Document:

461003_1

Exhibit

10.1

 

MASTER LOAN AGREEMENT

 

By and

Among

 

PDS GAMING CORPORATION,

 

PDS GAMING CORPORATION-NEVADA,

 

PDS GAMING CORPORATION-MISSISSIPPI,

 

PDS GAMING CORPORATION-COLORADO,

 

and

 

FIRST STATE BANK OF THERMOPOLIS

 

DATED AS OF

MAY 14, 2002

 

 

MASTER

LOAN AGREEMENT

 

THIS AGREEMENT is made as of May 14, 2002 by and among PDS GAMING CORPORATION, a Minnesota corporation (“PDS”), PDS GAMING CORPORATION-NEVADA, a Nevada

corporation (“PDS-NV”),

PDS GAMING CORPORATION-MISSISSIPPI,

a Mississippi corporation (“PDS-MS”), and PDS

GAMING CORPORATION-COLORADO, a Colorado corporation (“PDS-CO”) (PDS,

PDS-NV, PDS-MS and PDS-CO are jointly and severally, the “Borrower”) and FIRST STATE BANK OF THERMOPOLIS, a state

chartered bank (the “Lead

Lender”).

 

RECITALS

 

A.            Whereas,

Borrower has requested that Lead Lender make available to Borrower a credit

facility in a principal amount of Three

Million Two Hundred Eighty Thousand and 00/100 Dollars ($3,280,000.00)

(the “Loan”)

evidenced by a promissory note of Borrower in favor of Lead Lender (the “Note”); and

 

B.            Whereas,

the Loan is secured by a Master Security Agreement dated the date hereof

between Borrower and Lender (as such Master Security Agreement may be amended

from time to time, the “Security

Agreement”).

 

C.            Whereas,

pursuant to a Loan Participation and Servicing Agreement of even date herewith

among the Lead Lender and various loan participants in the Loan (the “Participants”), the

Participants have appointed the Lead Lender as servicer for the performance of

certain duties called for in this Agreement.

 

D.            Lead Lender is willing to make

advances under the Loan to Borrower upon the terms and subject to the

conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable

consideration, the receipt and sufficiency of which are hereby acknowledged,

the parties hereto agree as follows:

 

1.     Definitions.

 

a. “Addendum and

Assignment” is defined in the Security Agreement.

 

b. “Capitalized Cost to Lessee”

means the fair market value of the Equipment as of the date of the Contract as

reasonably determined by Borrower in accordance with FASB 13, excluding any

charges for insurance, maintenance, delivery and sales or use taxes.

 

c. “Closing Date”

means the date hereof.

 

d. “Collateral”

is defined in the Security Agreement.

 

e. “Contract”

means any Contract between the Borrower and an Obligor which is identified in

an Addendum and Assignment, and which meets the eligibility criteria set forth

in Exhibit “A” attached

hereto.

 

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f.      “Delinquent

Contract” means any Contract where payment in full of all

installments then due has not been made within 30 days of the due date or where

any other default has occurred and such default has continued for a period of

at least 30 days.

 

g.     “Equipment”

is defined in the Security Agreement.

 

h.     “Equipment Value”

means, (i) with respect to any Contract which is an installment sales contract

or installment note, the sales price of the Equipment subject to such Contract,

excluding sales or use tax, delivery charges, installation charges and

any security deposit that is or will be applied as a credit against any

installment payment in whatever form collected; (ii) with respect to any

Contract which is a finance lease, the Capitalized Cost to Lessee, excluding

sales or use tax, delivery charges, installation charges and any security

deposit that is or will be applied as a credit against any rent payment; and

(iii) with respect to any Contract which is an operating lease, the Capitalized

Cost to Lessee, excluding sales or use tax, delivery charges,

installation charges and any security deposit that is or will be applied as a

credit against any rent payment.

 

i.      “GAAP”

means generally accepted accounting principles as in effect from time to time,

which shall include the official interpretations thereof by the Financial

Accounting Standards Board, consistently applied.

 

j.      “Loan Documents” means

this Agreement, the Note, the Security Agreement, the Addendum and Assignment,

the Repossession Agreement, the UCC-1 and UCC-3 Financing Statements, and all

other documents, instruments or agreements (excluding the Contracts) necessary

to give effect to this Agreement and the transaction contemplated hereby.

 

k.    “Maturity Date”

means June 1, 2005.

 

l.      “Note”

means the promissory note of the Borrower in the amount of $3,280,000.00 dated of even date herewith

substantially in the form of Exhibit “B”

hereto.

 

m.    “Obligor”

means, with respect to any Contract, the person identified on a Contract as the

lessee or purchaser.

 

n.     “Repossession

Agreement” means that certain Repossession and Remarketing

Agreement by and between Borrower and Lead Lender dated the date hereof, as it

may be amended from time to time.

 

o.     “Required Payment Amount”

means as of any Installment Payment Date (as defined in Note), that amount

equal to the monthly amount necessary to fully amortize the then outstanding

principal balance and accrued interest under the Note in equal monthly

installments by the Maturity Date, together with payment of the Servicing Fee

described in the Note.

 

2.     The

Credit Facility. 

Subject to and upon the terms and conditions hereof, and in reliance

upon the representations and warranties of the Borrower herein, Lender will

make the Loan to Borrower in multiple advances (each an “Advance”) from time

to time, but in any event not later than 180 days from the date of this

Agreement, at such time and in such amount as to each “Advance Request” (as

defined in Section 3) as Borrower may request up to but not exceeding an

aggregate principal amount of $3,280,000.00 for the purpose of funding

Contracts 

 

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to certain Obligors, and to

pay all related transaction costs.  In

the event the entire $3,280,000.00 is not advanced from the Escrow within 180

days from the date of this Agreement, the remaining balance of the Escrow shall

be applied by Lender as a principal balance reduction under the Note.  The Loan will be advanced based on multiple

Advance Requests (as hereafter defined) but will not be a revolving credit

facility and Borrower may not borrow, repay and re-borrow amounts

advanced.  Advances will be made from

the “Escrow”,

as defined in Section 3.  The

Advance amount of any Advance Request shall not exceed ninety percent (90%) of

the Equipment Value of each Contract identified in the respective Advance

Request, or of all the Contracts identified in each such Advance Request, and

each Advance Request shall support an Advance in an amount not less than two

hundred fifty thousand dollars ($250,000.00). 

The Loan shall bear interest at the rate of eight percent (8.0%) per annum. 

The Loan shall be payable over a thirty-six (36) month term.  Commencing on June 1, 2002 and continuing on each Installment Payment Date

(as defined in the Note) thereafter, Borrower shall pay installments of

principal and interest equal to the Required Payment Amount; provided that the

unpaid principal balance of the Note, interest accrued thereon and all charges

payable pursuant to the terms of the Note shall become due and payable in full

on the earlier to occur of the following: (i) the Maturity Date, (ii) the

occurrence of an Event of Default and (iii) the Installment Payment Date (as

defined in the Note) next following the Installment Payment Date on which the

unpaid principal balance of the Note declines below $25,000.00.  Any prepayments made on any Contract shall

be used to prepay the Loan to the extent required by the Security

Agreement.  The Note may not be prepaid

in whole or in part during the first year. 

Thereafter, the Note may be prepaid in whole or in part at any time,

provided that any prepayment shall be made on thirty (30) days’ advance written

notice to Lead Lender and shall be made only on a regularly scheduled

Installment Payment Date and any partial prepayment shall be made in

denominations of no less than $25,000.00. 

After a prepayment, the then outstanding principal balance and accrued

interest will be reamortized over the period remaining between the date of

prepayment and the Maturity Date.  All

amounts paid in respect of the Note shall be applied in accordance with the

Note and the Security Agreement.  All

payments and prepayments of the principal of and interest on the Loan shall be

made by Borrower to Lead Lender pursuant to the terms of the Note and the other

Loan Documents, and shall be made by wire transfer in accordance with Lead

Lender’s instructions.

 

3.     Borrowing

Procedure and Disbursement of Loan Proceeds.   The Loan will be advanced under the Note

and deposited in an interest bearing Money

Market Account with or maintained by Lead Lender (the “Escrow”).  Each time Borrower desires to obtain a

disbursement from the Escrow, Borrower shall submit to Lead Lender a written

advance request, duly signed by Borrower, substantially in the form of Exhibit “C” attached hereto (each an “Advance Request”).  Each Advance Request shall be submitted by

the Borrower to Lead Lender at least five (5) business days prior to the date

of the requested Advance.  Each Advance

Request shall specify (i) the advance date (which shall be a business day),

(ii) the Equipment being acquired or financed therewith and the Equipment Value

thereof, (iii) the terms of and parties to the Contract(s) to which such

Equipment will be sold or leased, and (iv) the amount of the requested Advance,

and shall set forth the information requested therein.  Unless Lead Lender reasonably determines any

applicable condition specified in this Agreement has not been satisfied, Lead

Lender will make the amount of the requested Advance available to Borrower at

Lead Lender’s principal office in Thermopolis, Wyoming, not later than 5:00 p.m., Central Standard

Time, on the requested advance date. 

Borrower shall be obligated to repay the Loan 

 

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notwithstanding the fact that the person

requesting any Advance was not in fact authorized to do so.  The proceeds of the Loan will be advanced or

disbursed to Borrower as described herein upon delivery to Lead Lender of the

following documents or other items:

 

a.     Items

Necessary at time this Agreement is Executed:

 

i.              The Loan Documents, each executed by the

Borrower in favor of Lead Lender;

 

ii.            Resolutions of the Executive Committee of the

Board of Directors (together with sufficient documentation of such Committee’s

appointment and authority) or of the Board of Directors of each of the

Borrowers, authorizing the execution, delivery and performance of the Loan

Documents and related documents and the transactions contemplated thereby;

 

iii.           Evidence in form and substance acceptable to

Lead Lender that Borrowers have all licenses necessary to carry on business and

to enable them to perform their obligations under the Repossession Agreement,

including without limitation all licenses required under Nevada, Colorado,

Mississippi and all applicable Indian Tribes, and all applicable state,

federal and Tribal gaming laws, rules

and regulations for the operation of

Borrowers’ businesses;

 

iv.            Articles of Incorporation of PDS, a copy of

the Bylaws of PDS, and an unqualified certificate of good standing for PDS

issued by the Minnesota Secretary of State;

 

v.             Articles of Incorporation of PDS-NV, a copy

of the Bylaws of PDS-NV, and an unqualified certificate of good standing for

PDS-NV issued by the Nevada Secretary of State;

 

vi.            Articles of Incorporation of PDS-MS, a copy

of the Bylaws of PDS-MS, and an unqualified certificate of good standing for

PDS-MS issued by the Mississippi Secretary of State;

 

vii.           Articles of Incorporation of PDS-CO, a copy

of the Bylaws of PDS-CO, and an unqualified certificate of good standing for

PDS-CO issued by the Colorado Secretary of State;

 

viii.         UCC searches with respect to each Borrower;

 

ix.            Certificates of insurance and insurance

endorsements required hereby;

 

x.             The favorable opinion of Borrower’s in-house

counsel as to the due and valid existence of each Borrower; as to the valid and

binding nature of  and enforceability of

all Loan Documents with respect to each Borrower; as to the absence of default

and conflicts by each Borrower’ and to such other matters incident to the

transactions herein contemplated as Lead Lender may require; and

 

xi.            Such additional certificates and agreements

as the Lead Lender reasonably determines are necessary or appropriate.

 

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b.     Borrower Items

Necessary Before any Advance:

 

i.              An Addendum and Assignment and UCC-1 and

UCC-3 Financing Statements, each executed by Borrower in favor of Lead Lender

with respect to the Contract(s) being financed with the requested Advance, and

an assignment of Borrower’s interest as secured party with respect to the

related Equipment;

 

ii.            With respect to each of the Contracts in

which Borrower is granting a security interest to Lead Lender pursuant to the

Addendum and Assignment, the executed original of each such Contract, with all

collateral schedules, and copies of such additional instruments, documents,

certificates, searches and reports as Borrower has obtained in connection with

such Contract;

 

iii.           A Notice, Consent and Acknowledgment of

Assignment with respect to the Contract(s) being financed with the requested

Advance, duly executed by Borrower in form and substance acceptable to

Lead Lender;

 

iv.            Updated UCC searches with respect to each

Borrower who is requesting an Advance;

 

v.             Except as to financing statements in favor of

Lead Lender, UCC-3 (or other applicable) financing statements terminating

conflicting security interests filed with respect to the Contracts and the

Equipment identified in the applicable Advance Request;

 

vi.            Certificates of insurance and insurance

endorsements required hereby;

 

vii.           All other items as may be required pursuant

to the eligibility criteria set forth in Exhibit

“A” attached hereto.

 

c.     Obligor Items

Necessary Before any Advance:

 

i.              A Notice, Consent and Acknowledgment of

Assignment duly executed by the Obligor under each Contract being financed with

the requested Advance.  For

purposes of this Agreement, each Notice, Consent and Acknowledgement of

Assignment and each Contract must contain a limited waiver of sovereign

immunity from suit to allow Borrower or Lead Lender, as the case may be, to

enforce the terms of any Contracts and the Loan Documents, and a Consent to

Suit and Consent to Jurisdiction in the United States District Court for the

judicial district in which the collateral is located for each Obligor in favor

of Borrower and Lead Lender in connection with such Contract;

 

ii.            UCC-1 Financing Statements, executed by the

Obligor in favor of Borrower and assigned to the Lead Lender with respect to

the Contract(s) being financed with the requested Advance, and the related

Equipment and releases, terminations or other appropriate filings, if any;

 

iii.           Certificates of insurance and insurance

endorsements required hereby;

 

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iv.            All other items as may be required pursuant

to the eligibility criteria set forth in Exhibit

“A” attached hereto.

 

4.     Representations

and Warranties of Borrower.  In

order to induce Lead Lender to advance the proceeds of the Loan, pursuant to

Advance Requests, Borrower (and each Borrower, as applicable) hereby represents

and warrants to Lead Lender as follows:

 

a.     PDS is a corporation duly organized and validly existing under the laws

of the State of Minnesota.  PDS-NV is a

corporation duly organized and validly existing under the laws of the State of

Nevada.  PDS-MS is a corporation duly

organized and validly existing under the laws of the State of Mississippi.  PDS-CO is a corporation duly organized and

validly existing under the laws of the State of Colorado.  Borrower is duly qualified to do business

and is in good standing in every other jurisdiction wherein the nature of its

business or the character of its properties makes such qualification necessary

and where failure to be so qualified and in good standing, in the aggregate,

would not have a material adverse effect on the business, properties,

operations, assets, liabilities or condition (financial or otherwise) of such

Borrower.  Borrower (and each Borrower,

as applicable) has all requisite power and authority to carry on its business

as now conducted and as presently proposed to be conducted.

 

b.     Borrower has full power and authority to execute and deliver the Loan

Documents and to incur and perform its obligations hereunder and

thereunder.  The execution, delivery and

performance by Borrower of the Loan Documents and any and all other documents

and transactions contemplated hereby or thereby, have been duly authorized by

all necessary corporate action, will not violate any provision of law or of the

Articles of Incorporation or the Bylaws of Borrower or result in the breach of,

constitute a default under, or create or give rise to any lien under, any indenture

or other agreement or instrument to which Borrower is a party or by which

Borrower or its property may be bound or affected.  The Loan Documents have been executed and delivered to the Lead

Lender by an appropriate officer of Borrower who is authorized by and specified

in Borrower’s Bylaws to execute and so deliver such agreements. Borrower is not

in violation of or subject to any contingent liability on account of any

statute, law, rule, ordinance, order, writ, injunction or decree to the extent

that such violation or contingent liability would result in a material adverse

effect on the condition (financial or otherwise), business, properties, or

assets of Borrower.  As used herein,

material adverse effect means a violation or contingent liability that would

result in a cost or loss to Borrower of $500,000.00 or more.

 

c.     The Loan Documents constitute the legal, valid and binding obligations

of Borrower, enforceable in accordance with their respective terms.

 

d.     There is no action, suit or proceeding pending or, to the knowledge of

Borrower, threatened against or affecting Borrower, or any basis therefor,

which, if adversely determined, would have a material adverse effect on the

condition (financial or otherwise), business, properties or assets of Borrower

or which would question the validity of the Loan Documents or any instrument,

document or other agreement related hereto or required hereby, or impair the

ability of Borrower to perform its obligations under the foregoing agreements.

 

e.     Borrower possesses adequate licenses, permits, franchises, patents,

copyrights, trademarks and trade names, or rights thereto (collectively “Licenses”), to

conduct its business 

 

6

 

substantially as now

conducted and as presently proposed to be conducted.  Each License is validly issued and in full force and effect.  Borrower has fulfilled and performed all of

its obligations with respect thereto. 

No event has occurred which: (1) results in, or after notice or lapse of

time or both would result in, suspension, surrender, failure to renew,

revocation or termination of any material License; or (2) materially and

adversely affects or in the future may (so far as Borrower can now reasonably

foresee) materially adversely affect any of the rights of Borrower

thereunder.  Borrower is not a party to

and Borrower does not have any knowledge of any notice of violation, order or

complaint issued by or before any court or regulatory body or of any other

proceedings which could in any manner result in suspension, surrender, failure

to renew, revocation or termination of any material License or otherwise

threaten or adversely affect the validity or continued effectiveness of the

Licenses of Borrower.  Borrower has no

reason to believe that any Licenses will not be renewed in the ordinary

course.  Borrower has fully cooperated

with every regulatory body having jurisdiction over any of the Licenses or the

activities of Borrower with respect thereto, and Borrower has filed all

material reports, applications, documents, instruments, and information

required to be filed by it pursuant to applicable laws, rules and

regulations.  Borrower has posted all

required bonds required under its Licenses.

 

f.      Borrower owns the Contracts constituting part of the Collateral,

subject to no prior security interests, assignments, liens or encumbrances at

the time of closing.  Lead Lender has

(or shall have in the context of each Advance Request) a valid first perfected

security interest in the Collateral subject to no prior security interests or

encumbrances.  The security interest of

Lead Lender has been recorded with the appropriate recording offices, and the

Lead Lender’s security interest in the Equipment is a first priority perfected

security interest, subject only to the rights of the Obligors and Borrowers

under the Collateral.

 

g.     No director, shareholder, officer, employee of or consultant to

Borrower is prohibited by law, regulation, contract or the terms of any

license, franchise, permit, certificate, approval or consent from participating

in the business of Borrower as director, shareholder, officer, employee of or

as consultant to Borrower.

 

h.     Except with respect to reporting and compliance requirements of the

regulatory gaming authorities in the jurisdictions in which either Borrower or

any Obligor conduct business, no consent, approval, order or authorization of,

or registration, declaration or filing with, or notice to, any governmental

authority or any third party is required in connection with the execution and

delivery of the Loan Documents or any of the agreements or instruments

contemplated thereby to which Borrower is a party, or in connection with the

carrying out or performance of any of the transactions required or contemplated

hereby or thereby or, if required, such consent, approval, order or

authorization has been obtained or such registration, declaration or filing has

been accomplished or such notice has been given prior to the date hereof.

 

i.      Borrower has filed all local, state, federal and other tax returns

required to be filed by it and either paid all taxes shown thereon to be due,

including interest and penalties, which are not being contested in good faith

and by appropriate proceedings, or provided adequate reserves for payment thereof.  Borrower has no information or knowledge of

any 

 

7

 

objections to or claims for

additional taxes in respect of local, state and federal or other income or

excess profits tax returns of Borrower for prior years.

 

j.      Borrower does not intend to, or believe that it will, incur debts

beyond its ability to pay such debts as they mature.

 

k.    All financial and other information provided to Lead Lender by or on

behalf of Borrower in connection with Borrower’s request for the Loan fairly

presented the financial condition of Borrower as of the dates thereof and

disclosed fully all liabilities of Borrower. 

Since the date of such financial and other information, there has been

no material adverse change in the financial condition of Borrower.

 

l.      Each qualified retirement plan of Borrower, if any, presently conforms

to and is administered in a manner consistent with the Employee Retirement

Income Security Act of 1974.

 

m.    As of the date hereof, no Contract is a Delinquent Contract, and each

Obligor under each Contract satisfies the Borrower’s standard underwriting and

credit criteria.

 

n.     Borrower is not engaged in the business of extending credit for the

purpose of purchasing or carrying margin stock (within the meaning of

Regulation U issued by the Board of Governors of the Federal Reserve System),

and no proceeds of the Loan will be used to purchase or carry any margin stock

or to extend credit to others for the purpose of purchasing or carrying any

margin stock.

 

o.     No proceeds of the Loan will be used to acquire any security in any

transaction, which is subject to Sections 13 and 14 of the Securities Exchange

Act of 1934.

 

p.     The transaction evidenced by this Agreement does not violate any law

pertaining to usury or the payment of interest on loans.

 

q.     Borrower will use the proceeds of the Loan solely for lawful and proper

corporate purposes of Borrower.

 

5.     Affirmative

Covenants. 

Borrower covenants and agrees as follows:

 

a.     Borrower will use the proceeds of each Loan solely for the financing of

Contracts to certain casino/gaming operators.

 

b.     Borrower will pay all of its taxes (including payroll and withholding

taxes), levies, assessments and governmental charges prior to the time when any

penalties or interest accrue, unless contested in good faith with an adequate

reserve for payment.

 

c.     Borrower will continue the conduct of its business, maintain its

corporate existence, maintain all rights, licenses and franchises necessary or

desirable in the normal conduct of its business, comply with all rules,

regulations and orders of any governmental or other authority or agency and all

applicable federal and state laws and regulations.  Without in any way limiting the generality of the foregoing, the

Borrower will maintain all licenses required under Nevada, Colorado and

Mississippi gaming laws for the operation of each Borrower’s 

 

8

 

business, and will timely

file all reports as any applicable gaming commission, or authority, may from

time to time require or request.

 

d.     Borrower shall use best efforts to cause each Obligor to maintain and

service the Equipment so as to keep such Equipment in good operating condition,

ordinary wear and tear from normal use excepted.

 

e.     Borrower will deliver to Lead Lender:

 

i.              Within one hundred twenty (120) days after

the end of each fiscal year, the consolidated audited financial statements of

Borrower for such fiscal year, certified (without qualification as to the

opinion or scope of examination) by a firm of independent certified public

accountants selected by Borrower and acceptable to Lead Lender.

 

ii.            Within forty-five (45) days after the end of

each fiscal quarter, consolidated quarterly financial statements of Borrower,

together with a compliance certificate in the form attached hereto as Exhibit “D”.

 

iii.           Upon the reasonable request of Lead Lender,

all backup data regarding the Contracts and the Equipment.

 

iv.            Copies of any and all reports, filings,

financial statements or other information as and when filed with the United

States Securities and Exchange Commission and with any gaming authorities (only

in connection with the Loan, the Contracts, the Equipment, or Lead Lender), and

copies of all information and notices as and when delivered to Borrower’s

shareholders.

 

v.             Promptly upon becoming aware thereof, notice

of any default with respect to any other indebtedness, whether owed to Lead

Lender, or any other creditor.

 

f.      Upon reasonable notice of not less than 48 hours, Borrower will permit

any officer, employee, attorney or accountant for Lead Lender or any

Participant to review, make extracts from, or copy any and all corporate and

financial books and records of Borrower relating to the Contracts at all times

during ordinary business hours, to send and discuss with any Obligor requests

for verification of amounts owed to Borrower if Lead Lender or any Participant

has a reasonable basis for believing such a verification is necessary, and to

discuss the affairs of Borrower with any of its officers.  After the occurrence of an Event of Default,

the rights to review and copy books and records shall not be limited to those

relating to the Contracts but will be all of Borrower’s books and records, and

no prior notice to Borrower shall be required.

 

g.     Borrower will provide Lead Lender with an insurance certificate, issued

by each Obligor’s insurer, in form and content and from insurers acceptable to

Lead Lender, providing in each case for ten (10) days’ written notice to Lead Lender of cancellation or

non-renewal (without qualification), and evidencing the following categories

and amounts of coverage:

 

i.              Comprehensive public liability coverage for

the Obligor.

 

9

 

ii.            Comprehensive physical damage insurance for

the full insurable value of the Equipment, naming the Lead Lender as loss

payee, as its interests may appear.

 

iii.           If circumstances warrant, warehouse and

transportation insurance on the Equipment which is being stored or transported,

as the case may be, for the full insurable value of the Equipment naming the

Lead Lender as loss payee.

 

iv.            With respect to any Equipment which is

located on any ship or which is otherwise subject to any maritime laws,

shipwreck, piracy, abandonment and hull insurance in such amounts as Lead

Lender may request, with lender’s loss payable endorsement provided to Lead

Lender.

 

h.     Borrower will notify Lead Lender promptly of (i) any material disputes

or claims by any Obligor; (ii) any Equipment returned to or recovered by

Borrower or damaged, destroyed or stolen from Borrower or an Obligor; (iii) any

change in the persons constituting the directors or officers of any Borrower;

(iv) the occurrence of any breach, default or event of default by or attributable

to any Borrower under this Agreement or any of the Loan Documents; (v) the

occurrence of any breach, default or event of default by or attributable to any

Obligor under the Obligor’s Contract; and (vi) any event which may have any

effect on the enforceability or priority of any lien in favor of Lead Lender,

or on the ability of Borrower or the Obligor to perform its obligations under

the Loan Documents or any Contract, as the case may be.

 

i.      Borrower will notify Lead Lender in writing promptly after the

commencement of any lawsuit, legal proceeding or proceedings before any

governmental or regulatory agency against Borrower, which may have a material

adverse effect on the Loan, the Contracts, the Equipment, Lead Lender or any

Participant or the business of Borrower. 

As used herein, material adverse effect means a lawsuit or proceeding

involving a potential cost or loss of $500,000.00 or more.

 

j.      With respect to any Delinquent Contract, Borrower shall comply with

Section 7 of this Agreement.

 

k.    Borrower will keep full and complete books of record and accounts for

itself and other records reflecting the results of each Borrower’s operations,

all in accordance with GAAP.

 

l.      At any time upon request from Lead Lender after the occurrence of an

Event of Default, Borrower will cause the Obligors under the Contracts which

constitute a part of the Collateral to be notified to make payment directly to

Lead Lender, or Lead Lender may effect such notice, and Lead Lender shall be

entitled to take control of any proceeds thereof.

 

m.    After the occurrence of an Event of Default, all proceeds of Collateral

not released from the lien of the Security Agreement pursuant to the Security

Agreement, including without limitation, proceeds from the sale or re-leasing

of the Equipment, proceeds of insurance and all other unscheduled recoveries,

shall be paid by Borrower into a collateral account administered by Lead Lender

in the manner described in the Security Agreement.

 

n.     In the event any Equipment has been repossessed, Borrower shall pay

promptly to Lead Lender the proceeds of the sale or other disposition of the

Equipment, together 

 

10

 

with a cash payment equal to

any additional amount necessary to fully pay the unamortized amount of the Loan

proceeds advanced with respect to Contract(s) relating to such Equipment.

 

o.     In the event any Equipment is damaged, destroyed, lost or stolen,

Borrower shall pay promptly to Lead Lender the proceeds of any insurance on the

Equipment, together with a cash payment equal to any additional amount

necessary to fully pay the unamortized amount of the Loan proceeds advanced

with respect to Contract(s) relating to such Equipment.

 

p.     Borrower shall service the Contracts, which form a part of the

Collateral in accordance with the industry standards applicable to servicers of

such contracts, and Borrower shall have ultimate responsibility for such

servicing.  If Borrower shall fail in

any material respect in the performance of its duties hereunder, and such

failure shall continue for thirty (30) days, Lead Lender shall appoint a

servicer, chosen at the discretion of Lead Lender (which may include, but not

be limited to, Lead Lender), to perform such duties, and Borrower shall

promptly make available to such servicer all books and records in any and all

formats with respect to the Collateral, and shall also make available to the

servicer without fee any and all computer software necessary to service the

Collateral.  Fees of such replacement

servicer shall be paid in the manner described in the Security Agreement.

 

q.     Borrower will provide notice to all applicable gaming authorities, to

the extent required by the applicable gaming law, of Lead Lender’s security

interest in the Contracts and the Equipment.

 

r.     After the occurrence of an Event of Default and not later than two (2)

days prior to a date on which a payment is due under the Note, Borrower shall

provide Lead Lender with a detailed report with respect to all monies, if any,

deposited in the collateral account pursuant to the Security Agreement,

including amounts paid in respect of Payments on all Contracts (as due and as a

prepayment) and amounts paid in respect of interest.  The report shall be prepared in such manner as may be required by

Lead Lender for purposes of properly applying funds in accordance with the

Security Agreement, if applicable.

 

s.     With respect to each of the Contracts, Borrower shall:  (i) perform all acts necessary to preserve

the validity and enforceability of each such Contract; (ii) take all actions

reasonably necessary to assist Lead Lender in collecting when due all amounts

owing to Borrower with respect to each such Contract; (iii) at all times keep

accurate and complete records of performance by Borrower and the Obligor under

each such Contract; and (iv) upon request of Lead Lender verify with the

Obligor under each Contract the payments due to Borrower under such Contract,

except that (A) prior to the occurrence of an Event of Default or an event

which with the passage of time or the giving of notice, or both, would be an

Event of Default, such requests shall not occur any more frequently than once

each year and (B) after the occurrence and during the continuance of an Event

of Default or an event which with the passage of time or the giving of notice,

or both, would be an Event of Default such requests may occur as often as Lead

Lender shall require.

 

t.      Borrower will store the Equipment (which is

not in the possession of an Obligor) only in the Borrower’s warehouses or in

bonded warehouses.

 

11

 

u.     Borrower shall maintain at all times a

tangible net worth (“Tangible

Net Worth”) in an amount of not less than $7,000,000.00 plus 15%

of positive Net Income earned after December 31, 2001.  For the purposes of this subsection, “Tangible

Net Worth” shall mean at any date of determination, the difference between: (a)

the total assets appearing on Borrower’s balance sheet (without duplication) at

such date prepared in accordance with GAAP after deducting adequate reserves in

each case where, in accordance with GAAP, a reserve is proper; and (b) the

total liabilities appearing on such balance sheet, excluding amounts due to

Borrower; excluding, however, from the determination of total assets: (i)

goodwill, organizational expenses, research and development expenses,

trademarks, trade names, copyrights, patents, patent applications, Licenses and

rights in any thereof, covenants not to compete, training costs and other

similar intangibles; (ii) all deferred charges or unamortized debt discount and

expense other than deferred income taxes; (iii) securities which are not

readily marketable; (iv) unless reflected in the Borrower’s audited financial

statements, any write-up in the book value of any assets resulting from a

reevaluation thereof; (v) amounts due from officers or affiliates; and (vi) any

asset acquired subsequent to the date of this Agreement which Lender, in its

sole discretion, determines to be an intangible asset.

 

v.     Borrower shall have a Cash Flow Ratio of not less than 1.5 to 1.0 as of

the end of each calendar quarter measured on a trailing twelve (12) month

basis.  As used herein, “Cash Flow Ratio”

means the ratio of (a) net income plus interest expense, income taxes, depreciation

and amortization to (b) interest expense plus dividends.

 

w.    Borrower shall maintain at all times a Leverage Ratio not to exceed

7:1.  Leverage Ratio is defined as:

total debt (total liabilities less subordinated debt, non-recourse debt, and deferred

funds) divided by Tangible Net Worth.

 

6.     Negative

Covenants. 

Borrower (and each Borrower, as applicable) covenants and agrees that,

except with the prior written approval of Lead Lender:

 

a.     Borrower will not create, incur or cause to exist any mortgage,

security interest, encumbrance, lien or other charge of any kind upon any of

the Collateral, whether now owned or hereafter acquired, except for the

security interests created by the Loan Documents.  Except as permitted by the Security Agreement, Borrower will not

sell, dispose of, lease, mortgage, assign, sublet or transfer all or any part

of Borrower’s right, title or interest in or to all or any portion of the

Collateral.

 

b.     Borrower will not substantially alter the general nature of the business

in which it is engaged, or engage in any line of business materially different

in relation to the transactions contemplated by this Loan Agreement from its

current business.

 

c.     Borrower will not permit any material breach, default or event of

default to occur under any note, loan agreement, indenture, lease, mortgage,

contract for deed, security agreement or other contractual obligation binding

upon Borrower which is not cured within the applicable cure provisions thereof.

 

d.     Other than negotiating termination value as may be set forth in any

Contract “Purchase Options”, Borrower will not materially amend, supplement,

modify, compromise or waive any of the terms of any Contract, without the prior

written consent of Lead Lender, 

 

12

 

provided that Borrower will

have the right to substitute Equipment subject to any Contract with other

Equipment that is like-kind in value as long as Borrower files an amended or

updated UCC financing statement signed by Lead Lender as to the substituted

Equipment within the time period required by the law of the applicable

jurisdiction to perfect a purchase money security interest and delivers such

filed financing statements to Lead Lender.

 

e.     Borrower will not make any payments on any of Borrower’s indebtedness

to any of Borrower’s affiliated entities, or to any of Borrower’s shareholders,

officers, directors or employees, following the occurrence of and during the

continuance of an Event of Default or a failure to comply with a covenant

contained in Section 5 or this Section 6.

 

f.      After delivery of the Equipment to Obligor, Borrower will not cause or

allow any movement of the Equipment, except as permitted in this Agreement or

in connection with any repossession by Borrower of such Equipment.

 

7.     Delinquent

Contracts.  So

long as no Event of Default or event which with the giving of notice or the

passage of time would constitute an Event of Default has occurred under this

Agreement, Delinquent Contracts that are in monetary default only may remain

part of the Collateral provided that (i) Borrower gives written notice to Lead

Lender within thirty (30) days of each monthly monetary default; and (ii) the

defaults by the Obligor do not exceed three (3) consecutive monthly payments or

a total of six (6) nonconsecutive monthly payments.  With respect to Delinquent Contracts that are in monetary default

beyond the limitations of the foregoing sentence, Borrower shall within thirty

(30) days, either (i) pay to Lead Lender an amount equal to the outstanding

balance of the Loan proceeds advanced with respect to such Contract, and such

payment shall be applied to the unpaid principal balance of the Note, or (ii)

execute and deliver to Lead Lender an Addendum and Assignment (and appropriate UCC

financing statements and the other documents described in Section 4

hereof) respecting one or more other Contracts with an aggregate Equipment

Value multiplied by 90% that is equal to or greater than the outstanding

balance of the Loan proceeds advanced with respect to such Delinquent Contract,

and Obligor Acknowledgment(s) relating to such Contract(s) duly executed by

each Obligor under such Contract, and all such other documents, instruments and

agreements as required under this Agreement or as Lead Lender may request.

 

8.     Replacement

Rights. 

Borrower may, during any calendar year, upon ten (10) days prior written

notice to Lead Lender, obtain a release of a particular Contract from the

Collateral (the “Released

Contract”) and substitute one or more other Contracts (the “Replacement Contract”),

provided that (i) neither the Released Contract or the Replacement Contracts

are Delinquent Contracts; and (ii) Borrower executes and delivers to Lead

Lender an Addendum and Assignment (and appropriate UCC financing statements)

respecting the Replacement Contracts(s) with an aggregate Equipment Value

multiplied by 90% that is equal to or greater than the outstanding balance of

the Loan proceeds advanced with respect to the Released Contract (the “Unamortized Advance”),

and Obligor Acknowledgment(s) relating to the Replacement Contract(s) duly

executed by each Obligor under such Contract(s), and all such other documents,

instruments and agreements as required under this Agreement or as Lead Lender

may request.

 

9.     Returned

Equipment. 

Certain Contracts that may be funded pursuant to the Loan will contain a

provision giving the Obligor the right, under certain circumstances, to return

and 

 

13

 

replace some portion of the

Equipment that is subject to a particular Contract.  In that event, Borrower has agreed with the Obligor to amend the

Contract to reduce the obligations of the Obligor thereunder and create a new

Contract for replacement Equipment. 

Borrower agrees that, in such event, in exchange for Lead Lender’s

release of its security interest in the returned Equipment (the “Returned Equipment”),

Borrower will make a prepayment on the Note equal to the outstanding balance of

the amount advanced by Lead Lender with respect to the Returned Equipment under

the applicable Contract.  Borrower

agrees to provide Lead Lender with a written certification (i) identifying the

Returned Equipment, (ii) the aggregate Equipment Value of the Returned

Equipment, (iii) 90% of such aggregate Equipment Value that was advanced by

Lead Lender in respect of the Returned Equipment and (iv) the outstanding

balance of the amount advanced in respect of the Returned Equipment.  Borrower also agrees to provide UCC-3

Releases to be executed by Lead Lender to release such Equipment.

 

10.      Event

of Default.  Each

of the following occurrences shall constitute an Event of Default under this

Agreement and under the Loan Documents (herein called an “Event of Default”):

 

a.     Borrower (and each Borrower, as the case may be) shall fail to pay any

or all of the indebtedness arising out of this Agreement or Loan Documents (the

“Obligations”)

when due or, if payable on demand, on demand and such failure shall continue

for a period of five (5) days after such payment becomes due; or

 

b.     Borrower (and each Borrower, as the case may be) shall fail to observe

or perform any covenant or agreement binding on Borrower under this Agreement

or under any other assignment, conveyance, instrument or agreement now in

effect or hereafter made between Borrower and Lead Lender, or under the Loan

Documents for a period of thirty (30) days; or

 

c.     Borrower (and each Borrower, as the case may be) shall make any

representations or warranties in this Agreement or in any such other assignment,

conveyance, instrument, agreement, financial statements, reports or

certificates heretofore or at any time hereafter submitted by or on behalf of

Borrower to Lead Lender, and such representations or warranties, shall prove to

have been false or materially misleading when made; or

 

d.     As a result of a default or failure by Borrower, payment of any

substantial indebtedness of Borrower (other than the Obligations and other than

indebtedness of Borrower to the extent the indebtedness is non-recourse to Borrower)

shall be demanded, or the maturity of any substantial indebtedness shall be

accelerated, or any precondition or circumstance permitting any creditor of

Borrower (acting individually or with the consent of other creditors) to

accelerate the maturity of any substantial indebtedness shall have occurred;

for this purpose indebtedness shall be deemed substantial if it exceeds

$250,000.00; or

 

e.     Any Borrower shall become insolvent or shall commit an act of

bankruptcy under the United States Bankruptcy Act, or shall file or have filed

against it, voluntarily or involuntarily, a petition in bankruptcy or for

reorganization or for the adoption of an arrangement or plan under the United

States Bankruptcy Act or shall procure or suffer the appointment of a receiver

for any substantial portion of its properties, or shall initiate or have

initiated against it, voluntarily or involuntarily, any act, process or

proceeding under any insolvency law or other statute or law providing for the

modification or adjustment of the rights of creditors and such 

 

14

 

petition,

receiver, act, process or proceeding shall not be dismissed or discharged

within ninety (90) days; or

 

f.      A garnishment summons or writ of attachment for an amount in excess of

$250,000.00 shall have been issued against or served upon Lead Lender or any

Participant for the attachment of any property of Borrower in the Lead Lender’s

or such Participant’s possession or any indebtedness owing Borrower; or

 

g.     Any Borrower shall have been dissolved, whether voluntarily or by

operation of law; or

 

h.     Any of Borrower’s gaming licenses, material to this Agreement, are

revoked or rescinded, lapse, or otherwise are no longer maintained by or

available to Borrower.

 

11.      Rights

and Remedies Upon Default.  Upon

the occurrence of an Event of Default and at any time thereafter, subject to

the gaming laws of any jurisdiction in which any of the Collateral is located,

the Lead Lender may exercise one or more of the following rights and remedies:

 

a.     Lead Lender may declare all unmatured Obligations to be immediately due

and payable, and the same shall thereupon be immediately due and payable,

without presentment or other notice or demand;

 

b.     Subject to the rights of the Obligors, Lead Lender may exercise and

enforce any and all rights and remedies available upon default to a secured

party under the Uniform Commercial Code including, without limitation, the

right to take possession of the Collateral, or any evidence thereof, proceeding

without judicial process or by judicial process (without a prior hearing or

notice thereof, which Borrower hereby expressly waives) and the right to sell,

lease or otherwise dispose of any or all of the Collateral, and Borrower agrees

to make the Collateral available to Lead Lender at a place to be designated by

Lead Lender which is reasonably convenient to both parties.  If notice to Borrower of any intended

disposition of the Collateral or any other intended action is required by law

in a particular instance, such notice shall be deemed commercially reasonable

if given at least ten (10) calendar days prior to the date of intended

disposition or other action;

 

c.     Lead Lender may request Borrower to, and upon such request Borrower

will, assist Lead Lender in repossessing and selling the Equipment in

compliance with all applicable laws and in accordance with the Repossession

Agreement (this provision in no way limits Lead Lender’s ability to use any

other person or entity to repossess and sell the Equipment);

 

d.     Without notice or demand, Lead Lender may offset any indebtedness Lead

Lender or any Participant’s, or any of Lead Lender’s or such Participant’s

successors or assigns then owe to Borrower whether or not then due, against any

Obligation then owed to Lead Lender or any of its successors or assigns by

Borrower, whether or not then due;

 

e.     Lead Lender may exercise the recourse rights of Borrower against the

Obligor on any Contracts; and

 

15

 

f.      Lead Lender may exercise or enforce any and all other rights or

remedies available by law or agreement against the Collateral, against Borrower

or against any other person or property.

 

12.      Miscellaneous. 

Borrower (and each Borrower, as the case may be) agrees that:

 

a.     The performance or observance of any promise or condition set forth in

this Agreement may be waived in writing by Lead Lender, but not otherwise.  No delay in the exercise of any power, right

or remedy of Lead Lender, shall operate as a waiver thereof, nor shall any

single or partial exercise thereof or the exercise of any other power, right or

remedy operate as a waiver thereof.

 

b.     This Agreement shall be binding upon Borrower and its successors and

assigns and shall inure to the benefit of Lead Lender, each Participant and the

successors and assigns of any of them, provided that Borrower may not transfer

or assign its rights hereunder without the prior written consent of Lead

Lender.  This Agreement shall be

effective the date written above.  All

rights and powers specifically conferred upon Lead Lender may be transferred or

delegated by Lead Lender to any of its Participants and to Lead Lender’s and

Participant’s successors or assigns. 

Except to the extent otherwise required by law, this Agreement and the

transactions evidenced hereby shall be governed by the substantive laws of the

State of Nevada without regard to principles of conflicts of laws.  If any provision or application of this

Agreement is held unlawful or unenforceable in any respect, such illegality or

unenforceability shall not affect other provisions or applications which can be

given effect, and this Agreement shall be construed as if the unlawful or

unenforceable provision or application had never been contained herein or prescribed

hereby.  All representations and

warranties contained in this Agreement or in any other agreement between

Borrower and Lead Lender, and each Participant, shall survive the execution,

delivery and performance of this Agreement and the creation and payment of any

indebtedness to Lead Lender and each Participant.  This Agreement may be executed in any number of counterparts,

each of which is to be deemed to be an original and all of which constitute one

agreement.

 

13.      Notices.  All

notices, consents, requests, demands and other communications hereunder shall

be given to or made upon the respective parties hereto at their respective

addresses specified below or, as to any party, at such other address as may be

designated by it in a written notice to the other party.  All notices, requests, consents and demands

hereunder shall be effective when personally delivered or five (5) days after

depositing in the United States mail, certified or registered, postage prepaid,

or when sent by confirmed facsimile, or when delivered by overnight courier.

 

	

  If to Borrower:

  	

   

  	

  PDS Gaming Corporation

  
	

   

  	

   

  	

  PDS

  Gaming Corporation-Nevada

  
	

   

  	

   

  	

  PDS

  Gaming Corporation-Mississippi

  
	

   

  	

   

  	

  PDS

  Gaming Corporation-Colorado

  
	

   

  	

   

  	

  6171

  McLeod Drive

  
	

   

  	

   

  	

  Las

  Vegas, NV  89120

  
	

   

  	

   

  	

  Attn:  Peter D. Cleary, President

  
	

   

  	

   

  	

  Telephone:  (702) 736-0700

  
	

   

  	

   

  	

  Fax:  (702) 740-8692

  

 

16

 

	

  If to Lead Lender:

  	

   

  	

  First State Bank of

  Thermopolis

  
	

   

  	

   

  	

  435 Arapahoe

  
	

   

  	

   

  	

  Thermopolis, WY 82443-1232

  
	

   

  	

   

  	

  Attn:  Brian Yarrington, President

  
	

   

  	

   

  	

  Telephone: (307)

  864-5561

  
	

   

  	

   

  	

  Fax:  (307) 864-9326

  

 

14.      Jurisdiction.  The

Borrower hereby submits itself to the jurisdiction of the State of Nevada and

the federal courts of the United States located in such state in respect of all

actions arising out of or in connection with the interpretation or enforcement

of this Agreement and the documents related thereto.

 

15.      Duties

of Lead Lender With Respect to Collateral.  Except with respect to the exercise of

remedies under this Agreement or the Security Agreement, Lead Lender shall have

no duty, responsibility or obligation of any nature whatsoever to service,

collect, administer, enforce or account for the Contracts.  Borrower shall service, account for,

administer, collect all payments and enforce all rights with respect to such

Contracts.  Upon the occurrence of an

Event of Default, Borrower shall deposit such payments promptly upon receipt

and in the form received in the collateral account established by Lead Lender

pursuant to the Security Agreement.

 

16.      Indemnification. 

Except for losses, claims, damages or liability arising out of the gross

negligence or willful misconduct of Lead Lender or any Participant, Borrower

agrees to indemnify and hold harmless Lead Lender or any Participant, and such

Lead Lender’s or Participant’s officers, agents (including outside legal

counsel) and employees, against any and all losses, claims, damages or

liability to which Lead Lender or any Participant, and such Lead Lender’s or

Participant’s officers, agents and employees, may become subject under any law

in connection with the carrying out of the transactions contemplated by this

Agreement or any other Loan Document, or the conduct of any activity related to

the Equipment and to reimburse Lead Lender or any Participant, and such Lead

Lender’s or Participant’s officers, agents and employees, for any out-of-pocket

legal and other expenses (including reasonable attorneys’ fees, whether

incurred at trial, on appeal, in bankruptcy proceedings, or otherwise) incurred

by Lead Lender or any Participant, and such Lead Lender’s or Participant’s

officers, agents and employees, in connection with investigating any such

losses, claims, damages or liabilities or in connection with defending any

actions relating thereto.  Lead Lender agrees,

at the request and reasonable expense of Borrower, to cooperate in the making

of any investigation in defense of any such claim and promptly to assert any or

all of the rights and privileges and defenses, which may be available to Lead

Lender or such Participant.  Borrower

further releases and agrees to hold harmless Lead Lender and each Participant,

and such Lead Lender’s and such Participant’s officers, agents and employees,

from and against all losses, damages, penalties, liabilities, or expenses

(including reasonable legal fees, whether incurred at trial, on appeal, in

bankruptcy proceedings, or otherwise) due to or arising out of any

misrepresentation of information furnished to Servicer by Borrower or out of a

breach of any covenant, representation or undertaking of Borrower contained in

this Agreement or any other Loan Document.  

Borrower’s liability hereunder shall not be limited to the extent of

such insurance or subject to any 

 

17

 

exclusions from coverage in

any insurance policy.  The provisions of

this Section shall survive the payment of the Note and the Loan.

 

17.      Attorneys

Fees and Taxes. 

Borrower shall reimburse Lead Lender, upon demand, for all reasonable

costs and expenses actually incurred, including without limitation reasonable

attorney’s fees paid or incurred by Lead Lender in connection with:

 

a.     The preparation or review of the Loan Documents (provided, however,

that Borrower’s obligation to pay legal fees to Lead Lender for legal services

rendered by counsel for Lead Lender in connection with the preparation and

review of the Loan Documents shall not exceed $10,000.00 and shall be supported

by a reasonably itemized statement of services rendered), the perfection,

protection, enforcement or foreclosure of the security interests created by the

Loan Documents, the protection or enforcement of the interests and collateral

security of Lead Lender, as agent and servicer on behalf of the Participants,

in any litigation or bankruptcy or insolvency proceeding or the prosecution or

defense of any action or proceeding relating in any way to the transactions

contemplated by this Agreement, travel to and from the offices and place of

business of Borrower, the negotiation and preparation of the Loan Documents and

all other documents necessary or desirable in connection with the original

execution and delivery of Loan Documents;

 

b.     Subsequent to the initial Closing, Borrower shall pay all fees and

expenses of Lead Lender including reasonable attorney’s fees in connection with

each Advance Request and in connection with the negotiation of any amendments

or modifications to any of the Loan Documents requested by or consented to by

Borrower or, if an Event of Default has occurred and is continuing, requested

by Lead Lender, and any related documents, instruments or agreements and the

preparation of any and all documents necessary or desirable to effect such

amendments or modifications; and

 

c.     The enforcement by Lead Lender during the term hereof or thereafter of

the rights or remedies of Lead Lender hereunder or under any of the foregoing

documents, instruments or agreements, including without limitation reasonable

costs and expenses of collection in the Event of Default, whether or not suit

is filed with respect thereto and whether such costs are paid or incurred, or

to be paid or incurred, prior to or after entry of judgment.

 

d.     Borrower agrees to pay all stamp, document, transfer, recording or

filing taxes or fees and similar impositions now or hereafter reasonably

determined by Lead Lender to be payable in connection with the Loan Documents,

or any other documents, instruments or transactions pursuant to or in

connection herewith or therewith, and Borrower agrees to save Lead Lender and

any Participant harmless from and against any and all present or future claims,

liabilities or losses with respect to or resulting from any omission to pay or

delay in paying any such taxes, fees or impositions, unless such omission or

delay is due to gross negligence or willful misconduct on the part of Lead

Lender.  All such expenses, taxes or

attorney’s fees shall be payable to Lead Lender on demand.  The obligations of Borrower under this

Section shall survive the repayment of the Note and Loan.

 

18.      Placement Fee.  The

Borrower shall pay to Miller Johnson Steichen Kinnard, Inc., on or before

Closing, a placement fee equal to three

percent (3.0%) of the Loan, which shall be deducted from the Loan

proceeds.

 

18

 

19.      Relationship

Among Borrowers.

 

a.     Joint and Several Liability.  BY

SIGNING THIS AGREEMENT, EACH OF BORROWERS AGREES THAT IT IS LIABLE, JOINTLY AND

SEVERALLY WITH THE OTHER BORROWERS, FOR THE PAYMENT OF THE NOTE AND ALL OTHER

OBLIGATIONS OF BORROWERS UNDER THIS AGREEMENT, AND THAT LEAD LENDER CAN ENFORCE

SUCH OBLIGATIONS AGAINST EITHER BORROWER, IN LEAD LENDER’S SOLE AND UNLIMITED

DISCRETION.

 

b.     Lead Lender’s Rights to Administer the Loan. Lead Lender may at any time and from time

to time, without the consent of, or notice to, any Borrower, without incurring

responsibility to any Borrower, and without affecting, impairing or releasing

any of the obligations of any Borrower hereunder:

 

i.              Alter, change, modify, extend, release,

renew, cancel, supplement or amend in any manner the Loan Documents provided at

least one Borrower has consented thereto, and Borrowers’ joint and several

liability shall continue to apply after giving effect to any such alteration,

change, modification, extension, release, renewal, cancellation, supplement or

amendment;

 

ii.            Sell, exchange, surrender, realize upon,

release (with or without consideration) or otherwise deal with in any manner

and in any order any property of any person or entity mortgaged to Lead Lender

or otherwise securing Borrowers’ joint and several liability, or otherwise

providing recourse to Lead Lender with respect thereto;

 

iii.           Exercise or refrain from exercising any

rights against either Borrower or others with respect to Borrowers’ joint and

several liability, or otherwise act or refrain from acting;

 

iv.            Settle or compromise any of Borrowers’ joint

and several liability, any security therefor or other recourse with respect

thereto, or subordinate the payment or performance of all or any part thereof

to the payment of any liability (whether due or not) of either Borrower to any

creditor of either Borrower, including without limitation, Lead Lender and

either Borrower;

 

v.             Apply any sum received by Lead Lender from

any source in respect of any liabilities of either Borrower to Lead Lender to

any of such liabilities, regardless of whether the Note remains unpaid;

 

vi.            Fail to set off and/or release, in whole or

in part, any balance of any account or any credit on its books in favor of

either Borrower, or of any other person, and extend credit in any manner

whatsoever to either Borrower, and generally deal with either Borrower and any

security for Borrowers’ joint and several liability or any recourse with

respect thereto as Lead Lender may see fit; and/or

 

vii.           Consent to or waive any breach of, or any

act, omission or default under, this Agreement or any other Loan Document,

including, without limitation, any agreement providing collateral security for

the payment of Borrowers’ joint and several liability or any other indebtedness

of either Borrower.

 

19

 

c.     Primary Obligation.  No

invalidity, irregularity or unenforceability of all or any part of either

Borrower’s joint and several liability or of any security therefor or other

recourse with respect thereto shall affect, impair or be a defense to the other

Borrower’s joint and several liability, and all obligations under the Note and

this Agreement are primary obligations of each Borrower.

 

d.     Payments Recovered From Lead Lender.  If

any payment received by Lead Lender and applied to any obligations is

subsequently set aside, recovered, rescinded or required to be returned for any

reason (including, without limitation, the bankruptcy, insolvency or

reorganization of a Borrower or any other obligor), the obligations to which

such payment was applied shall be deemed to have continued in existence,

notwithstanding such application, and each Borrower shall be jointly and

severally liable for such obligations as fully as if such application had never

been made.  References in this Agreement

to amounts “irrevocably paid” or to “irrevocable payment” refer to payments

that cannot be set aside, recovered, rescinded or required to be returned for

any reason.

 

e.     No Release.  Until the Note and all other

obligations under this Agreement have been paid in full and each and every one

of the covenants and agreements of this Agreement are fully performed, the

obligations of either Borrower hereunder shall not be released, in whole or in

part, by any action or thing (other than irrevocable payment in full) which

might, but for this provision of this Agreement, be deemed a legal or equitable

discharge of a surety or guarantor, or by reason of any waiver, extension,

modification, forbearance or delay or other act or omission of Lead Lender or

its failure to proceed promptly or otherwise, or by reason of any action taken

or omitted by Lead Lender whether or not such action or failure to act varies

or increases the risk of, or affects the rights or remedies of, either

Borrower, nor shall any modification of any Note or this Agreement or release

of any security therefor by operation of law or by the action of any third

party affect in any way the obligations of either Borrower hereunder, and each Borrower

hereby expressly waives and surrenders any defense to its liability hereunder

based upon any of the foregoing acts, omissions, things, agreements, or waivers

of any of them.  Neither Borrower shall

be exonerated with respect to its liabilities under this Agreement by any act

or thing except irrevocable payment and performance of the obligations, it

being the purpose and intent of this Agreement that the obligations constitute

the direct and primary obligations of each Borrower and that the covenants,

agreements and all obligations of each Borrower hereunder be absolute,

unconditional and irrevocable.

 

f.      Actions Not Required. 

Each Borrower hereby waives any and all right to cause a marshalling of

the other Borrower’s assets or any other action by any court or other

governmental body with respect thereto insofar as the rights of Lead Lender and

any Participant hereunder are concerned or to cause Lead Lender or any

Participant to proceed against any security for Borrowers’ joint and several

liability or any other recourse which Lead Lender or any Participant may have

with respect thereto, and further waives any and all requirements that Lead

Lender or any Participant institute any action or proceeding at law or in

equity against the other Borrower or anyone else, or with respect to this

Agreement, the Loan Documents, or any collateral security for  Borrowers’ joint and several liability, as a

condition precedent to making demand on, or bringing an action or obtaining

and/or enforcing a judgment against, any Borrower.  Each Borrower further waives any requirement that Lead Lender or

any Participant seek performance by the other Borrower or any other person, of

any obligation under this 

 

20

 

Agreement,

the Loan Documents or any collateral security for Borrowers’ joint and several

liability as a condition precedent to making a demand on, or bringing an action

or obtaining and/or enforcing a judgment against, any Borrower.  No Borrower shall have any right of setoff

against Lead Lender or any Participant with respect to any of its obligations

hereunder.  Any remedy or right hereby

granted which shall be found to be unenforceable as to any person or under any

circumstance, for any reason, shall in no way limit or prevent the enforcement

of such remedy or right as to any other person or circumstance, nor shall such

unenforceability limit or prevent enforcement of any other remedy or right

hereby granted.

 

g.     Deficiencies. 

Each Borrower specifically agrees that in the event of a foreclosure

under the Security Agreement, any other security agreement or other similar

agreement held by Lead Lender which secures any part or all of Borrowers’ joint

and several liability and in the event of a deficiency resulting therefrom,

each Borrower shall be, and hereby is expressly made, liable to Lead Lender for

the full amount of such deficiency notwithstanding any other provision of this

Agreement or provision of such agreement, any document or documents evidencing

the indebtedness secured by such agreement or any other document or any

provision of applicable laws which might otherwise prevent Lead Lender from

enforcing and/or collecting such deficiency. 

Each Borrower hereby waives any right to notice of a foreclosure under

any security agreement or other similar agreement given to Lead Lender by any

other Borrower, which secures any part or all of Borrowers’ joint and several

liability.

 

h.     Borrowers Bankruptcy. 

Each Borrower expressly agrees that its liability and obligations under

the Note and this Agreement shall not in any way be affected by the institution

by or against the other Borrower or any other person or entity of any

bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,

or any other similar proceedings for relief under any bankruptcy law or similar

law for the relief of debtors, or any action taken or not taken by Lead Lender

in connection therewith, and that any discharge of any Borrower’s joint and

several liability pursuant to any such bankruptcy or similar law or other laws

shall not discharge or otherwise affect in any way the obligations of any other

Borrower under the Note and this Agreement, and that upon or at any time after

the institution of any of the above actions, at Lead Lender’s sole discretion,

Borrowers’ joint and several obligations shall be enforceable against any

Borrower that is not itself the subject of such proceedings.  Each Borrower expressly waives any right to

argue that Lead Lender’s enforcement of any remedies against that Borrower is

stayed by reason of the pendency of any such proceedings against any other

Borrower.

 

i.      No Subrogation. 

Notwithstanding any payment or payments made by any Borrower hereunder

or any setoff or application of funds of any Borrower by Lead Lender, such

Borrower shall not be entitled to be subrogated to any of the rights of Lead

Lender against any other Borrower or any other guarantor or any collateral

security or guaranty or right of offset held by Lead Lender for the payment of

the obligations, nor shall such Borrower seek or be entitled to seek any

contribution or reimbursement from any other Borrower or any other guarantor in

respect of payments made by such Borrower hereunder, until all amounts owing to

Lead Lender by the Borrowers on account of the obligations are irrevocably paid

in full.  If any amount shall be paid to

a Borrower on account of such subrogation rights at any time when all of the

obligations shall not have been irrevocably paid in full, such amount shall be

held by that Borrower, and shall, forthwith upon receipt by Borrower, be turned

over to Lead Lender in the exact form received by Borrower (duly endorsed by

Borrower to Lead Lender, if required), to be 

 

21

 

applied

against the obligations, whether matured or unmatured, in such order as Lead

Lender may determine.

 

j.      Relationship of Borrowers. 

Each Borrower represents that it expects to derive benefits from the

extension of credit accommodations to Borrowers by Lead Lender and finds it

advantageous, desirable and in its best interests to execute and deliver this

Agreement and the Note to Lead Lender.

 

20.      Amendments.  No

amendment, modification or waiver of any provision of the Loan Documents and no

consent to any departure by Borrower therefrom shall in any event be effective

unless the same shall be in writing and signed by Lead Lender, and then such

amendment, modification, waiver or consent shall be effective only in the

specific instance and for the purpose for which given.  Neither this Agreement nor any provision

hereof may be changed, waived, discharged or terminated orally, but only by an

instrument in writing signed by the party against whom enforcement of the

change, waiver, discharge or termination is sought.

 

21.      Marshalling;

Payments Set Aside.  Lead

Lender shall be under no obligation to marshal any assets in favor of Borrower

or any other Person or against or in payment of the Loan and other Indebtedness

of Borrower to Lead Lender.  To the

extent that Borrower makes a payment or payments to Lead Lender or Lead Lender

exercises its rights of setoff, and such payment or payments or the proceeds of

such setoff or any part thereof are subsequently invalidated, declared to be

fraudulent or preferential, set aside and/or required to be repaid to a

trustee, receiver or any other party under any bankruptcy law, state or federal

law, common law or equitable cause, then to the extent of such recovery, the

obligation or part thereof originally intended to be satisfied shall be revived

and continued in full force and effect as if such payment had not been made or

such enforcement or setoff had not occurred.

 

22.      Invalid

Provisions.  If

fulfillment of any provision hereof, or any transaction related thereto at the

time performance of any such provision shall be due, shall involve transcending

the limit of validity prescribed by law, then, ipso facto, the obligation to be

fulfilled shall be reduced to the limit of such validity; and such clause or

provision shall be deemed invalid as though not herein contained, and the

remainder of this Agreement shall remain operative in full force and effect.

 

23.      Not

Joint Ventures.  Lead

Lender and each Participant are not, and shall not by reason of any provision

of any of the Loan Documents be deemed to be, joint venturers with or partners

or agents of Borrower.

 

24.      Estoppel

Certificate.  At

any time and from time to time, within fifteen (15) Business Days after receipt

from the other party hereto of a written request therefor, Borrower or Lead

Lender, as the case may be, shall prepare, execute and deliver to such party,

and/or any other party which Borrower or Lead Lender, as the case may be, may

designate, an estoppel certificate stating: 

(a) the amount of the unpaid principal balance and accrued interest on

the date thereof; (b) the date upon which the last payment was made and the

date the next payment is due; and (c) that Borrower has no defenses, claims or

offsets against full enforcement hereof according to the terms hereof, or listing

and describing any such amendments, changes, defaults, events of default,

defenses, claims or offsets which do exist.

 

22

 

25.      Notice

of Change of Location. 

Borrower shall promptly notify Lead Lender of any change in location of

Borrower’s principal places of business or the offices where it keeps its

records concerning accounts and contract rights.

 

26.          Tax Identification Numbers.  The

federal tax identification number for PDS Gaming Corporation is 41-1605970.  The federal tax identification number for

PDS Gaming Corporation-Nevada is 88-0357859. 

The federal tax identification number for PDS Gaming

Corporation-Mississippi is 72-1379221.  The federal tax identification

number for PDS Gaming Corporation-Colorado is 88-0433506.

 

27.      Setoffs.  If

the unpaid principal amount of the Loan, interest accrued thereon or any other

amount owing by Borrower under the Loan Documents shall have become due and

payable (by demand, acceleration or otherwise), Lead Lender shall have the

right, in addition to all other rights and remedies available to it, without

notice to Borrower, to set off against, and to appropriate and apply to such

due and payable amounts any debt owing to, and any other funds held in any

manner by Lead Lender for the account of, Borrower.  Such right shall exist whether or not Lead Lender shall have made

any demand hereunder or under any other Loan Document, whether or not such debt

owing to or funds held for the account of Borrower is or are matured or

unmatured, and regardless of the existence or adequacy of any collateral,

guaranty or any other security, right or remedy available to Lead Lender.

 

28.      Remedies

Cumulative.  The

rights and remedies herein specified of the parties hereto are cumulative and

not exclusive of any rights or remedies, which the parties hereto would

otherwise have at law or in equity or by statute.

 

29.      Integration;

Conflicting Terms.  This

Agreement together with the other Loan Documents comprises the entire agreement

of the parties on the subject matter hereof, supersedes, and replaces all prior

agreements, oral and written, on such subject matter.  If any term of any of the other Loan Documents expressly

conflicts with the provisions of this Agreement, the provisions of this

Agreement shall control; provided, however, that the inclusion of supplemental

rights and remedies of Lead Lender in any of the other Loan Documents shall not

be deemed a conflict with this Agreement.

 

30.      Governing

Law; Construction.  The

Loan Documents shall be governed by, and construed in accordance with Nevada

law.  Whenever possible, each, provision

of the Loan Documents and any other statement, instrument or transaction

contemplated hereby or thereby or relating hereto or thereto shall be interpreted

in such manner as to be effective and valid under such applicable law, but, if

any provision of the Loan Documents or any other statement, instrument or

transaction contemplated hereby or thereby or relating hereto or thereto shall

be held to be prohibited or invalid under such applicable law, such provision

shall be ineffective only to the extent of such prohibition or invalidity,

without invalidating the remainder of such provision or the remaining

provisions of the Loan Documents or any other statement, instrument or

transaction contemplated hereby or thereby or relating hereto or thereto.  The parties shall endeavor in good-faith

negotiations to replace any invalid, illegal or unenforceable provisions with a

valid provision the economic effect of which comes as close as possible to that

of the invalid, illegal or unenforceable provision.  The provisions of this Section are irrevocable and may not be

rescinded, revoked or amended without the prior written consent of Lead

Lender.  

 

23

 

Borrower acknowledges that

Lead Lender and each Participant has relied upon them in entering into the Loan

Documents.

 

31.      Waiver

of Jury Trial. 

Borrower hereby irrevocably waives any and all right to trial by jury in

any legal proceeding arising out of or relating to this Agreement, the Note or

any of the documents executed in connection therewith or the transactions

contemplated hereby or thereby.

 

32.      Lead Lender’s

Acknowledgement of Gaming Requirements and Agreement to Cooperate.  Lead

Lender acknowledges that Borrower (and each of them, as applicable) holds

privileged licenses that are necessary to the operation of its business and is

requested from time to time to provide information to government regulatory

agencies (“Gaming

Authorities”), such as the Nevada State Gaming Control Board and

Nevada Gaming Commission.  Lead Lender

agrees to cooperate with Borrower (or any of them, as applicable) in providing

information requested by any Gaming Authorities with respect to Lead Lender,

any Participant, and/or the transaction contemplated by this Loan Agreement and

agrees to notify Borrower upon receipt of any request for information made by

Gaming Authorities directly to Lead Lender. 

Borrower shall reimburse Lead Lender and any Participant, upon

demand, for all costs and expenses incurred, including without limitation,

reasonable attorney fees paid on incurred in connection with the foregoing.

 

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the proper

officers thereunto duly authorized on the day and year first above written.

 

“Lead Lender”

 

FIRST STATE

BANK OF THERMOPOLIS

 

 

	

  By: 

  	

  s/ Brian Yarrington

  	

   

  
	

   

  	

   

  
	

  Print

  Name: 

  	

  Brian

  Yarrington

  	

   

  
	

   

  	

   

  
	

  Its:

  

  	

  President

  	

   

  
				

 

 

[Signatures continued on next page]

 

24

 

	

  “PDS”

  	

   

  	

  “PDS-MS”

  
	

   

  	

   

  	

   

  
	

  PDS GAMING CORPORATION

  	

   

  	

  PDS GAMING CORPORATION MISSISSIPPI

  
	

   

  	

   

  	

   

  
	

  By:

  

  	

  s/ Joe S. Rolston IV

  	

   

  	

  By:

  

  	

   s/ Joe S. Rolston

  IV

  
	

   

  	

   

  	

   

  
	

  Print

  Name: 

  	

  Joe

  S. Rolston IV

  	

   

  	

  Print

  Name: 

  	

  Joe

  S. Rolston IV

  
	

   

  	

   

  	

   

  
	

  Its:

  

  	

  Exec.

  Vice President & Gen. Counsel

  	

   

  	

  Its:  

  	

  Exec.Vice

  President & Gen. Counsel

  
	

   

  	

   

  	

   

  
	

  “PDS-CO”

  	

   

  	

  “PDS-NV”

  
	

   

  	

   

  	

   

  
	

  PDS GAMING CORPORATION-COLORADO

  	

   

  	

  PDS GAMING CORPORATION-NEVADA

  
	

   

  	

   

  	

   

  
	

  By:  

  	

  s/ Joe S. Rolston IV

  	

   

  	

  By:

  

  	

  s/ Joe S. Rolston IV

  
	

   

  	

   

  	

   

  
	

  Print

  Name: 

  	

  Joe

  S. Rolston IV

  	

   

  	

  Print

  Name: 

  	

  Joe

  S. Rolston IV

  
	

   

  	

   

  	

   

  
	

  Its:

  

  	

  Exec.

  Vice President & Gen. Counsel

  	

   

  	

  Its:

  

  	

  Exec.

  Vice President & Gen. Counsel

  
							

 

25LONE STAR TECHNOLOGIES, INC

Exhibit

10.1(f)

Lone

Star Technologies, Inc.

 

Amendment to the

1985 Long-Term Incentive

Plan (the “Plan”)

 

Approved by the Board of

Directors on March 21, 2002

and Shareholders on May

9, 2002

 

 

 

Section 3 of the Plan is amended by amending the first

sentence of said Section to read as follows (the new language is in bold

type):  “The aggregate number of shares

of stock which may be issued under the Plan shall not exceed five million seven hundred thousand (5,700,000)

shares of Common Stock.”

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