Document:

Exhibit 10.9

 

THIS WARRANT
AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS.  THIS WARRANT AND THE
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IMPLANT
SCIENCES CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Right to Purchase up to 150,000 Shares of Common Stock
of

IMPLANT SCIENCES CORPORATION 

(subject to adjustment as provided herein)

 

COMMON STOCK
PURCHASE WARRANT

 

	
  No.

  	
  Issue Date: 
  As of May 31, 2006

  

 

IMPLANT SCIENCES CORPORATION, a corporation organized
under the laws of the Commonwealth of Massachusetts  (the “Company”), hereby certifies that, for
value received, LAURUS MASTER FUND, LTD., or assigns (the “Holder”), is
entitled, subject to the terms set forth below, to purchase from the Company
(as defined herein) from and after the Issue Date of this Warrant and at any
time or from time to time before 5:00 p.m., New York time, through the
close of business May 31, 2011 (the “Expiration Date”), up to One Hundred
Fifty Thousand (150,000) fully paid and nonassessable shares of Common Stock
(as hereinafter defined), $0.10 par value per share, at the applicable Exercise
Price per share (as defined below).  The
number and character of such shares of Common Stock and the applicable Exercise
Price per share are subject to adjustment as provided herein.

 

As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:

 

(a)                                  The
term “Company” shall include IMPLANT SCIENCES CORPORATION and any corporation
which shall succeed, or assume the obligations of, IMPLANT SCIENCES CORPORATION
hereunder.

 

(b)                                 The
term “Common Stock” includes (i) the Company’s Common Stock, par value
$0.10 per share; and (ii) any other securities into which or for which any
of the securities described in the preceding clause (i) may be converted
or exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.

 

(c)                                  The
term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which
the holder of the Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of the Warrant, in lieu of or in addition to
Common Stock, or 

 

 

which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.

 

(i)                                     The
“Exercise Price” applicable under this Warrant shall be $4.26.

 

1.                                       Exercise
of Warrant.

 

1.1.                              Number
of Shares Issuable upon Exercise. 
From and after the date hereof through and including the Expiration
Date, the Holder shall be entitled to receive, upon exercise of this Warrant in
whole or in part, by delivery of an original or fax copy of an exercise notice
in the form attached hereto as Exhibit A (the “Exercise Notice”), shares
of Common Stock of the Company, subject to adjustment pursuant to Section 4.

 

1.2.                              Company
Acknowledgment.  The Company will, at
the time of the exercise of this Warrant, upon the request of the holder hereof
acknowledge in writing its continuing obligation to afford to such holder any
rights to which such holder shall continue to be entitled after such exercise
in accordance with the provisions of this Warrant.  If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.

 

1.3.                              Trustee
for Warrant Holders.  In the event
that a bank or trust company shall have been appointed as trustee for the
holders of this Warrant pursuant to Subsection 3.2, such bank or trust
company shall have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor, as the case may be, on exercise of this
Warrant pursuant to this Section 1.

 

2.                                       Procedure
for Exercise.

 

2.1.                              Delivery
of Stock Certificates, Etc., on Exercise. 
The Company agrees that the shares of Common Stock purchased upon
exercise of this Warrant shall be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares in
accordance herewith.  As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on such
exercise, pursuant to Section 1 or otherwise.

 

2.2.                              Exercise.

 

(a)                                  Payment
may be made in cash or by certified or official bank check payable to the order
of the Company equal to the applicable aggregate Exercise Price, for the number
of Common Shares specified in such Exercise Notice (as such exercise number
shall be adjusted to reflect any adjustment in the total number of shares of

 

2

 

Common Stock issuable to the Holder per the terms of this Warrant) and
the Holder shall thereupon be entitled to receive the number of duly
authorized, validly issued, fully-paid and non-assessable shares of Common
Stock (or Other Securities) determined as provided herein.

 

3.                                       Effect
of Reorganization, Etc.; Adjustment of Exercise Price.

 

3.1.                              Reorganization,
Consolidation, Merger, Etc.  In case
at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c) transfer
all or substantially all of its properties or assets to any other person under
any plan or arrangement contemplating the dissolution of the Company, then, in
each such case, as a condition to the consummation of such a transaction,
proper and adequate provision shall be made by the Company whereby the Holder,
on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be,
if such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 4.

 

3.2.                              Dissolution.  In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, concurrently with any distributions made to holders of its
Common Stock, shall at its expense deliver or cause to be delivered to the
Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder pursuant to Section 3.1, or, if the
Holder shall so instruct the Company, to a bank or trust company specified by
the Holder and having its principal office in New York, NY as trustee for the
Holder  (the “Trustee”).

 

3.3.                              Continuation
of Terms.  Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force
and effect and the terms hereof shall be applicable to the shares of stock and
other securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant as provided
in Section 4.  In the event this
Warrant does not continue in full force and effect after the consummation of
the transactions described in this Section 3, then the Company’s
securities and property (including cash, where applicable) receivable by the
Holder will be delivered to the Holder or the Trustee as contemplated by Section 3.2.

 

4.                                       Extraordinary
Events Regarding Common Stock.  In
the event that the Company shall (a) issue additional shares of the Common
Stock as a dividend or other distribution on outstanding Common Stock or any
preferred stock issued by the Company (b) subdivide its outstanding shares
of Common Stock, or (c) combine its outstanding shares of the Common Stock
into a smaller number of shares of the Common Stock, then, in each such event,
the Exercise Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Exercise Price by a fraction, the numerator of
which shall be the number of

 

3

 

shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 4.  The number of shares of Common Stock that the
Holder shall thereafter, on the exercise hereof as provided in Section 1,
be entitled to receive shall be adjusted to a number determined by multiplying
the number of shares of Common Stock that would otherwise (but for the
provisions of this Section 4) be issuable on such exercise by a fraction
of which (a) the numerator is the Exercise Price that would otherwise (but
for the provisions of this Section 4) be in effect, and (b) the
denominator is the Exercise Price in effect on the date of such exercise
(taking into account the provisions of this Section 4).

 

5.                                       Certificate
as to Adjustments.  In each case of
any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its
expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the
terms of this Warrant and prepare a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common Stock
(or Other Securities) issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock (or Other Securities) outstanding or deemed to
be outstanding, and (c) the Exercise Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. 
The Company will forthwith mail a copy of each such certificate to the Holder
and any Warrant agent of the Company (appointed pursuant to Section 11
hereof).

 

6.                                       Reservation
of Stock, Etc., Issuable on Exercise of Warrant.  The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of this
Warrant, shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of this Warrant.

 

7.                                       Assignment;
Exchange of Warrant.  Subject to
compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”)
in whole or in part.  On the surrender
for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B
attached hereto (the “Transferor Endorsement Form”) and together with evidence
reasonably satisfactory to the Company demonstrating compliance with applicable
securities laws, which shall include, without limitation, the provision of a
legal opinion from the Transferor’s counsel (at the Company’s expense) that
such transfer is exempt from the registration requirements of applicable
securities laws, the Company at its expense (but with payment by the Transferor
of any applicable transfer taxes) will issue and deliver to or on the order of
the Transferor thereof a new Warrant of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each
a “Transferee”), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.

 

8.                                       Replacement
of Warrant.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or security

 

4

 

reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new Warrant
of like tenor.

 

9.                                       Registration
Rights.  The Holder has not been
granted registration rights by the Company in respect of this Warrant.

 

10.                                 Maximum
Exercise.  Notwithstanding anything
contained herein to the contrary, the Holder shall not be entitled to exercise
this Warrant in connection with that number of shares of Common Stock which
would exceed the difference between (i) 4.99% of the issued and
outstanding shares of Common Stock and (ii) the number of shares of Common
Stock beneficially owned by the Holder. 
For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder.  The limitation described in
the first sentence of this Section 10 shall automatically become null and
void following notice to the Company upon the occurrence and during the
continuance of an Event of Default under and as defined in the Note made by the
Company to the Holder dated the date hereof (as amended, modified or
supplemented from time to time, the “Note”), or upon 75 days prior notice to
the Company.

 

11.                                 Warrant
Agent.  The Company may, by written
notice to the each Holder of the Warrant, appoint an agent for the purpose of
issuing Common Stock (or Other Securities) on the exercise of this Warrant
pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.

 

12.                                 Transfer
on the Company’s Books.  Until this
Warrant is transferred on the books of the Company, the Company may treat the
registered Holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

 

13.                                 Notices,
Etc.  All notices and other
communications from the Company to the Holder shall be mailed by first class
registered or certified mail, postage prepaid, at such address as may have been
furnished to the Company in writing by such Holder or, until any such Holder
furnishes to the Company an address, then to, and at the address of, the last
Holder who has so furnished an address to the Company.

 

14.                                 Miscellaneous.  This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.  THIS WARRANT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF STATE OF NEW
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.  ANY ACTION BROUGHT CONCERNING THE
TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN THE STATE
COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE TO WAIVE THIS PROVISION AND
BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. 
The individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury.  The prevailing party shall be entitled to
recover from the other party its reasonable attorneys’ fees and costs.  In the event that any provision of this

 

5

 

Warrant is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law.  Any such provision
which may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision of this Warrant.  The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof.  The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision hereof. 
The Company acknowledges that legal counsel participated in the
preparation of this Warrant and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Warrant to favor any party
against the other party.

 

[BALANCE OF PAGE
INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

 

6

 

IN WITNESS WHEREOF, the Company has executed this
Warrant as of the date first written above.

 

 

	
   

  	
  IMPLANT SCIENCES CORPORATION

  
	
   

  	
   

  
	
  WITNESS:

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
					

 

7

 

Exhibit A

 

FORM OF SUBSCRIPTION

(To Be Signed Only On Exercise Of Warrant)

 

TO:                            IMPLANT
SCIENCES CORPORATION

 

Attention:                                         Chief
Financial Officer

 

The undersigned, pursuant to the provisions set forth
in the attached Warrant (No.        ),
hereby irrevocably elects to purchase (check applicable box):

 

	
  o

  	
                  
  shares of the Common Stock covered by such Warrant; 

  

 

The undersigned herewith makes payment of the full
Exercise Price for such shares at the price per share provided for in such
Warrant, which is $                      .  Such payment takes the form of (check
applicable box or boxes):

 

	
  o

  	
  $                    in lawful money of the United States. 

  

 

The undersigned requests that the certificates for
such shares be issued in the name of, and delivered to                                                                
whose address is                                                                                                                      .

 

The undersigned represents and warrants that all
offers and sales by the undersigned of the securities issuable upon exercise of
the within Warrant shall be made pursuant to registration of the Common Stock
under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant
to an exemption from registration under the Securities Act.

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder
  as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

A-1

 

Exhibit B

 

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer Of Warrant)

 

For value received, the undersigned hereby sells,
assigns, and transfers unto the person(s) named below under the heading “Transferees”
the right represented by the within Warrant to purchase the percentage and
number of shares of Common Stock of IMPLANT SCIENCES CORPORATION into which the
within Warrant relates specified under the headings “Percentage Transferred”
and “Number Transferred,” respectively, opposite the name(s) of such person(s)
and appoints each such person Attorney to transfer its respective right on the
books of IMPLANT SCIENCES CORPORATION with full power of substitution in the
premises.

 

	
  Transferees

  	
   

  	
  Address

  	
   

  	
  Percentage

  Transferred

  	
   

  	
  Number

  Transferred

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder
  as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SIGNED IN THE PRESENCE OF:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  	
   

  	
   

  
	
  [TRANSFEREE]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
   

  	
   

  
							

 

B-1Exhibit 10.1

 

AMENDMENT
NUMBER  TWO

TO CREDIT AGREEMENT

 

This AMENDMENT
NUMBER TWO TO CREDIT AGREEMENT (this
“Amendment”) is entered into as of June 2, 2006, by the lenders
identified on the signature pages hereof (the “Lenders”), WELLS FARGO FOOTHILL,
INC., a California corporation (“Agent”; and together with
the Lenders, the “Lender Group”), as the arranger and administrative
agent for the Lenders, and 155 EAST TROPICANA, LLC,
a Nevada limited liability company (“Parent”) and each of Parent’s
Subsidiaries identified on the signature pages hereof (such Subsidiaries,
together with Parent, are referred to hereinafter each individually as “Borrower”,
and individually and collectively, jointly and severally, as the “Borrowers”),
with reference to the following:

 

WHEREAS, Borrowers and the
Lender Group are parties to that certain Credit Agreement, dated as of March
29, 2005, as amended by that certain Amendment Number One effective as of
January 30, 2006 (as amended, restated, supplemented, or otherwise modified from
time to time, the “Credit Agreement”);

 

WHEREAS, Borrowers have
requested that the Lender Group make certain amendments to the Credit Agreement
that will (a) remove the Borrowing Base concept from the Credit Agreement, (b)
amend the definition of EBITDA to remove the $6,000,000 cap on the add back of
certain pre-opening costs and (c) amend the financial covenant requirements;
but subject otherwise to the terms and conditions of the Credit Agreement; and

 

WHEREAS, subject to the terms
and conditions set forth herein, the Lender Group is willing to make the
amendments requested by Borrowers.

 

NOW, THEREFORE, in consideration
of the foregoing and the mutual covenants herein contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

 

1.             Defined Terms. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to them in the Credit Agreement, as amended hereby.

 

2.             Amendments to Credit Agreement.

 

(a)           Section 2.1 of the Credit Agreement
is hereby amended and restated in its entirety as follows:

 

“2.1         Revolver Advances.

 

(a)           Subject
to the terms and conditions of this Agreement, and during the term of this
Agreement, each Lender with a Revolver Commitment agrees (severally, not
jointly or jointly and severally) to

 

 

make advances (“Advances”) to Borrowers in an
amount at any one time outstanding not to exceed such Lender’s Pro Rata Share
of an amount equal to the Maximum Revolver Amount less
the Letter of Credit Usage at such time and less the Bank
Product Reserve.

 

(b)           [Intentionally Omitted].

 

(c)           Amounts
borrowed pursuant to this Section 2.1 may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.”

 

(b)           Section 2.3(d)(ii) of the
Credit Agreement is hereby amended and restated in its entirety as follows:

 

“(ii)         Any contrary provision of this Agreement
notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as
applicable, and either Agent or Swing Lender, as applicable, may, but is not
obligated to, knowingly and intentionally, continue to make Advances (including
Swing Loans) to Borrowers notwithstanding that an Overadvance exists or thereby
would be created, so long as after giving effect to such Advances, the
outstanding Revolver Usage (except for and excluding amounts charged to the
Loan Account for interest, fees, or Lender Group Expenses) does not exceed the
Maximum Revolver Amount. In the event Agent obtains actual knowledge that the
Revolver Usage exceeds the amounts permitted by the immediately foregoing
provisions, regardless of the amount of, or reason for, such excess, Agent
shall notify the Lenders as soon as practicable (and prior to making any (or
any additional) intentional Overadvances (except for and excluding amounts
charged to the Loan Account for interest, fees, or Lender Group Expenses)
unless Agent determines that prior notice would result in imminent harm to the
Collateral or its value), and the Lenders with Revolver Commitments thereupon
shall, together with Agent, jointly determine the terms of arrangements that
shall be implemented with Borrowers intended to reduce, within a reasonable
time, the outstanding principal amount of the Advances to Borrowers to an
amount permitted by the preceding paragraph. In such circumstances, if any
Lender with a Revolver Commitment objects to the proposed terms of reduction or
repayment of any Overadvance, the terms of reduction or repayment thereof shall
be implemented according to the determination of the Required Lenders. Each
Lender with a Revolver Commitment shall be obligated to settle with Agent as
provided in Section 2.3(e) for the amount of such Lender’s Pro Rata
Share of any unintentional Overadvances by Agent reported to such Lender, any
intentional Overadvances made as permitted under this Section 2.3(d)(ii),
and any Overadvances resulting from the charging to the Loan Account of
interest, fees, or Lender Group Expenses.”

 

2

 

(c)           Section 2.5 of the Credit Agreement is hereby
amended and restated in its entirety as follows:

 

“2.5         Overadvances.
If, at any time or for any reason, the amount of Obligations owed by
Borrowers to the Lender Group pursuant to Section 2.1 or Section 2.12
is greater than any of the limitations set forth in Section 2.1 or Section
2.12, as applicable (an “Overadvance”), Borrowers immediately shall
pay to Agent, in cash, the amount of such excess, which amount shall be used by
Agent to reduce the Obligations in accordance with the priorities set forth in Section
2.4(b). In addition, Borrowers hereby promise to pay the Obligations
(including principal, interest, fees, costs, and expenses) in Dollars in full
as and when due and payable under the terms of this Agreement and the other
Loan Documents.”

 

(d)           Section 2.12(a) of the Credit Agreement is
hereby amended and restated in its entirety as follows:

 

“(a)         Subject to the terms and conditions of this Agreement, the
Issuing Lender agrees to issue letters of credit for the account of Borrowers
(each, an “L/C”) or to purchase participations or execute indemnities or
reimbursement obligations (each such undertaking, an “L/C Undertaking”)
with respect to letters of credit issued by an Underlying Issuer (as of the
Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the
account of Borrowers. Each request for the issuance of a Letter of Credit or
the amendment, renewal, or extension of any outstanding Letter of Credit shall
be made in writing by an Authorized Person and delivered to the Issuing Lender
and Agent via hand delivery, telefacsimile, or other electronic method of
transmission reasonably in advance of the requested date of issuance, amendment,
renewal, or extension. Each such request shall be in form and substance
satisfactory to the Issuing Lender in its Permitted Discretion and shall
specify (i) the amount of such Letter of Credit, (ii) the date of issuance,
amendment, renewal, or extension of such Letter of Credit, (iii) the expiration
date of such Letter of Credit, (iv) the name and address of the beneficiary
thereof (or the beneficiary of the Underlying Letter of Credit, as applicable),
and (v) such other information (including, in the case of an amendment,
renewal, or extension, identification of the outstanding Letter of Credit to be
so amended, renewed, or extended) as shall be necessary to prepare, amend,
renew, or extend such Letter of Credit. If requested by the Issuing Lender,
Borrowers also shall be an applicant under the application with respect to any
Underlying Letter of Credit that is to be the subject of an L/C Undertaking. The
Issuing Lender shall have no obligation to issue a Letter of Credit if any of
the following would result after giving effect to the issuance of such
requested Letter of Credit:

 

(i)            [Intentionally Omitted]

 

3

 

(ii)           the Letter of Credit Usage would
exceed $5,000,000, or

 

(iii)          the Letter of Credit Usage would
exceed the Maximum Revolver Amount less the
outstanding amount of Advances and less the Bank
Product Reserve.

 

Borrowers and the Lender
Group acknowledge and agree that certain Underlying Letters of Credit may be
issued to support letters of credit that already are outstanding as of the
Closing Date. Each Letter of Credit (and corresponding Underlying Letter of
Credit) shall be in form and substance acceptable to the Issuing Lender (in the
exercise of its Permitted Discretion), including the requirement that the
amounts payable thereunder must be payable in Dollars. If Issuing Lender is
obligated to advance funds under a Letter of Credit, Borrowers immediately
shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an
amount equal to such L/C Disbursement not later than 11:00 a.m., California
time, on the date that such L/C Disbursement is made, if Administrative
Borrower shall have received written or telephonic notice of such L/C
Disbursement prior to 10:00 a.m., California time, on such date, or, if such
notice has not been received by Administrative Borrower prior to such time on
such date, then not later than 11:00 a.m., California time, on the Business Day
that Administrative Borrower receives such notice, if such notice is received prior
to 10:00 a.m., California time, on the date of receipt, and, in the absence of
such reimbursement, the L/C Disbursement immediately and automatically shall be
deemed to be an Advance hereunder and, thereafter, shall bear interest at the
rate then applicable to Advances that are Base Rate Loans. To the extent an L/C
Disbursement is deemed to be an Advance hereunder, Borrowers’ obligation to
reimburse such L/C Disbursement shall be discharged and replaced by the
resulting Advance. Promptly following receipt by Agent of any payment from
Borrowers pursuant to this paragraph, Agent shall distribute such payment to
the Issuing Lender or, to the extent that Lenders have made payments pursuant
to Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders
and the Issuing Lender as their interests may appear.”

 

(e)           Section 6.16(a) of the Credit Agreement is
hereby amended and restated in its entirety as follows:

 

“(a)         Fail to maintain or achieve:

 

(i)            Minimum
EBITDA. EBITDA,
measured on a quarter-end basis, of at least the required amount set forth in
the following table for the applicable period set forth opposite thereto:

 

4

 

	
  Applicable

  Amount

  	
   

  	
  Applicable Period

  	
   

  
	
  $

  	
  1,000,000

  	
   

  	
  For the 4 fiscal
  quarter period ending March 31, 2005, and for each 4 fiscal quarter period
  ending on each fiscal quarter end thereafter through and including June 30,
  2006

  	
   

  
	
  $

  	
  2,000,000

  	
   

  	
  For the 4 fiscal
  quarter period ending September 30, 2006

  	
   

  
	
  $

  	
  6,000,000

  	
   

  	
  For the 4 fiscal quarter
  period ending December 31, 2006

  	
   

  
	
  $

  	
  15,000,000

  	
   

  	
  For the 4 fiscal
  quarter period ending March 31, 2007

  	
   

  
	
  $

  	
  17,500,000

  	
   

  	
  For the 4 fiscal
  quarter period ending June 30, 2007

  	
   

  
	
  $

  	
  20,000,000

  	
   

  	
  For the 4 fiscal
  quarter period ending September 30, 2007, and for each 4 fiscal quarter
  period ending on each fiscal quarter end thereafter

  	
   

  

 

(ii)           Maximum Senior Leverage. Senior Leverage
Ratio, measured on a quarter-end basis, of not more than the maximum ratio set
forth in the following table for the applicable measurement dates set forth
opposite thereto:

 

5

 

	
  Applicable Senior Leverage Ratio

  	
   

  	
  Applicable Measurement Date

  	
   

  
	
  21.00:1.00

  	
   

  	
   

  	
  March 31, 2005, and
  each fiscal quarter end thereafter up to and including June 30, 2006

  	
   

  
	
  11.00:1.00

  	
   

  	
   

  	
  September 30, 2006

  	
   

  
	
  3.75:1.00

  	
   

  	
   

  	
  December 31, 2006

  	
   

  
	
  1.75:1.00

  	
   

  	
   

  	
  March 31, 2007

  	
   

  
	
  1.25:1.00

  	
   

  	
   

  	
  June 30, 2007 and each
  fiscal quarter end thereafter”

  	
   

  

 

(f)            Section
9 of the Credit Agreement is hereby amended and restated in its entirety as
follows:

 

“If any Borrower fails to
pay any monies (whether taxes, assessments, insurance premiums, or, in the case
of leased properties or assets, rents or other amounts payable under such
leases) due to third Persons, or fails to make any deposits or furnish any
required proof of payment or deposit, all as required under the terms of this
Agreement, then, Agent, in its sole discretion and without prior notice to any
Borrower, may do any or all of the following: 
(a) make payment of the same or any part thereof, (b) set up such
reserves against the Maximum Revolver Amount as Agent deems necessary to
protect the Lender Group from the exposure created by such failure, or (c) in
the case of the failure to comply with Section 5.8 hereof, obtain and maintain
insurance policies of the type described in Section 5.8 and take any
action with respect to such policies as Agent deems prudent. Any such amounts
paid by Agent shall constitute Lender Group Expenses and any such payments
shall not constitute an agreement by the Lender Group to make similar payments
in the future or a waiver by the Lender Group of any Event of Default under
this Agreement. Agent need not inquire as to, or contest the validity of, any
such expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.”

 

(g)           Section 14.1(j) of the Credit Agreement is
hereby amended and restated in its entirety as follows:

 

“(j)          change the definition of Maximum Revolver Amount, or”

 

(h)           Schedule 1.1 of the Credit
Agreement is hereby amended and modified by deleting the definition of “Borrowing
Base” in its entirety.

 

6

 

(i)            Schedule 1.1 of the Credit
Agreement is hereby further amended and modified by deleting the definition of “Borrowing
Base Certificate” in its entirety.

 

(j)            Schedule 1.1 of the Credit
Agreement is hereby further amended and modified by deleting the definition of “EBITDA”
in its entirety and substituting in lieu thereof the following new definition:

 

““EBITDA” means, with
respect to any fiscal period, Parent’s and its Subsidiaries’ consolidated net
earnings (or loss), minus extraordinary gains and interest income, plus
interest expense, income taxes, and depreciation and amortization for such
period, in each case, as determined in accordance with GAAP, and, in each case
without duplication and to the extent incurred in such period and subtracted in
the calculation of net earnings (loss) with respect thereto (and not otherwise
added back), plus (a) pre-opening costs in connection with and incurred prior
to the Re-opening, as determined in accordance with GAAP, (b) non-cash
write-downs and write-offs of assets associated with the retirement of assets
in the ordinary course of business, (c) costs and expenses in association with
the initial closing of the Agreement (including costs with respect to the
pay-off of the Existing Lender), in an aggregate amount not in excess of
$1,400,000, paid from the initial proceeds of the Senior Secured Notes, (d)
initial licensing expenses for obtaining applicable Gaming Licenses and Liquor
Licenses in connection with the Operator Licensing Event, in an aggregate
amount not in excess of $800,000, and (e) any other non-cash expense.”

 

(k)           Schedule 5.2 of the Credit
Agreement is hereby amended and modified by deleting subsection (b) in its
entirety.

 

3.             Conditions Precedent to
Amendment. The satisfaction of each of the following shall constitute
conditions precedent to the effectiveness of this Amendment and each and every
provision hereof:

 

(a)           Agent shall have received this
Amendment, duly executed by the parties hereto, and the same shall be in full
force and effect.

 

(b)           Agent shall have received an amendment
fee in the amount of $100,000, which amount Borrower authorizes Agent, for the
benefit of the Lenders, to charge to the Loan Account. Such fee shall
be fully earned and paid in full in immediately available funds on or before
the date hereof.

 

(c)           The representations and warranties
herein and in the Credit Agreement and the other Loan Documents shall be true
and correct in all material respects on and as of the date hereof, as though
made on such date (except to the extent that such representations and warranties
relate solely to an earlier date).

 

7

 

(d)           No Default or Event of Default shall
have occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein.

 

(e)           No injunction, writ, restraining order,
or other order of any nature prohibiting, directly or indirectly, the
consummation of the transactions contemplated herein shall have been issued and
remain in force by any Governmental Authority against any Borrower, any
Guarantor, Agent, or any Lender.

 

4.             Representations and Warranties.
Each Borrower represents and warrants to the Lender Group that (a) the
execution, delivery, and performance of this Amendment and of the Credit
Agreement, as amended hereby, (i) are within its powers, (ii) have been duly
authorized by all necessary action, and (iii) are not in contravention of any
law, rule, or regulation applicable to it, or any order, judgment, decree,
writ, injunction, or award of any arbitrator, court, or Governmental Authority,
or of the terms of its Governing Documents, or of any contract or undertaking
to which it is a party or by which any of its properties may be bound or
affected; (b) this Amendment and the Credit Agreement, as amended hereby, are
legal, valid and binding obligations of such Borrower, enforceable against such
Borrower in accordance with their respective terms; and (c) no Default or Event
of Default has occurred and is continuing on the date hereof or as of the date
upon which the conditions precedent set forth herein are satisfied.

 

5.             Choice of Law. The validity
of this Amendment, its construction, interpretation and enforcement, the rights
of the parties hereunder, shall be determined under, governed by, and construed
in accordance with the laws of the State of New York.

 

6.             Counterpart Execution. This
Amendment may be executed in any number of counterparts, all of which when
taken together shall constitute one and the same instrument, and any of the
parties hereto may execute this Amendment by signing any such counterpart. Delivery
of an executed counterpart of this Amendment by telefacsimile or electronic
mail shall be equally as effective as delivery of an original executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile or electronic mail also shall deliver an
original executed counterpart of this Amendment, but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Amendment.

 

7.             Effect on Loan Documents.

 

(a)           The Credit Agreement, as amended
hereby, and each of the other Loan Documents shall be and remain in full force
and effect in accordance with their respective terms and hereby are ratified
and confirmed in all respects. The execution, delivery, and performance of this
Amendment shall not operate, except as expressly set forth herein, as a
modification or waiver of any right, power, or remedy of Agent or any Lender
under the Credit Agreement or any other Loan Document. The waivers, consents,
and modifications herein are limited to the specifics hereof, shall not apply
with respect to any facts or occurrences other than those on which the same are
based, shall not excuse future non-compliance with the Loan Documents, and
shall not operate as a consent to any further or other matter under the Loan
Documents.

 

8

 

(b)           Upon and after the effectiveness of
this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”,
“herein”, “hereof” or words of like import referring to the Credit Agreement,
and each reference in the other Loan Documents to “the Credit Agreement”, “thereunder”,
“therein”, “thereof” or words of like import referring to the Credit Agreement,
shall mean and be a reference to the Credit Agreement as modified and amended
hereby.

 

(c)           To the extent that any terms and
conditions in any of the Loan Documents shall contradict or be in conflict with
any terms or conditions of the Credit Agreement, after giving effect to this
Amendment, such terms and conditions are hereby deemed modified or amended
accordingly to reflect the terms and conditions of the Credit Agreement as
modified or amended hereby.

 

(d)           This Amendment is a Loan Document.

 

8.             Entire Agreement. This
Amendment embodies the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior or contemporaneous agreements or understandings with respect to the
subject matter hereof, whether express or implied, oral or written.

 

[signature page follows]

 

9

 

IN WITNESS WHEREOF, the parties have entered into this
Amendment as of the date first above written.

 

 

	
   

  	
  155
  EAST TROPICANA, LLC,

  a Nevada limited liability company, as a

  Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Deborah J. Pierce

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  155
  EAST TROPICANA FINANCE CORP.

  a Nevada
  corporation, as a Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Deborah J. Pierce

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WELLS
  FARGO FOOTHILL, INC.,

  a California corporation, as Agent and as a

  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Kevin P. Smith

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President

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