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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1999
REGISTRATION NO. 333-49199
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
POST-EFFECTIVE AMENDMENT NO. 1
ON
FORM S-3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________
PDS FINANCIAL CORPORATION
(Name of small business issuer in its charter)
MINNESOTA 6159 41-1695870
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification No.)
organization) Classification Code Number)
6171 McLeod Drive
Las Vegas, Nevada 89120
(702) 736-0700
(Address and telephone number of registrant's principal
executive offices and principal place of business)
JOHAN P. FINLEY COPIES OF COMMUNICATIONS TO:
President and Chief Executive Officer JOHN T. KRAMER
6171 McLeod Drive Dorsey & Whitney L.L.P.
Las Vegas, Nevada 89120 Pillsbury Center South
Telephone No.: (702) 736-0700 220 South Sixth Street
(Name, address and telephone number of Minneapolis, MN 55402
agent for service) Telephone No.: 612-340-8702
Facsimile No.: 612-340-8738
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
___________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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The information in this prospectus is not complete and it may change. This
prospectus is included in a registration statement that we filed with the
Securities and Exchange Commission. We cannot sell these securities until
that registration statement becomes effective. This prospectus is not an
offer to sell these securities or the solicitation of an offer to buy these
securities in any state where an offer to sell or the solicitation of an
offer to buy is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION MARCH 24, 1999
740,000 SHARES
PDS FINANCIAL CORPORATION
COMMON STOCK
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This prospectus covers the sale of up to 740,000 shares of our common
stock issuable on exercise of 690,000 warrants and a warrant to Miller &
Schroeder Financial, Inc. our underwriter in the May 1998 offering of debt
securities to purchase shares of our common stock. The warrants and the
underwriter's warrant were issued in our public offering of debt securities
on May 4, 1998. A holder of a warrant may purchase one share of common
stock. The warrants are exercisable at $12.25 per share. The warrants
expire on May 4, 2003. The holder of the underwriter's warrant may purchase
50,000 shares of common stock. The underwriter's warrant is exercisable at
$12.25 per share. The underwriter's warrant may not be exercised before May
4, 2000 and expires on May 4, 2003. If all of the warrants and the
underwriter's warrant are exercised, we will receive $9,065,000 before
deducting expenses estimated at $10,000.
Our common stock is traded on The Nasdaq National Market under the
symbol "PDSF." The last sale price of our common stock on March 19, 1999 was
$2.125.
We were required to obtain the approval of the Nevada Gaming Commission
before selling our common stock and we received such approval on April 28,
1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN FACTORS
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
___________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
reports on Form 8-K, proxy statements and other information with the
Commission. You can inspect and copy this information at the public
reference facility maintained by the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549. You can also do so at the following regional offices of
the Commission:
Citicorp Center
500 West Madison, Suite 1400
Chicago, Illinois 60661-2511
7 World Trade Center, Suite 1300
New York, New York 10048.
You can get additional information about the operation of the
Commission's public reference facilities by calling the Commission at
1-800-SEC-0330. The Commission also maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other materials regarding companies that, like us, file information
electronically with the Commission. You can also inspect information about
us at the offices of the National Association of Securities Dealers, Inc., at
1735 K Street, N.W., Washington, D.C. 20006.
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to
you by referring you to the other information we have filed with the
Commission. The information that we incorporate by reference is considered
to be a part of this prospectus, and later information that we file with the
Commission will automatically update and supercede the information we've
included in this prospectus. We incorporate by reference the documents
listed below. We also incorporate by reference any future filings we make
with the Commission under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the shares of common stock or until
the offering of the shares of common stock is otherwise ended. This
prospectus is part of a registration statement that we filed with the
Commission (Registration No. 333-49199).
1. Annual Report on Form 10-KSB for the year ended December 31, 1997;
2. Quarterly Reports on Form 10-QSB for the quarter ended March 31,
1998, June 30, 1998 and September 30, 1998;
3. Proxy Statement for the annual meeting of shareholders held
May 14, 1998; and
4. The description of common stock contained in our Registration
Statement on Form 8-A (File No. 0-23928) filed with the Commission pursuant
to Section 12 (g) of the Exchange Act on April 26, 1994.
You can request a free copy of theses filings by writing or calling us
at the following address:
PDS Financial Corporation
6171 McLeod Drive
Las Vegas, Nevada 89120
Attention: Secretary
Telephone No. (702) 736-0700
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement to this prospectus. We have
not authorized anyone else to provide you with different information or
additional information. We will not make an offer of these shares of common
stock in any state where the offer is not permitted. You should not assume
that the information in this prospectus, or any supplement to this
prospectus, is accurate at any date other than the date indicated on the
cover page of these documents.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN THE COMMON STOCK DISCUSSED UNDER "RISK FACTORS." SOME OF THE
STATEMENTS SET FORTH BELOW ARE "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). SEE
"FORWARD-LOOKING STATEMENTS" FOR A DISCUSSION OF FACTORS RELATING TO SUCH
STATEMENTS. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES TO "WE,"
THE "COMPANY" OR "PDS" INCLUDE US AND OUR WHOLLY OWNED SUBSIDIARIES, PDS
FINANCIAL CORPORATION-NEVADA, PDS FINANCIAL CORPORATION-MISSISSIPPI, PDS
CASINOS INTERNATIONAL, INC. AND TRANSCANADA 2 CORPORATION.
INTRODUCTION
On May 4, 1998, we issued 13,800 investment units, each unit consisting
of a 10% Senior Subordinated Note, due July 1, 2004 in the principal amount
of $1,000 and fifty detachable warrants to purchase fifty shares of our
common stock in a public offering registered under the Securities Act of
1933. The warrants are traded on The Nasdaq National Market under the trading
symbol "PDSF." In that Offering, we also issued a warrant to purchase 50,000
shares of our common stock to Miller & Schroeder Financial, Inc., our
underwriter in that offering. This prospectus relates to our common stock
receivable upon exercise of the warrants and the underwriter's warrant.
THE COMPANY
We engage in the business of financing and leasing gaming equipment and
supplying reconditioned gaming machines to casino operators. The gaming
equipment that we finance consists mainly of slot machines, video gaming
machines and other gaming devices. In addition, we finance furniture,
fixtures and other gaming related equipment, including gaming tables and
chairs, restaurant and hotel furniture, vehicles, security and surveillance
equipment, computers and other office equipment. In 1996, we introduced
SlotLease, a specialized operating lease program for slot machines and other
electronic gaming devices. In 1997, we established PDS Slot Source, a
reconditioned gaming machine sales and distribution program, to complement
our leasing and financing activities.
In order to offer our SlotLease and PDS Slot Source programs, we must be
licensed to own and distribute gaming devices in each jurisdiction in which
we conduct business. As part of the licensing process, each gaming
jurisdiction performs a thorough investigation of each applicant and some of
its directors, officers, key employees and significant shareholders. We are
currently licensed in Nevada, New Jersey, Colorado, Iowa, Minnesota and
Indiana. We also have license applications pending in Illinois and
Mississippi and a manufacturing license application pending in Nevada. We
believe our gaming licenses, as well as our financing experience in the
gaming industry, provide a significant competitive advantage, enabling us to
offer financing packages and services that meet the needs of this industry
more effectively than traditional financing.
We believe SlotLease, our operating lease program, has been well
received by casino operators since its introduction in 1996 because it offers
casino operators lower monthly payments and off-balance sheet financing. We
retain ownership of the gaming equipment under an operating lease. At the end
of the applicable lease term, we offer the customer an option to purchase the
gaming equipment, generally at its then-determined fair market value, or to
extend the lease term. Returned gaming machines are inventoried for lease or
resale by us through our PDS Slot Source program.
In May 1997, we introduced PDS Slot Source, our reconditioned gaming
machine sales and distribution program. We believe that the secondary market
for gaming machines is fragmented, underdeveloped and represents a
significant opportunity for growth. We obtain used gaming machines in the
marketplace or occasionally from our customers at the end of an applicable
lease term. These gaming machines are reconditioned by us before resale or
are sold "as is" to customers. We believe our ability to recondition and
distribute used gaming machines enhances the market value of gaming machines
at the end of an operating lease and facilitates additional financing
transactions.
In addition to offering operating leases through our SlotLease program,
we also provide financing to our customers in the form of capital leases or
collateralized loans. These financing transactions are either originated
directly by us with the casino operator or are structured jointly with a
gaming equipment manufacturer or
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distributor. Under both of these types of transactions substantially all of
the benefits and risks of ownership are borne by the lessee/borrower. Under a
capital lease, our customer pays us the purchase price of the gaming
equipment either throughout the term of the lease or, if the lease payments
are not sufficient to cover the purchase price of the gaming equipment, our
customer pays us a balloon payment at the end of the lease term. Most of our
equipment financing transactions range from $250,000 to $2.5 million. We
generally obtain the funds necessary for our capital lease or note
originations by selling all or a portion of our interest in the payment
stream to one or more institutional investors, often at the same time as the
origination of such financing transactions.
We generally target established medium-sized casino operators that are
opening new casinos or expanding existing casinos, as well as new casino
operators that we believe have acceptable credit quality. We are currently
focusing our primary efforts on the traditional gaming markets of Nevada and
New Jersey.
Our principal executive offices are located at 6171 McLeod Drive, Las
Vegas, Nevada 89120; our telephone number is (702) 736-0700.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A NUMBER OF RISKS. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER WITH
THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE BUYING SHARES OF COMMON
STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION, OPERATING RESULTS OF OPERATION OR CASH FLOWS COULD BE MATERIALLY
ADVERSELY AFFECTED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK
TO DECLINE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT. SOME OF THE
STATEMENTS SET FORTH BELOW ARE "FORWARD-LOOKING STATEMENTS" UNDER THE REFORM
ACT. SEE "FORWARD-LOOKING STATEMENTS" FOR A DISCUSSION OF INFORMATION ABOUT
THESE STATEMENTS.
WE ARE SUBJECT TO STRICT REGULATION BY GAMING AUTHORITIES.
Financing gaming equipment and supplying reconditioned gaming machines
to casino operators in the United States are subject to strict regulation
under various state, county and municipal laws. We and those directors,
officers and shareholders required to do so have received the necessary
licenses, permits and authorizations necessary to own and distribute gaming
machines in Nevada, New Jersey, Colorado, Iowa, Minnesota and Indiana. We
have license applications pending in Illinois and Mississippi and a
manufacturer's license application pending in Nevada. If we or any of our key
personnel are unable to obtain or maintain the necessary licenses, permits
and authorizations, there would be a material adverse effect on our business,
financial condition and results of operation. Delays in obtaining necessary
state licenses could affect our growth. We cannot predict whether, or the
term for which, our license will be renewed in a particular jurisdiction or
what license conditions, if any, may be imposed by such jurisdiction in
connection with any future renewals. We cannot predict the effects that
adoption of and changes in gaming laws, rules and regulations might have on
our future operations.
WE FACE COMPETITION WITH SUBSTANTIALLY GREATER RESOURCES THAN WE HAVE.
In recent years, we have focused solely on providing financing to the
gaming industry and, since late 1997, supplying reconditioned gaming machines
to casino operators in the United States. In the gaming equipment financing
market, we compete primarily with equipment manufacturers and, to a lesser
extent, with leasing companies, commercial banks and other financial
institutions. Some of our competitors are significantly larger and have
substantially greater resources than we have. With respect to the sales of
reconditioned gaming machines, we compete primarily against equipment
manufacturers and smaller distributors. It is possible that new competitors
may engage in gaming equipment financing or distribute reconditioned gaming
machines, some of which may have licenses to own or sell gaming equipment and
have greater financial resources than we have. If we face significant
competition, it may have a material adverse effect on our business, financial
condition and results of operations. We cannot predict whether we will be
able to compete successfully against current and future competitors.
WE DEPEND ON MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES.
We believe that our ability to increase revenues, cash flow and
profitability will depend, in part, upon continued market acceptance of the
our products and services, particularly SlotLease and PDS Slot Source. We
cannot predict whether market acceptance of our products and services will
continue. Changes in market conditions in the gaming industry and in the
financial condition of casino operators, such as consolidation within the
industry or other factors, could limit or decrease market acceptance of our
products and services. In the past, we have experienced significant one-time
revenues in connection with our financings and sales of gaming equipment to
casino operators. We have attracted new customers to replace these one-time
revenues. Insufficient market acceptance of the our products and services
could have a material adverse effect on our business, financial condition and
results of operations.
CONTINUED AVAILABILITY OF ADEQUATE FINANCING IS UNCERTAIN.
The amount and number of financing transactions that we originate
depends upon and is limited by our ability to fund such transactions. We
usually fund financing transactions either by selling such transactions to
institutional investors or by using our lines of credit or other financing
sources. We cannot predict whether our present funding sources will purchase
future transactions, expand existing lines of credit or continue to provide
us with a source of funds. We also cannot predict whether we will be able to
locate new funding sources, if needed. As
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a result, funding for our transactions may not be available on acceptable
terms or on a timely basis, if at all. Our inability to obtain suitable and
timely funding for our transactions could have a material adverse effect on
our business, financial condition and results of operations.
WE FACE UNCERTAINTIES IN OUR ABILITY TO RECOVER INVESTMENT IN EQUIPMENT.
The gaming equipment owned by us that we lease to our customers under
operating leases and our inventory of reconditioned gaming machines
represents a substantial portion of our capital. Under the operating leases
offered through the SlotLease program, we retain title to the gaming
equipment and assume the risk of not recovering our entire investment in the
gaming equipment at the end of the lease term by either re-leasing or selling
the gaming equipment. At the inception of each operating lease, we estimate
the residual value of the leased equipment, which is the estimated market
value of the equipment at the end of the initial lease term. The actual
residual value realized may differ from the estimated residual value,
resulting in a gain or loss when the leased equipment is sold or re-leased at
the end of the lease term. If we are unable to re-lease or sell the gaming
equipment on favorable terms, then there could be a material adverse effect
on our business.
WE FACE RISKS RELATING TO PDS SLOT SOURCE.
The PDS Slot Source program, which we established in 1997, has a limited
operating history and is subject to various risks. These risks include:
- inability to find adequate sources of used gaming machines,
- inability to obtain or delays in obtaining parts necessary to
recondition used gaming machines,
- our competitors control the supply of certain parts,
- changes in market conditions relating to reconditioned gaming
machines, and
- inability to recover our basis in the equipment upon resale.
The occurrence of any of these risks could have a material adverse
effect on our business.
WE FACE RISKS RELATING TO FINANCING TRANSACTIONS.
We fund some gaming equipment transactions entirely with our own
working capital or with borrowed funds rather than immediately selling the
transactions to institutional investors. In some situations, we retain a
portion of the transactions we originate. This approach requires substantial
capital and places us at risk for our investment in the transactions. This
approach may also subject us to greater loss in the event of a default by the
lessee or borrower, or if we are unable to sell the transactions to
institutional investors after a period of temporary investment. In connection
with our financing transactions, our level of risk depends primarily on the
creditworthiness of the lessee or borrower and the underlying collateral.
In addition, we have provided, and may provide in the future, financing
to Indian tribes. Indian tribes in the United States generally enjoy
sovereign immunity from lawsuits, similar to that of the United States
government. Although we generally obtain a waiver of sovereign immunity, we
cannot predict whether a tribe will assert sovereign immunity even though
such right has been waived. The law regarding sovereign immunity is
unsettled. If any Indian tribe defaults and successfully asserts its right of
sovereign immunity, our ability to recover our investment, or originate and
sell future Indian gaming transactions, could be materially adversely
affected.
We cannot predict whether we will incur significant losses with respect
to financing transactions in the future or whether such losses would have a
material adverse effect on our financial condition.
WE DEPEND ON OUR CURRENT MANAGEMENT.
We depend upon the efforts of Johan P. Finley, our founder, President
and Chief Executive Officer. Although we maintain $2 million of "key person"
term life insurance and have an employment agreement with Mr. Finley, the
loss of Mr. Finley's services could have a material adverse effect on our
business.
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WE EXPERIENCE FLUCTUATIONS IN QUARTERLY RESULTS.
Our quarterly results have fluctuated in the past because of the timing
of completion of large financing transactions and recognition of fee income
and/or gains from sales of reconditioned gaming devices. These transactions
can be in the negotiation and documentation stage for several months, and the
time at which we recognize the fee income or gain on sales is difficult to
predict. As a result, net income may fluctuate greatly from quarter to
quarter. Thus, the results of any quarter may not be indicative of the
results that may be expected for any other quarter.
WE ARE CONTROLLED BY CURRENT MANAGEMENT.
Johan P. Finley, our founder, President and Chief Executive Officer,
owns approximately 29% of our outstanding common stock. In addition, Mr.
Finley's wife and child own an aggregate of approximately 10% of our
outstanding common stock. Thus, the Finley family effectively controls the
election of all members of our board of directors and determines all
corporate actions. Such ownership could discourage acquisition of large
blocks of our securities, could depress the price of our common stock and
could possibly deter any potential purchaser of us.
PROVISIONS OF OUR ARTICLES OF INCORPORATION, REGULATORY STATUTES WE ARE
SUBJECT TO AND MINNESOTA LAW COULD DISCOURAGE POTENTIAL ACQUISITION PROPOSALS
AND DELAY OR PREVENT CHANGE IN CONTROL.
Our Amended and Restated Articles of Incorporation provide that you may
not hold 5% or more of our stock without first agreeing to consent to a
background investigation, provide a financial statement and respond to
questions from gaming regulators. In addition, if you hold less than 5% of
our stock, you could also be subject to the same requirements by regulatory
agencies that license us. Such ownership limitations could discourage
acquisition of large blocks of our securities, could depress the price of our
common stock and could possibly deter any potential purchaser of us.
Our Amended and Restated Articles of Incorporation authorize our board
of directors to issue preferred stock and establish the rights and
preferences of such shares without shareholder approval. The voting rights of
the preferred stock may be greater than the voting rights of the common stock
in certain circumstances, and thus the issuance of preferred stock may
diminish the voting power of holders of the common stock and make it more
difficult for a third party to acquire us. See "Description of Securities"
for a discussion of these provisions.
Our directors are subject to investigation and review by gaming
regulators in jurisdictions where we are licensed or have applied for a
license. Such investigation and review of our directors may have an
anti-takeover effect.
As a Minnesota corporation, we are subject to certain "anti-takeover"
provisions of the Minnesota Business Corporation Act. These provisions and
the power to issue additional stock and to establish separate classes or
series of stock may, in certain circumstances, deter or discourage takeover
attempts and other changes in control of us that are not approved by the
Board. See "Description of Securities--Certain Provisions Having
Anti-Takeover Effects" for a discussion of these provisions.
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk
Factors" and "Use of Proceeds," and elsewhere in this prospectus are
"forward-looking statements" under the Reform Act. Such forward-looking
statements may be identified by terms such as "believe," "may," "will,"
"expect," "anticipate," "intend," "designed," "estimate," "should" or
"continue" or the negatives thereof or other variations or similar
terminology. Such forward-looking statements involve known or unknown risks,
uncertainties and other factors which may cause our actual results,
performance or achievements, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things,
the following: strict regulation by gaming authorities; competition we face
or may face in the future; uncertainty of market acceptance of the SlotLease
program and PDS Slot Source program; our ability to continue to obtain
adequate financing; our ability to recover our investment in gaming equipment
leased under operating leases; the risks relating to the PDS Slot Source
program; the risk of default by borrowers/lessees with
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respect to our financing transactions; our dependence on key employees;
potential fluctuations in our quarterly results; general economic and
business conditions; and other factors referenced in this prospectus.
USE OF PROCEEDS
Assuming all of the warrants and the underwriter's warrant are
exercised, we will receive proceeds of $9,065,000, before deducting our
expenses estimated at $10,000. Our net proceeds from the sale of our common
stock upon exercise of the warrants or the underwriter's warrant will be used
for working capital and other general corporate expenses.
DETERMINATION OF OFFERING PRICE
The $12.25 exercise price of the warrants and the underwriter's warrant
was established by negotiations between us and the underwriter at 125% of the
average of the last reported sale prices of the our common stock on The
Nasdaq National Market for the ten trading days immediately prior to the date
of the prospectus in the offering in May 1998. The exercise price should not
be considered an indication of actual value of our common stock.
DISTRIBUTIONS AND DIVIDEND POLICY
Our board of directors presently expects to retain all earnings for
operating purposes and does not expect to pay dividends on our common stock
for the foreseeable future. In addition, we cannot pay dividends for so long
as any of the notes are outstanding under the terms of the indenture pursuant
to which the notes were issued, and our revolving credit agreements place
restrictions on our ability to pay dividends or make other distributions on
our common stock. Payment of dividends, if any, on our common stock is
subject to the discretion of our board of directors and will depend on our
earnings, financial condition, capital requirements and other relevant
factors.
DESCRIPTION OF WARRANTS AND PLAN OF DISTRIBUTION
We are offering shares of common stock to holders of warrants and the
underwriter's warrant that we issued in the offering in May 1998.
Each warrant entitles the holder thereof to purchase one share of our
common stock, par value $.01 per share, at an exercise price per share equal
to $12.25. The warrants expire at 5:00 p.m., Minneapolis time, on May 4,
2003. Warrants may be surrendered for exercise at any time on or prior to May
4, 2003 or earlier redemption date by submitting to Norwest Bank Minnesota,
N.A., as warrant agent, a warrant certificate signed by the warrant holder
indicating an election to exercise all or a portion of the warrants evidenced
by such certificate, accompanied by payment of the aggregate exercise price
of the warrants to be exercised, which payment may be made in the form of
cash or by certified check payable to us.
We may redeem the warrants, in whole or in part, at $.01 per warrant at
any time on or after May 4, 1999, if there are 20 consecutive trading days
where the per share closing sale price of our common stock as reported by The
Nasdaq National Market is equal to or greater than $30.63 and there is an
effective registration statement relating to the common stock underlying the
warrants. Each registered holder of a warrant will continue to have the right
to exercise his warrant until the close of business on the date of
redemption, and the warrants will continue to be subject to adjustment until
such exercise or redemption.
The underwriter's warrant entitles the underwriter to purchase 50,000
shares of our common stock at an exercise price of $12.25 per share. The
underwriter's warrant also provides demand and participatory rights to
require registration under the Securities Act of the shares of common stock
underlying the underwriter's warrant. The underwriter's warrant will be
exercisable commencing May 4, 2000 and for a period of three years
thereafter. The underwriter's warrant is restricted from sale, transfer or
assignment except to officers or successors of the underwriter.
We will issue a certificate or certificates representing the shares of
common stock at the time of exercise. We have reserved 740,000 shares of
common stock for issuance upon exercise of the warrants and the underwriter's
warrant.
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ANTIDILUTION. The exercise price and the number of shares of common
stock purchasable upon the exercise of each warrant are subject to adjustment
to protect warrant holders against dilution upon the occurrence of certain
events, including stock dividends, stock splits, reclassification of any
combination of the common stock, or a merger, consolidation or disposition of
substantially all of our assets. No adjustment in the exercise price of the
warrants and the number of shares of common stock purchasable upon the
exercise of each warrant will be required until cumulative adjustments reach
$.01 per share. No fractional shares will be issued upon exercise of
warrants, but we will pay an amount in cash equal to the same fraction of the
fair market value of a the warrant.
You are not entitled as a warrant holder to receive dividends or to
consent or receive notice as shareholders in respect of any meeting of
shareholders for the election of our directors or any other matter, or to
vote at any such meeting, or to exercise any rights whatsoever as our
shareholders.
TAX CONSEQUENCES. Generally, a holder of warrants will not recognize
any gain or loss on the purchase of our common stock for cash upon exercise
of the warrants. The tax basis of our common stock received will be equal to
the tax basis, as adjusted, in the warrants so exercised, plus the cash
exercise price. The holding period of our common stock received upon exercise
of a warrant for cash will not include the period during which the warrant
was held; it shall commence only upon the exercise date on which the warrant
is exercised.
Section 305 of the Internal Revenue Code and the applicable Treasury
Regulations provide that in certain circumstances a change in the exercise
price for the warrants will be treated as a deemed distribution of an
increased interest in our assets or earnings and profits, which in turn will
produce ordinary dividend income for a holder of warrants. The amount of such
deemed dividend will be equal to the fair market value of any additional
shares of common stock and cash in lieu of fractional shares received as a
result of the change in the exercise price of the warrants. In certain other
circumstances, Section 305 of the Internal Revenue Code and the applicable
Treasury Regulations provide that the absence of appropriate adjustments in
the exercise price for the warrants will produce dividend income for the
holders of our common Stock.
You should consult your own tax advisors concerning the federal income
tax consequences of the sale, exchange or other disposition of the warrants.
We have not received any advice as to local, income, franchise, personal
property or other taxation in any state or locality or as to the tax effect
of ownership of warrants in any state or locality. You are advised to consult
your own tax advisors with respect to any state or local income, franchise,
personal property or other tax consequences arising out of your ownership or
exercise of warrants.
9
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 22,000,000 shares, divided into
20,000,000 shares of common stock, $.01 par value per share, and 2,000,000
shares of preferred stock, $.01 par value per share.
Our board of directors has the authority, without approval of our
shareholders, to authorize the issuance of shares of preferred stock of PDS
from time to time in one or more series. Each series shall have a distinctive
designation or title and the number of shares as shall be fixed by the board
of directors prior to the issuance of any shares. Each series of preferred
stock shall have voting powers, full or limited, or no voting powers and such
preferences and relative, participating, optional, or other special rights
and qualifications, limitations, or restrictions thereof, as adopted by the
board of directors prior to the issuance of any shares. The board of
directors is also authorized to increase or decrease (but not below the
number of shares then outstanding) the number of shares of any series of
preferred stock subsequent to the issuance of shares of that series. We have
no present plan to establish any such class or series.
Our Amended and Restated Articles of Incorporation provide that no
person or entity may become the beneficial owner of 5% or more of our shares
unless such person or entity agrees to provide personal background and
financial information to gaming authorities, consents to a background
investigation, and responds to questions from gaming authorities. We may
redeem, at fair market value, shares held by any person or entity whose
status as a shareholder, in the opinion of our board of directors,
jeopardizes the approval, continued existence, or renewal by any gaming
authority, including the Nevada gaming authorities, state gaming regulators,
the Bureau of Indian Affairs or the National Indian Gaming Commission, of any
contract or lease with a casino, casino management firm, or casino owner,
related to casino property, or any other tribal, federal, or state license or
franchise held or to be acquired by us. These restrictions will be contained
in a legend on each certificate issued evidencing shares of common stock.
COMMON STOCK
As of the date hereof, there are shares of common stock
outstanding. All outstanding shares of common stock are fully paid and
nonassessable. The holders of common stock are entitled to one vote for each
share held of record on all matters voted upon by shareholders and may not
cumulate votes for the election of directors. Thus, the owners of a majority
of the shares of common stock outstanding may elect all of the directors, if
they choose to do so, and the owners of the balance of such shares would not
be able to elect any directors. Johan P. Finley, our founder, President and
Chief Executive Officer, owns approximately 29% our outstanding common stock
and effectively controls the election of all the directors and thereby
controls our affairs.
Each share of outstanding common stock is entitled to participate
equally in any distribution of net assets made to the shareholders in
liquidation of us and is entitled to participate equally in dividends as and
when declared by our board of directors. There are no redemption, sinking
fund, conversion or preemptive rights with respect to the shares of common
stock. The absence of preemptive rights could result in a dilution of the
interest of existing shareholders should additional shares of common stock be
issued.
CERTAIN PROVISIONS HAVING ANTI-TAKEOVER EFFECTS
We are governed by the provisions of Sections 302A.671 and 302A.673 of
the Minnesota Business Corporation Act, which could prevent you from
receiving a premium on your common stock and could also have a depressive
effect on the market price of our common stock. In general, Section 302A.671
provides that the shares of a corporation acquired in a "control share
acquisition" have no voting rights unless voting rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly
or indirectly, of beneficial ownership of shares that would, when added to
all other shares beneficially owned by the acquiring person, entitle the
acquiring person to have voting power of 20% or more in the election of
directors. In general, Section 302A.673 prohibits a public Minnesota
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of four years after the date of the transaction in
which the person became an interested shareholder, unless the business
combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales
10
<PAGE>
and other transactions resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who is the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting
stock or who is an affiliate or associate of the corporation and at any time
within four years prior to the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the corporation's voting stock.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The transfer agent, warrant agent and registrar for our common stock is
Norwest Bank Minnesota, N.A., Minneapolis, Minnesota.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The financial statements incorporated by reference from the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997 have been
audited by PricewaterhouseCoopers LLP, independent accountants, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide
you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date
other than the date on the front of these documents.
11
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Where You Can Find More Information . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Determination of Offering Price . . . . . . . . . . . . . . . . . . . . . 8
Distributions and Dividend Policy . . . . . . . . . . . . . . . . . . . . 8
Description of Warrants and Plan of Distribution . . . . . . . . . . . . 8
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . 10
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
___________
740,000 Shares
PDS FINANCIAL CORPORATION
Common Stock
___________
PROSPECTUS
___________
THE DATE OF THIS PROSPECTUS
IS , 1999.
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Business Corporation Act provides
that, unless prohibited or limited by a corporation's articles of
incorporation or bylaws, a corporation must indemnify its current and former
officers, directors, employees and agents against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
and which were incurred in connection with actions, suits or proceedings in
which such person are parties by reason of the fact that they are or were an
officer, director, employee or agent of the corporation, if they (i) have not
been indemnified by another organization, (ii) acted in good faith, (iii)
received no improper personal benefit, (iv) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful, and
(v) reasonably believed that the conduct was in the best interests of the
corporation. Section 302A.521 also permits a corporation to purchase and
maintain insurance on behalf of its officers, directors, employees and agents
against any liability which may be asserted against, or incurred by, such
persons in their capacities as officers, directors, employees and agents of
the corporation, whether or not the corporation would have been required to
indemnify the person against the liability under the provisions of such
section.
The Amended and Restated Bylaws of the Registrant provides that the
directors, officers and committee members of the Registrant and other persons
shall have the rights to indemnification provided by Section 302A.521 of the
Minnesota Business Corporation Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Company in connection with the issuance and distribution of the shares of
common stock offered hereby:
<TABLE>
<S> <C>
Legal fees and expenses of the Company . . . . . . . . . . . . . $ 7,500
Accounting fees and expenses . . . . . . . . . . . . . . . . . . 1,000
Printing expenses . . . . . . . . . . . . . . . . . . . . . . . . 500
Transfer Agent fees and expenses . . . . . . . . . . . . . . . . 500
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 500
-------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
-------
-------
</TABLE>
Each amount set forth above is estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has sold the following
securities pursuant to exemptions from registration under the Securities Act
of 1933, as amended (the "Securities Act"):
(1) The Company issued unsecured Convertible Subordinated
Debentures (the "Debentures") in 1993, which became convertible into
common stock of the Company at a price of $4.25 per share. From
September 1997 through September 30, 1998, $1,071,200 of the principal
balance of the Debentures has been converted into 252,030 shares of
common stock of the Company. This transaction was made in reliance upon
the exemptions from registration provided under Section 4(2) and 4(6)
and Rule 144 of the Securities Act. The purchasers of such securities
acquired them for their own account and not with a view to any
distribution thereof to the public. The Debentures were redeemed in
September 1998.
(2) On December 16, 1997 and March 11, 1998, Terry Stewart
exercised a warrant of PDS and received 426 and 727 shares of common
stock of the Company, respectively. The transactions were made in
reliance upon the exemption from registration provided under Sections
4(2) and 4(6) of the Securities Act.
13
<PAGE>
(3) On October 28, 1998, the Company issued 181,700 Common Stock
Purchase Warrants, evidencing the right to purchase an aggregate of up
to 4.99% of the authorized but previously unissued share of common stock
of the Company. This transaction was made in reliance upon Section 4(2)
and 4(6) of the Securities Act.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Amended and Restated Articles of Incorporation, as amended, of the Registrant(4)
3.2 Articles of Amendment to Articles of Incorporation of the Registrant(4)
3.2 Articles of Amendment of Amended and Restated Articles of Incorporation of the Registrant(4)
3.3 Articles of Amendment to Articles of Incorporation of the Registrant(4)
3.4 Amended and Restated Bylaws of the Registrant(1)
4.1 Specimen of Common Stock Certificate(1)
*4.2 Warrant to Purchase 25,000 shares of Common Stock, dated December 15, 1994 between the Registrant
and Miller & Schroeder Financial, Inc.(3)
4.3 Form of Warrant to Purchase 145,000 shares of Common Stock, dated May 24, 1994(1)
4.4 Indenture of Trust between the Registrant and First Trust National Association, as Trustee, dated
as of november 2, 1993(1)
*4.5 Revised Form of Indenture of Trust between the Registrant and First Trust National Association
dated as of , 1998
*4.6 Form of Note (included as Article Two to Exhibit No. 4.5)
*4.7 Form of Warrant Agreement between the Registrant and Norwest Bank Minnesota, N.A.
*4.8 Form of Warrant (included in Appendix A to Exhibit No. 4.7)
*5.1 Opinion and Consent of Counsel to the Company
10.1 Industrial Real Estate Lease dated April 29, 1997, between the Registrant, as Tenant, and Patrick
Commerce Center, LLC, as Landlord(4)
10.2 1993 Stock Option Plan, as amended(1)
10.3 Form of Incentive Stock Option Agreement(1)
10.4 Form of Non-Qualified Stock Option Agreement(1)
10.5 Employment Agreement between the Registrant and Johan P. Finley(1)
10.6 Employment Agreement between the Registrant and Robert M. Mann(2)
10.7 Employment Agreement between the Registrant and Peter D. Cleary(2)
10.8 Employment Agreement between the Registrant and Lona M.B. Finley(1)
10.9 Employment Agreement between the Registrant and Steven M. DesChamps
10.10 Form of Tax Indemnification Agreement between the Registrant and Johan P. Finley(1)
10.11 Revolving Credit and Security Agreement, dated April 9, 1997 between BNY Financial Corporation as
Lender and as Agent and the Registrant and PDS Financial Corporation-Nevada as Borrowers(4)
10.12 Amended and Restated Loan and Security Agreement, dated October 28, 1998 between Heller Financial,
Inc., as Lender and the Registrant as Borrower
10.13 Amended and Restated Loan and Security Agreement, dated October 28, 1998 between Heller Financial,
Inc. as Lender and PDS Financial Corporation-Nevada, as Borrower
10.14 Commercial Security Agreement, dated August 15, 1997 between U.S. Bank, as Lender and the
Registrant as Borrower(4)
10.15 Loan Agreement dated August 5, 1998 between U.S. Bank, as Lender and the Registrant, as Borrower(6)
10.16 Letter Agreement between the Registrant and David R. Mylrea(4)
10.17 Master Loan Agreement, dated as of December 15, 1998 by and among the Registrant, PDS Financial Corporation-Nevada
and Miller & Schroeder Investments Corporation
10.18 Master Loan Agreement, dated as of May 26, 1998 by and among the Registrant, PDS Financial Corporation-Nevada and
Miller & Schroeder Investments Corporation(5)
21.1 Subsidiaries of the Registrant(4)
23.1 Consent of Counsel to the Company (included in Exhibit 5.1)
23.2 Consent of Independent Accountants
*24.1 Powers of Attorney
</TABLE>
___________
14
<PAGE>
* Previously filed
(1) Incorporated by reference to the Registrant's previously filed
Registration Statement on Form SB-2 (File No. 33-76948C), as
amended, originally filed with the Commission on March 25, 1994
(2) Incorporated by reference to the Registrant's previously filed Form
10-KSB for the year ended December 31, 1995
(3) Incorporated by reference to the Registrant's previously filed
Registration Statement on Form SB-2 (File No. 33-88692)
(4) Incorporated by reference to the Registrant's previously filed Form
10-KSB for the year ended December 31, 1997
(5) Incorporated by reference to the Registrant's previously filed Form
10-QSB for the quarter ended June 30, 1998
(6) Incorporated by reference to the Registrant's previously filed Form
10-QSB for the quarter ended September 30, 1998
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant undertakes
(i) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(b) To reflect in the prospectus any facts or events, which
individually or in the aggregate, represent a fundamental change in
the information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
(c) To include any additional or changed material information
on the plan of distribution;
Provided, however, that paragraphs (a)(i)(a) and (a)(i)(b) do
not apply if the registration statement is on Form S-3 or Form
S-8, and the information required in a post-effective
amendment is incorporated by reference from periodic reports
filed by the small business issuer under the 1934 Securities
Exchange Act.
(ii) For determining liability under the Securities Act, to
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(iii) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, (the "Securities Act") may be permitted
to directors, officers, and controlling persons of the small business issuer
pursuant to the provisions summarized in Item 24 above, or otherwise, the
small business issuer has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of
any action, suit, or proceeding) is asserted by such director,
15
<PAGE>
officer, or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Las
Vegas, State of Nevada, on March 24, 1999.
PDS FINANCIAL CORPORATION
By: /s/ Johan P. Finley
----------------------------------
Johan P. Finley
President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed on March 24, 1999 by the
following persons in the capacities stated.
SIGNATURE TITLE
- ---------------------------------- ----------------------------------
/s/ Johan P. Finley President, Chief Executive Officer and
- ---------------------------------- Director (principal executive officer)
Johan P. Finley
/s/ Steven M. Des Champs Chief Financial Officer (principal
- ---------------------------------- financial and accounting officer)
Steven M. Des Champs
* Director
- ----------------------------------
Peter D. Cleary
* Director
- ----------------------------------
Charles R. Patterson
* Director
- ----------------------------------
Joel M. Koonce
* Director
- ----------------------------------
James L. Morrell
/s/ Lona M.B. Finley Director
- ----------------------------------
Lona M. B. Finley
/s/ Johan P. Finley
- ----------------------------------
*Johan P. Finley
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. PAGE NO.
10.9 Employment Agreement between the Registrant
and Steven M. Des Champs
10.12 Amended and Restated Loan and Security
Agreement, dated October 28, 1998 between
Heller Financial, Inc., as Lender and the
Registrant as Borrower
10.13 Amended and Restated Loan and Security
Agreement, dated October 28, 1998 between
Heller Financial, Inc., as Lender and PDS
Financial Corporation-Nevada, as Borrower
10.17 Master Loan Agreement, dated as of December
15, 1998 by and among the Registrant, PDS
Financial Corporation-Nevada and Miller &
Schroeder Investments Corporation
23.2 Consent of Independent Accountants
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 16th day of November,1998, by and between PDS FINANCIAL CORPORATION a
Minnesota Corporation, ("Employer"), and STEVEN M. DES CHAMPS ("Employee"),
and shall become effective on the 16th day of November, 1998.
WITNESSETH:
WHEREAS, Employer is in the business of providing equipment financing
and related financial advisory services to gaming and gaming related
businesses throughout the United States and Canada, and reconditioning and
buying and selling used slot machines; and
WHEREAS, Employer desires to secure the benefits of Employee's continued
services as well as the benefits of Employee's background, knowledge,
experience, ability, and expertise to promote and maintain Employer's growth,
viability and profitability; and
WHEREAS, Employee is desirous of being employed by Employer in
accordance with the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
I. NATURE OF EMPLOYMENT AND DUTIES OF EMPLOYEE
1.01 Employee is hired and shall serve as Chief Financial Officer with
duties, powers and responsibilities consistent with such
position, as set forth on EXHIBIT 1 attached hereto and
incorporated herein by this reference. Employee shall do and
perform all services, acts or things necessary or advisable to
manage and conduct the business of Employer, as set forth in
EXHIBIT 1. Employee agrees to devote substantially his full
energies, abilities and productive time to the Employer's
business and to the performance of his assigned duties, to
discharge those duties in a diligent and professional manner, and
not to engage in any other activities that would materially
interfere with the performance of his duties under this Agreement
or engage in any activity competitive with or adverse to the
Employer's business or welfare.
Employer may assign Employee to another position commensurate
with Employee's training, skills or experience so long as the
position is acceptable to both parties and compensation paid to
Employee is equal to or greater than the compensation provided in
this Agreement.
II. TERM OF EMPLOYMENT
2.01 Employer hereby employs the Employee and Employee hereby agrees
to his employment with the Employer for a period of two (2) years
commencing as of the Date of this Agreement.
<PAGE>
2.02 As used herein, the phrase "Employment Term" refers to the entire
period of employment, including the Initial Employment Term and
any extensions agreed to by the mutual consent of Employer and
Employee.
2.03 Renewal of Employment Term - The Employment Term shall
automatically renew for consecutive additional periods of one (1)
year unless at least thirty (30) days prior to the expiration of
the Initial Employment Term or any extension thereof either party
shall notify the other in writing of its decision to not renew
the Agreement.
III. TERMINATION
3.01 Notwithstanding the specific provisions of Section II above, the
Employment Term may be terminated as set forth herein:
3.02 Termination for Cause - Employer may terminate the Employment
Term at any time without notice upon the occurrence of any of
the following events:
(i) Death of Employee; or
(ii) The conviction of Employee in a court of law of any
offense involving money or other property or of any
crime that constitutes a felony, or any misdemeanor
involving moral turpitude; or
(iii) A determination by a licensed physician of the state
of which Employee maintains his permanent residence
that Employee is mentally incompetent or chemically
dependent; or
(iv) Employee's repeated and/or willful violation of
specific written directions of the Board of
Directors, or the President of Employee, or policies
set forth in Employer's Employee Handbook, or other
policies of the Employer; or
(v) Employee's repeated and/or willful failure to perform
his job duties after written notice by the Employer's
CEO, President or Board of Directors; or
(vi) A determination that any statement, representation or
warranty made to Employer by Employee shall be false
or misleading; or
(vii) Employee's inability to perform a substantial portion
of his usual and customary duties, because of illness
or sickness for a total of 45 days within any period
of 12 consecutive months; or
(viii) A determination by Employer's President or Board of
Directors that Employee has engaged in any conduct
which jeopardizes Employer's federal, state,
sovereign, or local governing authority licensing or
other approvals deemed material by Employer.
<PAGE>
(ix) inability or failure to obtain and/or retain
requisite licenses, permits and authorizations
required by the various gaming jurisdictions of
individuals for the position of Chief Financial
Officer.
3.03 Termination by Employee - Employee shall have the right to
terminate the Employment Agreement upon the insolvency or
bankruptcy of Employer. Employee may terminate this Agreement
with a thirty (30) days notice in the event that any person,
group of entity acquires a 50% or more equity position, proxy
control or management control that in fact results in a material
diminution or loss of Employee's authority or management
prerogatives. If employee terminates this Agreement because of
such action, Employee shall be entitled to nine (9) months of
Base Compensation in effect at the time of said action. The
amount shall be payable in a single payment due within 30 days of
completion of the sale.
3.04 Termination Without Cause - Employer shall have the right to
terminate the Employment Term at any time and for any reason with
or without cause upon Thirty (30) days written notice to
Employee. In the event of such termination without cause, and
only under these circumstances, Employer shall pay to Employee a
Severance Benefit equal to nine (9) months Base Compensation to
be paid on the last day of the notice period.
3.05 Termination by Mutual Consent - The Employment Term may be
terminated at any time with the mutual consent of Employer and
Employee, and upon mutually acceptable terms.
IV. COMPENSATION
4.01 Base Salary - Employee shall receive a Base Salary equal to
$10,000 per month, payable in equal installments on the fifteenth
and last day of each month or more often at the election of
Employer. Increases in the base salary for subsequent years will
be based on performance evaluation, profitability, and according
to percentages to be determined by the Employer's CEO or Board of
Directors.
4.02 If PDS Financial Corporation's annual net income exceeds the
amount approved by the Board of Directors and President, the
Employer agrees to pay Employee a performance bonus of no less
than 10% of his annualized Base Compensation. For purposes of
calculating any performance bonuses referred to herein, Net
Income shall be determined by the unaudited internal financial
statements of Employer. Net Income shall be the net profit after
taxes but before any distribution to shareholders. Performance
bonuses shall be paid by Employer within ten (10)
<PAGE>
business days after the preparation of financial statements of
Employer for the periods to which such bonuses relate.
4.03 At the discretion of the CEO of Employer, Employee may be paid up
to an additional 10% of his base salary earned as a discretionary
bonus to recognize outstanding performance. Employer may also
grant to Employee options to purchase additional shares of
Employer's stock. Employee's stock options rights will be more
fully defined in a separate agreement.
4.04 Expenses - Upon submission of proper vouchers or receipts,
Employer will pay or reimburse Employee for authorized travel or
entertainment expenses relating to Employer's customers and other
employees as are reasonably incurred by him in accordance with
Employer's entertainment expense policies and in connection with
the business of Employer, during the Term of Employment.
4.05 Stock Options - Upon the date of hire Employer will grant to
Employee options to purchase 50,000 shares of the Employer's
common stock which shall vest over a five (5) year period.
Employee's stock option rights will be more fully defined in a
separate agreement.
4.06 Benefits - Employee will be reimbursed for the cost of
continuation of the employee's coverage under his current medical
plan until entitled to Employer's medical coverage. Thereafter,
employee will be entitled to all benefits as outlined in the
Employee Handbook which includes insurance, retirement and other
benefits as are generally available to salaried employees of
Employer, subject to any limitations on such benefits to
officers, directors or highly paid employees in order that such
benefit programs qualify under Federal or State law for favored
tax or other treatment. Such benefits may be changed from time
to time by Employer.
V. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
During the course of his employment, Employee will have knowledge of
Employer's process, data, techniques, computer software or hardware, trade
secrets, clients, plans for marketing and expansion, and other information
that is proprietary in nature with respect to Employer, its personnel and
the conduct of Employer's business (collectively "Confidential
Information"). During the Employment Term and following the termination
of this employment, for whatever reason, Employee agrees not to disclose,
divulge, make public, or use to the detriment of Employer, whether for the
benefit of herself or others, any Confidential Information except as is
permitted or required in the performance of Employee's duties for Employer
or as is authorized in writing by Employer. Upon termination of Employee's
employment, he shall return to Employer all Confidential Information in
whatever format and including any and all copies. The covenants provided
in this Section shall survive the termination of
<PAGE>
Employee's employment and this Agreement.
VI. COVENANT NOT TO COMPETE
6.01 During the Employment Term and for a period of one (1) year
following the termination of the employment, for whatever reason,
Employee agrees not, directly or indirectly, to engage in any
business which is in competition with that of Employer within the
United States of America or Canada (including federally
recognized Indian reservations) (the "Territory"). For purposes
of this provision, Employee will be deemed to engage in a
business by accepting employment with, rendering service to, or
participating as a shareholder, director, officer, employee,
consultant, independent contractor, sales representative or
serving in any capacity similar to the foregoing on behalf of
said business. A business shall be deemed to be in competition
with Employer if it's primary business is leasing, financing,
reconditioning or selling used gaming or gambling equipment, or
furniture, fixtures or equipment designated for use or
installation in gambling facilities, and/or it engages in
origination or securitization of leases involving gaming
equipment and/or gaming related equipment.
6.02 During the Employment Term and for a period of one (1) year
following the termination of the employment, for whatever reason,
Employee agrees not, directly or indirectly, on his own account
or for another, to either solicit any customer or business of
Employer nor to divert any customer or business from Employer.
6.03 During the Employment Term and for a period of one (1) year
following the termination of the employment, for whatever reason,
Employee agrees not, directly or indirectly, to solicit for
employment or employ any employee or independent contractor of
Employer.
Should the Employer terminate this Agreement without cause, the time period
of the Non-Compete Items referenced above will be reduced to a period of
nine (9) months instead of the one-year period indicated herein.
VII. MISCELLANEOUS PROVISIONS
7.01 Governing Law - This Agreement shall in all respects be subject
to, and governed by, the laws of the State of Nevada
7.02 Severability - The invalidity or unenforceability of any
provision in the Agreement shall not in any way affect the
validity or enforceability or any other provision and this
Agreement shall be construed in all respects as if such invalid
or unenforceable provision had never been in the Agreement.
7.03 Waiver - A party's failure to insist on compliance or enforcement
of any provision of this Agreement, shall not affect the validity
or enforceability or constitute a waiver of future enforcement of
that
<PAGE>
provision or of any other provision of this Agreement by the
party or any other party.
7.04 If Employer requests that Employee assist in litigation or
administrative proceedings in which Employee has knowledge or had
involvement during Employee's term of Employment, Employer shall
reimburse Employee within 30 days for all documented and
submitted expenses incurred in providing such services.
7.05 Notice - Notices to or for the respective parties shall be given
in writing and delivered in person or mailed by certified or
registered mail, return receipt requested, addressed to the
respective party at the address set out below, or at such other
address as either party may elect to provide in advance in
writing to the other party:
EMPLOYEE: Steven Des Champs
8381 Las Lagunas Lane
Las Vegas, NV 89129
EMPLOYER: PDS Financial Corporation
c/o Orine Green, Human Resources Manager
6171 McLeod Dr.
Las Vegas, NV 89120-4048
7.06 Assignment - This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors, assigns, heirs
and personal representatives, except that the rights and benefits
of either of the parties under this Agreement May not be assigned
without the prior written consent of the other party.
7.07 Amendments - This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be
invalid unless in writing, signed by the Company and the
Employee.
7.08 Entire Agreement - Except for the separate documents referenced
above, this Agreement contains the entire agreement and
understanding by and between Employer and Employee with respect
to the employment of Employee, and no representations, promises,
agreements, or understandings, written or oral, relating to the
employment of the Employee by Employer not contained herein shall
be of any force or effect.
<PAGE>
7.09 Binding Arbitration; Injunctive Relief - Any controversy,
dispute, or claim arising under this Agreement which cannot be
resolved to the mutual satisfaction of the parties hereto shall
be determined by arbitration in the City of Las Vegas, Nevada,
pursuant to the provisions of the Nevada Uniform Arbitration Act.
If the parties can agree on the selection of an arbitrator, then
the decision or award of that arbitrator shall be final and
binding on the parties. If they are unable to agree on the
arbitrator, each party shall select one arbitrator within fifteen
(15) days after demand for arbitration, and the two arbitrators
so selected shall select a third arbitrator within fifteen (15)
days following their initial selection. Any decision by two of
the three arbitrators shall be final and binding on the parties.
Any decision or award under this Section 7.09 may be entered and
a judgment obtained thereon in the Eighth Judicial District Court
of the State of Nevada. The non-prevailing party shall reimburse
the prevailing party for its reasonable attorneys' fees and costs
incurred in connection with the arbitration and/or court action.
In the event that a violation of this Agreement warrants
injunctive relief, including a violation of Sections 6.01, 6.02
or 6.03, the party who desires such relief shall be entitled to
seek such relief in the Eighth Judicial District Court of the
State of Nevada.
7.10 References to Gender and Number Terms - In construing this
Agreement, feminine or neuter pronouns shall be substituted for
those masculine in form and vice versa, and plural terms shall be
substituted for singular and singular for plural in any place in
which the context so requires.
7.11 Headings - The various headings in this Agreement are inserted
for convenience only and are not part of this Agreement.
EMPLOYEE:
/s/ Steven M. Des Champs
___________________________
Steven M. Des Champs
EMPLOYER:
PDS FINANCIAL CORPORATION
/s/ Johan Finley
___________________________
Its: President
_______________________
<PAGE>
EXHIBIT 1
CHIEF FINANCIAL OFFICER
DUTIES AND RESPONSIBILITIES
SUMMARY
Typical CFO duties and responsibilities, including directing the organization's
financial planning and reporting, supervising the Accounting Department and
overseeing the implementation of new information systems as well as the
organization's relationship with lending institutions, shareholders, and the
financial community either personally or through subordinate managers.
ESSENTIAL DUTIES AND RESPONSIBILITIES include the following. Other duties may
be assigned.
Oversees and directs treasury, budgeting, audit, tax, accounting, long range
forecasting activities for the organization.
Directs the controller(s) in providing and directing procedures and computer
application systems necessary to maintain proper records and to afford
adequate accounting controls and services.
Responsible for treasurer functions, such as, custodian of funds, securities,
and assets of the organization.
Appraises the organization's financial position and issues periodic reports
on organization's financial stability, liquidity, and growth.
Directs, oversees and coordinates the establishment of and adherence to
budget programs.
Coordinates tax reporting programs and investor relation activities.
Oversees and directs the preparation and issuance of the corporation's annual
report.
Oversees and directs the preparation and issuance of the corporation's
regulatory filings with the SEC (10-Q's and 10-K's) and the IRS and any other
financial reporting.
Oversees the implementation of company's information systems.
Analyzes operational issues impacting the company, determines their financial
impact, and makes recommendations.
Provides input into the structure of transactions to maximize profitability
and cash flows.
Increases the Company's capital structure.
Evaluates and recommends business partnering, alliances or acquisition
opportunities.
Establishes and maintains contacts with stockholders, financial institutions,
and the investment community.
Serves as a member of the Executive Committee
Works with Human Resources Department to review and improve the
organization's compensation structure, including the possible implementation
of an Employee Profit Sharing or Bonus Program.
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement is entered into as of
October 28, 1998 between PDS FINANCIAL CORPORATION ("Borrower"), a Minnesota
corporation, having its principal place of business at 6171 McLeod Drive, Las
Vegas, Nevada 89120, and HELLER FINANCIAL, INC., a Delaware corporation
("Lender").
WHEREAS, Borrower and Lender have heretofore entered into a Loan and
Security Agreement dated as of June 20, 1997 (the "Original Loan Agreement");
and
WHEREAS, Borrower and Lender desire to amend said Original Loan Agreement
by amending and restating it in its entirety;
NOW, THEREFORE, in consideration of the parties' mutual undertakings,
hereby evidenced, and for other good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that the
provisions of the Original Loan Agreement are hereby amended and restated, so as
to be and read in their collective entirety as follows:
PRELIMINARY STATEMENT:
Lender understands that Borrower is engaged in the sale or lease of various
Eligible Equipment (this and all other capitalized terms are defined in Section
1.1 below), and that Borrower may from time to time offer to Lender the
opportunity to finance leases, installment sale contracts and other chattel
paper arising out of such business. This Agreement sets forth the terms and
conditions which will be applicable to any leases, installment sale contracts
and other chattel paper that Lender may, in its sole discretion, elect to
finance under an ongoing lease discounting facility, a residual financing
facility, and/or a non-recourse facility.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement and in the other Loan
Documents, unless otherwise expressly indicated herein or therein, the following
terms shall have the following meanings (such definitions to be applicable both
to the singular and plural terms defined):
AAA: American Appraisal Associates.
ACH: Automated Clearing House.
ACQUISITION COST: all costs and expenses incurred by an End-User
(in the case of installment/conditional sales contracts) or by Borrower (in
the case of any Leases with Borrower as lessor) in connection with the
acquisition of any Eligible Equipment, including, without limitation, sales
or use taxes, freight or installation costs, and license fees, but
excluding any deposits (including security deposits) or down/advance
payments made by End-User, or manufacturer's discounts.
ADVANCE: a loan which is part of the Facility.
AFFILIATE: any Person that directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common
control with another Person. The term "control" means possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise. For the purposes hereof, any
Person which owns or controls, directly or indirectly, 51% or more of the
securities of another Person shall be deemed to "control" such Person.
AGREEMENT or LOAN AND SECURITY AGREEMENT: this Amended and
Restated Loan and Security Agreement, as amended or supplemented at any
time.
AMORTIZATION SCHEDULE: a schedule approved by Lender for the
repayment of each Advance.
APPROVED CONTRACT TERM: without the prior written approval of
Lender, a period of time not less than 24 months and not more than 48
months.
<PAGE>
ASSIGNMENT: an assignment of Contracts and Liens in the form of
EXHIBIT A executed by Borrower from time to time in favor of Lender in
conjunction with each Advance.
BANK: First Bank National Association.
BLOCKED ACCOUNT: the account at the Bank subject to the Blocked
Account Agreement, to which ACH payments from certain End-Users through the
Bank's EFT service are directed.
BLOCKED ACCOUNT AGREEMENT: the arrangement between Lender,
Borrower and the Bank in the form of EXHIBIT J, covering ACH billing of
payments from certain End-Users using the Bank's EFT service, directed to
the Blocked Account.
BORROWER LIEN: a Lien on Collateral granted by an End-User to
Borrower, which Lien has been assigned by Borrower to Lender pursuant to an
Assignment.
BORROWER'S OBLIGATIONS: (i) all liabilities, obligations and
covenants imposed upon Borrower pursuant to the terms of the Loan
Documents, and (ii) all costs of litigation, collection, reasonable
attorneys' fees and other costs expended or incurred in connection with the
enforcement of Lender's rights hereunder and with respect to the Contracts
and the Facility Equipment.
BUSINESS DAY: any day other than (i) a Saturday, (ii) Sunday or
(iii) other day on which The First National Bank of Chicago, Chicago,
Illinois is closed.
CASUALTY: an event in which any item of Facility Equipment or any
portion thereof is lost, damaged (and such damage cannot reasonably be
repaired by Borrower or an End-User of such Facility Equipment within 60
days), destroyed, stolen, confiscated, requisitioned or condemned
regardless of cause.
CASUALTY PAYMENTS: all proceeds of the Collateral which arise out
of any Casualty, including, without limitation, insurance claims, tort
claims, or reimbursement payments with respect to claims for indemnity.
CERTIFICATE OF ACCEPTANCE: a certificate of delivery and
acceptance executed by an End-User pursuant to a Contract with respect to
Facility Equipment, substantially in the form included in SCHEDULE 4.1.2.
CLOSING: the execution by Borrower and Lender of the Loan
Documents.
CLOSING CERTIFICATE: a certificate in the form of EXHIBIT C
executed by a Responsible Officer on behalf of Borrower.
CLOSING DATE: the date upon or as of which the Closing occurs.
COLLATERAL: the Property described in Section 3.2.
CONTRACT: (i) a lease of Eligible Equipment by and between
Borrower, as lessor, and an End-User, as lessee, or (ii) a note and
security agreement/conditional sale contract by and between Borrower, as
secured party, and an End-User, as debtor.
CONTRACT EVENT OF DEFAULT: the Event of Default described in
Section 8.3.1.
CONTRACT FUNDING REQUEST: a request for an Advance in the form of
EXHIBIT E delivered by Borrower to Lender, with all attachments as
specified therein.
CONTRACT PAYMENT LETTER: a letter in the form of EXHIBIT F.
CONTRACT PROCEEDS: funds received by Borrower with respect to any
Facility Contract or any Facility Equipment which is the subject of a
Facility Contract.
DEFAULT RATE: an annual rate equal to 2% plus the Facility Rate,
as applicable.
DEFAULT RATE PERIOD: a period of time commencing on the date that
Lender declares in writing to Borrower that a Borrower Event of Default has
occurred and that the Default Rate is applicable and ending on the date
that such Borrower Event of Default is cured or waived.
DISBURSEMENT DATE: any date on or after the Closing Date upon
which the proceeds of any Advance are disbursed.
EFT: Electronic Funds Transfer.
ELIGIBLE CONTRACT: a Contract (i) as to which the applicable
Facility Funding Amount will not exceed the sum of $2,000,000.00 nor be
less than $250,000.00 without the prior written approval of Lender, (ii)
which conforms to Lender's
<PAGE>
credit underwriting standards, and (iii) meets all of the requirements
set forth in Section 5.9 and all subsections thereunder, and (iv) which
is in all other respects acceptable to Lender.
ELIGIBLE END-USER: an End-User (i) which is not in bankruptcy or
receivership or subject to a reorganization proceeding of any kind or
insolvent, (ii) which is not in default or breach under any of the terms of
the applicable Contract, and (iii) which, pursuant to underwriting
standards jointly agreed upon in writing between Borrower and Lender, is a
financially responsible and creditworthy commercial, Native American or
institutional entity (other than a Governmental Body), PROVIDED, HOWEVER,
that unless otherwise approved by Lender, Native American End-Users shall
not be considered Eligible End-Users under the Non-Recourse Facility.
ELIGIBLE EQUIPMENT: gaming or other equipment (i) which is new or
used, (ii) which is in good condition, repair and working order, (iii)
which is insured in the manner provided in the applicable Contract, (iv)
(A) which is owned by Borrower free and clear of all Liens except a Lender
Lien, or (B) in which the End-User thereof has granted Borrower a security
interest free and clear of all Liens except Permitted Liens, (v) which is
located within the continental United States, (vi) which is subject to an
Eligible Contract, and (vii) which is otherwise approved by Lender;
PROVIDED, HOWEVER, that under the Residual Financing Facility, new slot
machines shall be considered an additional Eligible Equipment criterion.
END-USER: the end-user under a Contract.
EQUIPMENT: equipment which has been approved by Lender, free and
clear of all liens and encumbrances, together with all substitutions and
replacements for such equipment, and all accessories, attachments, parts,
upgrades, features and peripheral equipment now or hereafter attached to or
used in connection therewith.
ESTIMATED RESIDUAL: as reflected on the Amortization Schedule to
each Promissory Note executed in conjunction with the Residual Financing
Facility, Borrower's estimated value, as of the end of the related primary
Contract term, of Facility Equipment.
EVENT OF DEFAULT: any Borrower Event of Default or Contract Event
of Default.
EVIDENCE OF INSURANCE: either (i) an original certificate of
insurance, (ii) documentation sufficient to establish coverage under a
previously approved policy of Borrower, or (iii) if approved in writing by
Lender, evidence of self-insurance by an End-User under a Facility
Contract.
FACILITY: the Advances which may be made by Lender to Borrower
under the Lease Discounting Facility, the Residual Financing Facility
and/or the Non-Recourse Facility, all pursuant to Article II and Section
4.2.
FACILITY CONTRACT: an Eligible Contract which is subject to an
Advance, along with all applicable related documentation. For the purposes
of this Agreement, all references to a schedule under a Facility Contract
shall be deemed to incorporate the terms and conditions of the related
master Lease.
FACILITY EQUIPMENT: any Eligible Equipment which is the subject
of a Facility Contract.
FACILITY FUNDING AMOUNT: with respect to Advances made on or
after October 28, 1998:
(i) with respect to each Eligible Contract which is proposed to
be made the subject of an Advance under the Lease
Discounting Facility or the Non-Recourse Facility, the
lesser of:
(A) the Acquisition Cost for each item of Facility
Equipment, or
(B) the present value of all assigned periodic
payments due thereunder for the Approved
Contract Term of each such Facility Contract,
using a discount rate to determine such
present value equal to the Facility Rate;
(ii) with respect to each Eligible Contract which is proposed to
be made the subject of an Advance under the Residual
Financing Facility, the lesser of:
(A) the difference between
(I) the present value of all assigned
periodic payments due thereunder
for the Approved Contract Term of
each such Facility Contract, using
a discount rate to determine such
present value equal to the Facility
Rate, and
(II) the Acquisition Cost for the related
items of Eligible Equipment; or
3
<PAGE>
(B) with respect to Eligible Contracts deemed "Core
Credits" by Lender, fifteen percent (15%) of
the related Eligible Equipment Acquisition
Cost; with respect to Eligible Contracts
deemed "High Quality Credits" by Lender,
thirty percent (30%) of the related Eligible
Equipment Acquisition Cost.
With respect to Advances made prior to October 28, 1998, the principal
amount set forth in the applicable Facility Note.
FACILITY NOTE: a full recourse promissory note in the form of
EXHIBIT G or a non-recourse promissory note in the form of EXHIBIT G1, as
applicable, executed by Borrower in favor of Lender in conjunction with
each Advance.
FACILITY RATE: unless otherwise agreed to in writing by and
between Lender and Borrower with respect to a particular Advance,
(i) with respect to each Lease Discounting Facility Advance made
on or after October 28, 1998, for the group of Eligible
Contracts deemed "High Quality" by Lender, a fixed per
annum interest rate equal to the sum of (A) 1.90%; PLUS
(B) the all-in rate for a maturity equal to the
weighted average term of the Contracts subject to the
applicable Advance, as set forth in Lender's HFI
CAPITAL MARKETS INDICATIONS report for the week in
which the applicable Disbursement Date occurs;
(ii) with respect to (1) each Lease Discounting Facility Advance
made on or after October 28, 1998, for the group of
Eligible Contracts deemed "Core Quality" by Lender, and
(2) each Residual Financing Facility Advance made on or
after October 28, 1998, a fixed per annum interest rate
equal to the sum of (A) 2.40%; PLUS (B) the all-in rate
for a maturity equal to the weighted average term of
the Contracts subject to the applicable Advance, as set
forth in Lender's HFI CAPITAL MARKETS INDICATIONS
report for the week in which the applicable
Disbursement Date occurs;
(iii) with respect to each Advance made prior to October 28,
1998, as reflected on the applicable Facility Note for
each Advance; and
(iv) with respect to each Non-Recourse Facility Advance, a rate
as Lender shall determine in its sole discretion on a
Eligible Contract by Eligible Contract basis.
FIXED CHARGE COVERAGE RATIO: with respect to Borrower, as
measured on a consolidated basis, the ratio for any twelve month trailing
period of (a) EBITDA during such period, to (b) the sum of Borrower's (i)
interest expense on indebtedness, plus (ii) subordinated principal debt
payments, plus (iii) taxes paid; during each period.
FULL RECOURSE FACILITY: the Lease Discounting Facility and/or the
Residual Financing Facility.
GAAP: generally accepted accounting principles as in effect from
time to time, which shall include the official interpretations thereof by
the Financial Accounting Standards Board, consistently applied.
GAMING AUTHORITIES: the governmental agencies and/or commissions
having jurisdiction over Borrower in the various states in which Borrower
does business.
GAMING LAWS: the statutes and regulations relating to gaming and
the operation of Gaming Device Goods promulgated by the various states and
Gaming Authorities in which Borrower does business.
GAMING DEVICE GOODS: Equipment consisting of electronic and
mechanical gaming devices with integral attachments.
GOOD FUNDS: United States dollars available to Lender in Federal
funds at or before 2:00 p.m. Chicago time on a Business Day.
GOVERNMENTAL BODY: any foreign, federal, state, municipal or
other government, or any department, commission, board, bureau, agency,
public authority or instrumentality thereof or any court or arbitrator.
INCIPIENT DEFAULT: any event or condition which, with the giving
of notice or the lapse of time, or both, would become an Event of Default.
INTANGIBLE COLLATERAL: as defined in Section 3.2(b).
LEASE: any lease agreement or master lease agreement pertaining
to Eligible Equipment between Borrower, as lessor and another Person, as
lessee.
LEASE DISCOUNTING FACILITY: the Lease Discounting Facility
described in SECTION 2.1.1.
LENDER LIEN: the Lien on the Collateral granted by Borrower to
Lender pursuant to Article III of this Agreement.
4
<PAGE>
LEVERAGE RATIO: with respect to Borrower, as measured on a
consolidated basis, total indebtedness (excluding subordinated debt,
non-recourse debt and deferred funds for pending transactions) to
Tangible Net Worth.
LIEN: any mortgage, deed of trust, hypothecation, pledge, security
interest, encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing), any conditional sale or other
title retention agreement or any lease in the nature of any of the
foregoing.
LOAN DOCUMENTS: this Agreement, the Notes, the Warrant Agreement,
the Assignments, the Contract Funding Requests, the Closing Certificate,
UCC financing statements, and all other documents, instruments, and
certificates executed by Borrower pursuant to this Agreement.
LOAN REPAYMENT AMOUNT: with respect to an Advance at any time, the
aggregate unpaid principal of, and accrued interest (including any
interest accrued at the Default Rate) computed in accordance with the
Simple Interest Method, on such Advance.
LOCKBOX: the arrangement with the Bank, who will act as the agent
for collection of all remittances and proceeds due to Borrower from
End-Users subject to Facility Contracts, and which shall be identified
as follows:
PDS Financial Corporation
_________________________
LOCKBOX AGREEMENT: the agreement among Borrower, Lender and Bank,
substantially in the form attached hereto as EXHIBIT D, which shall set
forth the terms, conditions and provisions of the Lockbox.
NATIVE AMERICAN: pertaining to any Indian tribe or instrumentality
or entity thereof covered by the Indian Gaming Regulatory Act (IGRA), 25
U.S.C. Sections 2701-2721, or any similar successor legislation.
NON-RECOURSE FACILITY: the Non-Recourse Facility set forth in
SECTION 9.13 hereof.
NOTES: the Facility Note executed in conjunction with each Advance.
ORDINARY PREPAYMENT PREMIUM: (i) Five Percent (5%) of the amount
prepaid if prepaid prior to the first anniversary of the related
Disbursement Date, (ii) Four Percent (4%) of the amount prepaid if
prepaid after the first anniversary to the second anniversary of the
related Disbursement Date, (iii) Three Percent (3%) of the amount
prepaid if prepaid after the second anniversary to the third anniversary
of the related Disbursement Date; and (iv) Two Percent (2%) of the
amount prepaid if prepaid after the third anniversary of the related
Disbursement Date.
PDS-NEVADA GUARANTY: that certain Guaranty executed by Borrower on
behalf of Lender in connection with the PDS-Nevada Loan Agreement.
PDS-NEVADA LOAN AGREEMENT: that certain Amended and Restated Loan
and Security Agreement dated as of October 28, 1998 by and between
Lender and PDS FINANCIAL CORP. - NEVADA, as amended from time to time.
PERMITTED LIENS: any of the following Liens: (i) the Lender Lien;
(ii) the Contracts; (iii) any Borrower Lien; (iv) any Liens expressly
subordinate to (i), (ii) and/or (iii) above; and (v) Liens for taxes or
assessments and similar charges, which either are (A) not delinquent or
(B) being contested diligently and in good faith by appropriate
proceedings, and as to which Borrower has set aside adequate reserves on
its books.
PERMITTED SUBSTITUTION: the substitution by Borrower of an Eligible
Contract for a Facility Contract, in accordance with the provisions of
Section 3.3, using the form of Substitution Agreement set forth in
EXHIBIT M.
PERSON: any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party, Native American tribe or Governmental Body.
PROPERTY: all types of real, personal or mixed property and all
types of tangible or intangible property.
REPLACEMENT CONTRACT: a Facility Contract which is created by the
terminating of an existing Facility Contract and financing a portion of
the Eligible Equipment on a new Facility Contract with the same End-User
or an End-User meeting equivalent credit criteria as determined by
Lender.
RESIDUAL FINANCE FACILITY: the Residual Finance Facility described
in SECTION 2.1.2.
RESIDUALS: all proceeds (net of refurbishment costs, if any)
derived from the Equipment as a result of (i) extended or renewal
Contract payments, (ii) exercised purchase options, and/or (iii) sale or
lease of the Equipment to third parties; PROVIDED, HOWEVER, that with
respect to such extended or renewal Contract payments, or third-party
lease proceeds, such
5
<PAGE>
proceeds (including any estimated fair market value purchase option at
end of the renewal period as reflected in the most recent AAA report
referred to in Section 6.4(v) hereof) shall be discounted to present
value using a discount rate equal to the Facility Rate in effect at the
time of such re-lease.
RESPONSIBLE OFFICER: any of the Chairman, President, Treasurer,
Secretary or Vice President of Borrower.
SODAK: Sodak Gaming, Inc.
TANGIBLE NET WORTH shall mean, as measured on a consolidated basis,
the result of (i) Borrower's net worth, minus (ii) Borrower's intangible
assets; both as determined on a quarterly basis in accordance with GAAP.
UCC: the Uniform Commercial Code.
1.2 TIME PERIODS. In this Agreement and the other Loan Documents,
in the computation of periods of time from a specified date to a later
specified date (i) the word "from" means "from and including," (ii) the words
"to" and "until" each mean "to, but excluding" and (iii) the words "through,"
"end of" and "expiration" each mean "through and including." All references
in this Agreement and the other Loan Documents to "month," "quarter" or
"year" shall be deemed to refer to a calendar month, quarter or year.
1.3 ACCOUNTING TERMS. Unless otherwise specified in this
Agreement, all accounting terms used herein shall be construed, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered pursuant hereto shall be prepared in
accordance with GAAP.
1.4 REFERENCES. All references in this Agreement to an "Article,"
"Section," "subsection," "subparagraph," "clause," "Schedule" or "Exhibit,"
unless otherwise indicated, shall be deemed to refer to an Article, Section,
subsection, subparagraph, clause, Schedule or Exhibit, as applicable, of or
to this Agreement.
1.5 LENDER'S DISCRETION. Whenever the terms "satisfactory to,"
"determined by," "acceptable to," "shall elect," "shall request," or similar
terms are used in this Agreement or any of the other Loan Documents to apply
to Lender, except as otherwise specifically provided herein or therein, such
terms shall mean satisfactory to, at the election of, determined by,
acceptable to, or requested by, Lender, in its sole, but reasonable,
discretion.
1.6 STATEMENTS AS TO KNOWLEDGE. Any statements, representations or
warranties which are based upon the best knowledge of Borrower shall be
deemed to have been made after due inquiry with respect to the matter in
question.
ARTICLE II
FACILITIES AND PAYMENT/PREPAYMENT TERMS
2.1 THE FACILITIES.
2.1.1 THE LEASE DISCOUNTING FACILITY. The Lease Discounting
Facility is one or more full recourse Advances made by Lender from time to
time at its sole discretion to fund Eligible Contracts, subject to the
provisions of Article II and Section 4.2. Notwithstanding anything
contained herein to the contrary, the maximum combined amounts outstanding
under (i) the Lease Discounting Facility PLUS (ii) the Lease Discounting
Facility under the PDS-Nevada Loan Agreement, PLUS (iii) the Residual
Financing Facility, PLUS (iv) the Residual Financing Facility under the
PDS-Nevada Loan Agreement, shall not exceed Twenty Five Million Dollars
($25,000,000.00).
2.1.2 THE RESIDUAL FINANCING FACILITY. The Residual Financing
Facility is one or more full recourse Advances made by Lender from time to
time at its sole discretion to fund Eligible Contracts, subject to the
provisions of Article II and Section 4.2. No Contract shall be considered
for an Advance under the Residual Financing Facility unless it has already
been approved for an Advance under the Lease Discounting Facility.
Notwithstanding anything contained herein to the contrary, the maximum
combined amount outstanding under (i) the Residual Financing Facility plus
(ii) the Residual Financing Facility under the PDS-Nevada Loan Agreement,
at any one time, shall not exceed Five Million Dollars ($5,000,000.00).
2.1.3 THE NON-RECOURSE FACILITY. The Non-Recourse Facility
shall be as described in SECTION 9.13.
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2.2 VOLUNTARY TERMINATION OF FACILITY. Upon not less than sixty
(60) days' prior notice, either party may notify the other of its intention
not to seek/provide any further financing hereunder; PROVIDED, however, that
notwithstanding the foregoing, all of Borrower's Obligations shall survive
any expiration or termination of this Agreement and/or the termination of any
Facility Contract.
2.3 INTEREST RATE, COMPUTATION. Each Advance shall be indicated by
a Facility Note in the form of Exhibit G or G1, as applicable, which shall
bear interest at the Facility Rate noted thereon, which shall be computed on
the basis of a year consisting of 360 days and charged for the actual number
of days during the period for which interest is being charged.
2.4 SERVICING AND PAYMENTS. Borrower, at its sole cost and
expense, shall be responsible for the billing and collecting of the payments
due under any Facility Contract(s). All non ACH billing with respect to
Facility Contracts shall be accomplished by separate invoices (i.e., not
included in invoices to the same End-User for rentals or other payments due
under any other agreement between Borrower and End-User), and shall direct
the End-Users to forward all Facility Contract remittances (including, but
not limited to rents, renewal rents and Casualty Payments) to the Lockbox,
which shall be subject to the Lockbox Agreement, and at the Bank. All ACH
billing shall utilize the Bank's EFT service, with such ACH proceeds directed
to a suitable Blocked Account at the Bank, and subject to the Blocked Account
Agreement. The fees and expenses of such Lockbox and ACH/EFT service shall be
payable by Borrower. If the underlying End-Users in an Advance have a single
due date, Borrower shall pay to Lender the amounts due under the related
Facility Contracts within 15 days from such due date, whether or not such
amounts have been remitted by the respective End-Users. If the underlying
End-Users in an Advance have a multiple due dates, Borrower shall pay to
Lender the amounts due under the related Facility Contracts by the 10th of
the following month, whether or not such amounts have been remitted by the
respective End-Users. All payments made pursuant to this subsection 2.4 shall
be applied FIRST, to any accrued and unpaid fees and expenses then owed by
Borrower to Lender; SECOND, to accrued and unpaid interest then due Lender
calculated at the Facility Rate through the last date of such immediately
preceding month, and THIRD, to principal due Lender on the applicable
Advances until paid in full. In the event (i) Borrower fails to perform the
foregoing billing and collecting duties in a manner satisfactory to Lender in
its sole discretion, or (ii) of a Contract Event of Default which remains
uncured for more than ninety (90) days, then Lender may terminate Borrower's
authorization under this Section (in the event of a Contract Event of
Default, such termination shall only relate to the specific Contract in
default) and send notice of same to the Bank.
2.5 PREPAYMENT.
2.5.1 VOLUNTARY PREPAYMENT. No voluntary prepayment by
Borrower of any Advances shall be permitted; however, after the first
anniversary of the initial Disbursement Date, Borrower shall be permitted
to prepay any Advance (without liability for the Ordinary Prepayment
Premium) in the event the Loan Repayment Amount with respect thereto falls
to less than Five Percent (5%) of the original principal amount set forth
in the applicable Note.
2.5.2 MANDATORY PREPAYMENT.
2.5.2.1 TERMINATION OF CONTRACT. If an End-User
voluntarily terminates a Facility Contract before its scheduled
expiration by exercising an option to purchase the Facility
Equipment, Borrower shall prepay the associated Advance within
ten (10) Business Days of such termination by paying to Lender
the sum of (i) the Loan Repayment Amount with respect to such
Advance, (ii) the applicable Ordinary Prepayment Premium, and
(iii) any Residuals payable pursuant to Section 2.7.
Notwithstanding the foregoing, if Borrower elects to exercise its
right of Permitted Substitution with respect to such terminated
Facility Contract, no Ordinary Prepayment Premium shall be
payable with respect thereto.
2.5.2.2 CASUALTY. If any Equipment subject to an Advance
is lost or damaged, and cannot be repaired or replaced with
substantially similar Equipment by the first due date occurring
not less than thirty (30) days after such loss or damage,
Borrower shall prepay the associated Advance within ten (10)
Business Days thereafter by paying to Lender the Loan Repayment
Amount with respect to such Advance AND, to the extent Borrower
is able to collect sufficient proceeds from the insurance carrier
and/or the End-User, an amount to additionally reimburse Lender
for costs incident to breaking its corresponding debt, which
shall not exceed three percent (3%) of the principal amount
prepaid, and which shall be evidenced by a certificate prepared
by Lender showing, in reasonable detail, the calculation of such
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costs. No Ordinary Prepayment Premium shall be payable in respect
to a mandatory prepayment made pursuant to this subsection.
2.5.2.3 CONTRACT EVENT OF DEFAULT. If Borrower prepays an
Advance pursuant to Section 8.3.3 with respect to a Contract
Event of Default, no Ordinary Prepayment Premium shall be payable
by Borrower to Lender in connection with any such prepayment, but
Borrower shall continue to be liable to Lender for any Residuals
payable pursuant to Section 2.7.
2.5.2.4 EARLY TERMINATION WITHOUT END-USER BUYOUT. If a
Facility Contract is voluntarily terminated by a End-User prior
to the scheduled expiration, without the exercise of a purchase
option, Borrower shall prepay the associated Advance within
thirty (30) days of such event by paying to Lender the sum of:
(i) Loan Repayment Amount, (ii) the applicable Ordinary
Prepayment Premium, and (iii) any Residuals payable pursuant to
Section 2.7. Notwithstanding the foregoing, if Borrower elects to
exercise its right of Permitted Substitution with respect to such
terminated Facility Contract, no Ordinary Prepayment Premium
shall be payable with respect thereto.
2.5.2.5 UPGRADES AND ADDITIONS. Borrower may agree with an
End-User under a Facility Contract that certain Facility
Equipment subject thereto shall be upgraded or that additional
Eligible Equipment should be added, resulting in a new Facility
Contract or replacement Facility Contract, so long as (i) no
Event of Default shall have occurred or is continuing hereunder,
(ii) the End-User shall have sought and obtained Lender's prior,
written consent at the time of the upgrade, (iii) the End-User
shall be deemed to be a "High Quality Credit" by Lender in its
sole discretion, (iv) the Facility Contract in question contains
upgrade provisions pre-approved by Lender and acknowledged by
End-User at the inception thereof, (v) an upgrade under such
Facility Contract may take place no more often than once per
year, commencing with the first anniversary date of such Facility
Contract, (vi) a maximum of twenty five percent (25%) of the
Facility Equipment subject to such Facility Contract, calculated
using the Acquisition Cost thereof, is upgraded at any one time,
and (vii) the upgradeable Facility Equipment shall be limited to
new slot machines.
(a) AMENDMENT OF FACILITY CONTRACT SCHEDULE TO
INCORPORATE UPGRADES/ADDITIONS. If Borrower and such End-
User amend such Facility Contract to increase the payments
payable thereunder in consideration of such upgrade or
addition, Borrower may request that Lender finance the
additional Contract Proceeds arising under such amendment
(the "Contract Amendment") attributable to such increase in
payments. Not later than ten (10) Business Days after such
request, Lender shall give Borrower written advice as to
whether Lender, in its sole discretion, has elected to
finance such additional Contract Proceeds. If Lender fails
to give such advice within such ten (10) day period, Lender
shall be deemed to have declined to finance such additional
Contract Proceeds and shall so advise Borrower in writing.
If Lender agrees to finance such additional Contract
Proceeds, Lender shall, subject to satisfaction of the
conditions precedent set forth in Section 4.2, make an
Advance in an amount as Lender shall determine. The
Disbursement Date with respect to such Advance shall be a
date agreed upon in writing by Lender and Borrower. If
Lender agrees to make such an Advance, the Contract
Amendment shall be considered a "Facility Contract" for all
purposes of this Agreement. If Borrower finances such
upgrades or additions through a source other than Lender and
does not prepay in accordance with this Section, Borrower
covenants and agrees that any security interest granted to a
source other than Lender shall not conflict with or prime
Lender's security interest.
(b) TERMINATION OF CONTRACT SCHEDULE/EXECUTION OF A
REPLACEMENT CONTRACT. If Borrower and such End-User agree
that the Equipment subject to a Facility Contract shall be
upgraded, and agree to terminate the related Facility
Contract and enter into a Replacement Contract schedule
incorporating a portion of the existing Equipment and the
upgrade/additional Equipment, Borrower shall offer Lender
the right of first refusal to finance the Replacement
Contract. Not later than ten (10) Business Days after such
request, Lender shall give Borrower written advice as to
whether Lender, in its sole discretion, has elected to
finance such Replacement Contract. If Lender fails to give
such advice within such ten (10) day period, Lender shall be
deemed to have declined to finance such additional Contract
Proceeds and shall so advise Borrower in writing. If Lender
agrees to finance such Replacement Contract, Borrower shall
pay to Lender the Loan Repayment Amount with respect to the
existing Facility Contract, and Lender shall, subject to
satisfaction of the conditions precedent set forth in
Section 4.2, make an Advance in an amount equal to the
lesser of (i) the present value of all payments due
thereunder (with the exception of any manufacturer's
discounts, deposits (including security deposits) or
down/advance payments made by End-User) for the Approved
Contract Term of each such Facility Contract, using a
discount rate to determine
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such present value equal to the Facility Rate, or (ii)
the sum of (A) One Hundred percent (100%) of the
Acquisition Cost for each item of Facility Equipment that
was not previously subject to the existing Facility
Contract and (B) the Loan Repayment Amount with respect
to the existing Facility Contract. The Disbursement Date
with respect to such Advance shall be a date agreed upon
in writing by Lender and Borrower. If Lender agrees to
make such an Advance, the Replacement Contract shall be
considered a "Facility Contract" for all purposes of this
Agreement.
If Lender elects not to finance a Replacement
Contract pursuant to this Section 2.5.2.5(b), Borrower
shall, prior to the next Facility Contract due date, pay
the Loan Repayment Amount with respect thereto. No
Ordinary Prepayment Premium shall be payable with respect
thereto so long as Borrower has fully complied with the
requirements of this Section 2.5.2.5(b).
2.5.3 NO OTHER PREPAYMENTS PERMITTED. No Advance may be
prepaid except as otherwise expressly provided in this Agreement.
2.5.4 INVOLUNTARY PREPAYMENT. Any prepayment of the
Advances received by Lender resulting from the exercise by Lender of any
remedy available to Lender subsequent to the occurrence of a Borrower
Event of Default and the acceleration of Borrower's Obligations shall be
deemed to be a mandatory prepayment, and the applicable Ordinary
Prepayment Premium shall be payable with respect thereto.
2.6 CONTRACT EXTENSIONS OR END-USER BUYOUT FINANCING. If, at the
end of the Approved Contract Term an End-User elects to (i) extend the
Contract, or (ii) purchase the Facility Equipment subject thereto with
financing provided by Borrower, Borrower shall offer to Lender the right of
first refusal to finance such Contract extension or such end-of-term purchase
option. Not later than ten (10) Business Days after such request, Lender
shall give Borrower written advice as to whether Lender, in its sole
discretion, has elected to provide such financing. If Lender fails to give
such advice within such ten (10) day period, Lender shall be deemed to have
declined such financing and shall so advise Borrower in writing. If Lender
agrees to provide such financing, Lender and Borrower shall mutually agree
regarding the terms thereof. All Contract Proceeds received by Borrower and
forwarded to Lender hereunder shall be subject to Section 2.7.
2.7 RESIDUAL PAYMENTS. Lender shall be entitled to receive 100% of
the Residuals attributable to any Facility Contract until Lender shall have
recovered the balloon payment/Estimated Residual amount set forth in the
applicable Amortization Schedule (which Lender shall have full recourse to
Borrower).
2.8 LATE CHARGES; DEFAULT RATE. If any payment of principal or
interest to be made by Borrower to Lender under the Facility becomes past due
for a period of 10 days, Borrower shall pay to Lender on demand a late charge
of five percent (5%) of the amount of such overdue payment. In addition,
during a Default Rate Period, Borrower's Obligations pertaining to the
Facility shall bear interest at the Default Rate.
2.9 PAYMENT AFTER BORROWER EVENT OF DEFAULT. Upon the occurrence
and during the continuation of a Borrower Event of Default, all Contract
Proceeds pertaining to Facility Contracts and/or Facility Equipment shall be
applied by Lender in such manner as Lender shall determine.
2.10 MAXIMUM INTEREST. Notwithstanding any provision to the
contrary herein contained, Lender shall not collect a rate of interest on any
obligation or liability due and owing by Borrower to Lender in excess of the
maximum contract rate of interest permitted by applicable law. Lender and
Borrower have agreed that the interest laws of the state of Illinois shall
govern the relationship between them, but in the event of a final
adjudication to the contrary, NUNC PRO TUNC, Borrower shall be obligated to
pay to Lender only such interest as then shall be permitted by the applicable
laws of the state found to govern the contract relationship between Lender
and Borrower. All interest found in excess of that rate of interest allowed
and collected by Lender shall be applied to the Advances in such manner as to
prevent the payment and collection of interest in excess of the rate
permitted by applicable law.
2.11 METHOD OF PAYMENT; GOOD FUNDS. All payments which are to be
made by Borrower to Lender pursuant to the Loan Documents shall be made by
wire transfer to BANK OF AMERICA, 231 South LaSalle Street, Chicago, Illinois
60697; ABA #071000039, Heller Financial, Inc., Acct. #74-21753, Phone Advice
to Product Credit Manager -- Lease Portfolio
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Funding, Heller Sales Finance and to Product Business Manager -- Lease
Portfolio Funding, Heller Sales Finance: 312-441-7914. Payment shall not be
deemed to be received until Lender is in receipt of Good Funds.
ARTICLE III
NOTES; SECURITY INTEREST
3.1 NOTES. Borrower's Obligations described in clause (i) of the
definition of such term shall be evidenced by the Notes.
3.2 GRANT OF SECURITY INTEREST. As security for the payment and
performance of Borrower's Obligations, whether arising hereunder or under any
other agreement between Borrower and Lender, including, but not limited to
the PDS-Nevada Guaranty, Borrower hereby grants to Lender, subject to all
mandatory provisions of law, including without limitation, the Gaming Laws, a
Lien in the following described collateral (the "Collateral"), such Lien to
be superior and prior to all other Liens other than Permitted Liens:
(a) FACILITY EQUIPMENT. All of Borrower's right, title and
interest (including any residual interest) in and to the Facility
Equipment.
(b) THE CONTRACTS. All chattel paper and Contracts pertaining
to any Facility Equipment, including, without limitation, all of
Borrower's right, title and interest in, to and under each Facility
Contract relating to each item of Facility Equipment and the right to
receive all payments thereunder (collectively, the "Intangible
Collateral").
(c) LOCKBOX, LOCKBOX AGREEMENT, BLOCKED ACCOUNT AND BLOCKED
ACCOUNT AGREEMENT. The Lockbox, Lockbox Agreement, Blocked Account and
Blocked Account Agreement.
(d) BOOKS AND RECORDS. All of the books and records of
Borrower pertaining to the Property described in subparagraphs (a) -
(c) above.
(e) PROCEEDS. All attachments, additions, accessions,
upgrades, accessories and replacements pertaining to the items described
in subparagraphs (a) through (d) above, as applicable, including all
cash and non-cash proceeds (including Casualty Payments and other
insurance proceeds) pertaining thereto.
Lender shall not be required to look to the Collateral for the payment
of Borrower's Obligations under the Full Recourse Facility, but may proceed
against Borrower in such manner as Lender deems desirable. All of the
Collateral assigned to Lender hereunder shall secure the payment and
performance of all of Borrower's Obligations, and whether now existing or in
the future; provided, however, that upon the payment and performance in full
of all of Borrower's Obligations with respect to a Facility Contract (or the
exercise of a Permitted Substitution with respect thereto), the Loan
Documents applicable to such Facility Contract and such Facility Equipment
shall automatically terminate, Lender shall execute and deliver to Borrower
such UCC termination statements and other instruments as may be necessary to
release the applicable Lender Lien(s) in the related Collateral, and shall
return all items of chattel paper to Borrower with respect thereto.
ALL ADVANCES HERETOFORE MADE PURSUANT TO, AND SECURED BY, THE ORIGINAL
LOAN AGREEMENT SHALL HEREAFTER BE SECURED HEREBY, AND THE SECURITY INTEREST
GRANTED HEREBY SHALL BE DEEMED TO BE A CONTINUATION OF AN EXISTING SECURITY
INTEREST, RATHER THAN A RELEASE OR TERMINATION AND GRANT OF A NEW SECURITY
INTEREST.
3.3 SUBSTITUTION OF CONTRACTS. Within One Hundred Twenty (120)
days after a Contract Event of Default occurs, or immediately in the event of
a prepayment by an End-User with respect to a Facility Contract, or with the
prior, written agreement of Lender, in addition to any other remedy available
hereunder to Borrower with respect thereto, Borrower may substitute another
Eligible Contract for an existing Facility Contract ("Existing Facility
Contract"), provided (i) that Lender shall have the right to approve such
Eligible Contract at its sole discretion, (ii) that the present value
(determined using a discount rate which is equal to the Facility Rate which
is applicable to the Existing Facility Contract) of the payments remaining
under such Substitute Contract, is equal to or greater than the present value
(calculated as described above) of
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the remaining payments of such Existing Facility Contract, including any
payments which are past due under such Existing Facility Contract; and (iii)
that the number of payments remaining under such Substitute Contract equals
or exceeds the number of payments remaining under the Existing Facility
Contract. If such substitution occurs as a result of a Contract Event of
Default, such substitution shall be deemed to cure such Contract Event of
Default. As a precondition to any Permitted Substitution, Lender shall have
the right to verify the existence and terms of such Substitute Contract with
the applicable End-User.
ARTICLE IV
CONDITIONS OF CLOSING; ADVANCES
4.1 CONDITIONS OF CLOSING. The Closing shall not take place unless
all of the conditions set forth in this Section 4.1 have been satisfied in a
manner, form and substance satisfactory to Lender:
4.1.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date,
the representations and warranties of Borrower set forth in the Loan
Documents shall be true and correct in all material respects.
4.1.2 DELIVERY. The following shall have been delivered to
Lender, each duly authorized and/or executed, as applicable:
(a) the Agreement, with all Exhibits and Schedules; and
the Closing Certificate;
(b) a certificate of the Secretary or an Assistant
Secretary of Borrower in the form of EXHIBIT H,
with all attachments noted therein;
(c) a certified copy of the forms of Contract used by
Borrower, to be attached to the Agreement as
SCHEDULE 4.1.2;
(d) the Lockbox Agreement and the Blocked Account
Agreement;
(e) the Warrant Agreement in the form of EXHIBIT O.
(f) a structuring fee equal to One Hundred Fifty Thousand
Dollars ($150,000.00) in Good Funds;
(g) an updated report from AAA or another appraisal firm
acceptable to Lender, setting forth current Fair
Market and Orderly Liquidation Values of the
principal types of Eligible Equipment subject to
this Agreement, which Lender may utilize in its
sole, but reasonable, discretion in determining
acceptable Estimated Residuals therefor; and
(h) such additional instruments, documents, certificates,
consents, financing statements, waivers and
opinions as Lender reasonably may request,
including, but not limited to, a Trust Agreement
substantially in the form of EXHIBIT N hereto, in
the event that Borrower will be retaining
possession of any original master leases
comprising Facility Contracts.
4.1.3 SECURITY INTERESTS. All UCC financing statements,
including UCC-1(s) naming Borrower as debtor and Lender as secured party
to be filed where applicable, using the collateral description
substantially in the form attached hereto as EXHIBIT B, shall have been
filed and confirmation thereof received by Lender.
4.1.4 OPINION OF COUNSEL. Lender shall have received (i)
from DORSEY & WHITNEY, LLP, counsel to Borrower, an updated opinion
dated as of the Closing Date, addressed to Lender, in substantially the
form previously furnished to Lender by Dorsey & Whitney, LLP in
conjunction with the Original Loan Agreement, and (ii) from external
counsel jointly acceptable to Borrower and Lender, opinions in form and
content acceptable to Lender, addressed to Lender, and covering
Borrower's compliance with Gaming Laws and Gaming Authorities in the
states of Nevada, Indiana, New Jersey and Mississippi, and covering the
necessary procedures to be followed by Lender with respect to the
exercise of the remedies set forth in this Agreement.
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4.1.5 PERFORMANCE; NO DEFAULT. Borrower shall have
performed and complied with all agreements and conditions contained in
the Loan Documents to be performed by or complied with prior to or at
the Closing Date.
4.1.6 APPROVAL OF LOAN DOCUMENTS AND SECURITY INTERESTS.
The approval and/or consent shall have been obtained from all
Governmental Bodies, Gaming Authorities and all other Persons whose
approval or consent is necessary or required to enable Borrower to (i)
enter into and perform its obligations under the Loan Documents, (ii)
grant to Lender the Lender Lien and (iii) consummate the Advances.
4.1.7 MATERIAL ADVERSE CHANGE. Since the issuance of
Borrower's most recent fiscal year-end financial statements, no event
shall have occurred which has a material adverse effect on (i) the
financial condition, Property, business, operations, ownership,
structure, prospects or profits of Borrower, (ii) the ability of
Borrower to perform its obligations under the Loan Documents, or (iii)
the Collateral.
4.1.8 SLOTSOURCE INVOICES. Lender shall have received,
reviewed and approved the sampling of invoices pertaining to
SLOTSOURCE's fourth quarter, 1997 sales.
4.2 PROCEDURES FOR AND CONDITIONS TO ADVANCES
4.2.1 DISCRETIONARY BORROWING/LENDING. NOTWITHSTANDING THE
OTHER PROVISIONS OF THIS AGREEMENT, ADVANCES SHALL BE MADE ONLY WHEN
BOTH (I) BORROWER, IN ITS SOLE DISCRETION, DESIRES TO BORROW MONEY FROM
LENDER, AND (II) LENDER, IN ITS SOLE DISCRETION, DESIRES TO LOAN MONEY
TO BORROWER; IT BEING AGREED THAT THIS AGREEMENT SHALL NOT BE CONSTRUED
AS IMPOSING ANY DUTY ON BORROWER TO BORROW FROM LENDER, NOR ANY DUTY ON
LENDER TO LOAN TO BORROWER. IN CONSTRUING THE PURPOSE AND INTENT OF THIS
AGREEMENT, THIS SECTION 4.2.1 SHALL TAKE PRECEDENCE OVER ALL OTHER
PROVISIONS.
4.2.2 PROCEDURE FOR ADVANCE(s). Subject to the
satisfaction of the terms and conditions set forth in this Section 4.2,
on or after the Closing Date Borrower may request Lender to disburse the
proceeds of any Advance as set forth by Borrower in the related Contract
Funding Request. The Contract Funding Request shall specify: (A) the
date such Advance is to be made, which shall be a Business Day not less
than 5 Business Days after the delivery to Lender of such Contract
Funding Request, (B) the amount of Advance, which shall not exceed the
applicable Facility Funding Amount, and without the written consent of
Lender, be not less than $500,000.00, and (C) the names of any unpaid
vendors or suppliers of the Eligible Equipment subject to the Contracts
included in the Contract Funding Request, and the amounts with respect
thereto. Lender shall not be obligated to consider making any Advance
(i) if an Incipient Default or Event of Default exists or will occur if
the requested Advance is made, (ii) any more frequently than twice each
month under the Facility, (iii) with respect to any Contract which
Lender determines is not an Eligible Contract or for an End-User which
Lender determines is not an Eligible End-User; or (iv) if, as a result
of such Advance, any guideline set forth in SCHEDULE 4.2.2, as jointly
amended by Borrower and Lender from time to time, would be violated as a
result thereof.
4.2.3 CONDITIONS OF ADVANCES. Lender shall not be
obligated to consider making any Advance(s) on or after the Closing Date
unless all of the conditions set forth in this Section 4.2 have been
satisfied in a manner, form and substance satisfactory to Lender,
including the following:
4.2.3.1 REPRESENTATIONS AND WARRANTIES. On the date of
such Advance, the representations and warranties of Borrower
set forth in the Loan Documents shall be true and correct in
all material respects. Lender shall have the right, as a
precondition to any Advance made more than one year after the
Closing Date, to require updated evidence of Borrower's and
Borrower's officers' authority to execute Advance
documentation.
4.2.3.2 DELIVERY OF DOCUMENTS. In addition to the
documents previously delivered to Lender pursuant to Section
4.1, the following shall have been delivered to Lender, each
duly authorized and executed:
(a) the Contract Funding Requests for the Advances to
be made, with all attachments noted therein;
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(b) a Gaming Device Goods remarketing agreement in
form and content acceptable to Heller, from
Sodak or another Gaming Device Goods
distributor acceptable to Lender;
(c) such additional instruments, documents,
certificates, consents, financing
statements, waivers and opinions as Lender
reasonably may request, including any
opinions of outside counsel of the type
described in Section 4.1.4(ii) if the
Eligible Equipment subject to such Advance
pertains to a state for which an opinion
has not previously been furnished.
The requirement of the Gaming Device Goods remarketing
agreement set forth in Section 4.2.3.2 shall be waived
for any Advance made prior to sixty (60) days from the
Closing Date so long as the aggregate Loan Repayment
Amount for all such Advances does not exceed Twelve
Million Dollars ($12,000,000.00); PROVIDED, HOWEVER, that
in the event Borrower fails to deliver to Lender such
Gaming Device Goods remarketing agreement by sixty (60)
days from the Closing Date, or in the event that such
Gaming Device Goods remarketing agreement expires or is
terminated by any party thereto, and is not replaced with
a similar agreement acceptable to Heller within sixty
(60) days from the effective date of such termination or
expiration, Lender shall have all or any of the following
options and/or remedies, in addition to its other
remedies set forth in this Agreement:
(a) immediately declare that no further Advances be
made hereunder or under the PDS-Nevada Loan
Agreement; and
(b) immediately require that Borrower make a
Mandatory Prepayment (including payment of
the related Ordinary Prepayment Premium)
of any Facility Contracts as to which
Borrower has failed to provide any
required instruments, documents,
certificates, consents, financing
statements, waivers and opinions as set
forth by Lender; and
(c) immediately require that Borrower make a
Mandatory Prepayment (including payment of
the related Ordinary Prepayment Premium)
of one or more Advances, in the inverse
order of maturity, to the extent necessary
to reduce the aggregate Loan Repayment
Amount for all remaining Advances to Ten
Million Dollars ($10,000,000.00).
Borrower's obligation to make such
Mandatory Prepayment shall be in addition
to Borrower's obligation pursuant to
Section 8.3.3 to continue to prepay
Facility Contracts as to which Contract
Events of Default have occurred.
4.2.3.3 SECURITY INTERESTS. All UCC financing statements,
including, but not limited to:
(a) in the case of Facility Contracts under which
Borrower is deemed by Lender to be the
owner of the Equipment, UCC-1(s) naming
Borrower as debtor, and Lender as secured
party, to be filed where the Equipment is
located and at Borrower's principal place
of business,
(b) UCC-1(s) naming End-User as debtor or lessee,
and Borrower as secured party or lessor,
to be filed in the state(s) where the
Equipment is located,
(c) In the event that Lender has not been named as
assignee on the UCC-1(s) referred to in
subsection 4.2.3.3(b), UCC-3(s), as
required, naming Lender as assignee to be
filed in the jurisdiction(s) where the
UCC-1(s) referred to in subsection
4.2.3.3(b) are filed, and
(d) all other filings and actions necessary to
perfect and maintain the Lender Lien as a
valid and perfected Lien in the Collateral,
shall have been filed and confirmation thereof received by
Lender.
4.2.3.4 CONFIRMATION WITH END-USERS AND VENDORS. Lender
or its agents, at Lender's discretion, shall have verified
with all End-Users the existence and terms of the related
Facility Contract, the delivery of the Facility Equipment, and
shall have verified that the vendors and/or Facility Equipment
suppliers have been paid, PROVIDED,
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HOWEVER, that at Lender's discretion, Lender shall have the
option to require the foregoing proof of payment subsequent to
the Disbursement Date of an Advance.
4.2.3.5 NO MATERIAL OMISSION ITEMS ON PREVIOUS
ADVANCES. All material missing and/or incomplete items to be
furnished by Borrower with respect to previous Advances shall
have been completed to Lender's reasonable satisfaction.
4.2.3.6 ADDITIONAL CONDITIONS. Borrower shall have
re-satisfied the conditions set forth in Sections 4.1.5
(PERFORMANCE; NO DEFAULT), 4.1.6 (APPROVAL OF LOAN DOCUMENTS
AND SECURITY INTERESTS), and 4.1.7 (MATERIAL ADVERSE CHANGE)
with respect to the requested Advance(s).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender as follows:
5.1 ORGANIZATION, POWER, AUTHORITY, ETC. Borrower (i) is duly
organized, validly existing and in good standing under the laws of the state
of Minnesota, (ii) is qualified to do business in every jurisdiction in which
the character of the Property owned or leased by it or the business conducted
by it makes such qualification necessary and the failure to so qualify would
permanently preclude Borrower from enforcing its rights with respect to any
Facility Contract or Facility Equipment or would expose Borrower to any
material loss or liability, (iii) has the power and authority to carry on its
business, (iv) has the power and authority to execute and perform this
Agreement and the other Loan Documents, and (v) has duly authorized the
execution, delivery and performance of this Agreement and the other Loan
Documents.
5.2 VALIDITY, ETC., OF LOAN DOCUMENTS. This Agreement and the
other Loan Documents constitute the legal, valid and binding obligations of
Borrower and are enforceable against Borrower in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by equitable principles
(whether or not any action to enforce such document is brought at law or in
equity). The execution, delivery and performance of the Loan Documents by
Borrower (i) has not violated and will not violate any provision of law, any
order of any Governmental Body, or the Certificate of Incorporation or Bylaws
of Borrower (or the equivalent of the foregoing if Borrower is not a
corporation), or any indenture, agreement or other instrument to which
Borrower is a party, (ii) is not in conflict with, will not result in a
breach of or, with the giving of notice, or the passage of time, or both,
will not constitute a default under any such indenture, agreement or other
instrument, and (iii) will not result in the creation or imposition of any
Lien of any nature whatsoever upon any of the Property of Borrower, except
for Permitted Liens.
5.3 OTHER AGREEMENTS. Borrower is not a party to any agreement or
instrument materially adversely affecting its present or proposed business,
properties, or assets, and Borrower is not in default in the performance,
observance or fulfillment of any material obligation, covenant or condition
set forth in any agreement or instrument to which it is a party, which
default would have a material adverse effect on the ability of Borrower to
consummate any of the transactions contemplated by the Loan Documents or to
perform any of its obligations under any of the Loan Documents.
5.4 PRINCIPAL PLACE OF BUSINESS. The principal place of business
of Borrower and its chief executive office are at 6171 McLeod Drive, Las
Vegas, Nevada 89120. Borrower has not done business under any name other than
PDS FINANCIAL CORPORATION or PROGRESSIVE DISTRIBUTION SYSTEMS, INC. D/B/A PDS
LEASING SERVICES.
5.5 PRIORITY. The Lender Lien is subject to no prior Liens other
than Permitted Liens, and all Borrower Liens have been or will be assigned to
Lender pursuant to an Assignment.
5.6 FINANCIAL STATEMENTS. Borrower has delivered to Lender the
financial statements described on SCHEDULE 5.6. Such financial statements
present fairly the financial condition and results of operations of Borrower
as of the dates and for the periods indicated therein. All of the foregoing
financial statements, except as otherwise indicated therein, have been
prepared in accordance with GAAP.
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5.7 LITIGATION. Except as set forth in SCHEDULE 5.7, there are no
actions, suits, arbitrations, proceedings or claims (whether or not
purportedly on behalf of Borrower) pending or to the best knowledge of
Borrower, threatened, against Borrower or maintained by Borrower, at law or
in equity or before any Governmental Body which, if adversely determined,
would have a material adverse effect on the ability of Borrower to consummate
any of the transactions contemplated by the Loan Documents or perform any of
its obligations under any of the Loan Documents.
5.8 NECESSARY PROPERTY. Borrower has all necessary rights in its
Property (including all patents or trademarks) which are necessary to conduct
the business of Borrower as now conducted.
5.9 VALIDITY AND ENFORCEABILITY OF CONTRACTS. At the time a
Contract is assigned to Lender (and thereupon becomes a Facility Contract)
and, unless expressly limited to that point in time, at all future times with
respect to each of the Facility Contracts, all rights assigned as part of the
Facility Contracts, including without limitation all Facility Equipment
covered thereby:
(i) Any modifications of a Contract from the form approved
by Lender, as attached to this Agreement as part of SCHEDULE 4.1.2, are
identified in the Contract by amendment or conspicuous markings,
letterings or title heading (E.G., "Additional Provisions"), and the
existence of such modifications are noted by Borrower in the related
Contract Funding Request; all Contracts with non-Native American
End-Users have been originated by Borrower (or other entity acceptable
to Lender) as either lessor or secured party; all Contracts with Native
American End-Users have been originated either by Borrower, Sodak (or
other entity acceptable to Lender) as either lessor or secured party;
all Contracts arise from a bona fide non-cancelable contract for
Eligible Equipment with an Eligible End-User for an Approved Contract
Term; and all Equipment described in the Contracts is in all respects in
accord with the requirements of the Contracts and has been delivered to
and unqualifiedly accepted by the End-User thereunder; unless
specifically agreed to by Lender in writing, none of the Equipment,
after delivery and acceptance by the End-User, is a fixture under the
applicable laws of any state where such Equipment is or may be located
nor is located outside the United States;
(ii) All Contracts and related Equipment comply with all
applicable laws and regulations, including, without limitation,
interest/usury, truth-in-lending, Gaming Laws and disclosure laws; all
Contracts are genuine, valid, binding and enforceable in accordance with
their terms, accurately describe the related Equipment and the Payments
due under the Contracts, and are in all respects what they purport to
be; all Contracts, the related Equipment and all proceeds thereof are
not subject to any lien, claim or security interest except the interest
of the End-User, which shall be assigned to Lender contemporaneously
herewith, and Permitted Liens; all Contracts, and related rights,
agreements, documents and instruments are assignable to Lender without
consent of any person, including without limitation, any End-User or any
Governmental Body or agency and no such assignment will delegate, create
or impose any duty, obligation or liability on Lender; and all Contracts
with a Native American End-User contain valid and enforceable (i)
waivers of sovereign immunity, (ii) representations and warranties from
Sodak (or another Native American gaming lessor acceptable to Lender)
enforceable by Lender in the event that sovereign immunity is asserted
by the Native American End-User as a defense to payment or enforcement
proceedings, and (iii) opinion(s) of counsel to such Native American
End-User in form acceptable to Borrower and Lender;
(iii) At the time of Borrower's assignment of the Contracts,
and subject to compliance with all mandatory provisions of law,
including without limitation, the Gaming Laws, Borrower has (A) good
title to all of the Contracts, including the right to receive the
payments due thereunder, (B) either good title to or a first, prior and
perfected lien in all related Equipment; (B) all legal power, right and
authority to sell the Contracts and grant the security interest
described herein to Lender; (C) not sold, transferred, encumbered,
assigned or pledged any part of the Contracts or related Equipment to
any other Person; and (D) paid in full all vendors of the Equipment
subject to the Contracts, or will agree to have Lender pay such vendors
with the proceeds of the applicable Advance;
(iv) All counterparts of all Contracts have been clearly
marked to indicate that only one thereof is the "Original" and
assignable, and such counterpart shall be the counterpart delivered to
Lender at the time of Borrower's assignment of the Contract;
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(v) Except for any master leases, Borrower has provided
Lender with an original of all material agreements entered into in
connection with the Contracts, and the Equipment related to such
Contracts; the Contract constitutes the entire agreement and there are
no oral representations, warranties or agreements related thereto; the
Contracts employ substantially standard pricing and documentation
(including, without limitation, provisions concerning payment terms,
assignment, maintenance, termination, renewal, insurance and stipulated
loss provisions) which have been approved by Lender; the Contracts
contain no purchase option to the End-User which has not been disclosed
in writing to Lender;
(vi) Each party to each Contract has all the legal capacity,
power and right required for it to enter into such Contract and any
supplemental agreements, and to perform its obligations thereunder; all
such actions have received all corporate or governmental authorization
required by any applicable charter, by-law constitution, law, rule or
regulation;
(vii) None of the following existed at the time of Borrower's
assignment to Lender of the Contracts: (i) any payment owing with
respect to any Contract is past due more than ten (10) days, (ii) any
End-User is otherwise in default under a Contract, or (iii) any End-User
has canceled or terminated or given notice of or attempted to cancel or
terminate any Contract;
(viii) There exist no setoffs, abatements, recoupments,
claims, counterclaims or defenses on the part of any End-User under the
Contracts to any claims against or obligations of any End-User
thereunder, nor do the Contracts by their terms give rise to any such
right of setoff, abatement, recoupment, claims, counterclaims or
defenses against Borrower or assignee of Borrower;
(ix) Borrower has not done anything that might impair the
value of the Contracts or any Equipment covered by the Contracts;
(x) All sales, gross receipts, property or other taxes,
assessments, fines, fees and other liabilities relating to the
Contracts, the related Equipment, or the proceeds thereof have been paid
when due and all filings in respect of any such taxes, assessments,
fines, fees and other liabilities have been timely made;
(xi) Borrower is not in default which has continued beyond
any applicable grace periods or cure rights of any of its obligations
under the Contracts, including without limitation, any obligation to
repair, maintain or replace any Equipment or to provide service as
provided in the Contracts;
(xii) The Contracts have not been altered, modified, changed
or amended except as such alterations, modifications, changes or
amendments are set forth in writing and provided to Lender prior to
Borrower's assignment of the Contracts; nor will Borrower agree to any
alterations, modifications, changes or amendments after Borrower's
assignment without Lender's prior written consent or as specifically set
forth in this Agreement with respect to upgrades or early terminations;
(xiii) At the time of Borrower's assignment of the
Contracts, no amounts have been prepaid on the Contracts except advance
payments which are required by the express written terms of the
Contracts;
(xiv) Borrower has not withheld any information or material
facts in connection with any Contracts or Equipment which would make any
information furnished to Lender misleading and Borrower has no knowledge
of any Contract Event of Default or of any fact which may impair the
validity, value or enforceability of any Contract or Equipment;
(xv) To the best of Borrower's knowledge, any credit
information provided to Lender by Borrower with respect to any End-User is
true and correct in all material respects;
(xvi) All Equipment covered by the Contract (A) is in good
condition and repair and suitable for the purposes for which it is
intended; (B) is covered by comprehensive physical damage insurance for
the full insurable value thereof, unless otherwise mutually agreed to by
Borrower and Lender, and, if applicable, general public liability
coverage. Borrower, "its assigns and/or collateral assigns" have been
named as "Loss Payee" and, if applicable, as "Additional Insured" on any
policies procured by the End-User. Said insurance is in full force and
effect, and has not lapsed or been cancelled by the End-User or the
respective insurers;
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(xvii) The Contract will not be canceled or terminated or
attempted to be canceled or terminated prior to the full term indicated for
such Contract, except as may be specifically set forth in this Agreement;
(xviii) Borrower has not breached any representation, warranty
or guarantee under the Contract or any agreement, document or instrument
related thereto;
(xix) Upon recording financing statements with respect to the
Contracts and the related Equipment, and Lender's possession of the
original chattel paper with respect thereto, Lender's security interest
therein shall be perfected and shall have priority over all other liens,
claims, rights of other persons and security interests with respect
thereto; and
(xx) Borrower has not filed any UCC-1 or other document in the
public records against any End-User or End-User Guarantor concerning any
proposed Facility Contract or Equipment EXCEPT those which have been
disclosed and either assigned or subordinated to Lender's interest in the
Facility Contracts and the related Equipment and Proceeds, and there are no
other UCC-1's or other public record filings concerning any part of any
Facility Contracts or Equipment whether executed by or in favor of
Borrower.
ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees with Lender as follows:
6.1 PAYMENT OF BORROWER'S OBLIGATIONS. Borrower shall pay and
perform all of Borrower's Obligations as and when the same become due,
payable and/or performable, as applicable.
6.2 PRESERVATION OF EXISTENCE. Borrower shall maintain its
existence and rights in full force and effect to the extent necessary to
perform its obligations under the Loan Documents.
6.3 LEGAL REQUIREMENTS. Borrower (i) promptly and faithfully shall
comply with, conform to and obey all applicable present and future laws,
ordinances, rules, regulations and other requirements that could materially
adversely affect the conduct of its operations, including, but not limited
to, maintain its gaming licenses in the States where it is currently
operating its business, and (ii) shall use or cause the portion of the
Collateral consisting of Facility Equipment to be used in a manner and for
the use contemplated by the manufacturer thereof, and in material compliance
with all laws, rules and regulations of every Governmental Body having
jurisdiction over such Facility Equipment.
6.4 FINANCIAL STATEMENTS AND OTHER REPORTS/MATERIALS. Borrower
shall maintain full and complete books of account and other records
reflecting the results of Borrower's operations, all in accordance with GAAP,
and shall furnish or cause to be furnished to Lender:
(i) Within 120 days after the end of each year, the
consolidated audited financial statements for such year for Borrower
certified (without qualification as to the opinion or scope of examination)
by a firm of independent certified public accountants selected by Borrower
and satisfactory to Lender;
(ii) Within 60 days after the end of each quarter, consolidated
quarterly financial statements of Borrower;
(iii) Within 30 days after the end of each quarter, (I) computer
diskettes/tapes containing all backup data regarding Facility Contracts and
Facility Equipment, in format set forth in EXHIBIT K, and (II) an aged
inventory report and asset tracking report in such form as reasonably
acceptable to Lender;
(iv) Within 30 days after the end of each month: (I) a
delinquency report in the form attached hereto as EXHIBIT L, (II) a true
and correct copy of the Bank, Lockbox and ACH statements for the preceding
month, (III) if applicable, a report setting forth any change in the
identity or location of Facility Equipment from that previously disclosed
to Lender; (IV) a report setting forth leasing, remarketing activities and
insurance settlements with respect to Facility Equipment, and (V) a report
identifying the Facility Contracts which terminated during the previous
thirty (30) days;
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(v) Every 18 months, commencing the Closing Date, at
Borrower's expense, a new report from AAA or another appraisal firm
acceptable to Lender, setting forth current Fair Market and Orderly
Liquidation Values of the principal types of Eligible Equipment subject to
this Agreement, which Lender may utilize in its sole, but reasonable,
discretion in determining an acceptable Estimated Residual therefor;
(vi) Within 10 days after receipt thereof by Borrower, copies
of all financial statements from any End-User(s) who comprise greater than
ten percent (10%) of the aggregate Loan Repayment Amount on all Facility
Contracts; and
(vii) promptly at Lender's request, such additional information,
documents, downloads and reports as Lender shall advise Borrower from time
to time.
All of the items described in clauses (ii), (iii) and (iv) of this Section
6.4 shall be certified by a Responsible Officer. In the alternative, with
respect to the requirements set forth in clauses (i) and (ii) of this
Section 6.4, Borrower may furnish or cause to be furnished to Lender copies
of Borrower's 10-K and 10-Q within ten (10) days of Borrower's filing of
same with the Securities and Exchange Commission.
6.5 REMOVAL OF FACILITY EQUIPMENT. Promptly after a Responsible
Officer learns that any Facility Equipment has been moved by a End-User from
one location to another, Borrower will inform Lender or will cause such
End-User to inform Lender of such move and will execute such additional
financing statements as Lender reasonably may request.
6.6 DAMAGE TO EQUIPMENT. Promptly after a Responsible Officer
learns that any Facility Equipment is damaged, and if such Facility Equipment
can be repaired in accordance with the terms of the applicable Facility
Contract so as to restore the same to good and working order, Borrower shall
cause such repairs to be made in accordance with the terms of such Facility
Contract.
6.7 BOOKS AND RECORDS; INSPECTIONS.
6.7.1 BOOKS AND RECORDS. Borrower shall keep and maintain, or
cause to be kept and maintained, complete and accurate books and records
and make all necessary entries therein to reflect the transactions
contemplated hereby and all payments, credits, adjustments and calculations
relative thereto.
6.7.2 INSPECTIONS/AUDITS. Upon reasonable prior notice, Lender
shall have full and complete access to the books and records of Borrower
pertaining to the Collateral. In addition, from time to time, but not more
often than twice each year (and upon the occurrence and during the
continuation of a Borrower Event of Default as often as Lender in its sole
discretion deems necessary in order to monitor the business activities of
Borrower), representatives of Lender shall have the right to conduct an
audit of the books and records of Borrower. Borrower shall pay to Lender on
demand the actual, reasonable, out-of-pocket travel expenses incurred by
Lender for any employee of Lender who may conduct or assist in conducting
any such audit.
6.8 MAINTENANCE. Borrower, pursuant to the applicable Facility
Contract, shall cause all Facility Equipment to be maintained and serviced so as
to keep such Facility Equipment in good operating condition, ordinary wear and
tear from normal use excepted.
6.9 NOTICE OF DEFAULTS; CHANGE IN BUSINESS AND ADVERSE EVENTS.
Borrower, immediately after any Responsible Officer becomes aware thereof,
shall give Lender written notice of the occurrence of (i) any Event of
Default or any Incipient Default, accompanied by a statement of such
Responsible Officer setting forth what action Borrower proposes to take in
respect thereof, (ii) any change in the (A) executive officers or key
employees of Borrower, or (B) location of the chief place of business of
Borrower or any sale or purchase outside the regular course of business of
Borrower, (iii) any event which may have a material adverse effect on the (A)
enforceability of the Lender Lien, (B) ability of Borrower to perform any of
its obligations under any of the Loan Documents or (C) Borrower's compliance
with the Gaming Laws of any state and/or Lender's ability to exercise its
remedies hereunder with respect to any Facility Equipment constituting Gaming
Device Goods, (iv) any material default in payment or performance by
Borrower or any End-User under any Facility Contract or (v) any material
damage to or irreparable malfunction of any Facility Equipment.
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6.10 INSURANCE/MAINTENANCE. All Facility Equipment shall be covered
by comprehensive physical damage insurance for the full insurable value
thereof, unless otherwise mutually agreed to by Borrower and Lender, and
general public liability coverage, and Borrower "and/or its assigns,
including collateral assigns," shall be named and continue to be named as
"Loss Payee" and "Additional Insured" as its interests may appear. Said
insurance shall continue to be in full force and effect, and shall not lapse
or be cancelled by the End-Users. Borrower, pursuant to the applicable
Facility Contract, will cause the End-User under each Facility Contract to
maintain all Facility Equipment in accordance with the terms of all insurance
policies which are or may be in effect with respect thereto so as not to
alter or impair any of the benefits or coverage to which Borrower or the
applicable End-User is entitled under any such insurance policies.
6.11 TAXES. Pursuant to the Contracts, Borrower or End-Users will
pay the personal property taxes levied or assessed on the Facility Equipment,
and Borrower shall cause the End-Users to file all personal property tax
returns relating to the Equipment. Borrower will bill and collect from the
End-Users all sales and use tax that is due and payable during the terms of
the Facility Contracts, and shall remit any sales and use taxes it receives
from the End-Users to the appropriate taxing jurisdiction. Notwithstanding
the above, in the event an End-User shall fail to remit the necessary taxes
to the taxing jurisdiction or to Borrower within the time prescribed or file
the necessary tax returns, Borrower promptly shall remit to the appropriate
taxing jurisdiction the amount of such overdue taxes, and shall indemnify and
hold harmless Lender for all such overdue and/or unpaid taxes, and any fines,
penalties and late charges related thereto, or related to a failure or delay
in filing the related tax returns.
6.12 CONTRACTS. With respect to each of the Contracts, Borrower
shall: (i) perform all acts necessary to preserve the validity and
enforceability of each such Contract; (ii) take all actions reasonably
necessary to assist Lender in collecting when due all amounts owing to
Borrower with respect to each such Contract; (iii) at all times keep accurate
and complete records of performance by Borrower and the End-User under each
such Contract; and (iv) upon request of Lender verify with the End-User under
each Facility Contract the payments due to Borrower under such Facility
Contract, except that (A) prior to the occurrence of a Borrower Event of
Default or Incipient Default, such requests shall not occur any more
frequently than once each year and (B) after the occurrence and during the
continuation of an Incipient Default or a Borrower Event of Default, such
requests may occur as often as Lender shall require.
ARTICLE VII
NEGATIVE COVENANTS
Until Borrower's Obligations are paid and performed in full, Borrower:
7.1 LIENS. Shall not create or incur or suffer to exist any Lien
on the Collateral other than Permitted Liens.
7.2 BORROWING. Shall not create, incur, assume or suffer to exist
any indebtedness which is secured by Liens on the Collateral other than the
Advances or Permitted Liens.
7.3 MODIFICATIONS OF FACILITY CONTRACTS. Shall not, without the
prior, written consent of Lender: amend, supplement, modify, compromise or
waive any of the terms of any Facility Contract (i) if the effect of such
amendment, supplement, modification, compromise or waiver is to (A) reduce or
waive the amount of any payment thereunder, (B) extend the term thereof
(except as otherwise permitted pursuant to Section 7.4), or (C) waive any
provisions thereof with respect to taxes, insurance or maintenance, or (ii)
unless such amendment, supplement, modification, compromise or waiver is with
respect to (A) the removal of any Facility Equipment and, in connection with
such removal, Borrower complies with the provisions of Section 6.5, (B) a
Permitted Substitution and if, in connection with such Permitted Substitution
any prepayment of any portion of the Facility shall occur, Borrower shall
comply with the terms of subsection 2.5; or (C) an upgrade or early
termination permitted by Section 2.5.2.
7.4 EXTENSIONS OF FACILITY CONTRACTS; FUTURE CONTRACTS OF FACILITY
EQUIPMENT. Shall not, without the prior written consent of Lender: (i) extend
the term of any Facility Contract unless as of the end of the Approved
Contract Term of such Facility Contract, such Contract no longer will be a
Facility Contract as a result of any such extension or (ii) re-lease any
Facility Equipment unless such re-lease is for the purpose of mitigating
damages arising from a Contract Event of Default.
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7.5 MAINTENANCE OF PERFECTED LENDER LIEN. Shall not change the
location of its chief executive office or principal place of business, except
if Borrower has (i) given Lender at least 30 days prior written notice
thereof and (ii) caused to be filed all UCC financing statements which in the
opinion of Lender are necessary or advisable to maintain the perfection of
the applicable Lender Lien.
7.6 MERGER AND ACQUISITION. Shall not, without the prior, written
consent of Lender, which consent will not be unreasonably withheld or
delayed, consolidate with or merge into any Person, or acquire all or
substantially all of the stock or Property of any Person.
7.7 SALE OR TRANSFER OF ASSETS. Shall not sell, lease, assign,
exchange, transfer or otherwise dispose of any Property except (i)
dispositions of Property (other than Equipment), which is not necessary to
the continued operation of the business of Borrower, (ii) disposition of the
real estate now owned or hereafter acquired by Borrower, provided no
Incipient Default or Event of Default is in existence or will occur as a
result of the consummation of any such sale, (iii) the leasing of real
property, (iv) dispositions of Property in the ordinary course of Borrower's
business, or (v) disposition of any obsolete or unusable Property, provided
that if such Property is necessary to the continued operation of the business
of Borrower, such Property promptly is replaced with Property of like
function and value to such Property when the same was not obsolete or
unusable, as applicable.
7.8 DELINQUENCY COVENANT. Shall not allow Facility Contract Total
Delinquency to be greater than twelve percent (12%) of the Aggregate
Portfolio Outstandings. All terms in this subsection not otherwise defined
shall have the meanings set forth in EXHIBIT L (Form of Monthly Delinquency
Report).
7.9 TRANSACTIONS WITH AFFILIATES. Shall not, except for (i)
transactions in the normal course of business, which transactions comply with
the provisions of clauses (y) and (z) of this Section 7.9, and (ii) purchases
of Equipment from PDS FINANCIAL CORPORATION-NEVADA, which purchases shall
comply with the provisions of clauses (y) and (z) of this Section 7.9, sell,
lease, assign, transfer or otherwise dispose of any Property to any Affiliate
or lease Property, render or receive services or purchase assets from any
Affiliate, except with the prior written consent of Lender, which consent
shall not unreasonably be withheld or delayed, and except that Borrower may
enter into any such transaction with any such Affiliate in the ordinary
course of business if (y) the monetary or business consideration arising
therefrom would be substantially as advantageous to Borrower as the monetary
or business consideration which would be obtained by Borrower in a comparable
arm's-length transaction with a Person which is not an Affiliate and (z) no
other provision of this Agreement would be violated as a result thereof.
7.10 TANGIBLE NET WORTH. Shall not allow Borrower's Tangible Net
Worth to be less than $7,000,000 as of 12/31/98, and less than $8,000,000 as
of 12/31/99 and thereafter.
7.11 FIXED CHARGE COVERAGE RATIO. Shall not allow Borrower's Fixed
Charge Coverage Ratio to be less than the amounts set forth in the following
table, as of the times specified:
1998 1999 2000 AND LATER
---- ---- --------------
1.75 to 1:00 at 12/31/98 2.00 to 1.00 at 12/31/99 as Lender shall specify
7.12 LEVERAGE RATIO. Shall not allow Borrower's Leverage Ratio on a
consolidated basis to exceed 7:1 in any reporting period.
7.13 RESIDUAL ADVANCE LOAN REPAYMENT AMOUNT TO ACQUISITION COST
RATIO. Shall not allow the aggregate Loan Repayment Amount with respect to
Residual Financing Facility Advances, at any time, measured quarterly, to
exceed twenty percent (20%) of Acquisition Cost of the related Residual
Financing Facility Equipment. In such case, not later than the next due date
under the related Residual Financing Facility Note(s), Borrower will be
required to remit a principal payment on the related Residual Financing
Facility Advance(s) in the amount of any such shortfall. At Borrower's
request, Lender shall furnish to Borrower a schedule setting forth, in
reasonable detail, Lender's calculation of such amounts to satisfy the
foregoing covenant.
7.14 INVENTORY FINANCE LINE. Shall maintain an inventory finance
line with a financial institution reasonably acceptable to Lender and
Borrower in an amount not less than Three Million Dollars ($3,000,000.00).
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ARTICLE VIII
BORROWER AND CONTRACT EVENTS OF DEFAULT -- DEFINITIONS AND REMEDIES
8.1 BORROWER EVENTS OF DEFAULT -- DEFINITION. The occurrence of any
of the following shall constitute a Borrower Event of Default hereunder:
(a) DEFAULT IN PAYMENT. If Borrower shall fail to remit to
Lender when due any payment that Borrower is required to make hereunder
or under any other agreement between Borrower and Lender, including, but
not limited to the PDS-Nevada Guaranty, when and as the same shall
become due and payable, and such failure shall continue for a period of
10 days after such payment becomes due.
(b) BREACH OF REPRESENTATION OR WARRANTY. If any
representation made by Borrower to Lender in any Loan Document or in any
report, certificate, opinion, financial statement (other than those
financial statements provided by and pertaining to any End-User) or
other document or statement furnished pursuant thereto, or under any
other agreement between Borrower and Lender, including, but not limited
to the PDS-Nevada Guaranty, shall be false or misleading in any material
respect when made, or any warranty given by Borrower shall be breached
by Borrower, unless (i) the fact, circumstance or condition is made true
within ten (10) Business Days after notice thereof is given to Borrower
by Lender, and (ii) in Lender's judgment, such cure removes any adverse
effect on Lender.
(c) BREACH OF COVENANT. If Borrower shall fail to duly
observe or perform any covenant, condition or agreement set forth in (i)
Articles VI or VII of the Agreement, or (ii) the PDS-Nevada Guaranty, on
its part to be performed or observed for ten (10) Business Days after a
Responsible Officer has knowledge thereof.
(d) BANKRUPTCY, RECEIVERSHIP, INSOLVENCY, ETC.
(i) If Borrower shall (A) apply for or consent to the
appointment of a receiver, trustee or liquidator for it or any
of its Property, (B) be unable to pay its debts as they
mature, (C) make a general assignment for the benefit of
creditors, (D) be adjudicated a bankrupt or insolvent or (E)
file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors
or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation
law or statute, or file an answer admitting the material
allegations of a petition filed against it in any proceeding
under any such law, or if action shall be taken by Borrower
for the purpose of effecting any of the foregoing, or
(ii) If any Governmental Body of competent
jurisdiction shall enter an order appointing, without consent
of Borrower, a custodian, receiver, trustee or other officer
with similar powers with respect to Borrower or with respect
to any substantial part of the Property belonging to Borrower,
or if an order for relief shall be entered in any case or
proceeding for liquidation or reorganization or otherwise to
take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or
liquidation of Borrower, or if any petition for any such
relief shall be filed against Borrower, and such petition
shall not be dismissed within 45 days.
(e) NON-PAYMENT OF OTHER INDEBTEDNESS. Default by Borrower
(other than in payment of Borrower's Obligations) in the (i) payment
when due (subject to any applicable grace period or cure period),
whether by acceleration or otherwise, of any indebtedness, where the
amount thereof is in excess of $500,000, or (ii) performance or
observance of any obligation or condition with respect to any
indebtedness of Borrower, where the amount of such indebtedness is in
excess of $500,000 (other than in payment of Borrower's Obligations) if
the effect of such default is to accelerate the maturity of any such
indebtedness or to permit the holder thereof to cause such indebtedness
to become due and payable prior to its expressed maturity.
(f) OTHER MATERIAL OBLIGATIONS. Default in the payment when
due, or in the performance or observance of, any material obligation of,
or condition agreed to by, Borrower with respect to any purchase or
lease of goods or services, where (i) the amount with respect to any
such purchase or lease of goods or services is in excess of $500,000 and
(ii) any grace
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period or cure period with respect to any such payment, performance or
observance has lapsed (except such default in payment, performance or
observance shall not be deemed to constitute a default hereunder if the
existence of any such default is being contested by Borrower in good
faith and by appropriate proceedings diligently pursued).
(g) PDS-NEVADA LOAN AGREEMENT. If an Event of Default shall
have occurred under the PDS-Nevada Loan Agreement.
In any such event, in addition to Lender's other remedies under this
Agreement, Lender, by notice to Borrower, may declare that no further
Advances shall be made.
8.2 BORROWER EVENTS OF DEFAULT -- REMEDIES. If a Borrower Event of
Default shall have occurred, and has not been cured by Borrower (or by
Lender, at its option) within an applicable cure period, or a Material
Adverse Change occurs of the type set forth in Section 4.1.7 (i) or (ii),
then Lender shall have the right to do any or all of the following:
(a) If Lender has not already done so pursuant to Section
2.4, complete and deliver to the End-Users the Contract Payment Letters
to commence direct billing and collection with respect to the Facility
Contracts (including directing the Bank to sweep any ACH payments from
End-Users under Facility Contracts to an account controlled by Lender),
and deduct from such receipts and remittances a fee equal to five
percent (5%) of the aggregate monthly receipts ("Administration Fee")
from the payment on the Facility Contracts as compensation for the
additional administrative burden;
(b) (i) exercise of any of Borrower's rights under any of
the Facility Contracts, or (ii) by written notice, require Borrower to
exercise on behalf of Lender as secured party under this Agreement any
and all of the rights available to Borrower under any Facility Contract
to the extent not already exercised by Borrower, whereupon Borrower
shall immediately take all requested action;
(c) proceed against Borrower for all rights and remedies
Lender may have in law or in equity under the Loan Documents;
(d) declare the entire amount of Borrower's Obligations and
Administration Fee due and payable immediately, and exercise in respect
of the Facility Equipment all the rights and remedies of a secured party
upon default under the UCC, including, at any reasonable time, to enter
Borrower's premises and take physical possession of any master leases to
which the related Facility Contracts pertain.
Lender shall not take any action or exercise any right that
would disturb any End-User's full and quiet enjoyment of all of such
End-User's rights under that Facility Contract. Lender will give Borrower
reasonable notice of the time and place of any public sale of any Collateral
or of the time after which any public or private sale of such Collateral or
any other intended disposition thereof is to be made. Unless otherwise
provided by law, the requirement of reasonable notice shall be met if such
notice is delivered at least ten (10) days before, or mailed, postage
prepaid, to Borrower, at least twenty (20) days before the time of such sale
or disposition.
Notwithstanding the foregoing, to the extent that a breach
occurs under Section 8.1(b), and such breach relates to a single Facility
Contract, Borrower shall have twenty (20) days from receipt of demand by
Lender to prepay the Facility Contract pursuant to the terms of the Mandatory
Prepayment clause set forth at Section 2.5.4. Borrower's failure to prepay
such Facility Contract within said twenty (20) day period shall then
constitute a Borrower Event of Default under Section 8.1(a). Furthermore, if
the Borrower Event of Default pertains solely to a breach of a covenant set
forth in Section 7.8 (Delinquency Covenants), Lender's sole remedy shall be
to commence direct billing and collection of Facility Contracts, subject to
all mandatory provisions of law, including without limitation, the Gaming
Laws, as set forth more fully in Section 8.2 (a) and (b).
All actual costs and expenses incurred by Lender in connection
with the enforcement and/or exercise of any of its rights or remedies
(including, without limitation, reasonable attorneys fees) hereunder shall
(i) be payable by Borrower to Lender immediately upon demand, (ii) constitute
a portion of Borrower's Obligations and (iii) be secured by the Lender Lien.
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8.3 CONTRACT EVENTS OF DEFAULT.
8.3.1 DEFINITION: The occurrence of a default by any End-User
pursuant to the terms of a Facility Contract, which default entitles
Borrower to accelerate or terminate such Facility Contract or to
repossess the related Facility Equipment, shall constitute a Contract
Event of Default.
8.3.2 ACCELERATION. Upon the occurrence of a Contract Event of
Default, Lender, at any time (unless such Contract Event of Default
shall have been cured by Borrower), at its option, by notice to Borrower
and/or End-User, may terminate such Facility Contract and accelerate all
payments due thereunder.
8.3.3 CONTRACT EVENT OF DEFAULT -- REMEDIES. Upon the
occurrence of a Contract Event of Default, Borrower shall, if known to
Borrower, immediately deliver to Lender written notice thereof, which
notice shall identify the Facility Contract which is in default and the
applicable Advance, and describe the nature of such default and the
actions Borrower proposes to undertake with respect to such default. If
any payment(s) under a Facility Contract becomes 120 days past due,
whether or not such payment(s) have been cured by Borrower, then
Borrower shall prepay in full the unpaid portion of the Advance
pertaining to such Facility Contract and remit to Lender such Residuals
as may be due pursuant to Section 2.7, or exercise its right of
substitution pursuant to Section 3.3.
Lender, with respect to the Facility Equipment subject
to such Facility Contract, shall have and may exercise against Borrower
all the rights and remedies of a secured party under the Illinois UCC
and/or the UCC applicable to the location of the related Facility
Equipment, and any other applicable laws, subject to all mandatory
provisions of law, including without limitation, the Gaming Laws. Lender
will give Borrower reasonable notice of the time and place of any public
sale of any Collateral or of the time after which any public or private
sale of such Collateral or any other intended disposition thereof is to
be made. Unless otherwise provided by law, the requirement of reasonable
notice shall be met if such notice is delivered at least ten (10) days
before, or mailed, postage prepaid, to Borrower at least twenty (20)
days before the time of such sale or disposition. Solely with respect to
the Full Recourse Facility (and with respect to the Non-Recourse
Facility only as set forth in SECTION 9.13), Lender shall have full
recourse to Borrower for any deficiency between the Sale Proceeds
thereof and the Loan Repayment Amount for the related Advance. For the
purposes hereof, Sale Proceeds shall mean the gross proceeds received by
Borrower with respect to any sale of Facility Equipment, less any
reasonable remarketing fees paid or reasonable costs incurred by
Borrower with respect to any such sale. In addition to the foregoing, at
Lender's election, Lender may complete and deliver one or more Contract
Payment Letters in order to commence direct billing and collection with
respect to one or more Contracts subject to a Contract Event of Default,
and deduct the Administration Fee with respect thereto. Furthermore:
(i) Lender only shall be entitled to exercise the rights
and remedies set forth in this Section 8.3.3 with respect to
the Facility Contract, the End-User and the Facility Equipment
which are the subject of such Contract Event of Default;
(ii) the expenses and other payments to which any
proceeds of the Collateral shall be applied in accordance with
the provisions of subsections 8.6 & 8.7 shall be so applied to
payment of Borrower's Obligations pertaining to the Facility
Contract which is the subject of such Contract Event of
Default, and
(iii) upon payment and performance in full of all of
Borrower's Obligations pertaining to the Facility Contract
which is the subject of such Contract Event of Default, both
(A) the Contract Event of Default with respect to such
Facility Contract, and (B) any related Borrower Event of
Default shall be deemed to be cured.
8.5 POWER OF ATTORNEY. In order to permit Lender to exercise the
rights and remedies set forth herein, Borrower hereby irrevocably appoints
Lender as its attorney-in-fact and agent with full power of substitution, in
the name of Lender or in the name of Borrower, to perform any of the
following acts upon the occurrence of a Borrower Event of Default, subject to
all mandatory provisions of law, including without limitation, the Gaming
Laws: (i) receive, open and examine all mail addressed to Borrower and retain
any such mail relating to the Collateral and return to Borrower only that
mail which is not so related; (ii) endorse the name of Borrower on any checks
or other instruments or evidences of payment or other documents, drafts, or
instruments arising in connection with or pertaining to the Collateral, to
the extent that any such items come into the possession of Lender; (iii)
compromise, prosecute or defend any action, claim, or proceeding concerning
the
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Collateral; (iv) perform any and all acts which Borrower is obligated to
perform under the Loan Documents; (v) exercise such rights as Borrower might
exercise with respect to the Collateral, including, without limitation, the
leasing or other utilization thereof and the collection of any such rents or
other payments applicable thereto; (vi) give notice of the existence of the
Lender's Lien, including, without limitation, notification to End-Users
and/or other account debtors of the existence of such Lender's Lien with
respect to the rents and other payments due to Borrower relative to the
Collateral; or (vii) execute in Borrower's name and file any notices,
financing statements and other documents or instruments Lender determines are
necessary or required to carry out fully the intent and purpose of the Loan
Documents or to perfect the Lender Lien.
Borrower hereby ratifies and approves all that Lender shall do
or cause to be done by virtue of the power of attorney granted herein and
agrees that neither Lender nor any of Lender's employees, agents, officers,
or its attorneys will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law made while acting in good faith pursuant
to the provisions of this subparagraph, unless such act, omission, error of
judgment or mistake of fact or law is determined by a court of competent
jurisdiction in a decision which no longer is subject to appeal to be the
result of the gross negligence or the willful or wanton misconduct of Lender
or any such employees, agents, officers or attorneys of Lender. The
appointment of Lender as Borrower's attorney-in-fact is a power coupled with
an interest, and therefore shall remain irrevocable until all of Borrower's
Obligations have been paid and performed in full.
8.6 EXPENSES. All actual costs and expenses incurred by Lender in
connection with the enforcement and/or exercise of any of its rights or
remedies (including, without limitation, reasonable attorneys fees) hereunder
shall (i) be payable by Borrower to Lender immediately upon demand, (ii)
constitute a portion of Borrower's Obligations and (iii) be secured by the
Lender Lien.
8.7 APPLICATION OF FUNDS. Any funds received by Lender pursuant to
the exercise of any rights accorded to Lender pursuant to or by the operation
of any of the terms of any of the Loan Documents shall be applied by Lender
in the following order of priority:
(i) EXPENSES: First to the payment of all (A) actual fees
and expenses, including, without limitation, court costs, fees of
appraisers, title charges, costs of maintaining and preserving the
Collateral, costs of sale, reasonable attorney's fees, and all other
costs incurred by Lender in exercising any rights accorded to Lender
pursuant to the Loan Documents or by applicable law and (B) Liens
superior to the Liens of Lender, except such superior Liens subject to
which any sale of the Collateral may have been made;
(ii) BORROWER'S OBLIGATIONS. Next, to the payment of
Borrower's Obligations, in such order as Lender may determine; and
(iii) SURPLUS. Any surplus, to the Person or Persons legally
entitled thereto.
ARTICLE IX
MISCELLANEOUS
9.1 RIGHTS, REMEDIES AND POWERS. Each and every right, remedy and
power granted to Lender hereunder shall be cumulative and in addition to any
other right, remedy or power not specifically granted herein or now or
hereafter existing in equity, at law, by virtue of statute or otherwise and
may be exercised by Lender from time to time concurrently or independently as
often and in such order as Lender may deem expedient. Any failure or delay on
the part of Lender in exercising any such right, remedy or power, or
abandonment or discontinuance of steps to enforce the same, shall not operate
as a waiver thereof or affect Lender's right thereafter to exercise the same,
and any single or partial exercise of any such right, remedy or power shall
not preclude any other or further exercise thereof or the exercise of any
other right, remedy or power. Acceptance of payments in arrears shall not
waive or affect any right to accelerate Borrower's Obligations.
9.2 MODIFICATIONS, WAIVERS AND CONSENTS. Any modification or
waiver of any provision of this Agreement, or any consent to any departure by
Borrower therefrom, shall not be effective in any event unless the same is in
writing and signed by Lender, and then such modification, waiver or consent
shall be effective only in the specific instance and for the specific purpose
given. Any notice to or demand on Borrower in any event not specifically
required of Lender hereunder shall not
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entitle Borrower to any other or further notice or demand in the same,
similar or other circumstances unless specifically required hereunder.
9.3 COMMUNICATIONS. All notices, consents, approvals and other
communications under the Loan Documents shall be in writing and shall be (i)
delivered in person, (ii) sent by telephonic facsimile ("FAX") or (iii)
mailed, postage prepaid, either by (A) registered or certified mail, return
receipt requested, or (B) overnight express carrier, addressed in each case
as follows:
To Lender: Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attn: Group President - Heller Sales Finance, LPF
FAX No.: (312) 928-8747
Borrower: PDS Financial Corporation
Attention: Johan Finley, CEO and President
6171 McLeod Drive
Las Vegas, Nevada 89120
FAX No.: (702) 740-8692
with a copy to: Dorsey & Whitney, LLP
Attention: Paula S. Rindels, Esq.
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402
FAX No.: (612) 340-2644
Vargas & Bartlett
Attention: Mike Alonso, Esq.
201 W. Liberty Street
P.O. Box 281
Reno, Nevada 89504
FAX No.: (702) 786-1177
or to such other address, as to either of the parties hereto, as such party
shall designate in a written notice to the other party hereto. All notices
sent pursuant to the terms of this Section 9.3 shall be deemed received (i)
if sent by FAX during regular business hours, on the day sent if a Business
Day, or if such day is not a Business Day (or a Business Day after regular
business hours), then on the next Business Day, (ii) if sent by overnight,
express carrier, on the next Business Day immediately following the day sent,
or (iii) if sent by registered or certified mail, on the fifth Business Day
following the day sent.
9.4 SEVERABILITY. If any provision of this Agreement is prohibited
by, or is unlawful or unenforceable under, any applicable law of any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective
to the extent of such prohibition without invalidating the remaining
provisions hereof; provided, however, that where the provisions of any such
applicable law may be waived, they hereby are waived by Borrower to the full
extent permitted by law so that this Agreement shall be deemed to be an
agreement which is valid and binding in accordance with its terms.
9.5 SURVIVAL. The warranties, representations, covenants and
agreements set forth herein shall survive the making of the Advances and the
execution and delivery of the Loan Documents and shall continue in full force
and effect until Borrower's Obligations have been paid and performed in full.
9.6 ATTORNEYS' FEES AND OTHER EXPENSES. Borrower agrees to pay to
Lender on demand any actual out-of-pocket costs or expenses, together with
reasonable attorneys' fees, incurred by Lender in connection with the
enforcement or collection against Borrower of any provision of any of the
Loan Documents, whether or not suit is instituted, including, but
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not limited to, such actual costs or expenses arising from the enforcement or
collection against Borrower of any provision of any of the Loan Documents in
any state or Federal bankruptcy or reorganization proceeding. In addition, in
the event that Borrower elects to submit a Contract Funding Request
containing one or more Contracts which have deviations from the standard form
approved by Lender and attached to this Agreement as part of SCHEDULE 4.1.2,
Lender reserves the right to charge a reasonable fee, based on a rate of
$125.00 per hour, as an offset against the related Advance, for its internal
counsel to review such Contract(s).
9.7 INDEMNITY. Borrower agrees to indemnify and save Lender and
its successors, assigns, agents and servants harmless of and from any claims,
actions, suits, losses, costs, liabilities, damages or expenses (including
actual expenses and reasonable attorneys' fees) incurred by Lender in
connection with the transactions contemplated by this Agreement, including
without limitation: (i) any loss, cost, liability, damage or expense
(including actual expenses and reasonable attorneys' fees) incurred in
connection with the Facility Contracts; (ii) the delivery, ownership,
alteration, operation, maintenance, return or other disposition of the
Collateral, including, without limitation, disposition and/or remarketing
pursuant to the Gaming Device Goods remarketing agreement referenced in
Section 4.2.3.2(b); (iii) from any documentation deficiencies or changes to
the basic format of the Facility Contract; (iv) from the existence of any
party having an interest, lien or claim in the Facility Contract(s), and/or
the Facility Equipment covered thereby, and/or the proceeds thereof, which
interest, lien or claim is prior to the interest therein assigned to Lender
hereby; (v) the construction of Lender and Borrower as having the
relationship of joint venturers or partners, or (vi) the determination that
Lender or Borrower has acted as agent for the other. Borrower's obligations
with respect to the indemnity set forth in this Section 9.7 shall survive
repayment of all amounts due pursuant to the Loan Documents, the cancellation
of the Notes and the release and/or cancellation of any and all of the Loan
Documents. Lender agrees to promptly notify Borrower of any matters in
respect of which this indemnity may apply. If notified in writing of any
action or claim brought or threatened against Lender based on a claim for
which Borrower is to provide indemnity and given full authority, information,
and assistance for the defense of same by Lender, Borrower shall, without
limitation, defend those actions or claims at its expense and pay the costs
and damages and attorneys' fees awarded in any such action or arising from
any such claim, provided that Borrower shall have the right to control the
defense and settlement of all such actions and claims. Lender will take all
such actions (at the expense of Borrower) as may be reasonably requested by
Borrower to assist Borrower in connection with such defense or settlement.
Nothing herein is intended to indemnify Lender for consequences of its
actions or failure to act.
9.8 BINDING EFFECT. This Agreement shall be binding upon the
successors and assigns of Borrower and shall inure to the benefit of the
successors and assigns of Lender.
9.9 ASSIGNMENTS; PARTICIPATIONS. Lender shall be entitled to sell,
securitize, assign or transfer any portion of its interest in the Facility;
provided, however, Lender hereby agrees to deliver to Borrower notice of such
proposed sale, securitization, assignment or transfer not less than 30 days
prior to the proposed date for the consummation thereof, which notice shall
include, if available, a description of the financial institution(s) to which
such sale, securitization, assignment or transfer is proposed to be made. In
connection with any such sale, securitization, assignment or transfer, Lender
may disclose such information with respect to Borrower, its business and
financial affairs and the Facility as Lender reasonably deems necessary,
unless any such information which has been provided by Borrower to Lender is
confidential in nature, in which case such confidential information shall not
be disclosed without the prior written consent of Borrower, which consent
shall not unreasonably be withheld or delayed.
9.10 FURTHER ASSURANCES. Each of Borrower and Lender agrees that upon
the request of the other party hereto at any time and from time to time after
the execution of this Agreement it shall execute and deliver such further
instructions, documents, and certificates and take such further actions as such
party reasonably may request.
9.11 GOVERNING LAW, CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
EXCEPT WITH RESPECT TO ENFORCEMENT OF SECURITY INTERESTS IN GAMING DEVICE
GOODS (WHICH SHALL BE GOVERNED BY THE STATE IN WHICH SUCH GAMING DEVICE GOODS
ARE SITUATED), THIS AGREEMENT, EACH OF THE OTHER LOAN DOCUMENTS, AND ANY
ASSIGNMENT EXECUTED IN CONNECTION THEREWITH SHALL BE A CONTRACT MADE UNDER
AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS
MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF ILLINOIS. BORROWER DOES
HEREBY SUBMIT, AT LENDER'S ELECTION, TO THE EXCLUSIVE JURISDICTION AND VENUE
OF ANY COURTS (FEDERAL, STATE OR LOCAL) HAVING A SITUS WITHIN THE
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COUNTY OF COOK AND THE STATE OF ILLINOIS WITH RESPECT TO ANY DISPUTE, CLAIM,
OR SUIT, WHETHER DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR ANY RELATED NOTE OR ANY OF BORROWER'S OBLIGATIONS OR
INDEBTEDNESS HEREUNDER. BORROWER EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE
LAST KNOWN ADDRESS OF BORROWER, WHICH SERVICE SHALL BE DEEMED COMPLETED
WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF. BORROWER HEREBY
IRREVOCABLY WAIVES ANY CLAIM THAT THE COUNTY OF COOK, STATE OF ILLINOIS IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE AS WELL AS ANY
RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH ACTION OR PROCEEDING,
ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS OF FORUM NON CONVENIENS OR
OTHERWISE. THE EXCLUSIVE CHOICE OF FORUM SET FORTH HEREIN SHALL NOT BE DEEMED
TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM
OR THE TAKING OF ANY ACTION BY LENDER TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION.
9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
THIS WAIVER IS INTENDED TO BE EFFECTIVE WITH RESPECT TO ALL DISPUTES WHICH
ARISE OUT OF ANY OF THE LOAN DOCUMENTS OR PERTAIN TO THE TRANSACTIONS
CONTEMPLATED THEREBY. THIS WAIVER IS IRREVOCABLE, AND MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND SUCH WAIVER SET FORTH HEREIN SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.13 NON-RECOURSE FACILITY. At Lender's discretion, from time to
time Lender may consider the financing of individual Eligible Contracts on a
non-recourse basis, PROVIDED, HOWEVER, that at no time shall the sum of:
(i) the Loan Repayment Amount with respect to the Non-Recourse
Facility, and
(ii) any amounts outstanding under that certain Limited Recourse
Promissory Note dated August 27, 1997 executed by Borrower
in Lender's favor, in the original principal amount of
$9,477,427.68,
exceed Fifteen Million Dollars ($15,000,000). In the event that Lender elects
to make an Advance with respect to such Contracts, all of the provisions of
this Agreement with respect to the Facility and Advances thereunder shall
apply to such non-recourse Advances (including, without limitation, all of
the conditions, representations, warranties and covenants set forth in
Articles III, IV, V, VI and VII hereof, Borrower's servicing obligations, and
all of the definitions applicable to Non-Recourse Facility Advances), with
the specific exception of the following, which shall control in the event of
any conflict:
9.13.1 NON-RECOURSE NOTE. In conjunction with each
non-recourse Advance, the form of Non-Recourse Note set forth in Exhibit
G1 ("Non-Recourse Note") shall be utilized.
9.13.3 BORROWER'S LIABILITY. Anything in this Agreement or any
exhibits hereto, any certificate, opinion or documents of any nature
whatsoever to the contrary notwithstanding, neither Lender nor its
successors or assigns shall have any claim, remedy or right to proceed
(at law or in equity) against Borrower or any incorporator, shareholder,
director, officer, or employee of Borrower for the payment of any
deficiency or any other sum owing on account of the indebtedness
evidenced by any Non-Recourse Note or for the payment of any liability
of any nature whatsoever with respect to any Non-Recourse Note,
Non-Recourse Facility Contract or Non-Recourse Facility Equipment or any
obligations of Borrower under this Agreement with respect to any
Non-Recourse Note, Non-Recourse Facility Contract or Non-Recourse
Facility Equipment (EXCEPT THAT LENDER SHALL NOT BE PROHIBITED FROM
ASSERTING A CLAIM AGAINST BORROWER PERSONALLY WHICH CLAIM IS FOR ACTUAL
DAMAGES DIRECTLY RESULTING FROM THE BORROWER'S FAILURE TO REMIT ANY
CONTRACT PROCEEDS TO LENDER, OR THE OTHER BORROWER EVENTS OF DEFAULT
DESCRIBED IN SUBSECTIONS (b) AND (c) OF SECTION 8.1), from any source
other than the Collateral pertaining to such Non-Recourse Facility
Contract, including the sums due and to become due under any
Non-Recourse Facility Contract; and Lender by acceptance of a
Non-Recourse Note waives and releases any liability of Borrower for and
on account of such indebtedness or such liability, EXCEPT AS PROVIDED
ABOVE, and Lender, its successors and assigns and the holders of any
Non-Recourse Note agree to look either to the End-User pertaining to
such Non-Recourse Facility Contract or to the Collateral pertaining to
such Non-Recourse Facility Contract,
27
<PAGE>
including the sums due and to become due under such Non-Recourse
Facility Contract for the payment of said indebtedness or the
satisfaction of such liability.
9.13.4 AGGREGATE TO TOTAL FACILITY. No Advances made
pursuant to this Section 9.13 shall aggregate towards the maximum
available amounts under any other Facility hereunder.
9.13.5 ADDITIONAL ELIGIBILITY CRITERIA. Solely with
respect to the Non-Recourse Facility, (i) the Eligible Contract
criteria/definition shall additionally include a requirement that the
related End-User has been notified of, and has acknowledged, the
collateral assignment of such Contract to Lender, and (ii) Native
American End-Users shall not be considered Eligible End-Users.
This Agreement has been executed and delivered by each of the parties hereto by
a duly authorized officer of each such party on the date first set forth above.
HELLER FINANCIAL, INC. PDS FINANCIAL CORPORATION
By: /s/ By: /s/ Johan Finley
___________________________ ___________________________
Johan Finley
Title: Senior Vice President Title: CEO and President
28
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement is entered into as
of October 28, 1998 between PDS FINANCIAL CORPORATION - NEVADA ("Borrower"),
a Nevada corporation, having its principal place of business at 6171 McLeod
Drive, Las Vegas, Nevada 89120, and HELLER FINANCIAL, INC., a Delaware
corporation ("Lender").
WHEREAS, Borrower and Lender have heretofore entered into a Loan and
Security Agreement dated as of June 20, 1997 (the "Original Loan Agreement");
and
WHEREAS, Borrower and Lender desire to amend said Original Loan
Agreement by amending and restating it in its entirety;
NOW, THEREFORE, in consideration of the parties' mutual undertakings,
hereby evidenced, and for other good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that the
provisions of the Original Loan Agreement are hereby amended and restated, so
as to be and read in their collective entirety as follows:
PRELIMINARY STATEMENT:
Lender understands that Borrower is engaged in the sale or lease of
various Eligible Equipment (this and all other capitalized terms are defined
in Section 1.1 below), and that Borrower may from time to time offer to
Lender the opportunity to finance leases, installment sale contracts and
other chattel paper arising out of such business. This Agreement sets forth
the terms and conditions which will be applicable to any leases, installment
sale contracts and other chattel paper that Lender may, in its sole
discretion, elect to finance under an ongoing lease discounting facility, a
residual financing facility, and/or a non-recourse facility.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement and in the other Loan
Documents, unless otherwise expressly indicated herein or therein, the
following terms shall have the following meanings (such definitions to be
applicable both to the singular and plural terms defined):
AAA: American Appraisal Associates.
ACH: Automated Clearing House.
ACQUISITION COST: all costs and expenses incurred by an End-User
(in the case of installment/conditional sales contracts) or by Borrower
(in the case of any Leases with Borrower as lessor) in connection with
the acquisition of any Eligible Equipment, including, without
limitation, sales or use taxes, freight or installation costs, and
license fees, but excluding any deposits (including security deposits)
or down/advance payments made by End-User, or manufacturer's discounts.
ADVANCE: a loan which is part of the Facility.
AFFILIATE: any Person that directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common
control with another Person. The term "control" means possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership
of voting securities, by contract or otherwise. For the purposes hereof,
any Person which owns or controls, directly or indirectly, 51% or more
of the securities of another Person shall be deemed to "control" such
Person.
AGREEMENT or LOAN AND SECURITY AGREEMENT: this Amended and
Restated Loan and Security Agreement, as amended or supplemented at any
time.
AMORTIZATION SCHEDULE: a schedule approved by Lender for the
repayment of each Advance.
APPROVED CONTRACT TERM: without the prior written approval of
Lender, a period of time not less than 24 months and not more than 48
months.
<PAGE>
ASSIGNMENT: an assignment of Contracts and Liens in the form of
EXHIBIT A executed by Borrower from time to time in favor of Lender in
conjunction with each Advance.
BANK: First Bank National Association.
BLOCKED ACCOUNT: the account at the Bank subject to the Blocked
Account Agreement, to which ACH payments from certain End-Users through
the Bank's EFT service are directed.
BLOCKED ACCOUNT AGREEMENT: the arrangement between Lender,
Borrower and the Bank in the form of EXHIBIT J, covering ACH billing of
payments from certain End-Users using the Bank's EFT service, directed
to the Blocked Account.
BORROWER LIEN: a Lien on Collateral granted by an End-User to
Borrower, which Lien has been assigned by Borrower to Lender pursuant to
an Assignment.
BORROWER'S OBLIGATIONS: (i) all liabilities, obligations and
covenants imposed upon Borrower pursuant to the terms of the Loan
Documents, and (ii) all costs of litigation, collection, reasonable
attorneys' fees and other costs expended or incurred in connection with
the enforcement of Lender's rights hereunder and with respect to the
Contracts and the Facility Equipment.
BUSINESS DAY: any day other than (i) a Saturday, (ii) Sunday or
(iii) other day on which The First National Bank of Chicago, Chicago,
Illinois is closed.
CASUALTY: an event in which any item of Facility Equipment or any
portion thereof is lost, damaged (and such damage cannot reasonably be
repaired by Borrower or an End-User of such Facility Equipment within 60
days), destroyed, stolen, confiscated, requisitioned or condemned
regardless of cause.
CASUALTY PAYMENTS: all proceeds of the Collateral which arise out
of any Casualty, including, without limitation, insurance claims, tort
claims, or reimbursement payments with respect to claims for indemnity.
CERTIFICATE OF ACCEPTANCE: a certificate of delivery and
acceptance executed by an End-User pursuant to a Contract with respect
to Facility Equipment, substantially in the form included in SCHEDULE
4.1.2.
CLOSING: the execution by Borrower and Lender of the Loan
Documents.
CLOSING CERTIFICATE: a certificate in the form of EXHIBIT C
executed by a Responsible Officer on behalf of Borrower.
CLOSING DATE: the date upon or as of which the Closing occurs.
COLLATERAL: the Property described in Section 3.2.
CONTRACT: (i) a lease of Eligible Equipment by and between
Borrower, as lessor, and an End-User, as lessee, or (ii) a note and
security agreement/conditional sale contract by and between Borrower, as
secured party, and an End-User, as debtor.
CONTRACT EVENT OF DEFAULT: the Event of Default described in
Section 8.3.1.
CONTRACT FUNDING REQUEST: a request for an Advance in the form of
EXHIBIT E delivered by Borrower to Lender, with all attachments as
specified therein.
CONTRACT PAYMENT LETTER: a letter in the form of EXHIBIT F.
CONTRACT PROCEEDS: funds received by Borrower with respect to any
Facility Contract or any Facility Equipment which is the subject of a
Facility Contract.
DEFAULT RATE: an annual rate equal to 2% plus the Facility Rate,
as applicable.
DEFAULT RATE PERIOD: a period of time commencing on the date that
Lender declares in writing to Borrower that a Borrower Event of Default
has occurred and that the Default Rate is applicable and ending on the
date that such Borrower Event of Default is cured or waived.
DISBURSEMENT DATE: any date on or after the Closing Date upon
which the proceeds of any Advance are disbursed.
EFT: Electronic Funds Transfer.
ELIGIBLE CONTRACT: a Contract (i) as to which the applicable
Facility Funding Amount will not exceed the sum of $2,000,000.00 nor be
less than $250,000.00 without the prior written approval of Lender, (ii)
which conforms to Lender's credit underwriting standards, and (iii)
meets all of the requirements set forth in Section 5.9 and all
<PAGE>
subsections thereunder, and (iv) which is in all other respects
acceptable to Lender.
ELIGIBLE END-USER: an End-User (i) which is not in bankruptcy or
receivership or subject to a reorganization proceeding of any kind or
insolvent, (ii) which is not in default or breach under any of the terms
of the applicable Contract, and (iii) which, pursuant to underwriting
standards jointly agreed upon in writing between Borrower and Lender, is
a financially responsible and creditworthy commercial, Native American
or institutional entity (other than a Governmental Body), PROVIDED,
HOWEVER, that unless otherwise approved by Lender, Native American
End-Users shall not be considered Eligible End-Users under the
Non-Recourse Facility.
ELIGIBLE EQUIPMENT: gaming or other equipment (i) which is new or
used, (ii) which is in good condition, repair and working order, (iii)
which is insured in the manner provided in the applicable Contract, (iv)
(A) which is owned by Borrower free and clear of all Liens except a
Lender Lien, or (B) in which the End-User thereof has granted Borrower a
security interest free and clear of all Liens except Permitted Liens,
(v) which is located within the continental United States, (vi) which is
subject to an Eligible Contract, and (vii) which is otherwise approved
by Lender; PROVIDED, HOWEVER, that under the Residual Financing
Facility, new slot machines shall be considered an additional Eligible
Equipment criterion.
END-USER: the end-user under a Contract.
EQUIPMENT: equipment which has been approved by Lender, free and
clear of all liens and encumbrances, together with all substitutions and
replacements for such equipment, and all accessories, attachments,
parts, upgrades, features and peripheral equipment now or hereafter
attached to or used in connection therewith.
ESTIMATED RESIDUAL: as reflected on the Amortization Schedule to
each Promissory Note executed in conjunction with the Residual Financing
Facility, Borrower's estimated value, as of the end of the related
primary Contract term, of Facility Equipment.
EVENT OF DEFAULT: any Borrower Event of Default or Contract Event
of Default.
EVIDENCE OF INSURANCE: either (i) an original certificate of
insurance, (ii) documentation sufficient to establish coverage under a
previously approved policy of Borrower, or (iii) if approved in writing
by Lender, evidence of self-insurance by an End-User under a Facility
Contract.
FACILITY: the Advances which may be made by Lender to Borrower
under the Lease Discounting Facility, the Residual Financing Facility
and/or the Non-Recourse Facility, all pursuant to Article II and Section
4.2.
FACILITY CONTRACT: an Eligible Contract which is subject to an
Advance, along with all applicable related documentation. For the
purposes of this Agreement, all references to a schedule under a
Facility Contract shall be deemed to incorporate the terms and
conditions of the related master Lease.
FACILITY EQUIPMENT: any Eligible Equipment which is the subject
of a Facility Contract.
FACILITY FUNDING AMOUNT: with respect to Advances made on or
after October 28, 1998:
(i) with respect to each Eligible Contract which is proposed to be
made the subject of an Advance under the Lease Discounting
Facility or the Non-Recourse Facility, the lesser of:
(A) the Acquisition Cost for each item of Facility Equipment, or
(B) the present value of all assigned periodic payments due
thereunder for the Approved Contract Term of each such
Facility Contract, using a discount rate to determine such
present value equal to the Facility Rate;
(ii) with respect to each Eligible Contract which is proposed to
be made the subject of an Advance under the Residual Financing
Facility, the lesser of:
(A) the difference between
(I) the present value of all assigned periodic payments due
thereunder for the Approved Contract Term of each such
Facility Contract, using a discount rate to determine
such present value equal to the Facility Rate, and
(II) the Acquisition Cost for the related items of Eligible
Equipment; or
(B) with respect to Eligible Contracts deemed "Core Credits" by
Lender, fifteen percent (15%) of the related Eligible
Equipment Acquisition Cost; with respect to Eligible
Contracts deemed "High
<PAGE>
Quality Credits" by Lender, thirty percent (30%) of the
related Eligible Equipment Acquisition Cost.
With respect to Advances made prior to October 28, 1998, the principal
amount set forth in the applicable Facility Note.
FACILITY NOTE: a full recourse promissory note in the form of
EXHIBIT G or a non-recourse promissory note in the form of EXHIBIT G1,
as applicable, executed by Borrower in favor of Lender in conjunction
with each Advance.
FACILITY RATE: unless otherwise agreed to in writing by and
between Lender and Borrower with respect to a particular Advance,
(i) with respect to each Lease Discounting Facility Advance made on
or after October 28, 1998, for the group of Eligible Contracts
deemed "High Quality" by Lender, a fixed per annum interest rate
equal to the sum of (A) 1.90%; PLUS (B) the all-in rate for a
maturity equal to the weighted average term of the Contracts
subject to the applicable Advance, as set forth in Lender's HFI
CAPITAL MARKETS INDICATIONS report for the week in which the
applicable Disbursement Date occurs;
(ii) with respect to (1) each Lease Discounting Facility Advance made
on or after October 28, 1998, for the group of Eligible Contracts
deemed "Core Quality" by Lender, and (2) each Residual Financing
Facility Advance made on or after October 28, 1998, a fixed per
annum interest rate equal to the sum of (A) 2.40%; PLUS (B) the
all-in rate for a maturity equal to the weighted average term of
the Contracts subject to the applicable Advance, as set forth in
Lender's HFI CAPITAL MARKETS INDICATIONS report for the week in
which the applicable Disbursement Date occurs;
(iii) with respect to each Advance made prior to October 28, 1998, as
reflected on the applicable Facility Note for each Advance; and
(iv) with respect to each Non-Recourse Facility Advance, a rate as
Lender shall determine in its sole discretion on a Eligible
Contract by Eligible Contract basis.
FULL RECOURSE FACILITY: the Lease Discounting Facility and/or the
Residual Financing Facility.
GAAP: generally accepted accounting principles as in effect from
time to time, which shall include the official interpretations thereof
by the Financial Accounting Standards Board, consistently applied.
GAMING AUTHORITIES: the governmental agencies and/or commissions
having jurisdiction over Borrower in the various states in which
Borrower does business.
GAMING LAWS: the statutes and regulations relating to gaming and
the operation of Gaming Device Goods promulgated by the various states
and Gaming Authorities in which Borrower does business.
GAMING DEVICE GOODS: Equipment consisting of electronic and
mechanical gaming devices with integral attachments.
GOOD FUNDS: United States dollars available to Lender in Federal
funds at or before 2:00 p.m. Chicago time on a Business Day.
GOVERNMENTAL BODY: any foreign, federal, state, municipal or
other government, or any department, commission, board, bureau, agency,
public authority or instrumentality thereof or any court or arbitrator.
GUARANTOR: PDS FINANCIAL CORPORATION
GUARANTY: the guaranty previously delivered by PDS FINANCIAL
CORPORATION in conjunction with the Original Loan Agreement, as amended,
supplemented or otherwise modified from time to time.
INCIPIENT DEFAULT: any event or condition which, with the giving
of notice or the lapse of time, or both, would become an Event of
Default.
INTANGIBLE COLLATERAL: as defined in Section 3.2(b).
LEASE: any lease agreement or master lease agreement pertaining
to Eligible Equipment between Borrower, as lessor and another Person, as
lessee.
LEASE DISCOUNTING FACILITY: the Lease Discounting Facility
described in SECTION 2.1.1.
LENDER LIEN: the Lien on the Collateral granted by Borrower to
Lender pursuant to Article III of this Agreement.
LIEN: any mortgage, deed of trust, hypothecation, pledge,
security interest, encumbrance, lien or charge of any kind
<PAGE>
(including any agreement to give any of the foregoing), any conditional
sale or other title retention agreement or any lease in the nature of
any of the foregoing.
LOAN DOCUMENTS: this Agreement, the Notes, Guaranty, the
Assignments, the Contract Funding Requests, the Closing Certificate, UCC
financing statements, and all other documents, instruments, and
certificates executed by Borrower pursuant to this Agreement.
LOAN REPAYMENT AMOUNT: with respect to an Advance at any time,
the aggregate unpaid principal of, and accrued interest (including any
interest accrued at the Default Rate) computed in accordance with the
Simple Interest Method, on such Advance.
LOCKBOX: the arrangement with the Bank, who will act as the agent
for collection of all remittances and proceeds due to Borrower from
End-Users subject to Facility Contracts, and which shall be identified
as follows:
PDS Financial Corporation - Nevada
_________________________
LOCKBOX AGREEMENT: the agreement among Borrower, Guarantor,
Lender and Bank, substantially in the form attached hereto as EXHIBIT D,
which shall set forth the terms, conditions and provisions of the
Lockbox.
NATIVE AMERICAN: pertaining to any Indian tribe or
instrumentality or entity thereof covered by the Indian Gaming
Regulatory Act (IGRA), 25 U.S.C. Sections 2701-2721, or any similar
successor legislation.
NON-RECOURSE FACILITY: the Non-Recourse Facility set forth in
SECTION 9.13 hereof.
NOTES: the Facility Note executed in conjunction with each
Advance.
ORDINARY PREPAYMENT PREMIUM: (i) Five Percent (5%) of the amount
prepaid if prepaid prior to the first anniversary of the related
Disbursement Date, (ii) Four Percent (4%) of the amount prepaid if
prepaid after the first anniversary to the second anniversary of the
related Disbursement Date, (iii) Three Percent (3%) of the amount
prepaid if prepaid after the second anniversary to the third anniversary
of the related Disbursement Date; and (iv) Two Percent (2%) of the
amount prepaid if prepaid after the third anniversary of the related
Disbursement Date.
PDS LOAN AGREEMENT: that certain Amended and Restated Loan and
Security Agreement dated as of October 28, 1998 by and between Lender
and PDS FINANCIAL CORPORATION, as amended from time to time.
PERMITTED LIENS: any of the following Liens: (i) the Lender Lien;
(ii) the Contracts; (iii) any Borrower Lien; (iv) any Liens expressly
subordinate to (i), (ii) and/or (iii) above; and (v) Liens for taxes or
assessments and similar charges, which either are (A) not delinquent or
(B) being contested diligently and in good faith by appropriate
proceedings, and as to which Borrower has set aside adequate reserves on
its books.
PERMITTED SUBSTITUTION: the substitution by Borrower of an
Eligible Contract for a Facility Contract, in accordance with the
provisions of Section 3.3, using the form of Substitution Agreement set
forth in EXHIBIT M.
PERSON: any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party, Native American tribe or Governmental Body.
PROPERTY: all types of real, personal or mixed property and all
types of tangible or intangible property.
RATIFICATION OF GUARANTY: the ratification of Guaranty,
substantially in the form of Exhibit P attached hereto and incorporated
herein, to be delivered by PDS FINANCIAL CORPORATION in favor of Lender.
REPLACEMENT CONTRACT: a Facility Contract which is created by the
terminating of an existing Facility Contract and financing a portion of
the Eligible Equipment on a new Facility Contract with the same End-User
or an End-User meeting equivalent credit criteria as determined by
Lender.
RESIDUAL FINANCE FACILITY: the Residual Finance Facility
described in SECTION 2.1.2.
RESIDUALS: all proceeds (net of refurbishment costs, if any)
derived from the Equipment as a result of (i) extended or renewal
Contract payments, (ii) exercised purchase options, and/or (iii) sale or
lease of the Equipment to third parties; PROVIDED, HOWEVER, that with
respect to such extended or renewal Contract payments, or third-party
lease proceeds, such proceeds (including any estimated fair market value
purchase option at end of the renewal period as reflected in the most
recent AAA report referred to in Section 6.4(v) hereof) shall be
discounted to present value using a discount rate equal to the Facility
Rate in effect at the time of such re-lease.
<PAGE>
RESPONSIBLE OFFICER: any of the Chairman, President, Treasurer,
Secretary or Vice President of Borrower.
SODAK: Sodak Gaming, Inc.
UCC: the Uniform Commercial Code.
1.2 TIME PERIODS. In this Agreement and the other Loan Documents, in
the computation of periods of time from a specified date to a later specified
date (i) the word "from" means "from and including," (ii) the words "to" and
"until" each mean "to, but excluding" and (iii) the words "through," "end of"
and "expiration" each mean "through and including." All references in this
Agreement and the other Loan Documents to "month," "quarter" or "year" shall
be deemed to refer to a calendar month, quarter or year.
1.3 ACCOUNTING TERMS. Unless otherwise specified in this Agreement, all
accounting terms used herein shall be construed, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered pursuant hereto shall be prepared in accordance with GAAP.
1.4 REFERENCES. All references in this Agreement to an "Article,"
"Section," "subsection," "subparagraph," "clause," "Schedule" or "Exhibit,"
unless otherwise indicated, shall be deemed to refer to an Article, Section,
subsection, subparagraph, clause, Schedule or Exhibit, as applicable, of or
to this Agreement.
1.5 LENDER'S DISCRETION. Whenever the terms "satisfactory to,"
"determined by," "acceptable to," "shall elect," "shall request," or similar
terms are used in this Agreement or any of the other Loan Documents to apply
to Lender, except as otherwise specifically provided herein or therein, such
terms shall mean satisfactory to, at the election of, determined by,
acceptable to, or requested by, Lender, in its sole, but reasonable,
discretion.
1.6 STATEMENTS AS TO KNOWLEDGE. Any statements, representations or
warranties which are based upon the best knowledge of Borrower shall be
deemed to have been made after due inquiry with respect to the matter in
question.
ARTICLE II
FACILITIES AND PAYMENT/PREPAYMENT TERMS
2.1 THE FACILITIES.
2.1.1 THE LEASE DISCOUNTING FACILITY. The Lease Discounting
Facility is one or more full recourse Advances made by Lender from time
to time at its sole discretion to fund Eligible Contracts, subject to
the provisions of Article II and Section 4.2. Notwithstanding anything
contained herein to the contrary, the maximum combined amount
outstanding under (i) the Lease Discounting Facility plus (ii) the Lease
Discounting Facility under the PDS Loan Agreement, plus (iii) the
Residual Financing Facility, plus (iv) the Residual Financing Facility
under the PDS Loan Agreement, at any one time shall not exceed Twenty
Five Million Dollars ($25,000,000.00).
2.1.2 THE RESIDUAL FINANCING FACILITY. The Residual Financing
Facility is one or more full recourse Advances made by Lender from time
to time at its sole discretion to fund Eligible Contracts, subject to
the provisions of Article II and Section 4.2. No Contract shall be
considered for an Advance under the Residual Financing Facility unless
it has already been approved for an Advance under the Lease Discounting
Facility. Notwithstanding anything contained herein to the contrary, the
maximum combined amount outstanding under (i) the Residual Financing
Facility plus (ii) the Residual Financing Facility under the PDS-Nevada
Loan Agreement, at any one time, shall not exceed Five Million Dollars
($5,000,000.00).
2.1.3 THE NON-RECOURSE FACILITY. The Non-Recourse Facility
shall be as described in SECTION 9.13.
2.2 VOLUNTARY TERMINATION OF FACILITY. Upon not less than sixty (60)
days' prior notice, either party may notify the other of its intention not to
seek/provide any further financing hereunder; PROVIDED, however, that
notwithstanding the foregoing, all of Borrower's Obligations shall survive
any expiration or termination of this Agreement and/or the termination of any
Facility Contract.
<PAGE>
2.3 INTEREST RATE, COMPUTATION. Each Advance shall be indicated by a
Facility Note in the form of Exhibit G or G1, as applicable, which shall bear
interest at the Facility Rate noted thereon, which shall be computed on the
basis of a year consisting of 360 days and charged for the actual number of
days during the period for which interest is being charged.
2.4 SERVICING AND PAYMENTS. Borrower, at its sole cost and expense,
shall be responsible for the billing and collecting of the payments due under
any Facility Contract(s). All non ACH billing with respect to Facility
Contracts shall be accomplished by separate invoices (i.e., not included in
invoices to the same End-User for rentals or other payments due under any
other agreement between Borrower and End-User), and shall direct the
End-Users to forward all Facility Contract remittances (including, but not
limited to rents, renewal rents and Casualty Payments) to the Lockbox, which
shall be subject to the Lockbox Agreement, and at the Bank. All ACH billing
shall utilize the Bank's EFT service, with such ACH proceeds directed to a
suitable Blocked Account at the Bank, and subject to the Blocked Account
Agreement. The fees and expenses of such Lockbox and ACH/EFT service shall be
payable by Borrower. If the underlying End-Users in an Advance have a single
due date, Borrower shall pay to Lender the amounts due under the related
Facility Contracts within 15 days from such due date, whether or not such
amounts have been remitted by the respective End-Users. If the underlying
End-Users in an Advance have a multiple due dates, Borrower shall pay to
Lender the amounts due under the related Facility Contracts by the 10th of
the following month, whether or not such amounts have been remitted by the
respective End-Users. All payments made pursuant to this subsection 2.4 shall
be applied FIRST, to any accrued and unpaid fees and expenses then owed by
Borrower to Lender; SECOND, to accrued and unpaid interest then due Lender
calculated at the Facility Rate through the last date of such immediately
preceding month, and THIRD, to principal due Lender on the applicable
Advances until paid in full. With the prior, written consent of Lender,
Borrower may elect to utilize Guarantor for the servicing responsibilities
set forth in the paragraph. In the event (i) Borrower fails to perform the
foregoing billing and collecting duties in a manner satisfactory to Lender in
its sole discretion, or (ii) of a Contract Event of Default which remains
uncured for more than ninety (90) days, then Lender may terminate Borrower's
authorization under this Section (in the event of a Contract Event of
Default, such termination shall only relate to the specific Contract in
default) and send notice of same to the Bank.
2.5 PREPAYMENT.
2.5.1 VOLUNTARY PREPAYMENT. No voluntary prepayment by Borrower
of any Advances shall be permitted; however, after the first anniversary
of the initial Disbursement Date, Borrower shall be permitted to prepay
any Advance (without liability for the Ordinary Prepayment Premium) in
the event the Loan Repayment Amount with respect thereto falls to less
than Five Percent (5%) of the original principal amount set forth in the
applicable Note.
2.5.2 MANDATORY PREPAYMENT.
2.5.2.1 TERMINATION OF CONTRACT. If an End-User voluntarily
terminates a Facility Contract before its scheduled expiration by
exercising an option to purchase the Facility Equipment, Borrower
shall prepay the associated Advance within ten (10) Business Days
of such termination by paying to Lender the sum of (i) the Loan
Repayment Amount with respect to such Advance, (ii) the
applicable Ordinary Prepayment Premium, and (iii) any Residuals
payable pursuant to Section 2.7. Notwithstanding the foregoing,
if Borrower elects to exercise its right of Permitted
Substitution with respect to such terminated Facility Contract,
no Ordinary Prepayment Premium shall be payable with respect
thereto.
2.5.2.2 CASUALTY. If any Equipment subject to an Advance is
lost or damaged, and cannot be repaired or replaced with
substantially similar Equipment by the first due date occurring
not less than thirty (30) days after such loss or damage,
Borrower shall prepay the associated Advance within ten (10)
Business Days thereafter by paying to Lender the Loan Repayment
Amount with respect to such Advance AND, to the extent Borrower
is able to collect sufficient proceeds from the insurance carrier
and/or the End-User, an amount to additionally reimburse Lender
for costs incident to breaking its corresponding debt, which
shall not exceed three percent (3%) of the principal amount
prepaid, and which shall be evidenced by a certificate prepared
by Lender showing, in reasonable detail, the calculation of such
costs. No Ordinary Prepayment Premium shall be payable in respect
to a mandatory prepayment made pursuant to this subsection.
2.5.2.3 CONTRACT EVENT OF DEFAULT. If Borrower prepays an
Advance pursuant to Section 8.3.3 with respect
<PAGE>
to a Contract Event of Default, no Ordinary Prepayment Premium
shall be payable by Borrower to Lender in connection with any
such prepayment, but Borrower shall continue to be liable to
Lender for any Residuals payable pursuant to Section 2.7.
2.5.2.4 EARLY TERMINATION WITHOUT END-USER BUYOUT. If a
Facility Contract is voluntarily terminated by a End-User prior
to the scheduled expiration, without the exercise of a purchase
option, Borrower shall prepay the associated Advance within
thirty (30) days of such event by paying to Lender the sum of:
(i) Loan Repayment Amount, (ii) the applicable Ordinary
Prepayment Premium, and (iii) any Residuals payable pursuant to
Section 2.7. Notwithstanding the foregoing, if Borrower elects to
exercise its right of Permitted Substitution with respect to such
terminated Facility Contract, no Ordinary Prepayment Premium
shall be payable with respect thereto.
2.5.2.5 UPGRADES AND ADDITIONS. Borrower may agree with an
End-User under a Facility Contract that certain Facility
Equipment subject thereto shall be upgraded or that additional
Eligible Equipment should be added, resulting in a new Facility
Contract or replacement Facility Contract, so long as (i) no
Event of Default shall have occurred or is continuing hereunder,
(ii) the End-User shall have sought and obtained Lender's prior,
written consent at the time of the upgrade, (iii) the End-User
shall be deemed to be a "High Quality Credit" by Lender in its
sole discretion, (iv) the Facility Contract in question contains
upgrade provisions pre-approved by Lender and acknowledged by
End-User at the inception thereof, (v) an upgrade under such
Facility Contract may take place no more often than once per
year, commencing with the first anniversary date of such Facility
Contract, (vi) a maximum of twenty five percent (25%) of the
Facility Equipment subject to such Facility Contract, calculated
using the Acquisition Cost thereof, is upgraded at any one time,
and (vii) the upgradeable Facility Equipment shall be limited to
new slot machines..
(a) AMENDMENT OF FACILITY CONTRACT SCHEDULE TO
INCORPORATE UPGRADES/ADDITIONS. If Borrower and such End-User
amend such Facility Contract to increase the payments payable
thereunder in consideration of such upgrade or addition,
Borrower may request that Lender finance the additional
Contract Proceeds arising under such amendment (the "Contract
Amendment") attributable to such increase in payments. Not
later than ten (10) Business Days after such request, Lender
shall give Borrower written advice as to whether Lender, in
its sole discretion, has elected to finance such additional
Contract Proceeds. If Lender fails to give such advice within
such ten (10) day period, Lender shall be deemed to have
declined to finance such additional Contract Proceeds and
shall so advise Borrower in writing. If Lender agrees to
finance such additional Contract Proceeds, Lender shall,
subject to satisfaction of the conditions precedent set forth
in Section 4.2, make an Advance in an amount as Lender shall
determine. The Disbursement Date with respect to such Advance
shall be a date agreed upon in writing by Lender and Borrower.
If Lender agrees to make such an Advance, the Contract
Amendment shall be considered a "Facility Contract" for all
purposes of this Agreement. If Borrower finances such upgrades
or additions through a source other than Lender and does not
prepay in accordance with this Section, Borrower covenants and
agrees that any security interest granted to a source other
than Lender shall not conflict with or prime Lender's security
interest.
(b) TERMINATION OF CONTRACT SCHEDULE/EXECUTION OF A
REPLACEMENT CONTRACT. If Borrower and such End-User agree that
the Equipment subject to a Facility Contract shall be
upgraded, and agree to terminate the related Facility Contract
and enter into a Replacement Contract schedule incorporating a
portion of the existing Equipment and the upgrade/additional
Equipment, Borrower shall offer Lender the right of first
refusal to finance the Replacement Contract. Not later than
ten (10) Business Days after such request, Lender shall give
Borrower written advice as to whether Lender, in its sole
discretion, has elected to finance such Replacement Contract.
If Lender fails to give such advice within such ten (10) day
period, Lender shall be deemed to have declined to finance
such additional Contract Proceeds and shall so advise Borrower
in writing. If Lender agrees to finance such Replacement
Contract, Borrower shall pay to Lender the Loan Repayment
Amount with respect to the existing Facility Contract, and
Lender shall, subject to satisfaction of the conditions
precedent set forth in Section 4.2, make an Advance in an
amount equal to the lesser of (i) the present value of all
payments due thereunder (with the exception of any
manufacturer's discounts, deposits (including security
deposits) or down/advance payments made by End-User) for the
Approved Contract Term of each such Facility Contract, using a
discount rate to determine such present value equal to the
Facility Rate, or (ii) the sum of (A) One Hundred percent
(100%) of the Acquisition Cost for each item of Facility
Equipment that was not previously
<PAGE>
subject to the existing Facility Contract and (B) the Loan
Repayment Amount with respect to the existing Facility
Contract. The Disbursement Date with respect to such Advance
shall be a date agreed upon in writing by Lender and Borrower.
If Lender agrees to make such an Advance, the Replacement
Contract shall be considered a "Facility Contract" for all
purposes of this Agreement.
If Lender elects not to finance a Replacement Contract
pursuant to this Section 2.5.2.5(b), Borrower shall, prior to
the next Facility Contract due date, pay the Loan Repayment
Amount with respect thereto. No Ordinary Prepayment Premium
shall be payable with respect thereto so long as Borrower has
fully complied with the requirements of this Section
2.5.2.5(b).
2.5.3 NO OTHER PREPAYMENTS PERMITTED. No Advance may be prepaid
except as otherwise expressly provided in this Agreement.
2.5.4 INVOLUNTARY PREPAYMENT. Any prepayment of the Advances
received by Lender resulting from the exercise by Lender of any remedy
available to Lender subsequent to the occurrence of a Borrower Event of
Default and the acceleration of Borrower's Obligations shall be deemed to
be a mandatory prepayment, and the applicable Ordinary Prepayment Premium
shall be payable with respect thereto.
2.6 CONTRACT EXTENSIONS OR END-USER BUYOUT FINANCING. If, at the end
of the Approved Contract Term an End-User elects to (i) extend the Contract,
or (ii) purchase the Facility Equipment subject thereto with financing
provided by Borrower, Borrower shall offer to Lender the right of first
refusal to finance such Contract extension or such end-of-term purchase
option. Not later than ten (10) Business Days after such request, Lender
shall give Borrower written advice as to whether Lender, in its sole
discretion, has elected to provide such financing. If Lender fails to give
such advice within such ten (10) day period, Lender shall be deemed to have
declined such financing and shall so advise Borrower in writing. If Lender
agrees to provide such financing, Lender and Borrower shall mutually agree
regarding the terms thereof. All Contract Proceeds received by Borrower and
forwarded to Lender hereunder shall be subject to Section 2.7.
2.7 RESIDUAL PAYMENTS. Lender shall be entitled to receive 100% of
the Residuals attributable to any Facility Contract until Lender shall have
recovered the balloon payment/Estimated Residual amount set forth in the
applicable Amortization Schedule (which Lender shall have full recourse to
Borrower).
2.8 LATE CHARGES; DEFAULT RATE. If any payment of principal or
interest to be made by Borrower to Lender under the Facility becomes past due
for a period of 10 days, Borrower shall pay to Lender on demand a late charge
of five percent (5%) of the amount of such overdue payment. In addition,
during a Default Rate Period, Borrower's Obligations pertaining to the
Facility shall bear interest at the Default Rate.
2.9 PAYMENT AFTER BORROWER EVENT OF DEFAULT. Upon the occurrence and
during the continuation of a Borrower Event of Default, all Contract Proceeds
pertaining to Facility Contracts and/or Facility Equipment shall be applied
by Lender in such manner as Lender shall determine.
2.10 MAXIMUM INTEREST. Notwithstanding any provision to the contrary
herein contained, Lender shall not collect a rate of interest on any
obligation or liability due and owing by Borrower to Lender in excess of the
maximum contract rate of interest permitted by applicable law. Lender and
Borrower have agreed that the interest laws of the state of Illinois shall
govern the relationship between them, but in the event of a final
adjudication to the contrary, NUNC PRO TUNC, Borrower shall be obligated to
pay to Lender only such interest as then shall be permitted by the applicable
laws of the state found to govern the contract relationship between Lender
and Borrower. All interest found in excess of that rate of interest allowed
and collected by Lender shall be applied to the Advances in such manner as to
prevent the payment and collection of interest in excess of the rate
permitted by applicable law.
2.11 METHOD OF PAYMENT; GOOD FUNDS. All payments which are to be made
by Borrower to Lender pursuant to the Loan Documents shall be made by wire
transfer to BANK OF AMERICA, 231 South LaSalle Street, Chicago, Illinois
60697; ABA #071000039, Heller Financial, Inc., Acct. #74-21753, Phone Advice
to Product Credit Manager -- Lease Portfolio Funding, Heller Sales Finance
and to Product Business Manager -- Lease Portfolio Funding, Heller Sales
Finance: 312-441-7914. Payment shall not be deemed to be received until
Lender is in receipt of Good Funds.
<PAGE>
ARTICLE III
NOTES; SECURITY INTEREST
3.1 NOTES. Borrower's Obligations described in clause (i) of the
definition of such term shall be evidenced by the Notes.
3.2 GRANT OF SECURITY INTEREST. As security for the payment and
performance of Borrower's Obligations, Borrower hereby grants to Lender, subject
to all mandatory provisions of law, including without limitation, the Gaming
Laws, a Lien in the following described collateral (the "Collateral"), such Lien
to be superior and prior to all other Liens other than Permitted Liens:
(a) FACILITY EQUIPMENT. All of Borrower's right, title and
interest (including any residual interest) in and to the Facility
Equipment.
(b) THE CONTRACTS. All chattel paper and Contracts pertaining to
any Facility Equipment, including, without limitation, all of Borrower's
right, title and interest in, to and under each Facility Contract relating
to each item of Facility Equipment and the right to receive all payments
thereunder (collectively, the "Intangible Collateral").
(c) LOCKBOX, LOCKBOX AGREEMENT, BLOCKED ACCOUNT AND BLOCKED
ACCOUNT AGREEMENT. The Lockbox, Lockbox Agreement, Blocked Account and
Blocked Account Agreement.
(d) BOOKS AND RECORDS. All of the books and records of Borrower
pertaining to the Property described in subparagraphs (a) - (c) above.
(e) PROCEEDS. All attachments, additions, accessions, upgrades,
accessories and replacements pertaining to the items described in
subparagraphs (a) through (d) above, as applicable, including all cash and
non-cash proceeds (including Casualty Payments and other insurance
proceeds) pertaining thereto.
Lender shall not be required to look to the Collateral for the payment of
Borrower's Obligations under the Full Recourse Facility, but may proceed against
Borrower in such manner as Lender deems desirable. All of the Collateral
assigned to Lender hereunder shall secure the payment and performance of all of
Borrower's Obligations, and whether now existing or in the future; provided,
however, that upon the payment and performance in full of all of Borrower's
Obligations with respect to a Facility Contract (or the exercise of a Permitted
Substitution with respect thereto), the Loan Documents applicable to such
Facility Contract and such Facility Equipment shall automatically terminate,
Lender shall execute and deliver to Borrower such UCC termination statements and
other instruments as may be necessary to release the applicable Lender Lien(s)
in the related Collateral, and shall return all items of chattel paper to
Borrower with respect thereto.
ALL ADVANCES HERETOFORE MADE PURSUANT TO, AND SECURED BY, THE ORIGINAL LOAN
AGREEMENT SHALL HEREAFTER BE SECURED HEREBY, AND THE SECURITY INTEREST GRANTED
HEREBY SHALL BE DEEMED TO BE A CONTINUATION OF AN EXISTING SECURITY INTEREST,
RATHER THAN A RELEASE OR TERMINATION AND GRANT OF A NEW SECURITY INTEREST.
3.3 SUBSTITUTION OF CONTRACTS. Within One Hundred Twenty (120) days
after a Contract Event of Default occurs, or immediately in the event of a
prepayment by an End-User with respect to a Facility Contract, or with the
prior, written agreement of Lender, in addition to any other remedy available
hereunder to Borrower with respect thereto, Borrower may substitute another
Eligible Contract for an existing Facility Contract ("Existing Facility
Contract"), provided (i) that Lender shall have the right to approve such
Eligible Contract at its sole discretion, (ii) that the present value
(determined using a discount rate which is equal to the Facility Rate which is
applicable to the Existing Facility Contract) of the payments remaining under
such Substitute Contract, is equal to or greater than the present value
(calculated as described above) of the remaining payments of such Existing
Facility Contract, including any payments which are past due under such Existing
Facility Contract; and (iii) that the number of payments remaining under such
Substitute Contract equals or exceeds the number of payments remaining under the
Existing Facility Contract. If such substitution occurs as a result of a
Contract Event of Default, such substitution shall be deemed to cure such
Contract Event of Default. As a
<PAGE>
precondition to any Permitted Substitution, Lender shall have the right to
verify the existence and terms of such Substitute Contract with the
applicable End-User.
ARTICLE IV
CONDITIONS OF CLOSING; ADVANCES
4.1 CONDITIONS OF CLOSING. The Closing shall not take place unless all
of the conditions set forth in this Section 4.1 have been satisfied in a manner,
form and substance satisfactory to Lender:
4.1.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the
representations and warranties of Borrower set forth in the Loan Documents
shall be true and correct in all material respects.
4.1.2 DELIVERY. The following shall have been delivered to Lender,
each duly authorized and/or executed, as applicable:
(a) the Agreement, with all Exhibits and Schedules; the
Ratification of Guaranty and the Closing Certificate;
(b) a certificate of the Secretary or an Assistant Secretary of
Borrower in the form of EXHIBIT H, with all attachments
noted therein;
(c) a certified copy of the forms of Contract used by Borrower,
to be attached to the Agreement as SCHEDULE 4.1.2;
(d) the Lockbox Agreement and the Blocked Account Agreement; and
(e) such additional instruments, documents, certificates,
consents, financing statements, waivers and opinions as
Lender reasonably may request, including, but not limited
to, a Trust Agreement substantially in the form of EXHIBIT N
hereto, in the event that Borrower will be retaining
possession of any original master leases comprising Facility
Contracts.
4.1.3 SECURITY INTERESTS. All UCC financing statements, including
UCC-1(s) naming Borrower as debtor and Lender as secured party to be filed
where applicable, using the collateral description substantially in the
form attached hereto as EXHIBIT B, shall have been filed and confirmation
thereof received by Lender.
4.1.4 OPINION OF COUNSEL. Lender shall have received (i) from
DORSEY & WHITNEY, LLP, counsel to Borrower, an updated opinion dated as of
the Closing Date, addressed to Lender, in substantially the form previously
furnished to Lender by Dorsey & Whitney, LLP in conjunction with the
Original Loan Agreement, and (ii) from external counsel jointly acceptable
to Borrower and Lender, opinions in form and content acceptable to Lender,
addressed to Lender, and covering Borrower's compliance with Gaming Laws
and Gaming Authorities in the states of Nevada, Indiana, New Jersey and
Mississippi, and covering the necessary procedures to be followed by Lender
with respect to the exercise of the remedies set forth in this Agreement.
4.1.5 PERFORMANCE; NO DEFAULT. Borrower shall have performed and
complied with all agreements and conditions contained in the Loan Documents
to be performed by or complied with prior to or at the Closing Date.
4.1.6 APPROVAL OF LOAN DOCUMENTS AND SECURITY INTERESTS. The
approval and/or consent shall have been obtained from all Governmental
Bodies, Gaming Authorities and all other Persons whose approval or consent
is necessary or required to enable Borrower to (i) enter into and perform
its obligations under the Loan Documents, (ii) grant to Lender the Lender
Lien and (iii) consummate the Advances.
4.1.7 MATERIAL ADVERSE CHANGE. Since the issuance of Borrower's
most recent fiscal year-end financial statements, no event shall have
occurred which has a material adverse effect on (i) the financial
condition, Property, business, operations, ownership, structure, prospects
or profits of Borrower, (ii) the ability of Borrower to perform
<PAGE>
its obligations under the Loan Documents, or (iii) the Collateral.
4.2 PROCEDURES FOR AND CONDITIONS TO ADVANCES
4.2.1 DISCRETIONARY BORROWING/LENDING. NOTWITHSTANDING THE OTHER
PROVISIONS OF THIS AGREEMENT, ADVANCES SHALL BE MADE ONLY WHEN BOTH (I)
BORROWER, IN ITS SOLE DISCRETION, DESIRES TO BORROW MONEY FROM LENDER, AND
(II) LENDER, IN ITS SOLE DISCRETION, DESIRES TO LOAN MONEY TO BORROWER; IT
BEING AGREED THAT THIS AGREEMENT SHALL NOT BE CONSTRUED AS IMPOSING ANY
DUTY ON BORROWER TO BORROW FROM LENDER, NOR ANY DUTY ON LENDER TO LOAN TO
BORROWER. IN CONSTRUING THE PURPOSE AND INTENT OF THIS AGREEMENT, THIS
SECTION 4.2.1 SHALL TAKE PRECEDENCE OVER ALL OTHER PROVISIONS.
4.2.2 PROCEDURE FOR ADVANCE(S). Subject to the satisfaction of the
terms and conditions set forth in this Section 4.2, on or after the Closing
Date Borrower may request Lender to disburse the proceeds of any Advance as
set forth by Borrower in the related Contract Funding Request. The Contract
Funding Request shall specify: (A) the date such Advance is to be made,
which shall be a Business Day not less than 5 Business Days after the
delivery to Lender of such Contract Funding Request, (B) the amount of
Advance, which shall not exceed the applicable Facility Funding Amount, and
without the written consent of Lender, be not less than $500,000.00, and
(C) the names of any unpaid vendors or suppliers of the Eligible Equipment
subject to the Contracts included in the Contract Funding Request, and the
amounts with respect thereto. Lender shall not be obligated to consider
making any Advance (i) if an Incipient Default or Event of Default exists
or will occur if the requested Advance is made, (ii) any more frequently
than twice each month under the Facility, (iii) with respect to any
Contract which Lender determines is not an Eligible Contract or for an
End-User which Lender determines is not an Eligible End-User; or (iv) if,
as a result of such Advance, any guideline set forth in SCHEDULE 4.2.2, as
jointly amended by Borrower and Lender from time to time, would be violated
as a result thereof.
4.2.3 CONDITIONS OF ADVANCES. Lender shall not be obligated to
consider making any Advance(s) on or after the Closing Date unless all of
the conditions set forth in this Section 4.2 have been satisfied in a
manner, form and substance satisfactory to Lender, including the following:
4.2.3.1 REPRESENTATIONS AND WARRANTIES. On the date of such
Advance, the representations and warranties of Borrower set forth
in the Loan Documents shall be true and correct in all material
respects. Lender shall have the right, as a precondition to any
Advance made more than one year after the Closing Date, to require
updated evidence of Borrower's and Borrower's officers' authority
to execute Advance documentation.
4.2.3.2 DELIVERY OF DOCUMENTS. In addition to the documents
previously delivered to Lender pursuant to Section 4.1, the
following shall have been delivered to Lender, each duly authorized
and executed:
(a) the Contract Funding Requests for the Advances to be
made, with all attachments noted therein;
(b) a Gaming Device Goods remarketing agreement in form and
content acceptable to Heller, from Sodak or
another Gaming Device Goods distributor acceptable
to Lender; and
(c) such additional instruments, documents, certificates,
consents, financing statements, waivers and
opinions as Lender reasonably may request,
including any opinions of outside counsel of the
type described in Section 4.1.4(ii) if the
Eligible Equipment subject to such Advance
pertains to a state for which an opinion has not
previously been furnished.
The requirement of the Gaming Device Goods remarketing agreement
set forth in Section 4.2.3.2 shall be waived for any Advance made
prior to sixty (60) days from the Closing Date so long as the
aggregate Loan Repayment Amount for all such Advances does not
exceed Twelve Million Dollars ($12,000,000.00); PROVIDED,
HOWEVER, that in the event Borrower fails to deliver to Lender
such Gaming Device Goods remarketing agreement by sixty (60) days
from the Closing Date, or in the event that such Gaming Device
<PAGE>
Goods remarketing agreement expires or is terminated by any party
thereto, and is not replaced with a similar agreement acceptable
to Heller within sixty (60) days from the effective date of such
termination or expiration, Lender shall have all or any of the
following options and/or remedies, in addition to its other
remedies set forth in this Agreement:
(a) immediately declare that no further Advances be made
hereunder or under the PDS Loan Agreement; and
(b) immediately require that Borrower make a Mandatory
Prepayment (including payment of the related
Ordinary Prepayment Premium) of any Facility
Contracts as to which Borrower has failed to
provide any required instruments, documents,
certificates, consents, financing statements,
waivers and opinions as set forth by Lender; and
(c) immediately require that Borrower make a Mandatory
Prepayment (including payment of the related
Ordinary Prepayment Premium) of one or more
Advances, in the inverse order of maturity, to the
extent necessary to reduce the aggregate Loan
Repayment Amount for all remaining Advances to Ten
Million Dollars ($10,000,000.00). Borrower's
obligation to make such Mandatory Prepayment shall
be in addition to Borrower's obligation pursuant
to Section 8.3.3 to continue to prepay Facility
Contracts as to which Contract Events of Default
have occurred.
4.2.3.3 SECURITY INTERESTS. All UCC financing statements,
including, but not limited to:
(a) in the case of Facility Contracts under which Borrower
is deemed by Lender to be the owner of the
Equipment, UCC-1(s) naming Borrower as debtor, and
Lender as secured party, to be filed where the
Equipment is located and at Borrower's principal
place of business,
(b) UCC-1(s) naming End-User as debtor or lessee, and
Borrower as secured party or lessor, to be filed
in the state(s) where the Equipment is located,
(c) In the event that Lender has not been named as assignee
on the UCC-1(s) referred to in
subsection 4.2.3.3(b), UCC-3(s), as required,
naming Lender as assignee to be filed in the
jurisdiction(s) where the UCC-1(s) referred to in
subsection 4.2.3.3(b) are filed, and
(d) all other filings and actions necessary to perfect and
maintain the Lender Lien as a valid and perfected
Lien in the Collateral,
shall have been filed and confirmation thereof received by
Lender.
4.2.3.4 CONFIRMATION WITH END-USERS AND VENDORS. Lender or
its agents, at Lender's discretion, shall have verified with all
End-Users the existence and terms of the related Facility Contract,
the delivery of the Facility Equipment, and shall have verified that
the vendors and/or Facility Equipment suppliers have been paid,
PROVIDED, HOWEVER, that at Lender's discretion, Lender shall have
the option to require the foregoing proof of payment subsequent to
the Disbursement Date of an Advance.
4.2.3.5 NO MATERIAL OMISSION ITEMS ON PREVIOUS ADVANCES. All
material missing and/or incomplete items to be furnished by
Borrower with respect to previous Advances shall have been
completed to Lender's reasonable satisfaction.
4.2.3.6 ADDITIONAL CONDITIONS. Borrower shall have re-satisfied
the conditions set forth in Sections 4.1.5 (PERFORMANCE; NO
DEFAULT), 4.1.6 (APPROVAL OF LOAN DOCUMENTS AND SECURITY
INTERESTS), and 4.1.7 (MATERIAL ADVERSE CHANGE) with respect to the
requested Advance(s).
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender as follows:
5.1 ORGANIZATION, POWER, AUTHORITY, ETC. Borrower (i) is duly
organized, validly existing and in good standing under the laws of the state of
Nevada, (ii) is qualified to do business in every jurisdiction in which the
character of the Property owned or leased by it or the business conducted by it
makes such qualification necessary and the failure to so qualify would
permanently preclude Borrower from enforcing its rights with respect to any
Facility Contract or Facility Equipment or would expose Borrower to any material
loss or liability, (iii) has the power and authority to carry on its business,
(iv) has the power and authority to execute and perform this Agreement and the
other Loan Documents, and (v) has duly authorized the execution, delivery and
performance of this Agreement and the other Loan Documents.
5.2 VALIDITY, ETC., OF LOAN DOCUMENTS. This Agreement and the other
Loan Documents constitute the legal, valid and binding obligations of Borrower
and are enforceable against Borrower in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by equitable principles (whether or not any
action to enforce such document is brought at law or in equity). The execution,
delivery and performance of the Loan Documents by Borrower (i) has not violated
and will not violate any provision of law, any order of any Governmental Body,
or the Certificate of Incorporation or Bylaws of Borrower (or the equivalent of
the foregoing if Borrower is not a corporation), or any indenture, agreement or
other instrument to which Borrower is a party, (ii) is not in conflict with,
will not result in a breach of or, with the giving of notice, or the passage of
time, or both, will not constitute a default under any such indenture, agreement
or other instrument, and (iii) will not result in the creation or imposition of
any Lien of any nature whatsoever upon any of the Property of Borrower, except
for Permitted Liens.
5.3 OTHER AGREEMENTS. Borrower is not a party to any agreement or
instrument materially adversely affecting its present or proposed business,
properties, or assets, and Borrower is not in default in the performance,
observance or fulfillment of any material obligation, covenant or condition set
forth in any agreement or instrument to which it is a party, which default would
have a material adverse effect on the ability of Borrower to consummate any of
the transactions contemplated by the Loan Documents or to perform any of its
obligations under any of the Loan Documents.
5.4 PRINCIPAL PLACE OF BUSINESS. The principal place of business of
Borrower and its chief executive office are at 6171 McLeod Drive, Las Vegas,
Nevada 89120. Borrower has not done business under any name other than PDS
FINANCIAL CORPORATION - NEVADA.
5.5 PRIORITY. The Lender Lien is subject to no prior Liens other than
Permitted Liens, and all Borrower Liens have been or will be assigned to Lender
pursuant to an Assignment.
5.6 FINANCIAL STATEMENTS. Borrower has delivered to Lender the
financial statements described on SCHEDULE 5.6. Such financial statements
present fairly the financial condition and results of operations of Borrower as
of the dates and for the periods indicated therein. All of the foregoing
financial statements, except as otherwise indicated therein, have been prepared
in accordance with GAAP.
5.7 LITIGATION. Except as set forth in SCHEDULE 5.7, there are no
actions, suits, arbitrations, proceedings or claims (whether or not purportedly
on behalf of Borrower) pending or to the best knowledge of Borrower, threatened,
against Borrower or maintained by Borrower, at law or in equity or before any
Governmental Body which, if adversely determined, would have a material adverse
effect on the ability of Borrower to consummate any of the transactions
contemplated by the Loan Documents or perform any of its obligations under any
of the Loan Documents.
5.8 NECESSARY PROPERTY. Borrower has all necessary rights in its
Property (including all patents or trademarks) which are necessary to conduct
the business of Borrower as now conducted.
5.9 VALIDITY AND ENFORCEABILITY OF CONTRACTS. At the time a Contract is
assigned to Lender (and thereupon
<PAGE>
becomes a Facility Contract) and, unless expressly limited to that
point in time, at all future times with respect to each of the Facility
Contracts, all rights assigned as part of the Facility Contracts, including
without limitation all Facility Equipment covered thereby:
(i) Any modifications of a Contract from the form approved by
Lender, as attached to this Agreement as part of SCHEDULE 4.1.2, are
identified in the Contract by amendment or conspicuous markings, letterings
or title heading (E.G., "Additional Provisions"), and the existence of such
modifications are noted by Borrower in the related Contract Funding
Request; all Contracts with non-Native American End-Users have been
originated by Borrower (or other entity acceptable to Lender) as either
lessor or secured party; all Contracts with Native American End-Users have
been originated either by Borrower, Sodak (or other entity acceptable to
Lender) as either lessor or secured party; all Contracts arise from a bona
fide non-cancelable contract for Eligible Equipment with an Eligible
End-User for an Approved Contract Term; and all Equipment described in the
Contracts is in all respects in accord with the requirements of the
Contracts and has been delivered to and unqualifiedly accepted by the
End-User thereunder; unless specifically agreed to by Lender in writing,
none of the Equipment, after delivery and acceptance by the End-User, is a
fixture under the applicable laws of any state where such Equipment is or
may be located nor is located outside the United States;
(ii) All Contracts and related Equipment comply with all
applicable laws and regulations, including, without limitation,
interest/usury, truth-in-lending, Gaming Laws and disclosure laws; all
Contracts are genuine, valid, binding and enforceable in accordance with
their terms, accurately describe the related Equipment and the Payments due
under the Contracts, and are in all respects what they purport to be; all
Contracts, the related Equipment and all proceeds thereof are not subject
to any lien, claim or security interest except the interest of the
End-User, which shall be assigned to Lender contemporaneously herewith, and
Permitted Liens; all Contracts, and related rights, agreements, documents
and instruments are assignable to Lender without consent of any person,
including without limitation, any End-User or any Governmental Body or
agency and no such assignment will delegate, create or impose any duty,
obligation or liability on Lender; and all Contracts with a Native American
End-User contain valid and enforceable (i) waivers of sovereign immunity,
(ii) representations and warranties from Sodak (or another Native American
gaming lessor acceptable to Lender) enforceable by Lender in the event that
sovereign immunity is asserted by the Native American End-User as a defense
to payment or enforcement proceedings, and (iii) opinion(s) of counsel to
such Native American End-User in form acceptable to Borrower and Lender;
(iii) At the time of Borrower's assignment of the Contracts, and
subject to compliance with all mandatory provisions of law, including
without limitation, the Gaming Laws, Borrower has (A) good title to all of
the Contracts, including the right to receive the payments due thereunder,
(B) either good title to or a first, prior and perfected lien in all
related Equipment; (B) all legal power, right and authority to sell the
Contracts and grant the security interest described herein to Lender; (C)
not sold, transferred, encumbered, assigned or pledged any part of the
Contracts or related Equipment to any other Person; and (D) paid in full
all vendors of the Equipment subject to the Contracts, or will agree to
have Lender pay such vendors with the proceeds of the applicable Advance;
(iv) All counterparts of all Contracts have been clearly marked
to indicate that only one thereof is the "Original" and assignable, and
such counterpart shall be the counterpart delivered to Lender at the time
of Borrower's assignment of the Contract;
(v) Except for any master leases, Borrower has provided Lender
with an original of all material agreements entered into in connection with
the Contracts, and the Equipment related to such Contracts; the Contract
constitutes the entire agreement and there are no oral representations,
warranties or agreements related thereto; the Contracts employ
substantially standard pricing and documentation (including, without
limitation, provisions concerning payment terms, assignment, maintenance,
termination, renewal, insurance and stipulated loss provisions) which have
been approved by Lender; the Contracts contain no purchase option to the
End-User which has not been disclosed in writing to Lender;
(vi) Each party to each Contract has all the legal capacity,
power and right required for it to enter into such Contract and any
supplemental agreements, and to perform its obligations thereunder; all
such actions have received all corporate or governmental authorization
required by any applicable charter, by-law constitution, law, rule or
regulation;
<PAGE>
(vii) None of the following existed at the time of Borrower's
assignment to Lender of the Contracts: (i) any payment owing with respect
to any Contract is past due more than ten (10) days, (ii) any End-User is
otherwise in default under a Contract, or (iii) any End-User has canceled
or terminated or given notice of or attempted to cancel or terminate any
Contract;
(viii) There exist no setoffs, abatements, recoupments, claims,
counterclaims or defenses on the part of any End-User under the Contracts
to any claims against or obligations of any End-User thereunder, nor do the
Contracts by their terms give rise to any such right of setoff, abatement,
recoupment, claims, counterclaims or defenses against Borrower or assignee
of Borrower;
(ix) Borrower has not done anything that might impair the value
of the Contracts or any Equipment covered by the Contracts;
(x) All sales, gross receipts, property or other taxes,
assessments, fines, fees and other liabilities relating to the Contracts,
the related Equipment, or the proceeds thereof have been paid when due and
all filings in respect of any such taxes, assessments, fines, fees and
other liabilities have been timely made;
(xi) Borrower is not in default which has continued beyond any
applicable grace periods or cure rights of any of its obligations under the
Contracts, including without limitation, any obligation to repair, maintain
or replace any Equipment or to provide service as provided in the
Contracts;
(xii) The Contracts have not been altered, modified, changed or
amended except as such alterations, modifications, changes or amendments
are set forth in writing and provided to Lender prior to Borrower's
assignment of the Contracts; nor will Borrower agree to any alterations,
modifications, changes or amendments after Borrower's assignment without
Lender's prior written consent or as specifically set forth in this
Agreement with respect to upgrades or early terminations;
(xiii) At the time of Borrower's assignment of the Contracts, no
amounts have been prepaid on the Contracts except advance payments which
are required by the express written terms of the Contracts;
(xiv) Borrower has not withheld any information or material facts
in connection with any Contracts or Equipment which would make any
information furnished to Lender misleading and Borrower has no knowledge of
any Contract Event of Default or of any fact which may impair the validity,
value or enforceability of any Contract or Equipment;
(xv) To the best of Borrower's knowledge, any credit information
provided to Lender by Borrower with respect to any End-User is true and
correct in all material respects;
(xvi) All Equipment covered by the Contract (A) is in good
condition and repair and suitable for the purposes for which it is
intended; (B) is covered by comprehensive physical damage insurance for the
full insurable value thereof, unless otherwise mutually agreed to by
Borrower and Lender, and, if applicable, general public liability coverage.
Borrower, "its assigns and/or collateral assigns" have been named as "Loss
Payee" and, if applicable, as "Additional Insured" on any policies procured
by the End-User. Said insurance is in full force and effect, and has not
lapsed or been cancelled by the End-User or the respective insurers;
(xvii) The Contract will not be canceled or terminated or attempted
to be canceled or terminated prior to the full term indicated for such
Contract, except as may be specifically set forth in this Agreement;
(xviii) Borrower has not breached any representation, warranty
or guarantee under the Contract or any agreement, document or instrument
related thereto;
(xix) Upon recording financing statements with respect to the
Contracts and the related Equipment, and Lender's possession of the
original chattel paper with respect thereto, Lender's security interest
therein shall be perfected and shall have priority over all other liens,
claims, rights of other persons and security interests with respect
thereto; and
(xx) Borrower has not filed any UCC-1 or other document in the
public records against any End-User or End-
<PAGE>
User guarantor concerning any proposed Facility Contract or
Equipment EXCEPT those which have been disclosed and either assigned
or subordinated to Lender's interest in the Facility Contracts and
the related Equipment and Proceeds, and there are no other UCC-1's or
other public record filings concerning any part of any Facility
Contracts or Equipment whether executed by or in favor of Borrower.
ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees with Lender as follows:
6.1 PAYMENT OF BORROWER'S OBLIGATIONS. Borrower shall pay and perform
all of Borrower's Obligations as and when the same become due, payable and/or
performable, as applicable.
6.2 PRESERVATION OF EXISTENCE. Borrower shall maintain its existence
and rights in full force and effect to the extent necessary to perform its
obligations under the Loan Documents.
6.3 LEGAL REQUIREMENTS. Borrower (i) promptly and faithfully shall
comply with, conform to and obey all applicable present and future laws,
ordinances, rules, regulations and other requirements that could materially
adversely affect the conduct of its operations, including, but not limited to,
maintain its gaming licenses in the States where it is currently operating its
business, and (ii) shall use or cause the portion of the Collateral consisting
of Facility Equipment to be used in a manner and for the use contemplated by the
manufacturer thereof, and in material compliance with all laws, rules and
regulations of every Governmental Body having jurisdiction over such Facility
Equipment.
6.4 FINANCIAL STATEMENTS AND OTHER REPORTS/MATERIALS. Borrower shall
maintain full and complete books of account and other records reflecting the
results of Borrower's operations, all in accordance with GAAP, and shall furnish
or cause to be furnished to Lender:
(i) Within 30 days after the end of each quarter, (I) computer
diskettes/tapes containing all backup data regarding Facility Contracts
and Facility Equipment, in format set forth in EXHIBIT K, and (II) an aged
inventory report and asset tracking report in such form as reasonably
acceptable to Lender;
(ii) Within 30 days after the end of each month: (I) a
delinquency report in the form attached hereto as EXHIBIT L, (II) a true
and correct copy of the Bank, Lockbox and ACH statements for the preceding
month, (III) if applicable, a report setting forth any change in the
identity or location of Facility Equipment from that previously disclosed
to Lender; (IV) a report setting forth leasing, remarketing activities and
insurance settlements with respect to Facility Equipment, and (V) a report
identifying the Facility Contracts which terminated during the previous
thirty (30) days;
(iii) Every 18 months, commencing the Closing Date, at Borrower's
expense, a new report from AAA or another appraisal firm acceptable to
Lender, setting forth current Fair Market and Orderly Liquidation Values of
the principal types of Eligible Equipment subject to this Agreement, which
Lender may utilize in its sole, but reasonable, discretion in determining
an acceptable Estimated Residual therefor;
(iv) Within 10 days after receipt thereof by Borrower, copies of
all financial statements from any End-User(s) who comprise greater than ten
percent (10%) of the aggregate Loan Repayment Amount on all Facility
Contracts; and
(v) promptly at Lender's request, such additional information,
documents, downloads and reports as Lender shall advise Borrower from time
to time.
All of the items described in clauses (i), (ii) and (v) of this Section 6.4
shall be certified by a Responsible Officer.
6.5 REMOVAL OF FACILITY EQUIPMENT. Promptly after a Responsible Officer
learns that any Facility Equipment has been moved by a End-User from one
location to another, Borrower will inform Lender or will cause such End-User to
inform Lender of such move and will execute such additional financing statements
as Lender reasonably may request.
<PAGE>
6.6 DAMAGE TO EQUIPMENT. Promptly after a Responsible Officer learns
that any Facility Equipment is damaged, and if such Facility Equipment can be
repaired in accordance with the terms of the applicable Facility Contract so as
to restore the same to good and working order, Borrower shall cause such repairs
to be made in accordance with the terms of such Facility Contract.
6.7 BOOKS AND RECORDS; INSPECTIONS.
6.7.1 BOOKS AND RECORDS. Borrower shall keep and maintain, or
cause to be kept and maintained, complete and accurate books and records
and make all necessary entries therein to reflect the transactions
contemplated hereby and all payments, credits, adjustments and calculations
relative thereto.
6.7.2 INSPECTIONS/AUDITS. Upon reasonable prior notice, Lender
shall have full and complete access to the books and records of Borrower
pertaining to the Collateral. In addition, from time to time, but not more
often than twice each year (and upon the occurrence and during the
continuation of a Borrower Event of Default as often as Lender in its sole
discretion deems necessary in order to monitor the business activities of
Borrower), representatives of Lender shall have the right to conduct an
audit of the books and records of Borrower. Borrower shall pay to Lender on
demand the actual, reasonable, out-of-pocket travel expenses incurred by
Lender for any employee of Lender who may conduct or assist in conducting
any such audit.
6.8 MAINTENANCE. Borrower, pursuant to the applicable Facility
Contract, shall cause all Facility Equipment to be maintained and serviced so
as to keep such Facility Equipment in good operating condition, ordinary wear
and tear from normal use excepted.
6.9 NOTICE OF DEFAULTS; CHANGE IN BUSINESS AND ADVERSE EVENTS.
Borrower, immediately after any Responsible Officer becomes aware thereof,
shall give Lender written notice of the occurrence of (i) any Event of
Default or any Incipient Default, accompanied by a statement of such
Responsible Officer setting forth what action Borrower proposes to take in
respect thereof, (ii) any change in the (A) executive officers or key
employees of Borrower, or (B) location of the chief place of business of
Borrower or any sale or purchase outside the regular course of business of
Borrower, (iii) any event which may have a material adverse effect on the (A)
enforceability of the Lender Lien, (B) ability of Borrower to perform any of
its obligations under any of the Loan Documents or (C) Borrower's compliance
with the Gaming Laws of any state and/or Lender's ability to exercise its
remedies hereunder with respect to any Facility Equipment constituting Gaming
Device Goods, (iv) any material default in payment or performance by
Borrower or any End-User under any Facility Contract or (v) any material
damage to or irreparable malfunction of any Facility Equipment.
6.10 INSURANCE/MAINTENANCE. All Facility Equipment shall be covered by
comprehensive physical damage insurance for the full insurable value thereof,
unless otherwise mutually agreed to by Borrower and Lender, and general
public liability coverage, and Borrower "and/or its assigns, including
collateral assigns," shall be named and continue to be named as "Loss Payee"
and "Additional Insured" as its interests may appear. Said insurance shall
continue to be in full force and effect, and shall not lapse or be cancelled
by the End-Users. Borrower, pursuant to the applicable Facility Contract,
will cause the End-User under each Facility Contract to maintain all Facility
Equipment in accordance with the terms of all insurance policies which are or
may be in effect with respect thereto so as not to alter or impair any of the
benefits or coverage to which Borrower or the applicable End-User is entitled
under any such insurance policies.
6.11 TAXES. Pursuant to the Contracts, Borrower or End-Users will pay
the personal property taxes levied or assessed on the Facility Equipment, and
Borrower shall cause the End-Users to file all personal property tax returns
relating to the Equipment. Borrower will bill and collect from the End-Users
all sales and use tax that is due and payable during the terms of the
Facility Contracts, and shall remit any sales and use taxes it receives from
the End-Users to the appropriate taxing jurisdiction. Notwithstanding the
above, in the event an End-User shall fail to remit the necessary taxes to
the taxing jurisdiction or to Borrower within the time prescribed or file the
necessary tax returns, Borrower promptly shall remit to the appropriate
taxing jurisdiction the amount of such overdue taxes, and shall indemnify and
hold harmless Lender for all such overdue and/or unpaid taxes, and any fines,
penalties and late charges related thereto, or related to a failure or delay
in filing the related tax returns.
6.12 CONTRACTS. With respect to each of the Contracts, Borrower shall:
(i) perform all acts necessary to preserve
<PAGE>
the validity and enforceability of each such Contract; (ii) take all actions
reasonably necessary to assist Lender in collecting when due all amounts
owing to Borrower with respect to each such Contract; (iii) at all times keep
accurate and complete records of performance by Borrower and the End-User
under each such Contract; and (iv) upon request of Lender verify with the
End-User under each Facility Contract the payments due to Borrower under such
Facility Contract, except that (A) prior to the occurrence of a Borrower
Event of Default or Incipient Default, such requests shall not occur any more
frequently than once each year and (B) after the occurrence and during the
continuation of an Incipient Default or a Borrower Event of Default, such
requests may occur as often as Lender shall require.
ARTICLE VII
NEGATIVE COVENANTS
Until Borrower's Obligations are paid and performed in full, Borrower:
7.1 LIENS. Shall not create or incur or suffer to exist any Lien on
the Collateral other than Permitted Liens.
7.2 BORROWING. Shall not create, incur, assume or suffer to exist any
indebtedness which is secured by Liens on the Collateral other than the
Advances or Permitted Liens.
7.3 MODIFICATIONS OF FACILITY CONTRACTS. Shall not, without the
prior, written consent of Lender: amend, supplement, modify, compromise or
waive any of the terms of any Facility Contract (i) if the effect of such
amendment, supplement, modification, compromise or waiver is to (A) reduce or
waive the amount of any payment thereunder, (B) extend the term thereof
(except as otherwise permitted pursuant to Section 7.4), or (C) waive any
provisions thereof with respect to taxes, insurance or maintenance, or (ii)
unless such amendment, supplement, modification, compromise or waiver is with
respect to (A) the removal of any Facility Equipment and, in connection with
such removal, Borrower complies with the provisions of Section 6.5, (B) a
Permitted Substitution and if, in connection with such Permitted Substitution
any prepayment of any portion of the Facility shall occur, Borrower shall
comply with the terms of subsection 2.5; or (C) an upgrade or early
termination permitted by Section 2.5.2.
7.4 EXTENSIONS OF FACILITY CONTRACTS; FUTURE CONTRACTS OF FACILITY
EQUIPMENT. Shall not, without the prior written consent of Lender: (i) extend
the term of any Facility Contract unless as of the end of the Approved
Contract Term of such Facility Contract, such Contract no longer will be a
Facility Contract as a result of any such extension or (ii) re-lease any
Facility Equipment unless such re-lease is for the purpose of mitigating
damages arising from a Contract Event of Default.
7.5 MAINTENANCE OF PERFECTED LENDER LIEN. Shall not change the
location of its chief executive office or principal place of business, except
if Borrower has (i) given Lender at least 30 days prior written notice
thereof and (ii) caused to be filed all UCC financing statements which in the
opinion of Lender are necessary or advisable to maintain the perfection of
the applicable Lender Lien.
7.6 MERGER AND ACQUISITION. Shall not, without the prior, written
consent of Lender, which consent will not be unreasonably withheld or
delayed, consolidate with or merge into any Person, or acquire all or
substantially all of the stock or Property of any Person.
7.7 SALE OR TRANSFER OF ASSETS. Shall not sell, lease, assign,
exchange, transfer or otherwise dispose of any Property except (i)
dispositions of Property (other than Equipment), which is not necessary to
the continued operation of the business of Borrower, (ii) disposition of the
real estate now owned or hereafter acquired by Borrower, provided no
Incipient Default or Event of Default is in existence or will occur as a
result of the consummation of any such sale, (iii) the leasing of real
property, (iv) dispositions of Property in the ordinary course of Borrower's
business, or (v) disposition of any obsolete or unusable Property, provided
that if such Property is necessary to the continued operation of the business
of Borrower, such Property promptly is replaced with Property of like
function and value to such Property when the same was not obsolete or
unusable, as applicable.
7.8 DELINQUENCY COVENANT. Shall not allow Facility Contract Total
Delinquency to be greater than twelve percent
<PAGE>
(12%) of the Aggregate Portfolio Outstandings. All terms in this subsection
not otherwise defined shall have the meanings set forth in EXHIBIT L (Form of
Monthly Delinquency Report).
7.9 TRANSACTIONS WITH AFFILIATES. Shall not, except for (i)
transactions in the normal course of business, which transactions comply with
the provisions of clauses (y) and (z) of this Section 7.9, and (ii) purchases
of Equipment from PDS FINANCIAL CORPORATION, which purchases shall comply
with the provisions of clauses (y) and (z) of this Section 7.9, sell, lease,
assign, transfer or otherwise dispose of any Property to any Affiliate or
lease Property, render or receive services or purchase assets from any
Affiliate, except with the prior written consent of Lender, which consent
shall not unreasonably be withheld or delayed, and except that Borrower may
enter into any such transaction with any such Affiliate in the ordinary
course of business if (y) the monetary or business consideration arising
therefrom would be substantially as advantageous to Borrower as the monetary
or business consideration which would be obtained by Borrower in a comparable
arm's-length transaction with a Person which is not an Affiliate and (z) no
other provision of this Agreement would be violated as a result thereof.
7.10 RESIDUAL ADVANCE LOAN REPAYMENT AMOUNT TO ACQUISITION COST RATIO.
Shall not allow the aggregate Loan Repayment Amount with respect to Residual
Financing Facility Advances, at any time, measured quarterly, to exceed
twenty percent (20%) of Acquisition Cost of the related Residual Financing
Facility Equipment. In such case, not later than the next due date under the
related Residual Financing Facility Note(s), Borrower will be required to
remit a principal payment on the related Residual Financing Facility
Advance(s) in the amount of any such shortfall. At Borrower's request, Lender
shall furnish to Borrower a schedule setting forth, in reasonable detail,
Lender's calculation of such amounts to satisfy the foregoing covenant.
7.11 INVENTORY FINANCE LINE. Shall maintain, in conjunction with PDS
FINANCIAL CORPORATION, an inventory finance line with a financial institution
reasonably acceptable to Lender and Borrower in an amount not less than Three
Million Dollars ($3,000,000.00).
ARTICLE VIII
BORROWER AND CONTRACT EVENTS OF DEFAULT -- DEFINITIONS AND REMEDIES
8.1 BORROWER EVENTS OF DEFAULT -- DEFINITION. The occurrence of any
of the following shall constitute a Borrower Event of Default hereunder:
(a) DEFAULT IN PAYMENT. If Borrower shall fail to remit to
Lender when due any payment that Borrower is required to make hereunder,
when and as the same shall become due and payable, and such failure shall
continue for a period of 10 days after such payment becomes due.
(b) BREACH OF REPRESENTATION OR WARRANTY. If any representation
made by Borrower to Lender in any Loan Document or in any report,
certificate, opinion, financial statement (other than those financial
statements provided by and pertaining to any End-User) or other document or
statement furnished pursuant thereto, shall be false or misleading in any
material respect when made, or any warranty given by Borrower shall be
breached by Borrower, unless (i) the fact, circumstance or condition is
made true within ten (10) Business Days after notice thereof is given to
Borrower by Lender, and (ii) in Lender's judgment, such cure removes any
adverse effect on Lender.
(c) BREACH OF COVENANT. If Borrower shall fail to duly observe
or perform any covenant, condition or agreement set forth in Articles VI or
VII of the Agreement, on its part to be performed or observed for ten (10)
Business Days after a Responsible Officer has knowledge thereof.
(d) BANKRUPTCY, RECEIVERSHIP, INSOLVENCY, ETC.
<PAGE>
(i) If Borrower or Guarantor shall (A) apply for or consent to
the appointment of a receiver, trustee or liquidator for it or any
of its Property, (B) be unable to pay its debts as they mature, (C)
make a general assignment for the benefit of creditors, (D) be
adjudicated a bankrupt or insolvent or (E) file a voluntary
petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute, or
file an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or if action
shall be taken by Borrower or Guarantor for the purpose of
effecting any of the foregoing, or
(ii) If any Governmental Body of competent jurisdiction shall
enter an order appointing, without consent of Borrower or
Guarantor, a custodian, receiver, trustee or other officer with
similar powers with respect to Borrower or Guarantor or with
respect to any substantial part of the Property belonging to
Borrower or Guarantor, or if an order for relief shall be entered
in any case or proceeding for liquidation or reorganization or
otherwise to take advantage of any bankruptcy or insolvency law of
any jurisdiction, or ordering the dissolution, winding-up or
liquidation of Borrower or Guarantor, or if any petition for any
such relief shall be filed against Borrower or Guarantor, and such
petition shall not be dismissed within 45 days.
(e) NON-PAYMENT OF OTHER INDEBTEDNESS. Default by Borrower or
Guarantor (other than in payment of Borrower's Obligations) in the (i)
payment when due (subject to any applicable grace period or cure period),
whether by acceleration or otherwise, of any indebtedness, where the amount
thereof is in excess of $500,000, or (ii) performance or observance of any
obligation or condition with respect to any indebtedness of Borrower or
Guarantor, where the amount of such indebtedness is in excess of $500,000
(other than in payment of Borrower's Obligations) if the effect of such
default is to accelerate the maturity of any such indebtedness or to permit
the holder thereof to cause such indebtedness to become due and payable
prior to its expressed maturity.
(f) OTHER MATERIAL OBLIGATIONS. Default in the payment when due,
or in the performance or observance of, any material obligation of, or
condition agreed to by, Borrower or Guarantor with respect to any purchase
or lease of goods or services, where (i) the amount with respect to any
such purchase or lease of goods or services is in excess of $500,000 and
(ii) any grace period or cure period with respect to any such payment,
performance or observance has lapsed (except such default in payment,
performance or observance shall not be deemed to constitute a default
hereunder if the existence of any such default is being contested by
Borrower or Guarantor in good faith and by appropriate proceedings
diligently pursued).
(g) GUARANTY/GUARANTOR. If a Default or an Event of Default
shall occur under the PDS Loan Agreement or the Guaranty.
In any such event, in addition to Lender's other remedies under this
Agreement, Lender, by notice to Borrower, may declare that no further
Advances shall be made.
8.2 BORROWER EVENTS OF DEFAULT -- REMEDIES. If a Borrower Event of
Default shall have occurred, and has not been cured by Borrower (or by
Lender, at its option) within an applicable cure period, or a Material
Adverse Change occurs of the type set forth in Section 4.1.7 (i) or (ii),
then Lender shall have the right to do any or all of the following:
(a) If Lender has not already done so pursuant to Section 2.4,
complete and deliver to the End-Users the Contract Payment Letters to
commence direct billing and collection with respect to the Facility
Contracts (including directing the Bank to sweep any ACH payments from
End-Users under Facility Contracts to an account controlled by Lender), and
deduct from such receipts and remittances a fee equal to five percent (5%)
of the aggregate monthly receipts ("Administration Fee") from the payment
on the Facility Contracts as compensation for the additional administrative
burden;
(b) (i) exercise of any of Borrower's rights under any of the
Facility Contracts, or (ii) by written notice, require Borrower to exercise
on behalf of Lender as secured party under this Agreement any and all of
the rights available to Borrower under any Facility Contract to the extent
not already exercised by Borrower, whereupon Borrower shall immediately
take all requested action;
(c) proceed against Borrower and/or Guarantor for all rights and
remedies Lender may have in law or in equity
<PAGE>
under the Loan Documents;
(d) declare the entire amount of Borrower's Obligations and
Administration Fee due and payable immediately, and exercise in respect of
the Facility Equipment all the rights and remedies of a secured party upon
default under the UCC, including, at any reasonable time, to enter
Borrower's premises and take physical possession of any master leases to
which the related Facility Contracts pertain.
Lender shall not take any action or exercise any right that would
disturb any End-User's full and quiet enjoyment of all of such End-User's
rights under that Facility Contract. Lender will give Borrower reasonable
notice of the time and place of any public sale of any Collateral or of the
time after which any public or private sale of such Collateral or any other
intended disposition thereof is to be made. Unless otherwise provided by law,
the requirement of reasonable notice shall be met if such notice is delivered
at least ten (10) days before, or mailed, postage prepaid, to Borrower, at
least twenty (20) days before the time of such sale or disposition.
Notwithstanding the foregoing, to the extent that a breach occurs
under Section 8.1(b), and such breach relates to a single Facility Contract,
Borrower shall have twenty (20) days from receipt of demand by Lender to
prepay the Facility Contract pursuant to the terms of the Mandatory
Prepayment clause set forth at Section 2.5.4. Borrower's failure to prepay
such Facility Contract within said twenty (20) day period shall then
constitute a Borrower Event of Default under Section 8.1(a). Furthermore, if
the Borrower Event of Default pertains solely to a breach of a covenant set
forth in Section 7.8 (Delinquency Covenants), Lender's sole remedy shall be
to commence direct billing and collection of Facility Contracts, subject to
all mandatory provisions of law, including without limitation, the Gaming
Laws, as set forth more fully in Section 8.2 (a) and (b).
All actual costs and expenses incurred by Lender in connection
with the enforcement and/or exercise of any of its rights or remedies
(including, without limitation, reasonable attorneys fees) hereunder shall
(i) be payable by Borrower to Lender immediately upon demand, (ii) constitute
a portion of Borrower's Obligations and (iii) be secured by the Lender Lien.
8.3 CONTRACT EVENTS OF DEFAULT.
8.3.1 DEFINITION: The occurrence of a default by any End-User
pursuant to the terms of a Facility Contract, which default entitles
Borrower to accelerate or terminate such Facility Contract or to repossess
the related Facility Equipment, shall constitute a Contract Event of
Default.
8.3.2 ACCELERATION. Upon the occurrence of a Contract Event of
Default, Lender, at any time (unless such Contract Event of Default shall
have been cured by Borrower), at its option, by notice to Borrower and/or
End-User, may terminate such Facility Contract and accelerate all payments
due thereunder.
8.3.3 CONTRACT EVENT OF DEFAULT -- REMEDIES. Upon the occurrence
of a Contract Event of Default, Borrower shall, if known to Borrower,
immediately deliver to Lender written notice thereof, which notice shall
identify the Facility Contract which is in default and the applicable
Advance, and describe the nature of such default and the actions Borrower
proposes to undertake with respect to such default. If any payment(s) under
a Facility Contract becomes 120 days past due, whether or not such
payment(s) have been cured by Borrower, then Borrower shall prepay in full
the unpaid portion of the Advance pertaining to such Facility Contract and
remit to Lender such Residuals as may be due pursuant to Section 2.7, or
exercise its right of substitution pursuant to Section 3.3.
Lender, with respect to the Facility Equipment subject to such
Facility Contract, shall have and may exercise against Borrower all the
rights and remedies of a secured party under the Illinois UCC and/or the
UCC applicable to the location of the related Facility Equipment, and any
other applicable laws, subject to all mandatory provisions of law,
including without limitation, the Gaming Laws. Lender will give Borrower
reasonable notice of the time and place of any public sale of any
Collateral or of the time after which any public or private sale of such
Collateral or any other intended disposition thereof is to be made. Unless
otherwise provided by law, the requirement of reasonable notice shall be
met if such notice is delivered at least ten (10) days before, or mailed,
postage prepaid, to Borrower at least twenty (20) days before the time of
such sale or disposition. Solely with respect to the Full Recourse Facility
(and with respect to the Non-Recourse Facility only as set forth in SECTION
9.13), Lender shall have full recourse to
<PAGE>
Borrower for any deficiency between the Sale Proceeds thereof
and the Loan Repayment Amount for the related Advance. For the
purposes hereof, Sale Proceeds shall mean the gross proceeds received
by Borrower with respect to any sale of Facility Equipment, less any
reasonable remarketing fees paid or reasonable costs incurred by
Borrower with respect to any such sale. In addition to the foregoing,
at Lender's election, Lender may complete and deliver one or more
Contract Payment Letters in order to commence direct billing and
collection with respect to one or more Contracts subject to a
Contract Event of Default, and deduct the Administration Fee with
respect thereto. Furthermore:
(i) Lender only shall be entitled to exercise the rights
and remedies set forth in this Section 8.3.3 with respect to the
Facility Contract, the End-User and the Facility Equipment which
are the subject of such Contract Event of Default;
(ii) the expenses and other payments to which any proceeds of the
Collateral shall be applied in accordance with the provisions of
subsections 8.6 & 8.7 shall be so applied to payment of Borrower's
Obligations pertaining to the Facility Contract which is the
subject of such Contract Event of Default, and
(iii) upon payment and performance in full of all of
Borrower's Obligations pertaining to the Facility Contract which is
the subject of such Contract Event of Default, both (A) the
Contract Event of Default with respect to such Facility Contract,
and (B) any related Borrower Event of Default shall be deemed to be
cured.
8.5 POWER OF ATTORNEY. In order to permit Lender to exercise the rights
and remedies set forth herein, Borrower hereby irrevocably appoints Lender as
its attorney-in-fact and agent with full power of substitution, in the name of
Lender or in the name of Borrower, to perform any of the following acts upon the
occurrence of a Borrower Event of Default, subject to all mandatory provisions
of law, including without limitation, the Gaming Laws: (i) receive, open and
examine all mail addressed to Borrower and retain any such mail relating to the
Collateral and return to Borrower only that mail which is not so related; (ii)
endorse the name of Borrower on any checks or other instruments or evidences of
payment or other documents, drafts, or instruments arising in connection with or
pertaining to the Collateral, to the extent that any such items come into the
possession of Lender; (iii) compromise, prosecute or defend any action, claim,
or proceeding concerning the Collateral; (iv) perform any and all acts which
Borrower is obligated to perform under the Loan Documents; (v) exercise such
rights as Borrower might exercise with respect to the Collateral, including,
without limitation, the leasing or other utilization thereof and the collection
of any such rents or other payments applicable thereto; (vi) give notice of the
existence of the Lender's Lien, including, without limitation, notification to
End-Users and/or other account debtors of the existence of such Lender's Lien
with respect to the rents and other payments due to Borrower relative to the
Collateral; or (vii) execute in Borrower's name and file any notices, financing
statements and other documents or instruments Lender determines are necessary or
required to carry out fully the intent and purpose of the Loan Documents or to
perfect the Lender Lien.
Borrower hereby ratifies and approves all that Lender shall do or
cause to be done by virtue of the power of attorney granted herein and agrees
that neither Lender nor any of Lender's employees, agents, officers, or its
attorneys will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law made while acting in good faith pursuant to the
provisions of this subparagraph, unless such act, omission, error of judgment or
mistake of fact or law is determined by a court of competent jurisdiction in a
decision which no longer is subject to appeal to be the result of the gross
negligence or the willful or wanton misconduct of Lender or any such employees,
agents, officers or attorneys of Lender. The appointment of Lender as Borrower's
attorney-in-fact is a power coupled with an interest, and therefore shall remain
irrevocable until all of Borrower's Obligations have been paid and performed in
full.
8.6 EXPENSES. All actual costs and expenses incurred by Lender in
connection with the enforcement and/or exercise of any of its rights or remedies
(including, without limitation, reasonable attorneys fees) hereunder shall (i)
be payable by Borrower to Lender immediately upon demand, (ii) constitute a
portion of Borrower's Obligations and (iii) be secured by the Lender Lien.
8.7 APPLICATION OF FUNDS. Any funds received by Lender pursuant to the
exercise of any rights accorded to Lender pursuant to or by the operation of any
of the terms of any of the Loan Documents shall be applied by Lender in the
following order of priority:
(i) EXPENSES: First to the payment of all (A) actual fees and
expenses, including, without limitation, court costs,
<PAGE>
fees of appraisers, title charges, costs of maintaining and
preserving the Collateral, costs of sale, reasonable attorney's fees,
and all other costs incurred by Lender in exercising any rights
accorded to Lender pursuant to the Loan Documents or by applicable
law and (B) Liens superior to the Liens of Lender, except such
superior Liens subject to which any sale of the Collateral may have
been made;
(ii) BORROWER'S OBLIGATIONS. Next, to the payment of Borrower's
Obligations, in such order as Lender may determine; and
(iii) SURPLUS. Any surplus, to the Person or Persons legally
entitled thereto.
ARTICLE IX
MISCELLANEOUS
9.1 RIGHTS, REMEDIES AND POWERS. Each and every right, remedy and power
granted to Lender hereunder shall be cumulative and in addition to any other
right, remedy or power not specifically granted herein or now or hereafter
existing in equity, at law, by virtue of statute or otherwise and may be
exercised by Lender from time to time concurrently or independently as often and
in such order as Lender may deem expedient. Any failure or delay on the part of
Lender in exercising any such right, remedy or power, or abandonment or
discontinuance of steps to enforce the same, shall not operate as a waiver
thereof or affect Lender's right thereafter to exercise the same, and any single
or partial exercise of any such right, remedy or power shall not preclude any
other or further exercise thereof or the exercise of any other right, remedy or
power. Acceptance of payments in arrears shall not waive or affect any right to
accelerate Borrower's Obligations.
9.2 MODIFICATIONS, WAIVERS AND CONSENTS. Any modification or waiver of
any provision of this Agreement, or any consent to any departure by Borrower
therefrom, shall not be effective in any event unless the same is in writing and
signed by Lender, and then such modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose given. Any
notice to or demand on Borrower in any event not specifically required of Lender
hereunder shall not entitle Borrower to any other or further notice or demand in
the same, similar or other circumstances unless specifically required hereunder.
9.3 COMMUNICATIONS. All notices, consents, approvals and other
communications under the Loan Documents shall be in writing and shall be (i)
delivered in person, (ii) sent by telephonic facsimile ("FAX") or (iii) mailed,
postage prepaid, either by (A) registered or certified mail, return receipt
requested, or (B) overnight express carrier, addressed in each case as follows:
To Lender: Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attn: Executive Vice President - Heller Sales Finance,
LPF
FAX No.: (312) 928-8747
Borrower: PDS Financial Corporation - Nevada
Attention: Johan Finley, CEO and President
6171 McLeod Drive
Las Vegas, Nevada 89120
FAX No.: (702) 740-8692
with a copy to: Dorsey & Whitney, LLP
Attention: Paula S. Rindels, Esq.
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402
FAX No.: (612) 340-2644
<PAGE>
Vargas & Bartlett
Attention: Mike Alonso, Esq.
201 W. Liberty Street
P.O. Box 281
Reno, Nevada 89504
FAX No.: (702) 786-1177
or to such other address, as to either of the parties hereto, as such party
shall designate in a written notice to the other party hereto. All notices sent
pursuant to the terms of this Section 9.3 shall be deemed received (i) if sent
by FAX during regular business hours, on the day sent if a Business Day, or if
such day is not a Business Day (or a Business Day after regular business hours),
then on the next Business Day, (ii) if sent by overnight, express carrier, on
the next Business Day immediately following the day sent, or (iii) if sent by
registered or certified mail, on the fifth Business Day following the day sent.
9.4 SEVERABILITY. If any provision of this Agreement is prohibited by,
or is unlawful or unenforceable under, any applicable law of any jurisdiction,
such provision, as to such jurisdiction, shall be ineffective to the extent of
such prohibition without invalidating the remaining provisions hereof; provided,
however, that where the provisions of any such applicable law may be waived,
they hereby are waived by Borrower to the full extent permitted by law so that
this Agreement shall be deemed to be an agreement which is valid and binding in
accordance with its terms.
9.5 SURVIVAL. The warranties, representations, covenants and agreements
set forth herein shall survive the making of the Advances and the execution and
delivery of the Loan Documents and shall continue in full force and effect until
Borrower's Obligations have been paid and performed in full.
9.6 ATTORNEYS' FEES AND OTHER EXPENSES. Borrower agrees to pay to
Lender on demand any actual out-of-pocket costs or expenses, together with
reasonable attorneys' fees, incurred by Lender in connection with the
enforcement or collection against Borrower of any provision of any of the Loan
Documents, whether or not suit is instituted, including, but not limited to,
such actual costs or expenses arising from the enforcement or collection against
Borrower of any provision of any of the Loan Documents in any state or Federal
bankruptcy or reorganization proceeding. In addition, in the event that Borrower
elects to submit a Contract Funding Request containing one or more Contracts
which have deviations from the standard form approved by Lender and attached to
this Agreement as part of SCHEDULE 4.1.2, Lender reserves the right to charge a
reasonable fee, based on a rate of $125.00 per hour, as an offset against the
related Advance, for its internal counsel to review such Contract(s).
9.7 INDEMNITY. Borrower agrees to indemnify and save Lender and its
successors, assigns, agents and servants harmless of and from any claims,
actions, suits, losses, costs, liabilities, damages or expenses (including
actual expenses and reasonable attorneys' fees) incurred by Lender in connection
with the transactions contemplated by this Agreement, including without
limitation: (i) any loss, cost, liability, damage or expense (including actual
expenses and reasonable attorneys' fees) incurred in connection with the
Facility Contracts; (ii) the delivery, ownership, alteration, operation,
maintenance, return or other disposition of the Collateral, including, without
limitation, disposition and/or remarketing pursuant to the Gaming Device Goods
remarketing agreement referenced in Section 4.2.3.2(b); (iii) from any
documentation deficiencies or changes to the basic format of the Facility
Contract; (iv) from the existence of any party having an interest, lien or claim
in the Facility Contract(s), and/or the Facility Equipment covered thereby,
and/or the proceeds thereof, which interest, lien or claim is prior to the
interest therein assigned to Lender hereby; (v) the construction of Lender and
Borrower as having the relationship of joint venturers or partners, or (vi) the
determination that Lender or Borrower has acted as agent for the other.
Borrower's obligations with respect to the indemnity set forth in this
Section 9.7 shall survive repayment of all amounts due pursuant to the Loan
Documents, the cancellation of the Notes and the release and/or cancellation of
any and all of the Loan Documents. Lender agrees to promptly notify Borrower of
any matters in respect of which this indemnity may apply. If notified in writing
of any action or claim brought or threatened against Lender based on a claim for
which Borrower is to provide indemnity and given full authority, information,
and assistance for the defense of same by Lender, Borrower shall, without
limitation, defend those actions or claims at its expense and pay the costs and
damages and attorneys' fees awarded in any such action or arising from any such
claim, provided that Borrower shall have the right to control the defense and
settlement of all such actions and claims. Lender will take all such actions (at
the expense of Borrower) as may be reasonably requested by Borrower to assist
Borrower in connection with such defense or settlement. Nothing herein is
intended to indemnify Lender for
<PAGE>
consequences of its actions or failure to act.
9.8 BINDING EFFECT. This Agreement shall be binding upon the successors
and assigns of Borrower and shall inure to the benefit of the successors and
assigns of Lender.
9.9 ASSIGNMENTS; PARTICIPATIONS. Lender shall be entitled to sell,
securitize, assign or transfer any portion of its interest in the Facility;
provided, however, Lender hereby agrees to deliver to Borrower notice of such
proposed sale, securitization, assignment or transfer not less than 30 days
prior to the proposed date for the consummation thereof, which notice shall
include, if available, a description of the financial institution(s) to which
such sale, securitization, assignment or transfer is proposed to be made. In
connection with any such sale, securitization, assignment or transfer, Lender
may disclose such information with respect to Borrower, its business and
financial affairs and the Facility as Lender reasonably deems necessary, unless
any such information which has been provided by Borrower to Lender is
confidential in nature, in which case such confidential information shall not be
disclosed without the prior written consent of Borrower, which consent shall not
unreasonably be withheld or delayed.
9.10 FURTHER ASSURANCES. Each of Borrower and Lender agrees that upon
the request of the other party hereto at any time and from time to time after
the execution of this Agreement it shall execute and deliver such further
instructions, documents, and certificates and take such further actions as such
party reasonably may request.
9.11 GOVERNING LAW, CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
EXCEPT WITH RESPECT TO ENFORCEMENT OF SECURITY INTERESTS IN GAMING DEVICE GOODS
(WHICH SHALL BE GOVERNED BY THE STATE IN WHICH SUCH GAMING DEVICE GOODS ARE
SITUATED), THIS AGREEMENT, EACH OF THE OTHER LOAN DOCUMENTS, AND ANY ASSIGNMENT
EXECUTED IN CONNECTION THEREWITH SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY
THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED
ENTIRELY WITHIN THE STATE OF ILLINOIS. BORROWER DOES HEREBY SUBMIT, AT LENDER'S
ELECTION, TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURTS (FEDERAL, STATE
OR LOCAL) HAVING A SITUS WITHIN THE COUNTY OF COOK AND THE STATE OF ILLINOIS
WITH RESPECT TO ANY DISPUTE, CLAIM, OR SUIT, WHETHER DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY RELATED NOTE OR ANY OF
BORROWER'S OBLIGATIONS OR INDEBTEDNESS HEREUNDER. BORROWER EXPRESSLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE
PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF BORROWER, WHICH SERVICE SHALL BE
DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
BORROWER HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT THE COUNTY OF COOK, STATE OF
ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE AS
WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH ACTION OR
PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS OF FORUM NON
CONVENIENS OR OTHERWISE. THE EXCLUSIVE CHOICE OF FORUM SET FORTH HEREIN SHALL
NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN
SUCH FORUM OR THE TAKING OF ANY ACTION BY LENDER TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION.
9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. THIS
WAIVER IS INTENDED TO BE EFFECTIVE WITH RESPECT TO ALL DISPUTES WHICH ARISE OUT
OF ANY OF THE LOAN DOCUMENTS OR PERTAIN TO THE TRANSACTIONS CONTEMPLATED
THEREBY. THIS WAIVER IS IRREVOCABLE, AND MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND SUCH WAIVER SET FORTH HEREIN SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS.
9.13 NON-RECOURSE FACILITY. At Lender's discretion, from time to time
Lender may consider the financing of individual Eligible Contracts on a
non-recourse basis, PROVIDED, HOWEVER, that at no time shall the sum of:
(i) the Loan Repayment Amount with respect to the Non-Recourse
Facility, and
<PAGE>
(ii) any amounts outstanding under that certain Limited Recourse
Promissory Note dated August 27, 1997 executed by PDS FINANCIAL
CORPORATION in Lender's favor, in the original principal amount
of $9,477,427.68,
exceed Fifteen Million Dollars ($15,000,000). In the event that Lender elects to
make an Advance with respect to such Contracts, all of the provisions of this
Agreement with respect to the Facility and Advances thereunder shall apply to
such non-recourse Advances (including, without limitation, all of the
conditions, representations, warranties and covenants set forth in Articles III,
IV, V, VI and VII hereof, Borrower's servicing obligations, and all of the
definitions applicable to Non-Recourse Facility Advances), with the specific
exception of the following, which shall control in the event of any conflict:
9.13.1 NON-RECOURSE NOTE. In conjunction with each non-recourse Advance,
the form of Non-Recourse Note set forth in Exhibit G1 ("Non-Recourse Note")
shall be utilized.
9.13.3 BORROWER'S LIABILITY. Anything in this Agreement or any
exhibits hereto, any certificate, opinion or documents of any nature
whatsoever to the contrary notwithstanding, neither Lender nor its
successors or assigns shall have any claim, remedy or right to proceed (at
law or in equity) against Borrower or any incorporator, shareholder,
director, officer, or employee of Borrower for the payment of any
deficiency or any other sum owing on account of the indebtedness evidenced
by any Non-Recourse Note or for the payment of any liability of any nature
whatsoever with respect to any Non-Recourse Note, Non-Recourse Facility
Contract or Non-Recourse Facility Equipment or any obligations of Borrower
under this Agreement with respect to any Non-Recourse Note, Non-Recourse
Facility Contract or Non-Recourse Facility Equipment (EXCEPT THAT LENDER
SHALL NOT BE PROHIBITED FROM ASSERTING A CLAIM AGAINST BORROWER PERSONALLY
WHICH CLAIM IS FOR ACTUAL DAMAGES DIRECTLY RESULTING FROM THE BORROWER'S
FAILURE TO REMIT ANY CONTRACT PROCEEDS TO LENDER, OR THE OTHER BORROWER
EVENTS OF DEFAULT DESCRIBED IN SUBSECTIONS (b) AND (c) OF SECTION 8.1),
from any source other than the Collateral pertaining to such Non-Recourse
Facility Contract, including the sums due and to become due under any
Non-Recourse Facility Contract; and Lender by acceptance of a Non-Recourse Note
waives and releases any liability of Borrower for and on account of such
indebtedness or such liability, EXCEPT AS PROVIDED ABOVE, and Lender, its
successors and assigns and the holders of any Non-Recourse Note agree to
look either to the End-User pertaining to such Non-Recourse Facility
Contract or to the Collateral pertaining to such Non-Recourse Facility
Contract, including the sums due and to become due under such Non-Recourse
Facility Contract for the payment of said indebtedness or the satisfaction
of such liability.
9.13.4 AGGREGATE TO TOTAL FACILITY. No Advances made pursuant to
this Section 9.13 shall aggregate towards the maximum available amounts
under any other Facility hereunder.
9.13.5 ADDITIONAL ELIGIBILITY CRITERIA. Solely with respect to the
Non-Recourse Facility, (i) the Eligible Contract criteria/definition shall
additionally include a requirement that the related End-User has been
notified of, and has acknowledged, the collateral assignment of such
Contract to Lender, and (ii) Native American End-Users shall not be
considered Eligible End-Users.
This Agreement has been executed and delivered by each of the parties hereto by
a duly authorized officer of each such party on the date first set forth above.
<TABLE>
<S> <C>
HELLER FINANCIAL, INC. PDS FINANCIAL CORPORATION - NEVADA
By: /s/ By: /s/ Johan Finley
_________________________ ___________________________
Johan Finley
Title: Senior Vice President Title: CEO and President
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MASTER LOAN AGREEMENT
BY AND AMONG
PDS FINANCIAL CORPORATION
PDS FINANCIAL CORPORATION - NEVADA
AND
MILLER & SCHROEDER INVESTMENTS CORPORATION
- --------------------------------------------------------------------------------
Drafted by:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
<PAGE>
MASTER LOAN AGREEMENT
THIS AGREEMENT is made as of December 15, 1998, by and among PDS
FINANCIAL CORPORATION, a Minnesota corporation ("PDS"), PDS FINANCIAL
CORPORATION - NEVADA, a Nevada corporation ("PDS-Nevada") (PDS and PDS-Nevada
are jointly and severally, the "Borrower") and MILLER & SCHROEDER INVESTMENTS
CORPORATION, a Minnesota corporation ("M&S"), and certain other participating
institutions identified in the Participation Agreements among M&S and the
participants (M&S and the participants being collectively, the "Lender").
RECITALS
A. The Borrower has requested that the Lender make available to the
Borrower a multiple advance credit facility in an aggregate principal amount of
Five Million Dollars ($5,000,000) (the "Credit Facility") evidenced by a
Promissory Note dated the date hereof from the Borrower in favor of the Lender
(the "Note") and secured by a Master Security Agreement dated the date hereof
between the Borrower and the Lender (as such Master Security Agreement may be
amended from time to time, the "Security Agreement").
B. The Lender is willing to make advances under the Credit Facility (each
a "Loan") to the Borrower upon the terms and subject to the conditions set forth
herein.
C. The Lender has entered or will enter into one or more participation
agreements (the "Participation Agreements") pursuant to which the participants
named therein agree to participate in the Credit Facility.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
"Addendum and Assignment" is defined in Section 1 of the Security
Agreement.
"Capitalized Cost to Lessee" means the fair market value of the Equipment
as of the date of the Contract as reasonably determined by Borrower in
accordance with FASB 13, excluding any charges for insurance, maintenance,
delivery and sales or use taxes.
"Closing Date" means the date hereof.
"Collateral" is defined in Section 2 of the Security Agreement.
"Contract" means any Contract which is identified in an Addendum and
Assignment, and which meets the eligibility criteria set forth in EXHIBIT A
attached hereto.
1
<PAGE>
"Delinquent Contract" means any Contract where payment in full of all
installments then due have not been made within 30 days of the due date or where
any other material default has occurred and such default has continued for a
period of at least 30 days.
"Equipment" is defined in Section 1 of the Security Agreement.
"Equipment Value" means, (i) with respect to any Contract which is an
installment sales contract or installment note, the sales price of the Equipment
subject to such Contract, EXCLUDING sales or use tax, delivery charges,
installation charges and any security deposit that is or will be applied as a
credit against the first or last installment payment in whatever form collected;
(ii) with respect to any Contract which is a finance lease, the Capitalized Cost
to Lessee, EXCLUDING sales or use tax, delivery charges, installation charges
and any security deposit that is or will be applied as a credit against the
first or last rent payment; and (iii) with respect to any Contract which is an
operating lease, the Capitalized Cost to Lessee, EXCLUDING sales or use tax,
delivery charges, installation charges and any security deposit that is or will
be applied as a credit against the first or last rent payment.
"GAAP" means generally accepted accounting principles as in effect from
time to time, which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied.
"Loan Documents" means this Agreement, the Note, the Security Agreement,
the Addendum and Agreement, the Repossession Agreement, the UCC-1 and UCC-3
Financing Statements, and all other documents, instruments or agreements
(excluding the Contracts) necessary to give effect to this Agreement and the
transaction contemplated hereby.
"Maturity Date" means July 1, 2002.
"Obligor" means, with respect to any Contract, the person identified on a
Contract as the lessee or purchaser.
"Repossession Agreement" means that certain Repossession Agreement among
the Borrower and the Lender, dated the date hereof, as it may be amended from
time to time.
"Required Payment Amount" means as of any Installment Payment Date (as
defined in the Note), that amount equal to the monthly amount necessary to fully
amortize the then outstanding principal balance and accrued interest under the
Note in equal monthly installments by the Maturity Date, together with payment
of the Servicing Fee described in the Note.
2. THE CREDIT FACILITY. Subject to and upon the terms and conditions
hereof, and in reliance upon the representations and warranties of the Borrower
herein, the Lender will make Loans to the Borrower under the Credit Facility
from time to time from the date hereof until June 30, 2002, at such time and in
such amount as to each Loan as the Borrower may request up to but not exceeding
an aggregate principal amount of $5,000,000 for the purpose of funding Contracts
2
<PAGE>
to certain casino operators, and to pay all related transaction costs. The
Credit Facility will be advanced based on multiple Advance Requests (as
hereafter defined) but will not be a revolving credit facility and the Borrower
may not borrow, repay and reborrow amounts advanced. The Advance amount of any
Loan shall not exceed ninety percent (90%) of the Equipment Value of any
Contract(s) being financed therewith and no more than $1,250,000 will be
advanced on an individual Contract, and in no event shall the aggregate
principal amount of Loans, the proceeds of which are used to finance Contracts
where the Equipment subject to such Contracts is located on ships or is subject
to maritime laws, exceed twenty-five percent (25%) of the aggregate principal
amount of all Loans. The Loans under the Credit Facility shall be evidenced by
a single Note which will be made payable to the order of the Lender. The Credit
Facility shall bear interest at the rate of Nine and One-Quarter percent (9.25%)
per annum. The Credit Facility shall be payable over a forty-two (42)-month
term. Interest accruing on the Note shall be paid on February 1, 1999 and on
March 1, 1999. Commencing April 1, 1999 and continuing on each Installment
Payment Date (as defined in the Note) thereafter, the Borrower shall pay
installments of principal and interest equal to the Required Payment Amount;
provided that the unpaid principal balance of the Note, interest accrued thereon
and all charges payable pursuant to the terms of the Note shall become due and
payable in full on the earlier to occur of the following: (i) the Maturity Date,
(ii) the occurrence of an Event of Default and (iii) the Installment Payment
Date (as defined in the Note) next following the Installment Payment Date on
which the unpaid principal balance of the Note declines below $100,000. Any
prepayments made on any Contract shall be used to prepay the Credit Facility to
the extent required by paragraph 3.t. of the Security Agreement. The Note may
be prepaid in whole or in part at any time, provided that any prepayment shall
be made on fifteen (15) days' advance written notice to the Lender and shall be
made only on a regularly scheduled Installment Payment Date and shall be made in
denominations of no less than $100,000 or provide for payment in full of the
outstanding balance of the Note. After a prepayment, the then outstanding
principal balance and accrued interest will be reamortized over the period
remaining between the date of prepayment and the Maturity Date. All amounts
paid in respect of the Note shall be applied in accordance with Section 5(b) of
the Security Agreement. All payments and prepayments of the principal of and
interest on the Loan shall be made by the Borrower to the Lender pursuant to the
terms of the Note and other Loan Documents, and shall be made by wire transfer
in accordance with Lender's instructions.
3. BORROWING PROCEDURE AND DISBURSEMENT OF LOAN PROCEEDS. On the date
hereof, the Lender has disbursed to the Borrower $161,000 for payment of
closing costs for the Credit Facility. The balance of the Credit Facility in
the amount of $4,839,000 will be advanced pursuant to the terms of this
Agreement. Each time the Borrower desires to obtain a disbursement from the
Lender, the Borrower shall submit to the Lender a written advance request, duly
signed by the Borrower, substantially in the form of EXHIBIT B attached hereto
(each an "Advance Request"). Each Advance Request shall be submitted by the
Borrower to the Lender at least five (5) business days prior to the date of the
requested advance. Each Advance Request shall specify (i) the advance date
(which shall be a business day), (ii) the Equipment being acquired or financed
therewith and the Equipment Value thereof, (iii) the terms of the Contract(s) to
which such Equipment will be sold or leased, and (iv) the amount of the
requested Loan, and shall set forth the information requested therein. Unless
the Lender reasonably determines any applicable condition specified in this
Agreement has not been satisfied, the
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Lender will make the amount of the requested Loan available to the Borrower
at the Lender's principal office in Minneapolis, Minnesota not later than
5:00 p.m., Minneapolis time, on the date requested. The Borrower shall be
obligated to repay all Loans notwithstanding the fact that the person
requesting the same was not in fact authorized to do so. The proceeds of
each Loan will be disbursed to the Borrower upon delivery to the Lender of
the following documents or other items:
a. ITEMS NECESSARY AT TIME THIS AGREEMENT IS EXECUTED:
(1) this Agreement, the Note, the Security Agreement, and the
Repossession Agreement, each executed by the Borrower in favor of the Lender;
(2) resolutions of the executive committee of the board of
directors of the Borrower, certified by an officer of the Borrower, authorizing
the execution, delivery and performance of the Loan Documents and related
documents and the transactions contemplated thereby;
(3) evidence in form and substance acceptable to the Lender that
the Borrower has all licenses necessary to carry on its business and to enable
it to perform its obligations under the Repossession Agreement, including
without limitation all licenses required under Nevada gaming law for the
operation of the Borrower's business;
(4) Articles of Incorporation of PDS, certified by the Minnesota
Secretary of State, a copy of the Bylaws of PDS, certified by an officer of PDS,
and an unqualified certificate of good standing for PDS issued by the Minnesota
Secretary of State;
(5) Articles of Incorporation of PDS - Nevada, certified by the
Nevada Secretary of State, a copy of the Bylaws of PDS - Nevada, certified by an
officer of PDS - Nevada, and an unqualified certificate of good standing for PDS
- - Nevada issued by the Nevada Secretary of State;
(6) UCC searches with respect to each Borrower;
(7) an opinion of counsel to PDS as to the due organization and
good standing of PDS, the due authorization, execution and delivery by PDS of
the Loan Documents, the validity and enforceability of the Loan Documents, and
as to such other matters regarding PDS and the transactions and documents
contemplated hereby as the parties may agree;
(8) an opinion of counsel to PDS - Nevada as to the due
organization and good standing of PDS - Nevada, the due authorization, execution
and delivery by PDS - Nevada of the Loan Documents, the validity and
enforceability of the Loan Documents, the availability of and basic elements of
the procedure to perfect a purchase money security interest under Nevada state
law, and as to such other matters regarding PDS - Nevada and the transactions
and documents contemplated hereby as the parties may agree;
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(9) a special opinion of Nevada counsel regarding the Loan and
Nevada gaming law;
(10) a certificate of an officer of each Borrower to the effect
that the representations, warranties and covenants of such Borrower contained
herein and in the other Loan Documents are true and correct as of the date of
such documents and as of the date of delivery of the certificate;
(11) certificates of insurance and insurance endorsements
required hereby;
(12) a certificate by each Borrower regarding Year 2000 computer
compliance.
b. BORROWER ITEMS NECESSARY BEFORE ANY LOAN:
(1) an Addendum and Assignment and UCC-1 and UCC-3 Financing
Statements, each executed by the Borrower in favor of the Lender with respect to
the Contract(s) being financed with the Loan, and an assignment of the
Borrower's interest as secured party in the UCC-1 Financing Statement as to the
related Equipment;
(2) with respect to each of the Contracts in which Borrower is
granting a security interest to the Lender pursuant to the Addendum and
Assignment, the executed original of each such Contract, with all collateral
schedules, and copies of such additional instruments, opinions, documents,
certificates, searches and reports as the Borrower has obtained in connection
with such Contract;
(3) a Notice, Consent and Acknowledgment of Assignment with
respect to the Contract(s) being financed with the Loan, duly executed by the
Borrower;
(4) updated UCC searches with respect to each Borrower who is
requesting a loan on a Contract owned by that Borrower;
(5) Except as to financing statements in favor of the Lender,
UCC-3 financing statements terminating security interests filed with respect to
the Contracts and the Equipment, including without limitation a release executed
by U.S. Bank (or any other creditor holding a blanket lien) with respect to the
Contracts and the Equipment;
(6) the first time a Loan is requested regarding a Contract
where the Equipment is located in a jurisdiction (other than Nevada), an opinion
of counsel to PDS as to the availability of and basic elements of the procedure
to perfect a purchase money security interest under the law of that
jurisdiction;
(7) certificates of insurance and insurance endorsements
required hereby;
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(8) all other items as may be required pursuant to the
eligibility criteria set forth in EXHIBIT A attached hereto.
c. OBLIGOR ITEMS NECESSARY BEFORE ANY LOAN:
(1) a Notice, Consent and Acknowledgment of Assignment duly
executed by the Obligor under each Contract being financed with the Loan;
(2) UCC-1 Financing Statements, executed by the Obligor in favor
of the Borrower and assigned to the Lender (or with respect to an installment
note, assigned to Lender and the other holder(s) of note(s) evidencing the same
loan on a joint and several basis) with respect to the Contract(s) being
financed with the Loan, and the related Equipment and releases, terminations or
other appropriate filings, if any;
(3) certificates of insurance and insurance endorsements
required hereby;
(4) all other items as may be required pursuant to the
eligibility criteria set forth in EXHIBIT A attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. In order to induce
the Lender to advance the proceeds of each Loan, the Borrower hereby represents
and warrants to the Lender as follows:
a. PDS is a corporation duly organized and validly existing under
the laws of the State of Minnesota, and PDS-Nevada is a corporation duly
organized and validly existing under the laws of the State of Nevada. The
Borrower is duly qualified to do business and is in good standing in every other
jurisdiction wherein the nature of its business or the character of its
properties makes such qualification necessary and where failure to be so
qualified and in good standing, in the aggregate, would not have a material
adverse effect on the business, properties, operations, assets, liabilities or
condition (financial or otherwise) of the Borrower. The Borrower has all
requisite power and authority to carry on its business as now conducted and as
presently proposed to be conducted.
b. The Borrower has full power and authority to execute and deliver
the Loan Documents and to incur and perform its obligations hereunder and
thereunder. The execution, delivery and performance by the Borrower of the Loan
Documents and any and all other documents and transactions contemplated hereby
or thereby, have been duly authorized by all necessary corporate action, will
not violate any provision of law or of the Articles of Incorporation or the
Bylaws of the Borrower or result in the breach of, constitute a default under,
or create or give rise to any lien under, any indenture or other agreement or
instrument to which the Borrower is a party or by which the Borrower or its
property may be bound or affected. The Loan Documents have been executed and
delivered to the Lender by an appropriate officer of the Borrower who is
authorized by and specified in the Borrower's Bylaws to execute and so deliver
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such agreements. The Borrower is not in violation of or subject to any
contingent liability on account of any statute, law, rule, ordinance, order,
writ, injunction or decree to the extent that such violation or contingent
liability would result in a material adverse effect on the condition (financial
or otherwise), business, properties, or assets of Borrower. As used herein,
material adverse effect means a violation or contingent liability that would
result in a cost or loss to Borrower of $500,000 or more.
c. The Loan Documents constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms.
d. Except as set forth in EXHIBIT C hereto, there is no action, suit
or proceeding pending or, to the knowledge of the Borrower, threatened against
or affecting the Borrower, or any basis therefor, which, if adversely
determined, would have a material adverse effect on the condition (financial or
otherwise), business, properties or assets of the Borrower or which would
question the validity of the Loan Documents or any instrument, document or other
agreement related hereto or required hereby, or impair the ability of the
Borrower to perform its obligations under the foregoing agreements.
e. The Borrower possesses adequate licenses, permits, franchises,
patents, copyrights, trademarks and trade names, or rights thereto (collectively
"Licenses"), to conduct its business substantially as now conducted and as
presently proposed to be conducted. Without limiting the foregoing, PDS -
Nevada possesses all licenses required under Nevada gaming law for the operation
of PDS - Nevada's business. Each License is validly issued and in full force
and effect. Borrower has fulfilled and performed all of its obligations with
respect thereto. No event has occurred which: (1) results in, or after notice
or lapse of time or both would result in, suspension, surrender, failure to
renew, revocation or termination of any material License; or (2) materially and
adversely affects or in the future may (so far as Borrower can now reasonably
foresee) materially adversely affect any of the rights of Borrower thereunder.
Borrower is not a party to and the Borrower does not have any knowledge of any
notice of violation, order or complaint issued by or before any court or
regulatory body or of any other proceedings which could in any manner result in
suspension, surrender, failure to renew, revocation or termination of any
material License or otherwise threaten or adversely affect the validity or
continued effectiveness of the Licenses of Borrower. Borrower has no reason to
believe that any Licenses will not be renewed in the ordinary course. Borrower
has fully cooperated with every regulatory body having jurisdiction over any of
the Licenses or the activities of Borrower with respect thereto, and Borrower
has filed all material reports, applications, documents, instruments, and
information required to be filed by it pursuant to applicable laws, rules and
regulations. Borrower has posted all required bonds required under its
Licenses.
f. The Borrower owns the Contracts constituting part of the
Collateral, subject to no prior security interests, assignments, liens or
encumbrances. The Lender has a valid first perfected security interest in the
Collateral subject to no prior security interests or encumbrances. The security
interest of the Lender has been recorded with the appropriate recording offices,
and the Lender's security interest in the Equipment is a first perfected
security interest, subject only to the rights of the Obligors and the Borrowers
under the Collateral.
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g. No director, shareholder, officer, employee of or consultant to
the Borrower is prohibited by law, regulation, contract or the terms of any
license, franchise, permit, certificate, approval or consent from participating
in the business of the Borrower as director, shareholder, officer, employee of
or as consultant to the Borrower.
h. Except with respect to reporting and compliance requirements of
the regulatory gaming authorities in the jurisdictions in which either of the
Borrowers or the Obligors conducts business, no consent, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
governmental authority or any third party is required in connection with the
execution and delivery of the Loan Documents or any of the agreements or
instruments contemplated thereby to which the Borrower is a party, or in
connection with the carrying out or performance of any of the transactions
required or contemplated hereby or thereby or, if required, such consent,
approval, order or authorization has been obtained or such registration,
declaration or filing has been accomplished or such notice has been given prior
to the date hereof.
i. The Borrower has filed all local, state, federal and other tax
returns required to be filed by it and either paid all taxes shown thereon to be
due, including interest and penalties, which are not being contested in good
faith and by appropriate proceedings, or provided adequate reserves for payment
thereof. The Borrower has no information or knowledge of any objections to or
claims for additional taxes in respect of local, state and federal or other
income or excess profits tax returns of the Borrower for prior years.
j. The Borrower does not intend to, or believe that it will, incur
debts beyond its ability to pay such debts as they mature.
k. All financial and other information provided to the Lender by or
on behalf of the Borrower in connection with the Borrower's request for the Loan
fairly presented the financial condition of the Borrower as of the dates thereof
and disclosed fully all liabilities of the Borrower. Since the date of such
financial and other information, there has been no material adverse change in
the financial condition of the Borrower.
l. Each qualified retirement plan of the Borrower, if any, presently
conforms to and is administered in a manner consistent with the Employee
Retirement Income Security Act of 1974.
m. As of the date hereof, no Contract is a Delinquent Contract.
n. The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of the Loan will be used to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
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o. No proceeds of the Loan will be used to acquire any security in
any transaction which is subject to Sections 13 and 14 of the Securities
Exchange Act of 1934.
p. The transaction evidenced by this Agreement does not violate any
law pertaining to usury or the payment of interest on loans.
q. The Borrower will use the proceeds of the Loan solely for lawful
and proper corporate purposes of the Borrower.
5. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees as follows:
a. The Borrower will use the proceeds of each Loan solely for the
financing of Contracts to certain casino operators.
b. The Borrower will pay all of its taxes (including payroll and
withholding taxes), levies, assessments and governmental charges prior to the
time when any penalties or interest accrue, unless contested in good faith with
an adequate reserve for payment.
c. The Borrower will continue the conduct of its business, maintain
its corporate existence, maintain all rights, licenses and franchises necessary
or desirable in the normal conduct of its business, comply with all rules,
regulations and orders of any governmental or other authority or agency and all
applicable federal and state laws and regulations. Without in any way limiting
the generality of the foregoing, the Borrower will maintain all licenses
required under Nevada gaming law for the operation of Borrower's business, and
will timely file all reports as the Nevada Gaming Commission may from time to
time require or request.
d. The Borrower shall use best efforts to cause the Obligors to
maintain and service the Equipment so as to keep such Equipment in good
operating condition, ordinary wear and tear from normal use excepted.
e. The Borrower will deliver to the Lender:
(1) Within one hundred twenty (120) days after the end of each
fiscal year, the consolidated audited financial statements of the Borrower for
such fiscal year, certified (without qualification as to the opinion or scope of
examination) by a firm of independent certified public accountants selected by
the Borrower and acceptable to the Lender.
(2) Within forty-five (45) days after the end of each fiscal
quarter, consolidated quarterly financial statements of the Borrower.
(3) Upon the reasonable request of the Lender, all backup data
regarding the Contracts and the Equipment.
(4) Within thirty (30) days after the end of each calendar
quarter, a Contract Status report setting forth the information set forth on
EXHIBIT D hereto.
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(5) As soon as practicable, but in any event within thirty (30)
days after the end of each calendar month, a certificate of the Controller of
the Borrower substantially in the form of EXHIBIT E hereto stating (i) whether
or not such officer has knowledge of the occurrence of any Event of Default
under any of the Loan Documents or any event which with the giving of notice or
the passage of time would constitute an Event of Default under any of the Loan
Documents, other than Events of Default previously reported and remedied and, if
so, stating in reasonable detail the facts with respect to such Event of
Default, and (ii) that the Borrower is in compliance with each of the covenants
set forth in SECTIONS 5 AND 6 of this Agreement. Without limiting the
foregoing, the certificate shall specifically state (A) the aggregate number and
aggregate unpaid payments of Delinquent Contracts, and (B) the aggregate amount
of prepayments on the Contracts in such month.
(6) Copies of any and all reports, filings, financial statements
or other information as and when filed with the United States Securities and
Exchange Commission and with the Nevada Gaming Commission (only if in connection
with the Loan, the Contracts, the Equipment, the Lender or its participants),
and copies of all information and notices as and when delivered to the
Borrower's shareholders.
(7) Promptly upon becoming aware thereof, notice of any default
with respect to any other indebtedness, whether owed to the Lender or any other
creditor.
f. Upon reasonable notice of not less than 48 hours, the Borrower
will permit any officer, employee, attorney or accountant for the Lender to
review, make extracts from, or copy any and all corporate and financial books
and records of the Borrower relating to the Contracts at all times during
ordinary business hours, to send and discuss with Obligors requests for
verification of amounts owed to the Borrower if Lender has a reasonable basis
for believing such a verification is necessary, and to discuss the affairs of
the Borrower with any of its officers. After the occurrence of an Event of
Default, the rights to review and copy books and records shall not be limited to
those relating to the Contracts but will be all of the Borrower's books and
records.
g. The Borrower will provide the Lender with an insurance
certificate, issued by Obligor's insurer, in form and content and from an
insurer acceptable to the Lender, providing for ten (10) days' written notice to
the Lender of cancellation or non-renewal (without qualification), and
evidencing the following categories and amounts of coverage:
(1) In the case of finance lease or operating lease
transactions, comprehensive public liability coverage for the Obligor.
(2) Comprehensive physical damage insurance for the full
insurable value of the Equipment, naming the Lender as loss payee, as their
interests may appear.
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(3) If circumstances warrant, warehouse and transportation
insurance on the Equipment which is being stored or transported, as the case may
be, for the full insurable value of the Equipment naming the Lender as loss
payee, as their interests may appear.
(4) With respect to any Equipment which is located on any ship
or which is otherwise subject to any maritime laws, shipwreck, piracy,
abandonment and hull insurance in such amounts as the Lender may request, with a
lender's loss payable endorsement provided to the Lender.
h. The Borrower will notify the Lender promptly of (i) any material
disputes or claims by any Obligor; (ii) any Equipment returned to or recovered
by the Borrower or damaged, destroyed or stolen from the Borrower or an Obligor;
(iii) any change in the persons constituting the directors or officers of the
Borrower; (iv) the occurrence of any breach, default or event of default by or
attributable to the Borrower under this Agreement or any of the Loan Documents;
(v) the occurrence of any breach, default or event of default by or attributable
to any Obligor under the Obligor's Contract; and (vi) any event which may have
any effect on the enforceability of any lien in favor of the Lender, or on the
ability of the Borrower or the Obligor to perform its obligations under the Loan
Documents or any Contract, as the case may be.
i. The Borrower will notify the Lender in writing promptly after the
commencement of any lawsuit, legal proceeding or proceedings before any
governmental or regulatory agency against the Borrower which would have a
material adverse effect on the Loan, the Contracts, the Equipment, the Lender or
its participants or the business of Borrower. As used herein, material adverse
effect means a lawsuit or proceeding involving a potential cost or loss to
Borrower of $500,000 or more.
j. The Borrower will maintain, on a consolidated basis, the
following financial covenant:
At all times, a Tangible Net Worth in an amount not less than
$6,000,000 plus 15% of positive Net Income earned after January 1, 1998. As
used herein, "Tangible Net Worth" means, at a particular date, (a) the aggregate
amount of all assets of the Borrower on a consolidated basis as may be properly
classified as such in accordance with GAAP excluding such other assets as are
properly classified as intangible assets under GAAP, less (b) the aggregate
amount of all liabilities of the Borrower on a consolidated basis. As used
herein, "Net Income" means, with respect to any period, the aggregate of the net
income of the Borrower on a consolidated basis for such period determined in
accordance with GAAP.
k. With respect to any Delinquent Contract, the Borrower shall,
within fifteen (15) days, either (i) pay to the Lender an amount equal to the
unamortized amount of the loan proceeds advanced with respect to such Contract,
and such payment shall be applied to the unpaid principal balance of the Note,
or (ii) execute and deliver to the Lender an Addendum and Assignment (and
appropriate UCC financing statements) respecting one or more other Contracts
with an aggregate Equipment Value multiplied by 90% equal to or greater than the
unamortized amount of the loan proceeds advanced with respect to such Delinquent
Contract, and Obligor
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Acknowledgment(s) relating to such Contract(s) duly executed by each Obligor
under such Contract, and all such other documents, instruments and agreements
as required under SECTION 3(b) AND 3(c) or as the Lender may request.
l. The Borrower will keep full and complete books of record and
accounts for itself and other records reflecting the results of the Borrower's
operations, all in accordance with GAAP.
m. At any time upon request from the Lender after the occurrence of
an Event of Default, the Borrower will cause the Obligors under the Contracts
which constitute a part of the Collateral to be notified to make payment
directly to the Lender, and the Lender shall be entitled to take control of any
proceeds thereof.
n. After the occurrence of an Event of Default, all proceeds of
Collateral not released from the lien of the Security Agreement pursuant to
Section 3 of the Security Agreement, including without limitation, proceeds from
the sale or re-leasing of the Equipment, proceeds of insurance and all other
unscheduled recoveries, shall be paid by the Borrower into a collateral account
administered by the Lender in the manner described in Section 5 of the Security
Agreement.
o. In the event any Equipment has been repossessed, the Borrower
shall pay promptly to the Lender the proceeds of the sale or other disposition
of the Equipment, together with a cash payment equal to the amount necessary to
fully pay the unamortized amount of the loan proceeds advanced with respect to
Contract(s) relating to such Equipment.
p. In the event any Equipment is damaged, destroyed, lost or stolen,
the Borrower shall pay promptly to the Lender the proceeds of any insurance on
the Equipment, together with a cash payment equal to the amount necessary to
fully pay the unamortized amount of the loan proceeds advanced with respect to
Contract(s) relating to such Equipment.
q. The Borrower shall service the Contracts which form a part of the
Collateral in accordance with the industry standards applicable to servicers of
such contracts, and the Borrower shall have ultimate responsibility for such
servicing. If the Borrower shall fail in any material respect in the
performance of its duties hereunder, and such failure shall continue for thirty
(30) days, the Lender shall appoint a servicer, chosen at the discretion of the
Lender, to perform such duties, and the Borrower shall promptly make available
to such servicer all books and records in any and all formats with respect to
the Collateral, and shall also make available to the servicer without fee any
and all computer software necessary to service the Collateral. Fees of the
servicer shall be paid in the manner described in the Security Agreement.
r. The Borrower will provide notice to all applicable gaming
authorities, to the extent required by the applicable gaming law, of the
Lender's security interest in the Contracts and the Equipment.
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s. After the occurrence of an Event of Default and not later than
two (2) days prior to a date on which a payment is due under the Note, the
Borrower shall provide the Lender with a detailed report with respect to all
monies, if any, deposited in the collateral account pursuant to Section 5 of the
Security Agreement, including amounts paid in respect of Payments on all
Contracts (as due and as a prepayment) and amounts paid in respect of interest.
The report shall be prepared in such manner as may be required by the Lender for
purposes of properly applying funds in accordance with Section 5(b) of the
Security Agreement, if applicable.
t. With respect to each of the Contracts, the Borrower shall: (i)
perform all acts necessary to preserve the validity and enforceability of each
such Contract; (ii) take all actions reasonably necessary to assist Lender in
collecting when due all amounts owing to Borrower with respect to each such
Contract; (iii) at all times keep accurate and complete records of performance
by Borrower and the Obligor under each such Contract; and (iv) upon request of
Lender verify with the Obligor under each Contract the payments due to Borrower
under such Contract, except that (A) prior to the occurrence of an Event of
Default or an event which with the passage of time or the giving of notice, or
both, would be an Event of Default, such requests shall not occur any more
frequently than once each year and (B) after the occurrence and during the
continuance of an Event of Default or an event which with the passage of time or
the giving of notice, or both, would be an Event of Default such requests may
occur as often as Lender shall require.
u. The Borrower will store the Equipment (which is not in the
possession of an Obligor) only in the Borrower's warehouses or in bonded
warehouses.
6. NEGATIVE COVENANTS. The Borrower covenants and agrees that, except
with the prior written approval of the Lender:
a. The Borrower will not create, incur or cause to exist any
mortgage, security interest, encumbrance, lien or other charge of any kind upon
any of the Collateral, whether now owned or hereafter acquired, except for the
security interests created by the Loan Documents. Except as permitted by the
Security Agreement, the Borrower will not sell, dispose of, lease, mortgage,
assign, sublet or transfer all or any part of the Borrower's right, title or
interest in or to all or any portion of the Collateral.
b. The Borrower will not substantially alter the nature of the
business in which it is engaged, or engage in any line of business substantially
different from its current business.
c. Following the occurrence of and during the continuance of an
Event of Default, the Borrower will not declare or pay any distributions or
purchase or redeem any of its capital stock, or otherwise distribute any
property on account of its capital stock, or enter into any agreement therefor.
d. The Borrower will not permit any material breach, default or
event of default to occur under any note, loan agreement, indenture, lease,
mortgage, contract for deed,
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security agreement or other contractual obligation binding upon the Borrower
which is not cured within the applicable cure provisions thereof.
e. The Borrower will not materially amend, supplement, modify,
compromise or waive any of the terms of any Contract, without the prior written
consent of the Lender, provided that Borrower will have the right to substitute
Equipment subject to any Contract with other Equipment that is like-kind in
value as long as Borrower files an amended or updated UCC financing statement
signed by Lender as to the substituted Equipment within the time period required
by the law of the applicable jurisdiction to perfect a purchase money security
interest and delivers such filed financing statements to the Lender with its
quarterly Contract Status Report.
f. If any of the following transactions would result in the
surviving entity not complying with the Tangible Net Worth test set forth in
Section 5.j. hereof or otherwise cause an Event of Default hereunder, the
Borrower will not consolidate with or merge into any person or entity, or permit
any other person or entity to merge into it, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all of the assets of any other person or entity, or enter into any
partnership or joint venture.
g. The Borrower will not make any payments on any of the Borrower's
indebtedness to any of the Borrower's affiliated entities, or to any of the
Borrower's shareholders, officers, directors or employees, following the
occurrence of and during the continuance of an Event of Default or a failure to
comply with a covenant contained in SECTION 5 or this SECTION 6.
h. After delivery of the Equipment to Obligor, the Borrower will not
cause or allow any movement of the Equipment, except as permitted under Section
6.e. hereof or in connection with any repossession by the Borrower of such
Equipment.
7. EVENT OF DEFAULT. Each of the following occurrences shall constitute
an Event of Default under this Agreement and under the Loan Documents (herein
called an "Event of Default"):
a. The Borrower shall fail to pay any or all of the indebtedness
arising out of this Agreement or Loan Documents (the "Obligations") when due or,
if payable on demand, on demand and such failure shall continue for a period of
five (5) days after such payment becomes due; or
b. The Borrower shall fail to observe or perform any covenant or
agreement binding on the Borrower under this Agreement or under any other
assignment, conveyance, instrument or agreement now in effect or hereafter made
between the Borrower and the Lender, or under the Loan Documents for a period of
thirty (30) days for any default which can be reasonably cured within thirty
(30) days and a reasonable period of time for a default not reasonably capable
of cure within thirty (30) days, provided the Borrower diligently commences and
continues a course of action acceptable to the Lender to so cure; or
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c. The Borrower shall make any representations or warranties in this
Agreement or in any such other assignment, conveyance, instrument, agreement,
financial statements, reports or certificates heretofore or at any time
hereafter submitted by or on behalf of the Borrower to the Lender, and such
representations or warranties, shall prove to have been false or materially
misleading when made; or
d. As a result of a default or failure by Borrower, payment of any
substantial indebtedness of the Borrower (other than the Obligations) shall be
demanded, or the maturity of any substantial indebtedness shall be accelerated,
or any precondition or circumstance permitting any creditor of the Borrower
(acting individually or with the consent of other creditors) to accelerate the
maturity of any substantial indebtedness shall have occurred; for this purpose
indebtedness shall be deemed substantial if it exceeds $500,000; or
e. The Borrower shall become insolvent or shall commit an act of
bankruptcy under the United States Bankruptcy Act, or shall file or have filed
against it, voluntarily or involuntarily, a petition in bankruptcy or for
reorganization or for the adoption of an arrangement or plan under the United
States Bankruptcy Act or shall procure or suffer the appointment of a receiver
for any substantial portion of its properties, or shall initiate or have
initiated against it, voluntarily or involuntarily, any act, process or
proceeding under any insolvency law or other statute or law providing for the
modification or adjustment of the rights of creditors and such petition,
receiver, act, process or proceeding shall not be dismissed or discharged within
ninety (90) days; or
f. A garnishment summons or writ of attachment for an amount in
excess of $500,000 shall have been issued against or served upon the Lender for
the attachment of any property of the Borrower in the Lender's possession or any
indebtedness owing the Borrower; or
g. The Borrower shall have been dissolved, whether voluntarily or by
operation of law; or
h. Any of Borrower's licenses required under the gaming laws of
Nevada, New Jersey or any other jurisdiction in which any of the Collateral is
located is revoked or rescinded, lapses, or is otherwise no longer maintained by
or available to the Borrower.
8. RIGHTS AND REMEDIES UPON DEFAULT. Upon the occurrence of an Event of
Default and at any time thereafter, subject to the gaming laws of any
jurisdiction in which any of the Collateral is located, the Lender may exercise
one or more of the following rights and remedies:
a. The Lender may 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. Subject to the rights of the Obligors, the Lender may exercise
and enforce any and all rights and remedies available upon default to a secured
party under the Uniform
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Commercial Code including, without limitation, the right to take possession
of the Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice thereof,
which the Borrower hereby expressly waives) and the right to sell, lease or
otherwise dispose of any or all of the Collateral, and the Borrower agrees to
make the Collateral available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties. If notice to the
Borrower of any intended disposition of the Collateral or any other intended
action is required by law in a particular instance, such notice shall be
deemed commercially reasonable if given at least ten (10) calendar days prior
to the date of intended disposition or other action;
c. The Lender may request the Borrower to, and upon such request the
Borrower will, assist the Lender in repossessing and selling the Equipment in
compliance with all applicable laws and in accordance with the Repossession
Agreement (this provision in no way limits the Lender's ability to use any other
person or entity to repossess and sell the Equipment);
d. Without notice or demand, the Lender may offset any indebtedness
the Lender or any of its participants, successors or assigns then owes to the
Borrower whether or not then due, against any Obligation then owed to the Lender
or any of its participants, successors or assigns by Borrower, whether or not
then due;
e. The Lender may exercise the recourse rights of the Borrower
against the Obligor on any Contracts; and
f. The Lender may exercise or enforce any and all other rights or
remedies available by law or agreement against the Collateral, against the
Borrower or against any other person or property.
9. MISCELLANEOUS. The Borrower agrees that:
a. The performance or observance of any promise or condition set
forth in this Agreement may be waived in writing by the Lender, but not
otherwise. No delay in the exercise of any power, right or remedy of the
Lender, shall operate as a waiver thereof, nor shall any single or partial
exercise thereof or the exercise of any other power, right or remedy operate as
a waiver thereof.
b. This Agreement shall be binding upon the Borrower and its
successors and assigns and shall inure to the benefit of the Lender and its
participants and the successors and assigns of any of them, provided that the
Borrower may not transfer or assign its rights hereunder without the prior
written consent of the Lender. This Agreement shall be effective the date
written above. All rights and powers specifically conferred upon the Lender may
be transferred or delegated by the Lender to any of its successors or assigns.
Except to the extent otherwise required by law, this Agreement and the
transactions evidenced hereby shall be governed by the substantive laws of the
State of Minnesota without regard to principles of conflicts of laws. If any
provision or application of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other
provisions or applications which can be
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given effect, and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement or in any other agreement between the Borrower and the Lender shall
survive the execution, delivery and performance of this Agreement and the
creation and payment of any indebtedness to the Lender. This Agreement may be
executed in any number of counterparts, each of which is to be deemed to be
an original and all of which constitute one agreement.
10. NOTICES. All notices, consents, requests, demands and other
communications hereunder shall be given to or made upon the respective parties
hereto at their respective addresses specified below or, as to any party, at
such other address as may be designated by it in a written notice to the other
party. All notices, requests, consents and demands hereunder shall be effective
when personally delivered or five (5) days after depositing in the United States
mail, certified or registered, postage prepaid, or when sent by confirmed
facsimile, or when delivered by overnight courier.
If to Borrower: PDS Financial Corporation
6171 McLeod Drive
Las Vegas, NV 89120
Attn: Johan Finley
Telephone: 702-736-0700
Fax: 702-740-8692
With a copy to: David Mylrea, Esq.
Frommelt & Eide, Ltd.
Suite 580
900 Second Avenue South
Minneapolis, MN 55402
If to M&S: Miller & Schroeder Investments Corporation
220 South Sixth Street, Suite 300
Minneapolis, Minnesota 55402
Attn: Gaming Department
Telephone: 612/376-1500
Fax: 612/376-1410
11. JURISDICTION. THE BORROWER HEREBY SUBMITS ITSELF TO THE JURISDICTION
OF THE STATE OF MINNESOTA AND THE FEDERAL COURTS OF THE UNITED STATES LOCATED IN
SUCH STATE IN RESPECT OF ALL ACTIONS ARISING OUT OF OR IN CONNECTION WITH THE
INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT AND THE DOCUMENTS RELATED
THERETO.
12. DUTIES OF LENDER WITH RESPECT TO COLLATERAL. Except with respect to
the exercise of remedies under this Agreement or the Security Agreement, the
Lender shall have no duty, responsibility or obligation of any nature whatsoever
to service, collect, administer, enforce or account for the Contracts. The
Borrower shall service, account for, administer, collect all
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payments and enforce all rights with respect to such Contracts. Upon the
occurrence of an Event of Default, the Borrower shall deposit such payments
promptly upon receipt and in the form received in the collateral account
established by the Lender pursuant to Section 5 of the Security Agreement.
13. INDEMNIFICATION. Except for losses, claims, damages or liability
arising out of the gross negligence or willful misconduct of the Lender, the
Borrower agrees to indemnify and hold harmless the Lender, its officers, agents
(including outside legal counsel) and employees, against any and all losses,
claims, damages or liability to which the Lender, its officers, agents and
employees, may become subject under any law in connection with the carrying out
of the transactions contemplated by this Agreement or any other Loan Document,
or the conduct of any activity related to the Equipment and to reimburse the
Lender, its officers, agents and employees, for any out-of-pocket legal and
other expenses (including reasonable attorneys' fees, whether incurred at trial,
on appeal, in bankruptcy proceedings, or otherwise) incurred by the Lender, its
officers, agents and employees, in connection with investigating any such
losses, claims, damages or liabilities or in connection with defending any
actions relating thereto. The Lender agrees, at the request and reasonable
expense of the Borrower, to cooperate in the making of any investigation in
defense of any such claim and promptly to assert any or all of the rights and
privileges and defenses which may be available to the Lender. The Borrower
further releases and agrees to hold harmless the Lender, its officers, agents
and employees, from and against all losses, damages, penalties, liabilities, or
expenses (including reasonable legal fees, whether incurred at trial, on appeal,
in bankruptcy proceedings, or otherwise) due to or arising out of any
misrepresentation of information furnished to Lender by Borrower or out of a
breach of any covenant, representation or undertaking of the Borrower contained
in this Agreement or any other Loan Document. The Borrower's liability
hereunder shall not be limited to the extent of such insurance or subject to any
exclusions from coverage in any insurance policy. The provisions of this
Section shall survive the payment of the Note and the Loan.
14. PLACEMENT FEE/PARTICIPATION SERVICING FEE. The Borrower shall pay to
the Lender the following amounts: (i) a placement fee that will be deducted
from the proceeds of the Note on the Closing Date, and (ii) a participation
servicing fee on the unpaid principal balance of the Note from time to time
outstanding (computed on the basis of a year consisting of twelve (12) thirty
(30) day months) accruing at a rate equal to one-fourth of one percent (0.25%),
payable monthly on each payment date under the Note.
15. ATTORNEYS FEES AND TAXES. The Borrower shall reimburse the Lender,
upon demand, for all reasonable costs and expenses actually incurred, including
without limitation reasonable attorney's fees paid or incurred by the Lender in
connection with:
a. The preparation or review of the Loan Documents (provided,
however, that the Borrower's obligation to pay legal fees to the Lender for
legal services rendered by counsel for the Lender in connection with the initial
preparation and review of the Loan Documents shall be limited to $10,000), the
perfection, protection, enforcement or foreclosure of the security interests
created by the Loan Documents, the protection or enforcement of the interests
and collateral security of the Lender in any litigation or bankruptcy or
insolvency
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proceeding or the prosecution or defense of any action or proceeding
relating in any way to the transactions contemplated by this Agreement, travel
to and from the offices and place of business of the Borrower, the negotiation
and preparation of the Loan Documents and all other documents necessary or
desirable in connection with the original execution and delivery of Loan
Documents;
b. For each Advance Request made pursuant to this Agreement, legal
fees associated with review of the documentation submitted by Borrower, and the
perfection of the security interests in the Collateral (provided, however, that
the legal fees for each Advance Request shall be limited to $750.00 and shall be
paid out of the Advance Request).
c. Subsequent to the initial Closing, the negotiation of any
amendments or modifications to any of the Loan Documents requested by or
consented to by Borrower or, if an Event of Default has occurred and is
continuing, requested by Lender, and any related documents, instruments or
agreements and the preparation of any and all documents necessary or desirable
to effect such amendments or modifications; and
d. The enforcement by the Lender during the term hereof or
thereafter of the rights or remedies of the Lender hereunder or under any of the
foregoing documents, instruments or agreements, including without limitation
reasonable costs and expenses of collection in the Event of Default, whether or
not suit is filed with respect thereto and whether such costs are paid or
incurred, or to be paid or incurred, prior to or after entry of judgment.
The Borrower agrees to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or hereafter reasonably determined by
the Lender to be payable in connection with the Loan Documents, or any other
documents, instruments or transactions pursuant to or in connection herewith or
therewith, and the Borrower agrees to save the Lender harmless from and against
any and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such taxes, fees or
impositions, unless such omission or delay is due to gross negligence or willful
misconduct on the part of Lender. All such expenses, taxes or attorney's fees
shall be payable to the Lender on demand. The obligations of Borrower under
this SECTION 15 shall survive the repayment of the Note and Loan.
16. RELATIONSHIP AMONG BORROWERS.
a. JOINT AND SEVERAL LIABILITY. BY SIGNING THIS AGREEMENT, EACH OF
THE BORROWERS AGREES THAT IT IS LIABLE, JOINTLY AND SEVERALLY WITH THE OTHER
BORROWER, FOR THE PAYMENT OF THE NOTE AND ALL OTHER OBLIGATIONS OF THE BORROWERS
UNDER THIS AGREEMENT, AND THAT LENDER CAN ENFORCE SUCH OBLIGATIONS AGAINST
EITHER BORROWER, IN LENDER'S SOLE AND UNLIMITED DISCRETION.
b. LENDER RIGHTS TO ADMINISTER THE LOAN. Lender may at any time and
from time to time, without the consent of, or notice to, either Borrower,
without incurring
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responsibility to either Borrower, and without affecting, impairing or
releasing any of the obligations of either Borrower hereunder:
(1) alter, change, modify, extend, release, renew, cancel,
supplement or amend in any manner the Loan Documents provided at least one
Borrower has consented thereto, and the Borrowers' joint and several liability
shall continue to apply after giving effect to any such alteration, change,
modification, extension, release, renewal, cancellation, supplement or
amendment;
(2) sell, exchange, surrender, realize upon, release (with or
without consideration) or otherwise deal with in any manner and in any order any
property of any person or entity mortgaged to Lender or otherwise securing the
Borrowers' joint and several liability, or otherwise providing recourse to
Lender with respect thereto;
(3) exercise or refrain from exercising any rights against
either Borrower or others with respect to the Borrowers' joint and several
liability, or otherwise act or refrain from acting;
(4) settle or compromise any of the Borrowers' joint and several
liability, any security therefor or other recourse with respect thereto, or
subordinate the payment or performance of all or any part thereof to the payment
of any liability (whether due or not) of either Borrower to any creditor of
either Borrower, including without limitation, Lender and either Borrower;
(5) apply any sum received by Lender from any source in respect
of any liabilities of either Borrower to Lender to any of such liabilities,
regardless of whether the Note remains unpaid;
(6) fail to set off and/or release, in whole or in part, any
balance of any account or any credit on its books in favor of either Borrower,
or of any other person, and extend credit in any manner whatsoever to either
Borrower, and generally deal with either Borrower and any security for the
Borrowers' joint and several liability or any recourse with respect thereto as
Lender may see fit; and/or
(7) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any other Loan Document, including, without
limitation, any agreement providing collateral security for the payment of the
Borrowers' joint and several liability or any other indebtedness of either
Borrower or Lender.
c. PRIMARY OBLIGATION. No invalidity, irregularity or
unenforceability of all or any part of either Borrower's joint and several
liability or of any security therefor or other recourse with respect thereto
shall affect, impair or be a defense to the other Borrower's joint and several
liability, and all obligations under the Note and this Agreement are primary
obligations of each Borrower.
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d. PAYMENTS RECOVERED FROM LENDER. If any payment received by the
Lender and applied to any obligations is subsequently set aside, recovered,
rescinded or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of a Borrower or any
other obligor), the obligations to which such payment was applied shall be
deemed to have continued in existence, notwithstanding such application, and
each Borrower shall be jointly and severally liable for such obligations as
fully as if such application had never been made. References in this Agreement
to amounts "irrevocably paid" or to "irrevocable payment" refer to payments that
cannot be set aside, recovered, rescinded or required to be returned for any
reason.
e. NO RELEASE. Until the Note and all other obligations under this
Agreement have been paid in full and each and every one of the covenants and
agreements of this Agreement are fully performed, the obligations of either
Borrower hereunder shall not be released, in whole or in part, by any action or
thing (other than irrevocable payment in full) which might, but for this
provision of this Agreement, be deemed a legal or equitable discharge of a
surety or guarantor, or by reason of any waiver, extension, modification,
forbearance or delay or other act or omission of Lender or its failure to
proceed promptly or otherwise, or by reason of any action taken or omitted by
Lender whether or not such action or failure to act varies or increases the risk
of, or affects the rights or remedies of, either Borrower, nor shall any
modification of any of the Note or this Agreement or release of any security
therefor by operation of law or by the action of any third party affect in any
way the obligations of either Borrower hereunder, and each Borrower hereby
expressly waives and surrenders any defense to its liability hereunder based
upon any of the foregoing acts, omissions, things, agreements, or waivers of any
of them. Neither Borrower shall be exonerated with respect to its liabilities
under this Agreement by any act or thing except irrevocable payment and
performance of the obligations, it being the purpose and intent of this
Agreement that the obligations constitute the direct and primary obligations of
each Borrower and that the covenants, agreements and all obligations of each
Borrower hereunder be absolute, unconditional and irrevocable.
f. ACTIONS NOT REQUIRED. Each Borrower hereby waives any and all
right to cause a marshalling of the other Borrower's assets or any other action
by any court or other governmental body with respect thereto insofar as the
rights of Lender hereunder are concerned or to cause Lender to proceed against
any security for the Borrowers' joint and several liability or any other
recourse which Lender may have with respect thereto, and further waives any and
all requirements that Lender institute any action or proceeding at law or in
equity against the other Borrower or anyone else, or with respect to this
Agreement, the Loan Documents, or any collateral security for the Borrowers'
joint and several liability, as a condition precedent to making demand on, or
bringing an action or obtaining and/or enforcing a judgment against, either
Borrower. Each Borrower further waives any requirement that Lender seek
performance by the other Borrower or any other person, of any obligation under
this Agreement, the Loan Documents or any collateral security for the Borrowers'
joint and several liability as a condition precedent to making a demand on, or
bringing an action or obtaining and/or enforcing a judgment against, either
Borrower. No Borrower shall have any right of setoff against Lender with
respect to any of its obligations hereunder. Any remedy or right hereby granted
which shall be found to be unenforceable as to any person or under any
circumstance, for any reason, shall in no way
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limit or prevent the enforcement of such remedy or right as to any other
person or circumstance, nor shall such unenforceability limit or prevent
enforcement of any other remedy or right hereby granted.
g. DEFICIENCIES. Each Borrower specifically agrees that in the
event of a foreclosure under the Security Agreement, any other security
agreement or other similar agreement held by Lender which secures any part or
all of the Borrowers' joint and several liability and in the event of a
deficiency resulting therefrom, each Borrower shall be, and hereby is expressly
made, liable to Lender for the full amount of such deficiency notwithstanding
any other provision of this Agreement or provision of such agreement, any
document or documents evidencing the indebtedness secured by such agreement or
any other document or any provision of applicable laws which might otherwise
prevent Lender from enforcing and/or collecting such deficiency. Each Borrower
hereby waives any right to notice of a foreclosure under any security agreement
or other similar agreement given to Lender by any other Borrower which secures
any part or all of the Borrowers' joint and several liability.
h. BORROWERS BANKRUPTCY. Each Borrower expressly agrees that its
liability and obligations under the Note and this Agreement shall not in any way
be affected by the institution by or against the other Borrower or any other
person or entity of any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or any other similar proceedings for relief under any
bankruptcy law or similar law for the relief of debtors, or any action taken or
not taken by Lender in connection therewith, and that any discharge of either
Borrower's joint and several liability pursuant to any such bankruptcy or
similar law or other laws shall not discharge or otherwise affect in any way the
obligations of the other Borrower under the Note and this Agreement, and that
upon or at any time after the institution of any of the above actions, at
Lender's sole discretion, the Borrowers' joint and several obligations shall be
enforceable against either Borrower that is not itself the subject of such
proceedings. Each Borrower expressly waives any right to argue that Lender's
enforcement of any remedies against that Borrower is stayed by reason of the
pendency of any such proceedings against the other Borrower.
i. NO SUBROGATION. Notwithstanding any payment or payments made by
either Borrower hereunder or any setoff or application of funds of either
Borrower by the Lender, such Borrower shall not be entitled to be subrogated to
any of the rights of the Lender against the other Borrower or any other
guarantor or any collateral security or guaranty or right of offset held by the
Lender for the payment of the obligations, nor shall such Borrower seek or be
entitled to seek any contribution or reimbursement from the other Borrower or
any other guarantor in respect of payments made by such Borrower hereunder,
until all amounts owing to the Lender by the Borrowers on account of the
obligations are irrevocably paid in full. If any amount shall be paid to a
Borrower on account of such subrogation rights at any time when all of the
obligations shall not have been irrevocably paid in full, such amount shall be
held by that Borrower, and shall, forthwith upon receipt by the Borrower, be
turned over to the Lender in the exact form received by the Borrower (duly
endorsed by the Borrower to the Lender, if required), to be applied against the
obligations, whether matured or unmatured, in such order as the Lender may
determine.
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j. BORROWERS' FINANCIAL CONDITION. Each Borrower is familiar with
the financial condition of the other Borrower, and each Borrower has executed
and delivered this Agreement and the Note based on that Borrower's own judgment
and not in reliance upon any statement or representation of the Lender. The
Lender shall have no obligation to provide either Borrower with any advice
whatsoever or to inform either Borrower at any time of the Lender's actions,
evaluations or conclusions on the financial condition or any other matter
concerning the Borrowers.
k. RELATIONSHIP OF BORROWERS. Each Borrower represents that it
expects to derive benefits from the extension of credit accommodations to the
Borrowers by the Lender and finds it advantageous, desirable and in its best
interests to execute and deliver this Agreement and the Note to the Lender.
17. PARTICIPATION DISCLOSURE. The Borrower hereby acknowledges that and
consents to the Lender selling participation interests in the Loan, and hereby
authorizes the Lender to disclose to any potential participant the Loan
Documents and any and all financial and other information relating to the
Borrower and delivered to the Lender in connection with this transaction,
provided that Lender shall comply with all laws, including but not limited to
federal and state securities laws, in connection with the offer or sale of such
participation interests. The Lender and anyone claiming by or through the
Lender shall not hold Borrower responsible for any false representations Lender
may have made to its participants.
18. AMENDMENTS. No amendment, modification or waiver of any provision of
the Loan Documents and no consent to any departure by the Borrower therefrom
shall in any event be effective unless the same shall be in writing and signed
by the Lender, and then such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
19. MARSHALLING; PAYMENTS SET ASIDE. The Lender shall be under no
obligation to marshall any assets in favor of the Borrower or any other Person
or against or in payment of the Loan and other Indebtedness of the Borrower to
the Lender. To the extent that the Borrower makes a payment or payments to the
Lender or the Lender exercises its rights of setoff, and such payment or
payments or the proceeds of such setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
20. INVALID PROVISIONS. If fulfillment of any provision hereof, or any
transaction related thereto at the time performance of any such provision shall
be due, shall involve transcending the limit of validity prescribed by law,
then, ipso facto, the obligation to be fulfilled
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shall be reduced to the limit of such validity; and such clause or provision
shall be deemed invalid as though not herein contained, and the remainder of
this Agreement shall remain operative in full force and effect.
21. NOT JOINT VENTURES. The Lender is not, and shall not by reason of any
provision of any of the Loan Documents be deemed to be, a joint venturer with or
partner or agent of the Borrower.
22. ESTOPPEL CERTIFICATE. At any time and from time to time, within
fifteen (15) Business Days after receipt from the other party hereto of a
written request therefor, Borrower or Lender, as the case may be, shall prepare,
execute and deliver to the such party, and/or any other party which Borrower or
Lender, as the case may be, may designate, an estoppel certificate stating: (a)
the amount of the unpaid principal balance and accrued interest on the date
thereof; (b) the date upon which the last payment was made and the date the next
payment is due; and (c) that Borrower has no defenses, claims or offsets against
full enforcement hereof according to the terms hereof, or listing and describing
any such amendments, changes, defaults, events of default, defenses, claims or
offsets which do exist.
23. NOTICE OF CHANGE OF LOCATION. Borrower shall promptly notify Lender
of any change in location of Borrower's principal places of business or the
offices where it keeps its records concerning accounts and contract rights.
24. TAX IDENTIFICATION NUMBER. The federal tax identification number for
PDS Financial Corporation is 41-1605970. The federal tax identification number
for PDS Financial Corporation - Nevada is 88-0357859.
25. SETOFFS. If the unpaid principal amount of the Loan, interest accrued
thereon or any other amount owing by the Borrower under the Loan Documents shall
have become due and payable (by demand, acceleration or otherwise), the Lender
shall have the right, in addition to all other rights and remedies available to
it, without notice to the Borrower, to set off against, and to appropriate and
apply to such due and payable amounts any debt owing to, and any other funds
held in any manner by the Lender for the account of, the Borrower. Such right
shall exist whether or not the Lender shall have made any demand hereunder or
under any other Loan Document, whether or not such debt owing to or funds held
for the account of the Borrower is or are matured or unmatured, and regardless
of the existence or adequacy of any collateral, guaranty or any other security,
right or remedy available to the Lender.
26. REMEDIES CUMULATIVE. The rights and remedies herein specified of the
parties hereto are cumulative and not exclusive of any rights or remedies which
the parties hereto would otherwise have at law or in equity or by statute.
27. INTEGRATION; CONFLICTING TERMS. This Agreement together with the
other Loan Documents comprises the entire agreement of the parties on the
subject matter hereof and supersedes and replaces all prior agreements, oral and
written, on such subject matter. If any term of any of the other Loan Documents
expressly conflicts with the provisions of this
24
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Agreement, the provisions of this Agreement shall control; provided, however,
that the inclusion of supplemental rights and remedies of Lender in any of
the other Loan Documents shall not be deemed a conflict with this Agreement.
28. GOVERNING LAW; CONSTRUCTION. The Loan Documents shall be governed by,
and construed in accordance with, Minnesota law. Whenever possible, each,
provision of the Loan Documents and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of the Loan Documents or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited or invalid under such applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of the Loan Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto. The
parties shall endeavor in good-faith negotiations to replace any invalid,
illegal or unenforceable provisions with a valid provision the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provision. The provisions of this Section are irrevocable and may
not be rescinded, revoked or amended without the prior written consent of
Lender. Borrower acknowledges Lender has relied upon them in entering into the
Loan Documents.
29. WAIVER OF JURY TRIAL. Borrower hereby irrevocably waives any and all
right to trial by jury in any legal proceeding arising out of or relating to
this Agreement, the Note or any of the documents executed in connection
therewith or the transactions contemplated hereby or thereby.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the proper officers thereunto duly authorized on the day and year first above
written.
MILLER & SCHROEDER PDS FINANCIAL CORPORATION
INVESTMENTS CORPORATION
By: /s/ Gary M. Nelson By: /s/ Robert Mann
___________________________ ___________________________
Its: First Vice President Its: Executive Vice President
________________________ __________________________
PDS FINANCIAL CORPORATION -
NEVADA
By: /s/ Robert Mann
___________________________
Its: Executive Vice President
________________________
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Exhibit 23.2
Consent of Independent Accountants
We consent to the inclusion in the Post-Effective Amendment No. 1 on
Form S-3 to Form SB-2 Registration Statement (Registration No. 333-49199) of
our report dated March 20,1998 on our audits of the consolidated financial
statements of PDS Financial Corporation and subsidiaries as of December 31,
1997 and 1996, and for the years then ended. We also consent to the
reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
March 22, 1999
