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, 1997
-------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number: 0-23588
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PAUL-SON GAMING CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 88-0310433
- ---------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1700 S. Industrial Road, Las Vegas, Nevada 89102
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(Address of principal executive offices) (Zip Code)
(702) 384-2425
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(Registrant's telephone number, including area code)
Not Applicable
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(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.
3,438,500 shares of Common Stock, $0.01 par value as of
January 8, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1997 AND MAY 31, 1997
ASSETS
NOVEMBER 30, MAY 31,
1997 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $744,271 $2,753,152
Trade receivables, less allowance
for doubtful accounts
($314,574, November 30, 1997;
$269,140, May 31, 1997) 4,753,695 3,669,139
Inventories (Note 2) 5,962,691 5,350,446
Prepaid expenses 262,003 140,962
Income tax benefit receivable 143,421 -
Other current assets 1,046,120 627,808
------------ ------------
Total current assets 12,912,201 12,541,507
------------ ------------
PROPERTY AND EQUIPMENT, NET (NOTE 4) 8,566,893 7,250,030
------------ ------------
OTHER ASSETS
Note receivable (Note 5) 150,000 150,000
Goodwill and other assets 447,962 455,205
------------ ------------
597,962 605,205
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$22,077,056 $20,396,742
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
debt (Note 4) $65,698 $24,052
Accounts payable 596,108 727,196
Accrued expenses 438,738 584,212
Customer deposits 2,294,996 1,579,161
Income tax payable - 318,930
------------ ------------
Total current liabilities 3,395,540 3,233,551
------------ ------------
LONG-TERM DEBT, NET OF CURRENT
MATURITIES
Notes and contracts payable (Note 4) 1,801,792 67,424
Deferred tax liability, net 11,060 11,060
------------ ------------
1,812,852 78,484
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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 3,433,500 and
3,417,000 shares as of November 30,
1997 and May 31, 1997 34,335 34,170
Additional paid-in capital 13,243,993 13,108,998
Retained earnings 3,590,336 3,941,539
------------ ------------
16,868,664 17,084,707
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$22,077,056 $20,396,742
============ ============
</TABLE>
2
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $6,093,221 $6,307,018 $11,639,804 $12,349,776
Cost of revenues 4,246,388 4,100,826 8,987,967 8,227,219
----------- ----------- ------------ ------------
Gross profit 1,846,833 2,206,192 2,651,837 4,122,557
Selling, general and
administrative
expenses (Note 5) 1,720,166 1,461,965 3,287,706 2,877,514
----------- ----------- ------------ ------------
Operating income
(loss) 126,667 744,227 (635,869) 1,245,043
Other income 28,940 27,362 90,441 47,084
Interest expense (2,793) (11,018) (7,647) (24,412)
----------- ----------- ------------ ------------
Income (loss) before
income taxes 152,814 760,571 (553,075) 1,267,715
Income tax benefit
(expense) (55,777) (277,608) 201,872 (462,716)
----------- ----------- ------------ ------------
Net income (loss) $97,037 $482,963 ($351,203) $804,999
=========== =========== ============ ============
Net income (loss) per
share $0.03 $0.15 ($0.10) $0.24
=========== =========== ============ ============
Weighted average common
shares outstanding 3,423,997 3,324,000 3,422,102 3,324,000
=========== =========== ============ ============
</TABLE>
3
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $11,258,448 $12,618,784
Cash paid to suppliers and employees (13,168,004) (10,969,358)
Interest received 61,305 32,617
Interest paid (7,647) (24,412)
Income tax refund - 842
Income taxes paid (260,479) (319,700)
------------- ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (2,116,377) 1,338,773
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on sale of equipment 7,350 3,600
Investment in note receivable (note 5) - (150,000)
Purchase of property and equipment (1,811,028) (448,181)
------------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (1,803,678) (594,581)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on due to related party (15,000)
Proceeds from long-term borrowings 1,800,000 -
Proceeds from exercise of options 135,160 -
Principal payments on long-term borrowings (23,986) (45,536)
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,911,174 (60,536)
------------- ------------
Net (decrease) increase in cash and cash equivalents (2,008,881) 683,656
CASH AND CASH EQUIVALENTS, beginning of period 2,753,152 997,509
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $744,271 $1,681,165
============= ============
RECONCILIATION OF NET (LOSS) INCOME TO NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
Net (loss) income ($351,203) $804,999
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 483,152 401,022
Provision for bad debts 45,434 48,000
Loss on sale of assets 3,663 2,594
Change in assets and liabilities:
(Increase) in accounts receivable (1,129,990) (655,028)
(Increase) in income tax benefit receivable (143,421) -
(Increase) decrease in inventories (612,245) 136,513
(Increase) decrease in prepaid expenses (121,041) 47,063
(Increase) decrease in other current assets (260,822) (307,542)
(Increase) decrease in other assets (150,247) 2,281
Decrease in account payable and accrued expenses (276,562) (209,838)
Increase in customer deposits 715,835 906,975
Increase (decrease) in income taxes payable (318,930) 161,734
------------- ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ($2,116,377) $1,338,773
============= ============
</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 ("Paul-Son"
or "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
The consolidated balance sheets as of November 30, 1997 and
May 31, 1997 include the accounts of Paul-Son, Paul-Son Gaming
Supplies, Inc. ("Paul-Son Supplies") and Paul-Son Mexicana, S.A.
de C. V. ("Mexicana"). The consolidated statements of operations
and cash flows of Paul-Son for the three month and six month
periods ended November 30, 1997 and 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, 1997 and
the statements of operations and cash flows for the three and six
month periods ended November 30, 1997 and 1996 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 period. 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
The Company considers all highly liquid investments and
repurchase agreements with original maturities of three months or
less to be 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
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTNG POLICIES
(continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of
depreciation. Depreciation is computed primarily on the straight
line method for financial reporting purposes over the following
estimated useful lives:
Years
-----
Building and improvements 18-27
Furniture and equipment 5-10
Vehicles 5-7
GOODWILL
Goodwill is amortized on a straight-line basis over 20
years.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted
average number of shares outstanding during the periods.
ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued
the following statements of financial accounting standards
("FAS"): FAS No. 128 "Earnings per Share," FAS No. 129,
"Disclosure of Information about Capital Structure," FAS No. 130,
"Reporting Comprehensive Income," and FAS No. 131 "Disclosure
About Segments of an Enterprise and related Information." FAS
No. 128 and 129 are effective for periods ending after December
15, 1997, and establish standards for computing and presenting
earnings per share ("EPS"), and for disclosing information about
an entity's capital structure, respectively. Management believes
these standards will not have a significant impact on its EPS or
financial statement disclosure. FAS No. 130 and 131 are
effective for periods beginning after December 15, 1997. FAS No.
130 requires classifying items of other comprehensive income by
their nature in a financial statement. FAS No. 131 establishes
additional standards for segment disclosures in the financial
statements. Management has not determined the effect of these
statements on its financial statement disclosures.
6
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVENTORIES
Inventories consist of the following:
November 30, May 31,
1997 1997
------------- -------------
Raw materials $ 1,869,721 $ 1,977,089
Work in process 403,820 465,514
Finished goods 3,689,150 2,907,843
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$ 5,962,691 $ 5,350,446
============= =============
NOTE 3 - SHORT-TERM BORROWINGS
In November 1997, the Company acquired a line of credit with
a bank which allows maximum borrowing of $1 million. The line of
credit and a note payable of $1.8 million (see Note 4) are
collateralized by a first deed of trust on the Company's main
warehouse and corporate offices in Las Vegas, Nevada, and a first
security interest covering the Company's assets. The line of
credit expires October 31, 1998. There was no balance
outstanding under the line of credit at November 30, 1997.
Under the line of credit, the Company has agreed to comply
with certain financial covenants and ratios. Specifically, the
Company has agreed to maintain profitability on an annualized
basis of at least $250,000, maintain a tangible net worth
(stockholders' equity less intangible assets, and amounts due
from and investments in related parties) of at least $14.5
million and maintain a debt to tangible worth ratio (total
liabilities divided by tangible net worth) of less than 0.5 to 1
on a quarterly basis.
NOTE 4 - LONG-TERM DEBT AND PLEDGED ASSETS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
------------ ---------
<S> <C> <C>
Note payable to a bank, payable
in monthly installments of
$18,118 including interest of
8.87% through October 2003 with
a balloon payment of approximate-
ly $1,450,000 due December 2003,
secured by first deed of trust
on the Company's main facility
in Las Vegas, Nevada and a first
security interest covering the
Company's assets and the Company
has agreed to maintain the same
financial covenants as provided
under the line of credit $1,800,000 $ -
Various notes payable for
equipment, interest at 14.5% to
25.5%, payable in monthly
payments of $6,300 through
1997 - 27,472
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 67,490 64,004
----------- ----------
1,867,490 91,476
Less current portion 65,698 24,052
----------- ----------
$1,801,792 $ 67,424
=========== ==========
</TABLE>
7
<PAGE>
PAUL-SON GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - RELATED PARTIES
The following amounts were paid for legal and consulting
fees to an individual who is currently a member of the Company's
Board of Directors:
1997 1996
--------- ---------
Laurence Speiser $ 75,544 $ 53,042
========= =========
On November 22, 1996 the Company advanced to a director a
$150,000 line of credit. The line of credit is to be repaid in
full on or before December 1998, with interest only payable
quarterly to the Company at an interest rate equal to prime plus
2%. The loan is secured by a general pledge agreement covering
all of the director's assets, rights to purchase certain shares
of the Company's stock, and a pledge of certain shares of the
Company's common stock by the Company's principal 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.
COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30,
1997 AND NOVEMBER 30, 1996
REVENUES. For the three months ended November 30, 1997,
revenues were approximately $6.1 million, a $214,000 or a 3.4%
decrease from the approximately $6.3 million in revenues in the
comparable period of the prior year. This decrease was due
principally to a decrease in revenues from new casino openings
and major expansions. During the three months ended November 30,
1997, the Company supplied products totaling approximately $1.8
million to 6 new casinos and casino expansions, a decrease of
approximately $1.1 million from the approximately $2.9 million
sold to 12 new casinos in the comparable period of the prior
year. Core sales revenue, however, which are sales of consumable
gaming supplies and equipment to the Company's existing customer
base, increased by 25.5% or approximately $864,000, to
approximately $4.3 million for the three months ended November
30, 1997, versus approximately $3.4 million in core sales for the
same period in the prior year. The increase in core sales was
due principally to increases in playing card sales. Playing card
sales were approximately $1.0 million for the quarter ended
November 30, 1997, an increase of 30.7% over the approximately
$700,000 in playing card sales for the comparable period of the
prior year.
COST OF REVENUES. Cost of revenues, as a percentage of
sales, increased to 69.7% for the three months ended November 30,
1997, as compared to 65.2% for the three months ended November
30, 1996. This percentage increase was due principally to two
factors; lower sales volume and corresponding lower operating
efficiencies (i.e. decreased sales resulting in a lower number of
units produced over the same fixed production costs). In
addition, the product mix sold in the prior year's quarter ended
November 30, 1996 was unusually favorable in comparison to the
historical results of the Company (i.e. casino chip sales, for
which the Company normally generates the highest gross margin,
were unusually high for the quarter ended November 30, 1996). The
cost of revenues at 69.7% for the quarter ended November 30, 1997
is typical of the Company's historic cost of sales percentages
which have ranged from 69.1% to 69.7% during the last three
fiscal years.
During several of the Company's prior reporting quarters,
the Company has experienced a positive impact from the decrease
in the value of the Mexican peso. Over the last year, the value
of the Mexican peso has stabilized. The Company cannot predict
what impact fluctuations in the valuation of the Mexican peso
will have on the cost of the Company's products manufactured in
Mexico.
9
<PAGE>
GROSS PROFIT. Gross profit for the three months ended
November 30, 1997 decreased in absolute dollars by approximately
$359,000 from the comparable period in the prior year as a result
of lower revenues and the higher cost of revenues as a percentage
of sales from 65.2% to 69.7%, due to the factors discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the
three months ended November 30, 1997, selling, general and
administrative ("SG&A") expenses increased approximately $254,000
or 17.4%, to approximately $1.7 million, as compared to the
approximately $1.5 million in the comparable period of the prior
year. Major increases in SG&A expenses included increases in
salaries and wages ($108,000), travel and promotion ($28,000) as
a result of the Company's efforts to expand market share for its
products and expand sales coverage in certain areas, and
depreciation ($35,000) as a result of the Company's installation
of additional production facilities in the past several reporting
periods.
NET INCOME. For the three months ended November 30, 1997
the Company's net income was approximately $97,000, a $386,000 or
a 79.9% decrease from the approximately $483,000 in net income
for the quarter ended November 30, 1996, primarily as a result of
decreases in sales and gross profit, and increases in SG&A
expenses over the comparable period in the prior year. Net
income per share decreased 80.0% to $.03 for the three months
ended November 30, 1997, as compared to net income per share of
$.15 per share for the three months ended August 31, 1996, based
on the weighted average number of shares outstanding.
COMPARISON OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30,
1997 AND NOVEMBER 30, 1996
REVENUES. For the six months ended November 30, 1997,
revenues totaled approximately $11.6 million, a $710,000 or a
5.7% decrease from the approximately $12.3 million in revenues in
the comparable period of the prior year. This decrease was due
primarily to a decrease in new casino openings. The Company
supplied products totaling approximately $3.5 million to 7 new
casinos and 3 major expansions in the six months ended November
30, 1997, versus approximately $4.6 million to 14 new casinos and
3 major expansions in the comparable period of the prior year.
Core sales revenue, however, increased by 4.9% or approximately
$400,000 to approximately $8.1 million for the six months ended
November 30, 1997, versus approximately $7.7 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, increased during the six months
ended November 30, 1997, principally due to an increase in
playing card sales during the period. Playing card sales were
approximately $2.0 million for the six months ended November 30,
1997, an increase of approximately 25.0% over the approximately
$1.6 million in playing card sales in the comparable period of
the prior year.
COST OF REVENUES. Cost of revenues, as a percentage of
sales, increased to 77.2% for the six months ended November 30,
1997, as compared to 66.6% for the six months ended November 30,
1996. This significantly higher percentage increase in cost of
sales was due principally to two factors; lower sales volume and
corresponding lower operating efficiencies (i.e. decreased sales
resulting in a lower number of units produced over the same fixed
production costs), coupled with an unusual product mix in the
quarter ended August 31, 1997 in comparison to the Company's
historical operations. After the first quarter of the current
fiscal year in which the cost of revenues as a
10
<PAGE>
percentage of sales was 85.5% primarily due to a lack of casino
chip sales, the cost of revenues in the second quarter of the
current fiscal year returned to a more typical percentage of
69.7%. The aberration in product mix during the quarter ended
August 31, 1997 is considered unusual and the Company does not
expect it to continue in future periods.
During several of the Company's prior reporting periods, the
Company has experienced a positive impact from the decrease in
the value of the Mexican peso. Over the last several months the
value of the Mexican peso has stabilized. The Company cannot
predict what impact fluctuations in the Mexican peso will have on
the cost of the Company's products manufactured in Mexico.
GROSS PROFIT. Gross profit for the six months ended
November 30, 1997 decreased in absolute dollars by approximately
$1.5 million from the comparable period in the prior year as a
result of lower revenues and the higher cost of revenues as a
percentage of sales from 66.6% to 77.2%, due to factors discussed
above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the six
months ended November 30, 1997, SG&A expenses increased
approximately $406,000 or 14.3%, to approximately $3.3 million as
compared to the approximately $2.9 million in the comparable
period of the prior year. Major increases in SG&A expenses
included increases in salaries and wages ($173,000), advertising
and promotion ($35,000) as a result of the Company's efforts to
expand market share for its products and expand sales coverage in
certain areas, and depreciation ($79,000) as a result of the
Company's installation of additional production facilities in
the past several reporting periods.
NET INCOME. For the six months ended November 30, 1997,
the Company sustained a net loss of approximately $351,000, a
decrease in net income of approximately $1.2 million, versus the
record net income of approximately $805,000 for the six month
period ended November 30, 1996. The decrease was primarily a
result of decreases in sales and gross profit, and increases in
SG&A expenses over the comparable period in the prior year. The
net loss per share was $0.10 for the six months ended November
30, 1997, as compared to net income of $0.24 per share for the
six months ended November 30, 1996, based on the weighted average
number of shares outstanding.
11
<PAGE>
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
$9.4 million at November 30, 1997, virtually unchanged from the
approximately $9.3 million in working capital at May 31, 1997.
CASH FLOW. Operating activities used approximately $2.1
million in cash during the six months ended November 30, 1997, as
compared to cash generated of approximately $1.3 million during
the same period in the prior year. The major operational uses of
cash during the period were in increased accounts receivable
($414,000 net of increased customer deposits), additional
inventories ($612,000, due to the operation of and duplication of
inventories at playing card factories in both Las Vegas and
Mexico and an increase in inventories for large orders expected
to be delivered in the next fiscal quarter), the Company's net
loss before depreciation and income taxes of approximately
$330,000, and the reduction of accounts payable and accrued
expenses of $276,000. Overall the Company experienced a decrease
in cash of approximately $2.0 million, with $2.1 million used by
operations, $1.8 million used to purchase property and equipment
during the period and $1.8 million provided by new bank financing
(see the Norwest Bank Note and Deed of Trust below).
LINE OF CREDIT. During the period, the Company replaced its
previously existing line of credit with a new line of credit (the
"Line of Credit") from Norwest Bank of Nevada ("Norwest"), which
allows the Company to borrow up to $1.0 million. The Line of
Credit matures on October 31, 1998. As of November 30, 1997, no
advances were outstanding and all 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 Norwest, accounts receivable, inventory,
furniture, fixtures and equipment, and bears interest at a
variable rate equal to Norwest'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 profitability on an annualized
basis of at least $250,000, maintain a tangible net worth
(stockholders' equity less intangible assets, and amounts due
from and investments in related parties) of at least $14.5
million and maintain a debt to tangible worth ratio (total
liabilities divided by tangible net worth) of less than 0.5 to 1
on a quarterly basis.
NORWEST BANK NOTE AND DEED OF TRUST. On November 14, 1997,
the Company borrowed $1.8 million (the "Norwest Bank Note and
Deed of Trust") from Norwest Bank of Nevada ("Norwest"). The
proceeds from the Norwest Bank Note and Deed of Trust were used
to replenish the funds expended by the Company for the purchase
of the New San Luis Facility (see below), and for additional
playing card equipment and working capital needs. The Norwest
Bank Note and Deed of Trust bears interest at 8.87%, payable in
fixed monthly payments of $18,118 through November 14, 2002, at
which time the loan matures and all remaining principal is due.
The Norwest Bank Note and Deed of Trust is secured by a first
trust deed on the New Las Vegas Facility (see below) and a
blanket security agreement on substantially all of the Company's
assets, in combination with the Line of Credit. In addition, the
Company has agreed to comply with the same financial covenants as
specified under the Line of Credit.
12
<PAGE>
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). In the past, there
has not appeared to be any seasonality associated with the
Company's "core sales" to existing customers.
BACKLOG. Open orders as of November 30, 1997 totaled
approximately $3.7 million, compared to approximately $3.2
million at November 30, 1996. 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.
LAS VEGAS FACILITIES. In May 1997, the Company relocated
its corporate headquarters to new facilities (the "New Las Vegas
Facility") in Las Vegas. The New Las Vegas Facility was
purchased in September 1995 for $2.0 million, and since September
1995, the Company has made improvements totaling approximately
$375,000. The New Las Vegas Facility now houses the casino
sales office, a centralized warehouse of finished goods
inventory, the Las Vegas playing card production line, roulette
and Big Six wheel manufacturing and the table layout art and chip
art departments. The Company's retail sales showroom, plastic
dealing shoes manufacturing and some limited warehousing is
located at the Company's former headquarters (the "Original Las
Vegas Facility") which the Company has owned since 1966. The
remaining components of the Original Las Vegas Facility continue
to be listed for sale.
SAN LUIS FACILITIES. In January of 1997, the Company
installed a second playing card production line in its San Luis,
Mexico facilities (the "San Luis Facilities"). The use of
existing space at its San Luis Facilities provides additional
playing card production capacity while the Company evaluates
production costs and efficiencies achieved in the San Luis
Facilities. 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 the Company's
anticipated decrease in per unit production costs. Management is
analyzing whether the anticipated lower playing card production
costs justify the relocation of other portions of its
manufacturing operations to Mexico.
NEW SAN LUIS BUILDING. In July 1997, the Company's Board of
Directors approved the purchase of an existing approximately
66,000 square foot building (the "New San Luis Building") in San
Luis, Mexico located approximately 400 yards from the Company's
existing facility for $1.1 million. The purchase of this New San
Luis Building was completed on or before November 5, 1997. The
funds for the purchase of the New San Luis Building were
generated by the $1.8 million Norwest Bank Note and Deed of
Trust. The Company is currently in the process of installing the
equipment and improvements necessary to use the New San Luis
Building for additional playing card manufacturing to accommodate
the additional playing card contracts already signed as well as
the anticipated future increase in demand for the Company's
playing cards.
13
<PAGE>
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that
may be considered forward-looking, 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 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.
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, 1997, 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.
14
<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
None.
ITEM 5. OTHER INFORMATION
None.
15
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.01 Letter Loan Agreement dated November 14, 1997,
among Norwest Bank Nevada, National
Association, Paul-Son Gaming Supplies, Inc.,
as borrower, and Paul-Son Gaming Corporation,
as guarantor; Guaranty dated November 14,
1997, by Paul-Son Gaming Corporation in favor
of Norwest Bank Nevada, National Association;
Term Note dated November 14, 1997, by Paul-
Son Gaming Supplies, Inc., payable to Norwest
Bank Nevada, National Association; Promissory
Note dated November 14, 1997 by Paul-Son
Gaming Supplies, Inc., payable to Norwest Bank
Nevada, National Association; Continuing
Credit Agreement dated November 14, 1997, by
Paul-Son Gaming Supplies, Inc. in favor of
Norwest Bank Nevada, National Association;
Continuing Security Agreement dated November
14, 1997, by Paul-Son Gaming Corporation in
favor of Norwest Bank Nevada, National
Association; and Deed of Trust dated November
14, 1997, among Paul-Son Gaming Supplies,
Inc., as grantor, Norwest Bank Nevada,
National Association, as beneficiary, and
Americorp Financial, Inc., as trustee.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
None.
16
<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
Date: January 13, 1998 By: /s/ Eric P. Endy
Eric P. Endy, President
(Duly Authorized
Officer)
Date: January 13, 1998 By: /s/ Kirk Scherer
Kirk Scherer, Treasurer
and Chief Financial
Officer
(Principal Financial
Officer)
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ------------ ------
<S> <C> <C>
10.01 Letter Loan Agreement dated November 14, 1997, 19
among Norwest Bank Nevada, National Association,
Paul-Son Gaming Supplies, Inc., as borrower, and
Paul-Son Gaming Corporation, as guarantor;
Guaranty dated November 14, 1997, by Paul-Son
Gaming Corporation in favor of Norwest Bank
Nevada, National Association; Term Note dated
November 14, 1997, by Paul-Son Gaming Supplies,
Inc., payable to Norwest Bank Nevada, National
Association; Promissory Note dated November 14,
1997 by Paul-Son Gaming Supplies, Inc., payable
to Norwest Bank Nevada, National Association;
Continuing Credit Agreement dated November 14,
1997, by Paul-Son Gaming Supplies, Inc. in favor
of Norwest Bank Nevada, National Association;
Continuing Security Agreement dated November 14,
1997, by Paul-Son Gaming Corporation in favor of
Norwest Bank Nevada, National Association; and
Deed of Trust dated November 14, 1997, among
Paul-Son Gaming Supplies, Inc., as grantor,
Norwest Bank Nevada, National Association, as
beneficiary, and Americorp Financial, Inc., as
trustee.
27.01 Financial Data Schedule. 62
</TABLE>
18
<PAGE>
EXHIBIT 10.01
19
<PAGE>
[Original printed on letterhead of Norwest Banks]
November 14, 1997
Mr. Eric P. Endy, Executive Vice President
Paul-Son Gaming Supplies, Inc.
1700 Industrial Road
Las Vegas, NV 89102
RE: Letter Loan Agreement
Dear: Mr. Endy:
We are pleased to inform you that Norwest Bank Nevada,
National Association (the "Bank"), has approved the Credit
Facilities described below, according to the terms and conditions
set out in this Letter Loan Agreement (the "Agreement"), in
addition to those set out in any other documents (collectively,
the "Loan Documents") which may be signed in connection with this
transaction.
BORROWER: For purposes of this Agreement, the Borrower is
Paul-Son Gaming Supplies, Inc. (the "Borrower").
GUARANTOR: For purposes of this Agreement, the Guarantor is
Paul-Son Gaming Corporation (the "Guarantor").
CREDIT FACILITY 1: Borrower agrees to borrow from the Bank,
and, subject to the terms and conditions of this Agreement and
the other Loan Documents, Bank agrees to loan, to or for the
benefit of Borrower, a sum not to exceed One Million Eight
Hundred Thousand and no/100ths Dollars ($1,800,000.00).
Indebtedness arising under Credit Facility 1 shall be evidenced
by and bear interest as provided in Bank's form of promissory
note, dated November 14, 1997 ("Note 1"), which shall be duly
signed and delivered to Bank by Borrower, and all notes taken in
renewal or modification of, additional to or substitution for it.
CREDIT FACILITY 2: Subject to the terms and conditions of
this Agreement and the other Loan Documents, Bank may make funds
available to Borrower from time to time (the "Advances"), which
Borrower may at the sole discretion of the Bank, which shall not
be obligated to make any Advance hereunder, borrow, repay and
reborrow until, but not including October 31, 1998, in an amount
not to exceed One Million and No/100 Dollars ($1,000,000.00) in
aggregate principal amount at any time outstanding. Indebtedness
arising under the Credit Facility shall be evidenced by and bear
interest as provided in Bank's form of promissory note, dated
November 14, 1997 ("Note 2"), which shall be duly signed and
delivered to Bank by Borrower, and all notes taken in renewal or
modification of, additional to or substitution for it. Notes 1
and 2 shall be referred to collectively herein as the "Notes."
LOAN PURPOSES: The purpose of Credit Facility 1 is to
provide funds for the purchase of capital assets consisting of a
manufacturing facility and equipment. The purpose of Credit
Facility 2 is to provide funds availability in the event that
Borrower either takes a longer maturity position in its
investment portfolio or receives a significant order or series of
orders requiring up-front charges that cannot be collected from
new clients.
MATURITY DATES: The Maturity Date of Credit Facility 1 is
November 14, 2002 ("Maturity Date 1"). The Maturity Date of
Credit Facility 2 is the earlier of demand or October 31, 1998
("Maturity Date 2").
INTEREST RATES: Interest on Credit Facility 1 shall be
calculated at an annual fixed rate of eight and eighty-seven one-
hundredths percent (8.87%), on the basis of actual days elapsed
in a year of 360 days. Interest on Credit Facility 2 shall be
calculated at an annual rate equal to the Base Rate on the
<PAGE>
basis of actual days elapsed in a year of 360 days. "Base Rate"
means the rate established by the Bank from time to time as its
"base" or "prime" rate of interest. The interest rate on Credit
Facility 2 may vary as often as daily with any change in the Base
Rate.
REPAYMENT: Credit Facility 1 shall be repaid in fifty-nine
(59) consecutive monthly installments of $18,118.00 each
commencing December 15, 1997, and continuing on the 15 day of
each succeeding month, with a final payment on Maturity Date 1,
at which time the entire remaining balance of principal and
interest shall be immediately due and payable. Unless demand is
made sooner, Credit Facility 2 shall be repaid in successive
monthly installments of accrued interest commencing on December
1, 1997, and continuing on the first day of each succeeding month
until Maturity Date 2, at which time the entire remaining balance
of principal and interest shall be immediately due and payable.
COLLATERAL: The Credit Facilities shall be secured by a
perfected first security interest in all accounts, equipment,
inventory and general intangibles of Borrower, whether owned as
of the date of this Agreement or acquired or arising later, and
by a title-insured first deed of trust on commercial real estate
owned by Borrower located at 1700 Industrial Road, Las Vegas,
Nevada.
PREPAYMENT: The Credit Facilities may be prepaid in whole
or in part at any time upon written or telephonic notice to the
Bank. Prepayment must be received by the Bank before 12:00 p.m.
local time in Nevada on any business day in order for prepayment
to be credited as of that business day. Prepayment received at
12:00 p.m. or later local time in Nevada on any business day will
be credited as of the next business day.
SIGNIFICANT COVENANTS: Not in limitation of any other
covenants which may be required by the Bank pursuant to the Loan
Documents, during the term of the Credit Facilities or so long as
any portion of either is outstanding, Borrower shall:
(i) provide a resolution from the Borrower authorizing
the execution, delivery and performance of all of the Loan
Documents by Borrower and all acts and transactions required or
contemplated by them;
(ii) provide a resolution from the Guarantor
authorizing the execution, delivery and performance of all of the
Loan Documents by Guarantor and all acts and transactions
required or contemplated by them;
(iii) provide consolidated quarterly company-prepared
financial statements for Guarantor and its subsidiaries within 45
days after the end of each fiscal quarterly period, accompanied
by a copy of Borrower's 10-Q report filed with the Securities and
Exchange Commission;
(iv) provide CPA-audited consolidated annual financial
statements for Guarantor and its subsidiaries within 120 days
after the end of each fiscal year, accompanied by a copy of
Borrower's 10-K report filed with the Securities and Exchange
Commission;
(v) provide a company-prepared statement listing all
accounts receivable and accounts payable, with agings upon
request;
(vi) not make any loans to others;
(vii) not incur any obligations except for those
incurred in the ordinary course of its business;
(viii) maintain a tangible net worth at all times of not
less than $14,500,000.00, tangible net worth to be calculated by
subtracting from owners' equity (a) intangible assets, as defined
by Generally Accepted Accounting Principles, (b) net leaseholds,
(c) all amounts due from or investments in related parties, (d)
other assets which the Bank could not realize upon, and (e) those
other assets classified by the Bank's statement center standards
as intangibles;
<PAGE>
(ix) maintain a total liabilities to tangible net worth
ratio of no greater than 0.5 to 1.0, which ratio, for purposes of
this Agreement, shall be calculated on a quarterly basis by
dividing total liabilities, less subordinated debt by tangible
net worth, plus subordinated debt (subordinated debt being
defined as indebtedness of Borrower to other parties which is
subordinated, in form acceptable to Bank, to indebtedness of
Borrower to Bank);
(x) maintain an annualized profitability of not less
than $250,000.00, which shall be defined as after tax net
income;
(xi) maintain principal bank accounts with the Bank;
(xii) not permit any material change in its day-to-day
management personnel to occur, including without limitation, the
involvement of Paul Endy;
(xiii) not permit the attachment of any lien against
Borrower's property;
(xiv) pay off, on demand from the Bank and obtain a
release of, any lien on the Collateral for the Credit Facility
which would impair the lien priority of the Bank on the
Collateral;
(xv) provide to Bank a guaranty agreement whereby
Guarantor guarantees repayment of all indebtedness of Borrower to
Bank;
(xvi) provide before execution of the Loan Documents, a
Hazardous Waste Certificate in form and content satisfactory to
the Bank; and,
(xvii) pay all taxes when due.
EXPENSES: Expenses, not limited to internal or external
legal fees, an appraisal fee and an environmental assessment fee
plus all costs incurred in connection with maintaining, and
enforcing the Credit Facilities, including, but not limited to,
court costs and attorney fees, shall be paid by the Borrower.
CONDITIONS TO FACILITY: The Bank's obligation to provide or
to fund all or any portion of the Credit Facilities and the
extension of credit, if any, set forth in the Loan Documents will
be conditioned upon the following:
(i) no material adverse change in the condition, financial
or otherwise, of Borrower, Guarantor or the Collateral shall have
occurred, and no action, suit or proceeding shall be instituted
or threatened relating to the Credit Facilities;
(ii) execution of and delivery to the Bank of the Loan
Documents, all in form and substance satisfactory to the Bank and
its counsel;
(iii) receipt of an appraisal report order by the Bank from
an appraiser acceptable to the Bank in its sole discretion;
(iv) receipt of a Phase I environmental assessment report
ordered by the Bank from a consultant acceptable to the Bank
showing an environmental condition of the Collateral acceptable
to the Bank
(v) Borrower shall hold harmless and indemnify the Bank
from any and all claims of any nature arising out of Borrower's
business; and,
(vi) Borrower shall not be in default of any of the terms
of the Credit Facilities, any of the Loan Documents or of any
other agreement with the Bank.
EVENTS OF DEFAULT: Each of the following shall constitute
an Event of Default:
<PAGE>
(i) default in any payment of interest or of principal on
any Note when due, and continuance thereof for 10 days;
(ii) default in the observance or performance of any
agreement of the Borrower set forth in the Significant Covenants
or Conditions to Facility hereof or in any other agreement
between the Bank and the Borrower or evidence of indebtedness of
the Borrower to the Bank;
(iii) default in the observance or performance of any other
agreement of the Borrower herein set forth and continuance
thereof for 30 days;
(iv) default by Borrower or Guarantor in the payment of any
other indebtedness for borrowed money to any party or in the
observance or performance of any term, covenant or agreement of
Borrower or Guarantor in any agreement relating to any
indebtedness of Borrower or Guarantor to any party, the effect of
which default is to permit the holder of such indebtedness to
declare the same due prior to the date fixed for its payment
under the terms thereof;
(v) any representation or warranty made by the Borrower
herein or in any statement or certificate furnished by the
Borrower hereunder, is untrue in any material respect; or
(vi) the occurrence of any litigation or governmental
proceeding which is pending or threatened against Borrower or
Guarantor, which could have a material adverse effect on the
Borrower's or Guarantor's financial condition or business, and
which is not remedied within a reasonable period of time (a
reasonable period of time not to exceed 10 days) after notice
thereof to the Borrower.
REMEDIES: Immediately upon the occurrence of an Event of
Default, or at any time thereafter, unless such Event of Default
is remedied, the Bank or the holder of the Note may, by notice in
writing to the Borrower, declare the Credit Facilities to be
terminated or the Notes to be due and payable, or both, whereupon
the Credit Facilities shall immediately terminate or the Notes
shall immediately become due and payable, or both, as the case
may be.
BANKRUPTCY: If the Borrower or Guarantor becomes insolvent
or bankrupt, or makes an appointment for the benefit of creditors
or consents to the appointment of a custodian, trustee or
receiver for itself or for the greater part of its properties; or
a custodian, trustee or receiver is appointed for the Borrower or
Guarantor or for the greater part of its properties without its
consent and is not discharged within 60 days; or bankruptcy,
reorganization or liquidation proceedings are instituted by or
against the Borrower or Guarantor and, if instituted against it,
are consented to by it or remain undismissed for 60 days, then
the Credit Facilities shall immediately terminate and the Notes
shall automatically become immediately due and payable, without
notice.
DEMAND FEATURE ACKNOWLEDGMENT: The foregoing
notwithstanding, Borrower acknowledges that the indebtedness, if
any, arising under the Credit Facility 2 is payable upon demand
by the Bank whether or not an Event of Default or Bankruptcy
proceeding has occurred.
MISCELLANEOUS:
(i) Collateral securing the Credit Facilities shall also
secure any other indebtedness of the Borrower to the Bank, and
collateral securing any other indebtedness of the Borrower to the
Bank shall also secure the Credit Facilities.
ARBITRATION: Subject to the provisions of the next
paragraph below, the Bank, the Borrower and the Guarantor agree
to submit to binding arbitration any and all claims, disputes and
controversies between or among them, whether in tort, contract or
otherwise (and their respective employees, officers, directors,
attorneys and other agents) arising out of or relating to in any
way (i) the Credit Facilities and related loan and security
documents which are the subject of this Agreement and its
negotiation, execution, collateralization, administration,
repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests
for additional credit.
<PAGE>
However, "Core Proceedings" under the United States Bankruptcy
Code shall be exempted from arbitration. Such arbitration shall
proceed in Las Vegas, Nevada, shall be governed by the Federal
Arbitration Act (Title 9 of the United State Code), and shall be
conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA"). The arbitrator
shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable
shall be determined by the arbitrator. Judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction.
Nothing in the preceding paragraph, nor the exercise of any
right to arbitrate, shall limit the right of any party hereto (i)
to foreclose against real or personal property collateral by the
exercise of the power of sale, under a deed of trust, mortgage,
or other pledge, security agreement or instrument, or applicable
law; (ii) to exercise self-help remedies relating to collateral
or proceeds of collateral such as setoff or repossession; or
(iii) to obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment or appointment of a
receiver from a court having jurisdiction, before, during or
after the pendency of any arbitration proceeding. The
institution and maintenance of any action for such judicial
relief, or pursuit of provisional or ancillary remedies, or
exercise of self-help remedies shall not constitute a waiver of
the right or obligation of any party to submit any claim or
dispute to arbitration, including those claims or disputes
arising from exercise of any such judicial relief, or provisional
or ancillary remedies, or exercise of self-help remedies.
Arbitration under this Agreement shall be before a single
arbitrator, who shall be a neutral attorney who has practiced in
the area of commercial law for at least 10 years, selected in the
manner established by the Commercial Arbitration Rules of the
AAA.
AGREEMENT CONTROLS: The Loan Documents shall include this
Agreement. In the event of a conflict between any of the
provisions of this Agreement and any provisions of any other Loan
Documents, the provisions of this Agreement shall control.
ACCEPTANCE REQUIRED: It is a condition of this Agreement
that Borrower and Guarantor accept it in writing by signing the
original, or a counterpart of the original which shall have the
same effect as signing of a single original, and by returning the
accepted Agreement to the Bank. If Borrower or Guarantor fails
to accept and return this Agreement, the Bank shall have no
obligation under it.
NORWEST BANK NEVADA,
NATIONAL ASSOCIATION
By: /s/ Ralph Miller
Ralph Miller, Vice President
Accepted and approved this 14 day of November, 1997
PAUL-SON GAMING SUPPLIES, INC.,
BORROWER
By: /s/ Eric P. Endy By: /s/ Kirk Scherer
Eric P. Endy, Executive Vice President Kirk Scherer, Treasurer, CFO
PAUL-SON GAMING CORPORATION,
GUARANTOR
By: /s/ Eric P. Endy By: /s/ Kirk Scherer
Eric P. Endy, President Kirk Scherer, Treasurer, CFO
<PAGE>
Date: November 14, 1997
GUARANTY
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and to induce Norwest Bank
Nevada, National Association ("Norwest"), at its option, at any
time or from time to time to make loans or extend other
accommodations (the "Credit Facilities") to or for the account of
Paul-Son Gaming Supplies, Inc. ("Borrower") or to engage in any
other transactions with Borrower, the undersigned hereby
absolutely and unconditionally guarantees to Norwest the full and
prompt payment when due, whether at maturity or earlier by reason
of acceleration or otherwise, of the debts, liabilities and
obligations (hereinafter, the "Indebtedness") of Borrower to
Norwest evidenced by or arising out of that certain Letter Loan
Agreement made between Borrower and Norwest on November 14, 1997,
together with the Notes and Security Agreement defined and
described therein.
The undersigned further acknowledges and agrees with Norwest
that:
1. No act or thing need occur to establish the liability
of the undersigned hereunder, and no act or thing, except full
payment and discharge of all Indebtedness, shall in any way
exonerate the undersigned or modify, reduce, limit or release the
liability of the undersigned hereunder.
2. If the undersigned shall be or become insolvent
(however defined), then Norwest shall have the right to declare
immediately due and payable, and the undersigned will forthwith
pay to Norwest the full amount of all Indebtedness, whether due
and payable or unmatured. If the undersigned voluntarily
commences or there is commenced involuntarily against the
undersigned a case under the United States Bankruptcy Code, the
full amount of all Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or
notice thereof.
3. The liability of the undersigned hereunder shall be
limited to a principal amount of $2,800,000.00, plus accrued
interest thereon and all attorneys' fees, collection costs and
enforcement expenses referrable thereto. Indebtedness may be
created and continued in any amount, whether or not in excess of
such principal amount, without affecting or impairing the
liability of the undersigned hereunder. Norwest may apply any
sums received by or available to the Bank on account of the
Indebtedness from Borrower or any other person (except the
undersigned) from their properties, out of any collateral
security or from any other source to payment of the excess. Such
application of receipts shall not reduce, affect or impair the
liability of the undersigned hereunder. Any payment made by the
undersigned under this Guaranty shall be effective to reduce or
discharge the undersigned's liability hereunder only if
accompanied by a written transmittal document, received by
Norwest advising Norwest that such payment is made under this
Guaranty for such purpose.
4. The undersigned will not exercise or enforce any right
of contribution, reimbursement, recourse or subrogation available
to the undersigned against any person liable for payment of the
Indebtedness, or as to any collateral security therefor, unless
and until all of the Indebtedness shall have been fully paid and
discharged.
5. The undersigned will pay or reimburse Norwest for all
costs and expenses (including reasonable attorneys' fees and
legal expenses) incurred by Norwest in connection with the
protection, defense or enforcement of this Guaranty in any
litigation or bankruptcy or insolvency proceedings.
6. Whether or not any existing relationship between the
undersigned and Borrower has been changed or ended, Norwest may,
but shall not be obligated to, enter into transactions resulting
in the creation or continuance of Indebtedness, without any
consent or approval by the undersigned and without any notice to
the undersigned. The liability of the undersigned shall not be
affected or impaired by any of the following acts or things
(which Norwest is expressly authorized to do, omit or suffer from
time to
<PAGE>
time, without notice to or approval by the undersigned): (i) any
acceptance of collateral security, guarantors, accommodation
parties or sureties for any or all Indebtedness; (ii) any one or
more extensions or renewals of Indebtedness (whether or not for
longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable
to any Indebtedness; (iii) any waiver or indulgence granted to
Borrower, any delay or lack of diligence in the enforcement of
Indebtedness, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any
Indebtedness; (iv) any full or partial release of, settlement
with, or agreement not to sue, Borrower or any other guarantor or
other person liable in respect of any Indebtedness; (v) any
discharge of any evidence of Indebtedness or the acceptance of
any instrument in renewal thereof or substitution therefor; (vi)
any failure to obtain collateral security (including rights of
setoff) for Indebtedness, or to see to the proper or sufficient
creation and perfection thereof, or to establish the priority
thereof, or to protect, insure, substitute or enforce any
collateral security; (vii) any foreclosure or enforcement of any
collateral security; (viii) any transfer of any Indebtedness or
any evidence thereof; (ix) any order of application of any
payments or credits upon Indebtedness; and (x) any election by
Norwest under the United States Bankruptcy Code.
7. The undersigned waives any and all defenses, claims and
discharges of Borrower, or any other obligor, pertaining to
Indebtedness, except the defense of discharge by payment in full.
Without limiting the generality of the foregoing, the undersigned
will not assert, plead or enforce against Norwest any defense of
waiver, release, discharge in bankruptcy, statute of limitations,
res judicata, statute of frauds, anti-deficiency statute, fraud,
incapacity, minority, usury, illegality or unenforceability which
may be available to Borrower or any other person liable in
respect of any Indebtedness. The undersigned expressly agrees
that the undersigned shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or
security interest securing Indebtedness, whether or not the
liability of Borrower or any other obligor for such deficiency is
discharged pursuant to statute or judicial decision.
8. The undersigned waives presentment, demand for payment,
notice of dishonor or nonpayment, and protest of any instrument
evidencing Indebtedness. Norwest shall not be required first to
resort for payment of the Indebtedness to Borrower or other
person or their properties, or first to enforce, realize upon or
exhaust any collateral security for Indebtedness, before
enforcing this Guaranty.
9. If any payment applied by Norwest to Indebtedness is
thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of Borrower or any other
obligor), the Indebtedness to which such payment was applied
shall for the purposes of this Guaranty be deemed to have
continued in existence, notwithstanding such application, and
this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
10. The liability of the undersigned under this Guaranty is
in addition to and shall be cumulative with all other liabilities
of the undersigned to Norwest as maker, guarantor or otherwise,
without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability
specifically provides to the contrary.
11. This Guaranty shall be enforceable against each person
signing this Guaranty. All agreements and promises herein shall
be construed to be, and are hereby declared to be, joint and
several in each and every particular and shall be fully binding
upon and enforceable against any or all of the undersigned. This
Guaranty shall be effective upon delivery to Norwest without
further act, condition or acceptance by Norwest, shall be binding
upon the undersigned and the heirs, representatives, successors
and assigns of the undersigned and shall inure to the benefit of
Norwest and its successors and assigns. Any invalidity or
unenforceability of any provision or application of this Guaranty
shall not affect other lawful provisions and application thereof,
and to this end the provisions of this Guaranty are declared to
be severable. This Guaranty may not be waived, modified,
amended, terminated, released or otherwise changed except by a
writing signed by the undersigned and Norwest. This Guaranty is
issued in the State
<PAGE>
of Nevada and shall be governed by its laws. The undersigned
waives notice of Norwest's acceptance hereof and waives the right
to a trial by jury in any action based on or pertaining to this
Guaranty.
12. COLLATERAL: Secured by Accounts Receivable, Inventory,
Equipment and General Intangibles.
13. ARBITRATION: Subject to the provisions of the next
paragraph below, Norwest and the Guarantor agree to submit to
binding arbitration any and all claims, disputes and
controversies between or among them, whether in tort, contract or
otherwise (and their respective employees, officers, directors,
attorneys and other agents) arising out of or relating to in any
way (i) the Credit Facilities and related loan and security
documents which are the subject of this Agreement and its
negotiation, execution, collateralization, administration,
repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests
for additional credit. However, "Core Proceedings" under the
United States Bankruptcy Code shall be exempted from arbitration.
Such arbitration shall proceed in Las Vegas, Nevada, shall be
governed by the Federal Arbitration Act (Title 9 of the United
State Code), and shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). The arbitrator shall give effect to
statutes of limitation in determining any claim. Any controversy
concerning whether an issue is arbitrable shall be determined by
the arbitrator. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
Nothing in the preceding paragraph, nor the exercise of any right
to arbitrate, shall limit the right of any party hereto (i) to
foreclose against real or personal property collateral by the
exercise of the power of sale, under a deed of trust, mortgage,
or other pledge, security agreement or instrument, or applicable
law; (ii) to exercise self-help remedies relating to collateral
or proceeds of collateral such as setoff or repossession; or
(iii) to obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment or appointment of a
receiver from a court having jurisdiction, before, during or
after the pendency of any arbitration proceeding. The
institution and maintenance of any action for such judicial
relief, or pursuit of provisional or ancillary remedies, or
exercise of self-help remedies shall not constitute a waiver of
the right or obligation of any party to submit any claim or
dispute to arbitration, including those claims or disputes
arising from exercise of any such judicial relief, or provisional
or ancillary remedies, or exercise of self-help remedies.
Arbitration under this Agreement shall be before a single
arbitrator, who shall be a neutral attorney who has practiced in
the area of commercial law for at least 10 years, selected in the
manner established by the Commercial Arbitration Rules of the
AAA.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned the day and year first above written.
PAUL-SON GAMING CORPORATION
By: /s/ Eric P. Endy
Eric P. Endy, President
By: /s/ Kirk Scherer
Kirk Scherer, Treasurer, CFO
<PAGE>
TERM NOTE
$1,800,000.00 November 14, 1997
For Value Received, the undersigned promises to pay to the
order of Norwest Bank Nevada, National Association, a national
banking association of Law Vegas, Nevada (the "Bank"), at its
principal office at 3300 West Sahara Avenue, Las Vegas, Nevada
89102, or at any other place designated at any time by the holder
of this Note, the principal sum of ONE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,800,000.00), together with
interest (calculated on the basis of actual days elapsed in a 360-
day year) on the unpaid balance of this Note from the date hereof
until this Note is fully paid, at a fixed annual rate of eight
and eighty-seven one-hundredths percent (8.87%).
This Note shall be due and payable as follows: Fifty-nine
(59) consecutive monthly installments in the amount of $18,118.00
each, commencing December 15, 1997, and continuing on the 15 day
of each succeeding month, with a final payment on November 15,
2002, at which time the entire remaining balance of principal and
interest shall be immediately due and payable.
This Note evidences a debt under the terms of a certain
Letter Loan Agreement of even date, and any amendments thereto,
between the Bank and the undersigned, which agreement is
incorporated herein by reference for additional terms and
conditions, including default and acceleration provisions.
PAUL-SON GAMING SUPPLIES, INC.
By: /S/ ERIC P. ENDY
Eric P. Endy, Executive Vice President
By: /S/ KIRK SCHERER
Kirk Scherer, Treasurer, CFO
<PAGE>
PROMISSORY NOTE
$1,000,000.00 Las Vegas, Nevada
November 14, 1997
For Value Received, the undersigned promises to pay to the
order of Norwest Bank Nevada, National Association, a national
banking association, of Las Vegas, Nevada (the "Bank"), at its
principal office at 3300 West Sahara Avenue, Las Vegas, Nevada
89102, or at any other place designated at any time by the holder
of this Note, the principal sum of ONE MILLION AND NO/100 DOLLARS
($1,000,000.00) or so much of that amount as is disbursed and
remains outstanding on the due date hereof, as shown by the
Bank's liability record, together with interest (calculated on
the basis of actual days elapsed in a 360-day year) on the unpaid
balance of this Note from the date hereof until this Note is
fully paid, at an annual rate equal to the Base Rate. As used
herein, "Base Rate" means the rate of interest established by the
Bank from time to time as its "base" or "prime" rate of interest.
This Note is payable on demand. Unless demand is made
sooner, this Note shall be payable in monthly installments of
interest only, commencing December 15, 1997, and continuing on
the first day of each succeeding month with a final payment on
October 31, 1998, at which time the entire remaining balance of
principal and interest shall be immediately due and payable.
This Note evidences a debt under the terms of a certain
Letter Loan Agreement of even date herewith, and any amendments
thereto, between the Bank and the undersigned, which agreement is
incorporated herein by reference for additional terms and
conditions, including default and acceleration provisions.
PAUL-SON GAMING SUPPLIES, INC.
By: /S/ ERIC P. ENDY
Eric P. Endy, Executive Vice President
By: /S/ KIRK SCHERER
Kirk Scherer, Treasurer, CFO
<PAGE>
CONTINUING SECURITY AGREEMENT
Date: November 14, 1997
DEBTOR Paul-Son Gaming Supplies, Inc. SECURED Norwest Bank Nevada,
PARTY National Association
BUSINESS OR
RESIDENCE 1700 Industrial Road ADDRESS 3300 West Sahara Avenue
ADDRESS
CITY, STATE Las Vegas, Nevada 89102 CITY, STATE Las Vegas, Nevada 89102
& ZIP CODE & ZIP CODE
1. SECURITY INTEREST AND COLLATERAL. To secure the payment and
performance of all debts, liabilities and obligations (called the
"Obligations") which Debtor may now or at any future time owe to
Secured Party, Debtor grants Secured Party a security interest (called
the "Security Interest") in the following property (called the
"Collateral") (check applicable boxes and complete information):
(a) INVENTORY:
[X] All inventory of Debtor, whether owned by Debtor now or
acquired by Debtor after the date of this Continuing Security
Agreement, and wherever located;
(b) EQUIPMENT, FARM PRODUCTS AND CONSUMER GOODS:
[X] All equipment of Debtor, whether owned by Debtor now or
acquired by Debtor after the date of this Continuing Security
Agreement. Equipment includes, but is not limited to, machinery,
vehicles, furniture and fixtures, whether used in manufacturing, shop
or office functions. Also included are goods described in any
equipment schedule given to Secured Party at any time by Debtor.
However, the Security Interest granted in this Continuing Security
Agreement is valid whether or not an equipment schedule or list is
given to Secured Party.
(c) ACCOUNTS AND OTHER RIGHTS TO PAYMENT:
[X] Every right of Debtor to the payment of money, whether
the right now exists or arises after the date of this Continuing
Security Agreement, including, but not limited to, rights to payment
arising from:
(i) a sale, lease or other disposition of goods
or other property by Debtor,
(ii) a doing of some service or services by
Debtor,
(iii) a loan by Debtor,
(iv) the overpayment of taxes or other liabilities
of Debtor,
(v) or otherwise under any contract or agreement.
This Security Interest covers all rights to payment
whether or not they have been earned by Debtor and however they are
evidenced. Secured Party is also granted a Security Interest in all
other rights and interests, including all liens and security
interests, which Debtor may have at any time by law or agreement
against any party obligated to make payment to Debtor or against the
property of any party obligated to make payment to Debtor. All of the
above includes, but is not limited to, present and future debt
instruments, chattel paper, accounts, loans and obligations receivable
and tax refunds.
(d) GENERAL INTANGIBLES:
[X] All general intangibles of Debtor, whether owned by
Debtor now or acquired by Debtor after the date of this Continuing
Security Agreement, including, but not limited to:
<PAGE>
(i) patents and applications for patents,
(ii) copyrights,
(iii) trademarks and tradenames,
(iv) trade secrets and customer lists,
(v) good will,
(vi) permits, licenses and franchises, and
(vii) the right to use Debtor's name.
Collateral also includes all substitutions and replacements for and
products of any of the Collateral, except consumer goods. Collateral
also includes proceeds of Collateral, all accessions to it and, except
in the case of consumer goods, all:
(i) accessories, attachments, parts, equipment and
repairs attached or affixed to or used in connection with the
Collateral now or after the date of this Continuing Security
Agreement, and
(ii) warehouse receipts, bills of lading and other
documents of title covering Collateral now or after the date of this
Continuing Security Agreement.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor represents,
warrants and agrees that:
(a) Debtor is a corporation.
(b) The Collateral will be used primarily for business purposes
other than farming operations.
(c) Debtor's chief executive office is located at the address of
Debtor shown at the beginning of this Continuing Security Agreement.
[X] WAIVER OF EXEMPTION
(Enforceable only if box is checked.)
I UNDERSTAND THAT SOME OR ALL OF THE ABOVE PROPERTY MAY BE PROTECTED
BY LAW FROM THE CLAIMS OF CREDITORS, AND I VOLUNTARILY GIVE UP MY
RIGHT, IF ANY, TO THAT PROTECTION FOR THE ABOVE LISTED PROPERTY WITH
RESPECT TO CLAIMS ARISING OUT OF THIS CONTRACT.
3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor
represents, warrants and agrees that:
(a) Debtor has, or will have at the time Debtor obtains rights
in the Collateral, absolute title to each item of Collateral free and
clear of all security interests, liens and encumbrances, except the
Security Interest and any other security interests, liens and
encumbrances disclosed to the Secured Party in writing prior to the
signing of this Continuing Security Agreement.
(b) Debtor will not sell or otherwise dispose of the Collateral
or any interest in it without the prior written consent of the Secured
Party, except that, until an event of default occurs and Secured Party
notifies Debtor to stop doing so, Debtor may sell any inventory
Collateral to buyers in the ordinary course of business and may use
and consume any farm products Collateral in Debtor's farming
operations.
(c) The signing of this Continuing Security Agreement has been
properly authorized by all necessary corporate action.
(d) All items of tangible Collateral are located where Debtor
has indicated to Secured Party that they are located, and Debtor will
not permit tangible Collateral to be moved to any other location
without the prior written consent of Secured Party. If tangible
Collateral is moved to another location, Debtor will cooperate with
Secured Party in the preparation and filing of any document which
Secured Party believes is necessary to perfect its Security Interest
in the Collateral at the new location.
(f) Each right to payment and each instrument, document, chattel
paper and other agreement constituting or evidencing Collateral is, or
will be when arising or issued, the valid, genuine and legally
<PAGE>
enforceable obligation, of the account debtor or other obligor named
in it or in Debtor's records pertaining to it as being obligated to
pay it. The obligation is not subject to any defense, set-off or
counterclaim other than those arising in the ordinary course of
business.
(g) Debtor will not agree to any material modification or
amendment of or any cancellation of any obligation owing to Debtor
that is Collateral without Secured Party's prior written consent.
Debtor will not subordinate any right to payment to claims of other
creditors of any account debtor or other obligor.
(h) Debtor will:
(i) keep all tangible Collateral in good repair, working
order and condition, normal depreciation excepted, and will, from time
to time, replace any worn, broken or defective Collateral,
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest,
(iii) keep all Collateral free and clear of all security
interests, liens and encumbrances, except the Security Interest and
any other security interests, liens and encumbrances agreed to, in
writing, by Secured Party, prior to their creation,
(iv) permit Secured Party or its representatives, at all
reasonable times, to examine or inspect any Collateral, wherever
located, and to examine, inspect and copy Debtor's books and records
pertaining to the Collateral and pertaining to Debtors business and
financial condition and to discuss with account debtors and other
obligors requests for verifications of amounts owed to Debtor,
(v) keep accurate and complete records pertaining to the
Collateral and pertaining to Debtor's business and financial condition
and submit to Secured Party periodic reports concerning the Collateral
and Debtor's business and financial condition as reasonably requested
from time to time by Secured Party,
(vi) promptly notify Secured Party, in no event later than
10 days following such occurrence, of any loss of or material damage
to any Collateral or of any adverse change, known to Debtor, in the
prospect of payment of any sums due on or under any instrument,
chattel paper or account constituting Collateral,
(vii) if Secured Party at any time so requests, promptly
deliver to Secured Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by Debtor,
(viii) at all times keep tangible Collateral insured
against risks of fire, including so-called extended coverage; theft;
collision, in case of Collateral consisting of motor vehicles; and
such other risks and in such amounts as Secured Party may reasonably
request, with any loss payable to Secured Party to the extent of its
interest,
(ix) from time to time sign financing statements as
reasonably required by Secured Party in order to perfect the Security
Interest and, if any Collateral consists of a motor vehicle, sign such
documents as may be required to have the Security Interest properly
noted on a certificate of title,
(x) pay when due or reimburse Secured Party on demand for
all costs of collection of any of the Obligations and all other
out-of-pocket expenses. Included, in each case, are all reasonable
attorneys' fees, incurred by Secured Party in connection with the
creation, perfection, satisfaction, protection, defense or enforcement
of the Security Interest or the creation, continuance, protection,
defense or enforcement of this Continuing Security Agreement or any or
all of the Obligations. Also included are expenses incurred in any
litigation or bankruptcy or insolvency proceeding,
(xi) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Continuing Security Agreement,
(xii) not use or keep or permit any Collateral to be
used or kept for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance,
(xiii) permit Secured Party at any time and from time to
time to send requests to account debtors or other obligors for
verification of amounts owed to Debtor, and
(xiv) not permit any tangible Collateral to become part
of or to be affixed to any real property without first assuring to the
reasonable satisfaction of Secured Party that the Security Interest
will be prior and senior to any interest or lien then held or after
acquired by any mortgagee of the real property or the owner or
purchaser of any interest in that real property.
4. FAILURE TO PERFORM. If Debtor at any time fails to perform or
observe any agreement contained in paragraph 3(i), and if such failure
continues for a period of 10 calendar days after Secured Party gives
Debtor
<PAGE>
written notice of the failure or, in the case of the agreements
contained in clauses (viii) and (ix) of paragraph 3.(i), immediately
upon the occurrence of such failure, without notice or lapse of time,
the Secured Party:
(a) may, but need not, perform or observe such agreement on
behalf and in the name, place and stead of Debtor, or, at Secured
Party's option, in Secured Party's own name, and
(b) may, but need not, take any and all other actions which
Secured Party reasonably believes necessary to cure or correct such
failure. Such actions may include, but are not limited to, the
payment of taxes, the satisfaction of security interests, liens or
encumbrances, the performance of obligations under contracts or
agreements with account debtors or other obligors, the obtaining and
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the obtaining of repairs,
transportation or insurance.
5. REIMBURSEMENT. Except to the extent that the effect of payment
would be to cause any loan or forbearance of money to be usurious or
otherwise illegal under any applicable law, Debtor shall pay Secured
Party on demand the amount of all moneys expended and costs and
expenses. Included in this reimbursement requirement are reasonable
attorneys' fees, incurred by Secured Party in connection with or as a
result of Secured Party's performing or observing any agreements in
the name, place and stead of Debtor or taking such actions. Debtor
shall also pay interest on these amounts from the date expended or
incurred by Secured Party at the highest rate of interest then
applicable to any of the Obligations.
6. POWER OF ATTORNEY. To further the performance or observance by
Secured Party of such agreements of Debtor, Debtor hereby irrevocably
appoints Secured Party, or its delegate, as the attorney-in-fact of
Debtor. Secured Party shall have the right, but not the duty, from
time to time to create, prepare, complete, execute, deliver, endorse
or file, in the name of and on behalf of Debtor, any and all
instruments, documents, financing statements, applications for
insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by Debtor under paragraphs 3, 4, 5, 6
and 7 of this Continuing Security Agreement. This appointment is
coupled with an interest.
7. LOCK BOX, COLLATERAL ACCOUNT. If Secured Party requests at any
time, Debtor will direct each of its account debtors to make payments
due under the relevant account or chattel paper directly to a special
lock box to be under the exclusive control of Secured Party. Debtor
authorizes and directs Secured Party to deposit into a special
collateral account to be established and maintained with Secured Party
all checks, drafts and cash payments, received in the lock box. All
deposits in the collateral account constitute proceeds of Collateral
and do not constitute payment of any Obligation. At its option,
Secured Party may, at any time, apply finally collected funds on
deposit in the collateral account to the payment of the Obligations in
any order of application as Secured Party wishes, or permit Debtor to
withdraw all or any part of the balance on deposit in the collateral
account. If a collateral account is established, Debtor agrees that
it will promptly deliver to Secured Party, for deposit into the
collateral account, all payments on accounts and chattel paper
received by Debtor. All payments shall be delivered to Secured Party
in the form received, except for Debtor's endorsement where necessary.
Until deposited in the collateral account, all payments on accounts
and chattel paper received by Debtor shall be held in trust by Debtor
for and as the property of Secured Party and shall not be commingled
with any funds or property of Debtor.
8. COLLECTION RIGHTS OF SECURED PARTY. Notwithstanding Secured
Party's rights under Section 7 with respect to any and all debt
instruments, chattel papers, accounts, and other rights to payment
constituting Collateral (including proceeds), Secured Party may, at
any time (both before and after the occurrence of an Event of Default)
notify any account Debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right to
payment has been assigned or transferred to Secured Party for security
and shall be paid directly to Secured Party. If Secured Party so
requests at any time, Debtor will so notify such account debtors and
other obligors in writing and will indicate on all invoices to its
account debtors or other obligors that the amount due is payable
directly to Secured Party. At any time after Secured Party or Debtor
gives such notice to an account debtor or other obligor, Secured Party
may (but need not), in its own name or in Debtor's name, demand, sue
for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such chattel paper,
account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of
any account debtor or other obligor.
9. ASSIGNMENT OF INSURANCE. Debtor assigns to Secured Party, as
additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds
of unearned
<PAGE>
premiums) due or to become due under, and all other rights of Debtor
under or with respect to, any and all policies of insurance covering
the Collateral, and Debtor directs the issuer of any such policy to
pay any such moneys directly to Secured Party. Both before and after
the occurrence of an Event of Default, Secured Party may (but need
not), in its own name or in Debtor's name, execute and deliver proofs
of claim, receive all such moneys, endorse checks and other
instruments representing payment of such moneys, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
10. EVENTS OF DEFAULT. Each of the following occurrences shall
constitute an event of default under this Agreement (herein called
"Event of Default"):
(a) Debtor shall fail to pay any or all of the Obligations when
due or (if payable on demand) on demand, or shall fail to observe or
perform any covenant or agreement in this Continuing Security
Agreement binding on it.
(b) Any representation or warranty by Debtor set forth in this
Agreement or made to Secured Party in any financial statements or
reports submitted to Secured Party by or on behalf of Debtor shall
prove materially false or misleading.
(c) A garnishment, summons or a writ of attachment shall be
issued against or served upon the Secured Party for the attachment of
any property of the Debtor or any indebtedness owing to Debtor.
(d) Debtor or any guarantor of any Obligation shall: (i) be or
become insolvent (however defined); (ii) voluntarily file, or have
filed against it involuntarily, a petition under the United States
Bankruptcy Code; (iii) if a corporation, partnership, or organization,
be dissolved or liquidated or, if a partnership, suffer the death of a
partner or, if an individual, die; (iv) go out of business; or (v)
Secured Party shall in good faith believe that the prospect of due and
punctual payment of any or all of the Obligations is impaired.
11. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event
of Default under Section 10 and at any time thereafter, Secured Party
may exercise any one or more of the following rights and remedies:
(a) Declare all unmatured Obligations to be immediately due and
payable, and the same shall thereupon be immediately due and payable,
without presentment or other notice or demand.
(b) Exercise and enforce any or all rights and remedies
available upon default to a secured party under the Uniform Commercial
Code, including but not limited to the right to take possession of any
Collateral, proceeding without judicial process or by judicial process
(without a prior hearing or notice, which Debtor expressly waives),
and the right to sell, lease or otherwise dispose of any or all of the
Collateral. Secured Party may require Debtor to make the Collateral
available to Secured Party at a place to be designated by Secured
Party which is reasonably convenient to both parties, and if notice to
Debtor of any intended disposition of Collateral or any other intended
action is required by law in a particular instance, such notice shall
be considered commercially reasonable if given at least 10 calendar
days prior to the date of intended disposition or other action.
(c) Exercise or enforce any or all other rights or remedies
available to Secured Party by law or agreement against the Collateral,
against Debtor or against any other person or property. Upon the
occurrence of the Event of Default described in Section 10(d)(ii), all
Obligations shall be immediately due and payable without demand or
notice. Secured Party is granted a nonexclusive, worldwide and
royalty-free license to use or otherwise exploit all trademarks, trade
secrets, franchises, copyrights and patents of Debtor that Secured
Party believes necessary or appropriate to the disposition of any
Collateral.
12. OTHER PERSONAL PROPERTY. Unless at the time Secured Party takes
possession of any tangible Collateral, or within seven days
thereafter, Debtor gives written notice to Secured Party of the
existence of any goods, papers or other property of Debtor, not
affixed to or constituting a part of the Collateral, but which are
located or found upon or within the Collateral, describing the
property, Secured Party shall not be responsible or liable to Debtor
for any action taken or omitted by or on behalf of Secured Party with
respect to the property without actual knowledge of the existence of
the property or without actual knowledge that it was located or to be
found upon or within the Collateral.
13. MISCELLANEOUS.
<PAGE>
(a) This Continuing Security Agreement does not contemplate a
sale of accounts, or chattel paper.
(b) Debtor agrees that each provision whose box is checked is
part of this Continuing Security Agreement. This Continuing Security
Agreement can be waived, modified, amended, terminated or discharged,
and the Security Interest can be released, only explicitly in a
writing signed by Secured Party. A waiver signed by Secured Party
shall be effective only in the specific instance and for the specific
purpose given.
(c) Mere delay or failure to act shall not preclude the exercise
or enforcement of any of Secured Party's rights or remedies.
(d) All rights and remedies of Secured Party shall be cumulative
and may be exercised singularly or concurrently, at Secured Party's
option, and the exercise or enforcement of any one right or remedy
shall neither be a condition to nor bar the exercise or enforcement of
any other.
(e) All notices to be given to Debtor shall be considered
sufficiently given if delivered or mailed by registered or certified
mail, postage prepaid, to Debtor at its address set forth above or at
the most recent address shown on Secured Party's records.
(f) Secured Party's duty of care with respect to Collateral in
its possession (as imposed by law) shall be considered fulfilled if
Secured Party exercises reasonable care in physically safekeeping the
Collateral or, in the case of Collateral in the custody or possession
of a bailee or other third person, exercises reasonable care in the
selection of the bailee or other third person, and Secured Party need
not otherwise preserve, protect, insure or care for any Collateral.
Secured Party shall not be obligated to preserve any rights Debtor may
have against prior parties, to realize on the Collateral at all or in
any particular manner or order, or to apply any cash proceeds of
Collateral in any particular order of application.
(g) This Continuing Security Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Party and their respective
heirs, representatives, successors and assigns and shall take effect
when signed by Debtor and delivered to Secured Party. Debtor waives
notice of Secured Party's acceptance of this Continuing Security
Agreement.
(h) Secured Party may execute this Agreement if appropriate for
the purpose of filing, but the failure of Secured Party to execute
this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic or other
reproduction of this Agreement or of any financing statement signed by
the Debtor shall have the same force and effect as the original for
all purposes of a financing statement. Except to the extent otherwise
required by law, this Continuing Security Agreement shall be governed
by the internal laws of the state named as part of Secured Party's
address above.
(i) If any provision or application of this Continuing Security
Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or
applications which can be given effect, and this Continuing Security
Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed
hereby.
(j) All representations and warranties contained in this
Continuing Security Agreement shall survive the execution, delivery
and performance of this Continuing Security Agreement and the creation
and payment of the Obligations.
(k) If this Continuing Security Agreement is signed by more than
one person as Debtor, the term "Debtor" shall refer to each of them
separately and to both or all of them jointly. All of the signers
shall be bound both severally and jointly with the other(s). The
Obligations shall include all debts, liabilities and obligations owed
to Secured Party by any Debtor solely or by both or several or all
Debtors jointly or jointly and severally. All property described in
Section 1 shall be included as part of the Collateral, whether it is
owned jointly by both or all Debtors or is owned in whole or in part
by one (or more) of them.
14. ARBITRATION: Subject to the provisions of the next paragraph
below, the Secured Party and the Debtor agree to submit to binding
arbitration any and all claims, disputes and controversies between or
among them, whether in tort, contract or otherwise (and their
respective employees, officers, directors, attorneys and other
<PAGE>
agents) arising out of or relating to in any way (i) the Obligations
and related loan and security documents which are the subject of this
Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution,
formation, inducement, enforcement, default or termination; or (ii)
requests for additional credit. However, "Core Proceedings" under the
United States Bankruptcy Code shall be exempted from arbitration.
Such arbitration shall proceed in Las Vegas, Nevada, shall be governed
by the Federal Arbitration Act (Title 9 of the United State Code), and
shall be conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("AAA"). The arbitrator shall
give effect to statutes of limitation in determining any claim. Any
controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
Nothing in the preceding paragraph, nor the exercise of any right
to arbitrate, shall limit the right of any party hereto (i) to
foreclose against real or personal property collateral by the exercise
of the power of sale, under a deed of trust, mortgage, or other
pledge, security agreement or instrument, or applicable law; (ii) to
exercise self-help remedies relating to collateral or proceeds of
collateral such as setoff or repossession; or (iii) to obtain
provisional or ancillary remedies such as replevin, injunctive relief,
attachment or appointment of a receiver from a court having
jurisdiction, before, during or after the pendency of any arbitration
proceeding. The institution and maintenance of any action for such
judicial relief, or pursuit of provisional or ancillary remedies, or
exercise of self-help remedies shall not constitute a waiver of the
right or obligation of any party to submit any claim or dispute to
arbitration, including those claims or disputes arising from exercise
of any such judicial relief, or provisional or ancillary remedies, or
exercise of self-help remedies.
Arbitration under this Agreement shall be before a single
arbitrator, who shall be a neutral attorney who has practiced in the
area of commercial law for at least 10 years, selected in the manner
established by the Commercial Arbitration Rules of the AAA.
PAUL-SON GAMING SUPPLIES, INC.
By: /s/ Eric P. Endy
Eric P. Endy, Executive Vice President
By: /s/ Kirk Scherer
Kirk Scherer, Treasurer, CFO
<PAGE>
CONTINUING SECURITY AGREEMENT
Date: November 14, 1997
DEBTOR Paul-Son Gaming Corporation SECURED Norwest Bank Nevada,
PARTY National Association
BUSINESS OR
RESIDENCE 1700 Industrial Road ADDRESS 3300 West Sahara Avenue
ADDRESS
CITY, STATE Las Vegas, Nevada 89102 CITY, STATE Las Vegas, Nevada 89102
& ZIP CODE & ZIP CODE
1. SECURITY INTEREST AND COLLATERAL. To secure the payment and
performance of all debts, liabilities and obligations (called the
"Obligations") which Debtor may now or at any future time owe to
Secured Party, including, but not limited to, obligations arising
under its guaranty of indebtedness of Paul-Son Gaming Supplies, Inc.
to the Secured Party, Debtor grants Secured Party a security interest
(called the "Security Interest") in the following property (called the
"Collateral") (check applicable boxes and complete information):
(a) INVENTORY:
[X] All inventory of Debtor, whether owned by Debtor now or
acquired by Debtor after the date of this Continuing Security
Agreement, and wherever located;
(b) EQUIPMENT, FARM PRODUCTS AND CONSUMER GOODS:
[X] All equipment of Debtor, whether owned by Debtor now or
acquired by Debtor after the date of this Continuing Security
Agreement. Equipment includes, but is not limited to, machinery,
vehicles, furniture and fixtures, whether used in manufacturing, shop
or office functions. Also included are goods described in any
equipment schedule given to Secured Party at any time by Debtor.
However, the Security Interest granted in this Continuing Security
Agreement is valid whether or not an equipment schedule or list is
given to Secured Party.
(c) ACCOUNTS AND OTHER RIGHTS TO PAYMENT:
[X] Every right of Debtor to the payment of money, whether
the right now exists or arises after the date of this Continuing
Security Agreement, including, but not limited to, rights to payment
arising from:
(i) a sale, lease or other disposition
of goods or other property by Debtor,
(ii) a doing of some service or services by Debtor,
(iii) a loan by Debtor,
(iv) the overpayment of taxes or other liabilities
of Debtor,
(v) or otherwise under any contract or agreement.
This Security Interest covers all rights to payment
whether or not they have been earned by Debtor and however they are
evidenced. Secured Party is also granted a Security Interest in all
other rights and interests, including all liens and security
interests, which Debtor may have at any time by law or agreement
against any party obligated to make payment to Debtor or against the
property of any party obligated to make payment to Debtor. All of the
above includes, but is not limited to, present and future debt
instruments, chattel paper, accounts, loans and obligations receivable
and tax refunds.
(d) GENERAL INTANGIBLES:
<PAGE>
[X] All general intangibles of Debtor, whether owned by
Debtor now or acquired by Debtor after the date of this Continuing
Security Agreement, including, but not limited to:
(i) patents and applications for patents,
(ii) copyrights,
(iii) trademarks and tradenames,
(iv) trade secrets and customer lists,
(v) good will,
(vi) permits, licenses and franchises, and
(vii) the right to use Debtor's name.
Collateral also includes all substitutions and replacements for and
products of any of the Collateral, except consumer goods. Collateral
also includes proceeds of Collateral, all accessions to it and, except
in the case of consumer goods, all:
(i) accessories, attachments, parts, equipment and
repairs attached or affixed to or used in connection with the
Collateral now or after the date of this Continuing Security
Agreement, and
(ii) warehouse receipts, bills of lading and other
documents of title covering Collateral now or after the date of this
Continuing Security Agreement.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor represents,
warrants and agrees that:
(a) Debtor is a corporation.
(b) The Collateral will be used primarily for business purposes
other than farming operations.
(c) Debtor's chief executive office is located at the address of
Debtor shown at the beginning of this Continuing Security Agreement.
[X] WAIVER OF EXEMPTION
(Enforceable only if box is checked.)
I UNDERSTAND THAT SOME OR ALL OF THE ABOVE PROPERTY MAY BE PROTECTED
BY LAW FROM THE CLAIMS OF CREDITORS, AND I VOLUNTARILY GIVE UP MY
RIGHT, IF ANY, TO THAT PROTECTION FOR THE ABOVE LISTED PROPERTY WITH
RESPECT TO CLAIMS ARISING OUT OF THIS CONTRACT.
3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor
represents, warrants and agrees that:
(a) Debtor has, or will have at the time Debtor obtains rights
in the Collateral, absolute title to each item of Collateral free and
clear of all security interests, liens and encumbrances, except the
Security Interest and any other security interests, liens and
encumbrances disclosed to the Secured Party in writing prior to the
signing of this Continuing Security Agreement.
(b) Debtor will not sell or otherwise dispose of the Collateral
or any interest in it without the prior written consent of the Secured
Party, except that, until an event of default occurs and Secured Party
notifies Debtor to stop doing so, Debtor may sell any inventory
Collateral to buyers in the ordinary course of business and may use
and consume any farm products Collateral in Debtor's farming
operations.
(c) The signing of this Continuing Security Agreement has been
properly authorized by all necessary corporate action.
(d) All items of tangible Collateral are located where Debtor
has indicated to Secured Party that they are located, and Debtor will
not permit tangible Collateral to be moved to any other location
without the prior written consent of Secured Party. If tangible
Collateral is moved to another location, Debtor will cooperate with
Secured Party in the preparation and filing of any document which
Secured Party believes is necessary to perfect its Security Interest
in the Collateral at the new location.
<PAGE>
(f) Each right to payment and each instrument, document, chattel
paper and other agreement constituting or evidencing Collateral is, or
will be when arising or issued, the valid, genuine and legally
enforceable obligation, of the account debtor or other obligor named
in it or in Debtor's records pertaining to it as being obligated to
pay it. The obligation is not subject to any defense, set-off or
counterclaim other than those arising in the ordinary course of
business.
(g) Debtor will not agree to any material modification or
amendment of or any cancellation of any obligation owing to Debtor
that is Collateral without Secured Party's prior written consent.
Debtor will not subordinate any right to payment to claims of other
creditors of any account debtor or other obligor.
(h) Debtor will:
(i) keep all tangible Collateral in good repair, working
order and condition, normal depreciation excepted, and will, from time
to time, replace any worn, broken or defective Collateral,
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest,
(iii) keep all Collateral free and clear of all security
interests, liens and encumbrances, except the Security Interest and
any other security interests, liens and encumbrances agreed to, in
writing, by Secured Party, prior to their creation,
(iv) permit Secured Party or its representatives, at all
reasonable times, to examine or inspect any Collateral, wherever
located, and to examine, inspect and copy Debtor's books and records
pertaining to the Collateral and pertaining to Debtors business and
financial condition and to discuss with account debtors and other
obligors requests for verifications of amounts owed to Debtor,
(v) keep accurate and complete records pertaining to the
Collateral and pertaining to Debtor's business and financial condition
and submit to Secured Party periodic reports concerning the Collateral
and Debtor's business and financial condition as reasonably requested
from time to time by Secured Party,
(vi) promptly notify Secured Party, in no event later than
10 days following such occurrence, of any loss of or material damage
to any Collateral or of any adverse change, known to Debtor, in the
prospect of payment of any sums due on or under any instrument,
chattel paper or account constituting Collateral,
(vii) if Secured Party at any time so requests, promptly
deliver to Secured Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by Debtor,
(viii) at all times keep tangible Collateral insured
against risks of fire, including so-called extended coverage; theft;
collision, in case of Collateral consisting of motor vehicles; and
such other risks and in such amounts as Secured Party may reasonably
request, with any loss payable to Secured Party to the extent of its
interest,
(ix) from time to time sign financing statements as
reasonably required by Secured Party in order to perfect the Security
Interest and, if any Collateral consists of a motor vehicle, sign such
documents as may be required to have the Security Interest properly
noted on a certificate of title,
(x) pay when due or reimburse Secured Party on demand for
all costs of collection of any of the Obligations and all other
out-of-pocket expenses. Included, in each case, are all reasonable
attorneys' fees, incurred by Secured Party in connection with the
creation, perfection, satisfaction, protection, defense or enforcement
of the Security Interest or the creation, continuance, protection,
defense or enforcement of this Continuing Security Agreement or any or
all of the Obligations. Also included are expenses incurred in any
litigation or bankruptcy or insolvency proceeding,
(xi) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and
writings which Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Continuing Security Agreement,
(xii) not use or keep or permit any Collateral to be
used or kept for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance,
(xiii) permit Secured Party at any time and from time to
time to send requests to account debtors or other obligors for
verification of amounts owed to Debtor, and
(xiv) not permit any tangible Collateral to become part
of or to be affixed to any real property without first assuring to the
reasonable satisfaction of Secured Party that the Security Interest
will be prior and senior to any interest or lien then held or after
acquired by any mortgagee of the real property or the owner or
purchaser of any interest in that real property.
<PAGE>
4. FAILURE TO PERFORM. If Debtor at any time fails to perform or
observe any agreement contained in paragraph 3.(i), and if such
failure continues for a period of 10 calendar days after Secured Party
gives Debtor written notice of the failure or, in the case of the
agreements contained in clauses (viii) and (ix) of paragraph 3.(i),
immediately upon the occurrence of such failure, without notice or
lapse of time, the Secured Party:
(a) may, but need not, perform or observe such agreement on
behalf and in the name, place and stead of Debtor, or, at Secured
Party's option, in Secured Party's own name, and
(b) may, but need not, take any and all other actions which
Secured Party reasonably believes necessary to cure or correct such
failure. Such actions may include, but are not limited to, the
payment of taxes, the satisfaction of security interests, liens or
encumbrances, the performance of obligations under contracts or
agreements with account debtors or other obligors, the obtaining and
maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the obtaining of repairs,
transportation or insurance.
5. REIMBURSEMENT. Except to the extent that the effect of payment
would be to cause any loan or forbearance of money to be usurious or
otherwise illegal under any applicable law, Debtor shall pay Secured
Party on demand the amount of all moneys expended and costs and
expenses. Included in this reimbursement requirement are reasonable
attorneys' fees, incurred by Secured Party in connection with or as a
result of Secured Party's performing or observing any agreements in
the name, place and stead of Debtor or taking such actions. Debtor
shall also pay interest on these amounts from the date expended or
incurred by Secured Party at the highest rate of interest then
applicable to any of the Obligations.
6. POWER OF ATTORNEY. To further the performance or observance by
Secured Party of such agreements of Debtor, Debtor hereby irrevocably
appoints Secured Party, or its delegate, as the attorney-in-fact of
Debtor. Secured Party shall have the right, but not the duty, from
time to time to create, prepare, complete, execute, deliver, endorse
or file, in the name of and on behalf of Debtor, any and all
instruments, documents, financing statements, applications for
insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by Debtor under paragraphs 3, 4, 5, 6
and 7 of this Continuing Security Agreement. This appointment is
coupled with an interest.
7. LOCK BOX, COLLATERAL ACCOUNT. If Secured Party requests at any
time, Debtor will direct each of its account debtors to make payments
due under the relevant account or chattel paper directly to a special
lock box to be under the exclusive control of Secured Party. Debtor
authorizes and directs Secured Party to deposit into a special
collateral account to be established and maintained with Secured Party
all checks, drafts and cash payments, received in the lock box. All
deposits in the collateral account constitute proceeds of Collateral
and do not constitute payment of any Obligation. At its option,
Secured Party may, at any time, apply finally collected funds on
deposit in the collateral account to the payment of the Obligations in
any order of application as Secured Party wishes, or permit Debtor to
withdraw all or any part of the balance on deposit in the collateral
account. If a collateral account is established, Debtor agrees that
it will promptly deliver to Secured Party, for deposit into the
collateral account, all payments on accounts and chattel paper
received by Debtor. All payments shall be delivered to Secured Party
in the form received, except for Debtor's endorsement where necessary.
Until deposited in the collateral account, all payments on accounts
and chattel paper received by Debtor shall be held in trust by Debtor
for and as the property of Secured Party and shall not be commingled
with any funds or property of Debtor.
8. COLLECTION RIGHTS OF SECURED PARTY. Notwithstanding Secured
Party's rights under Section 7 with respect to any and all debt
instruments, chattel papers, accounts, and other rights to payment
constituting Collateral (including proceeds), Secured Party may, at
any time (both before and after the occurrence of an Event of Default)
notify any account Debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right to
payment has been assigned or transferred to Secured Party for security
and shall be paid directly to Secured Party. If Secured Party so
requests at any time, Debtor will so notify such account debtors and
other obligors in writing and will indicate on all invoices to its
account debtors or other obligors that the amount due is payable
directly to Secured Party. At any time after Secured Party or Debtor
gives such notice to an account debtor or other obligor, Secured Party
may (but need not), in its own name or in Debtor's name, demand, sue
for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such chattel paper,
account, or other right to payment, or grant any extension to, make
any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of
any account debtor or other obligor.
<PAGE>
9. ASSIGNMENT OF INSURANCE. Debtor assigns to Secured Party, as
additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds
of unearned premiums) due or to become due under, and all other rights
of Debtor under or with respect to, any and all policies of insurance
covering the Collateral, and Debtor directs the issuer of any such
policy to pay any such moneys directly to Secured Party. Both before
and after the occurrence of an Event of Default, Secured Party may
(but need not), in its own name or in Debtor's name, execute and
deliver proofs of claim, receive all such moneys, endorse checks and
other instruments representing payment of such moneys, and adjust,
litigate, compromise or release any claim against the issuer of any
such policy.
10. EVENTS OF DEFAULT. Each of the following occurrences shall
constitute an event of default under this Agreement (herein called
"Event of Default"):
(a) Debtor shall fail to pay any or all of the Obligations when
due or (if payable on demand) on demand, or shall fail to observe or
perform any covenant or agreement in this Continuing Security
Agreement binding on it.
(b) Any representation or warranty by Debtor set forth in this
Agreement or made to Secured Party in any financial statements or
reports submitted to Secured Party by or on behalf of Debtor shall
prove materially false or misleading.
(c) A garnishment, summons or a writ of attachment shall be
issued against or served upon the Secured Party for the attachment of
any property of the Debtor or any indebtedness owing to Debtor.
(d) Debtor or any guarantor of any Obligation shall: (i) be or
become insolvent (however defined); (ii) voluntarily file, or have
filed against it involuntarily, a petition under the United States
Bankruptcy Code; (iii) if a corporation, partnership, or organization,
be dissolved or liquidated or, if a partnership, suffer the death of a
partner or, if an individual, die; (iv) go out of business; or (v)
Secured Party shall in good faith believe that the prospect of due and
punctual payment of any or all of the Obligations is impaired.
11. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event
of Default under Section 10 and at any time thereafter, Secured Party
may exercise any one or more of the following rights and remedies:
(a) Declare all unmatured Obligations to be immediately due and
payable, and the same shall thereupon be immediately due and payable,
without presentment or other notice or demand.
(b) Exercise and enforce any or all rights and remedies
available upon default to a secured party under the Uniform Commercial
Code, including but not limited to the right to take possession of any
Collateral, proceeding without judicial process or by judicial process
(without a prior hearing or notice, which Debtor expressly waives),
and the right to sell, lease or otherwise dispose of any or all of the
Collateral. Secured Party may require Debtor to make the Collateral
available to Secured Party at a place to be designated by Secured
Party which is reasonably convenient to both parties, and if notice to
Debtor of any intended disposition of Collateral or any other intended
action is required by law in a particular instance, such notice shall
be considered commercially reasonable if given at least 10 calendar
days prior to the date of intended disposition or other action.
(c) Exercise or enforce any or all other rights or remedies
available to Secured Party by law or agreement against the Collateral,
against Debtor or against any other person or property. Upon the
occurrence of the Event of Default described in Section 10(d)(ii), all
Obligations shall be immediately due and payable without demand or
notice. Secured Party is granted a nonexclusive, worldwide and
royalty-free license to use or otherwise exploit all trademarks, trade
secrets, franchises, copyrights and patents of Debtor that Secured
Party believes necessary or appropriate to the disposition of any
Collateral.
12. OTHER PERSONAL PROPERTY. Unless at the time Secured Party takes
possession of any tangible Collateral, or within seven days
thereafter, Debtor gives written notice to Secured Party of the
existence of any goods, papers or other property of Debtor, not
affixed to or constituting a part of the Collateral, but which are
located or found upon or within the Collateral, describing the
property, Secured Party shall not be responsible or liable to Debtor
for any action taken or omitted by or on behalf of Secured Party with
respect to the property without actual knowledge of the existence of
the property or without actual knowledge that it was located or to be
found
<PAGE>
upon or within the Collateral.
13. MISCELLANEOUS.
(a) This Continuing Security Agreement does not contemplate a
sale of accounts, or chattel paper.
(b) Debtor agrees that each provision whose box is checked is
part of this Continuing Security Agreement. This Continuing Security
Agreement can be waived, modified, amended, terminated or discharged,
and the Security Interest can be released, only explicitly in a
writing signed by Secured Party. A waiver signed by Secured Party
shall be effective only in the specific instance and for the specific
purpose given.
(c) Mere delay or failure to act shall not preclude the exercise
or enforcement of any of Secured Party's rights or remedies.
(d) All rights and remedies of Secured Party shall be cumulative
and may be exercised singularly or concurrently, at Secured Party's
option, and the exercise or enforcement of any one right or remedy
shall neither be a condition to nor bar the exercise or enforcement of
any other.
(e) All notices to be given to Debtor shall be considered
sufficiently given if delivered or mailed by registered or certified
mail, postage prepaid, to Debtor at its address set forth above or at
the most recent address shown on Secured Party's records.
(f) Secured Party's duty of care with respect to Collateral in
its possession (as imposed by law) shall be considered fulfilled if
Secured Party exercises reasonable care in physically safekeeping the
Collateral or, in the case of Collateral in the custody or possession
of a bailee or other third person, exercises reasonable care in the
selection of the bailee or other third person, and Secured Party need
not otherwise preserve, protect, insure or care for any Collateral.
Secured Party shall not be obligated to preserve any rights Debtor may
have against prior parties, to realize on the Collateral at all or in
any particular manner or order, or to apply any cash proceeds of
Collateral in any particular order of application.
(g) This Continuing Security Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Party and their respective
heirs, representatives, successors and assigns and shall take effect
when signed by Debtor and delivered to Secured Party. Debtor waives
notice of Secured Party's acceptance of this Continuing Security
Agreement.
(h) Secured Party may execute this Agreement if appropriate for
the purpose of filing, but the failure of Secured Party to execute
this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic or other
reproduction of this Agreement or of any financing statement signed by
the Debtor shall have the same force and effect as the original for
all purposes of a financing statement. Except to the extent otherwise
required by law, this Continuing Security Agreement shall be governed
by the internal laws of the state named as part of Secured Party's
address above.
(i) If any provision or application of this Continuing Security
Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or
applications which can be given effect, and this Continuing Security
Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed
hereby.
(j) All representations and warranties contained in this
Continuing Security Agreement shall survive the execution, delivery
and performance of this Continuing Security Agreement and the creation
and payment of the Obligations.
(k) If this Continuing Security Agreement is signed by more than
one person as Debtor, the term "Debtor" shall refer to each of them
separately and to both or all of them jointly. All of the signers
shall be bound both severally and jointly with the other(s). The
Obligations shall include all debts, liabilities and obligations owed
to Secured Party by any Debtor solely or by both or several or all
Debtors jointly or jointly and severally. All property described in
Section 1 shall be included as part of the Collateral, whether it is
owned jointly by both or all Debtors or is owned in whole or in part
by one (or more) of them.
<PAGE>
14. ARBITRATION: Subject to the provisions of the next paragraph
below, the Secured Party and the Debtor agree to submit to binding
arbitration any and all claims, disputes and controversies between or
among them, whether in tort, contract or otherwise (and their
respective employees, officers, directors, attorneys and other agents)
arising out of or relating to in any way (i) the Obligations and
related loan and security documents which are the subject of this
Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution,
formation, inducement, enforcement, default or termination; or (ii)
requests for additional credit. However, "Core Proceedings" under the
United States Bankruptcy Code shall be exempted from arbitration.
Such arbitration shall proceed in Las Vegas, Nevada, shall be governed
by the Federal Arbitration Act (Title 9 of the United State Code), and
shall be conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("AAA"). The arbitrator shall
give effect to statutes of limitation in determining any claim. Any
controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
Nothing in the preceding paragraph, nor the exercise of any right
to arbitrate, shall limit the right of any party hereto (i) to
foreclose against real or personal property collateral by the exercise
of the power of sale, under a deed of trust, mortgage, or other
pledge, security agreement or instrument, or applicable law; (ii) to
exercise self-help remedies relating to collateral or proceeds of
collateral such as setoff or repossession; or (iii) to obtain
provisional or ancillary remedies such as replevin, injunctive relief,
attachment or appointment of a receiver from a court having
jurisdiction, before, during or after the pendency of any arbitration
proceeding. The institution and maintenance of any action for such
judicial relief, or pursuit of provisional or ancillary remedies, or
exercise of self-help remedies shall not constitute a waiver of the
right or obligation of any party to submit any claim or dispute to
arbitration, including those claims or disputes arising from exercise
of any such judicial relief, or provisional or ancillary remedies, or
exercise of self-help remedies.
Arbitration under this Agreement shall be before a single
arbitrator, who shall be a neutral attorney who has practiced in the
area of commercial law for at least 10 years, selected in the manner
established by the Commercial Arbitration Rules of the AAA.
PAUL-SON GAMING CORPORATION
By: /S/ ERIC P. ENDY
Eric P. Endy, President
By: /S/ KIRK SCHERER
Kirk Scherer, Treasurer, CFO
<PAGE>
WHEN RECORDED MAIL TO:
FOR RECORDER'S USE ONLY
DEED OF TRUST
THIS DEED OF TRUST IS DATED NOVEMBER 14, 1997, AMONG PAUL-SON
GAMING SUPPLIES, INC., WHOSE ADDRESS IS 1700 INDUSTRIAL ROAD, LAS
VEGAS, CLARK COUNTY, NEVADA 89102 (REFERRED TO BELOW AS
"GRANTOR"); NORWEST BANK NEVADA, NATIONAL ASSOCIATION, WHOSE
ADDRESS IS 3300 WEST SAHARA AVENUE, LAS VEGAS, NEVADA 89102
(REFERRED TO BELOW SOMETIMES AS "LENDER" AND SOMETIMES AS
"BENEFICIARY"); AND AMERICORP FINANCIAL, INC. A NEVADA
CORPORATION, WHOSE ADDRESS IS P.O. BOX 11424 RENO, NEVADA 89510
(REFERRED TO BELOW AS "TRUSTEE").
CONVEYANCE AND GRANT. FOR VALUABLE CONSIDERATION, GRANTOR
CONVEYS TO TRUSTEE IN TRUST, WITH POWER OF SALE, FOR THE BENEFIT
OF LENDER AS BENEFICIARY, all of Grantor's right, title, and
interest in and to the following described real property,
together with all existing or subsequently erected or affixed
buildings, improvements and fixtures; all easements, rights of
way, and appurtenances; all water and water rights flowing
through, belonging or in anyway appertaining to the Real
Property, and all of Grantor's water rights that are personal
property under Nevada law, including without limitation all type
2 nonirrigation grandfathered rights (if applicable), all
irrigation rights, all ditch rights, rights to irrigation
district stock, all contracts for effluent, and all other
contractual rights to water, and together with all rights (but
none of the duties) of Grantor as declarant under any presently
recorded declaration of covenants, conditions and restrictions
affecting real property; and all other rights, royalties, and
profits relating to the real property, including without
limitation all minerals, oil, gas, geothermal and similar
matters, LOCATED IN CLARK COUNTY, STATE OF NEVADA (THE "REAL
PROPERTY"):
THAT PORTION OF THE WEST HALF (W 1/2) AND A PORTION OF
THE NORTH HALF (N 1/2) OF SECTION 4, TOWNSHIP 21 SOUTH,
RANGE 61 EAST, M.D.B.&M, MORE PARTICULARLY DESCRIBED AS
PARCEL TWO (2) AS SHOWN BY PARCEL MAP IN FILE 44, PAGE
15, RECORDED AUGUST 6, 1984, AS DOCUMENT NO. 1927769,
OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA.
THE REAL PROPERTY OR ITS ADDRESS IS COMMONLY KNOWN AS 1700
INDUSTRIAL ROAD, LASVEGAS, NEVADA. THE REAL PROPERTY TAX
IDENTIFICATION NUMBER IS 162-04-609-009.
Grantor presently assigns to Lender (also known as Beneficiary in
this Deed of Trust) all of Grantor's right, title, and interest
in and to all present and future leases of the Property and all
Rents from the Property. In addition, Grantor grants Lender a
Uniform Commercial Code security interest in the Rents and the
Personal Property defined below.
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE
SECURITY INTEREST IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO
SECURE (1) PAYMENT OF THE INDEBTEDNESS AND (2) PERFORMANCE OF ANY
AND ALL OBLIGATIONS OF GRANTOR UNDER THE NOTES, THE RELATED
DOCUMENTS, AND THIS DEED OF TRUST. THIS DEED OF TRUST IS GIVEN
AND ACCEPTED ON THE FOLLOWING TERMS:
<PAGE>
2
Loan No. (Continued)
DEFINITIONS. The following words shall have the following
meanings when used in this Deed of Trust. Terms not otherwise
defined in this Deed of Trust shall have the meanings attributed
to such terms in the Uniform Commercial Code. All references to
dollar amounts shall mean amounts in lawful money of the United
States of America.
BENEFICIARY. The word "Beneficiary" means Norwest Bank
Nevada, National Association, its successors and assigns.
Norwest Bank Nevada, National Association, also is referred
to as "Lender" in this Deed of Trust.
DEED OF TRUST. The words "Deed of Trust" mean this Deed of
Trust among Grantor, Lender, and Trustee, and includes
without limitation all assignment and security interest
provisions relating to the Personal Property and Rents.
GRANTOR. The word "Grantor" means any and all persons and
entities executing this Deed of Trust, including without
limitation all Grantors named above.
GUARANTOR. The word "Guarantor" means and includes without
limitation, any and all guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
IMPROVEMENTS. The word "Improvements" means and includes
without limitation all existing and future Improvements,
fixtures, buildings, structures, mobile homes affixed on the
Real Property, facilities, additions and other construction
on the Real Property.
INDEBTEDNESS. The word "Indebtedness" means all principal
and interest payable under the Notes and any amounts
expended or advanced by Lender to discharge obligations of
Grantor or expenses incurred by Trustee or Lender to enforce
obligations of Grantor under this Deed of Trust, together
with interest on such amounts as provided in this Deed of
Trust. In addition to the Notes, the word "Indebtedness"
includes all obligations, debts and liabilities, plus
interest thereon, of Grantor to Lender, or any one or more
of them, as well as all claims by Lender against Grantor, or
any one or more of them, whether now existing or hereafter
arising, whether related or unrelated to the purpose of the
Notes, whether voluntary or otherwise, whether due or not
due, absolute or contingent, liquidated or unliquidated and
whether Grantor may be liable individually or jointly with
others, whether obligated as guarantor or otherwise, and
whether recovery upon such Indebtedness may be or hereafter
may become barred by any statute of limitations, and whether
such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means Norwest Bank Nevada,
National Association, its successors and assigns.
NOTES. The word "Notes" means, collectively, the Notes
dated November 14, 1997, in the principal amounts of
$1,000,000.00 AND $1,800,000.00, respectively, from Paul-Son
Gaming Supplies, Inc. to Lender, and that certain guaranty
of the Notes, dated November 14, 1997, from Grantor to
Lender, together with all renewals, extensions,
modifications, refinancings, and substitutions for the
Notes.
PERSONAL PROPERTY. The words "Personal Property" mean all
equipment, fixtures, and other articles of personal property
now or hereafter owned by Grantor, and now or hereafter
attached or affixed to the Real Property; together with all
accessions, parts, and additions to, all replacements of,
and all substitutions for, any of such property; and
together with all proceeds (including without limitation all
insurance proceeds and refunds of premiums) from any sale or
other disposition of the Property.
<PAGE>
3
Loan No. (Continued)
PROPERTY. The word "Property" means collectively the Real
Property and the Personal Property.
REAL PROPERTY. The words "Real Property" mean the property,
interests and rights described above in the "Conveyance and
Grant" section.
RELATED DOCUMENTS. The words "Related Documents" mean and
include without limitation all promissory notes, credit
agreements, loan agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the
Indebtedness.
RENTS. The word "Rents" means all present and future rents,
revenues, income, issues, royalties, profits, and other
benefits derived from the Property.
TRUSTEE. The word "Trustee" means Americorp Financial,
Inc., a Nevada corporation, and any substitute or successor
trustees.
GRANTOR'S WAIVERS. Grantor waives all rights or defenses arising
by reason of any "one action" or "anti-deficiency" law, or any
other law which may prevent Lender from bringing any action
against Grantor, including a claim for deficiency to the extent
Lender is otherwise entitled to a claim for deficiency, before or
after Lender's commencement or completion of any foreclosure
action, either judicially or by exercise of a power of sale.
PAYMENT AND PERFORMANCE. Except as otherwise provided in this
Deed of Trust, Grantor shall pay to Lender all Indebtedness
secured by this Deed of Trust as it becomes due, and Grantor
shall strictly perform all their respective obligations under the
Notes, this Deed of Trust, and the Related Documents.
STATUTORY COVENANTS. The following Statutory Covenants are
hereby adopted and made a part of this Deed of Trust: Covenants
1, 3, 4, 5, 6, 7, 8 and 9, N.R.S. 107.030. The rate of interest
default for Covenant No. 4 shall be 8.520%. The percent of
counsel fees under Covenant No. 7 shall be 10%. Except for
Covenants No. 6, 7 and 8, to the extent any terms of this Deed of
Trust are inconsistent with the Statutory Covenants, the terms of
this Deed of Trust shall control. Covenants 6, 7 and 8 shall
control over the express terms of any inconsistent terms of this
Deed of Trust.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that
Grantor's possession and use of the Property shall be governed by
the following provisions:
POSSESSION AND USE. Until the occurrence of an Event of
Default, Grantor may (a) remain in possession and control of
the Property, (b) use, operate or manage the property, and
(c) collect any Rents from the Property.
DUTY TO MAINTAIN. Grantor agrees to: (a) take reasonable
care of the Property; (b) maintain it in good repair and
condition; (c) replace all items of real and personal
property in which Beneficiary has a security interest and
which may wear out, or be lost, damaged or destroyed; (d)
complete promptly and in good and workmanlike manner any
building which may be constructed on the Real Property and
restore promptly and in good and workmanlike manner any
building which may be damaged, or destroyed, and to pay when
due all claims for labor performed and materials furnished;
(e) comply in all material respects with all laws affecting
the Property or requiring any alterations or improvements to
be made; (f) commit or permit no waste; (g) do no act which
would unduly impair or depreciate the value of the Property
as security; (h) do no act which would impair or abandon any
water or other rights of whatever nature now or later
appurtenant to the Real Property; (i) do no act which would
remove or demolish any building on the Real Property; and
(j) permit no condition to exist on or with respect to the
Property which would wholly or partially invalidate any
insurance.
<PAGE>
4
Loan No. (Continued)
HAZARDOUS SUBSTANCES. The terms "hazardous waste,"
"hazardous substance," "disposal," "release," and
"threatened release," as used in this Deed of Trust, shall
have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act
of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 49 U.S.C.
Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum
and petroleum by-products or any fraction thereof and
asbestos. Grantor represents and warrants to Lender that:
(a) During the period of Grantor's ownership of the
Property, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release
of any hazardous waste or substance by any person on, under,
or about the Property; (b) Grantor has no knowledge of, or
reason to believe that there has been, except as previously
disclosed to and acknowledged by Lender in writing, (i) any
use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or
substance by any prior owners or occupants of the Property
or (ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters; and (c) Except
as previously disclosed to and acknowledged by Lender in
writing, (i) neither Grantor nor any tenant, contractor,
agent or other authorized user of the Property shall use,
generate, manufacture, store, treat, dispose of, or release
any hazardous waste or substance on, under, or about the
Property and (ii) any such activity shall be conducted in
compliance with all applicable federal, state, and local
laws, regulations and ordinances, including without
limitation those laws, regulations, and ordinances described
above. Grantor authorizes Lender and its agents to enter
upon the Property to make such inspections and tests as
Lender may deem appropriate to determine compliance of the
Property with this section of the Deed of Trust and at
Grantor's expense. Beneficiary, at its option, but without
obligation to do so, may correct any condition violating any
applicable environmental law affecting the Property, and in
doing so shall conclusively be deemed to be acting
reasonably and for the purpose of protecting the value of
its collateral, and all costs of correcting a condition or
violation shall be payable to Beneficiary by Grantor as
provided in the Expenditures by Lender section of this Deed
of Trust. Any inspections or tests made by Lender shall be
for Lender's purposes only and shall not be construed to
create any responsibility or liability on the part of Lender
to Grantor or to any other person. The representations and
warranties contained herein are based on Grantor's due
diligence in investigating the Property for hazardous waste.
Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any
such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly
or indirectly sustain or suffer resulting from a breach of
this section of the Deed of Trust or as a consequence of any
use, generation, manufacture, storage, disposal, release or
threatened release occurring prior to Grantor's ownership or
interest in the Property, whether or not the same was or
should have been known to Grantor. The provisions of this
section of the Deed of Trust, including the obligation to
indemnify, shall survive the payment of the Indebtedness and
the satisfaction and reconveyance of the lien of this Deed
of Trust and shall not be affected by Lender's acquisition
of any interest in the Property, whether by foreclosure or
otherwise.
NUISANCE, WASTE. Grantor shall not cause, conduct or permit
any nuisance nor commit, permit, or suffer any stripping of
or waste on or to the Property or any portion of the
Property. Without limiting the generality of the foregoing.
Grantor will not remove, or grant to any other party the
right to remove, any timber, minerals (including oil and
gas), soil, gravel or rock products without the prior
written consent of Lender.
<PAGE>
5
Loan No. (Continued)
REMOVAL OF IMPROVEMENTS. Grantor shall not demolish or
remove any Improvements from the Real Property without the
prior written consent of Lender. As a condition to the
removal of any Improvements, Lender may require Grantor to
make arrangements satisfactory to Lender to replace such
Improvements with Improvements of at least equal value.
LENDER'S RIGHT TO ENTER. Lender and its agents and
representatives may enter upon the Real Property at all
reasonable times to attend to Lender's Interests and to
inspect the Property for purposes of Grantor's compliance
with the terms and conditions of this Deed of Trust.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall
promptly comply with all laws, ordinances, and regulations,
now or hereafter in effect, of all governmental authorities
applicable to the use or occupancy of the Property,
including without limitation, the Americans With
Disabilities Act. Grantor may contest in good faith any
such law, ordinance, or regulation and withhold compliance
during any proceeding, including appropriate appeals, so
long as Grantor has notified Lender in Writing prior to
doing so and so long as, in Lender's sole opinion. Lender's
interests in the Property are not jeopardized. Lender may
require Grantor to post adequate security or a surety bond,
reasonably satisfactory to Lender, to protect Lender's
interest.
DUTY TO PROTECT. Grantor agrees neither to abandon nor
leave unattended the Property. Grantor shall do all other
acts, in addition to those acts set forth above in this
section, which from the character and use of the Property
are reasonably necessary to protect and preserve the
Property.
DUE ON SALE - CONSENT BY LENDER. Lender may, at its option,
declare immediately due and payable all sums secured by this Deed
of Trust upon the sale or transfer, without the Lender's prior
written consent, of all or any part of the Real Property, or any
interest in the Real Property. A "sale or transfer" means the
conveyance of Real Property or any right, title or interest
therein; whether legal or equitable; whether voluntary or
involuntary; whether by outright sale, deed, installment sale
contract, land contract, contract for deed, leasehold interest
with a term greater than three (3) years, lease-option contract,
or by sale, assignment, or transfer of any beneficial interest in
or to any land trust holding title to the Real Property, or by
any other method of conveyance of Real Property interest. If any
Grantor is a corporation or partnership, transfer also includes
any change in ownership of more than twenty-five percent (25%) of
the voting stock or partnership interests, as the case may be, of
Grantor. However, this option shall not be exercised by Lender
if such exercise is prohibited by federal law or by Nevada law.
If Grantor is a corporation, the shareholders of Grantor shall
not sell, pledge or assign any shares of the stock of Grantor
without the prior written consent of Beneficiary. If Grantor is
a partnership or joint venture, the partners or venturers shall
not sell, pledge or assign any of their interests in Grantor and
no general partners or joint ventures shall withdraw from or be
admitted into Grantor without the prior written consent of
Beneficiary."
TAXES AND LIENS. The following provisions relating to the taxes
and liens on the Property are a part of this Deed of Trust.
PAYMENT. Grantor shall pay when due (and in all events
prior to delinquency) all taxes and assessments, including
without limitation sales or use taxes in any state, local
privilege or excise taxes based on gross revenues, special
taxes, charges (including water and sewer), fines and
impositions levied against Grantor or on account of the
Property, and shall pay when due all claims for work done on
or for services rendered or material furnished to the
Property. Grantor shall maintain the Property free of all
liens having priority over or equal to the interest of
Lender under this Deed of Trust, except for the lien of
taxes and assessments not due and except as otherwise
provided in this Deed of Trust. Beneficiary shall have the
right, but not the duty or obligation, to charge Grantor for
any such taxes or assessments in advance of payment. In no
event does exercise or non-exercise by Beneficiary of this
right relieve Grantor from Grantor's obligation under this
Deed of Trust or impose any liability whatsoever on
Beneficiary.
<PAGE>
6
Loan No. (Continued)
RIGHT TO CONTEST. Grantor may withhold payment of any
tax, assessment, or claim in connection with a good faith
dispute over the obligation to pay, so long as Lender's
interest in the Property is not jeopardized. If a lien
arises or is filed as a result of nonpayment, Grantor shall
within fifteen (15) days after the lien arises or, if a lien
is filed, within fifteen (15) days after Grantor has notice
of the filing, secure the discharge of the lien, or if
requested by Lender, deposit with Lender cash or a
sufficient corporate surety bond or other security
satisfactory to Lender in an amount sufficient to discharge
the lien plus any costs and attorney's fees or other charges
that could accrue as a result of a foreclosure or sale under
the lien. In any contest, Grantor shall defend itself and
Lender and shall satisfy any adverse judgment before
enforcement against the Property. Grantor shall name Lender
as an additional obligee under any surety bond furnished in
the contest proceedings.
EVIDENCE OF PAYMENT. Grantor shall upon demand furnish to
Lender satisfactory evidence of payment of the taxes or
assessments and shall authorize the appropriate governmental
official to deliver to Lender at any time a written
statement of the taxes and assessments against the Property.
NOTICE OF CONSTRUCTION. Grantor shall notify Lender at
least fifteen (15) days before any work is commenced, any
services are furnished, or any materials are supplied to the
Property, if any mechanic's lien, materialmen's lien, or
other lien could be asserted on account of the work,
services, or materials. Grantor will upon request of Lender
furnish to Lender advance assurances satisfactory to Lender
that Grantor can and will pay the cost of such improvements.
Lender reserves the right to require Grantor to obtain and
record a surety bond to discharge any and all liens within
fifteen (15) days of the date that Grantor or Lender
receives notice, whichever occurs first.
PROPERTY DAMAGE INSURANCE. The following provisions relating to
insuring the Property are a part of this Deed of Trust.
MAINTENANCE OF INSURANCE. Grantor shall procure and
maintain policies of fire insurance with standard extended
coverage endorsements on a replacement basis for the full
insurable value covering all improvements on the Real
Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in
favor of Lender, together with such other insurance,
including but not limited to hazard, liability, business
interruption, and boiler insurance, as Lender may reasonably
require. Policies shall be written in form, amounts,
coverages and basis reasonably acceptable to Lender and
issued by a company or companies reasonably acceptable to
Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of
Insurance in form satisfactory to Lender including
stipulation that coverages will not be canceled or
diminished without at least thirty (30) days' prior written
notice to Lender. Should the Real Property at any time
become located in an area designated by the Director of the
Federal Emergency Management Agency as a special flood
hazard area, Grantor agrees to obtain and maintain Federal
Flood Insurance to the extent such insurance is required and
is or becomes available, for the term of the loan and for
the full unpaid principal balance of the loan, or the
maximum limit of coverage that is available, whichever is
less.
APPLICATION OF PROCEEDS. Grantor shall promptly notify
Lender of any loss or damage to the Property. Lender may
make proof of loss if Grantor fails to do so within fifteen
(15) days of the casualty. Whether or not Lender's security
is impaired, Lender may, at its election, receive and retain
the proceeds and apply the proceeds to the reduction of the
Indebtedness, payment of any lien affecting the Property, or
the restoration and repair of the damaged or destroyed
Improvements in a manner satisfactory to Lender. Lender
shall, upon satisfactory proof of such
<PAGE>
7
Loan No. (Continued)
expenditure, pay or reimburse Grantor from the proceeds for
the reasonable cost of repair or restoration if Grantor is
not in default under this Deed of Trust. Any proceeds which
have not been disbursed within 180 days after their receipt
and which Lender has not committed to the repair or
restoration of the Property shall be used first to pay any
amount owing to Lender under this Deed of Trust, then to pay
accrued interest, and the remainder, if any, shall be
applied to the principal balance of the Indebtedness. If
Lender holds any proceeds after payment in full of the
Indebtedness, such proceeds shall be paid to Grantor as
Grantor's interests may appear.
UNEXPIRED INSURANCE AT SALE. Any unexpired insurance shall
inure to the benefit of, and pass to, the purchaser of the
Property covered by this Deed of Trust at any trustee's sale
or other sale held under the provisions of this Deed of
Trust, or at any foreclosure sale of such Property.
GRANTOR'S REPORT ON INSURANCE. Upon request of Lender,
however not more than once a year, Grantor shall furnish to
Lender a report on each existing policy of insurance
showing: (a) the name of the insurer; (b) the risks
insured; (c) the amount of the policy; (d) the property
insured, the then-current replacement value of such
property, and the manner of determining that value; and (e)
the expiration date of the policy. Grantor shall, upon
request of Lender, have an independent appraiser
satisfactory to Lender determine the cash value replacement
cost of the Property.
EXPENDITURES BY LENDER. If Grantor fails to comply with any
provision of this Deed of Trust, or if any action or proceeding
is commenced that would materially affect Lender's interests in
the Property, Lender on Grantor's behalf may, but shall not be
required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the
rate charged under the Notes from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses,
at Lender's option, will (a) be payable on demand, (b) be added
to the balance of the Notes and be apportioned among and be
payable with any installment payments to become due during either
(i) the term of any applicable insurance policy or (ii) the
remaining term of the Notes, or (c) be treated as a balloon
payment which will be due and payable at the Notes' maturity.
This Deed of Trust also will secure payment of these amounts.
The rights provided for in this paragraph shall be in addition to
any other rights or any remedies to which Lender may be entitled
on account of the default. Any such action by Lender shall not
be construed as curing the default so as to bar Lender from any
remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to
ownership of the Property are a part of this Deed of Trust.
TITLE. Grantor warrants that: (a) Grantor holds good and
marketable title of record to the Property in fee simple,
free and clear of all liens and encumbrances other than
those set forth in the Real Property description or in any
title insurance policy, title report, or final title opinion
issued in favor of, and accepted by, Lender, or have
otherwise been previously disclosed to and accepted by
Lender in writing in connection with this Deed of Trust, and
(b) Grantor has the full right, power, and authority to
execute and deliver this Deed of Trust to Lender.
DEFENSE OF TITLE. Subject to the exception in the paragraph
above, Grantor warrants and will forever defend the title to
the Property against the lawful claims of all persons. In
the event any action or proceeding is commenced that
questions Grantor's title or the interest of Trustee or
Lender under this Deed of Trust, Grantor shall defend the
action at Grantor's expense. Grantor may be the nominal
party in such proceeding, but Lender shall be entitled to
participate in the proceeding and to be represented in the
proceeding by counsel of Lender's own choice, and Grantor
will deliver, or cause to be delivered, to Lender such
instruments as Lender may request from time to time to
permit such participation.
<PAGE>
8
Loan No. (Continued)
COMPLIANCE WITH LAWS. Grantor warrants that the Property
and Grantor's use of the Property complies with all existing
applicable laws, ordinances, and regulations of governmental
authorities.
CONDEMNATION. The following provisions relating to condemnation
proceedings are a part of this Deed of Trust.
APPLICATION OF NET PROCEEDS. If all or any part of the
Property is condemned by eminent domain proceedings or by
any proceeding or purchase in lieu of condemnation, Lender
may at its election require that all or any portion of the
net proceeds of the award be applied to the Indebtedness or
their repair or restoration of the Property. The net
proceeds of the award shall mean the award after payment of
all reasonable costs, expenses, and attorneys' fees incurred
by Trustee or Lender in connection with the condemnation.
PROCEEDINGS. If any proceeding in condemnation is filed,
Grantor shall promptly notify Lender in writing, and Grantor
shall promptly take such steps as may be necessary to defend
the action and obtain the award. Grantor may be the nominal
party in such proceeding, but Lender shall be entitled to
participate in the proceeding and to be represented in the
proceeding by counsel of its own choice and Grantor will
deliver or cause to be delivered to Lender such instruments
as may be requested by it from time to time to permit such
participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL
AUTHORITIES. The following provisions relating to governmental
taxes, fees and charges are a part of this Deed of Trust:
CURRENT TAXES, FEES AND CHARGES. Upon request by Lender,
Grantor shall execute such documents in addition to this
Deed of Trust and take whatever other action is requested by
Lender to perfect and continue Lender's lien on the Real
Property. Grantor shall reimburse Lender for all taxes, as
described below, together with all expenses incurred in
recording, perfecting or continuing this Deed of Trust,
including without limitation all taxes, fees, documentary
stamps, and other charges for recording ;or registering this
Deed of Trust.
TAXES. The following shall constitute taxes to which this
section applies: (a) a specific tax upon this type of Deed
of Trust or upon all or any part of the Indebtedness secured
by this Deed of Trust; (b) a specific tax on Grantor which
Grantor is authorized or required to deduct from payments on
the Indebtedness secured by this type of Deed of Trust; (c)
a tax on this type of Deed of Trust chargeable against the
Lender or the holder of the Notes; and (d) a specific tax
on all or any portion of the Indebtedness or on payments of
principal and interest made by Grantor.
SUBSEQUENT TAXES. If any tax to which this section applies
is enacted subsequent to the date of this Deed of Trust,
this event shall have the same effect as an Event of Default
(as defined below), and Lender may exercise any or all of
its available remedies for an Event of Default as provided
below unless Grantor either (a) pays the tax before it
becomes delinquent, or (b) contests the tax as provided
above in the Taxes and Liens section and deposits with
Lender cash or a sufficient corporate surety bond or other
security satisfactory to Lender.
SECURITY AGREEMENT: FINANCING STATEMENTS. The following
provisions relating to this Deed of Trust as a security agreement
are a part of this Deed of Trust.
SECURITY AGREEMENT. This instrument shall constitute a
security agreement to the extent any of the Property
constitutes fixtures or other personal property, and Lender
shall have all of the rights of a secured party under the
Uniform Commercial Code in effect in the State of Nevada, as
amended from time to time.
<PAGE>
9
Loan No. (Continued)
SECURITY INTEREST. Upon request by Lender, Grantor shall
execute financing statements and take whatever other action
is requested by Lender to perfect and continue Lender's
security interest in the Rents and Personal Property. In
addition to recording this Deed of Trust in the real
property records, Lender may, at any time and without
further authorization from Grantor, file executed
counterparts, copies or reproductions of this Deed of Trust
as a financing statement. Grantor shall reimburse Lender
for all expenses incurred in perfecting or continuing this
security interest. Upon default, Grantor shall assemble the
Personal Property in a manner and at a place reasonably
convenient to Grantor and Lender and make it available to
Lender within three (3) days after receipt of written demand
from Lender.
ADDRESSES. The mailing addresses of Grantor (debtor) and
Lender (secured party), from which information concerning
the security interest granted by this Deed of Trust may be
obtained (each as required by the Uniform Commercial Code),
are as stated on the first page of this Deed of Trust.
FURTHER ASSURANCE; ATTORNEY IN FACT. The following provisions
relating to further assurances and attorney in fact are a part of
this Deed of Trust.
FURTHER ASSURANCES. At any time, and from time to time,
upon request of Lender, Grantor will make, execute and
deliver, or will cause to be made, executed or delivered, to
Lender or to Lender's designee, and when requested by
Lender, cause to be filed, recorded, refiled, or rerecorded,
as the case may be, at such times and in such offices and
places as Lender may deem appropriate, any and all such
mortgages, deeds of trust, security deeds, security
agreements, financing statements, continuation statements,
instruments of further assurance, certificates, and other
documents as may, in the sole opinion of Lender, be
necessary or desirable in order to effectuate, complete,
perfect, continue, or preserve (a) the obligations of
Grantor under the Notes, this Deed of Trust, and the Related
Documents, and (b) the liens and security interests created
by this Deed of Trust as first and prior liens on the
Property, whether now owned or hereafter acquired by
Grantor. Unless prohibited by law or agreed to the contrary
by Lender in writing. Grantor shall reimburse Lender for
all costs and expenses incurred in connection with the
matters referred to in this paragraph.
ATTORNEY IN FACT. If Grantor fails to do any of the things
referred to in the preceding paragraph, Lender may do so for
and in the name of Grantor and at Grantor's expense. For
such purpose, Grantor hereby irrevocably appoints Lender as
Grantor's attorney in fact for the purpose of making,
executing delivering, filing, recording, and doing all other
things as may be necessary or desirable, in Lender's sole
opinion, to accomplish the matters referred to in the
preceding paragraph.
GENERAL PROVISIONS. The following general provisions are a part
of this Deed of Trust:
RELEASE OF INFORMATION. Grantor authorizes Beneficiary to
furnish any information in its possession, however acquired,
concerning Grantor or any of its affiliates to any person or
entity, for any purpose which Beneficiary in good faith and
in its sole discretion, believes to be proper, including
without limitation, the disclosure of information to any
actual or prospective lender to Grantor, any actual or
prospective participant in a loan between Grantor and
Beneficiary, any prospective purchaser of securities issued
or to be issued by Beneficiary, and, to the extent permitted
by law, any governmental body or regulatory agency, or in
connection with the actual or prospective transfer of all or
a portion of this Deed of Trust to another financial
institution.
PREPAYMENT. If this Deed of Trust or any obligation secured
provides for any charge for prepayment of any Indebtedness
secured, Grantor agrees to pay the charge if for any reason
any Indebtedness shall be paid prior to the stated maturity
date, notwithstanding that an Event of
<PAGE>
10
Loan No. (Continued)
Default shall have caused the Indebtedness or all sums
secured to be immediately due and payable, and whether or
not payment is made prior to or at any sale held under this
section. Grantor expressly (a) waives any rights it may
have to prepay the Notes, in whole or in part, without
penalty, upon acceleration of the maturity date for the
Notes, and (b) agrees that if, for any reason, a prepayment
of any or all of the Notes is made, whether voluntary or
upon or following any acceleration of the maturity date for
the Notes by Beneficiary on account of any default by
Grantor, including buy not limited to any prohibited
transfer, then Grantor shall be obligated to pay,
concurrently, as a prepayment premium, the applicable sum
specified here or in the Notes.
PRIOR INDEBTEDNESS. Should there occur any default in any
payment or performance of any Prior Indebtedness, (a)
Beneficiary, without notice to or demand upon Grantor, and
without releasing Grantor from any obligation may enter upon
the Real Property for such purposes; (b) Beneficiary at any
time and from time to time, prepay the Prior Indebtedness in
whole or in part together with all premiums, penalties, or
other payments required in connection with any such
prepayment; (c) Beneficiary shall be entitled, without any
grace period, to immediately exercise its rights and
remedies for an Event of Default; and (d) the exercise of
any right or authority granted with respect to such default
shall not cure nor waive any default.
LOAN ADVANCES. If any Indebtedness secured hereby is for
the purpose of financing the construction of improvements to
be completed on the Real Property in accordance with a
construction loan agreement, or if any Indebtedness secured
hereby arises under a revolving line of credit agreement,
the consideration for this Deed of Trust is the present and
future advancement of funds by Beneficiary in accordance
with the provisions of such agreement, and this Deed of
Trust shall secure all such advancements (regardless of
amount) and the security priority of each such advancement
shall be deemed to relate back to the date of this Deed of
Trust, and this Deed of Trust shall have the full force,
effect and benefits of a Deed of Trust to secure the amount
of all such future advancements of money by Beneficiary to
Grantor, outstanding and unpaid at any time, notwithstanding
the fact that prior advances have been made and previously
repaid.
WAIVERS AND DEFENSES. Grantor hereby waives to the fullest
extent permissible by law the right to plead any statue of
limitations as a defense to any demand secured hereby.
Grantor waives any requirements of presentment, demands for
payment, notices of nonpayment or late payment, protest,
notices of protest, notices of dishonor, and all other
formalities. No offset or claim that Grantor now or may in
the future have against Beneficiary shall relieve Grantor
from paying installments or performing any other obligation
herein or secured hereby. Grantor waives all rights or
privileges it might otherwise have to require Trustee or
Beneficiary to proceed against or exhaust the assets
encumbered hereby or by assets encumbered hereby or by any
other security document or instrument securing any
promissory note or to proceed against any guarantor of such
indebtedness, or to pursue any other remedy available to
Beneficiary in any particular manner or order under the
legal or equitable doctrine or principal of marshaling or
suretyship, and further agrees that Trustee or Beneficiary
may proceed, in the Event of Default against any or all of
the assets encumbered hereby or by any other security
documentation or instrument securing any promissory note,
in such order and manner as Beneficiary in its sole
discretion may determine. Any Grantor that has signed this
Deed of Trust as a Guarantor, surety or accommodation party,
or that has subjected its property to this Deed of Trust to
secure the indebtedness of another, hereby expressly waives
the benefits of the relevant provisions of Nevada statutes,
and waives any defense arising by reason of any disability
or other defense of Grantor or by reason of the cessation
from any cause whatsoever of the liability of Grantor.
FULL PERFORMANCE. If Grantor pays all the Indebtedness when due,
and otherwise performs all the obligation imposed upon Grantor
under this Deed of Trust, Lender shall execute and deliver to
Trustee a
<PAGE>
11
Loan No. (Continued)
request for full reconveyance without warranty and shall execute
and deliver to Grantor suitable statements of termination of any
financing statement on file evidencing Lender's security interest
in the Rents and Personal Property. Any reconveyance fee
required by law shall be paid by Grantor, if permitted by
applicable law.
DEFAULT. Each of the following, at the option of Lender, shall
constitute an event of default ("Event of Default") under this
Deed of Trust:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any
payment when due on the Indebtedness.
DEFAULT ON OTHER PAYMENTS. Failure of Grantor within
the time required by this Deed of Trust to make any
payment for taxes or insurance, or any other payment
necessary to prevent filing of or to effect discharge
of any lien.
COMPLIANCE DEFAULT. Failure to comply with any other
term, obligation, covenant or condition contained in
this Deed of Trust, the Notes or in any of the Related
Documents.
BREACHES. Any warranty, representation or statement
made or furnished to Lender by or on behalf of Grantor
under this Deed of Trust, the Notes or the Related
Documents is, or at the time made or furnished was,
false in any material respect.
INSOLVENCY. The insolvency of Grantor, appointment of
a receiver for any part of Grantor's property, any
assignment for the benefit of creditors, the
commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor, or the
dissolution or termination of Grantor's existence as a
going business (if Grantor is a business). Except to
the extent prohibited by federal law or Nevada law, the
death of Grantor (if Grantor is an individual) also
shall constitute an Event of Default under this Deed of
Trust.
FORECLOSURE, FORFEITURE, ETC. Commencement of
foreclosure or forfeiture proceedings, whether by
judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any
governmental agency against any of the Property.
However, this subsection shall not apply in the event
of a good faith dispute by Grantor as to the validity
or reasonableness of the claim which is the basis of
the foreclosure or forfeiture proceeding, provided that
Grantor gives Lender written notice of such claim and
furnishes reserves or a surety bond for the claim
satisfactory to Lender.
OTHER EVENTS. Grantor abandons the Property the holder
of any lien or security interest on the Property
institutes foreclosure or other proceedings for the
enforcement of its remedies thereunder or garnishment,
attachment, levy or execution is issued against any of
the Property or effects of the Grantor or any surety or
guarantor hereof or any of the Property of any
partnership of which Grantor is a partner.
EVENTS AFFECTING PARTNERSHIPS AND PARTNERS. Any of the
events set forth in this Events of Default section of
this Deed of Trust occurs with respect to any general
partner of Grantor or to any partnership of which
Grantor is a partner or any general partner dies or
becomes incompetent.
BREACH OF OTHER AGREEMENT. Any breach by Grantor under
the terms of any other agreement between Grantor and
Lender that is not remedied within any grace period
provided therein, including without limitation any
agreement concerning any indebtedness or other
obligation of Grantor to Lender, whether existing now
or later.
<PAGE>
12
Loan No. (Continued)
EVENTS AFFECTING GUARANTOR. Any of the preceding
events occurs with respect to any Guarantor of any of
the indebtedness or such Guarantor dies or becomes
incompetent.
ADVERSE CHANGE. A material adverse change occurs in
Grantor's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness
is impaired.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any
Event of Default and at any time thereafter, Trustee or
Lender, at its option, may exercise any one or more of the
following rights and remedies, in addition to any other
rights or remedies provided by law:
ACCELERATE INDEBTEDNESS. Lender shall have the right
at its option to declare the entire Indebtedness
immediately due and payable, including any prepayment
penalty which Grantor would be required to pay. In the
event of any default based upon a transfer of the
Property or of any interest therein, Beneficiary shall
have the right, in lieu of declaring any Indebtedness
immediately due and payable and exercising its rights
and remedies, to do any one or more of the following:
(a) increase the interest rate on all or any part of
the Indebtedness or obligation secured, (b) require a
principal pay-down on any Indebtedness or obligation
secured and charge a loan fee and processing fee in
connection with the transfer, (c) condition its
forbearance upon the transferee agreeing to guarantee
or assume the Indebtedness secured by executing a
guaranty or assumption agreement in form and substance
acceptable to Beneficiary, and (d) refuse to release
Grantor from any liability or for the Indebtedness
secured hereby except to the extent required by law.
Consent to any transaction shall not be deemed to be
consent or a waiver of the requirement of consent to
any other transaction.
FORECLOSURE. With respect to all or any part of the
Real Property, the Trustee shall have the right to
foreclosure by notice and sale, and Lender shall have
the right to foreclose by judicial foreclosure, in
either case in accordance with and to the full extent
provided by applicable law. To the extent permitted by
law, Grantor shall be and remain liable for any
deficiency remaining after sale, either pursuant to the
power of sale or judicial proceedings.
UCC REMEDIES. With respect to all or any part of the
Personal Property, Lender shall have all the rights and
remedies of a secured party under the Uniform
Commercial Code.
COLLECT RENTS. Lender shall have the right, without
notice to Grantor, to take possession of an manage the
Property and collect the Rents, including the amounts
past due and unpaid, and apply the net proceeds, over
and above Lender's costs, against the Indebtedness. In
furtherance of this right, Lender may require any
tenant or other user of the Property to make payments
of rent or use fees directly to Lender. If the Rents
are collected by Lender, then Grantor irrevocably
designates Lender as Grantor's attorney in fact to
endorse instruments received in payment thereof in the
name of Grantor and to negotiate the same and collect
the proceeds. Payments by tenants or other users to
Lender in response to Lender's demand shall satisfy the
obligations for which the payments are made, whether or
not any proper grounds for the demand existed. Lender
may exercise its rights under this subparagraph either
in person, by agent, or through a receiver.
APPOINT RECEIVER. Lender shall have the right to have
a receiver appointed to take possession of all or any
part of the Property, with the power to protect and
preserve the
<PAGE>
13
Loan No. (Continued)
Property, to operate the Property preceding foreclosure
or sale, and to collect the Rents from the Property and
apply the proceeds, over and above the cost of the
receivership, against the indebtedness. The receiver
may serve without bond if permitted by law. Lender's
right to the appointment of a receiver shall exist
whether or not the apparent value of the Property
exceeds the Indebtedness by a substantial amount.
Employment by Lender shall not disqualify a person from
serving as a receiver.
TENANCY AT SUFFERANCE. If Grantor remains in
possession of the Property after the Property is sold
as provided above or Lender otherwise becomes entitled
to possession of the Property upon default of Grantor,
Grantor shall become a tenant at sufferance of Lender
or the purchaser of the Property and shall, at Lender's
option, either (a) pay a reasonable rental for the use
of the Property, or (b) vacate the Property immediately
upon the demand of Lender.
OTHER REMEDIES. Trustee or Lender shall have any other
right or remedy provided in this Deed of Trust or the
Notes or by law.
NOTICE OF SALE. Lender shall give Grantor reasonable
notice of the time and place of any public sale of the
Personal Property or of the time after which any
private sale or other intended disposition of the
Personal Property is to be made. Reasonable notice
shall man notice given at least ten (10) days before
the time of the sale or disposition. Any sale of
Personal Property may be made in conjunction with any
sale of the Real Property.
SALE OF THE PROPERTY. To the extent permitted by
applicable law, Grantor hereby waives any and all
rights to have the Property marshalled. In exercising
its rights and remedies, the Trustee or Lender shall be
free to sell all or any part of the Property, together
or separately, in one sale or by separate sales.
Lender shall be entitled to bid at any public sale on
all or any portion of the Property.
WAIVER; ELECTION OF REMEDIES. A waiver by any party of
a breach of a provision of this Deed of Trust shall not
constitute a waiver of or prejudice the party's rights
otherwise to demand strict compliance with that
provision or any other provision. Election by Lender
to pursue any remedy provided in this Deed of Trust,
the Notes, in any Related Document, or provided by law
shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to
perform an obligation of Grantor under this Deed of
Trust after failure of Grantor to perform shall not
affect Lender's right to declare a default and to
exercise any of its remedies.
ATTORNEYS' FEES; EXPENSES. If Lender institutes any
suit or action to enforce any of the terms of this Deed
of Trust, Lender shall be entitled to recover such sum
as the court may adjudge reasonable as attorneys' fees
at trial and on any appeal. Whether or not any court
action is involved, all reasonable expenses incurred by
Lender which in Lender's opinion are necessary at any
time for the protection of its interest or the
enforcement of its rights shall become a part of the
Indebtedness payable on demand and shall bear interest
at the applicable Note rate from the date of
expenditure until repaid. Expenses covered by this
paragraph include, without limitation, however subject
to any limits under applicable law, Lender's attorneys'
fees whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or
injunction), appeals and any anticipated post-judgment
collection services, the cost of searching records,
obtaining title reports (including foreclosure
reports), surveyors' reports, appraisal fees, title
insurance, and fees for the Trustee, to the extent
permitted by applicable law. Grantor also will pay any
court costs, in addition to all other sums provided by
law.
<PAGE>
14
Loan No. (Continued)
RIGHTS OF TRUSTEE. Trustee shall have all of the
rights and duties of Lender as set forth in this
section
POWERS AND OBLIGATIONS OF TRUSTEE. The following provisions
relating to the powers and obligations of Trustee are part
of this Deed of Trust.
POWERS OF TRUSTEE. In addition to all powers of
Trustee arising as a matter of law, Trustee shall have
the power to take the following actions with respect to
the Property upon the written request of Lender and
Grantor: (a) join in preparing and filing a map or
plat of the Real Property, including the dedication of
streets or other rights to the public; (b) join in
granting any easement or creating any restriction on
the Real Property; and (c) join in any subordination or
other agreement affecting this Deed of Trust or the
interest of Lender under this Deed of Trust.
OBLIGATIONS TO NOTIFY. Trustee shall not be obligated
to notify any other party of a pending sale under any
other trust deed or lien, or of any action or
proceeding in which Grantor, Lender, or Trustee shall
be a party, unless the action or proceeding is brought
by Trustee.
TRUSTEE. Trustee shall meet all qualifications
required for Trustee under applicable law. In addition
to the rights and remedies set forth above, with
respect to all or any part of the Property, the Trustee
shall have the right to foreclose by notice and sale,
and Lender shall have the right to foreclose by
judicial foreclosure, in either case in accordance with
and to the full extent provided by applicable law.
SUCCESSOR TRUSTEE. Lender, at Lender's option, may
from time to time appoint a successor Trustee to any
Trustee appointed hereunder by an instrument executed
and acknowledged by Lender and recorded in the office
of the recorder of Clark County, Nevada. The
instrument shall contain, in addition to all other
matters required by state law, the names of the
original Lender, Trustee, and Grantor, the book and
page where this Deed of Trust is recorded, and the name
and address of the successor trustee, and the
instrument shall be executed and acknowledged by Lender
or its successors in interest. The successor trustee,
without conveyance of the Property, shall succeed to
all the title, power, and duties conferred upon the
Trustee in this Deed of Trust and by applicable law.
This procedure for substitution of trustee shall govern
to the exclusion of all other provisions for
substitution.
NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this
Deed of Trust shall be in writing and shall be effective
when actually delivered or, if mailed, shall be deemed
effective when deposited in the United States mail, first
class, registered mail, postage prepaid, directed to the
addresses shown near the beginning of this Deed of Trust.
Any party may change its address for notices under this Deed
of Trust by giving formal written notice to the other
parties, specifying that the purpose of the notice is to
change the party's address. All copies of notices of
foreclosure from the holder of any lien which has priority
over this Deed of Trust shall be sent to Lender's address,
as shown near the beginning of this Deed of Trust. For
notice purposes, Grantor agrees to keep Lender and Trustee
informed at all times of Grantor's current address.
MISCELLANEOUS PROVISIONS. The following miscellaneous
provisions are a part of this Deed of Trust:
<PAGE>
15
Loan No. (Continued)
AMENDMENTS. This Deed of Trust, together with any
Related Documents, constitutes the entire understanding
and agreement of the parties as to the matters set
forth in this Deed of Trust. No alteration of or
amendment to this Deed of Trust shall be effective
unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration
or amendment.
ANNUAL REPORTS. If the Property is used for purposes
other than Grantor's residence, Grantor shall furnish
to Lender, upon request, a certified statement of net
operating income received from the Property during
Grantor's previous fiscal year in such form and detail
as Lender shall require. "Net operating income" shall
mean all cash receipts from the Property less all cash
expenditures made in connection with the operation of
the Property.
APPLICABLE LAW. This Deed of Trust has been delivered
to Lender and accepted by Lender in the State of
Nevada. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of
Nevada.
CAPTION HEADINGS. Caption headings in this Deed of
Trust are for convenience purposes only and are not to
be used to interpret or define the provisions of this
Deed of Trust.
MERGER. There shall be no merger of the interest or
estate created by this Deed of Trust with any other
interest or estate in the Property at any time held by
or for the benefit of Lender in any capacity, without
the written consent of Lender.
SEVERABILITY. If a court of competent jurisdiction
finds any provision of this Deed of Trust to be invalid
or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances.
If feasible, any such offending provision shall be
deemed to be modified to be within the limits of
enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken
and all other provisions of this Deed of Trust in all
other respects shall remain valid and enforceable.
SUCCESSORS AND ASSIGNS. Subject to the limitations
stated in this Deed of Trust on transfer of Grantor's
interest, this Deed of Trust shall be binding upon and
inure to the benefit of the parties, their successors
and assigns. If ownership of the Property becomes
vested in a person other than Grantor, Lender, without
notice to Grantor, may deal with Grantor's successors
with reference to this Deed of Trust and the
Indebtedness by way of forbearance or extension without
releasing Grantor from the obligations of this Deed of
Trust or liability under the Indebtedness.
TIME IS OF THE ESSENCE. Time is of the essence in the
performance of this Deed of Trust.
WAIVERS AND CONSENTS. Lender shall not be deemed to
have waived any rights under this Deed of Trust (or
under the Related Documents) unless such waiver is in
writing and signed by Lender. No delay or omission on
the part of Lender in exercising any right shall
operate as a waiver of such right or any other right.
A waiver by any party of a provision of this Deed of
Trust shall not constitute a waiver of or prejudice the
party's right otherwise to demand strict compliance
with that provision or any other provision. No prior
waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of
Lender's rights or any of Grantor's obligations as to
any future transactions. Whenever consent by Lender is
required in this Deed of Trust, the
<PAGE>
16
Loan No. (Continued)
granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent
instances where such consent is required.
WAIVER OF HOMESTEAD EXEMPTION. Grantor hereby releases
and waives all rights and benefits of the homestead
exemption laws of the State of Nevada as to all
Indebtedness secured by this Deed of Trust.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS DEED OF TRUST, AND GRANTOR AGREES TO ITS TERMS.
PAUL-SON GAMING SUPPLIES, INC
By: /S/ ERIC P. ENDY
Eric P. Endy, Executive Vice President
By: /S/ KIRK SCHERER
Kirk Scherer, Treasurer, CFO
ACKNOWLEDGMENT
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
The foregoing instrument was acknowledged before me
this 14th day of November, 1997, by Eric P. Endy and
Kirk Scherer, Executive Vice President and Treasurer,
CFO, respectively of Paul-Son Gaming Supplies, Inc. on
behalf of the corporation.
Given under my hand and official seal this 14th day of
November, 1996.
By: /S/ KAREN L. KOWIS Residing at 3300 W. SAHARA
Notary Public
My commission will expire: June 13, 1999
<PAGE>
REQUEST FOR FULL RECONVEYANCE
(To be used only when obligations have been paid in full)
To: _____________________________, Trustee
The undersigned is the legal owner and holder of all Indebtedness
secured by this Deed of Trust. All sums secured by this Deed of
Trust have been fully paid and satisfied. You are hereby
directed, upon payment to you of any sums owing to you under the
terms of this Deed of Trust or pursuant to any applicable
statute, to cancel the Notes secured by this Deed of Trust (which
are delivered to you together with this Deed of Trust), and to
reconvey, without warranty, to the parties designated by the
terms of this Deed of Trust, the estate now held by you under
this Deed of Trust. Please mail the reconveyance and Related
Documents to:
________________________________________________________________.
Date: _______________________ Norwest Bank Nevada, National
Association
By: __________________________
Its: _________________________
<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 ended November 30, 1997, and is
qualified in its entirety by reference to such financial information.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 744
<SECURITIES> 0
<RECEIVABLES> 5,068
<ALLOWANCES> 314
<INVENTORY> 5,962
<CURRENT-ASSETS> 12,912
<PP&E> 12,758
<DEPRECIATION> 4,191
<TOTAL-ASSETS> 22,077
<CURRENT-LIABILITIES> 3,395
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 16,834
<TOTAL-LIABILITY-AND-EQUITY> 22,077
<SALES> 6,093
<TOTAL-REVENUES> 6,093
<CGS> 4,246
<TOTAL-COSTS> 4,246
<OTHER-EXPENSES> 1,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 153
<INCOME-TAX> 56
<INCOME-CONTINUING> 97
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
