NOTE AND WARRANT PURCHASE AGREEMENT

Exhibit 10.3

EXECUTION VERSION

NOTE AND WARRANT PURCHASE AGREEMENT

Dated as of August 4, 2008

by and among

PROGRESSIVE GAMING INTERNATIONAL CORPORATION,

as Issuer

THE SUBSIDIARIES OF ISSUER PARTY HERETO

THE PURCHASERS FROM TIME TO TIME PARTY HERETO

and

INTERNATIONAL GAME TECHNOLOGY,

as Agent

TABLE OF CONTENTS

 

TABLE OF CONTENTS

(continued)

 

TABLE OF CONTENTS

(continued)

 

Exhibits:

 

NOTE AND WARRANT PURCHASE AGREEMENT

This Note and Warrant Purchase Agreement, dated as of August 4, 2008, is made by and among PROGRESSIVE GAMING INTERNATIONAL CORPORATION , a Nevada corporation (the “ Issuer ”), each subsidiary of the Issuer listed as a “Guarantor” on the signature pages hereto (together with each other Person which guarantees, pursuant to Section 6.01(b) of this Agreement or otherwise, all or any part of the Obligations, each a “ Guarantor ” and collectively, jointly and severally, the “ Guarantors ”), the Purchasers from time to time party hereto (each a “ Purchaser ” and collectively, the “ Purchasers ”), and INTERNATIONAL GAME TECHNOLOGY , a Nevada corporation, as Agent for the Purchasers (in such capacity, together with any successor Agent, the “ Agent ”).

WHEREAS, the Issuer has authorized Senior Secured Convertible Notes of the Issuer which will be convertible into shares of the Issuer’s common stock, par value $0.10 per share (the “ Common Stock ”), at an initial conversion price of $0.89 in accordance with the terms and conditions set forth in such notes;

WHEREAS, the Purchasers wish to purchase such Senior Secured Convertible Notes in the aggregate principal amount of $15,000,000, which principal amount, plus accrued and unpaid interest thereon, may be converted at any time after issuance by the holder thereof into shares of Common Stock as set forth in such notes;

WHEREAS, as a condition to the purchase of such Senior Secured Convertible Notes, the Issuer shall issue to the Purchasers (a) warrants to purchase 550,000 shares of Common Stock at an exercise price of $1.05 per share, on the terms and conditions set forth in such warrants, (b) warrants to purchase 891,892 shares of Common Stock at an exercise price of $0.89 per share, on the terms and conditions set forth in such warrants, and (c) if the average trading price of the Common Stock does not meet specified thresholds on November 15, 2008, the Issuer shall issue additional warrants to purchase shares of Common Stock as provided for herein;

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS; CERTAIN TERMS

Section 1.01 Definitions . As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

“ Acquisition ” means (a) any Stock Acquisition, or (b) any Asset Acquisition.

“ Action ” has the meaning specified therefor in Section 11.12 .

“ Additional Warrant ” has the meaning specified therefor in Section 6.01(z) .

“ Adjusted Consolidated EBITDA ” means, for any Measurement Period, Consolidated Net Income of Issuer and its Subsidiaries for that period plus (a) the following to the extent deducted in calculating such Consolidated Net Income (but without duplication): (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income taxes payable, (iii) depreciation and amortization expense, (iv) other non-recurring expenses reducing such Consolidated Net Income which do not represent a cash item in such period or any future period, (v) to the extent actually paid during such period, fees and expenses related to the consummation of the transactions contemplated to be closed on the Closing Date under this Agreement and the Senior Credit Agreement, in each case of or by the Issuer and its Subsidiaries for such Measurement Period, and (vi) non-cash employee and supplier/contractor compensation (including non-cash stock compensation expense recorded pursuant to FASB 123R), and, minus (b) the following to the extent not deducted in calculating such Consolidated Net Income (but without duplication): (i) Federal, state, local and foreign income tax credits, in each case of or received by the Issuer and its Subsidiaries for such Measurement Period, (ii) all non-cash items increasing Consolidated Net Income, in each case of or by the Issuer and its Subsidiaries for such Measurement Period, and (iii) royalties, licensing fees and other payments made for the use of intellectual property paid by the Issuer and its Subsidiaries during the Measurement Period, to the extent capitalized.

“ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (i) vote 15% or more of the Capital Stock having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether through the ownership of voting securities, by contract or otherwise. Notwithstanding anything herein to the contrary, in no event shall Agent or any Purchaser be considered an “Affiliate” of any Issuer Party or any of their respective Affiliates.

“ After Acquired Property ” means any fee interest in real property acquired by the Issuer or any of its Subsidiaries after the Effective Date with a Current Value in excess of $100,000.

“ Agent ” has the meaning specified therefor in the preamble hereto.

“ Agent Advances ” has the meaning specified therefor in Section 9.08(a) .

“ Agent’s Account ” means an account at a bank designated by Agent from time to time as the account into which the Issuer shall make certain payments to Agent for the benefit of the Purchasers under this Agreement and the other Purchase Documents.

“ Agreement ” means this Note and Warrant Purchase Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative.

“ Announcing Form 8-K ” has the meaning specified therefor in Section 6.01(u) .

“ Articles of Incorporation ” has the meaning specified therefor in Section 5.01(ii) .

 

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“ Asset Acquisition ” means any purchase or other acquisition by the Issuer or any of its wholly-owned Subsidiaries of all or substantially all of the assets of any other Person.

“ Asset Purchase and License Agreement ” means that certain Asset Purchase and License Agreement dated as of the Closing Date between the Issuer and IGT Sub.

“ Authorized Officer ” means, with respect to any Person, the chief executive officer, chief financial officer, president, or executive vice president of such Person.

“ Availability ” shall have the meaning given to such term under the Senior Credit Agreement as in effect on the Effective Date.

“ Bankruptcy Code ” means the United States Bankruptcy Code (11 U.S.C. § 101, et seq .), as amended, and any successor statute.

“ Blocked Account ” has the meaning specified therefor in Section 7.01(a) .

“ Blocked Account Agreement ” has the meaning specified therefor in Section 7.01(a) .

“ Blocked Account Bank ” has the meaning specified therefor in Section 7.01(a) .

“ Board ” means the Board of Governors of the Federal Reserve System of the United States.

“ Board of Directors ” means the Board of Directors of the Issuer.

“ Board Representative ” has the meaning specified therefor in Section 6.01(w) .

“ Business Day ” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the State of Nevada or the State of New York.

“ Bylaws ” has the meaning specified therefor in Section 5.01(ii) .

“ Capital Expenditures ” means, with respect to any Person for any period, the aggregate of all expenditures by such Person and its Subsidiaries during such period that in accordance with GAAP are or should be included in “property, plant and equipment” or in a similar fixed asset account on its balance sheet, whether such expenditures are paid in cash or financed and including all Capitalized Lease Obligations paid or payable during such period, but excluding royalties and licensing fees paid by such Person and its Subsidiaries.

“ Capital Stock ” means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and all partnership, membership, member’s or other equity interests of such Person.

“ Capitalized Lease ” means, with respect to any Person, any lease of real or personal property by such Person as lessee which is (i) required under GAAP to be capitalized on the balance sheet of such Person or (ii) a transaction of a type commonly known as a “synthetic

 

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lease” ( i.e. , a lease transaction that is treated as an operating lease for accounting purposes but with respect to which payments of rent are intended to be treated as payments of principal and interest on a loan for Federal income tax purposes).

“ Capitalized Lease Obligations ” means, with respect to any Person, obligations of such Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined in accordance with GAAP or in the case of a “synthetic lease” determined as if such obligation were required to be capitalized in accordance with GAAP.

“ Cash and Cash Equivalents ” means all cash, deposit or securities account balances, certificates of deposit or other financial instruments properly classified as cash or cash equivalents under GAAP.

“ CFC ” means a controlled foreign corporation (as that term is defined in the IRC).

“ Change in Law ” has the meaning specified therefor in Section 3.05(a) .

“ Change of Control ” means each occurrence of any of the following:

(i) the acquisition, directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Exchange Act), of beneficial ownership of more than 50% of the aggregate outstanding voting power of the Capital Stock of the Issuer;

(ii) the Issuer ceases to own and control, directly or indirectly, 100% of the shares of the Capital Stock of Issuer’s Subsidiaries, unless otherwise permitted hereunder;

(iii) at any time that the majority of the members of the board of directors of the Issuer do not constitute Continuing Directors; or

(iv) (A) the Issuer consolidates with or merges into another entity or conveys, transfers or leases all or substantially all of its property and assets to any Person, or (B) any entity consolidates with or merges into the Issuer, which in either event (A) or (B) is pursuant to a transaction in which the outstanding voting Capital Stock of the Issuer is reclassified or changed into or exchanged for cash, securities or other property.

“ Closing ” means the transactions to be effected on the Closing Date (if it occurs).

“ Closing Date ” means the date that the initial Notes are issued to the Purchasers hereunder.

“ Code ” means the New York Uniform Commercial Code, as in effect from time to time; provided , however , that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Agent’s Liens on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “Code” shall mean the Uniform Commercial Code as

 

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enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

“ Collateral ” means all of the property and assets and all interests therein and proceeds thereof now owned or hereafter acquired by any Person upon which a Lien is granted or purported to be granted by such Person as security for all or any part of the Obligations.

“ Common Stock ” has the meaning specified therefor in the recitals hereto.

“ Common Stock and Warrant Purchase Agreement ” means the Common Stock and Warrant Purchase Agreement between the Issuer and the Senior Lenders in the form of an exhibit to the Senior Credit Agreement.

“ Consolidated Interest Charges ” means, for any Measurement Period, the sum of cash paid or payable for (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with (i) borrowed money (including capitalized interest) and (ii) in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) all interest paid or payable with respect to discontinued operations and (c) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP, in each case, of or by Issuer and its Subsidiaries on a consolidated basis.

“ Consolidated Net Income ” means, for any Measurement Period, the net income (or loss) of the Issuer and its Subsidiaries on a consolidated basis for that period; provided that Consolidated Net Income shall exclude (a) extraordinary gains and extraordinary losses, (b) any income (or loss) of any Person if such Person is not a Subsidiary, except that the Issuer’s equity in the net income of any such Person shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to Issuer or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to Issuer), (c) restructuring charges, and (d) interest that is paid-in-kind.

“ Consolidated Tangible Net Worth ” means, as of any date of determination, for the Issuer and its Subsidiaries on a consolidated basis, Shareholders’ Equity of the Issuer and its Subsidiaries on that date minus the Intangible Assets of the Issuer and its Subsidiaries on that date.

“ Contingent Obligation ” means, with respect to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including (i) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (ii) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement, (iii) any obligation of such Person, whether or not contingent, (A) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (B) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary

 

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obligor or otherwise to maintain the net worth or solvency of the primary obligor, (C) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (D) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided , however , that the term “Contingent Obligation” shall not include any product warranties extended in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation with respect to which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with respect thereto (assuming such Person is required to perform thereunder), as determined by such Person in good faith.

“ Continuing Director ” means (a) any member of the board of directors of the Issuer who was a director (or comparable manager) of the Issuer on the Effective Date, and (b) any individual who becomes a member of the board of the directors of the Issuer after the Effective Date if such individual was appointed or nominated for election to the board of the directors of the Issuer by a majority of the Continuing Directors then in office, but excluding any such individual originally proposed for election in opposition to the board of directors in office at the Effective Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of the Issuer and whose initial assumption of office resulted from such contest or the settlement thereof.

“ Conversion Shares ” means the shares of Common Stock into which the Notes are convertible.

“ Current Value ” has the meaning specified therefor in Section 6.01(n) .

“ Default ” means an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“ Disclosure Schedules ” means the Disclosure Schedules delivered by the Issuer to the Agent contemporaneously with the execution and delivery of this Agreement, which schedules must be in form and substance satisfactory to the Agent, and which schedules shall be updated pursuant to Section 6.01(aa) on or before the Closing Date. All references in this Agreement to schedules (other than Schedule 1.01 ) are references to schedules included in the Disclosure Schedules.

“ Disposition ” means any transaction, or series of related transactions, pursuant to which any Person or any of its Subsidiaries sells, assigns, transfers or otherwise disposes of any property or assets (whether now owned or hereafter acquired) to any other Person, in each case, whether or not the consideration therefor consists of cash, securities or other assets owned by the acquiring Person. For the avoidance of doubt, the sale and/or licensing of the assets described in the Asset Purchase and License Agreement shall constitute a “Disposition” and the sale or issuance of Capital Stock of the Issuer or its Subsidiaries shall not constitute a “Disposition.”

 

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“ Dollar ,” “ Dollars ” and the symbol “ $ ” each means lawful money of the United States of America.

“ Domestic Subsidiary ” means any Subsidiary of any Person that is not a CFC.

“ Effective Date ” means the date of the effectiveness of all conditions set forth in Section 4.01 .

“ Employee Plan ” means an employee benefit plan (other than a Multiemployer Plan) covered by Title IV of ERISA and maintained (or that was maintained at any time during the six (6) calendar years preceding the date of any borrowing hereunder) for employees of any Issuer Party, any Subsidiary of any Issuer Party, or any of their respective ERISA Affiliates.

“ EndX ” means EndX Inc. (USA), a Nevada corporation.

“ Environmental Actions ” means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any Governmental Authority involving violations of Environmental Laws or Releases of Hazardous Materials (i) from any assets, properties or businesses of any Issuer Party or any of its Affiliates or any predecessor in interest; (ii) from adjoining properties or businesses; or (iii) onto any facilities which received Hazardous Materials generated by any Issuer Party or any of its Affiliates or any predecessor in interest.

“ Environmental Laws ” means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601, et seq .), the Hazardous Materials Transportation Act (49 U.S.C. § 1801, et seq .), the Resource Conservation and Recovery Act (42 U.S.C. § 6901, et seq .), the Federal Clean Water Act (33 U.S.C. § 1251, et seq .), the Clean Air Act (42 U.S.C. § 7401, et seq .), the Toxic Substances Control Act (15 U.S.C. § 2601, et seq .) and the Occupational Safety and Health Act (29 U.S.C. § 651, et seq .), as such laws may be amended or otherwise modified from time to time, and any other present or future federal, state, local or foreign statute, ordinance, rule, regulation, order, judgment, decree, permit, license or other binding determination of any Governmental Authority imposing liability or establishing standards of conduct for protection of the environment or other government restrictions relating to the protection of the environment or the release, emission, deposit, discharge, leaching, migration or spill of any Hazardous Materials into the environment.

“ Environmental Liabilities and Costs ” means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to the liability or potential liability of any Issuer Party or any of its Affiliates with respect to any environmental condition or a Release of Hazardous Materials from or onto (i) any property currently or formerly owned by any Issuer Party or any of its Affiliates or (ii) any property which received Hazardous Materials generated by any Issuer Party or any of its Affiliates.

 

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“ Environmental Lien ” means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, and regulations thereunder, in each case, as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections.

“ ERISA Affiliate ” means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which would be deemed to be a “controlled group” within the meaning of Sections 414(b), (c), (m) and (o) of the IRC.

“ Event of Default ” means any of the events set forth in Section 8.01 .

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Existing Foreign Subsidiary ” has the meaning set forth in Section 4.02(d)(xxi) .

“ Financial Statements ” means (i) the audited consolidated balance sheet of the Issuer and its Subsidiaries for the Fiscal Year ended December 31, 2007, and the related consolidated statement of operations, shareholders’ equity and cash flows for the Fiscal Year then ended, and (ii) the unaudited consolidated balance sheet of the Issuer and its Subsidiaries for the fiscal quarter ending March 31, 2008, and the related consolidated statement of operations, shareholders’ equity and cash flows for such fiscal quarter then ended.

“ Fiscal Year ” means the fiscal year of the Issuer and its Subsidiaries ending on December 31st of each year.

“ GAAP ” means generally accepted accounting principles in effect from time to time in the United States, applied on a consistent basis, provided that for the purpose of Section 6.03 hereof and the definitions used therein, “GAAP” shall mean generally accepted accounting principles in effect on the Effective Date and consistent with those used in the preparation of the Financial Statements, provided, further, that if there occurs after the Effective Date any change in GAAP that affects in any respect the calculation of any covenant contained in Section 6.03 hereof, Agent and the Issuer shall negotiate in good faith amendments to the provisions of this Agreement that relate to the calculation of such covenant with the intent of having the respective positions of the Purchasers and the Issuer after such change in GAAP conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon, the covenants in Section 6.03 hereof shall be calculated as if no such change in GAAP has occurred.

“ Gaming Authorities ” means the United States federal government, any foreign government, tribal government or any state, county, municipality or other political subdivision or any agency or other Governmental Authority thereof that now or hereafter has jurisdiction over all or any portion of the gaming activities of the Issuer Parties or any of their Affiliates, including, without limitation, the Nevada Gaming Authorities and the Mississippi Gaming Authorities.

 

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“ Gaming Laws ” means any law, statute, ordinance, code, regulation, constitutional provision, rule, order, directive or other enforcement requirement now or hereafter in existence of any Gaming Authority.

“ Gaming License ” means any finding of suitability, registration, license, franchise qualification or other approval or authorization required of the Issuer, the Guarantors or any of their Affiliates on the date hereof or hereafter required to own, lease, operate or otherwise conduct the gaming business of the Issuer Parties or any of their Affiliates, including all licenses granted under any Gaming Laws.

“ Gaming Subsidiary ” shall mean each of PGIC NV, a Nevada corporation and MGC, Inc., a Nevada corporation.

“ Governmental Authority ” means any nation or government, any Federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Guaranteed Obligations ” has the meaning specified therefor in Section 10.01 .

“ Guarantor ” and “ Guarantors ” have the meanings specified therefor in the preamble to this Agreement.

“ Guarantor Security Agreement ” means the Security Agreement to be dated as of the Closing Date, and made by Guarantors in favor of Agent for the benefit of itself and the Purchasers, securing the Guaranteed Obligations and delivered to Agent on the Closing Date, together with any amendments, supplements, restatements or modifications thereto.

“ Guaranty ” means (i) the guaranty of each Guarantor party hereto contained in Article X hereof, and (ii) each other guaranty made by any other Guarantor in favor of Agent for the benefit of itself and the Purchasers pursuant to the requirements of Section 6.01(b) or otherwise.

“ Hazardous Materials ” means (a) any element, compound or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or chemical, hazardous waste, special waste, or solid waste under Environmental Laws or that is likely to cause immediately, or at some future time, harm to or have an adverse effect on, the environment or risk to human health or safety, including any pollutant, contaminant, waste, hazardous waste, toxic substance or dangerous good which is defined or identified in any Environmental Law and which is present in the environment in such quantity or state that it contravenes any Environmental Law; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any substance exhibiting a hazardous waste characteristic, including corrosivity, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) any raw materials, building components (including asbestos-containing materials) and manufactured products containing hazardous substances listed or classified as such under Environmental Laws.

 

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“ Hedging Agreement ” means any interest rate, foreign currency, commodity or equity swap, collar, cap, floor or forward rate agreement, or other agreement or arrangement designed to protect against fluctuations in interest rates or currency, commodity or equity values (including any option with respect to any of the foregoing and any combination of the foregoing agreements or arrangements), and any confirmation executed in connection with any such agreement or arrangement.

“ Highest Lawful Rate ” means, with respect to Agent or any Purchaser, the maximum interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Obligations under laws applicable to Agent or such Purchaser which are currently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow.

“ IGT ” means, International Game Technology, a Nevada corporation, its successors and permitted assigns, in its individual capacity and not as the Agent.

“ IGT Sub ” means IGT, a Nevada corporation and Subsidiary of IGT.

“ Inactive Subsidiary ” means each of Mikohn Holdings and EndX.

“ Indebtedness ” means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money; (ii) all obligations of such Person for the deferred purchase price of property or services (other than trade payables or other accounts payable incurred in the ordinary course of such Person’s business and not outstanding for more than 150 days after the date such payable was created, or, if outstanding for more than 150 days after the date such payable was created, not more than $100,000 in the aggregate); (iii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or upon which interest payments are customarily made; (iv) all reimbursement, payment or other obligations and liabilities of such Person created or arising under any conditional sales or other title retention agreement with respect to property used or acquired by such Person, even though the rights and remedies of the lessor, seller or lender thereunder may be limited to repossession or sale of such property; (v) all Capitalized Lease Obligations of such Person; (vi) all obligations and liabilities, contingent or otherwise, of such Person, in respect of letters of credit, acceptances and similar facilities; (vii) all obligations and liabilities, calculated on a basis reasonably satisfactory to Agent and in accordance with accepted practice, of such Person under Hedging Agreements; (viii) all Contingent Obligations; (ix) liabilities incurred under Title IV of ERISA with respect to any plan (other than a Multiemployer Plan) covered by Title IV of ERISA and maintained for employees of such Person or any of its ERISA Affiliates; (x) withdrawal liability incurred under ERISA by such Person or any of its ERISA Affiliates with respect to any Multiemployer Plan; (xi) all monetary obligations under any receivables factoring, receivable sales or similar transactions and all monetary obligations under any synthetic lease, tax ownership/operating lease, off-balance sheet financing or similar financing; and (xii) all obligations referred to in clauses (i) through (xi) of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or joint venturer.

 

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“ Indemnified Matters ” has the meaning specified therefor in Section 11.15 .

“ Indemnitees ” has the meaning specified therefor in Section 11.15 .

“ Indenture ” means the Indenture, dated as of August 22, 2001, among Issuer, the Subsidiaries of Issuer signatory thereto, and the Indenture Trustee.

“ Indenture Documents ” means the Indenture, the Senior Secured Notes, and the other agreements and documents executed or delivered in connection therewith, as amended or modified in accordance with the terms hereof and thereof.

“ Indenture Trustee ” means U.S. Bank N.A. (f/k/a Firstar Bank, N.A.), as trustee.

“ Insolvency Proceeding ” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“ Intangible Assets ” means assets that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.

“ Interest Rate ” means the interest rate for the Notes as described in the Notes.

“ Inventory ” means all of each of the Issuer Parties’ now owned or hereafter acquired right, title, and interest with respect to inventory as defined in the Code.

“ IRC ” means the Internal Revenue Code of 1986, as amended (or any successor statute thereto) and the regulations thereunder.

“ Irrevocable Transfer Agent Instructions ” has the meaning specified therefor in Section 6.01(v) .

“ Issuer ” has the meaning specified therefor in the preamble hereto.

“ Issuer Party ” means the Issuer or any Guarantor.

“ Issuer Security Agreement ” means the Security Agreement dated as of the Closing Date, made by Issuer in favor of Agent for the benefit of itself and the Purchasers, securing the Obligations and delivered to Agent on the Closing Date, together with any amendments, supplements, restatements or modifications thereto.

 

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“ Lease ” means any lease of real property to which any Issuer Party or any of its Subsidiaries is a party as lessor or lessee.

“ Lien ” means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including any conditional sale or title retention arrangement, any Capitalized Lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.

“ Liquidity ” means, at any date of determination, Availability plus Qualified Cash.

“ Lockbox Agreement ” has the meaning specified therefor in Section 7.01(a) .

“ Lockbox Processor ” has the meaning specified therefor in Section 7.01(a) .

“ Material Adverse Effect ” means any change or event that has had or could reasonably be expected to have a material adverse effect on (i) the operations, business, assets, properties, or financial condition of (A) any Issuer Party (other than the Inactive Subsidiaries), (B) any Subsidiary of any Issuer Party that holds a Gaming License or otherwise has assets, revenues, operations or businesses that are material to any Issuer Party, (C) the Issuer Parties taken as a whole or (D) the Issuer Parties and their Subsidiaries taken as a whole, (ii) the ability of any Issuer Party to perform any of its obligations under any Purchase Document to which it is a party, (iii) the legality, validity or enforceability of this Agreement or any other Purchase Document, or (iv) the rights and remedies of Agent or any Purchaser under any Purchase Document.

“ Material Contract ” means, with respect to the Issuer Parties or any of its Subsidiaries, each contract or agreement filed with the SEC as an exhibit to the Issuer’s periodic reports under the Exchange Act or required to be so filed pursuant to the rules and regulations promulgated under the Exchange Act or the Securities Act or that is otherwise material to operations or business of the Issuer or any of its Subsidiaries.

“ Material Transaction ” has the meaning specified therefor in Section 6.01(y) .

“ Maturity Date ” means the earliest of (i) August 15, 2014, and (ii) the date on which all or any portion of the Obligations shall become due and payable pursuant to the terms of Section 8.01 .

“ Measurement Period ” means (a) as of September 30, 2008, the three month period then ended, (b) as of December 31, 2008, the six month period then ended, (C) as of March 31, 2009, the nine month period then ended, and (d) as of June 30, 2009 and that last day of each subsequent fiscal quarter, the most recently completed four fiscal quarters of the Issuer.

“ Mikohn Holdings ” means Mikohn Holdings, Inc., a Nevada corporation.

“ Mississippi Gaming Authorities ” means the Mississippi Gaming Commission and other applicable state, county, city and municipal authorities within the State of Mississippi possessing regulatory, licensing or permit authority over the ownership or operation of gaming activities in the State of Mississippi (or any such county, city or municipality therein).

 

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“ Moody’s ” means Moody’s Investors Service, Inc. and any successor thereto.

“ Mortgage ” means a mortgage, deed of trust or deed to secure debt, in form and substance satisfactory to Agent, made by an Issuer Party in favor of Agent for the benefit of itself and the Purchasers, securing the Obligations and delivered to Agent pursuant to the provisions hereof or otherwise.

“ Multiemployer Plan ” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which any Issuer Party or any of its Subsidiaries or any of their respective ERISA Affiliates has contributed to, or has been obligated to contribute, at any time during the preceding six (6) years.

“ Nasdaq ” means the Nasdaq Global Market, the principal exchange on which the Common Stock is listed on the date hereof.

“ Net Cash Proceeds ” means, (i) with respect to any Disposition by any Person or any of its Subsidiaries, the amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of such Person or such Subsidiary, in connection therewith after deducting therefrom only (A) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such Disposition (other than Indebtedness under this Agreement), (B) reasonable expenses related thereto incurred by such Person or such Subsidiary in connection therewith (including reasonable and out-of-pocket legal, accounting and investment banking fees, and sales commissions), (C) transfer taxes paid to any taxing authorities by such Person or such Subsidiary in connection therewith, (D) net income taxes to be paid in connection with such Disposition (after taking into account any tax credits or deductions and any tax sharing arrangements), and (E) appropriate amounts that must be set aside as a reserve in accordance with GAAP against any liabilities associated with such Disposition; provided that upon release of such reserve, such amounts shall automatically and immediately become Net Cash Proceeds, and (ii) with respect to the issuance or incurrence of any Indebtedness by any Person or any of its Subsidiaries, or the sale or issuance by any Person or any of its Subsidiaries of any shares of its Capital Stock, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of such Person or such Subsidiary in connection therewith, after deducting therefrom only (A) reasonable expenses related thereto incurred by such Person or such Subsidiary in connection therewith (including reasonable and out-of-pocket legal, accounting and investment banking fees, and sales commissions), (B) transfer taxes paid by such Person or such Subsidiary in connection therewith, (C) net income taxes to be paid in connection therewith (after taking into account any tax credits or deductions and any tax sharing arrangements), and (D) appropriate amounts that must be set aside as a reserve in accordance with GAAP against any liabilities associated with such issuance or incurrence; provided that upon release of such reserve, such amounts shall automatically and immediately become Net Cash Proceeds; in each case of clause (i) and (ii) to the extent, but only to the extent, that the amounts so deducted are (x) actually paid to a Person that, except in the case of reasonable out-of-pocket expenses, is not an Affiliate of such Person or any of its Subsidiaries and (y) properly attributable to such transaction or to the asset that is the subject thereof.

 

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“ Nevada Gaming Authorities ” means the NGC, the NGCB and applicable county, city and municipal authorities within the State of Nevada possessing regulatory, licensing or permit authority over the ownership or operation of gaming activities in the State of Nevada (or any such county, city or municipality therein).

“ New Subsidiary ” has the meaning specified therefor in Section 6.01(b) .

“ NGC ” means the Nevada Gaming Commission.

“ NGCB ” means the State Gaming Control Board in Nevada.

“ Note Account ” means an account maintained hereunder by Agent on its books of account at the Payment Office, and with respect to the Issuer, in which the Issuer may be charged with Obligations incurred by the Issuer.

“ Notes ” means the Senior Secured Convertible Notes issued pursuant to this Agreement that are convertible into shares of Common Stock at an initial conversion price of $0.89, which are in the form of Exhibit A hereto.

“ Notice ” has the meaning specified therefor in Section 6.01(y) .

“ Noticed Transaction ” has the meaning specified in Section 6.01(y) .

“ Obligations ” means all present and future indebtedness, obligations (other than the obligations of the Issuer to deliver Conversion Shares upon conversion of any Note but not any monetary amount due under any Note), and liabilities of each Issuer Party to Agent and the Purchasers, or any of them, under the Purchase Documents, whether or not the right of payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured, unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding described in subsections (f) and (g) of Section 8.01 . Without limiting the generality of the foregoing, the Obligations of each Issuer Party under the Purchase Documents include (a) the obligation (irrespective of whether a claim therefor is allowed in any Insolvency Proceeding) to pay principal, interest, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by such Person under the Purchase Documents, and (b) the obligation of such Person to reimburse any amount in respect of any of the foregoing that Agent or any Purchaser (in its sole discretion) may elect to pay or advance on behalf of such Person. For purposes of this definition, the term “Purchase Documents” shall exclude the Warrants, the Conversion Shares and the Warrant Shares.

“ Patriot Act ” has the meaning specified therefor in Section 11.21 .

“ Payment Office ” means Agent’s office located at 9295 Prototype Drive, Reno, Nevada 89521 or at such other office or offices of Agent as may be designated in writing from time to time by Agent to the Issuer.

“ PBGC ” means the Pension Benefit Guaranty Corporation or any successor thereto.

 

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“ Permitted Acquisition ” means any Acquisition so long as:

(i) no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the proposed Acquisition, including, without limitation, any default under any anti-dilution provision set forth in the Purchase Documents;

(ii) the assets being acquired, or the Person whose Capital Stock is being acquired, (A) are useful in or engaged in, as applicable, the business of the Issuer and its Subsidiaries or a business reasonably related thereto, and (B) shall be located or organized, as applicable, within the United States or Canada;

(iii) the consideration payable in connection with the proposed Acquisition shall be payable with the Capital Stock (other than Prohibited Preferred Stock) of the Issuer or proceeds of the contemporaneous sale or issuance of the Capital Stock (other than Prohibited Preferred Stock) of the Issuer, and the total consideration payable in connection with all Permitted Acquisitions (including the proposed Acquisition) does not exceed $10,000,000;

(iv) the Issuer has provided the Agent with written confirmation, supported by reasonably detailed calculations, in each case which are in form and substance reasonably satisfactory to the Agent, that (A) on a pro forma basis, created by adding the historical combined financial statements of the Issuer (including the combined financial statements of any other Person or assets that were the subject of a prior Permitted Acquisition during the relevant period) to the historical consolidated financial statements of the Person to be acquired (or the historical financial statements related to the assets to be acquired) pursuant to the proposed Acquisition (adjusted to eliminate expense items that would not have been incurred and include income items that would have been recognized, in each case, if the combination had been accomplished at the beginning of the relevant period; such eliminations and inclusions to be mutually agreed upon by the Issuer and the Agent), the Issuer Parties and their Subsidiaries would have been in compliance with the financial covenants in Section 6.03 for the 12 months ending as of the fiscal quarter of the Issuer ended immediately prior to the proposed date of consummation of such proposed Acquisition and (B) the Issuer Parties’ Qualified Cash immediately following the consummation of the proposed Acquisition shall not be less than the Issuer Parties’ Qualified Cash immediately prior to the consummation of the proposed Acquisition;

(v) in the case of an Asset Acquisition, the subject assets are being acquired by the Issuer or a Domestic Subsidiary of the Issuer, and the applicable Person shall have executed and delivered or authorized, as applicable, any and all security agreements, financing statements, fixture filings, and other documentation reasonably requested by the Agent in order to include the newly acquired assets within the Collateral;

(vi) in the case of a Stock Acquisition, (1) the subject Capital Stock is being acquired in such Acquisition directly by the Issuer or a Domestic Subsidiary of the Issuer, (2) the relevant Issuer Party shall have executed and delivered a pledge agreement respecting the Capital Stock being acquired and shall have delivered to the Agent (or the Senior Credit Facility Agent while the Senior Credit Facility is in effect) possession of the original stock certificates respecting all of the issued and outstanding shares of Capital Stock of such acquired Person and its

 

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Subsidiaries, together with stock powers with respect thereto endorsed in blank; provided that if such Person is a CFC, the relevant Issuer Party shall have delivered to the Agent (or the Senior Credit Facility Agent while the Senior Credit Facility is in effect) possession of the original stock certificates respecting all (or, 65% of the outstanding voting Capital Stock of such Person if pledging or hypothecating more than 65% of the total outstanding voting Capital Stock of such Person reasonably could be expected to result in material adverse tax consequences to any Issuer Party) of the issued and outstanding shares of Capital Stock of such acquired Person, together with stock powers with respect thereto endorsed in blank, and (3) the relevant Issuer Party shall have caused such acquired Person and each of its Subsidiaries to execute and deliver a joinder to either this Agreement or a Guaranty as a Guarantor in order to make such Person a party hereto or thereto, together with any and all security agreements, financing statements, fixture filings, and other documentation reasonably requested by the Agent in order to cause such acquired Person and each of its Subsidiaries to be obligated with respect to the Obligations (or the Secured Obligations under, and as defined in, the Guarantor Security Agreement) and to include the assets of the acquired Person and its Subsidiaries within the Collateral; provided that none of the foregoing documents shall be required to be provided to the Agent if such Person is a CFC and providing such documents reasonably could be expected to result in material adverse tax consequences to any Issuer Party;

(vii) any Indebtedness or Liens assumed in connection with such Acquisition are otherwise permitted under Section 6.02(a) or 6.02(b) , respectively;

(viii) such Acquisition shall be consensual and shall have been approved by the board of directors (or such other managing body) of the Person whose Capital Stock or assets are proposed to be acquired and shall not have been preceded by an unsolicited tender offer for such Capital Stock by, or proxy contest initiated by, the Issuer or any of its Subsidiaries; and

(ix) the Issuer shall have delivered (A) projections for the Person whose Capital Stock or assets are proposed to be acquired, (B) updated pro forma Projections for the Issuer and its Subsidiaries evidencing compliance on a pro forma basis with Section 6.03 for the 12 calendar months following the date of such Acquisition (on a quarter-by-quarter basis), in form and content reasonably acceptable to the Agent and (C) updated disclosure schedules to this Agreement and to each of the other Purchase Documents solely with respect to such Acquisition (to the extent not prohibited by the terms hereof and thereof), as applicable; provided, that (x) in no event may any disclosure schedule be updated in a manner that would reflect or evidence a Default or Event of Default and (y) any determination of Adjusted Consolidated EBITDA of the Issuer and its Subsidiaries for such 12 calendar month period shall include only such post-acquisition cost saving adjustments which are mutually agreed upon by the Issuer and the Agent.

“ Permitted Dispositions ” means:

(i) sales or other dispositions of Inventory to buyers in the ordinary course of business;

(ii) sales or other dispositions of obsolete, excess or worn-out equipment in the ordinary course of business; provided that the Net Cash Proceeds of such Dispositions shall not exceed $100,000 in the aggregate in any twelve-month period;

 

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(iii) sales or other dispositions of other property or assets (other than Capital Stock of the Issuer or its Subsidiaries) for cash in an aggregate amount not less than the fair market value of such property or assets, provided that the Net Cash Proceeds of such Dispositions shall not exceed $500,000 in the aggregate in any twelve-month period;

(iv) the use or transfer of money or Cash Equivalents by the Issuer and its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Purchase Documents;

(v) the licensing by the Issuer and its Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights and other intellectual property rights in the ordinary course of business for a license fee or other consideration that is not less than fair market value;

(vi) the granting of leases or subleases to other Persons not materially interfering with the conduct of business of any of the Issuer Parties or their Subsidiaries;

(vii) the sale or other disposition of Accounts Receivable in connection with the collection or compromise thereof in the ordinary course of business and in a manner not inconsistent with the provisions of this Agreement (excluding any securitization or factoring or similar transactions);

(viii) the sale or other disposition of assets (other than Capital Stock of the Issuer or its Subsidiaries) from any Subsidiary of the Issuer to the Issuer or a Guarantor;

(ix) the sale or other disposition of assets (other than Capital Stock of the Issuer or its Subsidiaries) from any Subsidiary of the Issuer that is not an Issuer Party to the Issuer or any of its Subsidiaries;

(x) the settlement, release or surrender of tort or other litigation claims held by the Issuer or its Subsidiaries in good faith and in the ordinary course of business; provided that the amount of such claims that are settled, released, or surrendered for cash shall not exceed $500,000 per occurrence or $1,000,000 in the aggregate, in any twelve-month period (excluding any claims settled pursuant to the Asset Purchase and License Agreement referred to in clause (xi)  below); or

(xi) the sale and/or licensing to IGT Sub of the rights described in the Asset Purchase and License Agreement, including the “Assigned Intellectual Property” (as defined therein).

“ Permitted Indebtedness ” means:

(i) any Indebtedness owing to Agent or any Purchaser under this Agreement and the other Purchase Documents;

(ii) Indebtedness listed on Schedule 6.02(b) , the Senior Credit Facility and any Permitted Refinancing thereof (other than the Senior Secured Notes);

 

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(iii) Indebtedness evidenced by Capitalized Lease Obligations made by the Issuer Parties or their Subsidiaries in accordance with the provisions of Section 6.02(f) , provided that the aggregate amount of such Indebtedness shall not exceed $250,000 at any time;

(iv) purchase money Indebtedness incurred to enable an Issuer Party or any of its Subsidiaries to acquire equipment in the ordinary course of its business, provided that the aggregate amount of such Indebtedness shall not exceed $250,000 at any time;

(v) Indebtedness permitted under Section 6.02(e) ;

(vi) Indebtedness of the Issuer or any of its Subsidiaries under any Hedging Agreement so long as such Hedging Agreements are used solely as a part of its normal business operations as a risk management strategy or hedge against changes resulting from market operations and not as a means to speculate for investment purposes on trends and shifts in financial or commodities markets;

(vii) Indebtedness owed by one Issuer Party to another Issuer Party so long as the making of the investment by the Issuer Party that is acting as the lender is permitted hereunder;

(viii) Subordinated Debt;

(ix) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument and consisting of obligations in respect of cash management services, overdraft protections and similar arrangements in each case in connection with cash management and deposit accounts arising in the ordinary course of business; provided that any such Indebtedness is extinguished within 5 Business Days of its incurrence; and

(x) Indebtedness in respect of letters of credit obtained by any Issuer Parties or their Subsidiaries in the ordinary course of business in connection with any lease to which such Issuer Party or its Subsidiaries is a party; provided that the aggregate amount of such Indebtedness shall not exceed $250,000 at any time.

“ Permitted Investments ” means (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States, in each case, maturing within six months from the date of acquisition thereof; (ii) commercial paper, maturing not more than 270 days after the date of issue rated P-1 by Moody’s or A-1 by Standard & Poor’s; (iii) certificates of deposit maturing not more than 270 days after the date of issue, issued by commercial banking institutions and money market or demand deposit accounts maintained at commercial banking institutions, each of which is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000; (iv) repurchase agreements having maturities of not more than 90 days from the date of acquisition which are entered into with banks included in the commercial banking institutions described in clause (iii) above and which are secured by readily marketable direct obligations of the United States Government or any agency thereof, (v) money market accounts maintained

 

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with mutual funds having assets in excess of $2,500,000,000; and (vi) tax exempt securities rated A or better by Moody’s or A+ or better by Standard & Poor’s.

“ Permitted Liens ” means:

(i) Liens securing the Obligations;

(ii) Liens for taxes, assessments, levies, and governmental charges the payment of which is not required under Section 6.01(c) ;

(iii) Liens imposed by law, such as carriers’, warehousemen’s, mechanics’, materialmen’s and other similar Liens arising (provided they are subordinate to Agent’s Liens on Collateral) in the ordinary course of business and securing obligations (other than Indebtedness for borrowed money) that are not overdue by more than 30 days or are being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted, and a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor;

(iv) Liens described on Schedule 6.02(a) , but not the extension of coverage thereof to other property or assets;

(v) Liens arising under Capitalized Leases or securing purchase money Indebtedness permitted under the definition of Permitted Indebtedness; provided , however , that (A) no such Lien shall extend to or cover any other property or assets of any Issuer Party or any of its Subsidiaries, and (B) the principal amount of the Indebtedness secured by any such Lien shall not exceed the fair market value or the cost of the property so held or acquired;

(vi) deposits and pledges of cash securing (A) obligations incurred in respect of workers’ compensation, unemployment insurance or other forms of governmental insurance or benefits, (B) the performance of bids, tenders, leases, contracts (other than for the payment of money) and statutory obligations or (C) obligations on surety or appeal bonds, but only to the extent such deposits or pledges are made or otherwise arise in the ordinary course of business and secure obligations not past due;

(vii) easements, rights of way, municipal and zoning restrictions and similar encumbrances on real property and minor irregularities in the title thereto that do not (A) secure obligations for the payment of money or (B) materially impair the value of such property or its use by any Issuer Party or any of its Subsidiaries in the normal conduct of such Person’s business;

(viii) leases or subleases granted to other Persons not materially interfering with the conduct of the business of the Issuer or any of its Subsidiaries;

(ix) precautionary financing statement filings regarding operating leases;

(x) Liens arising out of the existence of judgments or awards not giving rise to an Event of Default;

 

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(xi) statutory and common law landlords’ liens under leases to which the Issuer or any of its Subsidiaries is a party;

(xii) Liens securing refinancing Indebtedness permitted to be incurred hereunder; provided , that such Liens do not extend to any property or assets other than the property or assets that served as collateral for the refinanced Indebtedness;

(xiii) Liens securing Indebtedness permitted under clause (viii) or (x) of the definition of “Permitted Indebtedness”;

(xiv) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution, and liens in favor of depository banks or securities intermediaries to secure customary fees and expenses;

(xv) interests of lessors under operating leases or interests or title of a licensor in the property subject to a license that is expressly permitted by this Agreement;

(xvi) licenses by Issuer or any of its Subsidiaries of patents, trademarks, copyrights, or other intellectual property rights in connection with a Disposition expressly permitted by clause (v) or clause (vi) of the definition of “Permitted Dispositions”; and

(xvii) Liens securing the Senior Credit Facility in compliance with the Subordination Agreement.

“ Permitted Refinancing ” means any extension, refinancing, or modification of any Indebtedness; provided that (i) such extension, refinancing or modification is pursuant to terms that are not less favorable to the Issuer Parties and their Subsidiaries and the Purchasers than the terms of the Indebtedness being extended, refinanced or modified, (ii) after giving effect to such extension, refinancing or modification, the amount of such Indebtedness is not greater than the amount of Indebtedness outstanding immediately prior to such extension, refinancing or modification plus accrued interest thereon and the fees incurred in connection with the extension, refinancing, or modification, (iii) such extension, refinancing or modification does not result in an increase in the interest rate with respect to the Indebtedness so extended, refinanced, or modified, (iv) such extension, refinancing or modification does not result in a shortening of the average weighted maturity of the Indebtedness so extended, refinanced, or modified, (v) if the Indebtedness that is extended, refinanced, or modified was subordinated in right of payment to the Obligations, then the terms and conditions of the extension, refinancing, or modification must include subordination terms and conditions that are at least as favorable to Agent and the Purchasers as those that were applicable to the extended, refinanced, or modified Indebtedness, (vi) the covenants and events of default of the Indebtedness that is extended, refinanced or modified are not less favorable to the Issuer Parties or any of their Subsidiaries, Agent or the Purchasers than the terms and conditions of the Indebtedness being extended, refinanced, or modified, (vii) the Indebtedness that is extended, refinanced, or modified is not recourse to any Person that is liable on account of the Obligations other than those Persons which were obligated with respect to the Indebtedness that was extended, refinanced, or modified, and (viii) in the case of the Senior Credit Facility, in compliance with the Subordination Agreement.

 

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“ Person ” means an individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or other enterprise or entity or Governmental Authority.

“ Post-Default Rate ” means a rate of interest per annum equal to the rate of interest otherwise in effect from time to time pursuant to the terms of this Agreement and the Notes plus 5.00%, or, if a rate of interest is not otherwise in effect, interest at the rate specified herein and the Notes prior to the Event of Default plus 5.00%.

“ Preferred Stock ” means, as applied to the Capital Stock of any Person, the Capital Stock of any class or classes (however designated) that is preferred with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.

“ Principal Market ” has the meaning specified therefor in Section 6.01(t) .

“ Pro Rata Share ” means, with respect to any Purchaser, the percentage obtained by dividing (i) the aggregate unpaid principal amount of such Purchaser’s Notes, by (ii) the aggregate unpaid principal amount of all Notes.

“ Prohibited Preferred Stock ” means any Preferred Stock that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of shares of Preferred Stock of the same class and series payable in kind or dividends of shares of common stock) on or before a date that is less than 6 months after the Final Maturity Date, or, on or before the date that is less than 6 months after the Final Maturity Date, is redeemable at the option of the holder thereof for cash or assets or securities (other than distributions in kind of shares of Preferred Stock of the same class and series or of shares of common stock).

“ property ” or “ Property ” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

“ Purchase Documents ” means this Agreement, the Subordination Agreement, any Guaranty, the Issuer Security Agreement, the Guarantor Security Agreement, any Mortgage, the Warrants, the Registration Rights Agreement, the Blocked Account Agreements, the certificates representing the Warrant Shares, the certificates representing the Conversion Shares, the control agreements with respect to the Issuer Parties’ deposit and investment accounts, and any other agreement, instrument, and other document executed and delivered pursuant hereto or thereto or otherwise evidencing or securing the Notes or any other Obligation.

“ Purchaser ” and “ Purchasers ” have the meanings specified therefor in the preamble hereto.

 

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“ Qualified Cash ” means, as of any date of determination, the amount of unrestricted cash and Cash Equivalents of the Issuer and its Subsidiaries, provided that at least 67% of the aggregate amount of such unrestricted Cash and Cash Equivalents shall be on deposit with banks, or in securities accounts with securities intermediaries, or any combination thereof and subject to a control agreement in favor of Agent and upon which Agent has a perfected first priority Lien.

“ Registration Rights Agreement ” means that certain Registration Rights Agreement dated as of the Closing Date between the Purchasers and the Issuer.

“ Regulation T ”, “ Regulation U ” and “ Regulation X ” mean, respectively, Regulations T, U and X of the Board or any successor, as the same may be amended or supplemented from time to time.

“ Related Fund ” means a fund, money market account, investment account or other account managed by a Purchaser or an Affiliate of such Purchaser or its investment manager.

“ Release ” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, seeping, migrating, dumping or disposing of any Hazardous Material (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Material) into the indoor or outdoor environment, including the movement of Hazardous Materials through or in the ambient air, soil, surface or ground water, or property.

“ Remedial Action ” means all actions taken to (i) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the indoor or outdoor environment; (ii) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities; or (iv) any other actions authorized by 42 U.S.C. § 9601.

“ Reportable Event ” means an event described in Section 4043 of ERISA (other than an event not subject to the provision for 30-day notice to the PBGC under the regulations promulgated under such Section).

“ Required Purchasers ” means (i) prior to the issuance of the Notes, IGT, and (ii) thereafter, the Purchasers holding a majority of the principal amount of the Notes.

“ Required Library ” means, as of any date of determination, the set or collection of copyrights in the source code (excluding manuals or other similar documentation) for the software owned or exclusively licensed by any Issuer Party which software generated not less than 90% of the aggregate amount of current revenues attributable to software owned or exclusively licensed by any Issuer Party during the 12 month period immediately preceding the date of determination. For purposes of copyright registration such Required Library shall include all a.x releases of the software programs that comprise the Required Library.

“ Rule 144 ” has the meaning specified therefor in Section 11.23(h) .

 

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“ SEC ” means the Securities and Exchange Commission or any other similar or successor agency of the Federal government administering the Securities Act.

“ SEC Documents ” has the meaning specified therefor in Section 5.01(mm) .

“ Securities ” means the Notes, the Conversion Shares, the Warrants and the Warrant Shares.

“ Securities Act ” means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect from time to time.

“ Senior Credit Agreement ” means that certain Credit Agreement dated as of the date hereof between and among the Issuer, certain of its Subsidiaries, the Senior Lenders, and the Senior Credit Facility Agent, as in effect on the Effective Date, and including only those amendments, modifications and supplements thereto that are in compliance with the Subordination Agreement.

“ Senior Credit Facility ” means the revolving credit and term loan facilities extended to the Issuer by the Senior Lenders as evidenced by the Senior Credit Agreement.

“ Senior Credit Facility Agent ” means Private Equity Management Group Financial Corporation, a California corporation, or its successors or assigns.

“ Senior Lender Equity ” means (i) an aggregate of 1,000,000 shares of Common Stock to be issued to the Senior Lenders on the Closing Date, (ii) warrants to purchase an aggregate of 1,000,000 shares of Common Stock at an exercise price of $1.05 issued to the Senior Lenders on the Closing Date, and (iii) any additional shares of Common Stock that may be issued simultaneously with the Additional Warrants, in an aggregate amount not to exceed 900,000 shares of Common Stock, in each of the foregoing, pursuant to and in accordance with the terms of the Common Stock and Warrant Purchase Agreement (as such share amounts and exercise price may be adjusted for stock splits, stock dividends, stock combinations and similar transactions as provided for therein).

“ Senior Lenders ” means the lenders from time to time party to the Senior Credit Agreement.

“ Senior Loan Documents ” means the Senior Credit Agreement, the Subordination Agreement, any guaranty, security agreement or mortgage executed by the Issuer or any of its Subsidiaries in connection with the Senior Credit Agreement, the registration rights agreement executed in connection with the Senior Credit Agreement, the Common Stock and Warrant Purchase Agreement, the fee letter executed by the Issuer in favor of the Senior Lenders on the Effective Date, the source code escrow agreement, the blocked account agreements, the control agreements and any other agreement, instrument and other document executed and delivered pursuant to the Senior Credit Agreement or otherwise evidencing or securing the Senior Credit Facility or compensating the Senior Agent or any Senior Lender in any way.

 

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“ Senior Secured Notes ” means the 11.875% Senior Secured Notes due 2008 issued by the Issuer pursuant to the Indenture.

“ Shareholders’ Equity ” means, as of any date of determination, consolidated shareholders’ equity of the Issuer and its Subsidiaries as of that date determined in accordance with GAAP.

“ Solvent ” means, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is not less than the total amount of the liabilities of such Person, (ii) the present fair salable value of the assets of such Person, on a consolidated basis, is not less than the amount that will be required to pay the probable liability of such Person on its existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person, (iii) such Person reasonably expects to be able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature taking into account the timing and amounts of cash to be received by it or any of its Subsidiaries (considering all financing alternatives and potential asset sales reasonably available to such Person) and the timing and amounts of cash to be payable on in respect of its debts and liabilities, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital.

“ Source Code Escrow Agreement ” has the meaning specified therefor in the Issuer Security Agreement and the Guarantor Security Agreement.

“ Standard & Poor’s ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

“ Stock Acquisition ” means the purchase or other acquisition by the Issuer or any of its wholly-owned Subsidiaries of all of the Capital Stock (by merger, stock purchase or otherwise) of any other Person.

“ Subordinated Debt ” means Indebtedness of the Issuer that is on terms and conditions (including payment terms, interest rates, covenants, remedies, defaults and other material terms) satisfactory to Agent and the Required Purchasers and which has been expressly subordinated in right of payment to all Indebtedness of the Issuer under the Purchase Documents by the execution and delivery of a subordination agreement, in form and substance reasonably satisfactory to Agent and the Required Purchasers.

“ Subordination Agreement ” means the Subordination and Intercreditor Agreement, dated as of the Closing Date, between Agent, the Purchasers, the Senior Credit Facility Agent and the Senior Lenders, and acknowledged by the Issuer, as the same may be amended, supplemented or modified from time to time.

“ Subsidiary ” means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity (i) the accounts of which would be consolidated with those of such Person in such

 

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Person’s consolidated financial statements if such financial statements were prepared in accordance with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such Person, (B) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (C) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person.

“ Termination Date ” means the earlier of (a) August 16, 2008 (unless the Closing Date has occurred prior to such date), and (b) the date that the Agent has delivered written notice to the Issuer stating that a Termination Date has occurred (such termination to be in the Agent’s sole and absolute discretion).

“ Termination Event ” means (i) a Reportable Event with respect to any Employee Plan, (ii) any event that causes any Issuer Party or any of its Subsidiaries or any of their respective ERISA Affiliates to incur liability under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the IRC, (iii) the filing of a notice of intent to terminate an Employee Plan or the treatment of an Employee Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings by the PBGC to terminate an Employee Plan, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Employee Plan.

“ Title Insurance Policy ” means a mortgagee’s loan policy, in form and substance satisfactory to Agent, together with all endorsements made from time to time thereto, issued by or on behalf of a title insurance company satisfactory to Agent, insuring the Lien created by a Mortgage in an amount and on terms satisfactory to Agent, delivered to Agent.

“ Total Debt Service Coverage Ratio ” means, at any date of determination, the ratio of (a) (i) Adjusted Consolidated EBITDA, less (ii) the aggregate amount of all cash Capital Expenditures for the maintenance, repair, restoration or refurbishment of Issuer’s or its Subsidiaries’ properties, less (iii) the aggregate amount of Federal, state, local and foreign income taxes paid in cash to (b) the sum of (i) Consolidated Interest Charges, and (ii) the aggregate principal amount of all regularly scheduled principal payments or redemptions or similar acquisitions for value of outstanding debt for borrowed money, but excluding any such payments to the extent refinanced through the incurrence of additional Permitted Indebtedness otherwise expressly permitted under this Agreement, in each case, of or by Issuer and its Subsidiaries for the relevant Measurement Period.

“ WARN ” has the meaning specified therefor in Section 5.01(w) .

“ Warrants ” means (i) the warrant dated as of the Closing Date, evidencing the right of IGT to purchase 550,000 shares of Common Stock at an exercise price of $1.05 per share, (ii) the warrant dated as of the Closing Date, evidencing the right of IGT to purchase 891,892 shares of Common Stock at an exercise price per share of $0.89, and (iii) the Additional Warrants, in each

 

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case in the form attached as Exhibit B hereto and with the same terms as provided in any warrants included in the Senior Lender Equity (other than the number of shares of Common Stock and the initial exercise price).

“ Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.

“ Weighted Average Price ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m. New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m. New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (“ Bloomberg” ) through its “Volume at Price” functions (ignoring any trade by the Issuer or any of its Affiliates or trades of more than 200,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the date hereof)), or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m. New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported by the Pink OTC Markets, Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date will be the fair market value as mutually determined by the Issuer and the Required Purchasers. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

Section 1.02 Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation,” whether or not so expressly stated in each such instance and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and

 

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(e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. References in this Agreement to “determination” by Agent include estimates honestly made by Agent (in the case of quantitative determinations) and beliefs honestly held by Agent (in the case of qualitative determinations).

Section 1.03 Accounting and Other Terms . Unless otherwise expressly provided herein, each accounting term used herein shall have the meaning given it under GAAP. All terms used in this Agreement which are defined in Article 8 or Article 9 of the Code and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

Section 1.04 Time References . Unless otherwise indicated herein, all references to time of day refer to Pacific Standard Time or Pacific daylight saving time, as in effect in Las Vegas, Nevada on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”; provided, however, that with respect to a computation of fees or interest payable to Agent or any Purchaser, such period shall in any event consist of at least one full day.

ARTICLE II

THE NOTES AND WARRANTS

Section 2.01 Purchase of Notes and Warrants . Subject to the terms and conditions and relying upon the representations, warranties and covenants herein set forth, on the Closing Date the Issuer shall issue and sell to each Purchaser and each Purchaser severally agrees to purchase from the Issuer, the Notes in the principal amount set forth opposite such Purchaser’s name on Schedule 1.01 , along with the related Warrants to acquire the number of Warrant Shares set forth opposite such Purchaser’s name on Schedule 1.01 . The aggregate purchase price of the Notes and the related Warrants at the Closing will be equal to $15,000,000, to be paid by the Purchasers at the Closing as set forth on Schedule 1.01 . On the Closing Date, each such Purchaser shall pay to the Issuer its purchase price for its Notes and related Warrants as set forth on Schedule 1.01 by wire transfer of immediately available funds in accordance with the Indenture Trustee’s written wire instructions. The Purchasers and the Issuer agree that the Notes and the related Warrants set forth on Schedule 1.01 constitute an “investment unit” for purposes of Section 1273(c)(2) of the IRC. Within 45 days after the Closing Date, the Purchasers and the Issuer shall agree upon on allocation of the issue price of such investment unit between the Notes and Warrants in accordance with Section 1273(c)(2) of the IRC and Treasury Regulation Section 1.1273-2(h), and such parties will not take any position inconsistent with such allocation in any tax return or in any judicial or administrative proceeding in respect of taxes.

Section 2.02 Repayment of the Notes; Evidence of Debt .

(a) The outstanding principal amount of all Notes shall be due and payable on the Maturity Date.

 

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(b) Each Purchaser shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Issuer to such Purchaser outstanding under the Notes issued to such Purchaser, including the amounts of principal and interest payable and paid to such Purchaser from time to time hereunder and thereunder.

(c) Agent may maintain accounts in which it may record (i) the principal amount of the Notes issued hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from the Issuer to each Purchaser hereunder and (iii) the amount of any sum received by Agent hereunder for the account of the Purchasers and each Purchaser’s share thereof.

(d) The entries made in the accounts maintained pursuant to paragraphs (b) or (c) of this Section 2.02 shall be conclusive evidence of the existence and amounts of the obligations recorded therein absent manifest error; provided that the failure of any Purchaser or Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Issuer to repay the Indebtedness outstanding in respect of the Notes in accordance with the terms of this Agreement.

Section 2.03 Interest .

(a) Base Interest . Each Note shall bear interest on the principal amount thereof from time to time outstanding, from the Closing Date until the date on which such principal amount is converted, redeemed or otherwise repaid in accordance with the terms of Notes and herewith, at a rate per annum as set forth in the Notes.

(b) Default Interest . To the extent permitted by law, upon the occurrence and during the continuance of an Event of Default, the principal of, and all accrued and unpaid interest on, the Notes fees, indemnities or any other Obligations of the Issuer Parties under this Agreement and the other Purchase Documents, shall bear interest, from the date such Event of Default occurred until the date such Event of Default is cured or waived in writing in accordance herewith, at a rate per annum equal at all times to the Post-Default Rate.

(c) Interest Payment in respect of the Notes . Interest shall be payable in accordance with the terms of each Note. The Issuer hereby authorizes Agent to, and Agent may, from time to time, charge the Note Account pursuant to Section 3.02 with the amount of any interest payment due hereunder.

(d) General . All interest shall be computed on the basis of a year of 360 days for the actual number of days, including the first day but excluding the last day, elapsed.

ARTICLE III

FEES, PAYMENTS AND OTHER COMPENSATION

Section 3.01 Audit and Collateral Monitoring Fees . The Issuer acknowledges that pursuant to Section 6.01(f) , representatives of Agent may visit any Issuer Party or any of its

 

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Subsidiaries or conduct audits, inspections or field examinations of any Issuer Party or any of its Subsidiaries and valuations or appraisals of any or all of the Collateral or business or enterprise valuations of the Issuer Parties or any of their Subsidiaries at any time and from time to time. So long as no Default or Event of Default shall have occurred and be continuing, such audits, inspections and examinations will be at reasonable times and in reasonable intervals, in a manner so as to not unduly disrupt the business of such Issuer Party or their applicable Subsidiaries, and if an Event of Default shall have occurred and be continuing, such access shall not be limited. The Issuer agrees to pay (i) all actual out-of-pocket costs and expenses (including, without limitation, traveling expenses) incurred in connection with all such visits, audits, inspections, valuations, and field examinations and (ii) the reasonable cost of all audits, appraisals and business valuations (including enterprise valuation appraisals) conducted by third party auditors or appraisers on behalf of Agent.

Section 3.02 Payments; Computations and Statements .

(a) The Issuer will make each payment under this Agreement and the Notes not later than 9:00 a.m. on the day when due, in lawful money of the United States of America and in immediately available funds. All payments received after 9:00 a.m. on any Business Day will be credited on the next succeeding Business Day. All payments shall be made by the Issuer without set-off, counterclaim, deduction or other defense to Agent and the Purchasers. After receipt, Agent will promptly thereafter cause to be distributed like funds relating to the payment of any Obligations ratably to the Purchasers in accordance with their Pro Rata Shares and like funds relating to the payment of any other amount payable to such Purchaser and received by Agent, in each case to be applied in accordance with the terms of this Agreement. The Purchasers and the Issuer hereby authorize Agent to, and Agent may, from time to time, charge the Note Account with any amount due and payable by the Issuer under any Purchase Document. Each of the Purchasers and the Issuer agrees that Agent shall have the right to make such charges whether or not any Default or Event of Default shall have occurred and be continuing. Any amount charged to the Note Account shall be deemed an Obligation hereunder and shall be payable on demand. The Purchasers and the Issuer confirm that any charges which Agent may so make to the Note Account as herein provided will be made as an accommodation to the Issuer and solely at Agent’s discretion. Whenever any payment to be made under any Purchase Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. All computations of fees shall be made by Agent on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such fees are payable. Each determination by Agent of an interest rate or fees hereunder shall be conclusive and binding for all purposes in the absence of manifest error.

(b) Agent shall provide the Issuer, promptly upon written request from the Issuer, a summary statement of the balances in the Note Account during any month, and the amount and nature of any charges to the Note Account made during such month on account of fees, commissions, expenses and other Obligations. All entries on any such statement shall be presumed to be correct and shall be final and conclusive absent manifest error.

 

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Section 3.03 Sharing of Payments, Etc . If any Purchaser shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Obligation in excess of its ratable share of payments on account of similar obligations obtained by all the Purchasers, such Purchaser shall forthwith purchase from the other Purchasers such participations in such similar obligations held by them as shall be necessary to cause such purchasing Purchaser to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Purchaser, such purchase from each Purchaser shall be rescinded and such Purchaser shall repay to the purchasing Purchaser the purchase price to the extent of such recovery together with an amount equal to such Purchaser’s ratable share (according to the proportion of (i) the amount of such Purchaser’s required repayment to (ii) the total amount so recovered from the purchasing Purchaser of any interest or other amount paid by the purchasing Purchaser in respect of the total amount so recovered). The Issuer agrees that any Purchaser so purchasing a participation from another Purchaser pursuant to this Section 3.03 may, to the fullest extent permitted by law, exercise all of its rights (including the Purchaser’s right of set-off) with respect to such participation as fully as if such Purchaser were the direct creditor of the Issuer in the amount of such participation.

Section 3.04 Apportionment of Payments . Subject to any written agreement or other arrangement among Agent or the Purchasers:

(a) All payments of principal and interest in respect of the outstanding Notes, all payments of fees (other than the audit and collateral monitoring fees provided for in Section 3.01 , and any other amounts payable in respect of the Securities) and all other payments in respect of any other Obligations, shall be allocated among such of the Purchasers as are entitled thereto, in proportion to their respective Pro Rata Share or otherwise as provided herein or, in respect of payments not made on account of the Obligations as designated by the Person making payment when the payment is made.

(b) After the occurrence and during the continuance of an Event of Default, Agent may, and upon the direction of the Required Purchasers shall, apply all payments in respect of any Obligations and all proceeds of the Collateral, subject to the provisions of this Agreement, (i)  first , to pay the Obligations consisting of any fees, expense reimbursements, indemnities and other amounts then due to Agent until paid in full; (ii)  second , to pay interest due in respect of Agent Advances until paid in full; (iii)  third , to pay principal of Agent Advances until paid in full; (iv)  fourth , ratably to pay any fees and indemnities then due to the Purchasers until paid in full; (v)  fifth , ratably to pay interest due in respect of the Notes until paid in full; (vi)  sixth , ratably to pay principal of the Notes until paid in full, and (vii)  seventh , to the ratable payment of all other Obligations then due and payable .

(c) For purposes of Section 3.04(b) (other than clause (vii)  thereof), “paid in full” means with respect to any Obligations, payment of all amounts owing under the Purchase Documents in respect of such Obligations, including fees, interest, default

 

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interest, interest on interest, cash payments, expense reimbursements and indemnities, specifically including in each case any of the foregoing which would accrue after the commencement of any Insolvency Proceeding irrespective of whether a claim is allowable in such Insolvency Proceeding, except to the extent that default or overdue interest (but not any other interest) and fees, each arising from or related to a default, are disallowed in any Insolvency Proceeding; provided , however , that for purposes of such clause (vii) , “paid in full” means with respect to any Obligations, payment of all amounts owing under the Purchase Documents in respect of such Obligations, including fees, interest, default interest, interest on interest, cash payments, expense reimbursements and indemnities, specifically including in each case any of the foregoing which would accrue after the commencement of any Insolvency Proceeding irrespective of whether a claim is allowable in such Insolvency Proceeding.

(d) In the event of a direct conflict between the priority provisions of this Section 3.04 and other provisions contained in any other Purchase Document, it is the intention of the parties hereto that both such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 3.04 shall control and govern.

Section 3.05 Increased Costs and Reduced Return .

(a) If any Purchaser or Agent shall have determined that the adoption or implementation of, or any change in, any law, rule, treaty or regulation, or any policy, guideline or directive of, or any change in, the interpretation or administration thereof by, any court, central bank or other administrative or Governmental Authority, or compliance by any Purchaser or Agent or any Person controlling any such Purchaser or Agent with any directive of, or guideline from, any central bank or other Governmental Authority or the introduction of, or change in, any accounting principles applicable to any Purchaser or Agent or any Person controlling any such Purchaser or Agent (in each case, whether or not having the force of law) (each, a “ Change in Law ”), shall (i) subject any Purchaser, Agent or any Person controlling any such Purchaser or Agent to any tax, duty or other charge with respect to this Agreement or the Notes issued to such Purchaser or Agent or change the basis of taxation of payments to any Purchaser, Agent or any Person controlling any such Purchaser or Agent of any amounts payable hereunder (except for taxes on the overall net income of any Purchaser, Agent or any Person controlling any such Purchaser or Agent), (ii) impose, modify or deem applicable any reserve, special deposit or similar requirement against the Notes, or against assets of or held by, or deposits with or for the account of, or credit extended by, any Purchaser, Agent or any Person controlling any such Purchaser or Agent or (iii) impose on any Purchaser, Agent or any Person controlling any such Purchaser or Agent any other condition regarding this Agreement or the Notes, and the result of any event referred to in clauses (i) , (ii)  or (iii)  above shall be to increase the cost to any Purchaser or Agent holding Notes, or to reduce any amount received or receivable by any Purchaser or Agent hereunder, then, upon demand by any such Purchaser or Agent, the Issuer shall pay to such Purchaser or Agent such additional amounts as will compensate such Purchaser or Agent for such increased costs or reductions in amount.

 

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(b) If any Purchaser or Agent shall have determined that any Change in Law either (i) affects or would affect the amount of capital required or expected to be maintained by any Purchaser, Agent or any Person controlling such Purchaser or Agent and any Purchaser or Agent determines that the amount of such capital is increased as a direct or indirect consequence of the Notes, any Purchaser’s, Agent’s or any such other controlling Person’s other obligations hereunder, or (ii) has or would have the effect of reducing the rate of return on any Purchaser’s or Agent’s or any such other controlling Person’s capital to a level below that which such Purchaser, Agent or such controlling Person could have achieved but for such circumstances as a consequence of the Notes, or such Purchaser’s, Agent’s or such other controlling Person’s other obligations hereunder (in each case, taking into consideration, such Purchaser’s or Agent‘s or such other controlling Person’s policies with respect to capital adequacy), then, upon demand by any Purchaser or Agent, the Issuer shall pay to such Purchaser or Agent from time to time such additional amounts as will compensate such Purchaser or Agent for such cost of maintaining such increased capital or such reduction in the rate of return on such Purchaser’s or Agent’s or such other controlling Person’s capital.

(c) All amounts payable under this Section 3.05 shall bear interest from the date that is ten (10) days after the date of demand by any Purchaser or Agent until payment in full to such Purchaser or Agent at the Interest Rate. A certificate of such Purchaser or Agent claiming compensation under this Section 3.05 , specifying the event herein above described and the nature of such event, setting forth the additional amount due and an explanation of the calculation thereof, and such Purchaser’s or Agent’s reasons for invoking the provisions of this Section 3.05 , shall be submitted by such Purchaser or Agent to the Issuer and shall be final and conclusive absent manifest error.

ARTICLE IV

CONDITIONS PRECEDENT; CERTAIN POST-CLOSING CONDITIONS

Section 4.01 Conditions Precedent to Effectiveness . The occurrence of the Effective Date is subject to satisfaction of the following conditions precedent:

(a) Payment of Fees, Etc. The Issuer shall have paid all fees, costs, expenses and taxes then payable pursuant to Section 11.04.

(b) Representations and Warranties; No Event of Default . The following statements shall be true and correct: (i) the representations and warranties contained in Article V and in each other Purchase Document, certificate or other writing delivered to Agent on or prior to the Effective Date are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the Effective Date as though made on and as of such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) no Default or Event of Default shall have occurred and be continuing on the Effective Date or would result from this Agreement or the other Purchase Documents becoming effective in accordance with its or their respective terms.

 

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(c) No Injunction, etc. There shall not be pending or threatened any action, suit, investigation, litigation or proceeding in any court or before any arbitrator or Governmental Authority (A) relating to this Agreement or the other Purchase Documents or (B) that could reasonably be expected to have a material adverse effect on this Agreement or the other Purchase Documents or the Issuer Parties and their Subsidiaries.

(d) Delivery of Documents . Agent shall have received on or before the Effective Date the following, each in form and substance satisfactory to Agent in its sole and absolute discretion and, unless indicated otherwise, dated the Effective Date:

(i) this Agreement, duly executed by each Issuer Party;

(ii) a certificate of the Secretary or Assistant Secretary (or any Authorized Officer) of each Issuer Party, (A) attaching a true and correct copy of the resolutions of such Issuer Party authorizing (1) the transactions contemplated by the Purchase Documents to which such Issuer Party is or will be a party, and (2) the execution, delivery and performance by such Issuer Party of each Purchase Document to which such Issuer Party is a party and the execution and delivery of the other documents to be delivered by such Person in connection herewith and therewith; (B) certifying the names and true signatures of the officers and other representatives of such Issuer Party authorized to sign each Purchase Document to which such Issuer Party is or will be a party and the other documents to be executed and delivered by such Issuer Party in connection herewith and therewith, together with evidence of the incumbency of such authorized officers; (C) attaching a true and complete copy of the charter, certificate of formation, certificate of limited partnership or other publicly filed organizational document of each Issuer Party certified as of a recent date by an appropriate official of the state of organization of such Issuer Party; (D) attaching a true and complete copy of the charter and by-laws, limited liability company agreement, operating agreement, agreement of limited partnership or other organizational document of each Issuer Party, together with all amendments thereto; (E) with respect to the Issuer, certifying as to the matters set forth in Section 4.01(b) ; and (F) certifying that the Material Contracts remain in full force and effect and that none of the Issuer Parties or any of their Subsidiaries has breached or defaulted in any of its obligations under such agreements; and

(iii) a certificate of the appropriate officials of the state of organization and each state of foreign qualification of each Issuer Party certifying as to the subsistence in good standing of, and, for the states of Delaware and California, the payment of taxes by, such Issuer Party in such states (except, in the case of the states of foreign qualification, where the failure to be so qualified or in good standing, or to pay such taxes, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect).

 

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Section 4.02 Conditions Precedent . The obligation of any Purchaser to purchase the Notes and Warrants hereunder on the Closing Date is subject to the fulfillment, to the satisfaction of each Purchaser of each of the conditions precedent set forth below:

(a) Payment of Fees, Etc. The Issuer shall have paid all fees, costs, expenses and taxes then payable pursuant to Section 11.04 .

(b) Representations and Warranties; Covenants; No Event of Default . The following statements shall be true and correct: (i) the representations and warranties contained in Article V and in each other Purchase Document, certificate or other writing delivered to Agent or any Purchaser pursuant hereto or thereto on or prior to the Closing Date are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the Closing Date as though made on and as of such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date), (ii) the Issuer has complied in all material respects with all covenants and agreements contained herein and in each other Purchase Document or other writing delivered to Agent or any Purchaser pursuant hereto on or prior to the Closing Date, and (iii) no Default or Event of Default shall have occurred and be continuing on the Closing Date or would result from this Agreement or the other Purchase Documents becoming effective in accordance with its or their respective terms. In addition, the Agent shall have received a certificate as to the foregoing in form and substance satisfactory to the Agent in its sole and absolute discretion.

(c) No Injunction, etc . There shall not be pending or threatened any action, suit, investigation, litigation or proceeding in any court or before any arbitrator or Governmental Authority (A) relating to this Agreement, the Notes, the Warrants or any other Purchase Documents (B) that could reasonably be expected to have a material adverse effect on this Agreement, the Notes, the Warrants, the other Purchase Documents or the Issuer Parties and their Subsidiaries.

(d) Delivery of Documents . Agent shall have received on or before the Closing Date the following, in form and substance satisfactory to the Agent in its sole and absolute discretion, and unless indicated otherwise, dated the Closing Date:

(i) the Issuer Security Agreement, duly executed by Issuer, pursuant to which Issuer shall grant a security interest in all of its assets, including, without limitation, a pledge of its interests in its direct Subsidiaries (other than the Gaming Subsidiaries), which agreement shall be in form and substance satisfactory to the Agent in its sole and absolute discretion;

(ii) the Guarantor Security Agreement, duly executed by each Guarantor, pursuant to which each such Guarantor shall grant a security interest in all of its assets, including, without limitation, a pledge of its interests in its direct

 

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Subsidiaries, which agreement shall be in form and substance satisfactory to the Agent in its sole and absolute discretion.

(iii) the Subordination Agreement, duly executed by the Agent, each initial Purchaser, the Senior Credit Facility Agent, and each initial Senior Lender, and acknowledged by the Issuer, in the form of Exhibit C hereto;

(iv) the Registration Rights Agreement, duly executed by the Issuer, in form and substance satisfactory to the Agent in its sole and absolute discretion;

(v) a Blocked Account Agreement duly executed by each party thereto for each Blocked Account, in form and substance satisfactory to the Agent in its sole and absolute discretion;

(vi) evidence satisfactory to the Agent, in its sole and absolute discretion, that the lockbox arrangements described in Section 7.01 have been established;

(vii) a control agreement in form and substance satisfactory to Agent, in its sole and absolute discretion, with respect to each account listed on Schedule 5.01(s) , duly executed by the applicable Issuer Party and the financial institution holding such account;

(viii) appropriate financing statements duly filed (or to be filed) in such office or offices as may be necessary or, in the opinion of Agent, desirable to perfect the security interests purported to be created by each of the Issuer Security Agreement and the Guarantor Security Agreement, together with evidence that all action that the Agent may deem necessary or desirable in order to perfect the Liens created by the Issuer Security Agreement and the Guarantor Security Agreement has been taken, including, without limitation, such filings with the United States Patent and Trademark Office and United States Copyright Office as the Agent may require;

(ix) the results of searches for any Liens filed against any Issuer Party or any of its Subsidiaries or its property, which results, except as otherwise agreed to in writing by Agent, shall not show any such Liens and otherwise be satisfactory to the Agent in its sole and absolute discretion;

(x) a certificate of the Secretary or Assistant Secretary (or any Authorized Officer) of each Issuer Party, (A) attaching a true and correct copy of the resolutions of such Issuer Party authorizing, prior to the Effective Date, (1) the transactions contemplated by the Purchase Documents to which such Issuer Party is or will be a party, and (2) the execution, delivery and performance by such Issuer Party of each Purchase Document to which such Issuer Party is or will be a party and the execution and delivery of the other documents to be delivered by such Person in connection herewith and therewith; (B) certifying the names and true signatures of the officers and other representatives of such Issuer Party authorized to sign each Purchase Document to which such Issuer Party is or will

 

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be a party and the other documents to be executed and delivered by such Issuer Party in connection herewith and therewith, together with evidence of the incumbency of such authorized officers; (C) attaching a true and complete copy of the charter, certificate of formation, certificate of limited partnership or other publicly filed organizational document of each Issuer Party certified as of a recent date by an appropriate official of the state of organization of such Issuer Party; (D) attaching a true and complete copy of the charter and by-laws, limited liability company agreement, operating agreement, agreement of limited partnership or other organizational document of each Issuer Party, together with all amendments thereto; (E) with respect to the Issuer, certifying as to the matters set forth in Section 4.02(b) , and (F) certifying that the Material Contracts remain in full force and effect and that none of the Issuer Parties or any of their Subsidiaries has breached or defaulted in any of its obligations under such agreements;

(xi) a certificate of the appropriate official(s) of the state of organization and each state of foreign qualification of each Issuer Party certifying as to the subsistence in good standing of, and, for the states of Delaware and California, the payment of taxes by, such Issuer Party in such states (except, in the case of the states of foreign qualification, where the failure to be so qualified or in good standing, or to pay such taxes, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect);

(xii) an opinion of (a) Cooley Godward Kronish LLP, and (b) Brownstein Hyatt Farber Schreck, LLP, each counsel to the Issuer Parties, in form and substance reasonably satisfactory to the Agent, and as to such matters as Agent may reasonably request;

(xiii) a payoff letter, in form and substance satisfactory to Agent, in its sole and absolute discretion, executed by the Indenture Trustee setting forth the payoff amount and other conditions precedent, if any, for the payoff and release of the indebtedness and liens evidenced by the Indenture Documents and attaching copies of the releases, terminations and other documents for the release of such liens;

(xiv) a copy of the financial projections described in Section 5.01(g)(ii) hereof, which projections shall be in form and substance satisfactory to the Agent in its sole and absolute discretion;

(xv) a certificate of the chief financial officer of the Issuer, setting forth in reasonable detail the calculations required to establish compliance, on a pro forma basis based on the most recent financial statements of the Issuer and its Subsidiaries and after giving effect to the transactions contemplated hereby, with each of the financial covenants contained in Section 6.03 ;

(xvi) evidence of the insurance coverage required by Section 6.01 and the terms of the Issuer Security Agreement and Guarantor Security Agreement and such other insurance coverage with respect to the business and operations of

 

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the Issuer Parties and their Subsidiaries as Agent may request in its sole and absolute discretion, in each case, where requested by Agent, with such endorsements as to the named insureds or loss payees thereunder as Agent may request in its sole and absolute discretion and providing that such policy may be terminated or canceled (by the insurer or the insured thereunder) only upon 30 days prior written notice to Agent and each such named insured or loss payee (or upon 10 days prior written notice to Agent and each such named insured or loss payee in the event of termination or cancellation due to nonpayment of premium);

(xvii) other than the approvals from the Nevada Gaming Authorities for the pledge of, or any restriction on the transfer, issuance or pledge of, or any agreement not to encumber the Capital Stock of the Gaming Subsidiaries and any direct or intermediary holding companies thereof that are not a publicly traded corporation, the Issuer shall have received all Gaming Licenses and all other material licenses, approvals or evidence of other actions required by any Governmental Authority (including any required by any Gaming Laws) in connection with the consummation of the transactions contemplated hereby, including, without limitation, the issuance of the Conversion Shares and the Warrant Shares;

(xviii) written access agreements and written subordinations or waivers (in form and substance satisfactory to Agent in its sole and absolute discretion) from the owners or lessors of the domestic locations where Collateral is located;

(xix) Issuer shall have delivered evidence satisfactory to the Agent that (A) all Liens other than Liens specifically permitted pursuant to this Agreement have been released or with respect to the Liens securing the Senior Secured Notes, will be released and (B) appropriate terminations of the filings related to such Liens have been filed or authorized to be filed by the Agent or the Senior Credit Facility Agent;

(xx) the lock-up agreements for each of the directors and executive officers of the Issuer as required by Section 6.01(x) ;

(xxi) each foreign Subsidiary of the Issuer existing as of the Closing Date (each an “ Existing Foreign Subsidiary ”) shall have executed (A) a Guaranty guaranteeing the Obligations, (B) the Guarantor Security Agreement, together with (x) if such Existing Foreign Subsidiary has any Domestic Subsidiaries, (I) certificates (if any) evidencing all of the Capital Stock of such Subsidiary owned by such Existing Foreign Subsidiary, (II) undated stock powers executed in blank, and (III) such opinions of counsel and such approving certificate of such Subsidiary as the Agent may request in respect of complying with any legend on any such certificate or any other matter relating to such shares, and (y) if such Existing Foreign Subsidiary has any first-tier Subsidiaries that are CFCs, (I) certificates (if any) evidencing all (or, 65% of the outstanding voting Capital Stock of such Subsidiary if pledging or hypothecating more than 65% of the total

 

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outstanding voting Capital Stock of such Subsidiary reasonably could be expected to result in material adverse tax consequences to the Issuer Parties) of the outstanding voting Capital Stock of such Subsidiary, (II) undated stock powers executed in blank with signature guaranteed, and (III) such opinions of counsel and such approving certificate of such Subsidiary as the Agent may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares, and (C) such other agreements, instruments, approvals, legal opinions, or other documents reasonably requested by the Agent in order to create, perfect, establish the first priority of or otherwise protect any Lien purported to be covered by the Guarantor Security Agreement, or otherwise to effect the intent that such Existing Foreign Subsidiary shall become bound by all of the terms, covenants and agreements contained in the Purchase Documents and that all property and assets of such Existing Foreign Subsidiary shall become Collateral for the Obligations; provided that the foregoing Guaranty and Guarantor Security Agreement shall not be required to be provided to the Agent with respect to any Existing Foreign Subsidiary if it is determined by the Agent, in its sole and absolute discretion, that such documents would result in material adverse tax consequences to the Issuer Parties;

(xxii) the Asset Purchase and License Agreement, duly executed by the Issuer and IGT Sub (and any other parties thereto), in the form of Exhibit E hereto;

(xxiii) such other agreements, instruments, approvals, opinions and other documents, each satisfactory to Agent in its sole and absolute discretion; and

(xxiv) updated Disclosure Schedules as contemplated by Section 6.01(aa) to this Agreement.

(e) Procedures for Repayment of Obligations under the Indenture Documents and Release of Liens Thereunder . The Issuer shall have established with the Indenture Trustee procedures acceptable to the Agent in its sole and absolute discretion for the repayment of all obligations due under the Indenture Documents, for the termination and discharge of the Indenture and for the release of all Liens arising under the Indenture Documents, in each case if the Indenture Trustee as paying agent under the Indenture holds at 12:00 noon Eastern time on August 15, 2008 the amount specified in the letter delivered pursuant to Section 4.01(d)(xiii) .

(f) Material Adverse Effect . Agent shall have determined, in its sole and absolute discretion, that (i) no event or development shall have occurred since December 31, 2007 which could reasonably be expected to result in a Material Adverse Effect and (ii) no material adverse development in the economic or financial market conditions has occurred since the Effective Date.

(g) Proceedings; Receipt of Documents . All proceedings in connection with the issuing of the Notes and Warrants and the other transactions contemplated by this Agreement and the other Purchase Documents, and all documents incidental hereto and

 

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thereto, shall be reasonably satisfactory to Agent and its counsel, and Agent and such counsel shall have received all such information and such counterpart originals or certified or other copies of such documents as Agent or such counsel may reasonably request.

(h) Management Reference Checks . Agent shall have received reasonably satisfactory reference checks for key management of each Issuer Party and each of its Subsidiaries.

(i) Due Diligence . Agent shall have completed its business and legal due diligence with respect to each Issuer Party and each of its Subsidiaries and the results thereof shall be acceptable to Agent in its sole and absolute discretion.

(j) Senior Credit Facility . Agent shall have received true and complete copies of the Senior Loan Documents, which documents shall reflect a $12,500,000 revolving credit commitment and a $15,000,000 term loan commitment, the issuance of the Senior Lender Equity in the amounts and on the terms contemplated on the Effective Date, all of which shall be in form and substance satisfactory to Agent in its sole and absolute discretion, and Issuer shall have received, or concurrently with the issuance of the Notes and the related Warrants shall receive, the net proceeds of no less than $15,000,000 from the term loan under the Senior Credit Facility.

(k) Asset Purchase and License Agreement . The asset purchase and license and related transactions contemplated by the Asset Purchase and License Agreement, shall have been consummated and such agreement shall be in full force and effect.

(l) Listing of Common Stock . The Common Stock (i) will be designated for quotation or listed on Nasdaq and (ii) will not have been suspended by the SEC or Nasdaq from trading on Nasdaq nor will suspension by the SEC or Nasdaq have been threatened either in writing by the SEC or Nasdaq; and the Conversion Shares and the Warrant Shares issuable upon conversion or exercise of the Notes and the related Warrants, as the case may be, will be listed upon Nasdaq.

(m) Delivery of Notes and Warrants . The Issuer will have executed and delivered to each Purchaser the Notes and the Warrants as set forth on Schedule 1.01 .

(n) Irrevocable Transfer Agent Instructions . The Irrevocable Transfer Agent Instructions shall be in form and substance satisfactory to the Agent in its sole and absolute discretion and will have been delivered to and acknowledged in writing by the Issuer’s transfer agent and the Issuer will deliver a copy thereof to the Agent.

(o) Securities Filings . The Issuer will have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement and the other Purchase Documents in compliance with such laws (other than such filings that can only be filed after such consummation).

 

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(p) Letter from Transfer Agent . The Issuer will have delivered to the Agent a letter from the Issuer’s transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Effective Date.

(q) Rights Plan Amendment . The Issuer shall have entered into an amendment to that certain Rights Agreement, dated as of June 14, 1999, between the Issuer and Computershare Limited, as rights agent, pursuant to which the issuance of Conversion Shares and Warrant Shares would be permitted under the terms of such agreement (such amendment to be in form and substance acceptable to the Agent in its sole and absolute discretion).

(r) [Intentionally omitted] .

(s) Nasdaq Exception . The Issuer’s application for an exception to the shareholder approval requirements contained in Section 4350(i)(l)(D)(ii) of The Nasdaq Stock Market Marketplace Rules shall have been approved on terms and conditions acceptable to the Agent in its sole and absolute discretion, and shall be in full force and effect.

(t) Closing Date . The Termination Date shall not have occurred.

(u) Covenants . There shall not have been any breach of any covenant set forth in Section 6.01 or 6.02 of this Agreement during the period between the Effective Date and the Closing Date.

Section 4.03 Conditions Subsequent to the Closing . Each of the following constitutes conditions subsequent to the Agreement (the failure by the Issuer to perform or cause to be performed such conditions subsequent constituting an immediate Event of Default):

(a) [Intentionally omitted] .

(b) Nevada Gaming Authority Approval Pledges . Within 180 days after the Closing Date, the Issuer shall have received all necessary consents or approvals of the Nevada Gaming Authorities to permit the pledges of the Capital Stock of PGIC NV and any direct or indirect intermediary holding companies thereof that is not a publicly traded corporation;

(c) Nevada Gaming Authority Approval Restrictions . Within 30 days after the Closing Date, the Issuer shall have received all necessary consents or approvals of the Nevada Gaming Authorities to permit the restrictive covenants stated herein or in any Purchase Document relating to the restrictions on transfer and agreement not to encumber the equity securities issued by PGIC NV or any direct or intermediary holding company thereof that is not a publicly traded corporation, as contemplated in this Agreement;

(d) Stock Certificates Delivery . Within five Business Days after the Issuer has obtained the necessary consents and approvals set forth in clauses (b) and (c)  above, the Issuer shall have delivered to the Senior Credit Facility Agent, or a custodian appointed by the Senior Credit Facility Agent, the original stock certificates representing

 

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all of the stock of the applicable Gaming Subsidiary, accompanied by undated stock powers executed in blank, which stock certificates for PGIC NV will be held in the State of Nevada;

(e) Governing Authority Applications . Within one Business Day after the Closing Date, the Issuer shall have filed applications with the Nevada Gaming Authorities for the required approvals of (i) the pledges of the Capital Stock of PGIC NV and any direct or intermediary holding companies thereof that are not a publicly traded corporation and (ii) the restrictive covenants stated herein or in any Purchase Document relating to the restrictions on transfer and agreement not to encumber the equity securities issued by a Gaming Subsidiary or any direct or intermediary holding company thereof that is not a publicly traded corporation, as contemplated in this Agreement, and (copies of such filings shall be provided to Agent, with any corrections thereto requested by the Agent);

(f) Gaming Authority Notifications . Within the time allotted by the applicable Gaming Authorities, Issuer shall have filed all notifications required by the Gaming Authorities and shall confirm such compliance with Agent; and

(g) Source Code Escrow Agreement . Promptly following the Closing, but in any event within 90 days after the Closing Date, the Issuer shall deliver the Source Code Escrow Agreement in form and substance satisfactory to the Agent in its sole and absolute discretion, duly executed by the Issuer and the other parties thereto.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

Section 5.01 Representations and Warranties . Each Issuer Party hereby represents and warrants to Agent and the Purchasers as follows:

(a) Organization, Good Standing, Etc. Each Issuer Party and each of its Subsidiaries (i) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the state or jurisdiction of its organization, (ii) has all requisite power and authority to conduct its business as now conducted and as currently contemplated and, in the case of the Issuer, to make the borrowings hereunder, and to execute and deliver each Purchase Document to which it is a party, and to consummate the transactions contemplated thereby, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary except where the failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect.

(b) Authorization, Etc. The execution, delivery and performance by each Issuer Party of each Purchase Document to which it is or will be a party (including the reservation for issuance and the issuance of the Conversion Shares and the Warrant Shares), (i) have been duly authorized by all necessary corporate, shareholder or other

 

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action and no further consent or authorization of any Issuer Party, its board of directors or its shareholders is required with respect to any of the transactions contemplated hereby or thereby (except for any action by the board of directors of any Issuer Party that can only be taken after the date hereof with respect to matters explicitly required herein or therein), (ii) do not and will not contravene its charter or by-laws, its limited liability company or operating agreement or its certificate of partnership or partnership agreement, as applicable, or any applicable law (iii) do not and will not result in or require the creation of any Lien (other than pursuant to any Purchase Document) upon or with respect to any of its properties, and (iv) do not and will not result in any material default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties, including, without limitation, any Gaming Licenses. The Issuer has no actual knowledge of any adverse consequence that could result to any Purchaser under any Gaming Authority or other Governmental Authority as a direct result or consequence of the consummation of the transactions contemplated by the Purchase Documents.

(c) Governmental Approvals . Except as set forth on Schedule 5.01(c) , and assuming the accuracy of each of the representations and warranties set forth in Section 11.22 of this Agreement, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority (including Gaming Authorities) is required in connection with the due execution, delivery and performance (including the reservation for issuance and the issuance of the Conversion Shares and the Warrant Shares) by any Issuer Party of any Purchase Document to which it is or will be a party, except for (i) filings or recordations required in connection with the Liens granted by the Issuer Parties pursuant to the Purchase Documents, (ii) filings required in connection with the issuance of the Securities under the Securities Act or any applicable securities or “Blue Sky” laws of the states of the United States, which filings may be made after the Closing, and (iii) filings required in connection with the listing of the Conversion Shares or the Warrant Shares on the Principal Market.

(d) Enforceability of Purchase Documents . This Agreement is, and each other Purchase Document to which any Issuer Party is or will be a party, when delivered hereunder, will be, a legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws and except as limited by general principles of equity.

(e) Subsidiaries . Schedule 5.01(e) is a complete and correct description of the name, jurisdiction of incorporation and record and beneficial ownership of the outstanding Capital Stock of each Subsidiary of the Issuer. All of the issued and outstanding shares of Capital Stock of such Subsidiaries have been validly issued and are fully paid and nonassessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. Except as indicated on such Schedule, all such Capital Stock is owned of record and beneficially by the Issuer or one or more of its wholly-owned Subsidiaries, free and clear of all Liens and the record holder of such capital Stock holds all voting rights with respect thereto. Except as disclosed on Schedule 5.01(e) , there are no outstanding debt or equity securities of any of the Issuer’s

 

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Subsidiaries and no outstanding obligations of such Subsidiaries convertible into or exchangeable for, or warrants, options or other rights for the purchase or acquisition from the Issuer or any of its Subsidiaries, or other obligations of any Subsidiary to issue, directly or indirectly, any shares of Capital Stock of any Subsidiary of the Issuer.

(f) Litigation; Commercial Tort Claims . Schedule 5.01(f) , sets forth (i) all of the pending and, to the knowledge of each Issuer Party, threatened action, suit, arbitration, investigation, inquiry (formal or informal) and proceeding affecting any Issuer Party or any of its Subsidiaries by any Governmental Authority or before any court or other Governmental Authority, arbitrator or other tribunal and (ii) any commercial tort claims of any Issuer Party or any of its Subsidiaries in respect of which a claim has been filed in a court of law or a written notice by an attorney has been given to a potential defendant. There is no pending or, to the knowledge of any Issuer Party, threatened action, suit, proceeding, investigation or inquiry (formal or informal) affecting any Issuer Party or any of its Subsidiaries by any Governmental Authority or before any court or other Governmental Authority or any arbitrator that (A) if adversely determined, the fact of such adverse determination would reasonably be viewed as significantly altering the total mix of information about the Issuer that the Issuer has made available to the Purchaser as of the date hereof, or (B) relates to this Agreement or any other Purchase Document or any transaction contemplated hereby or thereby. Each of the Issuer Parties agrees that no information set forth in Schedule 5.01(f) under the caption “Threatened and Pending Proceedings” will diminish or impair the representations and warranties set forth in this Section 5.01(f) , which are true and correct as of the date hereof as though no information were disclosed under such caption in Schedule 5.01(f) .

(g) Financial Condition .

(i) The Financial Statements, copies of which have been delivered to Agent and each Purchaser, fairly present, in all material respects, the consolidated financial condition of the Issuer and its Subsidiaries as at the respective dates thereof and the consolidated results of operations of the Issuer and its Subsidiaries for the fiscal periods ended on such respective dates, all in accordance with GAAP, and since December 31, 2007, no event or development has occurred that has had or could reasonably be expected to result in a Material Adverse Effect.

(ii) The Issuer has heretofore furnished to Agent and each Purchaser (A) projected quarterly income statements of the Issuer and its Subsidiaries for the period from January 1, 2008, through December 31, 2010, and (B) projected annual balance sheets, income statements and statements of cash flows of the Issuer and its Subsidiaries for each of the Fiscal Years ending in 2008, 2009 and 2010, which projected financial statements shall be updated from time to time pursuant to Section 6.01(a)(vii) . Such projections, as so updated, are believed by the Issuer at the time furnished to be reasonable, have been prepared on a reasonable basis and in good faith by the Issuer, and have been based on assumptions believed by the Issuer to be reasonable at the time made and upon the best information then reasonably available to the Issuer, and the Issuer is not

 

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aware of any facts or information that would lead it to believe that such projections, as so updated, are incorrect or misleading in any material respect.

(iii) The Issuer and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorizations, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (C) access to assets is permitted only in accordance with management’s general or specific authorization, and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any difference. The Issuer maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP and the applicable requirements of the Exchange Act. The Issuer’s officers certified to the Issuer’s internal controls as of the filing of the Issuer’s Form 10-Q for the quarter ending March 31, 2008 and since that date, that there have been no significant changes in the Issuer’s internal controls (as such term is defined in Section 307(b) of Regulation S-K) or, to the Issuer’s knowledge, any other facts that would significantly affect the Issuer’s internal controls.

(iv) Since March 31, 2008, there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect.

(h) Compliance. No Default or Event of Default has occurred and is continuing. The Issuer has provided or will promptly make available to the Agent true, correct and complete copies of all material correspondence and information gathered, organized or assembled by the Company in response to requests for information by the SEC and all Gaming Authorities made since January 2003, including, without limitation, the Issuer’s responses to the SEC request for information dated July 8, 2008.

(i) ERISA . Except as set forth on Schedule 5.01(i) , (i) each Employee Plan is in substantial compliance with ERISA and the IRC, (ii) no Termination Event has occurred nor is reasonably expected to occur with respect to any Employee Plan, (iii) the most recent annual report (Form 5500 Series) with respect to each Employee Plan, including any required Schedule B (Actuarial Information) thereto, copies of which have been filed with the Internal Revenue Service and delivered to Agent, is complete and correct and fairly presents the funding status of such Employee Plan, and since the date of such report there has been no material adverse change in such funding status, (iv) copies of each agreement entered into with the PBGC, the U.S. Department of Labor or the Internal Revenue Service with respect to any Employee Plan have been delivered to Agent, (v) no Employee Plan had an accumulated or waived funding deficiency or permitted decrease which would create a deficiency in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the IRC at any time during the previous 60 months, and (vi) no Lien imposed under the IRC or ERISA exists or is likely to arise on account of any Employee Plan within the meaning of Section 412 of the IRC. Except as set forth on Schedule 5.01(i) , no Issuer

 

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Party or any of its Subsidiaries or any of their respective ERISA Affiliates has incurred any withdrawal liability under ERISA with respect to any Multiemployer Plan, or is aware of any facts indicating that it or any of its ERISA Affiliates may in the future incur any such withdrawal liability. No Issuer Party or any of its Subsidiaries or any of their respective ERISA Affiliates nor any fiduciary of any Employee Plan has (A) engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the IRC, (B) failed to pay any required installment or other payment required under Section 412 of the IRC on or before the due date for such required installment or payment, (C) engaged in a transaction within the meaning of Section 4069 of ERISA or (D) incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. There are no pending or, to the knowledge of any Issuer Party, threatened claims, actions, proceedings or lawsuits (other than claims for benefits in the normal course) asserted or instituted against (1) any Employee Plan or its assets, (2) any fiduciary with respect to any Employee Plan, or (3) any Issuer Party or any of its Subsidiaries or any of their respective ERISA Affiliates with respect to any Employee Plan. Except as required by Section 4980B of the Internal Revenue Code, no Issuer Party or any of its Subsidiaries or any of their respective ERISA Affiliates maintains an employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of any Issuer Party or any of its Subsidiaries or any of their respective ERISA Affiliates or coverage after a participant’s termination of employment.

(j) Taxes, Etc. All Federal, state and local tax returns and other reports required by applicable law to be filed by any Issuer Party or any of their Subsidiaries have been filed, or extensions have been obtained, and all taxes, assessments and other governmental charges imposed upon any Issuer Party or any of their Subsidiaries or any property of any Issuer Party or any of their Subsidiaries and which have become due and payable have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP and except for taxes, assessments and other governmental charges that are de minimis.

(k) Regulations T, U and X . No Issuer Party or any Subsidiary of any Issuer Party is or will be engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation T, U or X), and no proceeds of the Notes will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

(l) Nature of Business . No Issuer Party or any Subsidiary of any Issuer Party is engaged in any business other than as set forth on Schedule 5.01(l) .

(m) Properties .

(i) Each Issuer Party and each of their respective Subsidiaries has good and marketable title to, valid leasehold interests in, or valid licenses to use,

 

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all property and assets material to its business, free and clear of all Liens, except Permitted Liens. All such properties and assets are in good working order and condition, ordinary wear and tear excepted.

(ii) Schedule 5.01(m) sets forth a complete and accurate list, as of the Effective Date, of the location, by state and street address, of all real property owned or leased by each Issuer Party or any of their resp