock or other
securities or obligations of any nature of the Borrower or any Subsidiary, or
create or participate in the creation of any Subsidiary or joint venture,
except:

 

	
  (a)

  	
   

  	
  investments
  in (i) bank repurchase agreements; (ii) savings accounts or certificates of
  deposit in a financial institution of recognized standing; (iii) obligations
  issued or fully guaranteed by the United States; and (iv) prime commercial
  paper maturing within 90 days of the date of acquisition by the Borrower or a
  Subsidiary;

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  loans and
  advances made to employees and agents in the ordinary course of business,
  such as travel and entertainment advances and similar items;

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  investments
  in the Borrower by a Subsidiary;

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  investments
  shown on the most recent financial statements of the Borrower provided to the
  Bank, provided that such investments will not be increased; and

  
	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  with respect
  to a Subsidiary, investments or loans made in the ordinary course of banking
  business of such Subsidiary.

  

 

4.20                           Dividends.  The Borrower will not, without the prior written consent of the Bank,
pay any dividends or make any other distribution on account of any shares of
any class of its stock or redeem, purchase or otherwise acquire, directly or
indirectly any shares of its stock.

 

ARTICLE V.
COLLATERAL

 

5.1                                 Collateral.  This Agreement and the Note are secured by a Collateral Pledge
Agreement dated March 18, 2004. 
The information in this Article V is for information only and the
omission of any reference to an agreement will not affect the validity or
enforceability thereof.  The rights and
remedies of the Bank outlined in this Agreement and the documents identified
above are intended to be cumulative.

 

5.2                                 Credit Balances; Setoff.  As additional security for the payment of
the obligations described in the Loan Documents and any other obligations of
the Borrower to the Bank of any nature whatsoever (collectively the “Obligations”), the Borrower hereby grants
to the Bank a security interest in, a lien on and an express contractual right
to set off against all depository account balances, cash and any other property
of the Borrower now or hereafter in the possession of the Bank and the right to
refuse to allow withdrawals from any account (collectively “Setoff”). 
The Bank may, at any time upon the occurrence of a default hereunder
(notwithstanding any notice requirements or grade/cure periods under this or
other agreements between the Borrower and the Bank) Setoff against the
Obligations whether or not the Obligations
(including future installments) are then due or have been accelerated, all without
any advance or contemporaneous notice or demand of any kind to the Borrower,
such notice and demand being expressly waived.

 

7

 

5.3                                 Guaranties.  This Agreement and the Note are guaranteed by each and every
guaranty now or hereafter in existence guarantying the indebtedness of the
Borrower to the Bank (except for any guaranty expressly limited in its terms to
a specific separate obligation of the Borrower to the Bank) including, without
limitation, the following: the Continuing Guaranty (Unlimited) of N/A dated
N/A.

 

The information contained in this Article V is for information
only and the omission of any reference to an agreement will not affect the
validity or enforceability thereof.  The
rights and remedies of the Bank outlined in this Agreement and the documents
identified above are intended to be cumulative.

 

ARTICLE VI.  DEFAULTS

 

6.1                                 Defaults.  Notwithstanding any cure
periods described below, the Borrower will immediately notify the Bank in
writing when the Borrower obtains knowledge of the occurrence of any default
specified below.  Regardless
of whether the Borrower has given the required notice, the occurrence of one or
more of the following will constitute a default:

 

	
  (a)

  	
   

  	
  Nonpayment. 
  The Borrower shall fail to pay (i) any interest due on the Note or any
  fees, charges, costs or expenses under the Loan Documents by 5 days after the
  same becomes due; or (ii) any principal amount of the Note when due.

  
	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Nonperformance.  The Borrower or any guarantor of Borrower’s Obligations to the
  Bank (“Guarantor”) shall fail to perform or observe any agreement, term,
  provision, condition, or covenant (other than a default occurring under (a),
  (c), (d), (e), (f) or (g) of this paragraph 6.1) required to be performed or
  observed by the Borrower or any Guarantor hereunder or under any other Loan
  Document or other agreement with or in favor of the Bank.

  
	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  Misrepresentation.  Any financial information, statement, certificate,
  representation or warranty given to the Bank by the Borrower or any Guarantor
  (or any of their representatives) in connection with entering into this
  Agreement or the other Loan Documents and/or any borrowing thereunder, or
  required to be furnished under the terms thereof, shall prove untrue or
  misleading in any material respect (as determined by the Bank in the exercise
  of its judgment) as of the time when given.

  
	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  Default on Other Obligations.  The Borrower, any Guarantor or any
  Subsidiary shall be in default under the terms of any loan agreement,
  promissory note, lease, conditional sale contract or other agreement,
  document or instrument evidencing, governing or securing any indebtedness
  owing by the Borrower, any Guarantor or any Subsidiary to the Bank or any
  indebtedness in excess of $10,000 owing by the Borrower to any third party,
  and the period of grace, if any, to cure said default shall have passed.

  
	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  Judgments. 
  Any judgment shall be obtained against the Borrower, any Guarantor or
  any Subsidiary which, together with all other outstanding unsatisfied
  judgments against the Borrower (or such Guarantor or Subsidiary), exceeds the
  sum of $10,000 and shall remain unvacated, unbonded or unstayed for a period
  of 30 days following the date of entry thereof.

  
	
   

  	
   

  	
   

  
	
  (f)

  	
   

  	
  Inability to Perform; Bankruptcy/Insolvency.  (i) the Borrower, any Guarantor or any
  Subsidiary shall die or cease to exist; or (ii) any Guarantor shall attempt
  to revoke any guaranty of the Obligations described herein, or any guaranty
  becomes unenforceable in whole or in part for any reason; or (iii) any
  bankruptcy, insolvency or receivership proceedings, or an assignment for the
  benefit of creditors, shall be commenced under any Federal or state law by or
  against the Borrower, any Guarantor or any Subsidiary; or (iv) the Borrower,
  any Guarantor or any Subsidiary shall become the subject of any out-of-court
  settlement with its creditors; or (v) the Borrower, any Guarantor or any
  Subsidiary is unable or admits in writing its inability to pay its debts as they
  mature; or (vi) the Borrower or any Subsidiary is closed or taken over by a
  Regulatory Authority.

  

 

8

 

	
  (g)

  	
   

  	
  Adverse Change; Insecurity.  (I) There is a material adverse change in
  the business, properties, financial condition or affairs of the Borrower, any
  Guarantor or any Subsidiary, or in any collateral securing the Obligations;
  or (ii) the Bank in good faith deems itself insecure.

  
	
   

  	
   

  	
   

  
	
  (h)

  	
   

  	
  Regulatory Orders.  The Borrower or any Subsidiary enters into any memorandum of
  understanding or other agreement with any banking Regulatory Authority
  relating to any unsound or unsafe banking practice or conduct or any
  violation of law respecting the operation of Borrower or such Subsidiary; or
  Borrower or any Subsidiary or any of their officers, employees, or directors
  become the subject of a judicial or administrative determination restraining
  any of them from taking any actions of any kind in connection with the
  business of Borrower or such Subsidiary, assessing a civil penalty, finding
  that any criminal offense occurred in connection with the operations of
  Borrower or such Subsidiary, or suspending or removing any officer or
  director of Borrower or such Subsidiary.

  

 

6.2                                 Termination of Loans; Additional Bank Rights.  Upon the occurrence of any of the events
identified in paragraph 6.1, the Bank may at any time (notwithstanding any
notice requirements or grace/cure periods under this or other agreements
between the Borrower and the Bank) (i) immediately terminate its obligation, if
any, to make additional loans to the Borrower; (ii) Setoff; and/or (iii) take
such other steps to protect or preserve the Bank’s interest in any collateral,
including without limitation, notifying account debtors to make payments
directly to the Bank, advancing funds to protect any collateral and insuring
collateral at the Borrower’s expense; all without demand or notice of any kind,
all of which are hereby waived.

 

6.3                                 Acceleration of Obligations.  Upon the occurrence of any of the events identified
in paragraphs 6.1(a) through 6.1(e) and 6.1(g) and 6.1(h), and the passage of
any applicable cure periods, the Bank may at any time thereafter, (i) by
written notice to the Borrower, declare the unpaid principal balance of any
Obligations, together with the interest accrued thereon and other amounts
accrued hereunder and under the other Loan Documents, to be immediately due and
payable; and the unpaid balance will thereupon be due and payable, all without
presentation, demand, protest or further notice of any kind, all of which are
hereby waived, notwithstanding anything to the contrary contained herein or in
any of the other Loan Documents; and (ii) require the Borrower to cause each
Subsidiary Bank to appoint an independent transfer agent for the purpose of
registering and transferring ownership of the capital stock of such Subsidiary
Bank.  Upon the occurrence of any event
under paragraph 6.1(f), the unpaid principal balance of any Obligations,
together with all interest accrued thereon and other amounts accrued hereunder
and under the other Loan Documents, will thereupon be immediately due and
payable, all without presentation, demand, protest or notice of any kind, all
of which are hereby waived, and notwithstanding anything to the contrary contained
herein or in any of the other Loan Documents. 
Nothing contained in paragraph 6.1,
paragraph 6.2 or this section will limit the Bank’s right to Setoff as
provided in paragraph 5.2 or otherwise in this Agreement.

 

6.4                                 Other Remedies.  Nothing in this Article VI is intended
to restrict the Bank’s rights under any of the Loan Documents or at law, and
the Bank may exercise all such rights and remedies as and when they are
available.

 

ARTICLE VII.  MISCELLANEOUS

 

7.1                                 Delay; Cumulative Remedies.  No delay on the part of the Bank in
exercising any right, power or privilege hereunder or under any of the other
Loan Documents will operate as a waiver thereof, nor will any single or partial
exercise of any right, power or privilege hereunder preclude other or further
exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein specified are
cumulative and are not exclusive of any rights or remedies which the Bank would
otherwise have.

 

7.2                                 Relationship to Other Documents.  The warranties, covenants and other
obligations of the Borrower (and the rights and remedies of the Bank) that are
outlined in this Agreement and the other Loan Documents are intended to
supplement each other.  In the event of
any inconsistencies in any of the terms in the Loan Documents, all terms will
be cumulative so as to give the Bank the most favorable rights set forth in the
conflicting documents, except that if there is a direct conflict between any
preprinted terms and specifically negotiated terms (whether included in an
addendum or otherwise), the specifically negotiated terms will control.

 

7.3                                 Participations; Guarantors.  The Bank may, at its option, sell all or any
interests in the Note and other Loan Documents to other financial institutions
(the “Participant”) and in
connection with such sales (and thereafter), the

 

9

 

Bank may disclose any financial information the Bank may have
concerning the Borrower to any such Participant or potential Participant.  From time to time, the Bank may, in its
discretion and without obligation to the Borrower, any guarantor or any other
third party, disclose information about the Borrower and the loan to any
Guarantor, surety or other accommodation party.  This provision does not obligate the Bank to supply any
information or release the Borrower from its obligation to provide such
information, and the Borrower agrees to keep all Guarantors advised of its
financial condition and other matters which may be relevant to the Guarantors’
obligations to the Bank.

 

7.4                                 Expenses and Attorneys’ Fees.  The Borrower will reimburse the Bank and any
Participant for all attorneys’ fees and all other costs, fees and out-of-pocket
disbursements incurred by the Bank or any Participant in connection with the
preparation, execution, delivery, administration, defense and enforcement of
this Agreement or any of the other Loan Documents, including attorneys’ fees
and all other costs and fees (a) incurred before or after commencement of
litigation or at trial, on appeal or in any other proceeding, (b) incurred in
any bankruptcy proceeding and (c) related to any waivers or amendments with
respect thereto (examples of costs and fees include but are not limited to fees
and costs for: filing, perfecting or confirming the priority of the Bank’s
lien, title searches or insurance, appraisals, environmental audits and other
reviews related to the Borrower, any collateral or the loans, if requested by
the Bank).  The Borrower will also
reimburse the Bank and any Participant for all costs of collection including
all attorney’s fees before and after judgment, and the costs of preservation
and/or liquidation of any collateral.

 

7.5                                 Successors.  The rights, options, powers and remedies granted in this
Agreement and the other Loan Documents will extend to the Bank and to its
successors and assigns, will be binding upon the Borrower and its successors
and assigns and will be applicable hereto and to all renewals and/or extensions
hereof.

 

7.6                                 Indemnification.  Except for harm arising from the Bank’s
misconduct, the Borrower hereby indemnifies and agrees to defend and hold the
Bank harmless from any and all losses, costs, damages, claims and expenses of
any kind suffered by or asserted against the Bank relating to claims by third
parties arising out of the financing provided under the Loan Documents or
related to any collateral (including, without limitation, the Borrower’s
failure to perform its obligations relating to Environmental Matters described
in Section 4.8 above.  This
indemnification and hold harmless provision will survive the termination of the
Loan Documents and the satisfaction of the Obligations due the Bank.

 

7.7                                 Notice of Claims Against Bank; Limitation of Certain
Damages.  In order to
allow the Bank to mitigate any damages to the Borrower from the Bank’s alleged
breach of its duties under the Loan Documents or any other duty, if any, to the
Borrower, the Borrower agrees to give the Bank immediate written notice of any
claim or defense it has against the Bank, whether in tort or contract, relating
to any action or inaction by the Bank under the Loan Documents, or the
transactions related thereto, or of any defense to payment of the Obligations
for any reason.  The requirement of
providing timely notice to the Bank represents the parties’ agreed-to standard
of performance regarding claims against the Bank.  Notwithstanding any claim that the Borrower may have against the
Bank, and regardless of any notice the Borrower may have given the Bank, the Bank will not be liable to the Borrower for
consequential and/or special damages arising therefrom, except those damages
arising from the Bank’s willful misconduct.

 

7.8                                 Notices.  Notice of any record shall be deemed given when the record has
been (a) deposited in the United States Mail, postage prepaid, (b) received by
overnight delivery service, (c) received by telex (d) received by facsimile,
(e) received through the internet, or (f) when personally delivered.

 

7.9                                 Payments.  Payments due under the Note and other Loan Documents will be made
in lawful money of the United States. 
All payments may be applied by the Bank to principal, interest and other
amounts due under the Loan Documents in any order which the Bank elects.

 

7.10                           Applicable Law and Jurisdiction; Interpretation; Joint
Liability.  This
Agreement and all other Loan Documents will be governed by and interpreted in
accordance with the internal laws of the state where the Bank’s branch
originating this loan is located, except to the extent superseded by Federal
law.  Invalidity of any provisions of
this Agreement will not affect any other provision.  THE BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT SITUATED IN THE COUNTY OR FEDERAL JURISDICTION OF THE
BANK’S OFFICE WHERE THE LOAN WAS ORIGINATED, AND WAIVES ANY OBJECTION BASED ON FORUM
NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS
RELATING TO THIS AGREEMENT, THE NOTE, THE COLLATERAL, ANY OTHER LOAN DOCUMENT,
OR ANY TRANSACTIONS ARISING THEREFROM, OR ENFORCEMENT AND/OR

 

10

 

INTERPRETATION OF ANY OF THE FOREGOING.  Nothing herein will affect the Bank’s rights to serve process in
any manner permitted by law, or limit the Bank’s right to bring proceedings
against the Borrower in the competent courts of any other jurisdiction or
jurisdictions.  This Agreement, the
other Loan Documents and any amendments hereto (regardless of when executed)
will be deemed effective and accepted only at the Bank’s offices, and only upon
the Bank’s receipt of the executed originals thereof.  If there is more than one Borrower, the liability of the
Borrowers will be joint and several, and the reference to “Borrower” will be
deemed to refer to all Borrowers.

 

7.11                           Waiver of Jury Trial:  THE BORROWER AND THE BANK HEREBY JOINTLY AND
SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
RELATING TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS THEREUNDER, ANY
COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM OR
CONNECTED THERETO.  THE BORROWER AND THE
BANK EACH REPRESENTS TO THE OTHER THAT IS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY GIVEN.

 

7.12                           Copies:  Entire
Agreement; Modification. 
The Borrower hereby acknowledges the receipt of a Copy of this Agreement
and all other Loan Documents.

 

This Notice is Provided Pursuant to Nebraska Revised Statutes 45-1, 112
et. Seq.

 

NOTICE – WRITTEN AGREEMENTS.  A credit agreement must be in writing to be
enforceable under Nebraska law.  To
protect Borrower and Lender from any misunderstandings or disappointments, any
contract, promise, undertaking or offer to forbear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension
of credit must be in writing to be effective.

 

IMPORTANT: 
READ BEFORE SIGNING.  THE TERMS
OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING,
EXPRESSING CONSIDERATION AND SIGNED BY THE PARTIES ARE ENFORCEABLE.  NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED
IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.  THE TERMS OF THIS AGREEMENT MAY ONLY BE CHANGED BY ANOTHER
WRITTEN AGREEMENT.  THIS NOTICE SHALL
ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS NOW IN EFFECT
BETWEEN THE BORROWER AND THE BANK.  A
MODIFICATION OF ANY OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN THE BORROWER
AND THE BANK, WHICH OCCURS AFTER RECEIPT BY THE BORROWER OF THIS NOTICE, MAY BE
MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. 
ORAL OR IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS ARE NOT
ENFORCEABLE AND SHOULD NOT BE RELIED UPON.

 

IN WITNESS WHEREOF, the undersigned have executed this REVOLVING CREDIT
AGREEMENT as of March 18, 204.

 

 

	
   

  	
   

  	
  Team
  Financial, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Borrower
  Name (Organization)

  
	
   

  	
   

  	
  a(an) Kansas
  Corporation

  
	
   

  	
   

  	
   

  
	
  (Individual Borrower)

  	
   

  	
   

  
	
   

  	
   

  	
  By

  
	
   

  	
   

  	
  /s/ Robert J
  Weatherbie

  	
   

  
	
   

  	
   

  	
   

  
	
  Borrower Name

  	
   

  	
  Name and Title Robert J Weatherbie,

  
	
   

  	
   

  	
  Chairman of
  the Board / CEO

  

 

11

 

	
   

  	
   

  	
  By

  
	
   

  	
   

  	
  /s/ Michael
  T Kozisek

  	
   

  
	
  Borrower Name

  	
   

  	
  Name and Title

  
	
   

  	
   

  	
  U.S. Bank N.A.

  
	
   

  	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name and Title Michael T Kozisek, Senior

  	
   

  	
   

  
	
  Vice President

  	
   

  	
   

  
						

 

12

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