SECURITY AGREEMENT

Exhibit 10.8

SECURITY AGREEMENT

This SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, including all exhibits and schedules hereto, this “ Agreement ”) is made as of August 15, 2008, among the Grantors listed on the signature pages hereof and those additional entities that hereafter become parties hereto by executing the form of Supplement attached hereto as Annex 1 (collectively, jointly and severally, “ Grantors ” and each individually, “ Grantor ”), and PRIVATE EQUITY MANAGEMENT GROUP FINANCIAL CORPORATION, a California corporation, for itself and as administrative agent for the Lenders defined below (together with its successors and assigns, if any, in such capacity “ Administrative Agent ”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Credit Agreement dated as of August 4, 2008 (as amended, restated, supplemented or otherwise modified from time to time, including all exhibits and schedules thereto, the “ Credit Agreement ”) among Progressive Gaming International Corporation, a Nevada corporation (“ Borrower ”), each Subsidiary of the Borrower listed as a “Guarantor” on the signature pages thereto (such Subsidiaries, together with any additional entities that become guarantors pursuant to the requirements of Section 6.01(b) thereof or otherwise, each a “ Guarantor ” and collectively, jointly and severally, the “ Guarantors ”), the lenders that are, from time to time, parties thereto (each a “ Lender ” and collectively, the “ Lenders ”), and Administrative Agent, the Lender Group is willing to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof, and

WHEREAS, Administrative Agent has agreed to act as administrative agent for the benefit of the Lender Group in connection with the transactions contemplated by this Agreement, and

WHEREAS, in order to induce the Lender Group to enter into the Credit Agreement and the other Loan Documents and to induce the Lender Group to make financial accommodations to Borrower as provided for in the Credit Agreement, Grantors have agreed to grant a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of, among other things, (a) all of the present and future obligations of each Grantor arising from this Agreement, any Guaranty or any other Loan Document, and (b) all Obligations of each Grantor, including, in the case of each of clauses (a) and (b), reasonable attorneys fees and expenses and any interest, fees or expenses that accrue after the filing of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any Insolvency Proceeding (clauses (a) and (b) being hereinafter referred to as the “ Secured Obligations ”), it being acknowledged and agreed that for the purposes of the definition of “Secured Obligations” the “Loan Documents” shall exclude the Securities, and

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms . All capitalized terms used herein (including, in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Credit Agreement. Any terms used in this Agreement that are defined in the Code shall be

 

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construed and defined as set forth in the Code unless otherwise defined herein or in the Credit Agreement; provided , however , that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:

(a) “ Account ” means an account (as that term is defined in the Code).

(b) “ Account Debtor ” means any Person who is obligated on an Account, chattel paper, or a general intangible.

(c) “ Administrative Agent ” has the meaning specified therefor in the preamble to this Agreement.

(d) “ Agreement ” has the meaning specified therefor in the preamble to this Agreement.

(e) “ Books ” means books and records (including each Grantor’s Records indicating, summarizing, or evidencing such Grantor’s assets (including the Collateral) or liabilities, each Grantor’s Records relating to such Grantor’s business operations or financial condition, and each Grantor’s goods or General Intangibles related to such information).

(f) “ Borrower ” has the meaning specified therefor in the recitals to this Agreement.

(g) “ Capital Stock ” has the meaning specified therefor in the Credit Agreement.

(h) “ Cash and Cash Equivalents ” has the meaning specified therefor in the Credit Agreement.

(i) “ CFC ” has the meaning specified therefor in the Credit Agreement.

(j) “ Chattel Paper ” means chattel paper (as that term is defined in the Code) and includes tangible chattel paper and electronic chattel paper.

(k) “ 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 Administrative Agent’s Lien 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 enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

(l) “ Collateral ” has the meaning specified therefor in Section 2 hereof.

(m) “ Commercial Tort Claims ” means commercial tort claims (as that term is defined in the Code), and includes those commercial tort claims listed on Schedule 3 attached hereto (“ Commercial Tort Claims ”).

(n) “ Control Agreement ” means a control agreement, in form and substance customary for such agreements and satisfactory to Administrative Agent, executed and delivered by Grantors or any of their Subsidiaries, Administrative Agent, and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account).

 

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(o) “ Copyright Security Agreement ” means each Copyright Security Agreement among Grantors, or any of them, and Administrative Agent, for the benefit of the Lender Group, in substantially the form of Exhibit A attached hereto, pursuant to which Grantors have granted to Administrative Agent, for the benefit of the Lender Group, a security interest in all their respective Copyrights.

(p) “ Copyrights ” means any and all copyrights and copyright registrations, including the copyright registrations and recordings thereof and all applications in connection therewith listed on Schedule 1 attached hereto and made a part hereof, and (i) all reissues, continuations, extensions or renewals thereof, (ii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iii) the right to sue for past, present and future infringements and dilutions thereof, (iv) the goodwill of each Grantor’s business symbolized by the foregoing and connected therewith, and (v) all of each Grantor’s rights corresponding thereto throughout the world.

(q) “ Deposit Account ” means a “deposit account” (as that term is defined in the Code).

(r) “ Equipment ” means “equipment” (as that term is defined in the Code) and includes machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), computer hardware, tools, parts, and goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing.

(s) “ Event of Default ” has the meaning specified therefor in Section 9.01 of the Credit Agreement.

(t) “ Excluded Assets ” means with respect to any Grantor, (i) any leases, permits, licenses (including Gaming Licenses) or other contracts or agreements or other assets or property to the extent that a grant of a Lien thereon (x) is prohibited by law or would constitute or result in the abandonment, invalidation or unenforceability of any right, title or interest of such Grantor therein pursuant to applicable law, (y) would require the consent of third parties and such consent has not been obtained after such Grantor has used commercially reasonable efforts to try to obtain such consent, or (z) other than as a result of requiring a consent of third parties that has not been obtained, would result in a breach of the provisions thereof, or constitute a default under or result in a termination of, such lease, permit, license, contract or agreement (other than to the extent that any such provisions thereof would be rendered ineffective pursuant to Section 9-406, 9-407 or 9-408 of the Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law); provided , however , that Excluded Assets shall not include (and, accordingly, Collateral shall include) any and all Proceeds of any such assets; and provided , further , that, with respect to each Excluded Asset described in this clause (i), immediately upon the uneffectiveness, lapse or termination of such prohibition, or the obtaining of any required approvals, the provisions that would be so breached or such breach, default or termination or immediately upon the obtaining of any such consent or approval, the Excluded Assets shall not include, and such Grantor shall be deemed to have granted a security interest in, all such leases, permits, licenses, contracts and agreements and such other assets and property as if such prohibition, the provisions that would be so breached or such breach, default or termination had never been in effect and as if such consent or approval had not been required; and (ii) voting Capital Stock of any Subsidiary of such Grantor that is a CFC solely to the extent that (A) such Capital Stock represents more than 65% of the outstanding voting Capital Stock of such Subsidiary, and (B) hypothecating more than 65% of the total outstanding voting Capital Stock of such Subsidiary would result in material adverse tax consequences.

 

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(u) “ Credit Agreement ” has the meaning specified therefor in the recital to this Agreement.

(v) “ Gaming Laws ” has the meaning specified therefor in the Credit Agreement.

(w) “ Gaming License ” has the meaning specified therefor in the Credit Agreement.

(x) “ Gaming Subsidiaries ” has the meaning specified therefor in the Credit Agreement.

(y) “ General Intangibles ” means general intangibles (as that term is defined in the Code) and includes payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill (including the goodwill associated with any Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and domain names, industrial designs, other industrial or Intellectual Property or rights therein or applications therefor, whether under license or otherwise, programs, programming materials, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, uncertificated securities, and any other personal property other than commercial tort claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and oil, gas, or other minerals before extraction.

(z) “ Grantor ” and “ Grantors ” have the meaning specified therefor in the preamble to this Agreement.

(aa) “ Guarantor ” and “ Guarantors ” have the meaning specified therefor in the recitals to this Agreement.

(bb) “ Guaranty ” has the meaning specified therefor in the Credit Agreement.

(cc) “ Insolvency Proceeding ” has the meaning specified therefor in the Credit Agreement.

(dd) “ Intellectual Property ” means any and all Intellectual Property Licenses, Patents, Copyrights, Trademarks, the goodwill associated with such Trademarks, trade secrets and customer lists.

(ee) “ Intellectual Property Licenses ” means any license of patent, trademark, copyright or other intellectual property, including software license agreements with any other party, whether the applicable Grantor is a licensee or licensor under any such license agreement, including, the license agreements listed on Schedule 1 attached hereto and made a part hereof, and the right to use the foregoing in connection with the enforcement of the Lender Group’s rights under the Loan Documents, including, the right to prepare for sale and sell any and all Inventory and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses.

(ff) “ Inventory ” means inventory (as that term is defined in the Code).

 

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(gg) “ Investment Related Property ” means (i) any and all investment property (as that term is defined in the Code), and (ii) any and all of the following regardless of whether classified as investment property under the Code: all Pledged Interests, Pledged Operating Agreements, and Pledged Partnership Agreements.

(hh) “ Lender ” and “ Lenders ” have the meaning specified therefor in the recitals to this Agreement.

(ii) “ Lender Group ” means, individually and collectively, each of the Lenders and Administrative Agent.

(jj) “ Loan Document ” has the meaning specified therefore in the Credit Agreement.

(kk) “ Mississippi Gaming Authorities ” has the meaning specified therefor in the Credit Agreement.

(ll) “ Negotiable Collateral ” means letters of credit, letter of credit rights, instruments, promissory notes, drafts and documents (as that term is defined in the Code).

(mm) “ Nevada Gaming Authorities ” has the meaning specified therefor in the Credit Agreement.

(nn) “ NGC ” means the Nevada Gaming Commission.

(oo) “ NGCB ” means the Nevada State Gaming Control Board.

(pp) “ Obligations ” has the meaning specified therefor in the Credit Agreement.

(qq) “ Patent Security Agreement ” means each Patent Security Agreement among Grantors, or any of them, and Administrative Agent, for the benefit of the Lender Group, in substantially the form of Exhibit B attached hereto, pursuant to which Grantors have granted to Administrative Agent, for the benefit of the Lender Group, a security interest in all their respective Patents.

(rr) “ Patents ” means any and all patents and patent applications, including, the patents and patent applications listed on Schedule 1 attached hereto and made a part hereof, and (i) all renewals thereof, (ii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iii) the right to sue for past, present and future infringements and dilutions thereof, and (iv) all of each Grantor’s rights corresponding thereto throughout the world.

(ss) “ Permitted Liens ” has the meaning specified therefor in the Credit Agreement.

(tt) “ Person ” has the meaning specified therefor in the Credit Agreement.

(uu) “ Pledged Companies ” means, each Person listed on Schedule 4 hereto as a “Pledged Company”, together with each other Person, all or a portion of whose Capital Stock, is acquired or otherwise owned by a Grantor after the Initial Funding Date.

(vv) “ Pledged Interests ” means all of each Grantor’s right, title and interest in and to all of the Capital Stock now or hereafter owned by such Grantor, regardless of class or designation, including, in each of the Pledged Companies, and all

 

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substitutions therefor and replacements thereof, all proceeds thereof and all rights relating thereto, including, any certificates representing the Capital Stock, the right to request after the occurrence and during the continuation of an Event of Default that such Capital Stock be registered in the name of Administrative Agent or any of its nominees, the right to receive any certificates representing any of the Capital Stock and the right to require that such certificates be delivered to Administrative Agent together with undated powers or assignments of investment securities with respect thereto, duly endorsed in blank by such Grantor, all warrants, options, share appreciation rights and other rights, contractual or otherwise, in respect thereof and of all dividends, distributions of income, profits, surplus, or other compensation by way of income or liquidating distributions, in cash or in kind, and all cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in addition to, in substitution of, on account of, or in exchange for any or all of the foregoing.

(ww) “ Pledged Interests Addendum ” means a Pledged Interests Addendum substantially in the form of Exhibit C to this Agreement.

(xx) “ Pledged Operating Agreements ” means all of each Grantor’s rights, powers, and remedies under the limited liability company operating agreements of each of the Pledged Companies that is a limited liability company.

(yy) “ Pledged Partnership Agreements ” means all of each Grantor’s rights, powers, and remedies under the partnership agreements of each of the Pledged Companies that is a partnership.

(zz) “ Proceeds ” has the meaning specified therefor in Section 2 hereof.

(aaa) “ Real Property ” means any estates or interests in real property now owned or hereafter acquired by any Grantor or any Subsidiary of any Grantor and the improvements thereto.

(bbb) “ Records ” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

(ccc) “ Required Library ” has the meaning specified therefor in the Credit Agreement.

(ddd) “ Security Interest ” has the meaning specified therefor in Section 2 in hereof.

(eee) “ Secured Obligations ” has the meaning specified in the recitals to this Agreement

(fff) “ Securities Account ” means a securities account (as that term is defined in the Code).

(ggg) “ Source Code ” means a complete copy of the annotated source code for each current version or versions (including all a.x and a.x.y releases but excluding the a.x.y versions that are bug fixes) and related materials of or for each item of computer software programs or other technology of any Grantor constituting the Required Library, in machine-readable form on machine-readable storage medium suitable for long-term storage and compatible with commonly-available computer systems then in use by any Grantor’s licensees of the computer software programs comprising the Required Library and which, when compiled, will produce the object code version of said software, including without limitation all existing encryption code, system documentation and flowcharts, algorithm and subroutine descriptions, memory and overlay maps, name and/or label conventions, program narrators, source code listings and other documentation and commentary necessary or desirable for a reasonably competent computer programmer to install, maintain, service, and otherwise use the software programs comprising the Required Library, and with respect

 

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to the currently shipping versions of the software programs comprising the Required Library, to modify and enhance such software programs, without the aid of any Grantor, as may be necessary or desirable for the Administrative Agent, as agent, to benefit from its rights under the Credit Agreement and this Agreement.

(hhh) “ Source Code Escrow Agreement ” means a source code escrow agreement with respect to the Source Code, in form and substance satisfactory to Administrative Agent, among each Grantor, Borrower, Administrative Agent, and an escrow agent satisfactory to Administrative Agent in its sole and absolute discretion.

(iii) “ Supporting Obligation ” means Supporting Obligation (as such term is defined in the Code), and includes letters of credit and guaranties issued in support of Accounts, Chattel Paper, documents, General Intangibles, instruments, or Investment Related Property.

(jjj) “ Trademarks ” means any and all trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, including, the trade names, registered trademarks, trademark applications, registered service marks and service mark applications listed on Schedule 1 attached hereto and made a part hereof, and (i) all renewals thereof, (ii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iii) the right to sue for past, present and future infringements and dilutions thereof, (iv) the goodwill of each Grantor’s business symbolized by the foregoing and connected therewith, and (v) all of each Grantor’s rights corresponding thereto throughout the world.

(kkk) “ Trademark Security Agreement ” means each Trademark Security Agreement among Grantors, or any of them, and Administrative Agent, for the benefit of the Lender Group, in substantially the form of Exhibit D attached hereto, pursuant to which Grantors have granted to Administrative Agent, for the benefit of the Lender Group, a security interest in all their respective Trademarks.

(lll) “ URL ” means “uniform resource locator,” an internet web address.

2. Grant of Security . Each Grantor hereby unconditionally grants, assigns and pledges to Administrative Agent, for the benefit of the Lender Group, a continuing security interest (hereinafter referred to as the “ Security Interest ”) in all personal property of such Grantor whether now owned or hereafter acquired or arising and wherever located, including such Grantor’s right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the “ Collateral ”):

(a) all of such Grantor’s Accounts;

(b) all of such Grantor’s Books;

(c) all of such Grantor’s Chattel Paper;

(d) all of such Grantor’s interest with respect to any Deposit Account or Securities Account;

(e) all of such Grantor’s Equipment and fixtures;

 

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(f) all of such Grantor’s General Intangibles;

(g) all of such Grantor’s Inventory;

(h) all of such Grantor’s Investment Related Property;

(i) all of such Grantor’s Negotiable Collateral;

(j) all of such Grantor’s rights in respect of Supporting Obligations;

(k) all of such Grantor’s interest with respect to any Commercial Tort Claims;

(l) all of such Grantor’s money, Cash and Cash Equivalents, or other assets of each such Grantor that now or hereafter come into the possession, custody, or control of Administrative Agent or any other member of the Lender Group;

(m) all of the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or commercial tort claims covering or relating to any or all of the foregoing, and any and all Accounts, Books, Cash and Cash Equivalents, Chattel Paper, Deposit Accounts, Securities Accounts, Equipment, General Intangibles, Inventory, Investment Related Property, Negotiable Collateral, Supporting Obligations, Commercial Tort Claims, money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation with respect to any of the property of Grantors, any rebates or refunds, whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing Collateral (the “ Proceeds ”). Without limiting the generality of the foregoing, the term “Proceeds” includes whatever is receivable or received when Investment Related Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, proceeds of any indemnity or guaranty payable to any Grantor or Administrative Agent from time to time with respect to any of the Investment Related Property.

The foregoing to the contrary notwithstanding, “Collateral” shall not include the Excluded Assets.

3. Security for Obligations . This Agreement and the Security Interest created hereby secures the payment and performance of all the Secured Obligations, whether now existing or arising hereafter. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Administrative Agent, the Lender Group or any of them, but for the fact that they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor.

4. Grantors Remain Liable . Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain liable under the contracts and agreements included in the Collateral, including, the Pledged Operating Agreements and the Pledged Partnership Agreements, to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Administrative Agent or any other member of the Lender Group of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) none of the members of the Lender Group shall have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall any of the members of the Lender Group be obligated to perform any of the obligations or duties of any Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Until an Event of

 

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Default shall occur and while it remains continuing, except as otherwise provided in this Agreement, the Credit Agreement, or the other Loan Documents, Grantors shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of their respective businesses, subject to and upon the terms hereof and of the Credit Agreement and the other Loan Documents. Without limiting the generality of the foregoing, it is the intention of the parties hereto that record and beneficial ownership of the Pledged Interests, including, all voting, consensual, and dividend rights, shall remain in the applicable Grantor until the occurrence and continuance of an Event of Default and until Administrative Agent shall notify the applicable Grantor of Administrative Agent’s exercise of voting, consensual, or dividend rights with respect to the Pledged Interests pursuant to Section 15 hereof.

5. Representations and Warranties . Each Grantor hereby represents and warrants, as to itself, as follows:

(a) The exact legal name of such Grantor is set forth on the signature pages of this Agreement or, if such Grantor has provided a written notice to Administrative Agent pursuant to Section 6.02(c) of the Credit Agreement, as set forth in such notice.

(b) Schedule 4 attached hereto sets forth all Real Property owned by such Grantor as of the Initial Funding Date.

(c) Such Grantor is the sole legal and beneficial owner, nonexclusive licensee, or exclusive licensee of all Intellectual Property that is necessary to, or economically desirable in connection with, the conduct of its business as currently contemplated. As of the Initial Funding Date, such Grantor has no interest in, or title to, any Intellectual Property Licenses (other than Intellectual Property Licenses to use commercial off-the-shelf software, which Intellectual Property Licenses to use such commercial off-the-shelf software each individually have a fair market value of less than $500), Patents, Trademarks, or registered Copyrights except as set forth on Schedule 1 , attached hereto. This Agreement is effective to create a valid and continuing Lien on such Copyrights, Intellectual Property Licenses (except to the extent the same is an Excluded Asset), Patents and Trademarks and, upon filing of the Copyright Security Agreement with the United States Copyright Office and filing of the Patent Security Agreement and the Trademark Security Agreement with the United States Patent and Trademark Office, and the filing of appropriate financing statements in the jurisdictions listed on Schedule 5 hereto, all action necessary or desirable to protect and perfect the Security Interest in and to such Grantor’s United States Patents, United States Trademarks, or United States Copyrights has been taken and such perfected Security Interests are enforceable as such as against any and all creditors of and purchasers from such Grantor, except as may be limited by applicable bankruptcy, insolvency, reorganization moratorium or other similar laws and except as limited by general principles of equity. Such Grantor has no interest in any Copyright registered with the United States Copyright Office that is necessary in connection with the operation of the Borrower’s business, except for those registered Copyrights, identified on Schedule 1 attached hereto.

(d) This Agreement creates a valid security interest in the Collateral of such Grantor, to the extent a security interest therein can be created under the Code, securing the payment of the Secured Obligations. Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the Code, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of a financing statement listing such Grantor, as debtor, and Administrative Agent, as secured party, in the jurisdictions listed next to such Grantor’s name on Schedule 5 attached hereto. Upon the making of such filings, Administrative Agent shall have a first priority perfected security interest (subject to Permitted Liens) in the Collateral of such Grantor to the extent such security interest can be perfected by the filing of a financing statement. All action by any Grantor necessary to protect and perfect such security interest on each item of Collateral has been duly taken.

 

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(e) (i) Except for the Security Interest created hereby, each Grantor is and will at all times be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests of such Grantor (including the Pledged Interests indicated on Schedule 2 as being owned by such Grantor); (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute the percentage of the issued and outstanding Capital Stock of the Pledged Companies identified as held by any such Grantor on Schedule 2 hereto as supplemented or modified by any Pledged Interests Addendum or any Supplement to this Agreement; (iii) subject to compliance with applicable Gaming Laws, such Grantor has the right and requisite authority to pledge, the Investment Related Property pledged by such Grantor to Administrative Agent as provided herein; (iv) subject to compliance with applicable Gaming Laws, all actions necessary or desirable to perfect, establish the first priority of, or otherwise protect, Administrative Agent’s Liens in the Collateral consisting of Investment Related Property, and the proceeds thereof, will have been duly taken, under the laws of the United States or any state thereof (A) upon the execution and delivery of this Agreement; (B) upon the taking of possession by Administrative Agent or any custodian of Administrative Agent of any certificates constituting the Pledged Interests, to the extent such Pledged Interests are represented by certificates, together with undated powers endorsed in blank by the applicable Grantor; (C) upon the filing of financing statements in the applicable jurisdiction set forth on Schedule 5 attached hereto for such Grantor with respect to the Pledged Interests of such Grantor that are not represented by certificates, and (D) with respect to any Deposit Accounts and Securities Accounts, upon the execution and delivery of Control Agreements with respect thereto; and (v) each Grantor has delivered to Administrative Agent or a custodian of Administrative Agent all certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged Interests are represented by certificates, and undated powers endorsed in blank with respect to such certificates. None of the Pledged Interests owned or held by such Grantor has been issued or transferred in violation of any securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject.

(f) No consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by such Grantor, or (ii) for the exercise by Administrative Agent of the voting or other rights provided for in this Agreement with respect to the Investment Related Property or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally and except for approvals required under applicable Gaming Laws. No Intellectual Property License material to the conduct of such Grantor’s business to which such Grantor is a party requires any consent for such Grantor to grant the security interest granted hereunder, to the extent permitted under Section 9-408 of the Code, in such Grantor’s right, title or interest in or to any Copyrights, Patents, Trademarks or material Intellectual Property Licenses.

(g) To the extent necessary or desirable in the operation of such Grantor’s business and subject to the Required Library obligations set forth in the Loan Documents, such Grantor has made in accordance with the procedures and regulations of the United States Copyright Office and the United States Patent and Trademark Office, as applicable, all payments, filings and recordations to protect and maintain its interest in the Intellectual Property identified on Schedule 1 in a manner sufficient to claim in the public record such Grantor’s ownership thereof, including (i) making all necessary registration, maintenance, and renewal fee payments; and (ii) filing all necessary documents, including all applications for registration of Copyrights comprising the Required Library, Patents and Trademarks.

 

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(h) Such Grantor has and uses commercially reasonable efforts to enforce a policy requiring its employees, consultants and contractors to execute appropriate assignment agreements, pursuant to which each such employee, consultant or contractor has assigned to such Grantor all of such individual’s rights (including with respect to Intellectual Property) in and to all ideas, inventions, processes, works of authorship and other work products that relate to such Grantor’s business and that were conceived, created, authored or developed during the term of such employee’s, consultant’s or contractor’s employment or engagement by such Grantor. No past or present employee or contractor of such Grantor has any ownership interest, license, permission or other right in or to any Intellectual Property that is necessary to, or economically desirable in connection with, the conduct of any such Grantor’s business, except that solely to the extent necessary for the conduct of their work for or on behalf of such Grantor, (i) employees of each Grantor may have permission to use Intellectual Property Rights and (ii) contractors may have permission to use or license rights in the Intellectual Property.

(i) Except as set forth in Schedule 1 , no claim has been made in writing and is continuing or, to such Grantor’s knowledge, threatened that the use by such Grantor of any Intellectual Property that is necessary to, or economically desirable in connection with, the conduct of its business does or may violate the Intellectual Property rights of any Person. To such Grantor’s knowledge, there is currently no infringement or unauthorized use of any item of Intellectual Property contained on Schedule 1 .

(j) Schedule 6 attached hereto sets forth all motor vehicles owned by Grantors as of the Initial Funding Date, by model, model year and vehicle identification number.

6. Covenants . Each Grantor covenants and agrees, as to itself, with Administrative Agent and the Lender Group that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 23 hereof:

(a) Possession of Collateral . In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel Paper, and if and to the extent that perfection or priority of Administrative Agent’s Security Interest is dependent on or enhanced by possession, such Grantor, immediately upon the request of Administrative Agent and in accordance with Section 8 hereof, shall, subject to all applicable Gaming Laws, execute such other documents and instruments as shall be requested by Administrative Agent or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel Paper to Administrative Agent or a custodian of Administrative Agent, together with such undated powers endorsed in blank as shall be requested by Administrative Agent;

(b) Chattel Paper .

(i) Such Grantor shall take all steps necessary or desirable to grant Administrative Agent control of all electronic Chattel Paper in accordance with the Code and all “transferable records” as that term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction;

(ii) If such Grantor retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent permitted hereby and by the Credit Agreement), promptly upon the request of Administrative Agent, such Chattel Paper and instruments shall be marked with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the Security Interest of Private Equity Management Group Financial Corporation, a California corporation, as Administrative Agent for the benefit of the Lender Group”;

 

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(c) Control Agreements .

(i) Except to the extent otherwise permitted by the Credit Agreement, each Grantor shall obtain an authenticated Control Agreement, from each bank holding a Deposit Account for such Grantor;

(ii) Except to the extent otherwise permitted by the Credit Agreement, each Grantor shall obtain authenticated Control Agreements, from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Grantor;

(d) Letter of Credit Rights . Each Grantor that is or becomes the beneficiary of a letter of credit shall promptly (and in any event within 5 Business Days after becoming a beneficiary), notify Administrative Agent thereof and, upon the request by Administrative Agent, enter into, and use commercially reasonable efforts to cause such issuer or confirming bank to enter into, a tri-party agreement with Administrative Agent and the issuer or confirming bank with respect to letter-of-credit rights (as that term is defined in the Code) assigning such letter-of-credit rights to Administrative Agent and directing all payments thereunder to a deposit account designated by Administrative Agent, all in form and substance satisfactory to Administrative Agent;

(e) Commercial Tort Claims . Each Grantor shall promptly (and in any event within 5 Business Days of receipt thereof), notify Administrative Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the date hereof against any third party and, upon request of Administrative Agent, promptly amend Schedule 3 to this Agreement, authorize the filing of additional financing statements or amendments to existing financing statements and do such other acts or things deemed necessary or desirable by Administrative Agent to give Administrative Agent a first priority, perfected security interest in any such Commercial Tort Claim, subject to Permitted Liens;

(f) Government Contracts . If any Account or Chattel Paper arises out of a contract or contracts with the United States of America or Canada or any department, agency, or instrumentality thereof, Grantors shall promptly (and in any event within 5 Business Days of the creation thereof) notify Administrative Agent thereof in writing and take any steps reasonably required by Administrative Agent in order that all moneys due or to become due under such contract or contracts shall be assigned to Administrative Agent, for the benefit of the Lender Group, and notice thereof given under the Assignment of Claims Act or other applicable law;

(g) Intellectual Property .

(i) Upon request of Administrative Agent, in order to facilitate filings with the United States Patent and Trademark Office, the United States Copyright Office, each Grantor shall execute and deliver to Administrative Agent one or more Copyright Security Agreements, Trademark Security Agreements, or Patent Security Agreements to evidence Administrative Agent’s Lien on such Grantor’s Patents, Trademarks, or Copyrights (limited, with respect to Copyrights only, to registered Copyrights and all Copyrights for which an application for registration has been filed with the United States Copyright Office), and the General Intangibles of such Grantor relating thereto or represented thereby;

(ii) Each Grantor shall have the duty, to the extent necessary or economically desirable in the operation of such Grantor’s business, (A) to promptly sue for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation, or dilution, (B) to prosecute diligently any trademark application or service mark application that is part of the Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C) to prosecute diligently

 

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any patent application that is part of the Patents pending as of the date hereof or hereafter until the termination of this Agreement, and (D) to take all necessary or desirable action to preserve and maintain all of such Grantor’s Patents, Trademarks, Copyrights, Intellectual Property Licenses, and its rights therein, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings. Any expenses incurred in connection with the foregoing shall be borne by the appropriate Grantor. Each Grantor further agrees (x) not to abandon any Patent, Trademark, Copyright, or Intellectual Property License that is necessary or economically desirable in the operation of such Grantor’s business without the prior written consent of Administrative Agent, and (y) to use commercially reasonable efforts to ensure that any Intellectual Property License entered into after the Initial Funding Date by such Grantor under which such Grantor is the licensor and that generates or, by its terms, will generate revenue for such Grantor, permits the assignment of such agreement (and all rights of such Grantor thereunder) to the Administrative Agent (and any successors or permitted assigns of the Administrative Agent);

(iii) Grantors acknowledge and agree that the Lender Group shall have no duties with respect to the Trademarks, Patents, Copyrights, or Intellectual Property Licenses. Without limiting the generality of this Section 6(g) , Grantors acknowledge and agree that no member of the Lender Group shall be under any obligation to take any steps to preserve rights in the Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any other Person, but Administrative Agent may do so at its option from and after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including, reasonable fees and expenses of attorneys and other professionals) shall be for the sole account of Borrower and shall be chargeable to the Loan Account;

(iv) With respect to all Intellectual Property that is material to the conduct of Grantor’s businesses, such Grantor agrees, subject to the last sentence of this subsection, to take all necessary or desirable steps, including making all payments and filings in connection with registration, maintenance, and renewal of Copyrights (limited, with respect to Copyrights only, to the Required Library), Trademarks, and Patents in the United States Copyright Office, the United States Patent and Trademark Office, any other appropriate government agencies in foreign jurisdictions or in any court, to maintain all such Intellectual Property. Such Grantor hereby agrees to take corresponding steps with respect to all new or acquired Intellectual Property (limited, with respect to Copyrights only, to the Copyrights comprising the Required Library) to which it or any of its Subsidiaries is now or later becomes entitled that is material to the conduct of its business. Any expenses incurred in connection with such activities shall be borne solely by such Grantor. Notwithstanding the foregoing, in no event shall such Grantor, either itself or through any agent, employee, licensee, or designee, file an application for the registration of any Copyright with the United States Copyright Office or any similar office or agency without giving Administrative Agent prior written notice thereof or any Patent or Trademark with the United States Patent and Trademark Office or any similar office or agency without giving Administrative Agent written notice thereof promptly thereafter (and in no event later than 5 Business Days after such filing). Promptly upon any such filing, such Grantor shall comply with Section 6(g)(i) hereof;

(v) Within 30 days after the end of each calendar quarter ending after the requirements of Section 6(h) hereof are satisfied, such Grantor shall deliver to Administrative Agent documentation satisfactory to Administrative Agent identifying the Copyrights, whether created or acquired before or after the Initial Funding Date, comprising the Required Library (including all supporting documentation relating to the determination of the composition of the Required Library), and the amount of revenue and the percentage of the aggregate amount of revenue generated for (A) the preceding calendar quarter, and (B) the preceding twelve month period ending on the last day of such calendar quarter, in each case, by and/or arising from each such Copyright. No more than 5 days following each such date of delivery, such Grantor shall (A) file applications and take any and all other actions necessary to

 

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register or record a transfer of ownership, as applicable, to such Grantor on an expedited basis (if expedited processing is available in accordance with the applicable regulations and procedures of the United States Copyright Office and any similar office of any other United States jurisdiction in which Copyrights are used) each such Copyright comprising the Required Library which on the applicable date of delivery is not already the subject of a valid registration or an application therefor diligently prosecuted with the United States Copyright Office (or any similar office of any other United States jurisdiction in which Copyrights are used) identifying such Grantor as the sole claimant thereof in a manner sufficient to claim in the public record (or as a co-claimant thereof, if such is the case) such Grantor’s ownership thereof, unless filing such a Copyright would waive any trade secret rights and (B) cause to be prepared, executed, and delivered to Administrative Agent, with sufficient time to permit Administrative Agent to record no later than 5 days following the date of registration of or recordation of transfer of ownership, as applicable, to the applicable Grantor of such Copyrights, (I) a Copyright Security Agreement or supplemental schedules to the Copyright Security Agreement reflecting the security interest of Administrative Agent in such Copyrights, which supplemental schedules shall be in form and content suitable for recordation with the United States Copyright Office (or any similar office of any other United States jurisdiction in which Copyrights are used) so as to give constructive notice, when so recorded, of the transfer by such Grantor to Administrative Agent of a security interest in such Copyrights and (II) any other documentation as Administrative Agent deems necessary, in its sole and absolute discretion, in order to perfect and continue perfected Administrative Agent’s Liens on such Copyrights following such recordation;

(vi) Such Grantor shall deposit with the escrow agent designated under the Source Code Escrow Agreement the Source Code, within 5 days following the date of the delivery of the documentation delivered to Administrative Agent pursuant to Section 6(g)(v) hereof and in accordance with all other terms and conditions of the Source Code Escrow Agreement;

(vii) Within 30 days after the end of each calendar quarter, such Grantor shall provide Administrative Agent with a written report of all new Copyrights (to the extent not already covered in Section 6(g)(v) hereof), Patents and Trademarks that are registered or the subject of pending applications for registrations, which were acquired, generated or filed by such Grantor during the prior period. In the case of such registrations or applications therefor, which were acquired by such Grantor, such Grantor shall file the necessary documents with the appropriate filing office identifying such Grantor as the sole claimant thereto in a manner sufficient to claim in the public record (or as a co-claimant thereof, if such is the case) such Grantor’s ownership thereof. In each of the foregoing cases, such Grantor shall cause to be prepared, executed, and delivered to Administrative Agent supplemental schedules to the applicable Loan Documents to identify such Copyright, Patent and Trademark registrations and applications therefor as being subject to the security interests created thereunder and shall comply with Section 6(g)(i) hereof;

(viii) Upon receipt from the United States Copyright Office of notice of registration of any Copyright(s), such Grantor shall promptly (but in no event later than 5 days following such receipt) notify Administrative Agent of such registration by delivering, or causing to be delivered to Administrative Agent, via overnight courier, electronic mail or telefacsimile at the addresses designated in the Credit Agreement, documentation sufficient for Administrative Agent to perfect Administrative Agent’s Liens on such Copyright(s);

(ix) Such Grantor shall take the actions to protect the confidentiality of the Intellectual Property Rights that are necessary or economically desirable to the conduct of its business, including (a) taking actions to protect the secrecy and confidentiality of its confidential information and trade secrets by requiring all current employees, consultants, licensees, vendors and contractors to execute appropriate confidentiality agreements; (b) taking actions necessary to ensure that no trade secret falls or has

 

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fallen into the public domain; and (c) protecting the secrecy and confidentiality of the source code of all computer software programs and applications of which it is the owner or licensee by requiring any licensees (or sublicensees) of such source code to enter into license agreements with appropriate use and non-disclosure restrictions;

(h) Conditions Subsequent . Promptly following the Initial Funding Date, but in any event within 90 days after the Initial Funding Date, Administrative Agent shall have received:

(i) duly executed counterparts of the Source Code Escrow Agreement,

(ii) evidence satisfactory to the Administrative Agent that the Loan Parties shall have deposited the Source Code with the escrow agent in accordance with the terms and conditions of the Source Code Escrow Agreement, and

(iii) (A) satisfactory evidence that each Grantor shall have filed applications and taken any and all other actions necessary to register or record a transfer of ownership, as applicable, to such Grantor of each such Copyright comprising the Required Library which on the applicable date of delivery is not already the subject of a valid registration or an application therefore diligently prosecuted with the United States Copyright Office (or any similar office of any other United States jurisdiction in which Copyrights are used) identifying such Grantor as the sole claimant thereof in a manner sufficient to claim in the public record (or as a co-claimant thereof, if such is the case) such Grantor’s ownership thereof unless filing such a Copyright would waive any trade secret rights, and (B) with sufficient time to permit Administrative Agent to record no later than 5 days following the date of registration of or recordation of transfer of ownership, as applicable, to the applicable Grantor of such Copyrights, (I) a Copyright Security Agreement or supplemental schedules to the Copyright Security Agreement reflecting the security interest of Administrative Agent in such Copyrights, which supplemental schedules shall be in form and content suitable for recordation with the United States Copyright Office (or any similar office of any other United States jurisdiction in which Copyrights are used) so as to give constructive notice, when so recorded, of the transfer by such Grantor to Administrative Agent of a security interest in such Copyrights and (II) any other documentation as Administrative Agent deems necessary in order to perfect and continue perfected Administrative Agent’s Liens on such Copyrights following such recordation.

(i) Investment Related Property .

(i) Subject to all applicable Gaming Laws, if any Grantor shall receive or become entitled to receive any Pledged Interests after the Initial Funding Date, it shall promptly (and in any event within 5 Business Days of receipt thereof) deliver to Administrative Agent a duly executed Pledged Interests Addendum identifying such Pledged Interests;

(ii) Upon the occurrence o