UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
Commission file number: 0-23588
PAUL-SON GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0310433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2121 Industrial Road, Las Vegas, Nevada 89102
(Address of principal executive offices) (Zip Code)
(702) 384-2425
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
3,324,000 shares of Common Stock, $0.01 par value as of
January 10, 1996
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 and MAY 31, 1996
ASSETS (Note 3)
NOVEMBER 30, MAY 31,
1996 1996
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,681,165 $ 997,509
Trade receivables, less allowance for doubtful accounts
($329,712, November 30, 1996; $281,712, May 31, 1996) 3,208,938 2,601,910
Inventories (Note 2) 5,468,117 5,604,630
Prepaid expenses 123,840 170,903
Other current assets 604,202 296,660
Total current assets 11,086,262 9,671,612
PROPERTY AND EQUIPMENT, net (Note 4) 7,300,388 7,259,423
OTHER ASSETS
Note receivable (Note 5) 150,000 -
Other assets 467,808 470,090
617,808 470,090
$ 19,004,458 $ 17,401,125
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 4) $ 83,115 $ 85,914
Accounts payable (Note 5) 344,051 661,521
Accrued expenses 511,259 403,627
Customer deposits 1,772,413 865,438
Income tax payable 215,904 54,170
Total current liabilities 2,926,742 2,070,670
LONG-TERM DEBT, net of current maturities
Due to related parties (Note 5) - 15,000
Other (Note 4) 413,423 456,161
413,423 471,161
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares,
$.01 par value, none issued and outstanding - -
Common stock, authorized 30,000,000 shares,
$.01 par value, issued and outstanding 3,324,000 share 33,240 33,240
Additional paid-in capital 12,256,698 12,256,698
Retained earnings 3,374,355 2,569,356
15,664,293 14,859,294
$ 19,004,458 $ 17,401,125
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1995 1996 1995
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 6,307,018 $ 6,130,128 $ 12,349,776 $ 11,903,757
Cost of revenues
Related party - 216,343 - 446,320
Other 4,100,826 3,939,753 8,227,219 7,896,251
4,100,826 4,156,096 8,227,219 8,342,571
Gross profit 2,206,192 1,974,032 4,122,557 3,561,186
Selling, general and administrative
expenses 1,461,965 1,742,208 2,877,514 3,532,073
Operating income 744,227 231,824 1,245,043 29,113
Other income 27,362 18,918 47,084 70,866
Interest expense (Note 5) (11,018) (16,433) (24,412) (35,629)
Income before income taxes 760,571 234,309 1,267,715 64,350
Income taxes (277,608) (82,008) (462,716) (22,522)
Net income $ 482,963 $ 152,301 $ 804,999 $ 41,828
Net income per share $ 0.15 $ 0.05 $ 0.24 $ 0.01
Weighted average common shares
outstanding 3,324,000 3,324,000 3,324,000 3,324,000
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
NOVEMBER 30,
1996 1995
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 12,618,784 $ 13,004,916
Cash paid to suppliers and employees (10,969,358) (12,707,090)
Interest received 32,617 46,321
Interest paid (24,412) (35,629)
Income tax refund 842 400,000
Income taxes paid (319,700) 6,750
Net cash provided by (used in) operating activities $ 1,338,773 $ 701,678
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on sale of equipment $ 3,600 $ 13,000
Decrease in short-term investments - 1,493,536
Investment in note receivable (note 5) (150,000) -
Purchase of property and equipment (448,181) (2,616,301)
Net cash provided by (used in) investing activities $ (594,581) $ (1,109,765)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on due to related party (15,000) (125,000)
Principal payments on long-term borrowings (45,536) (46,301)
Net cash provided by (used in) financing activities $ (60,536) $ (171,301)
Net increase (decrease) in cash and cash equivalents $ 683,656 $ (579,388)
CASH AND CASH EQUIVALENTS, beginning 997,509 1,253,987
CASH AND CASH EQUIVALENTS, ending $ 1,681,165 $ 674,599
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net Income $ 804,999 $ 41,828
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 401,022 337,146
Provision for bad debts 48,000 34,178
Loss on sale of assets 2,594 5,407
Change in assets and liabilities:
(Increase) decrease in accounts receivable (655,028) 971,379
Decrease in income tax refund claim - 400,000
(Increase) decrease in inventories 136,513 (113,710)
(Increase) decrease in other current assets (307,542) 158,174
(Increase) decrease in other assets 2,281 6,200
(Increase) decrease in prepaid expenses 47,063 (76,615)
Increase (decrease) in account payable and accrued expenses (209,838) (1,184,569)
Increase (decrease) in customer deposits 906,975 99,738
Increase (decrease) in income taxes payable 161,734 22,522
Net cash provided by (used in) operating activities $ 1,338,773 $ 701,678
</TABLE>
4
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Paul-Son Gaming Corporation and its subsidiaries
(collectively "Paul-Son" or the "Company") is the leading
manufacturer and supplier of casino table game equipment in the
United States. The Company's products include casino chips,
table layouts, playing cards, dice, furniture, table accessories
and other products, which are used with casino table games such
as blackjack, poker, baccarat, craps and roulette. The Company
sells its products in every state in which casinos operate in the
United States.
BASIS OF PRESENTATION
Paul-Son Gaming Corporation was incorporated on December 22,
1993. The consolidated statements of operations and cash flows
of Paul-Son for the period ended November 30, 1995 include the
accounts of Paul-Son, Paul-Son Gaming Supplies, Inc. ("Paul-Son
Supplies"), Paul-Son Mexicana, S.A. de C.V. ("Mexicana") and
Commercial Paul-Son, S.A. de C.V. ("Commercial"). The
consolidated statements of operations and cash flows of Paul-Son
for the period ended November 30, 1996 include the accounts of
Paul-Son, Paul-Son Supplies and Mexicana. All material
intercompany balances and transactions have been eliminated in
consolidation.
The consolidated balance sheet as of November 30, 1996 and
the related consolidated statements of operations and statements
of cash flows for the six month periods ended November 30, 1996
and November 30, 1995 are unaudited, but in the opinion of
management, reflect all adjustments, which consist of only normal
recurring adjustments, necessary for a fair presentation of
results for such periods. The results of operations for an
interim period are not necessarily indicative of the results for
the full year.
A summary of the Company's significant accounting policies
are as follows:
CASH AND CASH EQUIVALENTS
INVENTORY
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
5
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
GOODWILL
Goodwill is amortized on a straight-line basis over 20
years.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average
number of shares outstanding during the period. Common stock
equivalents were not material.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
<S> <C> <C>
Raw materials $2,184,723 $2,778,329
Work in process 452,366 436,726
Finished goods 2,831,028 2,389,575
$5,468,117 $5,604,630
</TABLE>
NOTE 3 - SHORT-TERM BORROWINGS
The Company has available a revolving line of credit ("LOC")
with a financial institution which allows maximum borrowings of
$750,000 and is collateralized by a general pledge agreement
covering all of the Company's assets. There was no balance
outstanding under the LOC at November 30, 1996 or May 31, 1996.
Interest on advances under the LOC is based on the financial
institution's prime rate plus 2%, payable monthly. The credit
agreement contains restrictive covenants, generally requiring the
Company to maintain certain financial ratios as defined in the
credit agreement. The maturity date of the line of credit is
January 2, 1998.
6
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - LONG-TERM DEBT AND PLEDGED ASSETS
Long-term debt, other than amounts due to related parties,
consists of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
<S> <C> <C>
Note payable to an equipment financing
company, collateralized by a vehicle,
with interest at 7.9%, principal and
interest payments of $561 are due monthly
through June 1998 $7,390 $10,397
Notes payable to mortgage companies,
collateralized by real estate, interest
at 7.5% to 9.5%, principal and interest
payments of $898 are due monthly through
2016 66,515 68,056
Note payable to a bank, collateralized by
a deed of trust, interest at 8%,
principal and interest payments of $6,067
are due monthly through December 1998 386,292 406,376
Various capital lease obligations for
equipment, interest imputed at 15.5% to
25.2%, payable in monthly payments of
$5,220 through January 1998 36,341 57,246
$496,538 $542,075
Less current portion 83,115 85,914
$413,423 $456,161
</TABLE>
NOTE 5 - RELATED PARTIES
The Company purchased plastic coated playing cards from an
entity owned in part by a former member of the Company's Board of
Directors. Included in accounts payable at November 30, 1996 and
May 31, 1996 are payables to the related entity for purchases in
the amounts of $0 and $33,859, respectively. Included in
interest expense is related party interest of approximately $0
and $5,055 for the six months ended November 30, 1996 and 1995
respectively.
The following amounts were paid for legal, accounting and
consulting fees to individuals who are or were members of the
Company's Board of Directors.
7
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1996 1995
<S> <C> <C>
Laurence A. Speiser $53,042 $66,919
Wayne H. White 0 23,819
Michael E. Cox 8,117 25,913
$61,159 $116,651
</TABLE>
Long-Term Debt due to related parties consisted of the
following:
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
<S> <C> <C>
Unsecured note payable to majority
stockholder, annual payments of
$125,000 plus interest at 6% with a
maturity date of March 1998 $0 $15,000
$0 $15,000
Less current portion - -
$0 $15,000
</TABLE>
On November 22, 1996, the Company advanced to Martin S.
Winick, a member of the Company's Board of Directors, the sum of
$150,000 under a line of credit loan ("Winick Loan") dated
November 19, 1996. Outstanding amounts under the Winick Loan are
to be repaid in full on or before December 1, 1998; until which
time only interest is payable quarterly to the Company at an
interest rate equal to prime plus 2%. The Winick Loan is secured
by a general pledge agreement covering all of Mr. Winick's
assets, rights to purchase certain shares of the Company's common
stock, and a pledge of certain shares of the Company's common
stock by the Company's majority stockholder.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Paul-Son is the leading manufacturer and supplier of casino
table game equipment in the United States. The Company's
products include casino chips, table layouts, playing cards,
dice, gaming furniture, and miscellaneous table accessories such
as chip trays, drop boxes, and dealing shoes, which are used in
conjunction with casino table games such as blackjack, poker,
baccarat, craps and roulette. The Company is headquartered in
Las Vegas, Nevada, with manufacturing facilities located in Las
Vegas and San Luis, Mexico and sales offices in Las Vegas and
Reno, Nevada; Atlantic City, New Jersey; New Orleans, Louisiana;
Fort Lauderdale, Florida; Gulfport, Mississippi; Portland,
Oregon; and Ontario, Canada. The Company sells its products in
every state in which casinos operate in the United States, and
management believes that it has the leading market share for most
of its major product lines.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED
NOVEMBER 30, 1996 AND NOVEMBER 30, 1995
REVENUES. For the three months ended November 30, 1996,
revenues were approximately $6.3 million, a 2.9% or an
approximately $177,000 increase over the approximately $6.1
million in revenues in the comparable period of the prior year.
This increase was due principally to an increase in revenues from
new casino openings and major casino expansions. During the three
months ended November 30, 1996 the Company supplied products
totaling approximately $2.9 million to nine new casinos and three
major casino expansions, versus approximately $2.5 million to
nine new casinos and three major expansions in the three months
ended November 30, 1995. (Note: The Company's sales from new
casino openings and major expansions for the quarter ended
November 30, 1995 have been revised up from the $904,000 reported
in the Company's report on Form 10-Q for the quarter ended
November 30, 1995.) Core sales revenue, however, decreased by
approximately $244,000 to approximately $3.4 million for the
three months ended November 30, 1996, versus approximately $3.6
million in core sales for the same period in the prior year.
Core sales, which are sales of consumable gaming supplies and
equipment to the Company's existing customer base, decreased
during the quarter ended November 30, 1996, compared to the
quarter ended November 30, 1995, principally due to a decrease in
plastic playing card sales of approximately $200,000 during the
quarter. During September of this year, the Company was notified
by it's primary supplier for plastic playing cards that it had
granted an exclusive distributorship for it's cards to one of the
Company's competitors and that the Company would no longer be a
distributor of it's products. The Company has secured a new
supplier for plastic playing cards at a substantially lower cost.
The Company believes that the lower cost of the new supplier will
enable it to re-gain the Company's prior market share of the
plastic playing card market. Sales of the Company's own paper
playing cards were also down during the quarter ended
November 30, 1996, when compared with the same quarter of the
prior year, by approximately $160,000, or 20%. Playing card
sales were down due to a number of factors including the
Company's efforts to restructure it's playing card sales force,
which resulted in a
9
<PAGE>
temporary slowdown in playing card sales efforts, but which
management believes will provide greater sales coverage in all
geographic areas.
COST OF REVENUES. Cost of revenues, as a percentage of
sales, decreased to 65.0% for the current period as compared to
67.8% for the three months ended November 30, 1995. This
percentage decrease was due to a number of factors including
higher sales volume and corresponding higher operating
efficiencies (i.e. increased sales resulting in a higher number
of units produced over the same fixed production costs), and a
change in product mix sold during the quarter. Casino chip
sales, for which the Company generates the highest gross margin,
were approximately $2.9 million during the quarter, versus
approximately $1.9 million in the comparable quarter of the prior
year.
During several of its most recent reporting quarters, the
Company has generally had a positive impact from the decrease in
the value of the Mexican peso. During the quarter ended
November 30, 1996 the value of the Mexican peso was more stable.
The Company cannot predict what impact peso fluctuations will
have on future costs of the Company's products manufactured in
Mexico.
GROSS PROFIT. Gross profit increased in absolute dollars by
approximately $232,000 to approximately $2.2 million for the
quarter ended November 30, 1996, up from approximately $2.0
million in the comparable period of the prior year. The increase
was a result of higher revenues and the lower cost of revenues as
a percentage of sales from 67.8% to 65.0%, as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three
months ended November 30, 1996, selling, general and
administrative expenses ("SG&A") decreased approximately
$280,000, or 16.1%, to $1.5 million, as compared to approximately
$1.7 million in the comparable period of the prior year. SG&A
reductions were achieved in almost all categories across the
board with few exceptions. Major reductions in SG&A expenses
included reductions in salaries and wages ($68,000), outside
commissions ($50,000), legal and accounting ($46,000), and
advertising and promotion ($29,000). Most reductions were due to
the cost cutting and restructuring program initiated by the
Company during the second quarter of fiscal 1995. The only
significant increases in SG&A categories during the quarter ended
November 30, 1996 when compared to the quarter ended November 30,
1995 were in depreciation and amortization ($22,000) due to the
addition of property and equipment purchased during the last
year, and public relations costs ($21,000) associated with the
Company's efforts to increase its investor communications.
INTEREST EXPENSE. For the three months ended November 30,
1996, interest expense decreased approximately 33% to $11,000,
compared to $16,000 in the same fiscal quarter of the prior year,
as a result of the Company's efforts to pay down long-term debt
and fund operations and capital expenditures out of cash
generated from operations.
NET INCOME. For the three months ended November 30, 1996
the Company had a record quarterly net income of approximately
$483,000, an increase in net income of approximately $331,000
compared to the net income of approximately $152,000 for the
three months ended
10
<PAGE>
November 30, 1995, primarily as a result of increases in sales
and gross profit, and decreases in SG&A expenses over the
comparable period in the prior year. Net income per share was
$.15 for the three months ended November 30, 1996, compared to
net income of $0.05 per share for the three months ended
November 30, 1995, based on the weighted average number of shares
outstanding.
COMPARISON OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30,
1996 AND NOVEMBER 30, 1995
REVENUES. For the six months ended November 30, 1996,
revenues were approximately $12.3 million, a 3.7% or an
approximately $446,000 increase over the approximately $11.9
million in revenues in the comparable period of the prior year.
This increase was due principally to an increased number of new
casino openings, as the Company supplied products totaling
approximately $4.6 million to 14 new casinos and three major
expansions, versus approximately $3.4 million to 14 new casinos
and three major expansions in the comparable period of the prior
year. (Note: The Company's sales from new casino openings and
major expansions for the six months ended November 30, 1995 have
been revised up from the $1.9 million reported in the Company's
report on Form 10-Q for the quarter ended November 30, 1995.)
Core sales revenue, however, decreased by approximately $800,000
to approximately $7.7 million for the six months ended
November 30, 1996, versus approximately $8.5 million in core
sales for the same period in the prior year. Core sales, which
are sales of consumable gaming supplies and equipment to the
Company's existing customer base, decreased during the six months
ended November 30, 1996 compared to the six months ended
November 3, 1995, principally due to a decrease in playing card
sales during the quarter. Playing card sales were down due to a
number of factors including the change in the Company's supplier
of plastic playing cards, as discussed above, and a slowdown in
shipments to many of the Company's contract playing card
customers who had a temporary overstock of playing cards in their
facilities during the first quarter of the fiscal year. Also,
during the six month period, the Company restructured it's
playing card sales force, which resulted in a temporary slowdown
in playing card sales efforts, but which management believes will
provide greater sales coverage in all geographic areas. The
Company has also initiated the development of an improved playing
card product which the Company believes will increase sales of
playing cards in the future.
COST OF REVENUES. Cost of revenues, as a percentage of
sales, decreased to 66.6% for the current period as compared to
70.1% for the six months ended November 30, 1995. This
percentage decrease was due to a number of factors including
higher sales volume and corresponding higher operating
efficiencies (i.e. increased sales resulting in a higher number
of units produced over the same fixed production costs), and a
change in product mix sold during the quarter. Casino chip
sales, for which the Company generates the highest gross margin,
were approximately $5.2 million during the six months, versus
approximately $3.4 million in the comparable quarter of the prior
year.
During several of its most recent reporting periods, the
Company has generally had a positive impact from the decrease in
the value of the Mexican peso. During the quarter ended
November 30, 1996 the value of the Mexican peso was more stable.
The Company cannot
11
<PAGE>
predict what impact peso fluctuations will have on the cost of
the Company's products manufactured in Mexico.
GROSS PROFIT. Gross profit increased in absolute dollars by
approximately $561,000 to approximately $4.1 million for the six
months ended November 30, 1996, up from approximately $3.6
million in the comparable period in the prior year. The increase
was a result of higher revenues and the lower cost of revenues as
a percentage of sales from 70.1% to 66.6%, due to the factors
discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the six
months ended November 30, 1996, SG&A decreased approximately
$655,000, or 18.5%, to approximately $2.9 million, as compared to
approximately $3.5 million in the comparable period of the prior
year. SG&A reductions were achieved in almost all categories
across the board with few exceptions. Major reductions in SG&A
expenses included reductions in salaries and wages ($128,000),
outside labor and consultants ($45,000), advertising and
promotion ($78,000), outside commissions ($120,000), legal and
accounting ($73,000), postage and shipping ($40,000), and travel
and entertainment ($65,000). Most reductions were due to the cost
cutting and restructuring program initiated by the Company during
the second quarter of fiscal 1995.
INTEREST EXPENSE. For the six months ended November 30,
1996, interest expense decreased approximately 31% to
approximately $24,000, compared to approximately $36,000 in the
same six months of prior year, as a result of the Company's
efforts to pay down long-term debt and fund operations and
capital expenditures out of cash generated from operations.
NET INCOME. For the six months ended November 30, 1996, the
Company had a record six month net income of approximately
$805,000, an increase in net income of approximately $763,000
compared to the net income of approximately $42,000 for the six
months in net income ended November 30, 1995, primarily as a
result of increases in sales and gross profit, and decreases in
SG&A expenses over the comparable period in the prior year. Net
income per share was $.24 for the six months ended November 30,
1996, compared to net income of $0.01 per share for the six
months ended November 30, 1995, based on the weighted average
number of shares outstanding.
MATERIAL CHANGES IN FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. Management believes that the combination of cash
flow from operations and cash on hand will provide sufficient
liquidity both on a short term and long term basis.
WORKING CAPITAL. Working capital totaled approximately $8.2
million at November 30, 1996, versus approximately $7.6 million
at May 31, 1996. Working capital increased during the six months
ended November 30, 1996, primarily due to the Company's net
income before depreciation of approximately $1.2 million, offset
by the Company's investment in property, plant and equipment, of
approximately $448,000 and notes receivable of $150,000 during
the quarter.
12
<PAGE>
CASH FLOW. Operating activities provided approximately $1.3
million in cash during the six months ended November 30, 1996, as
compared to approximately $700,000 provided during the same
period in the prior year. Net income before depreciation and
income taxes was the major factor contributing approximately $1.2
million to the increase in cash provided by operations. Other
significant sources of cash during the period included collection
of customer deposits on future orders ($907,000), decreases in
inventory ($137,000) and increases in income taxes payable
($162,000). Significant uses of cash included investments in
property, plant and equipment ($448,000) and notes receivable
($150,000), income tax payments ($320,000), increases in accounts
receivable ($655,000) and other current assets ($308,000) and
reduction of accounts payable and accrued expenses ($210,000).
Overall cash increased by approximately $684,000 during the
period.
LINE OF CREDIT. The Company maintains a line of credit (the
"Line of Credit") with Wells Fargo Bank of Nevada ("Wells Fargo")
which presently allows the Company to borrow up to $750,000. The
Line of Credit matures on January 2, 1998. As of November 30,
1996, no advances were outstanding and the total amount of the
Line of Credit was available. The Line of Credit is
collateralized by a first priority security interest in
substantially all of the Company's depository accounts at Wells
Fargo, accounts receivable, inventory, furniture, fixtures and
equipment, and bears interest at a variable rate of 2.0% over
Wells Fargo's prime lending rate.
Under the Line of Credit, the Company has agreed to comply
with certain financial covenants and ratios. Specifically, the
Company has agreed to maintain a current ratio (current assets to
current liabilities) of not less than 1.5 to 1, a debt to worth
ratio (total liabilities divided by stockholders' equity) of less
than 1 to 1 and a fixed charge coverage ratio ((earnings before
interest, taxes, depreciation and amortization) divided by (prior
period current maturities of long term debt plus interest plus
rent)) of at least 2.0 to 1.
SECURED DEBT. In December 1993, the Company obtained a
$500,000 loan for capital expenditures and working capital
purposes (the "Note") from a financial institution. The note
bears interest at 8% per annum, with monthly payments of
principal and interest totaling $6,067. The note matures on
December 1, 1998 and is secured by a deed of trust on the
Company's headquarters (the "Las Vegas Facility").
SEASONALITY. The Company has traditionally experienced some
seasonality, as new casino openings, particularly in Las Vegas,
have tended to occur near the end of a calendar year (typically
during the Company's second fiscal quarter). There does not
appear to be any seasonality associated with the Company's "core
sales" to existing customers.
BACKLOG. Open orders as of November 30, 1996 totaled
approximately $3.2 million, compared to approximately $3.0
million as of November 30, 1995. Management believes that
substantially all of these orders will be filled within the next
six months, with the majority filled within the next fiscal
quarter.
NEW LAS VEGAS FACILITY. In September of 1995 the Company
purchased a 62,000 square foot facility (the "New Las Vegas
Facility") in Las Vegas, Nevada which is located near the Las
13
<PAGE>
Vegas Facility for $2,000,000. Since September 1995, the Company
has made improvements totaling approximately $300,000 to the New
Las Vegas Facility.
On January 18, 1996 the Company announced that its Board of
Directors authorized management to install a playing card
production line in its San Luis, Mexico facility. The use of
existing space at its Mexico facility will provide additional
playing card production capacity while the Company evaluates
production costs and efficiencies that may be achieved in the
Mexico facility. The additional production line will also augment
the Company's ability to solicit orders from larger and multi-
site casinos both in the United States and from the international
market, which provides additional opportunities to the Company.
The Company's ability to compete for additional market share in
playing card sales should be enhanced by lowering per unit
production costs. Management is analyzing whether the anticipated
lower production costs in the additional playing card production
facility will further direct the transition of other portions of
its manufacturing facilities to Mexico. The Company commenced
installation of the playing card production line in the San Luis,
Mexico facility on January 8, 1997 and anticipates that
installation will be complete within 30 days. The recently
expanded playing card production line at the New Las Vegas
Facility will continue to operate during the evaluation period.
During the evaluation period, the Company has decided to
postpone the relocation of all of its present Las Vegas
operations to the New Las Vegas Facility. At the present time the
Company has placed both the New Las Vegas Facility and the Las
Vegas Facility on the market. Should either facility be sold
prior to an offer being made on the other facility, the Company
will relocate all of its office, manufacturing and warehouse
operations to the remaining facility. Should both facilities be
sold, the Company will buy or lease other facilities within the
Las Vegas metropolitan area.
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that
may be considered forward-looking within the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934,
such as statements relating to anticipated performance, financing
sources and the relocation of certain operations. Any forward-
looking statement made by the Company necessarily is based upon a
number of estimates and assumptions that, while considered
reasonable by the Company, is inherently subject to significant
business, economic and competitive uncertainties and
contingencies, many of which are beyond the control of the
Company, and are subject to change. Actual results of the
Company's operations may vary materially from any forward-looking
statement made by or on behalf of the Company. Forward-looking
statements should not be regarded as a representation by the
Company or any other person that the forward-looking statements
will be achieved. Undue reliance should not be placed on any
forward-looking statements. Some of the contingencies and
uncertainties to which any forward-looking statement contained
herein is subject include, but are not limited to, those relating
to sales efforts and customer response thereto, the level of new
casino openings and replacement of table game equipment by
existing casinos, the Company's success in lowering manufacturing
costs, dependence on existing management, gaming regulation
(including action affecting licensing), leverage and debt service
(including sensitivity to fluctuations in interest rates),
domestic or global economic conditions and changes in federal or
state tax laws or the administration of such laws.
14
<PAGE>
For a summary of additional factors affecting forward-
looking information, see the Company's annual report on Form 10-K
for the year ended May 31, 1996, Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Statement on Forward-Looking Information."
NOTE: Dollar amounts have been rounded for narrative
purposes while the percentages were calculated using actual
amounts.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on
October 17, 1996, the Company's stockholders voted on the
following matters:
(a) Election of Directors.
<TABLE>
<CAPTION>
NAME OF DIRECTOR For Against Abstain Unvoted
<S> <C> <C> <C> <C>
Eric P. Endy 3,137,202 67,826 0 0
Richard W. Scott 3,138,602 66,426 0 0
</TABLE>
(b) Approval and ratification of an amendment to the
Paul-Son Gaming Corporation 1994 Long-Term Incentive Plan.
<TABLE>
<CAPTION>
For Against Abstain Unvoted
<S> <C> <C> <C>
2,248,321 119,358 14,073 823,276
</TABLE>
ITEM 5. OTHER INFORMATION
None.
16
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
10.01 Consulting Agreement dated as of July 29,
1996, by and between Paul-Son Gaming
Corporation and Martin S. Winick; Addendum
to Consulting Agreement by and between
Martin S. Winick and Paul-Son Gaming
Corporation dated as of November 19, 1996,
by and between Paul-Son Gaming Corporation
and Martin S. Winick.
10.02 Line of Credit Agreement dated as of
November 19, 1996, by and between Paul-Son
Gaming Corporation and Martin S. Winick,
Line of Credit Promissory Note, dated
November 1996, executed by Martin S. Winick,
in favor of Paul-Son Gaming Corporation;
Security Agreement dated November 19, 1996,
executed by Martin S. Winick, in favor of
Paul-Son Gaming Corporation; Assignment
Agreement dated November 19, 1996, by
Martin S. Winick to Paul-Son Gaming
Corporation; and Collateral Undertaking
Agreement dated November 19, 1996 by and
between Paul S. Endy, Jr., individually and
as trustee of the Paul S. Endy, Jr. Living
Trust, and Paul-Son Gaming Corporation.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PAUL-SON GAMING CORPORATION
/s/ Eric P. Endy
Date: January 13, 1997 By: Eric P. Endy, President
(Duly Authorized Officer)
/s/ Kirk Scherer
Date: January 13, 1997 By: Kirk Scherer, Treasurer and
Chief Financial Officer
(Principal Financial
Officer)
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
10.01 Consulting Agreement dated as of July 29, 20
1996, by and between Paul-Son Gaming
Corporation and Martin S. Winick; Addendum
to Consulting Agreement by and between
Martin S. Winick and Paul-Son Gaming
Corporation dated as of November 19, 1996,
by and between Paul-Son Gaming Corporation
and Martin S. Winick.
10.02 Line of Credit Agreement dated as of 34
November 19, 1996, by and between Paul-Son
Gaming Corporation and Martin S. Winick,
Line of Credit Promissory Note, dated
November 1996, executed by Martin S.
Winick, in favor of Paul-Son Gaming
Corporation; Security Agreement dated
November 19, 1996, executed by Martin S.
Winick, in favor of Paul-Son Gaming
Corporation; Assignment Agreement dated
November 19, 1996, by Martin S. Winick to
Paul-Son Gaming Corporation; and Collateral
Undertaking Agreement dated November 19,
1996 by and between Paul S. Endy, Jr.,
individually and as trustee of the Paul S.
Endy, Jr. Living Trust, and Paul-Son Gaming
Corporation.
27.01 Financial Data Schedule 79
</TABLE>
EXHIBIT 10.01
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made as of
the 29th day of July, 1996, by and between Paul-Son Gaming
Corporation, a Nevada corporation (the "Company"), and Martin S.
Winick, an individual ("Consultant").
RECITALS
A. The Company is a publicly held corporation that,
through subsidiaries, manufactures and supplies casino table
game equipment;
B. The Company desires to improve its earnings and
profitability;
C. Consultant is a member of the Board of Directors of the
Company and, among other things, is familiar with the business of
the Company and the casino table game supplies industry;
D. As of the date hereof, Consultant has entered into a
separate consulting agreement with Paul S. Endy, Jr., Chairman of
the Board and Chief Executive Officer of the Company ("Endy"), to
develop the business of the Company; and
E. The Company desires to further induce Consultant to
take steps beyond those of Consultant's existing duties as a
Director of the Company and as a consultant to Endy, and
Consultant desires to be retained by the Company, as a consultant
under the terms and pursuant to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
agreements, covenants, understandings, undertakings,
representations and warranties hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and
Consultant covenant and agree as follows:
1. DEFINITIONS
As used in this Agreement, the words and terms hereinafter
defined have the respective meanings ascribed to them herein,
unless a different meaning clearly appears from the context:
(a) "CAUSE" means:
(i) the conviction of, or judgment against,
Consultant by a civil or criminal court of competent
jurisdiction for a felony or any other offense involving
embezzlement or misappropriation of funds, or any act of
moral turpitude, dishonesty or lack of fidelity;
(ii) the indictment of Consultant by a state or
federal grand jury of competent jurisdiction or the filing
of a criminal complaint or information, for a felony or any
other offense involving embezzlement or misappropriation of
funds, or any act of moral turpitude, dishonesty or lack of
fidelity, unless such indictment or filing is dismissed
within
<PAGE>
ninety (90) days from the date of such indictment or filing.
The Term shall be suspended and extended by such ninety (90)
day period or the number of days actually taken by
Consultant to dismiss such indictment or filing, whichever
is less; provided that Consultant notifies Endy in
writing that Consultant intends to contest in good faith
such indictment or filing and pursues the dismissal of such
indictment or filing with reasonable diligence. A dismissal
of such indictment or filing shall not be sufficient if,
despite the dismissal of the same, any of the Gaming
Authorities commences proceedings, based upon such
indictment or filing or upon the events or acts which gave
rise to such indictment or filing, to suspend or revoke any
gaming license, qualification or certificate of suitability
held by Consultant;
(iii) the written confession by Consultant of
embezzlement or misappropriation of funds, or any act of
moral turpitude, dishonesty or lack of fidelity;
(iv) the payment (or, by the operation solely of the
effect of a deductible, the failure of payment) by a surety
or insurer of a claim under a fidelity bond issued for the
benefit of the Company reimbursing the Company for a loss
due to the wrongful act, or wrongful omission to act, of
Consultant;
(v) the denial, revocation or suspension of a
license, qualification or certificate of suitability to
Consultant by any of the Gaming Authorities;
(vi) any action or failure to act by Consultant that
Endy reasonably believes, as a result of a written
communication or administrative action by the Gaming
Authorities or based on the good faith advice of its gaming
counsel, will likely cause any of the Gaming Authorities to:
(i) fail to license, qualify and/or approve the Company to
manufacture and distribute gaming-related supplies; (ii)
grant any such licensing, qualification and/or approval only
upon terms and conditions which are unacceptable to the
Company; (iii) significantly delay any such licensing,
qualification and/or approval process; or (iv) revoke or
suspend any existing license;
(vii) any order, judgment, or decree of any court of
competent jurisdiction, permanently or temporarily enjoining
Consultant from, or otherwise limiting, the following
activities:
(A) acting as a futures commission merchant,
introducing broker, commodity trading
advisor, commodity pool operator, floor
broker, leverage transaction merchant, any
other person regulated by the Commodity
Futures Trading Commission, or an
associated person of any of the foregoing,
or as an investment adviser, underwriter,
broker or dealer in securities, or as an
affiliated person, director or employee of
any investment company, bank, savings and
loan association or insurance company, or
engaging in or continuing any conduct or
practice in connection with such activity,
(B) engaging in any type of business practice,
or
2
<PAGE>
(C) engaging in any activity in connection
with the purchase or sale of any security
or commodity or in connection with any
violation of federal or state securities
laws or federal commodities laws;
(viii) any order, judgment or decree, of any federal
or state authority barring, suspending or otherwise limiting
for more than sixty (60) days the right of Consultant to
engage in any activity described in paragraph (a)(vii)(A) of
this Item, or to be associated with persons engaged in any
such activity;
(ix) the finding by a court of competent
jurisdiction in a civil action or by the U.S. Securities and
Exchange Commission that Consultant has violated any federal
or state securities law; or
(x) the engagement by Consultant in willful and
continued misconduct, or Consultant's willful and continued
failure to substantially perform Consultant's obligations as
a Director of the Company or as a consultant to the Company,
if such failure or misconduct is materially damaging or
materially detrimental to the business and operations of the
Company.
(b) "CLIENT" means any existing or future client or
customer of the Company or any potential client or customer of
the Company that has been contacted by Consultant or has been
directly or indirectly contacted by an employee of the Company.
(c) "COMMON STOCK" means the common stock, $.01 par value,
of the Company.
(d) "COMPANY" means the Company as earlier defined in this
Agreement, including any successor, assign or future affiliate of
the Company.
(e) "COMPLETE DISABILITY" means the inability of
Consultant, due to illness or accident or other mental or
physical incapacity, to perform his obligations under this
Agreement for a period of thirty (30) calendar days in the
aggregate over a period of three hundred sixty-five (365)
consecutive calendar days or less, such Complete Disability to
become effective upon the expiration of such thirtieth (30th)
day.
(f) "CONSULTANT" means Consultant as earlier defined in
this Agreement.
(g) "EFFECTIVE DATE" means the Effective Date as defined in
Section 3 of this Agreement.
(h) "ENDY" means Endy as earlier defined in this Agreement,
including any representative, successor or assign of Endy and the
living trust created by Endy.
(i) "GAMING AUTHORITIES" means the Nevada Gaming Control
Board, the Nevada Gaming Commission, the Clark County Liquor and
Gaming Licensing Board, the New Jersey Casino Control Commission
and any other federal, state, local or tribal gaming authority to
which the Company is now subject, or may be subject during the
Restriction Period.
3
<PAGE>
(j) "LTIP" means the Company's 1994 Long-Term Incentive
Plan, as amended.
(k) "OPTION" means an option (not qualified under Section
422 of the Internal Revenue Code of 1986, as amended) to purchase
the Restricted Shares awarded pursuant to the terms of the LTIP.
(l) "RESTRICTED SHARES" means 150,000 shares of Common
Stock issuable pursuant to the Option.
(m) "RESTRICTION PERIOD" means the Restriction Period as
defined in Section 10(b) of this Agreement.
(n) "TERRITORY" means the area of (i) the United States;
and (ii) any other city, state, province or other territory
outside of the United States where the Company does business now
or during the Restriction Period.
2. SERVICES TO BE PROVIDED BY CONSULTANT
During the Term (as defined below), Consultant shall do and
perform all of the consulting and advisory services set forth in
Schedule A attached hereto and made a part hereof, and shall
perform any other services reasonably related to the development
of the business of the Company as may be requested from time to
time by the Company. During the Term, Consultant shall provide
an average of at least 40 hours per month of consulting and
advisory services to the Company or its designee, exclusive of,
and in addition to, time spent by consultant in fulfilling his
duties as a Director, or otherwise, of the Company and as a
consultant to Endy. Said hours must be documented in writing and
submitted on a monthly basis to Laurence A. Speiser, Esq. (or
such other person as the Company shall specify in writing) at the
address specified in Section 12(d) hereof. The Company and
Consultant each hereby warrant and represent that they believe in
good faith that the compensation to be paid by the Company to
Consultant pursuant to the terms of this Agreement, which
compensation was negotiated between the parties, is fair and
reasonable for the number of hours to be worked, and the type of
services to be provided by Consultant to the Company, and the
level of experience of Consultant.
3. TERM
The term of this Agreement commences on July 29, 1996 (the
"Effective Date"), and except as otherwise provided in
Section 11, shall continue uninterrupted until July 29, 1999
(hereinafter the "Term").
4. CONSIDERATION
For and in complete consideration of Consultant's full and
faithful performance of all of Consultant's services, obligations
and duties under this Agreement, the Company hereby covenants and
agrees to pay to Consultant, and Consultant hereby covenants and
agrees to accept from the Company, the following:
4
<PAGE>
(a) OPTION. Subject to the terms and conditions of this
Agreement, the Company shall grant the Option to Consultant as of
the Effective Date.
(b) CAPITAL ADJUSTMENTS. The number of Restricted Shares
shall be proportionately adjusted by the Company, to reflect any
stock dividend, reclassification, readjustment, additional share
issuance without consideration, stock split, merger or other
changes made in the capital structure of the Company which would
have a similar effect to the foregoing.
(c) VESTING PERIOD. The Option shall vest in installments
of twenty five percent (25%) of the Option each year over the
Term, with the Option vesting with respect to 37,500 shares of
Common Stock on the Effective Date, the Option vesting with
respect to an additional 37,500 shares of Common Stock on July
29, 1997, the Option vesting with respect to an additional 37,500
shares of Common Stock on July 29, 1998, and the Option
vesting with respect to the final shares of Common Stock on
July 29, 1999. Notwithstanding anything to the contrary
contained herein, Consultant may not sell or otherwise transfer
any of the Common Stock within six (6) months after the grant of
the Option.
(d) EXERCISE PRICE. The exercise price per share of Common
Stock underlying the Option shall be $8.0625 per share.
(e) TERMS OF THE OPTION. Notwithstanding the Term of this
Agreement and unless otherwise expressly provided in this
Agreement, the term of the Option (including the early
termination or expiration thereof), the provisions and procedures
regarding the exercise of the Option, and all other rights,
preferences, terms and conditions of the Option shall be
consistent and in accordance with the provisions of the LTIP.
(f) EXPENSE REIMBURSEMENT. The Company shall periodically
reimburse Consultant for the reasonable, necessary and customary
expenses incurred by Consultant for the benefit of the Company.
Prior to reimbursement, Consultant shall provide the Company with
sufficient detailed invoices of such expenses in accordance with
the then applicable guidelines of the Internal Revenue Service so
as to entitle the Company to a deduction for such expenses.
(g) OFFICE SPACE. The Company shall arrange for sufficient
office space in Las Vegas, Nevada to be available to Consultant
for his use, which office space will be equipped with such
supplies and equipment as may reasonably be necessary for
Consultant to conduct the services contemplated under this
Agreement.
(h) AUTOMOBILE. The Company shall provide Consultant with
the use of an automobile at such times as Consultant is in Las
Vegas, Nevada.
(i) MEDICAL INSURANCE. In the event that Consultant takes a
leave of absence from his current full-time employment with
Mesirow Financial, Inc., the Company shall pay the entire cost of
the medical insurance coverage for Consultant and his eligible
dependents, that is typically provided to an employee of the
Company. The Company shall pay for such medical insurance
coverage commencing on the date of such leave of absence and
continuing for the remainder of the Term.
5
<PAGE>
(j) RIGHT OF FIRST REFUSAL. In the event that the Board of
Directors of the Company determines to sell the Company to an
independent third party, Consultant, for and on behalf of the
investment banking firm then employing Consultant, if any, shall
have a thirty (30) day right of first refusal to act as the
Company's exclusive authorized agent in connection with such
sale; provided, however, that any finder's fee or other fees
payable to Consultant as a result of such sale shall be
negotiated with, and payable by his investment banking firm out
of the normal and customary investment banking fees typically
received by investment banking firms in such transactions. If
Consultant is not then employed by a nationally recognized,
reputable investment banking firm, Consultant shall not have any
such right of refusal.
5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to perform under this
Agreement are subject to the fulfillment of the following
conditions precedent:
(a) This Agreement, including the grant of the Option to
Consultant pursuant to Section 4(a), must have been approved by
the Board of Directors of the Company.
(b) Each of Consultant's representations and warranties
contained in this Agreement shall be true and correct as of the
Effective Date and will be true and correct through the Term
hereof.
6. REPRESENTATIONS AND WARRANTIES OF CONSULTANT
Consultant represents and warrants that the following
representations and warranties are true and correct as of the
Effective Date:
(a) AUTHORITY. Consultant has the right, power, legal
capacity and authority to enter into, and perform Consultant's
obligations under this Agreement.
(b) NO BREACH OR VIOLATION. The execution, delivery and
performance of this Agreement and the acquisition of the Option
and the underlying Restricted Shares contemplated hereunder does
not violate or create a default under any agreement, document,
court or administrative order or decree to which Consultant is
subject.
(c) ACCESS TO INFORMATION. The Consultant, due to his
position with the Company, has continual and regular access to,
has had the opportunity to, and has, in fact, exercised the
opportunity to review books, records and financial statements and
records of the Company to his satisfaction and has fully and
adequately apprised himself of the financial condition of the
Company. Consultant possesses sufficient business probity and
sophistication to assess the risks of acquiring the Option and
the underlying Restricted Shares in accordance with the terms and
conditions of this Agreement, or has consulted with persons of
his own choosing who possess such probity and sophistication to
advise Consultant of the risks associated with this Agreement.
6
<PAGE>
7. INDEPENDENT CONTRACTOR
Consultant is entering into this Agreement and in the
performance of his duties hereunder as an independent contractor.
No term or condition under this Agreement nor any manner or
method of payment hereunder shall create any relationship between
the Company and Consultant other than as expressed in this
Section 7.
8. TAXES
Subject to the withholding by the Company, if any, pursuant
to the terms of the LTIP, Consultant shall be solely responsible
for and shall pay when due all federal, state and local income
taxes and all other taxes due on his behalf for any compensation
or benefit received under this Agreement, including, without
limitation, all federal withholding taxes, FICA and Social
Security, and any worker's compensation premiums. Consultant
hereby covenants and agrees to defend, indemnify and hold
harmless the Company from all claims, damages, demands and
actions, including attorneys' fees, arising out of this Section 8
or Consultant's failure to pay any taxes due in connection with
this Agreement. The covenants and agreements set forth in this
Section 8 shall not expire, shall survive the expiration or
termination of this Agreement and shall be binding upon
Consultant without regard to the passage of time or other events.
9. CONFIDENTIALITY
Consultant hereby warrants, covenants and agrees that
Consultant shall hold in strictest confidence, and shall not at
any time or in any manner, either directly or indirectly,
divulge, disclose, copy or communicate to any person, firm or
corporation, any proprietary or confidential information
concerning any matter affecting or relating to the business of
the Company including, but not limited to, (i) information or
other documents concerning the Company's business, Clients, or
suppliers; (ii) the Company's manufacturing, distribution or
marketing methods; (iii) the Company's credit and collection
policies, techniques and files; or (iv) the Company's trade
secrets and other "know-how" or information not of a public
nature. The warranties, covenants and agreements set forth in
this Section 9 shall not expire for any reason, shall survive the
expiration or termination of this Agreement and shall be binding
upon Consultant without regard to the passage of time or other
events.
In the event that Consultant's position as a Director of the
Company or Consultant's engagement hereunder is terminated by
either party at any time hereafter for any reason whatsoever,
Consultant agrees to turn over to the Company all papers,
documents, working papers, correspondence, memos and any and all
other documents in Consultant's possession relating to or
concerning any matter affecting or relating to the business of
the Company. Upon such termination, Consultant shall sign a
statement certifying that no such items, or copies of such items,
have been retained by him.
10. NON-COMPETITION AGREEMENT
(a) Consultant acknowledges that he has access to and has
acquired confidential information related to the business and
operations of the Company, including, without limitation,
suppliers, Clients,
7
<PAGE>
work product, plans and methods of doing business. Consultant
acknowledges that all such information is solely the property of
the Company and constitutes confidential information of the
Company; that the disclosure thereof would cause substantial loss
to the goodwill of the Company thereby harming the Company.
Consultant understands that the covenants of this Section 10 are
essential to this Agreement and without which no consulting
agreement with Consultant would be entered into by the Company.
(b) In consideration of the terms of this Agreement,
including, without limitation, the delivery of the Option to
Consultant, which consideration was negotiated between the
parties and the receipt and sufficiency of which is hereby
acknowledged, Consultant hereby irrevocably warrants, covenants,
and agrees that during the Term of this Agreement and for a one
(1) year period after the termination of this Agreement
pursuant to Section 11 hereof (collectively, the "Restriction
Period"), Consultant will not in any manner, directly or
indirectly, (i) solicit, perform, or cause to be solicited or
performed, any business, work or service, of the type that the
Company could perform, from or for any of the Company's Clients;
or (ii) induce or attempt to influence any present or future
employee of the Company to leave its employ; or (iii) engage
or participate in any business that is in competition with the
business of the Company in the Territory; or (iv) own, manage,
operate, conduct, control, or participate in the ownership,
management, operation, conduct or control of, or be employed or
engaged by or otherwise become affiliated or associated as a
consultant, independent contractor, principal, agent, director,
officer, stockholder, partner, employee, investor, lender or
otherwise, with any firm, association or other business entity,
or otherwise engage in any business which is similar to,
engaged in any manner in, or otherwise competes with, the
business of the Company or its successors or affiliates in
the Territory. Notwithstanding clause (iv) of this Section 10(b),
Consultant may own up to one percent (1%) of the shares
outstanding of any company that has a class of securities
registered under the Securities Act of 1934. The Company and
Consultant understand and agree that Consultant may continue to
offer investment banking services to other companies; provided,
however, that Consultant shall not act on behalf of any direct
competitor of the Company.
11. TERMINATION
(a) Notwithstanding the provisions of Section 3 of this
Agreement, this Agreement shall automatically terminate upon the
occurrence of any of the following events:
(i) the giving of written notice by the Company to
Consultant of the termination of his position as a Director
of the Company;
(ii) the giving of written notice by the Company to
Consultant of the termination of this Agreement for Cause;
(iii) the giving of written notice by the Company to
Consultant of a breach of Section 10 of this Agreement by
Consultant;
(iv) the giving of written notice by the Company to
Consultant of a material breach of this Agreement (other
than Section 10) by Consultant;
8
<PAGE>
(v) the giving of written notice by the Company to
Consultant of the termination of this Agreement upon the
Complete Disability of Consultant;
(vi) the lapse of thirty (30) days after giving
written notice by the Company to Consultant of the
termination of this Agreement for any reason;
(vii) the giving of written notice by Consultant to
the Company of Consultant's resignation or termination of
his position as a Director of the Company for any reason;
(viii) the giving of written notice by Consultant to
the Company of the termination of this Agreement for any
reason; or (ix) the death of Consultant.
(b) The determination of whether or not to terminate this
Agreement pursuant to Section 11(a)(i), (ii), (iii), (iv), (v) or
(vi) shall be made by the Company, in its sole discretion, and
Consultant agrees that such determination shall be binding on him
and that such determination shall be final.
(c) In the event that this Agreement is terminated at any
time pursuant to Section 11 of this Agreement, the Company shall
have no further obligations or responsibilities to Consultant
under this Agreement, except for any obligations and
responsibilities that the Company may have with respect to the
Options pursuant to the terms of the LTIP.
12. GENERAL PROVISIONS
(a) RECITALS. The recitals set forth above are true and
correct and are incorporated herein.
(b) EFFECT OF WAIVER. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
(c) ATTORNEY'S FEES. Consultant and the Company agree that
in the event of a dispute, arbitration by either party in any
dispute, arbitration or litigation concerning this Agreement, the
losing party shall pay the prevailing party's reasonable
attorneys' fees in that dispute, arbitration or litigation.
(d) NOTICE. Any and all notices required under this
Agreement shall be in writing and shall be either (i)
hand-delivered; (ii) mailed, first-class postage prepaid,
certified mail, return receipt requested; or (iii) delivered via
a nationally recognized overnight courier service, addressed to:
COMPANY: Paul-Son Gaming Corporation
2121 S. Industrial Road
Las Vegas, Nevada 89103
Attention: Chief Executive Officer
COPY TO: Laurence A. Speiser, Esq.
2121 S. Industrial Road
Las Vegas, Nevada 89103
9
<PAGE>
CONSULTANT: Martin S. Winick
c/o Mesirow Financial, Inc.
30050 Chargrin Blvd., Suite 300
Pepper Pike, Ohio 44124
All notices hand-delivered shall be deemed delivered
as of the date actually delivered. All notices mailed or
delivered via overnight courier shall be deemed delivered as of
three (3) business days after the date postmarked. Any changes
in any of the addresses listed herein shall be made by notice as
provided in this Section 12(d).
(e) ASSIGNMENT. The rights, benefits and obligations of
Consultant under this Agreement are personal in nature and shall
not be assignable, transferable or encumberable in any manner
whatsoever, whether directly or indirectly or, and whether inter
vivos or testamentary. Any purported assignment by Consultant
in violation of this Section 12(e) shall be null and void and of
no force and effect. All covenants and agreements hereunder
shall inure to the benefit of and be enforceable by or against
the Company's successors or assigns.
(f) AMENDMENT. No amendment or modification of this
Agreement shall be deemed effective unless and until it is
executed in writing by both the Company and Consultant.
(g) SEVERABILITY. It is mutually agreed that all of the
terms, covenants, provisions and agreements contained herein are
severable and that, in the event any of them shall be held to be
invalid by any competent court, this Agreement shall be
interpreted as if such invalid term, covenant, provision or
agreement were not contained herein.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada in
effect on the date of this Agreement without resort to any
conflict of laws principles, and the courts of the State of
Nevada shall have sole and exclusive jurisdiction over any matter
brought under, or by reason of, this Agreement.
(i) ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties regarding the Company's engagement
of Consultant, and the parties hereby agree that no other oral
representations or agreements have been entered into in
connection with this transaction.
(j) ACKNOWLEDGMENT. The Company and Consultant agree to
cooperate fully with each other in order to achieve the purposes
of this Agreement and to take all actions and execute and deliver
all documents that may be required to carry out the purposes and
intent of this Agreement.
(k) COUNTERPARTS. This Agreement may be executed at
different times and in multiple counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
(l) NEUTRAL INTERPRETATION. The provisions contained herein
shall not be construed in favor of or against any party because
that party or its counsel drafted this Agreement, but shall be
construed as if all parties prepared this Agreement, and any
rules of construction to the contrary
10
<PAGE>
are hereby specifically waived. The terms of this Agreement were
negotiated at arm's length by the parties hereto.
(m) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement shall
survive the execution and delivery of this Agreement.
(n) BINDING DETERMINATIONS. Unless expressly provided in
this Agreement to the contrary, any determination or calculation
to be made pursuant to the terms of this Agreement shall be made
in the sole and absolute discretion of the Company, and
Consultant agrees that such determination or calculation shall be
binding upon him, his successors and assigns.
(o) CONFLICT BETWEEN THIS AGREEMENT AND THE LTIP. In the
event of an ambiguity with respect to any of the provisions of
this Agreement, or a conflict between any of the provisions of
this Agreement and any provisions of the LTIP, the Compensation
Committee of the Board of Directors (other than Consultant) shall
interpret this Agreement and the LTIP and make all necessary
decisions and determinations.
In Witness Whereof, the parties have executed this Agreement
as of the day first above written.
"Company" "Consultant"
Paul-Son Gaming Corporation, a
Nevada corporation,
/s/ Paul S. Endy, Jr. /s/ Martin S. Winick
By: Paul S. Endy, Jr., its Martin S. Winick
Chief Executive Offcier
11
<PAGE>
SCHEDULE A
SERVICES TO BE PROVIDED BY CONSULTANT
Consultant agrees to do and perform the following consulting
and advisory services:
1. Develop marketing, advertising, promotional and public
relations programs;
2. Recommend key personnel to be retained by the Company;
3. Perform any other services reasonably related to the
development of the business of the Company as may be
requested from time to time by the Company.
12
<PAGE>
ADDENDUM TO CONSULTING AGREEMENT BY AND BETWEEN
MARTIN S. WINICK AND PAUL-SON GAMING CORPORATION
This Addendum to Consulting Agreement ("Addendum") is made
and entered as of the 19th day of November, 1996, by and between
Paul-Son Gaming Corporation, a Nevada corporation (the
"Company"), and Martin S. Winick, an individual ("Consultant").
RECITALS
Whereas, the Company and Consultant affirm and acknowledge
their continued rights and obligations under the Consulting
Agreement entered into as of the 1st day of July, 1996 (the
"Consulting Agreement");
Whereas, the Company and Consultant incorporate to this
Agreement by reference all of the several and mutual promises,
agreements, covenants, understandings, undertakings,
representations and warranties set forth in the Consulting
Agreement;
Now, therefore, in consideration of the several and mutual
promises, agreements, covenants, understandings, undertakings,
representations and warranties hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree
that the Recitals are true and correct and by this reference
incorporated herein as if fully set forth and further covenant
and agree as follows:
The Company and Consultant agree to modify Section 12(e) of
the Consulting Agreement to permit Consultant to assign, transfer
or encumber his rights, benefits and obligations under the
Consulting Agreement only with an express writing executed with
the approval of Endy.
In Witness Whereof, the parties have caused this Addendum to
executed as of the date above written.
"The Company" "Consultant"
Paul-Son Gaming Corporation,
a Nevada corporation
/s/ Paul S. Endy, Jr. /s/ Martin S. Winick
By: Paul S. Endy. Jr. Martin S. Winick
Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT 10.02
<PAGE>
LINE OF CREDIT LOAN AGREEMENT
This Line of Credit Loan Agreement (this "Agreement") is
made as of the 19th day of November 1996, by and between Paul-Son
Gaming Corporation, a Nevada corporation (hereinafter referred to
as "Lender"), and Martin S. Winick (hereinafter referred to as
"Borrower").
RECITALS
A. Borrower desires to borrow certain sums of money from
Lender upon such repayment terms and at such rates of interest as
shall be set forth in the Line of Credit Promissory Note (as
hereinafter defined) contemplated by this Agreement; and
B. Lender is willing to loan such sums to Borrower.
NOW, THEREFORE, in consideration of the several and mutual
promises, agreements, covenants, understandings, undertakings,
representations and warranties hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree
that the Recitals are true and correct and by this reference
incorporated herein as if fully set forth and further covenant
and agree as follows:
1. DEFINITIONS
In this Agreement and in the Loan Documents (as hereinafter
defined) (unless the context thereof requires a contrary
definition or unless the same shall be defined therein, in which
latter event, the definitions shall be cumulative and not
exclusive), the following words, phrases, and expressions shall
have the respective meanings attributed to them:
(a) "AGREEMENT" shall mean this Line of Credit Loan
Agreement, and all extensions, amendments, modifications and
alterations thereto, in writing from time to time.
(b) "BORROWER" shall mean Martin S. Winick.
(c) "BUSINESS DAY" shall mean any day except Saturday,
Sunday or legal holidays in the State of Nevada.
(d) "COLLATERAL" shall mean all property and security
described in any of the Collateral Documents now or hereafter
existing.
(e) "COLLATERAL DOCUMENTS" shall mean any and all
documents, instruments, notes, agreements, and written memoranda,
referred to in this Agreement or referred to in any of the
foregoing, or executed in connection herewith or therewith, now
or hereafter existing, and specifically, but not by way of
limitation, the documents identified in Section 6 hereof.
(f) "CONDITIONS PRECEDENT" shall mean the conditions set
forth in Sections 7 and 8 hereof.
<PAGE>
(g) "DEFAULT EVENT" shall mean the occurrence of any act,
omission or failure as set forth in Section 11 hereof.
(h) "DEFAULT INTEREST RATE" shall mean one and one-half
times (x 1.50) the Interest Rate (as hereinafter defined).
(i) "GUARANTOR" shall mean Elen J. Winick, the wife of
Martin S. Winick.
(j) "INDEBTEDNESS" shall mean and include by way of example
only, but not by way of limitation:
(i) All indebtedness, obligations and liabilities
of the Borrower referred to in this Agreement, or in any of
the Collateral Documents, of whatsoever kind, nature and
description, primary or secondary, direct, indirect or
contingent, due or to become due, and whether now existing
or hereafter arising and howsoever evidenced or acquired,
and whether joint, several, or joint and several;
(ii) All present and future Money Advances made by
Lender in connection with this Agreement or the Collateral
Documents, or otherwise, and whether made at Lender's option
or otherwise;
(iii) All future advances made by Lender for the
protection or preservation of Lender's rights and interests
in the Collateral, or arising under this Agreement or the
Collateral Documents, including, but not by way of
limitation, advances for taxes, levies, assessments,
insurance or maintenance of the Collateral, and reasonable
attorneys fees;
(iv) All costs and expenses incurred by Lender in
connection with or arising out of the protection,
enforcement or collection of any of the foregoing including,
without limitation, reasonable attorney fees; and
(v) All costs and expenses incurred by Lender in
connection with, or arising out of, the sale, disposition,
liquidation or other realization [including, but not by way
of limitation, the taking, retaking or holding, and all
proceedings (judicial or otherwise)] of the Collateral,
including, without limitation, reasonable attorney fees.
(k) "INTEREST PERIOD" shall mean the period commencing on
each Rate Change Date (as hereafter defined) and ending on the
next succeeding Rate Change Date.
(l) "INTEREST RATE" shall mean the Prime Rate (as
hereinafter defined) plus two percent (2%) and shall be a
variable rate which shall change quarterly on the first day of
each quarter during the term hereof ("Rate Change Date"),
commencing on the first day of April 1997, and continuing on the
first day of each July, October, January thereafter until the
Maturity Date, provided that if the first day of any quarter
during the term hereof is not a Business Day, then the Rate
Change Date shall be the first Business Day following the first
day of such quarter.
(m) "LENDER" shall mean Paul-Son Gaming Corporation, a
Nevada corporation.
2
<PAGE>
(n) "LINE OF CREDIT PROMISSORY NOTE" shall mean the
promissory note executed in conjunction with this Agreement that
evidences Borrower's Indebtedness to Lender.
(o) "LOAN COMMITMENT" shall mean the commitment set forth
in Section 2 hereof.
(p) "LOAN DOCUMENTS" shall mean:
(i) Any and all Collateral Documents;
(ii) Any and all documents, instruments, notes,
agreements, and written memoranda, referred to in this
Agreement or referred to in any of the foregoing, or
executed in connection herewith or therewith, now or
hereafter existing, and specifically, but not by way of
limitation, the documents identified in Section 6 hereof;
and
(iii) Any and all documents, instruments, notes,
agreements, and written memoranda executed and delivered by
Guarantor in connection herewith or therewith, now or
hereafter existing (hereinafter collectively referred to as
the "Pledge Documents"), and specifically including, but not
by way of limitation, the following:
(1) PLEDGE AGREEMENT. Guarantor shall execute
an agreement in which Guarantor agrees to pledge any
and all Pledge Collateral (as hereinafter defined) to
Lender as inducement for Lender to make Loan to
Borrower;
(2) GUARANTY. Guarantor shall execute an
agreement in which Guarantor agrees to guaranty the
obligations, covenants and agreements of Borrower under
this Agreement, the Collateral Documents, or any other
agreement executed by and between the Lender, Borrower
or to which they are a party, whether now existing or
hereafter created;
(3) POWER OF ATTORNEY. Guarantor shall execute
a power of attorney in favor of the Lender to be
returned by Lender permitting Lender to negotiate,
encumber, transfer or dispose of all stock certificates
issued in the name of the Guarantor.
(4) UNIFORM COMMERCIAL CODE SECURITY
AGREEMENT. Guarantor shall execute an agreement in
which Guarantor agrees to grant Lender a security
interest in the Pledge Collateral.
(5) UNIFORM COMMERCIAL CODE FINANCING
STATEMENTS. Guarantor shall execute the following
Uniform Commercial Code Financing Statements in order
to perfect a security interest in favor of Lender, in
and to the Pledge Collateral, and to evidence a first
and perfected lien with respect to such Pledge
Collateral:
- Uniform Commercial Code Financing
Statement Form UCC-1 to be filed in the state
of Nevada; and
3
<PAGE>
- Uniform Commercial Code Financing
Statement Form UCC-1 to be filed in the state
of Ohio.
(6) OTHER DOCUMENTS. Any other document or
agreement which the Lender may reasonably require in
connection with the Loan.
(q) "MONEY ADVANCE" shall mean any disbursement of monies
by Lender to or for the benefit of Borrower, whether mandatory or
optional.
(r) "PLEDGE COLLATERAL" shall mean the following:
(i) Any and all shares of common stock of Lender
held now or hereafter acquired by the Guarantor (the
"Shares");
(ii) Any and all options to purchase common stock of
Lender held now or hereafter acquired by the Guarantor;
(iii) Any rights to payment, including returned
premiums, with respect to any insurance relating to any of
the Shares; and
(iv) Any stock rights, rights to subscribe, stock
splits, liquidating dividends, cash dividends, dividends
paid in stock, new securities or other property of any kind
which Guarantor is or may hereafter be entitled to receive
on account of the Shares pledged hereunder, including
without limitation, stock received by Pledgor due to stock
splits or dividends paid in stock or sums paid upon or in
respect of any securities pledged hereunder upon the
liquidation or dissolution of the issuer thereof.
(s) "PRIME RATE" shall mean the rate of interest most
recently published in THE WALL STREET JOURNAL, as the average of
Money Center interest rates charged by banks to their most
favored commercial customers or, if discontinued, in any other
publication selected by Lender.
(t) "PROMISSORY NOTE" shall mean the Line of Credit
Promissory Note.
(u) "STOCK OPTIONS" shall mean any and all stock options to
purchase common stock of Paul-Son Gaming Corporation which the
Borrower, Guarantor or Borrower and Guarantor jointly may now
possess or hereafter acquire a possessory interest.
2. LOAN COMMITMENTS
Lender agrees, subject to the Conditions Precedent hereto
set forth in Sections 7 and 8 of this Agreement, and further
provided that no Default Event exists, and all other terms,
conditions and obligations of Borrower have been met, to lend to
Borrower, and Borrower agrees to take from Lender, an amount not
exceeding One Hundred Fifty Thousand and no/100ths Dollars
($150,000.00 U.S.) upon the terms, covenants and conditions
hereinafter set forth. In no event shall Lender be required to
make Money Advances that total, in the aggregate, in excess of
One Hundred Fifty Thousand and no/100ths Dollars ($150,000.00
U.S.).
4
<PAGE>
(a) CAP ON LOAN COMMITMENT. The extent of the Lender's
monetary obligation under the Loan Commitment is limited to One
Hundred Fifty Thousand and no/100ths Dollars ($150,000.00
U.S.). Notwithstanding the Borrower's prepayment of principal,
the total amount of funds to be provided by the Lender shall not
exceed aggregate Money Advances of One Hundred Fifty Thousand
and no/100ths Dollars ($150,000.00 U.S.).
(b) SUSPENSION OF LOAN COMMITMENT. Lender's obligation to
make Money Advances under the Loan Commitment shall be suspended
during:
(i) the existence of any Default Event;
(ii) the failure of Borrower to meet the Conditions
Precedent set forth in Sections 7 and 8 of this Agreement;
(iii) the failure of Borrower to fulfill, maintain or
uphold the covenants, representations and warranties set
forth in the Collateral Documents; or
(iv) the failure of Guarantor to fulfill, maintain
or uphold the covenants, representations and warranties set forth
in the Pledge Documents.
3. EVIDENCE OF INDEBTEDNESS
Borrower shall execute a Promissory Note in the amount of
One Hundred Fifty Thousand and no/100ths Dollars
($150,000.00 U.S.) evidencing the maximum amount
respectively provided for pursuant to the Loan Commitment
and all Money Advances respectively made thereunder, and
Borrower shall pay to Lender the payments required by the
Promissory Note.
4. NATURE OF OBLIGATION
Borrower fully appreciates the recourse nature of this
Agreement and fully understands that any and all assets of
Borrower may be used for payment of accrued interest and
principal should a Default Event occur.
5. PRE-PAYMENT OF LOAN
Borrower may prepay the unpaid principal balance of the Note
(partial or full) at anytime. Notwithstanding any partial
or full prepayment, Lender is not obligated to extend to
Borrower any additional funds above and beyond a total
aggregate amount of Money Advances totaling One Hundred
Fifty Thousand and no/100ths Dollars ($150,000.00 U.S.).
6. COLLATERAL AND COLLATERAL DOCUMENTS
As part of the Collateral and Collateral Documents providing
security for the payment of the Promissory Note, Loan and all
Indebtedness hereunder, and for the timely and faithful perfor
mance and observance of the terms, covenants, obligations and
conditions of this Agreement and the Collateral Documents,
Borrower (and/or others herein required or to the extent
required) hereby grants a security interest to Lender in the
Collateral and shall execute and deliver to
5
<PAGE>
Lender, or cause to be executed and delivered to Lender, the
following, all of which shall constitute a portion of the
Collateral Documents:
(a) PROMISSORY NOTE. Borrower shall execute the Promissory
Note that evidences Borrower's indebtedness to Lender in an
amount not to exceed total aggregate Money Advances of One
Hundred Fifty Thousand and no/100ths Dollars ($150,000.00 U.S.).
(b) ASSIGNMENT AGREEMENT. Borrower shall execute an
agreement in which the Borrower agrees to assign any and all
rights, titles, benefits and interests currently owned or
hereafter acquired including, but not limited to, the following:
(i) Consulting Agreement by and between Paul S.
Endy, Jr. and Martin S. Winick entered into on the 1st day
of July, 1996 (the "Endy Agreement");
(ii) Stock Option Agreement by and between Paul S.
Endy, Jr. and Martin S. Winick entered into on the 1st day
of July, 1996 (the "Option Agreement") in conjunction with
the Endy Agreement;
(iii) All options to purchase common stock of
Paul-Son Gaming Corporation that Borrower presently owns or
hereafter acquires, including but not limited to those
options granted to Borrower under the Option Agreement;
(iv) Consulting Agreement by and between Paul-Son
Gaming Corporation, a Nevada corporation, and Martin S.
Winick entered into on the 1st day of July, 1996 (the
"Paul-Son Agreement");
(v) All stock of Paul-Son Gaming Corporation that
Borrower presently owns or hereafter acquires; and
(vi) All payments due from Paul-Son Gaming
Corporation to Borrower, including, but not limited to, any
and all fees associated with the Borrower's position as
director of the Lender.
(c) UNIFORM COMMERCIAL CODE FINANCING STATEMENTS. Borrower
shall execute the following Uniform Commercial Code Financing
Statements in order to perfect a security interest in favor of
Lender, in and to the Collateral, and to evidence a first and
perfected lien with respect to such Collateral:
(i) Uniform Commercial Code Financing Statement
Form UCC-1 to be filed in the state of Nevada; and
(ii) Uniform Commercial Code Financing Statement
Form UCC-1 to be filed in the state of Ohio.
(d) UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. Borrower
shall execute an agreement in which Borrower agrees to grant
Lender a security interest in the Collateral.
6
<PAGE>
(e) GUARANTY. Guarantor shall execute an agreement in which
Guarantor agrees to guaranty the obligations, covenants and
agreements of Borrower under this Agreement, the Collateral
Documents, or any other agreement executed by and between the
Lender, Borrower or to which they are a party, whether now
existing or hereafter created.
(f) POWER OF ATTORNEY. Borrower shall execute a power of
attorney in favor of the Lender to be returned by Lender
permitting Lender to negotiate, encumber, transfer or dispose of
all stock certificates issued in the name of the Borrower.
(g) OTHER DOCUMENTS. Any other document or agreement which
the Lender may reasonably require.
7. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT
This Agreement may not become effective until the execution
and delivery of all Loan Documents as described in Section
6.
8. CONDITIONS PRECEDENT TO MONEY ADVANCES
The obligation of Lender to make any Money Advances
pursuant to this Agreement is subject to the following
conditions precedent:
(a) COMPLIANCE OF BORROWER. Borrower must be in compliance
with all provisions of this Agreement and of the Collateral
Documents, as of the date of each Money Advance under the Loan.
(b) COMPLIANCE OF GUARANTOR. Guarantor must be in
compliance with all provisions of the Pledge Documents, as of the
date of each Money Advance under the Loan.
(c) WRITTEN APPLICATIONS. Each request for a Money Advance
to be made under this Agreement must be written and submitted to
the Lender for approval.
9. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants that the following are true
and correct:
(a) AUTHORITY. Borrower has full power and authority to
execute and deliver this Agreement and the Collateral Documents.
(b) DEFAULT. There is no Default Event under this
Agreement, now existing or hereafter executed, and no event, act
or omission has occurred and is continuing which, with applicable
notice or the passage of t ime or either, would constitute an
Default Event thereunder.
(c) LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of Borrower threatened against or
affecting Borrower or the property of Borrower in any court or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which may result in
7
<PAGE>
any material adverse change in the properties or assets or in the
condition, financial or otherwise, of Borrower. Borrower is not
in default with respect to any order, writ, injunction, decree or
demand of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency,
instrumentality, default under which might have consequences
which would materially and adversely affect the business or
properties of Borrower.
(d) SURVIVAL AND CONTINUATION. All representations and
warranties contained in this Agreement, or in any of the Colla
teral Documents, now or hereafter existing, are and shall
continue to be true and accurate, at all times while any Money
Advances are outstanding, and the continuing truth and accuracy
thereof shall be Conditions Precedent to the making of any Money
Advances hereunder and shall survive the execution hereof and the
consummation of the transactions herein contemplated.
10. COVENANTS OF BORROWER
So long as any Money Advance remains outstanding under this
Agreement or any Indebtedness is due BankLender, Borrower
covenants and agrees to the following:
(a) PAYMENT OF INTEREST. Borrower shall pay accrued
interest thereon when due in accordance with the terms of the
Promissory Note, and have no Money Advances outstanding
thereunder as otherwise prohibited by this Agreement or the
Collateral Documents.
(b) PAYMENT OF PRINCIPAL. Borrower shall pay principal when
due in accordance with the terms of the Promissory Note.
(c) REQUEST FOR MONEY ADVANCES. Borrower shall not make a
Request For Payment that is not in accordance with the terms of
this Agreement and which does not have all respective conditions
precedent thereto fulfilled.
(d) PERFORMANCE OF OBLIGATIONS. Borrower shall perform all
of the obligations, covenants and agreements of Borrower under
this Agreement, the Collateral Documents, or any other agreement
executed by and between the Lender, Borrower or to which they are
a party, whether now existing or hereafter created, and maintain
and take all action (or not fail to take any action or suffer or
permit any omission) necessary to maintain the representations
and warranties made, as true and accurate.
(e) ALIENATION OF COLLATERAL. Borrower will not, without
the prior written consent of Lender, sell, contract to sell,
lease, encumber or otherwise dispose of any Collateral unless and
until this Agreement and all debts secured thereby have been
fully satisfied.
(f) INFORMATION. Borrower shall furnish promptly and in a
form satisfactory to Lender, such information as Lender may
reasonably request, from time to time.
(g) LITIGATION. Borrower shall notify Lender promptly of
any litigation, or administrative or tax proceeding or any other
material matter which could adversely impair the Borrower's
financial condition including, but not limited to, any inquiry or
proceedings initiated by any state, federal or foreign regulatory
agency. For the purposes of this Agreement, any such
8
<PAGE>
litigation, proceeding, matter or inquiry in which the sum
in dispute is Five Thousand and no/100ths Dollars ($5,000.00
U.S.) or an aggregate total of Twenty-Five Thousand and no/100ths
($25,000.00 U.S.) or more shall be deemed to be material.
(h) PRESERVATION OF COLLATERAL. Borrower shall not waste or
destroy Collateral or any part thereof; and Borrower shall not
use Collateral in violation of any statute or ordinance. Lender
shall have the right to possess Collateral.
11. DEFAULT EVENTS
The Indebtedness shall mature and become immediately due and
payable, at the option of Lender, notwithstanding any maturity
date to the contrary upon the occurrence of any of the following
acts, omissions or failures (hereinafter referred to as "Default
Events"):
(a) FAILURE OF PAYMENT. Failure of Borrower to make payment
of any installment of principal and/or interest required under
the Promissory Note or of any payment by Borrower required
pursuant to this Agreement or under the Collateral Documents,
within five (5) days from the date same is due and payable shall
constitute a Default Event, if not paid, including any applicable
late charge or Default Interest Rate, ten (10) calendar days
after the five (5) day grace period.
(b) BREACH OR FAILURE. The failure or breach of any other
covenant, warranty, agreement, undertaking, condition, promise,
representation or warranty herein contained and/or contained in
the Loan Documents shall constitute a Default Event.
(c) INSOLVENCY OF BORROWER. Insolvency shall be a Default
Event and shall mean: (i) a general assignment by Borrower for
the benefit of creditors; (ii) the filing of a voluntary petition
in bankruptcy by Borrower; (iii) the filing of any involuntary
petition under any bankruptcy or insolvency law by Borrower's
creditors, said petition remaining undischarged for a period of
sixty (60) days; (iv) the appointment by any court of a receiver
to take possession of substantially all of Borrower's assets,
said receivership remaining undischarged for a period of sixty
(60) days; or (v) the attachment, execution or other judicial
seizure of substantially all of Borrower's assets, such
attachment, execution or other seizure remaining undismissed or
undischarged for a period of sixty (60) days after the levy
thereof.
12. EFFECT OF DEFAULT
(a) REMEDIES OF LENDER. Upon the occurrence of any Default
Event, Lender shall have the right to exercise any and all rights
and remedies which may be available, whether contained in this
Agreement, the Loan Documents, or available by virtue of law,
including the Uniform Commercial Code or other similar laws or
statutes applicable, or contained in any other instruments or
agreements between the Lender and the Borrower. The rights and
remedies available to the Lender include, but are not limited to,
the following:
(i) Lender shall have the right to exercise,
negotiate, transfer, encumber or dispose of all Stock
Options;
9
<PAGE>
(ii) Lender may (i) upon written notice, require
Borrower to assemble any or all of the Collateral and make
it available to Lender at a place designated by Lender;
(ii) without prior notice, take possession of, collect,
sell, and dispose of any or all of the Collateral; or (iii)
sell, assign and deliver at any place or in any lawful
manner all or any part of the Collateral and bid and become
purchaser at any such sales; and
(iii) Lender may, for the account of Borrower and at
Borrower's expense: (i) operate, use, consume, sell or
dispose of the Collateral as Lender deems appropriate for
the purpose of performing any or all of the obligations
secured by this Agreement; (ii) enter into any agreement,
compromise, or settlement, including insurance claims, which
Lender may deem desirable or proper with respect to any of
the Collateral; (iii) endorse and deliver evidences of title
for, and receive, enforce and collect by legal action or
otherwise, all indebtedness and obligations now or hereafter
owing to Borrower in connection with or on account of any or
all of the Collateral; and (iv) perform any of the
obligations secured by this Agreement.
(b) RENUNCIATION BY BORROWER. Upon the occurrence of any
Default Event, Borrower agrees that such Default Event, after the
lapse of any cure period, shall automatically, without notice,
immediately effectuate a renunciation in favor of Lender of any
and all rights, benefits, claims and interests of Borrower in the
following:
(i) Consulting Agreement by and between Paul S.
Endy, Jr. and Martin S. Winick entered into on the 1st day
of July, 1996 (the "Endy Agreement");
(ii) Stock Option Agreement by and between Paul S.
Endy, Jr. and Martin S. Winick entered into on the 1st day
of July, 1996 (the "Option Agreement") in conjunction with
the Endy Agreement;
(iii) Consulting Agreement by and between Paul-Son
Gaming Corporation, a Nevada corporation, and Martin S.
Winick entered into on the 1st day of July, 1996 (the
"Paul-Son Agreement");
(iv) All options to purchase common stock of
Paul-Son Gaming Corporation that Borrower presently owns or
hereafter obtains, including but not limited to those
options granted to Borrower under (i), (ii) and (iii) above;
(v) All stock of Paul-Son Gaming Corporation that
Borrower presently owns or hereafter obtains, including but
not limited to stock obtained by or through (i), (ii), (iii)
and (iv) above; and
(vi) All payments due from Paul-Son Gaming
Corporation to Borrower, including, but not limited to, any
and all fees associated with the Borrower's position as
director of the Lender.
(c) NO RELEASE AND NO DISCHARGE. The exercise of any such
right or remedy by Lender shall not serve to release or discharge
any other security, property or Collateral held by Lender
in connection with this transaction.
10
<PAGE>
(d) NON-EXCLUSIVITY OF RIGHTS AND REMEDIES. The rights and
remedies referred to in this section shall be cumulative and not
exclusive.
(e) NO WAIVER. No waiver of any Default Event shall be
implied from any failure of Lender to take or any delay by Lender
in taking action with respect to any such Default Event or from
any previous waiver of any similar or unrelated Default Event. A
waiver of any term contained in the Collateral Documents or of
any of the covenants and obligations of Borrower contained in the
Collateral Documents, must be made in writing and shall be
limited to the express written terms of such waiver.
13. GENERAL PROVISIONS
(a) AMENDMENT. No amendment or modification of this
Agreement shall be deemed effective unless and until it is an
express writing, executed by both Borrower and Lender.
(b) ASSIGNMENT. The rights, benefits and obligations of
Borrower under this Agreement are personal in nature and shall
not be assignable, transferable or encumberable in any manner
whatsoever, whether directly or indirectly or, and whether inter
vivos or testamentary. Any purported assignment by Borrower in
violation of this Section 13(b) shall be null and void and of no
force and effect. All covenants and agreements hereunder shall
inure to the benefit of and be enforceable by Lender, its
successors or assigns.
(c) ATTORNEYS' FEES AND COSTS. Borrower and Lender agree
that Borrower shall be liable for and pay any and all attorneys'
fees and costs associated with the execution of the Loan,
including, but not limited to, the preparation of the Loan
Documents. Borrower and Lender further agree that in the event of
a dispute, arbitration by either party in any dispute,
arbitration or litigation c oncerning this Agreement, the losing
party shall pay the prevailing party's reasonable attorneys' fees
and costs in that dispute, arbitration or litigation.
(d) CAPTIONS AND PRONOUNS. The captions appearing at the
commencement of the sections hereof are descriptive only and for
convenience in reference to this Agreement and in no way
whatsoever define, limit or describe the scope or intent of this
Agreement nor in any way affect this Agreement.
(e) CONTINUED FORCE AND EFFECT. This Agreement may not be
invalidated by and may not be made subject to any order of any
domestic relations or family law court without the express
written consent of Lender.
(f) COUNTERPARTS. This Agreement may be executed at
different times and in multiple counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
(g) EFFECT OF WAIVER. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
(h) ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and cannot be changed or terminated
unless in an express writing, executed by the parties hereto.
11
<PAGE>
(i) GENDER. Masculine or feminine pronouns shall be
substituted for the neuter form and vice versa and the plural
shall be substituted for the singular form and vice versa in any
place or places herein in which the context requires such
substitution or substitutions.
(j) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada in
effect on the date of this Agreement without resort to any
conflict of laws principles, and the courts of the State of
Nevada shall have sole and exclusive jurisdiction over any matter
brought under, or by reason of, this Agreement.
(k) INCORPORATION. The Collateral Documents are
incorporated herein by reference, and in the event any provision
thereof is inconsistent with the provisions of this Agreement,
then this Agreement shall be deemed paramount unless the rights
and remedies of the Lender would be adversely affected or
diminished thereby.
(l) NEUTRAL INTERPRETATION. The provisions contained herein
shall not be construed in favor of or against any party because
that party or its counsel drafted this Agreement, but shall be
construed as if all parties prepared this Agreement, and any
rules of construction to the contrary are hereby specifically
waived. The terms of this Agreement were negotiated at arm's
length by the parties hereto.
(m) NOTICE. Any and all notices required under this
Agreement shall be in writing and shall be either (i)
hand-delivered; (ii) mailed, first-class postage prepaid,
certified mail, return receipt requested; (iii) transmitted via
telecopier provided that confirmation is obtained; or (iv)
delivered via a nationally recognized overnight courier service,
addressed to:
LENDER: Paul S. Endy, Jr.
Chairman of the Board and Chief
Executive Officer
Paul-Son Gaming Corporation
2121 S. Industrial Road
Las Vegas, Nevada 89102
COPY TO: Laurence A. Speiser, Esq.
2121 S. Industrial Road
Las Vegas, Nevada 89102
BORROWER: Martin S. Winick
29449 Edgedale Road
Pepper Pike, Ohio 44124
All notices hand-delivered shall be deemed delivered
as of the date actually delivered. All notices mailed or
delivered via overnight courier shall be deemed delivered as of
three (3) business days after the date postmarked. Any changes in
any of the addresses listed herein shall be made by notice as
provided in this Section 13(m).
(n) PARTIAL INVALIDITY. If any term, condition, covenant,
or provision of this Agreement, or any application thereof, shall
be held by a court of competent jurisdiction to be invalid, void
or
12
<PAGE>
unenforceable, all provision, covenants, and conditions of
this Lease and applications thereof, not held invalid, void or
unenforceable, shall continue in full force and effect and shall
in no way be affected, impaired or invalidated thereby.
(o) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement shall
survive the execution and delivery of this Agreement.
In Witness Whereof, the parties have executed this Agreement
as of the day first above written.
"Lender"
Paul-Son Gaming Corporation
/s/ Paul S. Endy, Jr.
By: Paul S. Endy, Jr.
Chairman of the Board and
Chief Executive Officer
"Borrower"
/s/ Martin S. Winick
By: Martin S. Winick
"Guarantor"
Solely to acknowledge the guaranty and
other collateral documentation
deliverable under same.
/s/ Elen J. Winick
By: Elen J. Winick
13
<PAGE>
LINE OF CREDIT PROMISSORY NOTE
$150,000.00 (U.S.) Las Vegas, Nevada
Twenty-Four Month Term, Interest Only November 19, 1996
This Line of Credit Promissory Note ("Note") is made this
19th day of November, 1996, executed by Martin S. Winick
(hereinafter referred to as "Borrower") in favor of Paul-Son
Gaming Corporation, a Nevada corporation (hereinafter referred to
as "Lender").
RECITALS
A. This Note is being executed in connection with the
Lender's grant of a line of credit loan to Borrower in the
original principal amount of ONE-HUNDRED FIFTY THOUSAND AND
NO/100THS DOLLARS ($150,000.00 U.S.) (the "Loan");
B. The Loan is evidenced by series of documents and
agreements executed by Borrower, including, but not limited to a
Line of Credit Loan Agreement, this Line of Credit Promissory
Note (including any amendments or modifications thereto or
restatements thereof, the Note), Assignment Agreement, Power of
Attorney Agreement, Uniform Commercial Code Security Agreement,
Uniform Commercial Code Financing Statements (hereinafter
collectively referred to as the "Collateral Documents") and the
relating documents thereunder; and
C. Lender requires as a condition to the making of the
Loan that Borrower assign his present or hereafter acquired
rights, titles, benefits and interests as set forth in the
Collateral Documents.
Now, Therefore, in consideration of the several and mutual
promises, agreements, covenants, understandings, undertakings,
representations and warranties hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree
that the Recitals are true and correct and by this reference
incorporated herein as if fully set forth and Borrower further
covenants and agrees as follows:
1. Definitions. In this Note and in the Collateral
Documents (as hereinafter defined) (unless the context thereof
requires a contrary definition or unless the same shall be
defined therein, in which latter event, the definitions shall be
cumulative and not exclusive), the following words, phrases, and
expressions shall have the respective meanings attributed to
them:
(a) "BORROWER" shall mean Martin S. Winick.
(b) "BUSINESS DAY" shall mean any except Saturday,
Sunday or legal holidays in the State of Nevada.
(c) "COLLATERAL" shall mean all property and security
described in any of the Collateral Documents now or
hereafter existing.
<PAGE>
(d) "COLLATERAL DOCUMENTS" shall mean any and all
documents, instruments, notes, agreements, and written
memoranda, referred to in this Agreement or referred to in
any of the foregoing, or executed in connection herewith or
therewith, now or hereafter existing, and specifically, but
not by way of limitation, the documents identified in the
Recitals.
(e) "DEFAULT EVENT" shall mean and include by way of
example only, but not by way of limitation:
(i) FAILURE OF PAYMENT. Failure of Borrower to
make payment of any installment of principal and/or
interest required under the Promissory Note or of any
payment by Borrower required pursuant to this Agreement
or under the Collateral Documents, within five (5) days
from the date same is due and payable shall constitute
a Default Event, if not paid, including any applicable
late charge or Default Interest Rate, ten (10) calendar
days after the five (5) day grace period.
(ii) BREACH OR FAILURE. The failure or breach of
any other covenant, warranty, agreement, undertaking,
condition, promise, representation or warranty herein
contained and/or contained in the Collateral Documents
shall constitute a Default Event.
(iii) INSOLVENCY OF BORROWER. Insolvency
shall be a Default Event and shall mean: (i) a general
assignment by Borrower for the benefit of creditors;
(ii) the filing of a voluntary petition in bankruptcy
by Borrower; (iii) the filing of any involuntary
petition under any bankruptcy or insolvency law by
Borrower's creditors, said petition remaining
undischarged for a period of sixty (60) days; (iv) the
appointment by any court of a receiver to take
possession of substantially all of Borrower's assets,
said receivership remaining undischarged for a period
of sixty (60) days; or (v) the attachment, execution or
other judicial seizure of substantially all of
Borrower's assets, such attachment, execution or other
seizure remaining undismissed or undischarged for a
period of sixty (60) days after the levy thereof.
(f) "DEFAULT INTEREST RATE" shall mean one and one-
half times (x 1.50) the Interest Rate (as hereinafter
defined).
(g) "GUARANTOR" shall mean Elen J. Winick, the wife of
Martin S. Winick.
(h) "INDEBTEDNESS" shall mean and include by way of
example only, but not by way of limitation:
(i) all indebtedness, obligations and liabilities
of the Borrower referred to in this Note, or in any of
the Collateral Documents, of whatsoever kind, nature
and description, primary or secondary, direct, indirect
or contingent, due or to become due, and whether now
existing or hereafter arising and howsoever evidenced
or acquired, and whether joint, several, or joint and
several;
2
<PAGE>
(ii) all present and future Money Advances made by
Lender in connection with this Note or the Collateral
Documents, or otherwise, and whether made at Lender's
option or otherwise;
(iii) all future advances made by Lender for
the protection or preservation of Lender's rights and
interests in the Collateral, or arising under this Note
or the Collateral Documents, including, but not by way
of limitation, advances for taxes, levies, assessments,
insurance or maintenance of the Collateral, and
reasonable attorneys fees;
(iv) all costs and expenses incurred by Lender in
connection with or arising out of the protection,
enforcement or collection of any of the foregoing
including, without limitation, reasonable attorney
fees; and
(v) all costs and expenses incurred by Lender in
connection with, or arising out of, the sale,
disposition, liquidation or other realization
[including, but not by way of limitation, the taking,
retaking or holding, and all proceedings (judicial or
otherwise)] of the Collateral, including, without
limitation, reasonable attorney fees.
(i) "INTEREST RATE" shall mean the Prime Rate (as
hereinafter defined) plus two percent (2%) and shall be a
variable rate which shall change quarterly on the first day
of each quarter during the term hereof ("Rate Change Date"),
commencing on the first day of April 1997, and continuing on
the first day of each July, October, January thereafter
until the Maturity Date, provided that if the first day of
any quarter during the term hereof is not a Business Day,
then the Rate Change Date shall be the first Business Day
following the first day of such quarter.
(j) "INTEREST PERIOD" shall mean the period commencing
on each Rate Change Date (as hereafter defined) and ending
on the next succeeding Rate Change Date.
(k) "LENDER" shall mean Paul-Son Gaming Corporation, a
Nevada corporation.
(l) "MATURITY DATE" shall mean December 1, 1998.
(m) "NOTE" shall mean this Line of Credit Promissory
Note, and all extensions, amendments, modifications and
alterations hereto, in writing from time to time.
(n) "PRIME RATE" shall mean the rate of interest most
recently published in THE WALL STREET JOURNAL, as the
average of Money Center interest rates charged by banks to
their most favored commercial customers, or, if
discontinued, in any other publication selected by Lender.
2. For value received, Martin S. Winick (hereinafter
referred to as "Borrower") promises to pay to the order of Paul-
Son Gaming Corporation (hereinafter referred to as "Lender"), the
principal amount of One-Hundred Fifty Thousand and no/100ths
Dollars
3
<PAGE>
($150,000.00 U.S.) (the "Loan"), with interest on the unpaid
principal balance at the Interest Rate or Default Rate. The
Interest Rate shall change quarterly on the first day of each
quarter during the term hereof ("Rate Change Date"), commencing
on the first day of April 1997, and continuing on the first day
of each July, October, January thereafter until the Maturity
Date, provided that if the first day of any quarter during the
term hereof is not a Business Day, then the Rate Change Date
shall be the first Business Day following the first day of such
quarter with interest payable for the actual number of days to
the date of payment.
3. The principal and interest shall be payable at Paul-Son
Gaming Corporation, 2121 S. Industrial Road, Las Vegas, Nevada
89103, or such other place as the Lender may designate in
writing, in immediately available funds, as follows:
(a) Borrower shall pay consecutive quarterly
installments of interest only commencing on the first day of
April 1997 and on the first day of each and every quarter
thereafter up to and including the first day of December,
1998 (provided, however, that interest due on April 1, 1997,
shall be calculated from the date of the actual disbursement
of funds hereunder to and including March 31, 1997 and shall
be paid, in advance, simultaneously with such disbursement),
and a final installment equal to the entire unpaid principal
balance and accrued interest thereon, if not sooner paid,
shall be due and payable on the first day of December 1,
1998 (the "Maturity Date"). If any payment becomes due on
any day which is not a Business Day, such payment shall be
made on the next succeeding Business Day without penalty,
but without waiver of any interest accrued between such due
date and the extended date of payment.
4. Interest hereunder shall be calculated for the actual
number of days elapsed on the basis of a 360-day year.
5. Upon and after the occurrence of a Default Event under
this Note or any other document or instrument evidencing,
securing or relating to the Loan (any such default or event of
default, a "Default Event"), the Loan shall bear interest,
payable upon demand, at a rate per annum equal to one and one-
half times (x 1.50) the Interest Rate (Interest Rate x 1.50 is
hereinafter referred to as "Default Rate").
6. Time is of the essence hereof. If Payments are not
paid within five (5) calendar days from the date same become due
or any other payment hereunder is not paid on or before the
Maturity Date, any Payment or other payment so unpaid, as the
case may be, shall bear interest from the date such was due until
paid at the Default Rate. Interest on such payment so unpaid
shall be compounded quarterly and shall be payable upon demand.
In addition, if any Payment is not paid within five (5) calendar
days from the date such becomes due or any other payment
hereunder is not paid on or before the Maturity Date, Borrower
shall pay a reasonable late or collection charge equal to five
percent (5%) of the amount so unpaid. Lender and Borrower agree
that the actual damages and costs sustained by Lender due to the
failure to make timely payments would be extremely difficult to
measure and that the charges specified in this paragraph
represent a reasonable estimate by Borrower and Lender of a fair
average compensation for such damages and costs. Such charges
shall be paid by Borrower without prejudice to the right of
Lender to collect any other amounts provided to be paid under
this Note or any other agreement or, with respect to late
payments, to declare a Default Event.
4
<PAGE>
7. Both principal and interest shall be paid by Borrower
in lawful money of the United States of America such that Lender
has received immediately available funds for the credit of
Borrower not later than 3:00 p.m. Pacific Time on the date that
such payment is due. Any payment made after 3:00 p.m. Pacific
Time shall be deemed received on the next Business Day. If any
Payment becomes due on any day which is not a Business Day, such
Payment shall be made on the next succeeding Business Day without
penalty, but without waiver of any interest accrued between such
due date and the extended date of payment.
8. Borrower may prepay the unpaid principal balance of the
Note (partial or full) at anytime. Notwithstanding any partial
or full prepayment, Lender is not obligated to extend to Borrower
any additional funds above and beyond an aggregate amount of
Money Advances totaling One Hundred Fifty Thousand and no/100ths
Dollars ($150,000.00 U.S.).
9. Borrower and Lender agree that Borrower shall be liable
for and pay any and all attorneys' fees and costs associated with
the execution of the Loan, including, but not limited to, the
preparation of the Loan Documents. Borrower and Lender further
agree that in the event of a dispute, arbitration by either party
in any dispute, arbitration or litigation concerning this
Agreement, the losing party shall pay the prevailing party's
reasonable attorneys' fees and costs in that dispute, arbitration
or litigation.
10. No waiver of any Default Event shall be implied from
any failure of Lender to take or any delay by Lender in taking
action with respect to any such Default Event or from any
previous waiver of any similar or unrelated Default Event. A
waiver of any term of any Collateral Document or of any of the
covenants and obligations of Borrower contained in the Collateral
Documents, must be made in writing and shall be limited to the
express written terms of such waiver.
11. Borrower shall not, whether voluntarily, involuntarily
or by operation of law, convey, sell or further encumber all or
any part of the Collateral without obtaining Lender's prior
written consent. Any such conveyance, sale or further
encumbrance of such property, without Lender's prior written
consent, shall be considered a Default Event.
12. Borrower waives presentment, demand, notice of
dishonor, notice of default or delinquency, notice of
acceleration, notice of protest and nonpayment, notice of costs,
expenses or losses and interest thereon, notice of interest on
interest and late charges and diligence in taking any action to
collect any sums owing under this Note or in proceeding against
any of the rights and interests in and to properties securing
payment of this Note.
13. This Note shall be construed and enforced in accordance
with the laws of the State of Nevada, except to the extent that
Lender shall at any time have greater rights under Federal law;
and all persons and entities in any manner obligated under this
Note consent to the jurisdiction of any Federal or State court
within the County of Clark, State of Nevada selected by Lender
and also consent to service of process by any means authorized by
Nevada or Federal law.
14. This Note is hereby expressly limited so that in no
contingency or event whatsoever, whether by acceleration of
maturity of the debt evidenced hereby or otherwise, shall the
amount paid or agreed to be paid to Lender for the use,
forbearance or detention of the money advanced or to be
5
<PAGE>
advanced under this Note exceed the highest lawful rate
permissible under the laws of the State of Nevada as applicable
to Borrower. If, from any circumstances whatsoever, fulfillment
of any provision hereof or of any other agreement, evidencing or
securing the debt, at the time performance of such provisions
shall be due, shall involve the payment of interest in excess of
that authorized by law, the obligation to be fulfilled shall be
reduced to the limit so authorized by law, and if from any
circumstances, Lender shall ever receive as interest an amount
which would exceed the highest lawful rate applicable to the
Borrower, such amount which would be excessive interest shall be
applied to the reduction of the unpaid principal balance of the
debt evidenced hereby and not to the payment of interest.
In Witness Whereof, this Note has been executed by
undersigned as of the date first above written.
Borrower:
/s/ Martin S. Winick
Martin S. Winick
6
<PAGE>
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made as of the 19th
day of November 1996, and executed by Martin S. Winick
(hereinafter referred to as "Borrower") in favor of Paul-Son
Gaming Corporation, a Nevada corporation (hereinafter referred to
as "Lender").
RECITALS
A. This Agreement is being executed in connection with
Lender's grant of a line of credit loan to Borrower in the
original principal amount of ONE-HUNDRED FIFTY THOUSAND AND
NO/100THS DOLLARS ($150,000.00 U.S.) (the "Loan");
B. The Loan is evidenced by series of documents and
agreements executed by Borrower, including, but not limited to a
Line of Credit Loan Agreement, Line of Credit Promissory Note
(including any amendments or modifications thereto or
restatements thereof, the "Note"), this Security Agreement,
Assignment Agreement, Power of Attorney Agreement, Uniform
Commercial Code Financing Statements and the relating documents
thereunder (collectively referred to as the "Collateral
Documents"); and
C. Lender requires as a condition to the making of the
Loan that Borrower assign his present or hereafter acquired
rights, titles, benefits and interests as set forth below and in
the Collateral Documents.
Now, Therefore, in consideration of the several and mutual
promises, agreements, covenants, understandings, undertakings,
representations and warranties hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Borrower agrees
that the Recitals are true and correct and by this reference
incorporated herein as if fully set forth and further covenants
and agrees as follows:
1. DEFINITIONS
In this Agreement and in the Loan Documents (as hereinafter
defined) (unless the context thereof requires a contrary
definition or unless the same shall be defined therein, in which
latter event, the definitions shall be cumulative and not
exclusive), the following words, phrases, and expressions shall
have the respective meanings attributed to them:
(a) "AGREEMENT" shall mean this Security Agreement, and all
extensions, amendments, modifications and alterations thereto, in
writing from time to time.
(b) "BORROWER" shall mean Martin S. Winick.
(c) "COLLATERAL" shall mean all property and security
described in any of the Collateral Documents now or hereafter
existing.
(d) "COLLATERAL DOCUMENTS" shall mean any and all
documents, instruments, notes, agreements, and written memoranda,
referred to in this Agreement or referred to in any of the
<PAGE>
foregoing, or executed in connection herewith or therewith, now
or hereafter existing, and specifically, but not by way of limita
tion, the documents identified in Recitals.
(e) "DEFAULT EVENT" shall mean the occurrence of any act,
omission or failure as set forth in Section 7 hereof, including
any applicable notice required thereunder and time period to cure
same.
(f) "DEFAULT INTEREST RATE" shall mean one and one-half
times (x 1.50) the Interest Rate (as hereinafter defined).
(g) "EFFECTIVE DATE" shall mean the date first written
above.
(h) "GUARANTOR" shall mean Elen J. Winick, the wife of
Martin S. Winick.
(i) "INDEBTEDNESS" shall mean and include by way of example
only, but not by way of limitation:
(i) all indebtedness, obligations and liabilities
of the Borrower referred to in this Agreement, or in
any of the Collateral Documents, of whatsoever kind,
nature and description, primary or secondary, direct,
indirect or contingent, due or to become due, and
whether now existing or hereafter arising and howsoever
evidenced or acquired, and whether joint, several, or
joint and several;
(ii) all present and future Money Advances made by
Lender in connection with this Agreement or the
Collateral Documents, or otherwise, and whether made at
Lender s option or otherwise;
(iii) all future advances made by Lender for
the protection or preservation of Lender's rights and
interests in the Collateral, or arising under this
Agreement or the Collateral Documents, including, but
not by way of limitation, advances for taxes, levies,
assessments, insurance or maintenance of the
Collateral, and reasonable attorneys fees;
(iv) all costs and expenses incurred by Lender in
connection with or arising out of the protection,
enforcement or collection of any of the foregoing
including, without limitation, reasonable attorney
fees; and
(v) all costs and expenses incurred by Lender in
connection with, or arising out of, the sale,
disposition, liquidation or other realization
[including, but not by way of limitation, the taking,
retaking or holding, and all proceedings (judicial or
otherwise)] of the Collateral, including, without
limitation, reasonable attorney fees.
(j) "INTEREST RATE" shall mean the Prime Rate (as
hereinafter defined) plus two percent (2%) and shall be a
variable rate which shall change quarterly on the first day of
each quarter during the term hereof ("Rate Change Date"),
commencing on the first day of April 1997, and continuing on the
first day of each July, October, January thereafter until the
Maturity Date, provided that if the first day of any quarter
during the term hereof is not a Business Day, then the Rate
Change Date shall be the first Business Day following the first
day of such quarter.
2
<PAGE>
(k) "LENDER" shall mean Paul-Son Gaming Corporation, a
Nevada corporation.
(l) "LOAN DOCUMENTS" shall mean
(i) Any and all Collateral Documents;
(ii) Any and all documents, instruments, notes,
agreements, and written memoranda executed and delivered by
Borrower in connection herewith or therewith, now or
hereafter existing (hereinafter collectively referred to as
the "Pledge Documents"), and specifically including, but not
by way of limitation, the following:
(1) PLEDGE AGREEMENT. Guarantor shall execute an
agreement in which Guarantor agrees to pledge Pledge
Collateral (as hereinafter defined) to Lender as
inducement for Lender to make Loan to Borrower;
(2) GUARANTY. Guarantor shall execute an
agreement in which Guarantor agrees to guaranty the
obligations, covenants and agreements of Borrower under
this Agreement, the Collateral Documents, or any other
agreement executed by and between the Lender, Borrower
or to which they are a party, whether now existing or
hereafter created;
(3) POWER OF ATTORNEY. Guarantor shall execute a
power of attorney in favor of the Lender to be returned
by Lender permitting Lender to negotiate, encumber,
transfer or dispose of all stock certificates issued in
the name of the Guarantor.
(4) UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.
Guarantor shall execute an agreement in which Guarantor
agrees to grant Lender a security interest in the
Pledge Collateral.
(5) UNIFORM COMMERCIAL CODE FINANCING STATEMENTS.
Guarantor shall execute the following Uniform
Commercial Code Financing Statements in order to
perfect a security interest in favor of Lender, in and
to the Pledge Collateral, and to evidence a first and
perfected lien with respect to such Pledge Collateral:
- Uniform Commercial Code Financing Statement
Form UCC-1 to be filed in the state of Nevada; and
- Uniform Commercial Code Financing Statement
Form UCC-1 to be filed in the state of Ohio.
(6) OTHER DOCUMENTS. Any other document or
agreement which the Lender may reasonably require in
connection with the Loan.
(iii) Any and all documents, instruments, notes,
agreements, and written memoranda, referred to in the
Collateral Documents or Pledge Documents or referred to
3
<PAGE>
in any of the foregoing, or executed in connection herewith
or therewith, now or hereafter existing.
(m) "MONEY ADVANCE" shall mean any disbursement of monies
by Lender to or for the benefit of Borrower, whether mandatory or
optional.
(n) "PRIME RATE" shall mean the rate of interest most
recently published in THE WALL STREET JOURNAL, as the average of
Money Center interest rates charged by banks to their most
favored commercial customers or, if discontinued, in any other
publication selected by Lender.
(o) "STOCK OPTIONS" shall mean any and all stock options to
purchase common stock of Paul-Son Gaming Corporation which the
Borrower, Guarantor or Borrower and Guarantor jointly may now
possess or hereafter acquire a possessory interest.
2. SECURITY INTEREST
Borrower grants and assigns to Lender as of the Effective
Date a security interest in all of Borrower's acquired rights,
titles, benefits and interests currently owned or hereinafter
acquired, including, but not limited to, the following
(hereinafter collectively referred to as the "Collateral"):
(a) Consulting Agreement by and between Paul S. Endy, Jr.
and Martin S. Winick entered into on the 1st day of July, 1996
(the "Endy Agreement");
(b) Stock Option Agreement by and between Paul S. Endy, Jr.
and Martin S. Winick entered into on the 1st day of July, 1996
(the "Option Agreement") in conjunction with the Endy Agreement;
(c) All options to purchase common stock of Paul-Son Gaming
Corporation that Borrower presently owns or hereafter acquires,
including but not limited to those options granted to Borrower
under the Option Agreement;
(d) Consulting Agreement by and between Paul-Son Gaming
Corporation, a Nevada corporation, and Martin S. Winick entered
into on the 1st day of July, 1996 (the "Paul-Son Agreement");
(e) All stock of Paul-Son Gaming Corporation that Borrower
presently owns or hereafter acquires; and
(f) All payments due from Paul-Son Gaming Corporation to
Borrower, including, but not limited to, any and all fees
associated with the Borrower's position as director of the Paul-
Son Gaming Corporation.
3. OBLIGATIONS SECURED
This Agreement secures the payment and performance of all
present and future obligations of Borrower to Lender under the
Collateral Documents, and under any other agreement which recites
that it is secured hereby.
4
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants that the following are true
and correct:
(a) GOOD TITLE. Borrower has, or will have, good title to
the Collateral.
(b) ENCUMBRANCES. Borrower has not previously assigned or
encumbered the Collateral, and no financing statement covering
any of the Collateral has been delivered to any other person or
entity.
(c) AUTHORITY. Borrower has full power and authority to
execute and deliver this Agreement and the Collateral Documents.
(d) DEFAULT. There is no Default Event under this
Agreement, now existing or hereafter executed, and no event, act
or omission has occurred and is continuing which, with applicable
notice or the passage of time or either, would constitute an
Default Event thereunder.
(e) LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of Borrower threatened against or
affecting Borrower or the property of Borrower in any court or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which may result in any material adverse
change in the properties or assets or in the condition, financial
or otherwise, of Borrower. Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any
court or federal, state, municipal or other governmental
department, commission, board, bureau, agency, instrumentality,
default under which might have consequences which would
materially and adversely affect the business or properties of
Borrower.
(f) SURVIVAL AND CONTINUATION. All representations and
warranties contained in this Agreement, or in any of the
Collateral Documents, now or hereafter existing, are and shall
continue to be true and accurate, at all times while any Money
Advances are outstanding, and the continuing truth and accuracy
thereof shall be conditions precedent to the making of any Money
Advances hereunder and shall survive the execution hereof and the
consummation of the transactions herein contemplated.
5. COVENANTS OF BORROWER
(a) PRESERVATION OF COLLATERAL. Borrower shall not waste
or destroy Collateral or any part thereof; and Borrower shall not
use Collateral in violation of any statute or ordinance. Lender
shall have the right to possess Collateral.
(b) ALIENATION OF COLLATERAL. Borrower will not, without
the prior written consent of Lender, sell, contract to sell,
lease, encumber or otherwise dispose of any Collateral unless and
until this Agreement and all debts secured thereby have been
fully satisfied.
(c) PERFORMANCE OF OBLIGATIONS. Perform all of the
obligations, covenants and agreements of Borrower under this
Agreement, the Collateral Documents, or any other agreement
executed by and between the Lender, Borrower or to which they are
a party, whether now
5
<PAGE>
existing or hereafter created, and maintain and take all action
(or not fail to take any action or suffer or permit any omission)
necessary to maintain the representations and warranties made, as
true and accurate.
(d) INFORMATION. Borrower shall furnish promptly and in a
form satisfactory to Lender, such information as Lender may
reasonably request, from time to time.
(e) LITIGATION. Borrower shall notify Lender promptly of
any litigation, or administrative or tax proceeding or any other
material matter which could adversely impair the Borrower's
financial condition including, but not limited to, any inquiry or
proceedings initiated by any state, federal or foreign regulatory
agency. For the purposes of this Agreement, any such litigation,
proceeding, matter or inquiry in which the sum in dispute is Five
Thousand and no/100ths Dollars ($5,000.00 U.S.) or an aggregate
total of Twenty-Five Thousand and no/100ths ($25,000.00 U.S.) or
more shall be deemed to be material.
6. RIGHTS OF LENDER
In addition to Lender's rights as a "Secured Party" under
the Nevada Uniform Commercial Code, as amended or recodified from
time to time ("UCC"), Lender may, but shall not be obligated to,
at any time without notice and at the expense of Borrower: (a)
give notice to any person of Lender's rights hereunder and
enforce such rights; (b) insure, protect, defend and preserve the
Collateral or any rights or interests of Lender therein; (c)
inspect the Collateral; and (d) endorse, collect and receive any
right to payment of money owing to Borrower under or from the
Collateral. Lender shall have no duty or obligation to make or
give any presentments, demands for performance, notices of
nonperformance, notices of protest or notices of dishonor in
connection with any of the Collateral.
7. DEFAULT EVENTS
The Indebtedness shall mature and become immediately due and
payable, at the option of Lender, notwithstanding any maturity
date to the contrary upon the occurrence of any of the following
acts, omissions or failures (hereinafter referred to as "Default
Events"):
(a) FAILURE OF PAYMENT. Failure of Borrower to make
payment of any installment of principal and/or interest required
under the Note or of any payment by Borrower required pursuant to
this Agreement or under the Collateral Documents, within five (5)
days from the date same is due and payable shall constitute a
Default Event, if not paid, including any applicable late charge
or Default Interest Rate, ten (10) calendar days after the five
(5) day grace period.
(b) BREACH OR FAILURE. The failure or breach of any other
covenant, warranty, agreement, undertaking, condition, promise,
representation or warranty herein contained and/or contained in
the Loan Documents shall constitute a Default Event.
(c) INSOLVENCY OF BORROWER. Insolvency shall mean: (i) a
general assignment by Borrower for the benefit of creditors; (ii)
the filing of a voluntary petition in bankruptcy by Borrower;
(iii) the filing of any involuntary petition under any bankruptcy
or insolvency law by Borrower's creditors, said petition
remaining undischarged for a period of sixty (60) days; (iv) the
appointment by
6
<PAGE>
any court of a receiver to take possession of substantially all
of Borrower's assets, said receivership remaining undischarged
for a period of sixty (60) days; or (v) the attachment, execution
or other judicial seizure of substantially all of Borrower's
assets, such attachment, execution or other seizure remaining
undismissed or undischarged for a period of sixty (60) days after
the levy thereof.
8. CONSEQUENCES OF DEFAULT
(a) REMEDIES OF LENDER. Upon the occurrence of any Default
Event, Lender shall have the right to exercise any and all rights
and remedies which may be available, whether contained in this
Agreement, the Loan Documents, or available by virtue of law,
including the Uniform Commercial Code or other similar laws or
statutes applicable, or contained in any other instruments or
agreements between the Lender and the Borrower. The rights and
remedies available to the Lender include, but are not limited to,
the following:
(i) Lender shall have the right to exercise,
negotiate, transfer, encumber or dispose of all Stock
Options;
(ii) Lender may (i) upon written notice, require
Borrower to assemble any or all of the Collateral and make
it available to Lender at a place designated by Lender; (ii)
without prior notice, take possession of, collect, sell, and
dispose of any or all of the Collateral; or (iii) sell,
assign and deliver at any place or in any lawful manner all
or any part of the Collateral and bid and become purchaser
at any such sales; and
(iii) Lender may, for the account of Borrower and
at Borrower's expense: (i) operate, use, consume, sell or
dispose of the Collateral as Lender deems appropriate for
the purpose of performing any or all of the obligations
secured by this Agreement; (ii) enter into any agreement,
compromise, or settlement, including insurance claims, which
Lender may deem desirable or proper with respect to any of
the Collateral; (iii) endorse and deliver evidences of title
for, and receive, enforce and collect by legal action or
otherwise, all indebtedness and obligations now or hereafter
owing to Borrower in connection with or on account of any or
all of the Collateral; and (iv) perform any of the
obligations secured by this Agreement.
(b) RENUNCIATION BY BORROWER. Upon the occurrence of any
Default Event, Borrower agrees that such Default Event, after the
lapse of any cure period, shall automatically, without notice,
and immediately effectuate a renunciation in favor of Lender of
any and all rights, benefits, claims and interests of Borrower in
the following:
(i) Consulting Agreement by and between Paul S. Endy,
Jr. and Martin S. Winick entered into on the 1st day of July,
1996 (the "Endy Agreement");
(ii) Stock Option Agreement by and between Paul S.
Endy, Jr. and Martin S. Winick entered into on the 1st day
of July, 1996 (the "Option Agreement") in conjunction with
the Endy Agreement;
7
<PAGE>
(iii) Consulting Agreement by and between Paul-Son
Gaming Corporation, a Nevada corporation, and Martin S. Winick
entered into on the 1st day of July, 1996 (the "Paul-Son
Agreement");
(iv) All options to purchase common stock of Paul-Son
Gaming Corporation that Borrower presently owns or hereafter
obtains, including but not limited to those options granted
to Borrower under (i), (ii) and (iii) above;
(v) All stock of Paul-Son Gaming Corporation that
Borrower presently owns or hereafter obtains, including but
not limited to stock obtained by or through (i), (ii), (iii)
and (iv) above; and
(vi) All payments due from Paul-Son Gaming Corporation
to Borrower, including, but not limited to, any and all fees
associated with the Borrower's position as director of the
Lender.
(c) NO RELEASE AND NO DISCHARGE. The exercise of any such
right or remedy by Lender shall not serve to release or discharge
any other security, property or Collateral held by Lender in
connection with this transaction.
(d) NON-EXCLUSIVITY OF RIGHTS AND REMEDIES. The rights and
remedies referred to in this section shall be cumulative and not
exclusive.
(e) NO WAIVER. No waiver of any Default Event shall be
implied from any failure of Lender to take or any delay by Lender
in taking action with respect to any such Default Event or from
any previous waiver of any similar or unrelated Default Event. A
waiver of any term contained in the Collateral Documents or of
any of the covenants and obligations of Borrower contained in the
Collateral Documents, must be made in writing and shall be
limited to the express written terms of such waiver.
9. POWER OF ATTORNEY
Borrower hereby irrevocably appoints Lender as Borrower's
attorney-in-fact (such agency being coupled with an interest),
and as such attorney-in-fact Lender may, without the obligation
to do so, in Lender's name or in the name of Borrower, prepare,
execute and file or record financing statements, continuation
statements, applications for registration and like papers
necessary to create, perfect or preserve any of Lender's security
interests and rights in or to any of the Collateral, and, upon
occurrence of a Default Event hereunder take any other action
specified in Section 8 hereof; provided that Lender as such
attorney-in-fact shall be accountable only for such funds as are
actually received by Lender.
10. GENERAL PROVISIONS
(a) AMENDMENT. No amendment or modification of this
Agreement shall be deemed effective unless and until it is an
express writing executed by both Borrower and Lender.
8
<PAGE>
(b) ASSIGNMENT. The rights, benefits and obligations of
Borrower under this Agreement are personal in nature and shall
not be assignable, transferable or encumberable in any manner
whatsoever, whether directly or indirectly or, and whether inter
vivos or testamentary. Any purported assignment by Borrower in
violation of this Section 10(b) shall be null and void and of no
force and effect. All covenants and agreements hereunder shall
inure to the benefit of and be enforceable by Lender, its
successors or assigns.
(c) ATTORNEYS' FEES AND COSTS. Borrower and Lender agree
that Borrower shall be liable for and pay any and all attorneys'
fees and costs associated with the execution of the Loan,
including, but not limited to, the preparation of the Loan
Documents. Borrower and Lender further agree that in the event
of a dispute, arbitration by either party in any dispute,
arbitration or litigation concerning this Agreement, the losing
party shall pay the prevailing party's reasonable attorneys' fees
and costs in that dispute, arbitration or litigation.
(d) CAPTIONS AND PRONOUNS. The captions appearing at the
commencement of the sections hereof are descriptive only and for
convenience in reference to this Agreement and in no way
whatsoever define, limit or describe the scope or intent of this
Agreement nor in any way affect this Agreement.
(e) COUNTERPARTS. This Agreement may be executed at
different times and in multiple counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) CONTINUED FORCE AND EFFECT. This Agreement may not be
invalidated by and may not be made subject to any order of any
domestic relations or family law court without the express
written consent of Lender.
(g) EFFECT OF WAIVER. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
(h) ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and cannot be changed or terminated
unless in an express writing, executed by the parties hereto.
(i) GENDER. Masculine or feminine pronouns shall be
substituted for the neuter form and vice versa and the plural
shall be substituted for the singular form and vice versa in any
place or places herein in which the context requires such
substitution or substitutions.
(j) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada in
effect on the date of this Agreement without resort to any
conflict of laws principles, and the courts of the State of
Nevada shall have sole and exclusive jurisdiction over any matter
brought under, or by reason of, this Agreement.
(k) INCORPORATION. The Loan Documents are incorporated
herein by reference, and in the event any provision thereof is
inconsistent with the provisions of this Agreement, then this
Agreement shall be deemed paramount unless the rights and
remedies of the Lender would be adversely affected or diminished
thereby.
9
<PAGE>
(l) NEUTRAL INTERPRETATION. The provisions contained
herein shall not be construed in favor of or against any party
because that party or its counsel drafted this Agreement, but
shall be construed as if all parties prepared this Agreement, and
any rules of construction to the contrary are hereby specifically
waived. The terms of this Agreement were negotiated at arm's
length by the parties hereto.
(m) NOTICE. Any and all notices required under this
Agreement shall be in writing and shall be either (i) hand-
delivered; (ii) mailed, first-class postage prepaid, certified
mail, return receipt requested; (iii) transmitted via telecopier
provided that confirmation is obtained; or (iv) delivered via a
nationally recognized overnight courier service, addressed to:
LENDER: Paul S. Endy, Jr.
Chairman of the Board and Chief
Executive Officer
Paul-Son Gaming Corporation
2121 S. Industrial Road
Las Vegas, Nevada 89102
COPY TO: Laurence A. Speiser, Esq.
2121 S. Industrial Road
Las Vegas, Nevada 89102
BORROWER: Martin S. Winick
29449 Edgedale Road
Pepper Pike, Ohio 44124
All notices hand-delivered shall be
deemed delivered as of the date actually delivered. All notices
mailed or delivered via overnight courier shall be deemed
delivered as of three (3) business days after the date
postmarked. Any changes in any of the addresses listed herein
shall be made by notice as provided in this Section 10(m).
(n) PARTIAL INVALIDITY. If any term, condition, covenant,
or provision of this Agreement, or any application thereof, shall
be held by a court of competent jurisdiction to be invalid, void
or unenforceable, all provision, covenants, and conditions of
this Lease and applications thereof, not held invalid, void or
unenforceable, shall continue in full force and effect and shall
in no way be affected, impaired or invalidated thereby.
(o) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement shall
survive the execution and delivery of this Agreement.
10
<PAGE>
In Witness Whereof, the undersigned has executed this
Agreement as of the day first above written.
"BORROWER"
/s/ Martin S. Winick
By: Martin S. Winick
11
<PAGE>
ASSIGNMENT AGREEMENT
This Assignment Agreement ("Assignment") is made this 19th
day of November, 1996 by and between Martin S. Winick
(hereinafter referred to as "Borrower") to Paul-Son Gaming
Corporation, a Nevada corporation (hereinafter referred to as
"Lender").
RECITALS
A. This Assignment is being executed in connection with
Lender's grant of a line of credit loan to Borrower in the
original principal amount of ONE-HUNDRED FIFTY THOUSAND AND
NO/100THS DOLLARS ($150,000.00 U.S.) (the "Loan");
B. The Loan is evidenced by series of documents and
agreements executed by Borrower, including, but not limited to a
Line of Credit Loan Agreement, Line of Credit Promissory Note
(including any amendments or modifications thereto or
restatements thereof, the "Note"), Security Agreement, this
Assignment Agreement, Power of Attorney Agreement, Uniform
Commercial Code Security Agreement, Uniform Commercial Code
Financing Statements (hereinafter collectively referred to as the
"Collateral Documents") and the relating documents thereunder;
and
C. Lender requires as a condition to the making of the
Loan that Borrower assign his present or hereafter acquired
rights, titles, benefits and interests as set forth below and in
the Collateral Documents.
Now, Therefore, in consideration of the several and mutual
promises, agreements, covenants, understandings, undertakings,
representations and warranties hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree
that the Recitals are true and correct and by this reference
incorporated herein as if fully set forth and Borrower further
covenants and agrees as follows:
1. DEFINITIONS
In this Assignment and in the Loan Documents (as hereinafter
defined) (unless the context thereof requires a contrary
definition or unless the same shall be defined therein, in which
latter event, the definitions shall be cumulative and not
exclusive), the following words, phrases, and expressions shall
have the respective meanings attributed to them:
(a) "ASSIGNMENT" shall mean this Assignment Agreement, and
all extensions, amendments, modifications and alterations
thereto, in writing from time to time.
(b) "BORROWER" shall mean Martin S. Winick.
(c) "COLLATERAL" shall mean all property and security
described in any of the Collateral Documents now or hereafter
existing.
<PAGE>
(d) "COLLATERAL DOCUMENTS" shall mean any and all
documents, instruments, notes, agreements, and written memoranda,
referred to in this Assignment or referred to in any of the fore
going, or executed in connection herewith or therewith, now or
hereafter existing, and specifically, but not by way of limita
tion, the documents identified in the Recitals.
(e) "DEFAULT EVENT" shall mean the occurrence of any act,
omission or failure as set forth in Section 6 hereof.
(f) "DEFAULT INTEREST RATE" shall mean one and one-half
times (x 1.50) the Interest Rate (as hereinafter defined).
(g) "GUARANTOR" shall mean Elen J. Winick, the wife of
Martin S. Winick.
(h) "INDEBTEDNESS" shall mean and include by way of example
only, but not by way of limitation:
(i) All indebtedness, obligations and liabilities of
the Borrower referred to in the Loan Agreement (as
hereinafter defined), or in any of the Loan Documents, of
whatsoever kind, nature and description, primary or
secondary, direct, indirect or contingent, due or to become
due, and whether now existing or hereafter arising and
howsoever evidenced or acquired, and whether joint, several,
or joint and several;
(ii) All present and future Money Advances made by
Lender in connection with the Loan Agreement or the Loan
Documents, or otherwise, and whether made at Lender s option
or otherwise;
(iii) All future advances made by Lender for the
protection or preservation of Lender's rights and interests
in the Collateral, or arising under the Loan Agreement or
the Loan Documents, including, but not by way of limitation,
advances for taxes, levies, assessments, insurance or
maintenance of the Collateral, and reasonable attorneys
fees;
(iv) All costs and expenses incurred by Lender in
connection with or arising out of the protection,
enforcement or collection of any of the foregoing including,
without limitation, reasonable attorney fees; and
(v) All costs and expenses incurred by Lender in
connection with, or arising out of, the sale, disposition,
liquidation or other realization [including, but not by way
of limitation, the taking, retaking or holding, and all
proceedings (judicial or otherwise)] of the Collateral,
including, without limitation, reasonable attorney fees.
(i) "INTEREST RATE" shall mean the Prime Rate (as
hereinafter defined) plus two percent (2%) and shall be a
variable rate which shall change quarterly on the first day of
each quarter during the term hereof ("Rate Change Date"),
commencing on the first day of April 1997, and continuing on the
first day of each July, October, January thereafter until the
Maturity Date, provided that if the first day of any quarter
during the term hereof is not a Business Day, then the Rate
Change Date shall be the first Business Day following the first
day of such quarter.
2
<PAGE>
(j) "LENDER" shall mean Paul-Son Gaming Corporation, a
Nevada corporation.
(k) "LOAN AGREEMENT" shall mean the Line of Credit Loan
Agreement executed by and between the Borrower and Lender of even
date herewith.
(l) "LOAN DOCUMENTS" shall mean:
(i) Any and all Collateral Documents;
(ii) Any and all documents, instruments, notes,
agreements, and written memoranda executed and delivered by
Guarantor in connection herewith or therewith, now or
hereafter existing (hereinafter collectively referred to as
the "Pledge Documents"), and specifically including, but not
by way of limitation, the following:
(1) PLEDGE AGREEMENT. Guarantor shall execute an
agreement in which Guarantor agrees to pledge Pledge
Collateral (as hereinafter defined) to Lender as
inducement for Lender to make Loan to Borrower;
(2) GUARANTY. Guarantor shall execute an
agreement in which Guarantor agrees to guaranty the
obligations, covenants and agreements of Borrower under
this Agreement, the Collateral Documents, or any other
agreement executed by and between the Lender, Borrower
or to which they are a party, whether now existing or
hereafter created;
(3) POWER OF ATTORNEY. Guarantor shall execute a
power of attorney in favor of the Lender to be returned
by Lender permitting Lender to negotiate, encumber,
transfer or dispose of all stock certificates issued in
the name of the Guarantor.
(4) UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.
Guarantor shall execute an agreement in which Guarantor
agrees to grant Lender a security interest in the
Pledge Collateral.
(5) UNIFORM COMMERCIAL CODE FINANCING STATEMENTS.
Guarantor shall execute the following Uniform
Commercial Code Financing Statements in order to
perfect a security interest in favor of Lender, in and
to the Pledge Collateral, and to evidence a first and
perfected lien with respect to such Pledge Collateral:
- Uniform Commercial Code Financing
Statement Form UCC-1 to be filed in the state of
Nevada; and
- Uniform Commercial Code Financing
Statement Form UCC-1 to be filed in the state of
Ohio.
(6) OTHER DOCUMENTS. Any other document or
agreement which the Lender may reasonably require in
connection with the Loan.
3
<PAGE>
(iii) any and all documents, instruments, notes,
agreements, and written memoranda, referred to in the
Collateral Documents or Pledge Documents or referred to in
any of the foregoing, or executed in connection herewith or
therewith, now or hereafter existing.
(m) "MONEY ADVANCE" shall mean any disbursement of monies
by Lender to or for the benefit of Borrower, whether mandatory or
optional.
(n) "PRIME RATE" shall mean the rate of interest most
recently published in THE WALL STREET JOURNAL, as the average of
Money Center interest rates charged by banks to their most
favored commercial customers or, if discontinued, in any other
publication selected by Lender.
2. ASSIGNMENT OF RIGHTS, TITLES, BENEFITS AND INTERESTS
(a) Borrower hereby absolutely and unconditionally
transfers, sets over and assigns to Lender all of Borrower's
acquired rights, titles, benefits and interests currently owned
or hereinafter acquired including, but not limited to the
following:
(i) Consulting Agreement by and between Paul S. Endy,
Jr. and Martin S. Winick entered into on the 1st day of
July, 1996 (the "Endy Agreement");
(ii) Stock Option Agreement by and between Paul S.
Endy, Jr. and Martin S. Winick entered into on the 1st day
of July, 1996 (the "Option Agreement") in conjunction with
the Endy Agreement;
(iii) All options to purchase common stock of Paul-
Son Gaming Corporation that Borrower presently owns or
hereafter acquires, including but not limited to those
options granted to Borrower under the Option Agreement;
(iv) Consulting Agreement by and between Paul-Son
Gaming Corporation, a Nevada corporation, and Martin S.
Winick entered into on the 1st day of July, 1996 (the "Paul-
Son Agreement");
(v) All stock of Paul-Son Gaming Corporation that
Borrower presently owns or hereafter acquires; and
(vi) All payments due from Paul-Son Gaming Corporation
to Borrower, including, but not limited to, any and all fees
associated with the Borrower's position as director of the
Paul-Son Gaming Corporation.
(b) This is an absolute assignment, not an assignment for
security only.
3. TERMINATION
At such time as the unpaid principal and accrued interest on
the Loan is paid in full and the Uniform Commercial Code
Financing Statement is released of record, this Assignment and
all of
4
<PAGE>
Lender's rights, titles and interests hereunder with respect to
the Collateral Documents shall terminate.
5
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants that the following are true
and correct:
(a) GOOD TITLE. Borrower has, or will have, good title to
the Collateral.
(b) ENCUMBRANCES. Borrower has not previously assigned or
encumbered the Collateral, and no financing statement covering
any of the Collateral has been delivered to any other person or
entity.
(c) AUTHORITY. Borrower has full power and authority to
execute and deliver this Agreement and the Collateral Documents.
(d) DEFAULT. There is no Default Event under this
Agreement, now existing or hereafter executed, and no event, act
or omission has occurred and is continuing which, with applicable
notice or the passage of time or either, would constitute an
Default Event thereunder.
(e) LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of Borrower threatened against or
affecting Borrower or the property of Borrower in any court or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which may result in any material adverse
change in the properties or assets or in the condition, financial
or otherwise, of Borrower. Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any
court or federal, state, municipal or other governmental
department, commission, board, bureau, agency, instrumentality,
default under which might have consequences which would
materially and adversely affect the business or properties of
Borrower.
(f) SURVIVAL AND CONTINUATION. All representations and
warranties contained in this Agreement, or in any of the Colla
teral Documents, now or hereafter existing, are and shall
continue to be true and accurate, at all times while any Money
Advances are outstanding, and the continuing truth and accuracy
thereof shall be Conditions Precedent to the making of any Money
Advances hereunder and shall survive the execution hereof and the
consummation of the transactions herein contemplated.
5. COVENANTS OF BORROWER
(a) PRESERVATION OF COLLATERAL. Borrower shall not waste
or destroy Collateral or any part thereof; and Borrower shall not
use Collateral in violation of any statute or ordinance. Lender
shall have the right to possess Collateral.
(b) ALIENATION OF COLLATERAL. Borrower will not, without
the prior written consent of Lender, sell, contract to sell,
lease, encumber or otherwise dispose of any Collateral unless and
until this Agreement and all debts secured thereby have been
fully satisfied.
(c) PERFORMANCE OF OBLIGATIONS. Perform all of the
obligations, covenants and agreements of Borrower under this
Agreement, the Collateral Documents, or any other agreement
executed by and between the Lender, Borrower or to which they are
a party, whether now
6
<PAGE>
existing or hereafter created, and maintain and take all action
(or not fail to take any action or suffer or permit any omission)
necessary to maintain the representations and warranties made, as
true and accurate.
(d) INFORMATION. Borrower shall furnish promptly and in a
form satisfactory to Lender, such information as Lender may
reasonably request, from time to time.
(e) LITIGATION. Borrower shall notify Lender promptly of
any litigation, or administrative or tax proceeding or any other
material matter which could adversely impair the Borrower's
financial condition including, but not limited to, any inquiry or
proceedings initiated by any state, federal or foreign regulatory
agency. For the purposes of this Agreement, any such litigation,
proceeding, matter or inquiry in which the sum in dispute is Five
Thousand and no/100ths Dollars ($5,000.00) or an aggregate total
of Twenty-Five Thousand and no/100ths ($25,000.00 U.S.) or more
shall be deemed to be material.
6. DEFAULT EVENTS
The Indebtedness shall mature and become immediately due and
payable, at the option of Lender, notwithstanding any maturity
date to the contrary upon the occurrence of any of the following
acts, omissions or failures (hereinafter referred to as "Default
Events"):
(a) FAILURE OF PAYMENT. Failure of Borrower to make
payment of any installment of principal and/or interest required
under the Note or of any payment by Borrower required pursuant to
this Agreement or under the Collateral Documents, within five (5)
days from the date same is due and payable shall constitute a
Default Event, if not paid, including any applicable late charge
or Default Interest Rate, ten (10) calendar days after the five
(5) day grace period.
(b) BREACH OR FAILURE. The failure or breach of any other
covenant, warranty, agreement, undertaking, condition, promise,
representation or warranty herein contained and/or contained in
the Loan Documents shall constitute a Default Event.
(c) INSOLVENCY OF BORROWER. Insolvency shall be a Default
Event and shall mean: (i) a general assignment by Borrower for
the benefit of creditors; (ii) the filing of a voluntary petition
in bankruptcy by Borrower; (iii) the filing of any involuntary
petition under any bankruptcy or insolvency law by Borrower's
creditors, said petition remaining undischarged for a period of
sixty (60) days; (iv) the appointment by any court of a receiver
to take possession of substantially all of Borrower's assets,
said receivership remaining undischarged for a period of sixty
(60) days; or (v) the attachment, execution or other judicial
seizure of substantially all of Borrower's assets, such
attachment, execution or other seizure remaining undismissed or
undischarged for a period of sixty (60) days after the levy
thereof.
7. EFFECT OF DEFAULT
(a) REMEDIES OF LENDER. Upon the occurrence of any Default
Event, Lender shall have the right to exercise any and all rights
and remedies which may be available, whether contained in this
Assignment, the Loan Documents, or available by virtue of law,
including the Uniform Commercial Code or other similar laws or
statutes applicable, or contained in any other
7
<PAGE>
instruments or agreements between the Lender and the Borrower.
The rights and remedies available to the Lender include, but are
not limited to, the following:
(i) Lender shall have the right to exercise,
negotiate, transfer, encumber or dispose of all Stock
Options;
(ii) Lender may (i) upon written notice, require
Borrower to assemble any or all of the Collateral and make
it available to Lender at a place designated by Lender; (ii)
without prior notice, take possession of, collect, sell, and
dispose of any or all of the Collateral; or (iii) sell,
assign and deliver at any place or in any lawful manner all
or any part of the Collateral and bid and become purchaser
at any such sales; and
(iii) Lender may, for the account of Borrower and
at Borrower's expense: (i) operate, use, consume, sell or
dispose of the Collateral as Lender deems appropriate for
the purpose of performing any or all of the obligations
secured by the Loan Agreement; (ii) enter into any
agreement, compromise, or settlement, including insurance
claims, which Lender may deem desirable or proper with
respect to any of the Collateral; (iii) endorse and deliver
evidences of title for, and receive, enforce and collect by
legal action or otherwise, all indebtedness and obligations
now or hereafter owing to Borrower in connection with or on
account of any or all of the Collateral; and (iv) perform
any of the obligations imposed by the Loan Documents.
(b) RENUNCIATION BY BORROWER. Upon the occurrence of any
Default Event, Borrower agrees that such Default Event, after the
lapse of any cure period, shall automatically, without notice,
and immediately effectuate a renunciation in favor of Lender of
any and all rights, benefits, claims and interests of Borrower in
the following:
(i) Consulting Agreement by and between Paul S. Endy,
Jr. and Martin S. Winick entered into on the 1st day of
July, 1996 (the "Endy Agreement");
(ii) Stock Option Agreement by and between Paul S.
Endy, Jr. and Martin S. Winick entered into on the 1st day
of July, 1996 (the "Option Agreement") in conjunction with
the Endy Agreement;
(iii) Consulting Agreement by and between Paul-Son
Gaming Corporation, a Nevada corporation, and Martin S.
Winick entered into on the 1st day of July, 1996 (the "Paul-
Son Agreement");
(iv) All options to purchase common stock of Paul-Son
Gaming Corporation that Borrower presently owns or hereafter
obtains, including but not limited to those options granted
to Borrower under (i), (ii) and (iii) above;
(1) All stock of Paul-Son Gaming Corporation that
Borrower presently owns or hereafter obtains, including but
not limited to stock obtained by or through (i), (ii), (iii)
and (iv) above; and
8
<PAGE>
(2) All payments due from Paul-Son Gaming Corporation
to Borrower, including, but not limited to, any and all fees
associated with the Borrower's position as director of the
Lender.
(c) NO RELEASE AND NO DISCHARGE. The exercise of any such
right or remedy by Lender shall not serve to release or discharge
any other security, property or Collateral held by Lender in
connection with this transaction.
(d) NON-EXCLUSIVITY OF RIGHTS AND REMEDIES. The rights and
remedies referred to in this section shall be cumulative and not
exclusive.
(e) NO WAIVER. No waiver of any Default Event shall be
implied from any failure of Lender to take or any delay by Lender
in taking action with respect to any such Default Event or from
any previous waiver of any similar or unrelated Default Event. A
waiver of any term contained in the Collateral Documents or of
any of the covenants and obligations of Borrower contained in the
Collateral Documents, must be made in writing and shall be
limited to the express written terms of such waiver.
8. GENERAL PROVISIONS
(a) AMENDMENT. No amendment or modification of this
Assignment shall be deemed effective unless and until it is an
express writing executed by both Borrower and Lender.
(b) ASSIGNMENT. The rights, benefits and obligations of
Borrower under this Assignment are personal in nature and shall
not be assignable, transferable or encumberable in any manner
whatsoever, whether directly or indirectly or, and whether inter
vivos or testamentary. Any purported assignment by Borrower in
violation of this Section 8(b) shall be null and void and of no
force and effect. All covenants and agreements hereunder shall
inure to the benefit of and be enforceable by Lender, its
successors or assigns.
(c) ATTORNEYS' FEES AND COSTS. Borrower and Lender agree
that Borrower shall be liable for and pay any and all attorneys'
fees and costs associated with the execution of the Loan,
including, but not limited to, the preparation of the Loan
Documents. Borrower and Lender further agree that in the event
of a dispute, arbitration by either party in any dispute,
arbitration or litigation concerning this Agreement, the losing
party shall pay the prevailing party's reasonable attorneys' fees
and costs in that dispute, arbitration or litigation.
(d) CAPTIONS AND PRONOUNS. The captions appearing at the
commencement of the sections hereof are descriptive only and for
convenience in reference to this Assignment and in no way
whatsoever define, limit or describe the scope or intent of this
Assignment nor in any way affect this Assignment.
(e) COUNTERPARTS. This Assignment may be executed at
different times and in multiple counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
9
<PAGE>
(f) CONTINUED FORCE AND EFFECT. This Agreement may not be
invalidated by and may not be made subject to any order of any
domestic relations or family law court without the express
written consent of Lender.
(g) EFFECT OF WAIVER. The waiver by either party of a
breach of any provision of this Assignment shall not operate or
be construed as a waiver of any subsequent breach thereof.
(h) ENTIRE AGREEMENT. This Assignment contains the entire
agreement between the parties and cannot be changed or terminated
unless in an express writing, executed by the parties hereto.
(i) GENDER. Masculine or feminine pronouns shall be
substituted for the neuter form and vice versa and the plural
shall be substituted for the singular form and vice versa in any
place or places herein in which the context requires such
substitution or substitutions.
(j) GOVERNING LAW. This Assignment shall be governed by
and construed in accordance with the laws of the State of Nevada
in effect on the date of this Assignment without resort to any
conflict of laws principles, and the courts of the State of
Nevada shall have sole and exclusive jurisdiction over any matter
brought under, or by reason of, this Assignment.
(k) INCORPORATION. The Collateral Documents are
incorporated herein by reference, and in the event any provision
thereof is inconsistent with the provisions of this Assignment,
then this Assignment shall be deemed paramount unless the rights
and remedies of the Lender would be adversely affected or
diminished thereby.
(l) NEUTRAL INTERPRETATION. The provisions contained
herein shall not be construed in favor of or against any party
because that party or its counsel drafted this Assignment, but
shall be construed as if all parties prepared this Assignment,
and any rules of construction to the contrary are hereby
specifically waived. The terms of this Assignment were
negotiated at arm's length by the parties hereto.
(m) NOTICE. Any and all notices required under this
Assignment shall be in writing and shall be either (i) hand-
delivered; (ii) mailed, first-class postage prepaid, certified
mail, return receipt requested; (iii) transmitted via telecopier
provided that confirmation is obtained; or (iv) delivered via a
nationally recognized overnight courier service, addressed to:
LENDER: Paul S. Endy, Jr.,
Chairman of the Board and Chief
Executive Officer
Paul-Son Gaming Corporation
2121 S. Industrial Road
Las Vegas, Nevada 89102
COPY TO: Laurence A. Speiser, Esq.
2121 S. Industrial Road
Las Vegas, Nevada 89102
10
<PAGE>
BORROWER: Martin S. Winick
29449 Edgedale Road
Pepper Pike, Ohio 44124
All notices hand-delivered shall be deemed delivered as of
the date actually delivered. All notices mailed or delivered
via overnight courier shall be deemed delivered as of three
(3) business days after the date postmarked. Any changes
in any of the addresses listed herein shall be made by notice as
provided in this Section 8(m).
(n) PARTIAL INVALIDITY. If any term, condition, covenant,
or provision of this Assignment, or any application thereof,
shall be held by a court of competent jurisdiction to be invalid,
void or unenforceable, all provision, covenants, and conditions
of this Lease and applications thereof, not held invalid, void or
unenforceable, shall continue in full force and effect and shall
in no way be affected, impaired or invalidated thereby.
(o) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Assignment shall
survive the execution and delivery of this Assignment.
IN WITNESS WHEREOF, the undersigned have executed this
Assignment on the date first written above.
Borrower:
/s/ Martin S. Winick
By: Martin S. Winick
Lender:
Paul-Son Gaming Corporation, a Nevada corporation
/s/ Paul S. Endy, Jr.
By: Paul S. Endy, Jr.
Chairman of the Board and Chief Executive Officer
11
<PAGE>
COLLATERAL UNDERTAKING AGREEMENT
This Collateral Undertaking Agreement (this "Agreement") is
made as of the 19th day of November 1996, by and between Paul S.
Endy, Jr. individually and as Trustee of the Paul S. Endy, Jr.
Living Trust (hereinafter collectively referred to as "Endy") and
Paul-Son Gaming Corporation, a Nevada corporation (hereinafter
referred to as the "Company").
RECITALS
A. Endy affirms and acknowledges the continuing validity
and enforceability of the Stock Option Agreement (the "Option
Agreement") by and between Endy and Martin S. Winick (hereinafter
referred to as "Borrower") on the 1st day of July, 1996;
B. This Agreement is being executed in connection with the
Company's grant of a line of credit loan to Borrower in the
original principal amount of ONE-HUNDRED FIFTY THOUSAND AND
NO/100THS DOLLARS ($150,000.00 U.S.) (the "Loan");
C. The Loan is evidenced by series of documents and
agreements executed by Borrower, including, but not limited to a
Line of Credit Loan Agreement ("Loan Agreement"), Line of Credit
Promissory Note (including any amendments or modifications
thereto or restatements thereof, the "Note"), Security Agreement,
Assignment Agreement, Power of Attorney Agreement, Uniform
Commercial Code Financing Statements and the relating documents
thereunder (hereinafter collectively referred to as the
"Collateral Documents"); and
D. Company requires as a condition and an inducement to
the making of the Loan to Borrower that Endy execute and deliver
this Agreement.
Now, Therefore, in consideration of the several and mutual
promises, agreements, covenants, understandings, undertakings,
representations and warranties hereinafter set forth, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Endy agrees that
the Recitals are true and correct and by this reference
incorporated herein as if fully set forth and further covenants
and agrees as follows:
In the event of (a) a Default Event under the Loan
Agreement, or (b) the filing of a voluntary petition for
bankruptcy by Borrower or an involuntary petition for bankruptcy
by Borrower's creditors or any similar proceeding and in the
event of any outstanding indebtedness of Borrower under the Loan,
Endy hereby agrees as follows:
(1) Endy hereby agrees to immediately transfer to the
Company (the "Transfer") that certain number of shares of common
stock of the Company (the "Transfer Shares"), strictly limited to
the shares which are the subject of the Option Agreement, only to
the extent necessary to satisfy the outstanding indebtedness
under the Loan Agreement plus ten percent due to the Company.
This agreement is made with the understanding that Endy may be
subject to claims of third parties, including, but not limited
to, certain bankruptcy estates or trustees, who may attempt to
assert interests in shares under the Option.
<PAGE>
(2) Endy hereby agrees to indemnify, defend and hold
harmless the Company with respect to any and all bankruptcy-
related actions and liabilities as they relate to the Transfer.
The bankruptcy-related actions and liabilities shall include, but
are not limited to, the turnover of property to the bankruptcy
estate, the attempt to avoid the Transfer on fraudulent
conveyance grounds, and the attempt to avoid the Transfer on
improper set-off grounds.
In Witness Whereof, the undersigned has executed this
Agreement as of the day first above written.
Endy:
Paul S. Endy, Jr.
/s/ Paul S. Endy, Jr.
By: Paul S. Endy, Jr.
and
Paul S. Endy, Jr. Living Trust
/s/ Paul S. Endy, Jr.
By: Paul S. Endy, Jr., Trustee
The Company:
Paul-Son Gaming Corporation, a Nevada corporation
By: /s/ Paul S. Endy, Jr.
Its:
Consented to by:
/s/ Martin S. Winick
By: Martin S. Winick
2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statements of income of Paul-Son Gaming
Corporation, as of and for the quarter November 30, 1996, and is qualified in
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1996
<CASH> 1,681
<SECURITIES> 0
<RECEIVABLES> 3,539
<ALLOWANCES> 330
<INVENTORY> 5,468
<CURRENT-ASSETS> 11,086
<PP&E> 8,449
<DEPRECIATION> 1,149
<TOTAL-ASSETS> 19,004
<CURRENT-LIABILITIES> 2,927
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 15,631
<TOTAL-LIABILITY-AND-EQUITY> 19,004
<SALES> 6,307
<TOTAL-REVENUES> 6,307
<CGS> 4,101
<TOTAL-COSTS> 4,101
<OTHER-EXPENSES> 1,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 761
<INCOME-TAX> 278
<INCOME-CONTINUING> 483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 483
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
