Document:

ex10-1.htm

EXHIBIT 10.1

FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT

AND WAIVER OF DEFAULTS

 

This First Amendment to Amended and Restated Loan Agreement and Waiver of Defaults (this “Amendment”), dated as of December 22, 2011, is entered into by and among GAMETECH INTERNATIONAL, INC., a Delaware corporation (the “Borrower”), the several banks and other financial institutions from time to time party to the Loan Agreement referred to below (the “Lenders”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, in its capacity as agent for the Lenders (in such capacity, the “Agent”).

 

RECITALS

 

The Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Loan Agreement dated as of June 15, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”).

 

The Borrower has requested that the Agent and the Lenders agree to certain amendments to the Loan Agreement and provide certain other accommodations to the Borrower, and the Agent and the Lenders are willing to grant such requests on the terms and subject to the conditions contained in this Amendment.

 

ACCORDINGLY, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

Section 1.               Definitions.  Capitalized terms defined in the Loan Agreement and not otherwise defined herein shall have the meanings given them in the Loan Agreement.

 

Section 2.               Amendments to the Loan Agreement.  The Loan Agreement is hereby amended as follows:

 

(a)           Amendment to Section 1.1 of the Loan Agreement (Definitions).  Section 1.1 of the Loan Agreement is hereby amended by adding or amending and restating, as the case may be, each of the following definitions:

 

“Adjusted Consolidated EBITDA” means, with reference to any period, an aggregate amount equal to (i) Consolidated EBITDA, plus (ii) rental or lease expense related to the Headquarters paid in cash or accrued during such period to the extent deducted from revenues in determining Consolidated Net Income.

 

“Adjusted Cash Flow Leverage Ratio” means the ratio of (a) Consolidated Funded Indebtedness outstanding as of the applicable Covenant Compliance Date, to (a) Consolidated EBITDA.  For each Covenant Compliance Date occurring prior to December 2, 2012, Consolidated EBITDA shall be calculated as an annualized amount based upon the Consolidated EBITDA for the period commencing December 5, 2011 and ending on such Covenant Compliance Date.  For example, for purposes of calculating the Adjusted Cash Flow Leverage Ratio for the Fiscal Month ending March 4, 2012, Consolidated EBITDA means an amount equal to Consolidated EBITDA for the three-Fiscal-Month period commencing December 5, 2011 and ending on March 4, 2012, divided by three and multiplied by twelve.  For purposes of calculating the Adjusted Cash Flow Leverage Ratio for the Fiscal Month ending April 1, 2012, Consolidated EBITDA means an amount equal to Consolidated EBITDA for the four-Fiscal-Month period commencing December 5, 2011 and ending on April 1, 2012, divided by four and multiplied by twelve.  For each Covenant Compliance Date occurring on or after December 2, 2012, Consolidated EBITDA shall be calculated with respect to the twelve-Fiscal-Month period immediately preceding and ending on the applicable Covenant Compliance Date.

 

  

  

  

“Consent Agreement” means that certain letter agreement dated November 2, 2011 among the Borrower, the Lenders and the Agent entitled “Consent to Sale of Certain Collateral”.

 

“Consolidated EBITDA” means, with reference to any period, Consolidated Net Income plus, to the extent deducted from revenues in determining Consolidated Net Income and without duplication, (a) Consolidated Interest Expense, (b) expense for income taxes paid in cash or accrued, (c) depreciation, (d) amortization, (e) extraordinary non-cash expenses, charges or losses incurred other than in the ordinary course of business, and (f) non-cash expenses related to stock based compensation, minus, to the extent included in Consolidated Net Income, (i) extraordinary income or gains realized other than in the ordinary course of business, (ii) interest income, (iii) income tax credits and refunds (to the extent not netted from tax expense), and (iv) any cash payments made during such period in respect of items described in clauses (e) or (f) above subsequent to the fiscal quarter in which the relevant non-cash expenses, charges or losses were incurred, all calculated for the Borrower and its Subsidiaries on a consolidated basis.

 

“Consolidated Interest Expense” means, with reference to any period, the interest expense of the Borrower and its Subsidiaries paid in cash or accrued during such period calculated on a consolidated basis.

 

“Current Interest” means, with respect to interest accruing on and after May 2, 2011 through but excluding the Sale Date, interest accruing at a rate per annum equal to the Base Rate less three hundred basis points (3.00% per annum).

 

“Fixed Charge Coverage Ratio” means, as of any Covenant Compliance Date for the applicable period, the ratio of (a) Consolidated EBITDA plus rental or lease expense and minus cash taxes paid (as defined below), cash dividends and share repurchases, and Maintenance Capital Expenditures, to (b) the sum of all mandatory principal payments on Consolidated Funded Indebtedness, interest and rental or lease expense for such period. As used herein, “cash taxes paid” means the amount of actual income taxes paid in cash, accrued, or offset (but not below $0) by the amount of any refund subsequently received by the Borrower.  For each Covenant Compliance Date occurring prior to December 2, 2012, each component of the Fixed Charge Coverage Ratio shall be an annualized amount of such component for the period commencing December 5, 2011 and ending on such Covenant Compliance Date.  For example, for purposes of calculating the Fixed Charge Coverage Ratio for the Fiscal Month ending March 4, 2012, Consolidated EBITDA means an amount equal to Consolidated EBITDA for the three-Fiscal-Month period commencing December 5, 2011 and ending on March 4, 2012, divided by three and multiplied by twelve.  For purposes of calculating the Fixed Charge Coverage Ratio for the Fiscal Month ending April 1, 2012, Consolidated EBITDA means an amount equal to Consolidated EBITDA for the four-Fiscal-Month period commencing December 5, 2011 and ending on April 1, 2012, divided by four and multiplied by twelve.  For each Covenant Compliance Date occurring on or after December 2, 2012, the Fixed Charge Coverage Ratio shall be calculated with respect to the twelve-Fiscal-Month period immediately preceding and ending on the applicable Covenant Compliance Date.

 

  

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“Headquarters” means that certain real property located at 8850 Double Diamond Parkway, Reno, Nevada, more particularly described on Schedule 1.1-4 hereto.

 

“PIK Interest” means all interest accruing on and after May 2, 2011 through but excluding the Sale Date, other than Current Interest.

 

“Sale Date” shall have the meaning set forth in the Consent Agreement.

 

“Strategic Operating Plan” means the Strategic Operating Plan of the Borrower dated December 14, 2011 and adopted by the board of directors of the Borrower as of December 21, 2011.

 

(b)           Additional Amendment to Section 1.1 of the Loan Agreement (Definitions).  Section 1.1 of the Loan Agreement is further amended by deleting therefrom the definition of “Bingo Gross Profit”.

 

(c)           Amendment to Sections 2.2(b) and (c) of the Loan Agreement (Mandatory Prepayments).  Sections 2.2(b) and (c) of the Loan Agreement are amended and restated in their entirety to read as follows:

 

(b)           Mandatory Prepayments From Excess Cash Flow and Liquidity.  In addition to the payments described elsewhere in this Section 2.2, the Borrower shall (i) not more than 45 days following the end of each fiscal quarter of the Borrower, commencing with the fiscal quarter ending July 31, 2011, prepay the Obligations in an amount equal to seventy-five percent (75%) of the Borrower’s Excess Cash Flow for such fiscal quarter, and (ii) at any time that Liquidity of the Borrower exceeds $1,500,000, prepay the Obligations in an amount equal to the Liquidity of the Borrower in excess of $1,500,000.

 

(c)           Mandatory Prepayments From Other Sources.  In addition to the payments described elsewhere in this Section 2.2, immediately following the receipt thereof, the Borrower shall prepay the Obligations in an amount equal to:

 

(i)            100% of the Net Cash Proceeds realized by any Obligor from the sale, lease, assignment, transfer or other disposition of any asset by any Obligor (except for the sale or lease of inventory in the ordinary course of business); and

 

  

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(ii)           100% of the proceeds realized by any Obligor from (1) Indebtedness incurred by any Obligor after the date hereof (other than the Loans and other Indebtedness permitted under Section 6.13(a) and (b)), (2) the issuance by any Obligor of Capital Stock, (3) any casualty insurance maintained by any Obligor, to the extent that such insurance proceeds exceed the amount actually used to replace or restore the applicable insured properties, and (4) any condemnation award with respect to a property owned by any Obligor, to the extent that such award exceeds the amount actually used to replace or restore the affected property.

 

Nothing in this paragraph (c) shall be deemed to authorize or constitute consent to any transaction (including without limitation any sale of assets or the issuance of any debt or equity) that otherwise would be prohibited or restricted under this Agreement or any other Loan Document.

 

(d)           Amendment to Section 2.8 of the Loan Agreement (Interest Payment Dates; Basis for Interest and Fees).  Section 2.8 of the Loan Agreement is amended and restated in its entirety to read as follows:

 

Section 2.8  Interest Payment Dates; Basis for Interest and Fees.

 

(a)           Current Interest accruing on and after May 2, 2011 through but excluding June 15, 2011 shall be due and payable in cash on June 15, 2011. Current Interest accruing on and after June 15, 2011 through but excluding December 1, 2011 shall be due and payable in cash on each Payment Date, commencing with the first such Payment Date to occur after June 15, 2011 and continuing on each Payment Date thereafter through and including December 1, 2011. Current Interest accruing on and after December 1, 2011 through but excluding the Sale Date shall be due and payable in cash on the Sale Date.  All interest accruing on and after the Sale Date shall be due and payable in accordance with subsection (c) below.

 

(b)           PIK Interest accruing on and after May 2, 2011 through but excluding June 15, 2011 shall be due and payable on June 15, 2011. PIK Interest accruing on and after June 15, 2011 through but excluding the Sale Date shall be due and payable in cash on the Sale Date.

 

(c)           All interest accruing on and after the Sale Date shall be due and payable on each Payment Date, commencing January 1, 2012 and continuing on each Payment Date thereafter, through and including the Maturity Date.

 

(d)           Notwithstanding anything contained herein to the contrary, if the incurrence of any PIK Interest, or adding the amount thereof as Secured Indebtedness (as defined in the Deed of Trust), would adversely affect the priority of the Lien granted pursuant to the Deed of Trust to secure payment of all Secured Indebtedness as therein described, or would in any way adversely affect the enforceability of the Deed of Trust or any provision thereof, then payment of such PIK Interest shall be deemed secured by all Collateral but shall not be deemed secured by the Deed of Trust or constitute Secured Indebtedness thereunder.

 

  

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(e)           Interest on all Advances and fees shall be calculated for actual days elapsed on the basis of a 360-day year.  Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment.  If any payment of principal of or interest on any Advance shall become due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day.

 

(e)           Amendment to Section 2.11(a) of the Loan Agreement (Closing Fee).  Section 2.11(a) of the Loan Agreement is amended and restated in its entirety to read as follows:

 

(a)           Closing Fee.  The Borrower will pay to the Agent, for the ratable benefit of the Lenders in proportion to their Pro Rata Share, in immediately available funds a nonrefundable fee (the “Closing Fee”) in an aggregate amount equal to $736,811.34, which Closing Fee shall be due and payable as follows:    (i) $368,405.67 of the Closing Fee shall be due and payable on June 15, 2011, and (ii) $368,405.67 of the Closing Fee shall be due and payable on the Sale Date.

 

(f)           Amendment to Section 6.18 of the Loan Agreement (Capital Expenditures).  Section 6.18 of the Loan Agreement is amended and restated in its entirety to read as follows:

 

Section 6.18  Capital Expenditures.  The Borrower will not, nor will it permit any Subsidiary to, make any Capital Expenditure if (a) such Capital Expenditure will be used for a purpose other than purchasing gaming equipment (and the related parts thereof) for leasing to customers in the ordinary course of business, or (b) after giving effect to such Capital Expenditure, the aggregate amount of the Consolidated Capital Expenditures made by the Borrower and its Subsidiaries would exceed $3,500,000 during the 2011 fiscal year of the Borrower or $2,500,000 during the 2012 fiscal year of the Borrower or any fiscal year thereafter.  No Capital Expenditure shall be permitted to the extent it would result in a failure of the Borrower or any other Obligor to comply with any Financial Covenant or any other covenant or agreement under the Loan Documents.

 

(g)           Amendment to Exhibits B and D and Schedule 6.14 to the Loan Agreement (Compliance Certificate; Financial Covenants; Fundamental Transactions).  The Loan Agreement is amended by deleting Exhibits B and D and Schedule 6.14 to the Loan Agreement and replacing them in their entirety with Exhibits B and D and Schedule 6.14 to this Amendment, respectively.

 

(h)           Addition of Schedule 1.1-4 to the Loan Agreement (Headquarters).  The Loan Agreement is amended by adding a new Schedule 1.1-4 thereto in the form of Schedule 1.1-4 to this Amendment.

 

Section 3.               References.  All references in the Loan Agreement to “this Agreement” shall be deemed to refer to the Loan Agreement as amended hereby, and any and all references in any other Loan Document to the Loan Agreement shall be deemed to refer to the Loan Agreement as amended hereby.

 

  

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Section 4.               Waiver of Defaults.  The several Defaults and Events of Default set forth on Annex A hereto (collectively, the “Specified Defaults”) have occurred and are continuing.  At the request of the Borrower, and subject to the terms and conditions of this Amendment, the Agent and the Lenders hereby waive the Specified Defaults.  The foregoing waiver is effective only in this specific instance and for the specific purpose for which given, and such waiver shall not entitle the Borrower or any other Obligor to any other or further waiver in the same, similar or other circumstances.

 

Section 5.               No Other Waiver.  The execution of this Amendment and any documents, agreements and certificates contemplated hereunder shall not be deemed to be a waiver of any Default or Event of Default (other than the Specified Defaults) or any other breach, default or event of default under any Loan Document or other document held by the Agent or any Lender, whether or not known to the Agent or any Lender and whether or not existing on the date of this Amendment.

 

Section 6.               No Other Changes.  Except as expressly set forth herein, all terms of the Loan Agreement and each of the other Loan Documents remain in full force and effect.

 

Section 7.               Representations and Warranties.  The Borrower hereby represents and warrants to the Agent and the Lenders as follows:

 

(a)           The Borrower has all requisite power and authority, corporate or otherwise, to execute and deliver this Amendment and to perform its obligations under this Amendment, the Loan Agreement (as amended hereby) and the other Loan Documents to which the Borrower is a party.  This Amendment, the Loan Agreement (as amended hereby) and the other Loan Documents to which the Borrower is a party have been duly and validly executed and delivered to the Agent by the Borrower.  This Amendment, the Loan Agreement (as amended hereby) and the other Loan Documents to which the Borrower is a party constitute the Borrower’s legal, valid and binding obligations, enforceable in accordance with their terms.

 

(b)           The execution, delivery and performance by the Borrower of this Amendment, the Loan Agreement (as amended hereby) and the other Loan Documents to which the Borrower is a party have been duly authorized by all necessary corporate or other action and do not and will not (i) violate any law, rule, regulation, order, writ, judgment, injunction, arbitration, decree or award binding on any Obligor, (ii) violate any Obligor’s articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, (iii) violate the provisions of any indenture, instrument or agreement to which any Obligor is a party or is subject, or by which it, or its Property, may be bound or affected, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of any Obligor (whether now owned or hereafter acquired) pursuant to the terms of any such indenture, instrument or agreement, or (iv) require any order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, domestic or foreign, or any third party, except such as has been obtained, accomplished or given prior to the date hereof.

 

  

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(c)           All of the representations and warranties contained in the Loan Documents, including without limitation the representations and warranties in Article V of the Loan Agreement, are correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

 

(d)           Except for the Specified Defaults, no event has occurred and is continuing, or would result from the execution and delivery of this Amendment or the other documents contemplated hereunder to which the Borrower is a party, which constitutes a Default or an Event of Default.

 

Section 8.               Effectiveness.

 

(a)           This Amendment, exclusive of Sections 2 and 4 hereof, shall become effective when the Agent has received the following, each in form and substance acceptable to the Agent in its sole discretion:

 

(i)             this Amendment, duly executed by the Borrower and each Lender;

 

(ii)            an Acknowledgment and Agreement of Guarantors, duly executed by each Guarantor;

 

(iii)           a copy of the resolutions adopted by the board of directors of the Borrower and certified by the secretary of the Borrower evidencing the board of directors’ approval of the Strategic Operating Plan;

 

(iv)           a written opinion of counsel to the Obligors, in form and substance satisfactory to the Agent and addressed to the Agent and the Lenders with respect to the matters contemplated by this Amendment;

 

(v)           current searches of appropriate filing offices in each jurisdiction in which an Obligor is organized (provided that such Obligor is organized in the United States) showing that no state or federal tax liens have been filed and remain in effect against such Obligor, and that no financing statements or other notifications or filings have been filed and remain in effect against such Obligor, other than those for which the Agent has received an appropriate release, termination or satisfaction or those permitted in accordance with Section 6.17 of the Loan Agreement;

 

(vi)           a certificate of the Secretary or Assistant Secretary of each Obligor certifying (i) that the execution, delivery and performance of this Amendment, the Loan Agreement (as amended hereby) and the other Loan Documents and other documents contemplated hereunder to which such Obligor is a party have been duly approved by all necessary action of the governing board of such Obligor, and attaching true and correct copies of the applicable resolutions granting such approval; (ii) that the organizational documents of such Obligor, which were previously certified and delivered to the Agent, continue in full force and effect and have not been amended or otherwise modified except as set forth in the certificate to be delivered as of the date hereof; and (iii) that the officers and agents of such Obligor, who have previously been certified to the Agent as being authorized to sign and to act on behalf of such Obligor, continue to be so authorized or setting forth the sample signatures of each of the officers and agents of such Obligor authorized to execute and deliver this Amendment, the Loan Documents to which such Obligor is a party, and all other documents, agreements and certificates on behalf of such Obligor;

 

  

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(vii)          a certificate of good standing for each Obligor (provided that such Obligor is organized in the United States) from the Secretary of State (or analogous governmental entity) of the jurisdiction of its organization, to the extent generally available in such jurisdiction, dated not more than thirty days prior to the date hereof; and

 

(viii)         payment of all costs and expenses of counsel due and payable pursuant to Section 10 hereof to the extent invoiced on or prior to the date hereof.

 

(b)           Sections 2 and 4 of this Amendment shall become effective only when the Agent has received the following, each in form and substance acceptable to the Agent in its sole discretion:

 

(i)             each of the items described in Section 8(a) of this Amendment; and

 

(ii)            remittance of not less than $5,800,000 of Net Cash Proceeds received by the Borrower from the sale of the Headquarters pursuant to the Asset Purchase Agreement (as defined in the Consent Agreement) and remitted to the Agent in accordance with the terms and conditions of the Consent Agreement, which shall be applied, first, to an amendment fee equal to one percent (1.00%) of the Aggregate Outstanding Credit Exposure as of the date hereof, which amendment fee shall be for the ratable benefit of the Lenders in proportion to their Pro Rata Share (and shall be in addition to the Closing Fee described in Section 2.11 of the Loan Agreement (as amended hereby)), second, to payment of all fees and interest due and payable under the Loan Documents on the Sale Date, including without limitation all Current Interest and all PIK Interest due and payable on the Sale Date as provided in Section 2.8 of the Loan Agreement (as amended hereby) and that portion of the Closing Fee due and payable on the Sale Date pursuant to Section 2.11 of the Loan Agreement (as amended hereby) but excluding those fees and expenses referenced in Section 8(a)(viii) of this Amendment, and third, to installments of principal due under the Facility as provided in Section 2.2(a) of the Loan Agreement in inverse order of maturity.

 

Section 9.               Release of Agent and Lenders.  The Borrower, by its signature to this Amendment, hereby absolutely and unconditionally releases and forever discharges each Indemnified Party from any and all losses, claims, damages, penalties, judgments, liabilities, expenses, and demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has or claims to have, or may at any time have or claim to have against any such Person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured, known or unknown, liquidated, fixed or contingent, or direct or indirect.

 

  

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Section 10.             Costs and Expenses.  Without limiting Section 9.6 of the Loan Agreement, the Borrower shall pay or reimburse the Agent on demand for all out-of-pocket costs and expenses incurred by the Agent (including without limitation the fees, charges and disbursements of counsel for the Agent (and specifically including the allocated costs of in-house counsel), as such fees, charges and disbursements may be determined on the basis of such counsel’s generally applicable rates, which may be higher than the rates such counsel charges in certain matters), in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and the other documents, agreements, amendments, releases and certificates contemplated hereunder (whether or not the transactions contemplated hereby or thereby shall be consummated).

 

Section 11.             Miscellaneous.  This Amendment shall be governed by, and construed in accordance with, the laws of the State of Nevada (other than its conflicts of laws rules).  This Amendment, together with the Loan Agreement as amended hereby and the other Loan Documents, comprise the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to such subject matter, superseding all prior oral or written understandings.  Any provision of this Amendment which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof.  Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.  This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument.

 

 

Signature page follows

 

  

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first above written.

 

	  	
GAMETECH INTERNATIONAL, INC.

By: ___________________________________

Name: ______________________________

Title:   ______________________________

 

	  	
 

 

U.S. BANK NATIONAL ASSOCIATION, as Agent and a Lender

By: ___________________________________

Name: ______________________________

Title:   ______________________________

 

	  	
 

 

BANK OF THE WEST, as a Lender

By: ___________________________________

Name: ______________________________

Title:   ______________________________

 

 

 

 

 

 

Signature Page to First Amendment to Amended and Restated Loan Agreement

and Waiver of Defaults

 

 

 

 

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS

 

Each of the undersigned, a guarantor of the indebtedness of GameTech International, Inc., a Delaware corporation (the “Borrower”), to U.S. Bank National Association, in its capacity as Agent (as defined in that certain Amended and Restated Loan Agreement dated as of June 15, 2011, among the Borrower, the several banks and other financial institutions from time to time party thereto as lenders, and the Agent, as amended by the foregoing First Amendment to Amended and Restated Loan Agreement and Waiver of Defaults of even date herewith (the “First Amendment”) and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”).  Capitalized terms used and not otherwise defined herein shall have the meanings given them in the Loan Agreement.

 

Each of the undersigned hereby (i) acknowledges receipt of the First Amendment; (ii) consents to the terms and execution thereof; (iii) reaffirms all obligations to the Agent and the Lenders pursuant to the terms of the Guaranty and each other Loan Document to which it is a party; (iv) acknowledges that the Loan Documents may be amended, restated, supplemented or otherwise modified from time to time without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under the Guaranty or any of the other Loan Documents to which it is a party; and (v) absolutely and unconditionally releases and forever discharges each Indemnified Party from any and all losses, claims, damages, penalties, judgments, liabilities, expenses, and demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the undersigned has or claims to have, or may at any time have or claim to have against any such Person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of the First Amendment, whether such claims, demands and causes of action are matured or unmatured, known or unknown, liquidated, fixed or contingent, or direct or indirect.

	  	
GAMETECH ARIZONA CORPORATION

By: _________________________________

Name: ____________________________

Title:   ____________________________

 

	  	
GAMETECH CANADA CORPORATION

By: _________________________________

Name: ____________________________

Title:   ____________________________

 

	  	
GAMETECH MEXICO S. DE R.L. DE C.V.

By: _________________________________

Name: ____________________________

Title:   ____________________________

 

 

 

 

Acknowledgment and Agreement of Guarantors

  

  

  

 

 

Annex A

SPECIFIED DEFAULTS

The Borrower is in default of the following provisions of the Loan Agreement (collectively, the “Specified Events of Default”):

(a)           Under Section 6.25 of the Loan Agreement, the Borrower must at all times comply with each of the Financial Covenants.  As of September 4, 2011, the Borrower was required to maintain (i) Bingo Gross Profit for the three-month period immediately preceding and ending on such date in an amount not less than $3,475,000 and (ii) Consolidated EBITDA for the three-month period immediately preceding and ending on such date in an amount not less than $75,000.  As of September 4, 2011, the Bingo Gross Profit of the Borrower was $3,227,000 and the Consolidated EBITDA for such period was (negative) <$153,000>.  Accordingly, Events of Default have occurred under Section 7.3 of the Loan Agreement.

(b)           Under Section 6.25 of the Loan Agreement, the Borrower must at all times comply with each of the Financial Covenants.  The Borrower did not comply with any of the Financial Covenants as of October 2, 2011, October 30, 2011 and December 4, 2011, and the Borrower failed to maintain Liquidity at all times in an amount not less than $750,000.  Accordingly, Defaults have occurred under Section 7.3 of the Loan Agreement.

(c)           Under Section 6.1(a)(ii) and Section 6.1(a)(iv) of the Loan Agreement, the Borrower is required to deliver to the Agent and the Lenders certain financial statements of the Borrower and a corresponding compliance certificate not later than 30 days after the end of each Fiscal Month. The Borrower did not deliver financial statements for the Fiscal Month ending July 31, 2011 until September 22, 2011, and did not deliver the corresponding compliance certificate until September 26, 2011.  Accordingly, Events of Default have occurred under Section 7.3 of the Loan Agreement.

(d)           Under Section 6.1(a)(iii) of the Loan Agreement, the Borrower is required to deliver to the Agent and the Lenders a copy of the plan and forecast of the Borrower not later than 45 days before the beginning of each fiscal year.  The Borrower did not deliver a plan and forecast for the Borrower’s 2012 fiscal year until September 26, 2011.  Accordingly, an Event of Default has occurred under Section 7.3 of the Loan Agreement.

(e)           Under Section 6.1(a)(v) of the Loan Agreement, the Borrower is required to deliver to the Agent and the Lenders a 13-week cash flow budget not later than 12:00 noon on the third Business Day of each week.  The Borrower did not deliver any 13-week cash flow budget for the weeks ending September 11, 2011 and September 18, 2011, and was delinquent in delivering a 13-week cash flow budget for the weeks ending September 25, 2011 and December 9, 2011. Accordingly, Events of Default have occurred under Section 7.3 of the Loan Agreement.

(f)           Under Section 6.1(a)(vi) of the Loan Agreement, the Borrower is required to deliver to the Agent and the Lenders not later than September 15, 2011 a Strategic Operating Plan for the Borrower’s  2011, 2012 and 2013 fiscal years, together with a copy of the resolutions adopted by the board of directors of the Borrower and certified by the secretary of the Borrower evidencing the board of directors’ approval of such Strategic Operating Plan.  The Borrower did not deliver a Strategic Operating Plan until September 26, 2011, and the Strategic Operating Plan omitted the 2013 fiscal year and the corresponding evidence of board approval.  Accordingly, Events of Default have occurred under Section 7.3 of the Loan Agreement.

 

  

Annex A-1

  

(g)           Under Section 6.4 of the Loan Agreement, the Borrower is required to act in accordance with its Strategic Operating Plan, including without limitation by winding-down or selling the Borrower’s video lottery terminal business not later than July 1, 2011.  As described by the Borrower in its most recent compliance certificate, the “... continued operation of the [video lottery terminal] business segment was contrary to the Strategic Operating Plan...” Accordingly, an Event of Default has occurred under Section 7.3 of the Loan Agreement.

(h)           Under Section 7.7 of the Loan Agreement, an Event of Default occurs if any writ of attachment, garnishment, levy or similar process shall be issued against or served on the Agent or any Lender with respect to (a) any Property of any Obligor in the possession of the Agent or such Lender, or (b) any indebtedness of the Agent or any Lender to any Obligor.  On October 20, 2011, the Washoe County Sheriff’s Office issued to U.S. Bank a writ of garnishment to attach to all funds of the Borrower maintained in accounts with U.S. Bank.  Accordingly, an Event of Default has occurred under Section 7.7 of the Loan Agreement.

(i)             Under Section 6.3(a) of the Loan Agreement, the Borrower is required to give notice in writing to the Agent and each Lender of the occurrence of any Default or Event of Default, in each case promptly and in any event not later than the day after an officer of the Borrower obtains knowledge thereof.  In its most recent compliance certificate, the Borrower notified the Agent and the Lenders of several Events of Default as well as its failure to provide earlier and timely written notice thereof.  Accordingly, an Event of Default has occurred under Section 7.3 of the Loan Agreement.

 

  

Annex A-2

  

 

Exhibit B

 

FORM OF COMPLIANCE CERTIFICATE

This Compliance Certificate (the “Certificate”) is delivered pursuant to the Amended and Restated Loan Agreement dated as of June 15, 2011, (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), by and among GAMETECH INTERNATIONAL, INC., a Delaware corporation (the “Borrower”), certain other financial institutions from time to time party thereto, as lenders (the “Lenders”), and U.S. BANK NATIONAL ASSOCIATION, as agent for the Lenders (the “Agent”).  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement.

 

Each of the undersigned, being the Consultant and the duly elected, qualified and acting Chief Financial Officer of the Borrower, respectively, hereby certifies and warrants that:

 

	
  

	
1.

	
He or she is either the Consultant or the Chief Financial Officer of the Borrower and that, as such, he or she is authorized to execute this Certificate on behalf of the Borrower.

 

	
  

	
2.

	
Financial Statements.  Pursuant to Section 6.1 of the Credit Agreement, attached are the required audited financial statements of the Borrower and its Subsidiaries prepared by [_________________] as of and for the fiscal year ended [____________ __, 20__] / unaudited financial statements of the Borrower and its Subsidiaries as of and for the month ended [________, ____] (the “Applicable Covenant Compliance Date”).  Such financial statements have been prepared in accordance with GAAP, fairly present the financial condition of the Borrower and its Subsidiaries as of such date and the results of the Borrower’s and its Subsidiaries’ operations for the period then ended, prepared on a consolidated and consolidating basis, subject to year-end adjustments and footnotes, and conform to the applicable requirements of Section 6.1 of the Credit Agreement.

 

	
  

	
3.

	
Notice of Material Events.  Pursuant to Section 6.3 of the Loan Agreement, since the Borrower last submitted a Certificate, other than those items checked below, none of the following events that would require the Borrower to notify the Agent and each Lender under Section 6.3(a) of the Loan Agreement have occurred:

 

  

Ex. B-1

  

 

	
  

	
 ̈

	
any Default or Event of Default;

 

	
  

	
 ̈

	
the filing or commencement of any action, suit, arbitration, investigation or proceeding by or before any arbitrator or governmental authority (including pursuant to any applicable Environmental Laws) against or affecting the Borrower, any Subsidiary or any Affiliate thereof that, if adversely determined, would reasonably be expected to result in a Material Adverse Effect;

 

	
  

	
 ̈

	
the occurrence of any ERISA Event;

 

	
  

	
 ̈

	
any material change in accounting policies of, or financial reporting practices by, the Borrower or any Subsidiary;

 

	
  

	
 ̈

	
any other development, financial or otherwise, which would reasonably be expected to have a Material Adverse Effect;

 

	
  

	
 ̈

	
the termination, expiration, cancellation or default under, or violation of, (1) any employment arrangement of any Senior Officer, or any material change in his or her respective duties or responsibilities, (2) the Engagement Agreement or (3) the Separation, Consulting & Non-Compete Agreement; and

 

	
  

	
 ̈

	
receipt by any Obligor of an income tax refund in excess of $10,000.

 

	
  

	
4.

	
Capital Expenditures.  Pursuant to Section 6.18 of the Loan Agreement, for the Applicable Covenant Compliance Date, the Consolidated Capital Expenditures made by the Borrower and its Subsidiaries for the current fiscal year were $____________ which  ̈ satisfies  ̈ does not satisfy the requirement that such amount be less than the amount set forth below opposite such fiscal year:

 

	
Fiscal Year

	 	
Amount

	 
	
2011

	 	$	3,500,000	 
	 	 	 	 	 
	
2012 and each fiscal year thereafter

	 	$	2,500,000	 

 

  

Ex. B-2

  

 

	
  

	
5.

	
Minimum Adjusted Consolidated EBITDA.  As set forth in clause (a) of Exhibit D to the Loan Agreement, for the Applicable Covenant Compliance Date, the Borrower’s Adjusted Consolidated EBITDA for the three-month period immediately preceding the Applicable Covenant Compliance Date was __________, which  ̈ satisfies  ̈ does not satisfy the requirement that such amount be greater than the amount set forth below opposite such period:

 

	
Covenant Compliance Date

	 	
Amount

	 
	
January 29, 2012

	 	$	550,000	 
	 	 	 	 	 
	
March 4, 2012

	 	$	600,000	 
	 	 	 	 	 
	
April 1, 2012

	 	$	750,000	 

 

	
  

	
6.

	
Adjusted Cash Flow Leverage Ratio.  As set forth in clause (b) of Exhibit D to the Loan Agreement, for the Applicable Covenant Compliance Date, the Borrower’s Adjusted Cash Flow Leverage Ratio was __________ to 1.00, which  ̈ satisfies  ̈ does not satisfy the requirement that such amount be less than the amount set forth below opposite such period:

 

	
Covenant Compliance Date:

	 	
Ratio

	
January 29, 2012

	 	
6.25 to 1.00

	 	 	 
	
March 4, 2012

	 	
6.25 to 1.00

	 	 	 
	
April 1, 2012

	 	
5.25 to 1.00

	 	 	 
	
April 29, 2012

	 	
4.50 to 1.00

	 	 	 
	
June 3, 2012

	 	
3.75 to 1.00

	 	 	 
	
July 1, 2012

	 	
3.25 to 1.00

	 	 	 
	
July 29, 2012

	 	
2.75 to 1.00

	 	 	 
	
September 2, 2012

	 	
2.25 to 1.00

	 	 	 
	
September 30, 2012

	 	
2.00 to 1.00

	 	 	 
	
October 28, 2012 and each Covenant Compliance Date thereafter

	 	
1.75 to 1.00

 

  

Ex. B-3

  

 

 

	
  

	
7.

	
Fixed Charge Coverage Ratio Leverage.  As set forth in clause (c) of Exhibit D to the Loan Agreement, for the Applicable Covenant Compliance Date, the Borrower’s Fixed Charge Coverage Ratio was __________ to 1.00, which  ̈ satisfies  ̈ does not satisfy the requirement that such amount be greater than the amount set forth below opposite such period:

 

	
Covenant Compliance Dates:

	 	
Ratio

	
April 29, 2012

	 	
0.70 to 1.00

	 	 	 
	
June 3, 2012

	 	
0.90 to 1.00

	 	 	 
	
July 1, 2012

	 	
1.00 to 1.00

	 	 	 
	
July 29, 2012

	 	
1.20 to 1.00

	 	 	 
	
September 2, 2012

	 	
1.10 to 1.00

	 	 	 
	
September 30, 2012

	 	
1.40 to 1.00

	 	 	 
	
October 28, 2012 and each Covenant Compliance Date thereafter

	 	
1.70 to 1.00

 

	
  

	
8.

	
Minimum Liquidity.  As set forth in clause (d) of Exhibit D to the Loan Agreement, it  ̈ has  ̈ has not maintained Liquidity at all times in an amount greater than (i) $350,000 through and including January 31, 2012 and (ii) $500,000 on and after February 1, 2012.  The Borrower  ̈ has  ̈ has not had Liquidity at any time in excess of $1,500,000.  As set forth in Section 2.2(b) of the Loan Agreement, it  ̈ has  ̈ has not prepaid the Obligations in an amount equal to Liquidity of the Borrower in excess of $1,500,000.

 

Attached hereto are all relevant facts in reasonable detail to evidence, and the computations of the financial covenants referred to above.  These computations were made in accordance with GAAP.

 

Signature Page Follows

 

	  	
GAMETECH INTERNATIONAL, INC.

By: ________________________________

Name: __________________________

Title:   __________________________

 

By: ________________________________

Name: __________________________

Title:   __________________________

 

  

Ex. B-4

  

 

Exhibit D

 

FINANCIAL COVENANTS

(a)           Minimum Adjusted Consolidated EBITDA.  As of each Covenant Compliance Date set forth below, the Borrower will maintain Adjusted Consolidated EBITDA for the three-month period immediately preceding and ending on such Covenant Compliance Date in an amount not less than the amount set forth opposite such date below:

	
Covenant Compliance Date

	 	
Amount

	 
	
January 29, 2012

	 	$	550,000	 
	 	 	 	 	 
	
March 4, 2012

	 	$	600,000	 
	 	 	 	 	 
	
April 1, 2012

	 	$	750,000	 

 

(b)           Adjusted Cash Flow Leverage Ratio.  The Borrower will maintain its Adjusted Cash Flow Leverage Ratio as of each Covenant Compliance Date at not more that the ratio set forth opposite such date below:

 

	
Covenant Compliance Date:

	 	
Ratio

	
January 29, 2012

	 	
6.25 to 1.00

	 	 	 
	
March 4, 2012

	 	
6.25 to 1.00

	 	 	 
	
April 1, 2012

	 	
5.25 to 1.00

	 	 	 
	
April 29, 2012

	 	
4.50 to 1.00

	 	 	 
	
June 3, 2012

	 	
3.75 to 1.00

	 	 	 
	
July 1, 2012

	 	
3.25 to 1.00

	 	 	 
	
July 29, 2012

	 	
2.75 to 1.00

	 	 	 
	
September 2, 2012

	 	
2.25 to 1.00

	 	 	 
	
September 30, 2012

	 	
2.00 to 1.00

	 	 	 
	
October 28, 2012 and each Covenant Compliance Date thereafter

	 	
1.75 to 1.00

 

(c)           Fixed Charge Coverage Ratio.  The Borrower will maintain its Fixed Charge Coverage Ratio as of each Covenant Compliance Date at not less than the ratio set forth opposite such date below:

 

  

Ex. D-1

  

 

	
Covenant Compliance Dates:

	 	
Ratio

	
April 29, 2012

	 	
0.70 to 1.00

	 	 	 
	
June 3, 2012

	 	
0.90 to 1.00

	 	 	 
	
July 1, 2012

	 	
1.00 to 1.00

	 	 	 
	
July 29, 2012

	 	
1.20 to 1.00

	 	 	 
	
September 2, 2012

	 	
1.10 to 1.00

	 	 	 
	
September 30, 2012

	 	
1.40 to 1.00

	 	 	 
	
October 28, 2012 and each Covenant Compliance Date thereafter

	 	
1.70 to 1.00

(d)           Liquidity.  The Borrower will maintain Liquidity at all times in an amount not less than (a) $350,000 through and including January 31, 2012 and (b) $500,000 on and after February 1, 2012.

 

  

Ex. D-2

  

 

Schedule 1.1-4

 

HEADQUARTERS

 

All that parcel or parcels of real property located in the City of Reno, Washoe County, State of Nevada, and more particularly described as follows:

Parcel 2 of Parcel Map No. 4886, recorded on March 3, 2008, in the office of the County Recorder of Washoe County, Nevada as File No. 3626569 Official records.

 

  

Sch. 1.1-4-1

  

Schedule 6.14

 

SALE OF ASSETS; FUNDAMENTAL TRANSACTIONS

 

The sale of the Borrower’s real property located in Reno, Nevada on terms and conditions in all respects acceptable to the Agent and the Lenders in their sole discretion.

 

  

Sch. 6.14-1incentiveplan2011.htm

EXHIBIT 4.1

 

THE LGL GROUP, INC.

 

 

2011 INCENTIVE PLAN

 

1.           Purpose.  This 2011 Incentive Plan (the “Plan”) has been adopted by the Board of Directors (the “Board”) of The LGL Group, Inc. (the “Company”), and is effective, subject to the approval of the Company’s stockholders.  The purpose of the Plan is to promote the long-term success of the Company by attracting, motivating and retaining directors, officers,
employees, advisors and consultants of, and others providing services to, the Company and its affiliates through the use of competitive incentives that are tied to stockholder value.  The Plan seeks to balance the interest of Plan participants and stockholders by providing incentives in the form of cash bonuses, stock options, restricted stock, performance awards, stock appreciation rights, as well as other stock-based awards relating to the Company’s common stock, $0.01 par value (the “Common Stock”), to be granted under the Plan and consistent with the terms of the Plan (the “Awards”).

 

2.           Administration.

 

2.1.           Committee.  The Plan shall be administered by the Compensation Committee (the “Committee”) of the Board.  The Committee shall consist of not less than three directors of the Company who shall be appointed from time to time by the Board.  Each member of the Committee shall be a “non-employee director” within the meaning of Rule 16b-3 of the Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the
“Exchange Act”), and an “outside director” as defined in Treasury Regulations Section 1.162-27(e)(3) under the Internal Revenue Code of 1986, as amended (the “Code”).  The Committee shall have complete authority to determine all provisions of all Awards, to interpret the Plan, and to make any other determination which it believes necessary and advisable for the proper administration of the Plan.  The Committee’s decisions on matters relating to the Plan shall be final and conclusive on the Company and the Participants.  No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Awards granted under the Plan.  The Committee shall
also have the authority under the Plan to amend or modify the terms of any outstanding Awards in any manner; provided, however, that the amended or modified terms are permitted by the Plan as then in effect and that any recipient of an Award adversely affected by such amended or modified terms has consented to such amendment or modification.  No amendment or modification to an Award, however, whether pursuant to this Section 2 or any other provisions of the Plan, shall be deemed to be a re-grant of such Award for purposes of the Plan.  If at any time there is no Committee, then for purposes of the Plan, the term “Committee” shall mean the Board.

 

  

  

  

 

2.2.           Maximum Term.  The maximum term for any Award shall not exceed 10 years from the date of the grant of such Award, provided, however, in the case of an Incentive Stock Option granted to a Participant who, at the time such Incentive Stock Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of any affiliate thereof, no such Incentive Stock Option shall be exercisable more than five years after the date such Incentive Stock Option is granted.

 

3.           Eligible Participants.  Employees of the Company or its subsidiaries (including officers and other employees of the Company or its subsidiaries), directors, consultants, advisors or other independent contractors who provide services to the Company or its subsidiaries (including members of the Company’s scientific advisory board) (the “Participants”) shall become eligible to receive Awards under the Plan when designated by the Committee, provided, however, that Awards of Incentive Stock Options may
only be awarded to employees of the Company or its subsidiaries within the meaning of Section 424(f) of the Code.  Participants may be designated individually or by groups or categories (for example, by pay grade) as the Committee deems appropriate.  Participation by officers of the Company or its subsidiaries and any performance objectives relating to such officers must be approved by the Committee.  Participation by others and any performance objectives relating to others may be approved by groups or categories (for example, by pay grade) and authority to designate Participants who are not officers and to set or modify such targets may be delegated to the Company’s executive management.

 

In selecting Participants, and in determining the type and amount of Awards, the Committee may consider the office or position held by a Participant or the Participant’s relationship to the Company, the Participant’s degree of responsibility for and contribution to the growth and success of the Company, the Participant’s length of service, promotions and potential, and any other factors that the Committee may consider relevant.  Participants may receive multiple Awards under the Plan.

 

4.           Types of Awards.  Awards under the Plan may be granted in any one or a combination of the following forms:  (a) Incentive Stock Options and Non-Qualified Stock Options (Section 6); (b) restricted stock (Section 7); (c) performance awards (Section 8); and (d) other awards (Section 8).  The terms of an Award shall be evidenced by an agreement entered into by and between the Company and a Participant at the time the Award is granted (which may include an employment agreement or consulting agreement by and between the Company and the Participant) (the
“Award Agreement”).  In the event of any inconsistency between the terms of the Award Agreement and the Plan, the terms of the Plan shall govern.  In the event of any inconsistency between the terms of any employment agreement and any other Award Agreement, the terms of the employment agreement shall govern.

 

  

  

  

 

5.           Shares Subject to the Plan.

 

5.1.           Number of Shares.  The number of shares of Common Stock that may be issued under the Plan shall not exceed 500,000 shares of Common Stock, up to all of which may be issued upon exercise of Incentive Stock Options under Section 422 of the Code.  Any shares of Common Stock available for issuance as Incentive Stock Options may be alternatively issued as other types of Awards under the Plan.  Shares of Common Stock that are issued under the Plan or that are subject to outstanding Awards will be applied to reduce the maximum number of shares of Common
Stock remaining available for issuance under the Plan.  No Participant may be granted Awards under the Plan with respect to more than 50,000 shares of Common Stock in any year.

 

5.2.           Cancellation.  Except as otherwise required by Section 162(m) of the Code, in the event that a stock option granted hereunder expires or is terminated or canceled unexercised or unvested as to any shares of Common Stock, such shares may again be issued under the Plan either pursuant to stock options or otherwise.  In the event that shares of Common Stock are issued as restricted stock or as part of another Award and thereafter are forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may
again be issued under the Plan, either as restricted stock or otherwise.

 

6.           Stock Options.  The Committee shall determine for each option the number of shares of Common Stock for which the option is granted, whether the option is to be treated as an Incentive Stock Option or as a Non-Qualified Stock Option and all other terms and conditions of the option not inconsistent with the Plan.  Options granted pursuant to the Plan shall comply with and be subject to the following terms and conditions:

 

6.1.           Option Price.  The exercise price for each option shall be established in the sole discretion of the Committee, provided it shall not be less than the Fair Market Value of a share of Common Stock on the date of grant, and provided further, that the exercise price per share of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, within the meaning of Section 422(b)(6) of
the Code (a “Ten Percent Owner”), shall be not less than 110% of the Fair Market Value of a share of Common Stock on the date the option is granted.  Notwithstanding the foregoing, an option may be granted by the Committee in its discretion with an exercise price lower than the minimum exercise price set forth above if such option is granted pursuant to an assumption or substitution for another option in a manner qualifying with the provisions of Section 424(a) and 409A of the Code to the extent applicable.  Nothing hereinabove shall require that any such assumption or modification will result in the option having the same characteristics, attributes or tax treatment as the option for which it is substituted.

 

  

  

  

 

6.2.           Exercise Period of Options.  The Committee shall have the power to set the time or times within which each option shall be exercisable, or the event or events upon the occurrence of which all or a portion of each option shall be exercisable, and the term of each option; provided, however, that (a) no Incentive Stock Option shall be exercisable after the expiration of 10 years after the date such Incentive Stock Option is granted, and (b) no Incentive Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five years after the date such
Incentive Stock Option is granted.  Unless otherwise specifically provided in an Award Agreement, an option shall terminate and cease to be exercisable no later than 90 days after the date on which the Participant’s employment with or service to the Company or a subsidiary terminates.  Whether a Participant’s employment has terminated will be determined in accordance with Treasury Regulation Section 1.421-1(h)(2).

 

6.3.           Payment of Option Price.  Payment of the exercise price for the number of shares being purchased pursuant to any option shall be made in any manner permitted by the Committee, including, but not limited to: (a) payment in cash, (b) by check or cash equivalent, (c) with the consent of the Committee, by delivery or attestation of ownership of a number of shares of Common Stock that have been owned by the Participant for at least six months (or such other period as necessary to prevent an accounting charge) with a Fair Market Value equal to the exercise price, (d) with the
consent of the Committee, by delivery of a stock power and instructions to a broker to sell a sufficient number of shares of Common Stock subject to the option to pay such exercise price, (e) such other consideration as the Committee determines is consistent with the Plan and applicable law, or (f) with the consent of the Committee, any combination of the foregoing methods.  Any shares of Common Stock used to exercise options (including shares withheld upon the exercise of an option to pay the exercise price of the option) shall be valued at their Fair Market Value. If the Committee, in its discretion, permits the consideration to be paid through a broker-dealer sale and remittance procedure, the Committee may require the Participant (a) to provide irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of a sufficient number of the purchased shares to pay the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate option exercise price payable for the purchased shares and/or all applicable Federal and State income and employment taxes required to be withheld by the Company in connection with such purchase, (b) to provide written directives to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction, and (c) to provide irrevocable instructions to the brokerage firm to remit such sale proceeds to the Company.

 

6.4.           $100,000 Limitation.  The aggregate Fair Market Value, determined as of the date on which an Incentive Stock Option is granted, of the shares of Common Stock with respect to which Incentive Stock Options are first exercisable during any calendar year (under the Plan or under any other plan of the Company or a subsidiary within the meaning of Section 424(f) of the Code) by any Participant shall not exceed $100,000 or such other limitation imposed under Section 422 of the Code.

 

  

  

  

  If such limitation would be exceeded with respect to a Participant for a calendar year, the Incentive Stock Option shall be deemed a Non-Qualified Stock Option to the extent of such excess.  If an Incentive Stock Option is accelerated pursuant to Section 9.2, it will be considered first exercisable in the year of the Change in Control.

 

7.           Restricted Stock.

 

7.1.           Awards of Restricted Stock.  Restricted shares of Common Stock may be granted under the Plan in such form and on such terms and conditions as the Committee may from time to time approve, including, without limitation, restrictions on the sale, assignment, transfer or other disposition or encumbrance of such shares of Common Stock during the Restricted Period (as defined below) and the requirement that the Participant forfeit such shares back to the Company without any consideration paid by the Company therefor upon failure to satisfy within the Restricted Period the
requirements set forth in the Award Agreement.  Restricted stock may be granted alone or in addition to other Awards under the Plan.

 

7.2.           Restricted Period.  The Committee shall establish the “Restricted Period” with respect to each award of restricted stock.  The Committee may, in its sole discretion, at the time an award of restricted stock is made, prescribe conditions for the lapse or termination of all or a portion of the restrictions upon the satisfaction prior to the expiration of the Restricted Period of the requirements set forth in the Award Agreement.  The Committee also may, in its sole discretion, shorten
or terminate the Restricted Period or waive any conditions for the lapse or termination of restrictions with respect to all or any portion of the restricted stock.

 

Except as otherwise provided in an Award Agreement, a Participant shall cease vesting in all or any portion of a restricted stock award as of the date his employment with or service to the Company or a subsidiary terminates, for whatever reason, and any shares of restricted stock that are not vested as of such date shall be forfeited; provided the Committee may, in its discretion, provide that a Participant whose employment with or service to the Company terminates for any reason (including as a result of death or disability) and/or following a Change in Control, may vest in all or any portion of his restricted stock award.  Any restricted stock award not so vested shall be forfeited.

 

7.3.           Rights of Holders of Restricted Stock.  Except as otherwise provided in the Award Agreement or except as otherwise provided in the Plan, the Participant shall be the owner of the restricted stock and shall have all the rights of a stockholder, including the right to receive dividends paid on such restricted stock and the right to vote such restricted stock.

 

  

  

  

 

7.4.           Delivery of Restricted Stock.  Restricted stock awarded to a Participant under the Plan may be held under the Participant’s name in a book entry account maintained by the Company or, if not so held, stock certificates for restricted stock awarded pursuant to the Plan may be registered in the name of the Participant and issued and deposited, together with a stock power endorsed in blank, with the Company or an agent appointed by the Company and shall bear an appropriate legend restricting the transferability thereof.  Subject to Section 10.4 below, a
Participant shall be entitled to delivery of stock certificates only when he or she becomes vested in accordance with the terms of his or her restricted stock award.

 

8.           Performance Awards and Other Awards.

 

8.1.           Performance Awards.  The Committee is authorized, in its sole discretion, to grant performance awards to Participants on the following terms and conditions:

 

(a)           Awards and Conditions.  A performance award shall confer upon the Participant rights, valued as determined by the Committee, and payable to, or exercisable by, the Participant to whom the performance award is granted, in whole or in part, as determined by the Committee, conditioned upon the achievement of performance criteria determined by the Committee.  Performance goals established by the Committee may be based on objectively determinable performance goals selected by the Committee that apply to an individual or group of individuals, or the Company as a
whole, over such a performance period as the Committee may designate.  The performance goals may be based on one or more of the following criteria: EBITDA, stock price, earnings per share, net earnings, operating or other earnings, profits, revenues, net cash flow, financial return ratios, return on assets, stockholder return, return on equity, growth in assets, market share or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals or goals relating to acquisitions or strategic partnerships.  “EBITDA” means earnings before interest, taxes, depreciation and amortization.  Performance goals need not be based on an increase or positive result.  Performance goals need not
be based on financial criteria and may reflect such other goals as the Committee deems appropriate.

 

(b)           Other Terms.  A performance award may be payable in cash, shares of Common Stock, other Awards, or any combination thereof, and shall have such other terms as shall be determined by the Committee.

 

(c)           Annual Awards.  The Committee may determine to grant performance awards on an annual basis and in connection therewith may set performance goals, both personal and Company-related, and determine the form of such awards.

 

  

  

  

 

(d)           Performance-Based Awards.  Performance awards, as well as restricted stock with performance-based vesting provisions, and certain other Awards subject to performance criteria, intended to be “qualified performance-based compensation” within the meaning of Section 162(m) of the Code, shall be paid solely on account of the attainment of one or more pre-established, objective performance goals within the meaning of Section 162(m) and the regulations thereunder.

 

The payout of any such Award to a Participant may be reduced, but not increased, based on the degree of attainment of performance criteria, or otherwise at the discretion of the Committee, as may be provided in the Award Agreement.

 

8.2.           Stock Appreciation Rights.  The Committee is authorized, in its sole discretion, to grant stock appreciation rights to Participants on the following terms and conditions:

 

(a)           Right to Payment.  A stock appreciation right shall confer on the Participant to whom it is granted a right to receive payment in cash or shares of Common Stock (at the discretion of the Committee), upon exercise of a stock appreciation right, an amount equal to the excess of (i) the Fair Market Value of one share of Common Stock on the date of exercise (or, if the Committee shall so determine in the case of any such right, other than one related to an Incentive Stock Option, the Fair Market Value of one share of Common Stock at any time during a specified period before
or after the date of exercise or a Change in Control) over (ii) the grant price of the stock appreciation right as determined by the Committee as of the date of grant of the stock appreciation right.

 

(b)           Other Terms.  The Committee shall determine the time or times at which a stock appreciation right may be exercised in whole or in part, the method of exercise, method of settlement, form of consideration payable in settlement, method by which shares (if any) will be delivered or deemed to be delivered to Participants, and any other terms and conditions of any stock appreciation right.  Such stock appreciation right shall be evidenced by an Award Agreement in such form as the Committee shall from time to time approve.

 

8.3.           Bonus and Other Stock-Based Awards.  The Committee is authorized, in its sole discretion, to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including without limitation, shares of Common Stock awarded purely as a “bonus” and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares of Common Stock, purchase rights, and Awards valued by reference to the value of shares of Common Stock or the value of securities of or the performance of the Company.

 

  

  

  

  The Committee shall determine the terms and conditions of such Awards, which may include performance criteria.  Shares delivered pursuant to an Award in the nature of a purchase right granted under this Section 8.3 shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, cash, shares of Common Stock, other Awards, or other property, as the Committee shall determine.

 

9.           Change in Control.

 

9.1.           Definition.  For purposes of this Section 9, a “Change in Control” means, except as otherwise provided in any Award Agreement of a Participant:

 

(a)           the merger or consolidation of the Company into another entity unless the stockholders of the Company immediately prior to such merger or consolidation own, directly or indirectly, more than 50% of the total combined voting power of the surviving entity’s outstanding securities immediately after such merger or consolidation;

 

(b)           the sale, transfer or other disposition of all or substantially all of the assets of the Company other than to a person that directly or indirectly controls, is controlled by or is under common control with the Company prior to such disposition;

 

(c)           the liquidation or dissolution of the Company other than in connection with the merger or consolidation of the Company with and into another entity if stockholders of the Company immediately prior to such merger or consolidation own, directly or indirectly, more than 50% of the total combined voting power of the surviving entity’s outstanding securities immediately after such merger or consolidation;

 

(d)           the acquisition, directly or indirectly, by any person or related group of persons (other than the Company, a person that directly or indirectly controls or is controlled by or is under common control with the Company) of the beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities; or

 

  

  

  

 

 

(e)           a majority of the Board ceasing to comprise “Incumbent Directors.”  For the purposes hereof, Incumbent Directors means the individuals who, as of the date of adoption of the Plan by the Board, are directors of the Company, and any individual becoming a director subsequent to such date whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of then Incumbent Directors (either by a specific vote or by approval of the Company’s proxy statement in which such person is named as a nominee for
director, without objection to such nomination); provided, however, that an individual shall not be an Incumbent Director if such individual’s election occurs as a result of an actual or threatened election contest (as described in Rule 14a-12(c) under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents on behalf of anyone other than the Board.

 

9.2.           Effect of Change in Control Transactions.  Upon the occurrence of a Change in Control, except to the extent otherwise provided in a particular Participant’s Award Agreement, all Awards shall become fully vested and, with respect to any Award that is an option or stock appreciation right, exercisable in full.  Each Participant will be afforded an opportunity to exercise his or her options or stock appreciation rights immediately prior to the occurrence of the Change in Control (and conditioned upon the consummation of the Change in Control) so he or she
can participate in the transaction if he or she desires.

 

10.           General.

 

10.1.           Effective Date.  The Plan will become effective upon its approval by the Board, except that the Plan will automatically terminate if it is not approved by the Company’s stockholders within one year after its approval by the Board.

 

10.2.           Term.  No Awards may be granted under the Plan after the tenth anniversary of the date the Plan is approved by the stockholders of the Company.

 

10.3.           Non-transferability of Awards.  Except, in the event of the Participant’s death, by will or the laws of descent and distribution to the limited extent provided in the Plan or the Award Agreement, unless approved by the Committee, no stock option, restricted stock, performance award or other Award may be transferred, pledged or assigned by the holder thereof, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise except for a qualified domestic relations order, and the Company shall not be required to recognize any attempted
assignment of such rights by any Participant.  During a Participant’s lifetime, an Award may be exercised only by him or her or by his or her guardian or legal representative.

 

  

  

  

 

10.4.           Additional Conditions.  Notwithstanding anything in the Plan to the contrary: (a) the Company may, if it shall determine it necessary or desirable for any reason, at the time of award of any Award or the issuance of any shares of Common Stock pursuant to any Award, require the recipient of the Award, as a condition to the receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to deliver to the Company a written representation of present intention to acquire the Award or the shares of Common Stock issued pursuant thereto for his or her own
account for investment and not for distribution; and (b) if at any time the Company further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of any Award or the shares of Common Stock issuable pursuant thereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the award of any Award, the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such Award shall not be awarded or such shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the Company.  Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under the Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to any Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), and any applicable state or foreign securities laws or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit
from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable.  The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.  The Committee may restrict the rights of Participants to the extent necessary to comply with Section 16(b) of the Exchange Act, the Code or any other applicable law or regulation. The grant of an Award pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate
or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

10.5.           Incentive Plans and Agreements.  The terms of each Award shall be stated in a plan or Award Agreement approved by the Committee.  The Committee may also determine to enter into agreements with holders of options to reclassify or convert certain outstanding options, within the terms of the Plan, as Incentive Stock Options or as Non-Qualified Stock Options.

 

  

  

  

 

10.6.           Withholding.

 

(a)           The Company shall have the right to (i) withhold and deduct from any payments made under the Plan or from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a subsidiary of the Company in a manner consistent with Section 409A of the Code), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all foreign, federal, state and local withholding and employment-related tax requirements attributable to an Award, or (ii) require the Participant promptly to remit the amount of such withholding to the Company before taking any
action, including issuing any shares of Common Stock, with respect to an Award.  At any time when a Participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of Common Stock or upon exercise of an option, the Participant, with the prior consent of the Committee, may satisfy this obligation in whole or in part by electing to have the Company withhold from the distribution shares of Common Stock having a value up to the minimum amount required to be withheld.  The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined.

 

(b)           If the option granted to a Participant hereunder is an Incentive Stock Option, and if the Participant sells or otherwise disposes of any of the shares of Common Stock acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the date of grant, or (ii) the date one year after the date of exercise, the Participant shall immediately notify the Company in writing of such disposition.

 

10.7.           No Continued Employment, Engagement or Right to Corporate Assets.  No Participant under the Plan shall have any right, because of his or her participation in the Plan, to continue in the employ of the Company for any period of time or to any right to continue his or her present or any other rate of compensation.  Nothing contained in the Plan shall be construed as giving an employee, consultant, such persons’ beneficiaries or any other person any equity or interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary
relationship of any kind between the Company and any such person.

 

10.8.           Amendment of the Plan.  The Board may amend, suspend or discontinue the Plan at any time; provided, however, that no amendments to the Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required pursuant to Section 422 or Section 162(m) of the Code, the regulations promulgated thereunder or the rules of any securities exchange or similar regulatory body.

 

  

  

  

  Except as provided in Section 10.15, no termination, suspension or amendment of the Plan may adversely affect any outstanding Award without the consent of the affected Participant or his or her beneficiary; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under the Plan.

 

10.9.           Definition of Fair Market Value. For purposes of the Plan, the “Fair Market Value” of a share of Common Stock at a specified date means, so long as the Common Stock is traded on a nationally recognized securities exchange or automated dealer quotation system, the closing price of the Common Stock on that day.  If the Common Stock is not traded on such an exchange or system and is traded solely on the over-the-counter market, the Fair Market Value shall be the average of the closing bid and asked prices
for that day.  If the Common Stock is not publically traded, then Fair Market Value shall mean the value assigned to a share for a given day by the Committee in good faith in the exercise of its reasonable discretion and in a manner consistent with Code Section 409A.

 

10.10.           Breach of Confidentiality, Assignment of Inventions, or Non-Compete Agreements.  Notwithstanding anything in the Plan to the contrary, in the event that a Participant materially breaches the terms of any confidentiality, assignment of inventions, or non-compete agreement entered into with the Company or any subsidiary of the Company, whether such breach occurs before or after termination of such Participant’s employment with or service to the Company or any subsidiary, the Committee in its sole discretion may immediately terminate all rights of the Participant
under the Plan and any agreements evidencing an Award then held by the Participant, whether or not vested, without notice of any kind.  To the extent that any Participant has been paid in cash, the Company may seek to recover such payment.

 

10.11.           Governing Law.  The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed in a manner consistent with Code Section 409A and exclusively in accordance with the laws of the State of Delaware, notwithstanding the conflicts of laws principles of any jurisdictions.

 

10.12.           Successors and Assigns.  The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Participants.

 

10.13.           Nature of Payments.  Awards shall be special incentive payments to the Participants and shall not be taken into account in computing the amount of salary or compensation of a Participant for purposes of determining any pension, retirement, death or other benefit under (a) any pension, retirement, profit-sharing, bonus, insurance or other employee benefit plan of the Company or any subsidiary or (b) any agreement between the Company or any subsidiary and a Participant, except as such plan or agreement shall otherwise expressly provide.

 

  

  

  

 

10.14.           Non-Uniform Determinations.  The Committee’s determinations under the Plan need not be uniform and may be made by the Committee selectively among persons who receive, or are eligible to receive, Awards, whether or not such persons are similarly situated.  Without limiting the generality of the foregoing, the Committee shall be entitled to enter into non-uniform and selective Award agreements as to (a) the identity of the Participants, (b) the terms and provisions of Awards and (c) the treatment of terminations of employment or service.

 

10.15.           Rule 409A.  It is the intention of the Board that the Plan comply strictly with the provisions of Code Section 409A to the extent feasible and the Committee shall exercise its discretion in granting Awards hereunder (and the terms of such Award grants), accordingly.  The Plan and any grant of an Award hereunder may be amended from time to time without the consent of the participant as may be necessary or appropriate to comply with the Code Section 409A.

 

10.16.           Clawback.  The Committee shall, in all appropriate circumstances, require reimbursement of any annual incentive payment including Incentive Stock Options and Non-Qualified Stock Option to a Participant where: (i) the payment was predicated upon achieving certain financial results that were subsequently the subject of a substantial restatement of Company financial statements filed with the U.S. Securities and Exchange Commission; and (ii) a lower payment would have been made to the Participant based upon the restated financial results.  In each such instance,
the Committee shall, to the extent practicable and in a manner consistent with Section 409A of the Code, seek to recover from the individual Participant the amount by which the individual Participant’s incentive payments for the three year period preceding the accounting restatement exceeded the lower payment that would have been made based on the restated financial results.

 

10.17.           Adjustment.  In the event of any recapitalization, reclassification, stock dividend, stock split, combination of shares or other similar change in the corporate structure of the Company or capitalization of the Company, the exercise price of an outstanding Award and the number of shares of Common Stock then subject to the Plan, and the maximum number of shares with respect to which Awards may be granted in any year, including shares subject to restrictions, options or achievements of performance shares, shall be adjusted in proportion to the change in outstanding
shares of Common Stock in order to prevent dilution or enlargement of the rights of the Participants.  In the event of any such adjustments, the purchase price of any option, the performance objectives of any Award, and the shares of Common Stock issuable pursuant to any Award shall be adjusted as and to the extent appropriate, in the discretion of the Committee, to provide Participants with the same relative rights before and after such adjustment.  The adjustments described above will be made in a manner consistent with Section 162(m) and Section 409A of the Code.

 

  

  

  

 

10.18.           Reservation of Shares.  The Company, during the term of the Plan, will at all times reserve and keep available such number of shares of Common Stock as shall be sufficient to satisfy the requirements of the Plan.

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