-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LRanUAoG6RJ88aGctmnnTcrQE3YuPaAJG8pbWXSKBwUkE32ZDk8Wwc5eeZni79m4 WOZO0fS9WtEHqeJB/rXNaA== 0000950148-97-002432.txt : 19970929 0000950148-97-002432.hdr.sgml : 19970929 ACCESSION NUMBER: 0000950148-97-002432 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE GAMING CORP CENTRAL INDEX KEY: 0000002491 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880104066 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-04281 FILM NUMBER: 97686395 BUSINESS ADDRESS: STREET 1: 6601 S. BERMUDA RD. CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 702-270-6700 MAIL ADDRESS: STREET 1: 4380 BOULDER HIGHWAY CITY: LAS VEGAS STATE: NV ZIP: 89121 FORMER COMPANY: FORMER CONFORMED NAME: UNITED GAMING INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GAMING & TECHNOLOGY INC DATE OF NAME CHANGE: 19890206 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED PATENT TECHNOLOGY INC DATE OF NAME CHANGE: 19830519 10-K 1 FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 0-4281 ALLIANCE GAMING CORPORATION (Exact name of registrant as specified in its charter) NEVADA 88-0104066 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 6601 S. BERMUDA RD. LAS VEGAS, NEVADA 89119 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER: (702) 270-7600 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.10 PAR VALUE 15% NON-VOTING SENIOR PAY-IN-KIND SPECIAL STOCK, SERIES B, $0.10 PAR VALUE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common equity held by non-affiliates of the registrant was approximately $95,204,000 as of September 2, 1997. The number of shares of Common Stock, $0.10 par value, outstanding as of September 2, 1997 according to the records of registrant's registrar and transfer agent, was 31,854,834. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year and is incorporated by reference into Part III of this Form 10-K. ================================================================================ 2 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 PART I ITEM 1. BUSINESS INTRODUCTION Alliance is a diversified, worldwide gaming company that (i) designs and manufactures gaming machines and computerized monitoring systems for gaming machines, (ii) owns and manages a significant installed base of gaming machines, (iii) owns and operates two casinos and (iv) in Germany, is a full-service supplier of wall-mounted gaming machines and amusement games. Alliance has achieved a leading market position for each of its business units. Operating under the name Bally Gaming, the Company is the second largest slot and video gaming machine manufacturer in North America, with over 86,000 gaming machines sold during the past five years. Operating under the name Bally Systems, the Company designs, integrates and sells highly specialized computerized monitoring systems that provide casinos with networked accounting and security services for their gaming machines. Systems has a leading position, with over 79,000 game monitoring units ("GMUs") installed worldwide. The Company also owns, operates and services an installed base of over 6,600 slot and video gaming machines which are located mostly in non-casino venues in Nevada and Louisiana ("Route Operations"). Alliance is the largest route operator in Nevada and the largest operator of gaming machines at racetracks in Louisiana. Alliance also owns and operates what management believes is the most profitable riverboat casino in Vicksburg, Mississippi and a small casino in Sparks, Nevada, which together have 30 table games and 1,100 gaming machines (collectively, "Casino Operations"). In addition, operating under the Bally Wulff name, the Company believes that it is now the leading supplier of wall-mounted gaming machines and arcade games in Germany The Company was incorporated in Nevada on September 30, 1968 under the name Advanced Patent Technology. The Company changed its name to Gaming and Technology, Inc. in 1983, to United Gaming, Inc. in 1988 and to Alliance Gaming Corporation on December 19, 1994. The Company conducts its gaming operations through directly and indirectly owned subsidiaries. On June 18, 1996 the Company acquired Bally Gaming International, Inc. which includes the Gaming Equipment and Systems and Wall Machines and Amusement Games business units. The term "Company" as used herein refers to Alliance Gaming Corporation and subsidiaries unless the context otherwise requires. The Company's principal executive offices are located at 6601 South Bermuda Road, Las Vegas, Nevada 89119; telephone (702) 270-7600. BUSINESS UNITS GAMING EQUIPMENT AND SYSTEMS Bally Gaming Overview. The Company's primary markets for its gaming machine products are the United States, Canada and Europe and Latin America, and, to a lesser extent, the Far East and the Caribbean. The following table sets forth the percentage of new unit sales by market segment during the periods indicated:
NEW UNITS BY MARKET SEGMENT PERCENTAGE OF NEW UNITS SOLD Years ended Six months Year ended December 31, ended June 30, June 30, 1994 1995 1996 1997 ---- ---- ---- ---- Nevada and Atlantic City 34% 42% 37% 47% International 21 30 45 40 Riverboats 31 12 11 5 Indian Gaming 13 14 7 7 Other (principally VLTs) 1 2 --- 1 --- --- --- --- 100% 100% 100% 100% === === === ===
2 3 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 United States Markets. Within the United States, Nevada represents the largest installed base of gaming machines with an installed base of approximately 180,000 machines as of June 30, 1997. The Company estimates that Atlantic City, the second largest market, had an installed base of approximately 33,000 machines as of June 30, 1997. Product sales of the Company's casino-style gaming equipment in these markets are primarily to established casino customers to either replace existing machines or as part of an expansion or refurbishment of the casino. Also, because gaming machine revenues have increased at a higher rate than table game revenues over the past decade, casino operators have frequently increased floor space dedicated to gaming machines. In addition, major casino openings in Nevada, expansions of existing casinos and the proliferation of casinos in emerging markets have created additional floor space available for new gaming products and are anticipated to further increase competitive pressures on casino operators to replace existing equipment with new machines on an accelerated basis. Riverboat casinos began operating in 1991 and, as of June 30, 1997, riverboat casinos were operating in Indiana, Iowa, Illinois, Mississippi, Missouri and Louisiana. The estimated installed base of gaming machines on riverboats is approximately 82,000 machines as of June 30, 1997. Casino-style gaming continues to expand on Native American lands. Native American gaming is regulated under the Indian Gaming Regulatory Act of 1988 which permits specific types of gaming. The Company's machines are placed only with Native American gaming operators who have negotiated a compact with the state and received approval by the U.S. Department of the Interior. The Company has, either directly or through its distributors, sold machines for casinos on Native American lands in Arizona, Connecticut, Iowa, Michigan, Minnesota, Mississippi, Montana, New Mexico, North Dakota, South Dakota and Wisconsin. Compacts have also been approved in Oregon, Colorado and Louisiana, although Gaming made no deliveries in these jurisdictions. In addition to the approved states, compacts are under consideration in several states, including Alabama, California, Maine, Massachusetts, Rhode Island, Texas and Washington. The installed base of all Native American gaming machines as of June 30, 1997 was approximately 70,000 units. In addition, there are currently casinos in Colorado and South Dakota. The estimated installed base of machines in these markets as of June 30, 1997 was approximately 15,000 machines. The continued growth of domestic emerging markets for gaming machines is contingent upon the public's acceptance of gaming and an ongoing regulatory approval process by Federal, state and local governmental authorities. Management cannot predict which new jurisdictions or markets, if any, will approve the operation of gaming machines, the timing of any such approval or the level of the Company's participation in any such new markets. International Markets. In addition to the domestic markets, the gaming industry is also expanding in international markets. The Company's primary international markets are Europe, Canada and Latin America, and, to a lesser extent, the Far East and the Caribbean. The Company has begun, and plans to continue, expansion into the Australian market, and in 1995, Gaming established an office in Sydney, Australia. The Company recorded its first sale into the Australia market in the quarter ended June 30, 1996. One of the Company's indirect subsidiaries, Bally Gaming International, GmbH ("GmbH") distributes gaming machines, manufactured primarily by Gaming, through its sales office in Hannover, Germany principally to customers in Europe and Russia, and through its sales office in Johannesburg, South Africa, principally to customers on the African continent. 3 4 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 The percentage of Gaming's international revenues by geographic area for the periods indicated are set forth below:
NEW UNITS BY GEOGRAPHIC AREA PERCENTAGE OF NEW UNITS SOLD Years ended Six months Year ended December 31, ended June 30, June 30, 1994 1995 1996 1997 ---- ---- ---- ---- Europe 56% 51% 40% 33% Canada 17 22 31 26 Latin America 20 20 25 39 Far East 4 4 2 2 Other 3 3 2 --- --- --- --- --- 100% 100% 100% 100% === === === ===
Products. Gaming designs, manufactures and distributes a variety of electronic slot and video gaming machines. Machines are differentiated from one another by graphic design and theme, cabinet style and size, payout, reel-type design and minimum/maximum betting amount. Slot machines are normally produced to specific order, with design and configuration customized to a customer's particular requirements. Customers may also change from one gaming model to another gaming model by ordering a "conversion kit" which consists of artwork, reel strips and a computer chip. Gaming's video gaming machines are designed to (i) simulate various live card games and keno through a video display and (ii) for Game Maker(R) gaming machines, offer the player the chance to play up to ten games. New games and themes are introduced periodically in order to satisfy customer demand and to compete with product designs introduced by competitors. Gaming introduced its "ProSeries(tm)" reel-type slot machines during late 1993 and its multi-game touch screen machine, the Game Maker(R), during late 1994. The Game Maker(R) can offer up to 10 different video games within one gaming device. The ten games can be selected by the casino from a game library that has over 300 games. The games simulate various card games, keno and popular reel-spinning games. The Game Maker(R) machines contain bill acceptors and many other features believed to be popular with casinos and their customers. The Game Maker(R) machines are available in upright, bar top and slant top cabinets. Revenues from sales of Game Maker(R) machines were approximately $6.7 million and $27.4 million during the years ended December 31, 1994 and 1995, respectively, $12.9 million for the six months ended June 30, 1996 and $34.9 million for the year ended June 30, 1997. The ProSeries(tm) was the result of a comprehensive product development effort which began in 1991. The development process included extensive testing of the new products in-house and on casino floors for reliability and player appeal. Revenues from sales of ProSeries(tm) machines were approximately $86.2 million and $57.1 million during the years ended December 31, 1994 and 1995 respectively, $38.5 million for the six months ended June 30, 1996 and $66.6 million the year ended June 30, 1997. Gaming typically offers a 90-day labor and up to a one-year parts warranty for new gaming machines sold and is actively involved in customer service after the original installation. Gaming provides several after-sale, value-added services to its customers including customer education programs, a 24-hour customer service hot-line, and field service support programs and spare parts programs. Gaming's historical warranty expense as a percentage of revenues has been less than 1%. In addition, Gaming sells and services used gaming machines and sells parts for existing machines. Gaming often accepts used machines as trade-ins toward the purchase of new gaming equipment. While a small secondary market exists in the United States, used machines are typically resold into the international market. Some used equipment is reconditioned for direct sale, but much is sold in container lots on an "as is" basis through independent brokers. 4 5 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Sales of used equipment were $4.2 million and $9.2 million during the years ended December 31, 1994 and 1995, respectively, $2.0 million for the six months ended June 30, 1996 and $5.4 million for the year ended June 30, 1997. The following table sets forth the percentages of revenues provided by each of its major product lines for the periods indicated:
PERCENTAGE OF REVENUES Years ended Six months Year ended December 31, ended June 30, June 30, 1994 1995 1996 1997 ---- ---- ---- ---- Slot machines 74% 53% 63% 55% Video gaming machines 16 31 24 30 Other (primarily used machines, parts and services) 10 16 13 15 --- --- --- --- 100% 100% 100% 100% === === === ===
Gaming machines have a mechanical life that can exceed 10 years. However, in the established markets, Gaming's experience is that casino operators usually replace gaming machines after three to seven years. The factors which result in replacement of gaming machines sooner than their mechanical life include technological advances, development of new games, new sound and visual features and changing preferences of casino patrons. Casinos typically recoup the purchase cost of their electronic gaming machines in a few months, which allows casinos to replace machines with new models that are popular with casino patrons. In the past, Gaming had designed, manufactured and distributed video lottery terminals ("VLT"), which are generally operated by, or under the regulation of, state or provincial lottery commissions. The VLT business was less than 2% of revenues during the years ended December 31, 1994 and 1995, and less than 1% during the six months ended June 30, 1996 and the year ended June 30, 1997. Product Development. The Company believes that technological enhancements are the key to meeting the demands of casinos for new gaming machines. Most gaming machines on casino floors today are driven by technology which was developed over 20 years ago. The Company believes that accelerating the use of existing computer technology will give its gaming machines and systems a competitive advantage in the gaming industry. Total spending on product research and development by Gaming was $3.5 million, $3.7 million, $1.8 million and $4.0 million during the years ended December 31, 1994 and 1995, the six months ended June 30, 1996 and the year ended June 30, 1997, respectively. Gaming develops its products for both the domestic and international market. Gaming's product development process is divided into two areas, hardware and software. Major areas of hardware development include cabinet style, electronic capability, machine handle, coin hopper and bill acceptor. Hardware development efforts are focused upon player appeal, product reliability and ease of maintenance. Development cycles for hardware can range from a few days for simple enhancements to more than a year for new electronics or new mechanical packages. The software development process for new games, which includes graphics development, involves a continuous effort requiring relatively significant human resource allocations. Creativity in software development is an important element in product differentiation as the major manufacturers sometimes use similar hardware technology. Ideas for new models are generated both internally and from customers. Gaming can design the software and artwork for a new model in as little as two weeks, excluding regulatory approval. All new or modified hardware and software is designed to satisfy all applicable testing standards and must receive the approval of the appropriate gaming regulatory agency based on substantially satisfying such applicable testing standards before such gaming product can be offered for play to the public. Most gaming jurisdictions rely upon and accept the certification of selected independent laboratories that a gaming product meets the applicable testing standards. 5 6 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Regulatory approval for new or modified hardware and software changes takes from 30 days to three months or more. On an annual basis, Gaming expects to introduce approximately 25 new games to the market. However, no assurance can be made with respect to the rate of new model introductions or the obtaining of regulatory approvals in respect thereof. Sales and Marketing. Gaming uses a direct sales force, an independent distributor network and GmbH to sell its products. Gaming's sales staff of approximately 25 people, which operates offices in Nevada, New Jersey, Mississippi, Illinois, Colorado and Florida, generated approximately 78% of new machine sales over the calendar years 1994 and 1995 and 81% and 89% of new machine sales for the six months ended June 30, 1996 and the year ended June 30, 1997, respectively. On a limited basis, Gaming uses distributors for sales to certain specific markets in the United States as well as certain international jurisdictions. Gaming's agreements with distributors do not specify minimum purchases but generally provide that Gaming may terminate such agreements if certain performance standards are not met. Approximately 8% of new gaming machine unit sales for the calendar years 1994 and 1995 and 2% and 4% for the six months ended June 30, 1996 and the year ended June 30, 1997, respectively, were generated through independent distributors (including foreign distributors). Approximately 8% of new gaming machine unit sales for the calendar years 1994 and 1995 and 2% and 7% for the six months ended June 30, 1996 and the year ended June 30, 1997, respectively, were generated through GmbH. In addition to offering an expansive product line, Gaming provides customized services in response to specific casino requests. These services include high quality silkscreen printing of gaming machine glass, customized game development and interior design services. Gaming also offers customized design services that utilize computer aided design and studio software programs. Gaming's design department can generate a casino floor layout and can create a proposed slot mix for its customers. In many of the emerging markets, Gaming provides assistance to customers including the selection of related equipment such as slot stands, chairs, etc. and a recommended layout of the casino floor as well as a mix of machine models. Sales to established casinos in Nevada can require completion of a successful trial period for the machines in the casino. For the year ended June 30, 1997, approximately 85% of Gaming's slot and video gaming machine sales were on terms of 90 days or less. Approximately 15% of Gaming's sales, primarily in certain emerging markets such as riverboat and Native American gaming casinos, are financed over extended periods as long as 36 months and bear interest at rates ranging from 8% to 14%. International sales are generally consummated on a cash basis or financed over two years or less. In addition, in certain situations Gaming has participated in the financing of other gaming related equipment manufactured by third parties in the emerging markets. Management believes that financing of customer sales is an important factor in certain emerging markets. Customers. The demand for slot machines and video gaming machines varies depending on new construction and renovation of casinos and other facilities with needs for new equipment as well as the replacement of existing machines (which have an average replacement cycle of three to seven years). For the year ended December 31, 1995, the six months ended June 30, 1996 and the year ended June 30, 1997, Gaming's largest customer accounted for approximately 5%, 8% and 11% respectively of Gaming's revenues, while Gaming's ten largest customers accounted for approximately 25%, 42% and 45% of Gaming's revenues during such periods, respectively. Assembly Operations. Gaming's Las Vegas facility was completed in 1990 specifically for the design, manufacture and distribution of gaming equipment. The 150,000-square foot facility was designed to meet fluctuating product design demands and volume requirements, and management believes the facility enables Gaming to increase production without significant capital expenditures. Management believes that its assembly operations allow for rapid generation of different models to fill orders quickly and efficiently. Another major advantage of the existing plant operation is the system by which machines can be altered in many ways including the size, type and color of glass, sound and payoff patterns to produce a "customized" product for each customer. Gaming keeps an inventory of parts that allow machines to be altered quickly to conform with a 6 7 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 particular customer's design/feature request. Gaming produces products for individual customer orders and therefore finished goods inventories are kept low. Gaming designs all of the major assemblies that are incorporated into the final machine configuration. Competition. The market for gaming machines in North America is dominated by a single competitor, International Game Technology, Inc. ("IGT"). Management believes based on industry estimates made by analysts that Bally Gaming has the second largest market share in North America. There are a number of other well established, well-financed and well-known companies producing machines that compete with each of Gaming's lines in each of Gaming's markets. The other major competitors are Universal Distributing of Nevada, Inc., Video Lottery Technologies, Inc., Sigma Games, Inc., WMS Industries, Inc. ("WMS"), and in the international and in some instances domestic marketplaces, companies that market gaming machines under the brand names of Aristocrat, Atronic, Cirsa, and Novomatic and Sega Enterprises Ltd. Certain companies have developed niche products such as Anchor Gaming, Mikohn Gaming Corporation, Casino Data Systems ("CDS"), and Shuffle Master, Inc. In addition, other technology-oriented companies, such as Silicon Gaming, have entered or may enter the gaming machine business. Competition among gaming product manufacturers, particularly with respect to sales of gaming machines into new and emerging markets, is based on competitive customer pricing and financing terms, appeal to the player, quality of the product and having an extensive distribution and sales network. Systems Markets for Systems. Systems' primary markets for its computerized monitoring systems are the United States and, to a lesser extent, Canada, New Zealand, Latin America, Europe and the Caribbean. Markets for Systems within the United States include traditional land-based casinos predominantly in Nevada and Atlantic City, New Jersey, Native American casinos and riverboats and dockside casinos. Domestically, the market for computerized monitoring systems is divided equally between selling to new installations and to existing customers who are either expanding their casino floors or are upgrading their hardware to a new product release. Unlike the United States, where most jurisdictions require the implementation of systems, there have been few international markets to do so. Management believes, however, that the international market for such systems is increasing, and that Systems' sales to such markets will increase accordingly. Products. Bally Systems designs, integrates, and sells a computerized monitoring system ("SDS 6000") for slot and video gaming machines which provide casino operators with on-line real time data relative to a machine's accounting, security and cash monitoring functions. The SDS 6000 also provides data to, and receives data from, other third party player tracking computer and software applications allowing casinos to track their players to establish and compile individual player profitability and other demographic information. SDS 6000 is comprised primarily of (1) hardware consisting of microcontroller-based printed circuit boards which are installed within the slot and video machines as well as card reader displays and keypads which provide casinos with the ability to track player gaming activity and to monitor access to slot and video machines by the casino's employees, (2) application software developed by Systems which provides access to the slot machine's activity data gathered by the microcontroller hardware, and (3) third party mini-computers on which the application software resides. Systems also provides software and hardware support services, including maintenance, repair and training for purchasers of its monitoring systems. Product Development. Systems' product development is divided into two areas, hardware and software. The major areas of hardware development include microcontroller circuit board design and programming as well as user interface devices such as card readers, keypads and displays. Hardware development efforts are focused upon achieving greater functionality, product reliability and ease of maintenance for the casino operator and achieving greater visual appeal and ease of use for the slot customer. Development cycles for hardware can vary between a few months for minor revisions to more than a year for major design changes or for changes made by various slot manufacturers with which Systems' product must communicate and be physically integrated. Software development results in (1) periodic product releases that include new features which extend and enhance the SDS 6000 product, (2) periodic maintenance releases 7 8 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 which enable casino operators to correct problems or improve the usability of the system and (3) documentation needed to install and use the system. In 1995, the hardware and software groups from Systems, as well as engineers from Gaming, coordinated efforts to develop a form of cashless wagering that uses bar-coded coupons which can be read by the bill validators in Gaming's slot machines which are connected to an SDS 6000 system. Testing and regulatory approval is being pursued by Bally Systems in anticipation of release to casino operators. Gaming and Systems development groups continue to direct development efforts towards other forms of cashless wagering for use on Bally Gaming's slot machines and the SDS 6000 system. Systems spent $1.7 million and $1.9 million during the years ended December 31, 1994 and 1995, respectively, and spent $1.1 million during the six months ended June 30, 1996 and $2.7 million during the year ended June 30, 1997, on product research and development. Sales and Marketing. Systems has a direct sales force which produces the majority of its sales. Gaming's sales force and Gaming's independent distributor network produce the balance of Systems' sales, primarily in situations where customers are making gaming machine and computerized monitoring system purchase decisions at the same time. At June 30, 1997, worldwide, Systems has over 79,000 game monitoring units installed, or in the process of being installed, of which approximately 69,000 are in the United States. At June 30, 1997, Systems had 79 installed locations. During calendar years 1994 and 1995, Systems' own sales force has generated approximately 78% of its sales. During the six months ended June 30, 1996 and the year ended June 30, 1997, Systems' own sales force generated approximately 93% and 92% of its sales, respectively. Systems offers its customers the option of signing separate hardware and software maintenance agreements at the time of sale. These agreements are for periods of one year and automatically renew unless otherwise canceled in writing by the customer or Systems. After an initial warranty period, typically 90 days, the customer is invoiced a monthly hardware and software maintenance fee which provides essentially for repair and/or replacement of malfunctioning hardware and software, software version upgrades, and on-call support for software. Systems offers limited financing terms, normally less than one year, for sales to new installations. Most sales, however, are invoiced on a net 30 day basis. Customers. The demand for computerized slot monitoring systems is driven by regulatory requirements in a given jurisdiction and/or by a casino operator's competitive need to properly track machine and player activity and establish and compile individual machine and player profitability and other demographic information, all of which is of particular importance to casinos in developing marketing strategies. Systems' revenues are derived approximately equally from selling to new installations and to existing customers who are either expanding their casino floors or upgrading their hardware to a new product release. For the year ended December 31, 1995, the six months ended June 30, 1996 and the year ended June 30, 1997, Systems' ten largest customers (which include certain multi-site casino operators that have corporate agreements with Systems) accounted for approximately 92%, 84% and 70% of Systems' revenues, respectively. Due to the high initial costs of installing a computerized monitoring system, customers for such systems generally have tended not to change suppliers once they have installed such a system. Future growth will be based on penetration of the international markets, further expansion in the established and emerging markets, as well as continued development efforts by Systems to provide customers with new and innovative hardware and software product offerings. Competition. Systems' main competition currently consists of IGT, CDS, and to a lesser extent Gaming Systems International, Mikohn Gaming Corporation and Acres Gaming. Competition is keen in this market due to the number of providers and the limited number of casinos and jurisdictions in which they operate. Pricing, product feature and function, accuracy, and reliability are all key factors in determining a provider's success in selling its system. Systems 8 9 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 believes the future success of its operations will be determined by its ability to bring new and innovative products to the market while maintaining its base of loyal existing customers. WALL MACHINES AND AMUSEMENT GAMES Industry Overview Management believes that the German wall machine market consists of approximately 220,000 wall machine units. In addition, management believes there are 50,000 token machine units in Germany. German regulations limit the useful life of wall machines to a period of four years. As a result, annual market demand for wall machines in Germany approximates 55,000 units with fluctuations resulting primarily from economic conditions, and regulatory changes and new product development. Effective January 1, 1996, a regulatory change took effect requiring all arcade operators to have at least 15 square meters of space for each wall machine and a maximum of 10 machines per arcade. Starting in mid-1995, arcade operators began removing wall machines from their arcades to meet the requirements of this new regulation. Despite this adverse impact, the demand for new wall machines was approximately 47,000 units in calendar 1995. All wall machines manufactured since 1992 have meters that monitor the amount inserted by players and paid out by the machine. Wall machines without meters were required to be removed from service by the end of 1996. This led to an increase in demand for metered wall machines in the quarter ending December 31, 1996 which carried through the quarter ended March 31, 1997. Wall machine sales into the arcade market account for approximately 30% of the total wall machine sales in Germany. A significant number of arcades (approximately 10%) are owned by the two largest competitors, Gauselmann AG and NSM AG. Generally these competitors do not purchase wall machines from Bally Wulff for their arcades. Management believes Bally Wulff's share of the German wall machine market was approximately 25% for each of the last three years ended December 31, 1996, and was 33% for the year ended June 30, 1997. The German legislative authorities regulate and monitor the wall machine industry on an ongoing basis to ensure conformance with certain manufacturing standards and the fairness of each machine to users. Legislation presently affecting the wall machine industry relates to prescribed licensing procedures, the use, installation and operation of wall machines and the taxation of wall machines. Operations of Bally Wulff Products. Bally Wulff's manufacturing operations were founded in Berlin in 1950 and sold to BGII's former parent company in 1972. Bally Wulff produces and distributes a variety of models of wall machines, under the trade name "Bally Wulff" for operation in arcades, hotels, restaurants and taverns primarily in Germany. These wall machines are coin-operated, armless gaming devices similar to slot machines that award winnings for matching numbers or symbols on three to five wheels or drums and differ primarily in appearance, graphic design, theme, pay-table and customer appeal. Each game costs up to 40 pfennigs (approximately $0.23 at the exchange rate of $1.00=DM 1.75 prevailing as of June 30, 1997, which rate is used hereinafter) to play, although the player may deposit larger amounts to provide continuous play but not to increase payoffs. German regulations limit the maximum payout to ten times the player's stake (DM 4.00 or approximately $2.30 per game). Current models of wall machines provide the player the opportunity to win 100 special games on one play, which increases the potential amount that can be won on the minimum coin drop. German regulations require a minimum payback of 60% for wall machines, although many machines are generally programmed to pay back at somewhat higher rates to encourage play. Bally Wulff has also manufactured token machines for operation in arcades, hotels, restaurants and taverns in Germany and may continue to do so in the future on a selective basis. In addition to manufacturing wall machines, Bally Wulff distributes wall machines and other recreational and amusement coin-operated machines manufactured by third parties to provide a more extensive line of products to its 9 10 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 customers. These machines include pool tables, dart games, pinball machines, jukeboxes and arcade games, and are distributed primarily for use in arcades, restaurants, hotels and taverns. The following table sets forth the percentage of Bally Wulff's revenues by product line for the periods indicated:
PERCENTAGE OF REVENUES Years ended Six months Year ended December 31, ended June 30, June 30, 1994 1995 1996 1997 ---- ---- ---- ---- Wall machines manufactured by Wulff 48% 39% 42% 52% Recreational and amusement machines and third party wall machines distributed 21 23 22 25 Other (primarily used machines, parts and service) 31 38 36 23 --- --- --- --- 100% 100% 100% 100% === === === ===
Product Development. Management believes that Bally Wulff's wall machines are viewed as premium products because of their quality, dependability, ease of service and proven ability to attract players and generate revenue. Bally Wulff designs its machines to appeal to each of the three categories of participants in the distribution process: Bally Wulff's sales representatives and independent distributors, the owner/operators of the machines, and the players. The sales representatives and distributors require machines with broad appeal that are easy to demonstrate and sell. The owner/operators desire reasonably priced machines that are easy to collect from and service and that are proven revenue generators. The players prefer entertaining machines that are simple to play and have unique features. Bally Wulff's management has formed design teams which are responsible for generating ideas for creative new machines. These teams are comprised of representatives of each department involved in the production and distribution of machines, such as art design, engineering, manufacturing, marketing and sales. The design teams meet for three days each calendar quarter at a site away from Bally Wulff's headquarters. The teams analyze machines currently being marketed by Bally Wulff and its competitors to assess their strengths and weaknesses and then suggest ideas for new machines. These ideas are reviewed to determine which machines should be produced on a trial basis. Bally Wulff typically pursues 15 to 20 projects at any given time, and approximately 12 to 15 machines are submitted for licensing each year. These new machines are built in limited quantities and then test marketed for three to six months. Generally, less than one-half of the new machines tested are put into full scale production. Management believes this process of generating new ideas and then turning only a limited number of the ideas into machines which will reach the mass market is responsible for the high quality of Bally Wulff's machines and their continued acceptance and success in the marketplace. Because the machines have a reputation for quality, Bally Wulff is often able to produce and market a particular model for up to two years, which management believes, based upon its experience in the relevant marketplace and feedback from customers, exceeds the industry average. During the years ended December 31, 1994 and 1995, the six months ended June 30, 1996 and the year ended June 30, 1997, Bally Wulff spent approximately $3.5 million, $3.6 million, $1.8 million and $3.3 million, respectively, on product research and development. Sales and Marketing. Bally Wulff sells approximately 83% of its products through its own sales force of 56 people located in its 23 regional sales offices. Independent German distributors account for approximately 17% of sales. Approximately 98% of Wulff's sales of new wall machines are in the German market. The sales offices are operated as independent profit centers and are assigned geographic areas for which they are responsible for sales, servicing the machines and assisting in collecting customers' accounts receivable balances. 10 11 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Bally Wulff devotes substantial time, money and effort to marketing and promoting its products. Bally Wulff takes an active part in the annual Amusement Game Fair which is traditionally held each January in Frankfurt, Germany, at which Bally Wulff introduces new products. The next Amusement Game Fair will be held in November 1998 rather than January 1998. The wall machines manufactured and sold by Bally Wulff generally sell for prices ranging from DM 5,700 to DM 7,700 (approximately $3,300 to $4,400). A majority of machines distributed by Bally Wulff are paid for in full within 90 days after the sale. Remaining sales of machines are financed by Bally Wulff generally over a 12-month period, with interest rates of up to 12%. For this reason, Bally Wulff establishes an internal credit rating and credit limit for each customer. Under Bally Wulff's conditions of sale, title to a machine is retained by Bally Wulff until the machine has been paid for in full. In addition, Bally Wulff demands security. Currently, Bally Wulff provides customer financing for approximately 10% of its sales, and management expects this practice to increase during the latter half of 1997. Leasing machines to customers accounted for 6% of total revenues for the year ended June 30, 1997 compared to 2%, 3% and 4% during the years ended December 31, 1994, and 1995 and the six months ended June 30, 1996, respectively. The leasing market is the fastest growing revenue segment and the management expects a substantial increase for the months ahead. In approximately 75% of its sales, Bally Wulff accepts wall machines and/or other recreational and amusement equipment as trade-ins toward the purchase of new machines. To the extent possible, the used machines are then resold. Customers. Each of Bally Wulff's top ten customers in 1997 has maintained its relationship with Bally Wulff for over three years. For the year ended June 30, 1997, no single customer accounted for more than 3% of Bally Wulff's revenues, while Bally Wulff's top ten largest customers accounted for approximately 12% of Bally Wulff's revenues. For the year ended December 31, 1995 and the six months ended June 30, 1996, Bally Wulff's top ten customers accounted for approximately 10% and 15% of Bally Wulff's revenues, respectively, while no single customer accounted for more than 3% and 6% of Bally Wulff's revenues for such periods, respectively. Bally Wulff's customer base for wall machines may be divided into two categories which differ based on the preferences of their clientele. Operators who place wall machines in arcades are generally interested in purchasing the newest products in the hopes that an innovation will result in a high level of public demand to play the new "hot" product. Street location operators serving hotels, restaurants and taverns, on the other hand, are generally more inclined to purchase lower-priced existing models with proven earnings records to provide as an amenity to customers. Assembly Operations. Bally Wulff's manufacturing process is primarily an assembly operation. Its manufacturing facility consists of a four-story, 100,000-square foot building in Berlin, Germany. Bally Wulff purchases its key raw materials, sub-assemblies and fabricated parts from a variety of suppliers, and most parts are purchased from multiple suppliers. While there exist no formal long-term contract commitments to any single supplier, Bally Wulff has placed certain standing orders with suppliers to help assure the availability of specific quantities on an as-needed basis. These orders are cancelable by Bally Wulff at any time without penalty. Most of the component parts are standard on all models of all Bally Wulff's wall machines, which promotes easy conversion from the production of one model to another in response to customer demand. Except in connection with certain promotions, Bally Wulff generally maintains low inventory levels of assembly parts, and the amount of work-in-process is generally less than the number of machines sold in one week. Because of its manufacturing structure, Bally Wulff is capable of substantially increasing its wall machine output without significant capital expenditures. Bally Wulff continues to improve its manufacturing efficiency and productivity through the use of computer-aided design systems, automated production equipment and devotion of substantial resources to product quality control. Competition. Germany's wall machine manufacturing industry is dominated by Bally Wulff and two of its competitors, NSM, AG and Gauselmann, AG. Management believes these three entities collectively account for more than 90% of 11 12 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 the entire market. Bally Wulff competes with many companies in the distribution of coin-operated amusement games, some of which are larger and have greater resources than Bally Wulff. Bally Wulff's two major competitors own and operate a significant number of arcades, which may give them a competitive advantage arising from a built-in market for their games and the ability to test market new games in their own arcades. Further, increased foreign competition in Germany may have an adverse impact on the Company's future wall machine revenues. Management believes that the primary competitive factors in the wall machine coin-operated amusement game market are the quality and depth of the product line, price and customer service which includes the ability to fill orders quickly and efficiently. ROUTE OPERATIONS Nevada Operations Overview. The Company's Nevada route operations involve the selection, ownership, installation, operation and maintenance of video poker devices, reel-type slot machines and other electronic gaming machines in local establishments such as taverns, restaurants, supermarkets, drug stores and convenience stores operated by third parties ("local establishments"). The Company's route operations target local residents who generally frequent local establishments close to their homes. The following table sets forth certain historical data concerning the Company's Nevada Route Operations for the years ended June 30:
1995 1996 1997 ---- ---- ---- Average number of gaming machines 5,260 5,290 5,660 owned Average number of locations 514 524 562 Average win per day per gaming machine $47.70 $48.60 $52.40
In July 1997 the Company added to its Nevada route through the addition of contracts with the Scolari's supermarket chain, the Westronics route, and several smaller locations, which added a total of approximately 650 games, bringing the total games on the Nevada route to over 6,300 for the first time. The Company enters into long-term agreements with local establishments through either space leases or revenue-sharing arrangements. Under revenue sharing arrangements, most common with taverns, restaurants and convenience stores, the Company does not pay rent, but rather receives a percentage of the revenues from the gaming machines. Under revenue sharing arrangements, both the owner of the local establishment and the Company must have a gaming license. Under space lease arrangements, most common with supermarkets and drug stores, the Company pays a fixed rental to the owner of the local establishment and the Company receives all of the revenues derived from the gaming machines. Under space lease arrangements, only the Company (and not the establishment owner) is required to hold a gaming license. Most of the local establishments serviced by the Company are restricted by law to operating no more than 15 gaming machines. Revenue-sharing arrangements accounted for approximately 86%, 85%, and 85% of revenues and 78%, 77%, and 77% of installed machines, respectively, in the Company's Nevada route operations for the years ended June 30, 1995, 1996, and 1997. At June 30, 1997, the weighted average remaining term of the Company's revenue sharing arrangements was approximately 3.4 years. Space lease arrangements accounted for approximately 14%, 15%, and 15% of revenues and 22%, 23%, and 23% of installed machines, respectively, in the Company's Nevada route operations for the years ended June 30, 1995, 1996, and 1997. At June 30, 1997, the weighted average remaining term of the Company's space leases was 2.7 years. The Company has historically been able to renew or replace revenues from expiring agreements with revenues generated by renewal or replacement contracts. The Company has emphasized return on investment rather than increasing market share in renewing or entering into new contracts and has undertaken a systematic review process to 12 13 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 adjust its contract mix to emphasize higher margin contracts and, where permissible, canceling or not renewing unprofitable contracts. Sales and Marketing. As the largest route operator in Nevada, the Company believes that it is able to differentiate itself from its competitors through a full-service operation providing its customers marketing assistance and promotional allowances and using its advanced design capabilities to provide electronic gaming machines with features customized to customers' needs. The Company has developed and is currently implementing a new system called "Gamblers Bonus". Gamblers Bonus is designed as a cardless slot players' club and player tracking system, which allows multiple local establishments to be linked together into a distributed gaming environment. Through this technology, the Company is able to provide its players and customers with many of the same gaming choices otherwise available only in a larger scale casino environment such as multi-location progressive jackpots, bigger jackpot payouts and traditional players' club enhancements. Additionally, the Company is offering a series of new and unique games available only to members of the Gamblers Bonus. Since launching Gamblers Bonus, the gaming machines linked to Gamblers Bonus have experienced an increase in net win per day per machine. As of June 30, 1997, the Company had the Gamblers Bonus system installed in 130 locations representing approximately 1,500 gaming machines. The Company believes Gamblers Bonus will continue to improve both the revenues and operating efficiencies of its Nevada route operations and has the potential to create additional opportunities in the Route Operations segment of the gaming industry. Additionally, the Company has been updating its installed base of gaming machines with bill-acceptor equipped electronic gaming machines which are also expected to improve revenues and operating efficiencies. Customers. The Company believes it has a diversified customer base with no one customer accounting for more than 10% and 6% of the Company's revenues generated from Nevada route operations during the years ended June 30, 1996 and 1997, although approximately 14% and 13% of such revenues were generated through an affiliated group of such customers for such periods, respectively. The affiliated group consists of eight partnerships each having one individual partner who is common to all such partnerships. For the years ended June 30, 1996 and 1997, the ten largest customers accounted for approximately 26% and 23% of Nevada route operations revenues, respectively. Assembly Operations. In previous years, the Company manufactured electronic gaming machines for use in the Nevada route operations. The Company manufactured approximately 73% of the electronic gaming machines currently used in the Nevada route operations. The Company is currently using a third party to perform assembly operations of the electronic gaming machines used in the Nevada route operations. The Company will soon combine this operation with Gaming's assembly operation. Competition. The Company is subject to substantial direct competition for its revenue-sharing and space lease locations from several large route operators and numerous small operators, located principally in Las Vegas, Reno and the surrounding areas. The Company and Jackpot Enterprises, Inc. are the dominant route operators in Nevada. The principal method of competition for route operators includes the economic terms of the revenue sharing or space lease arrangement, the services provided and the reputation of the route operator. Price competition is intense and until 1997 had reduced the Company's gross margin on such operations as the percentage of the gaming machine revenues retained by local establishment owners had increased. Louisiana Operations Overview. On the basis of its Nevada route operations expertise, in March 1992 the Company obtained a contract to operate video poker gaming machines in the greater New Orleans, Louisiana area through a subsidiary, Video Services, Inc. ("VSI"). The Company entered into an operating agreement which runs through May 2002 (with a five-year renewal option under certain conditions) with Fair Grounds Corporation, Jefferson Downs Corporation and Finish Line Management Corporation (collectively, "Fair Grounds") for the Company to be the exclusive 13 14 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 operator of video poker machines at the only racetrack and ten associated off-track betting parlors (OTB's) in the greater New Orleans area. The Company operates the game rooms where the video poker machines are located, for each of the eleven facilities owned by Fair Grounds, for which it receives a percentage of the revenue generated by the machines. As of June 30, 1997 the Company had approximately 700 video poker machines in Louisiana. Under the Louisiana gaming laws and regulations, the majority stockholder of any entity operating video poker machines in Louisiana must be a domiciled resident of the State of Louisiana. As a result, the Company owns 49% of the capital stock of VSI and three prominent members of the Louisiana business and legal community own the remaining 51%. The Company, however, owns all the voting stock of VSI and the majority of its officers and directors are Company employees. The Company has a 71% interest in dividends of VSI in the event dividends are declared. The Company also formed two other Louisiana subsidiaries, Southern Video Services, Inc. ("SVS") and Video Distributing Services, Inc. ("VDSI"). Both SVS and VDSI are structured in a manner similar to VSI except that the Company is entitled to receive 60% of any SVS dividends. Under the terms of its contract with Fair Grounds, the Company must conduct any additional video poker operations in Louisiana other than gaming at racetracks or OTB parlors through SVS. To date, SVS and VDSI have not engaged in business in Louisiana. The Company is prohibited by the Louisiana Act from engaging in both the manufacture and operation of video poker gaming in Louisiana and, therefore, the Company does not manufacture its own video poker machines for use in Louisiana. On November 5, 1996 voters in Louisiana approved a proposition to allow video poker to continue in six of the seven parishes in which the Company operates OTB's in the greater New Orleans area. In addition, voters approved video poker in three parishes in the greater New Orleans area where the Company currently does not operate. In the one parish in which the Company operates where video poker was voted down, the Company will be allowed to continue to conduct business through June 30, 1999. The two OTB's in this parish accounted for $2.2 million of revenues and approximately 10% of operating income for VSI during the year ended June 30, 1997. Sales and Marketing. VSI has developed an extensive marketing program under the names "The Players Room" and "Rockin' Horse Lounge" which are designed to attract primarily local residents to its facilities. Media placement has focused on newspaper and radio advertising with promotions including a player's club, direct mailings and offerings of a wide range of prizes. The Company intends to selectively expand its operations in the greater New Orleans area by increasing the number of video poker machines in certain of its existing locations as demand warrants, as well as investigating the addition of new locations under its current contract with the Fair Grounds in areas where competitive factors are favorable. Under the Louisiana Act, racetracks and OTBs are permitted to install an unlimited number of video poker machines while truckstops and taverns may install only limited numbers of such machines. Competition. The Company is subject to extensive competition for contracts to operate video poker machines and the Company's racetrack and OTB parlors compete with various riverboats and truckstops and locations with liquor licenses throughout the New Orleans area. Each truckstop is permitted to operate up to 50 video poker machines and each tavern is permitted to operate up to three video poker machines. Louisiana has riverboat gaming statewide and four riverboats are currently operating in Orleans Parish. Riverboats are permitted to have live table games and an unlimited number of gaming machines, including slot machines. Louisiana has also authorized one land-based casino, permitted to include live table games and an unlimited number of gaming machines in New Orleans, which opened in May 1995; however, its operator filed for bankruptcy reorganization and ceased operations in November 1995. At present it is not known whether the land-based casino will reopen following reorganization. CASINO OPERATIONS Overview. 14 15 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Rainbow Casino. On July 16, 1994, the Rainbow Casino located in Vicksburg, Mississippi permanently opened for business. The project includes the Rainbow Casino, which is a 24,000-square foot casino owned and operated by the Company which as of June 30, 1997, operated approximately 700 gaming machines and 21 table games as well as a 245-seat restaurant. The facility also includes an 89-room Days Inn hotel and a 10-acre indoor and outdoor entertainment complex called Funtricity Entertainment Park, which was developed by a subsidiary of Six Flags Corporation. Both the hotel and entertainment park, which were substantially completed in late May 1995, are owned and operated by third parties. The property is the only destination of its kind in Mississippi containing a casino/hotel/family entertainment complex. Rainbow Casino draws its customers principally from within a 75-mile radius of Vicksburg. The Vicksburg casino market generated approximately $185.0 million in gaming revenue in the twelve months ended June 30, 1997. The Company is the general partner of the partnership ("RCVP") that owns the Rainbow Casino. Pursuant to transactions consummated in March 1995, Rainbow Casino Corporation, the former owner of 55% of the Rainbow Casino, is now a limited partner entitled to receive 10% of the net available cash flows after debt service and other items, as defined (which amount increases to 20% of such amount when revenues exceed $35.0 million but only on such incremental amount), for a period of 15 years, such period being subject to one year extensions for each year in which a minimum payment of $50,000 is not made. The Company holds the remaining economic interest in the partnership. As part of the refinancing completed in August 1997, the Company purchased the HFS and NGM notes and repurchased the casino royalty from HFS. Rail City Casino. In April 1990, the Company purchased, for an aggregate purchase price of $9.5 million, substantially all of the assets of the Rail City Casino (formerly the Plantation Station Casino) located near the border of the cities of Reno and Sparks in northern Nevada. Rail City is a 20,000 square-foot casino which as of June 30, 1997 operated approximately 400 gaming machines, 9 table games, including blackjack, craps, roulette and poker, and keno. In addition, Rail City Casino includes a 300-seat restaurant and offers a race and sports book which is leased to an independent race and sports book operator. Rail City Casino is convenient to both Reno and Sparks and caters to the local market. Sales and Marketing. The Company's casinos target the mid-level gaming customers inthe market. The Company promotes its casinos primarily through special promotional events and by providing quality food at reasonable prices. Competition. Gaming of all types is available throughout Nevada and Mississippi in numerous locations, including many locations which may compete directly or indirectly with the Company's casino operations. The operation of casinos is a highly competitive business. The principal competitive factors in the industry include the quality and location of the facility, the nature and quality of the amenities and customer services offered and the implementation and success of marketing programs. Many of Rail City Casino's competitors include large casino-hotels which offer more amenities and may be perceived to have more favorable locations than the Company. The Rainbow Casino is the fourth gaming facility to open in Vicksburg and as such faces substantial direct competition for gaming customers in the region. In August 1997 it was announced the Lady Luck Gaming Corporation and Horseshoe Gaming, LLC formed a joint venture to develop a project that would include a dockside casino, hotel and related amenities. The project is contingent on several factors including regulatory approval and financing. PATENTS, COPYRIGHTS AND TRADE SECRETS Gaming has copyrighted both the source code and the video presentation of its games and registered many of these copyrights with the U.S. Copyright Office under the Copyright Act of 1976. Game version upgrades and new games are currently in the process of United States patent and copyright registration. Such copyrights expire at various dates from September 2056 to October 2065. In addition, some of the games have Federal and/or state 15 16 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 trademarks registered with the U.S. Patent and Trademark Office. Some of the games (either currently used or reserved for future development) also are covered by patents filed with the U.S. Patent and Trademark Office. Such patents expire at various dates from May 2008 to March 2012. Gaming Equipment and Systems are obligated under several patent agreements to pay royalties ranging from approximately $50 to $200 per game depending on the components in the gaming machines. Additionally, based on an amendment to the trademark licensing agreement between the Company and Bally Entertainment Corporation ("BEC") dated May 10, 1996, Gaming is obligated to pay a royalty on new machines sold of $35 per machine beginning on June 18, 1996 with a minimum annual royalty payment of $1.0 million for the initial five-year term of the amended agreement, which is subject to annual renewals by the Company thereafter. Royalty expense for Gaming for the years ended December 31, 1994 and 1995, the six months ended June 30, 1996 and the year ended June 30, 1997 was $2.9 million, $3.0 million, $1.1 million and $3.0 million, respectively. In connection with a settlement agreement entered between BEC, Bally Gaming, Inc., BGI Enterprises, BGII and IGT on December 16, 1992, BGII sold its interest in the Casino Interlink Multiple Location Progressive System (the "Progressive System") to IGT. The Company reserved certain rights in the sale, including the rights to continue to market the Progressive System (i) within Europe, (ii) for use in single locations and (iii) worldwide in lottery applications. The prohibition on sales or distribution of the Progressive System expires on December 16, 1997. This agreement is binding on all successors and assigns of the Company. The Company has registered the trademark "CEI" and its design and the logos of United Gaming, Inc. and United Coin Machine Co. with the U.S. Patent and Trademark Office. EMPLOYEES AND LABOR RELATIONS As of June 30, 1997, the Company employed approximately 1,200 persons in the State of Nevada, VSI employed 70 persons in the State of Louisiana, RCVP employed 450 persons in the State of Mississippi, the Company employed approximately 40 persons in various other states and Bally Wulff employed 450 persons in Germany. None of such employees is covered by a collective bargaining agreement. Bally Wulff's employees, however, are covered by German regulations which apply industry-wide and are developed, to some extent, through negotiations between representatives of the metal working industry employers and the trade union representing the employees. These regulations are in the nature of collective bargaining agreements and cover the general terms and conditions of such items as wages, vacations and work hours. The regulations codify what are considered the common standards of employment in the German metal working industry. The Company believes its relationships with its employees are satisfactory. GAMING REGULATIONS AND LICENSING General. The manufacture and distribution of gaming machines and the operation of gaming facilities are subject to extensive Federal, state, local and foreign regulation. Although the laws and regulations of the various jurisdictions in which the Company operates and into which the Company may expand its gaming operations vary in their technical requirements and are subject to amendment from time to time, virtually all of these jurisdictions require licenses, permits, documentation of qualification, including evidence of financial stability, and other forms of approval for companies engaged in the manufacture and distribution of gaming machines and the operation of gaming facilities, as well as for the officers, directors, major stockholders and key personnel of such companies. Any person which acquires a controlling interest in the Company would have to meet the requirements of all governmental bodies which regulate the Company's gaming business. A change in the make-up of the Company's Board of Directors and management would require the various Gaming Authorities to examine the qualifications of the new board and management. 16 17 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Nevada. The ownership and operation of casino gaming facilities in Nevada are subject to (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (the "Nevada Act") and (ii) various local ordinances and regulations. The Company's gaming, manufacturing, distributing and slot route operations (herein referred to as "gaming machine operations") are subject to the licensing and regulatory control of the Nevada State Gaming Control Board (the "Nevada Board"), the Nevada Gaming Commission (the "Nevada Commission"), the County Liquor and Gaming Licensing Board (the "Clark County Board") and various other county and city regulatory agencies, all of which are collectively referred to as the "Nevada Gaming Authorities". The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things; (i) the prevention of unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time in any capacity; (ii) the strict regulation of all persons, locations, practices, associations and activities related to the operation of licensed gaming establishments and the manufacture and distribution of gaming machines, cashless wagering systems and associated equipment; (iii) the establishment and maintenance of responsible accounting practices and procedures; (iv) the maintenance of effective control over the financial practices of licensees, including establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (v) the prevention of cheating and fraudulent practices; and (vi) providing a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the gaming-related operations conducted by the Company. The Company is registered with the Nevada Commission as a publicly traded corporation (a "Registered Corporation"). The Company's direct and indirect subsidiaries which conduct gaming operations at various locations, conduct gaming machine operations and manufacture and distribute gaming devices (collectively, the "Nevada Subsidiaries") are required to be licensed by the Nevada Gaming Authorities. The licenses held by the Nevada Subsidiaries require the periodic payments of fees, or fees and taxes, and are not transferable. The Company, through registered intermediary companies (individually, an "Intermediary Company" and collectively, the "Intermediary Companies"), has been found suitable to own the stock of the Nevada Subsidiaries, each of which is a corporate licensee (individually, a "Corporate Licensee" and collectively, the "Corporate Licensees") under the terms of the Nevada Act. As a Registered Corporation, the Company is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become a stockholder of, or receive any percentage of the profits from the Corporate Licensees without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company, the Intermediary Companies and the Corporate Licensees have obtained from the Nevada Gaming Authorities the various registrations, findings of suitability, approvals, permits and licenses required in order to engage in gaming activities, gaming machine operations, and in the manufacture and distribution of gaming devices for use or play in Nevada or for distribution outside of Nevada. All gaming machines and cashless wagering systems that are manufactured, sold or distributed for use or play in Nevada, or for distribution outside of Nevada, must be manufactured by licensed manufacturers and distributed or sold by licensed distributors. All gaming machines manufactured for use or play in Nevada must be approved by the Nevada Commission before distribution or exposure for play. The approval process for gaming machines and cashless wagering systems includes rigorous testing by the Nevada Board, a field trial and a determination as to whether the gaming machines or cashless wagering system meets strict technical standards that are set forth in the regulations of the Nevada Commission. Associated equipment (as defined in the Nevada Act) must be administratively approved by the Chairman of the Nevada Board before it is distributed for use in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, the Intermediary Companies or the Corporate Licensees in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and key employees of the Company and the Intermediary Companies who are actively and directly 17 18 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 involved in the licensed activities of the Corporate Licensees may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company, the Intermediary Companies or the Corporate Licensees, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company, the Intermediary Companies or the Corporate Licensees to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company and the Corporate Licensees that hold nonrestricted licenses are required to submit detailed financial and operating reports to the Nevada Commission. A nonrestricted license is a license for an operation consisting of 16 or more slot machines, or a license for any number of slot machines together with any other game, gaming device, race book or sports pool at one establishment. Substantially all material loans, leases, sales of securities and similar financing transactions by the Corporate Licensees that hold a nonrestricted license must be reported to or approved by the Nevada Commission. If it were determined that the Nevada Act was violated by a Corporate Licensee, the licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, the Intermediary Companies, the Corporate Licensees and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate any nonrestricted gaming establishment operated by a Corporate Licensee and, under certain circumstances, earnings generated during the supervisor's appointment (except for reasonable rental of the casino) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of the gaming licenses of the Corporate Licensees or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the gaming-related operations of the Company. The Gaming Authorities may, at their discretion, require the holder of any security of the Company, such as the Notes or the New Notes, to file applications, be investigated, and be found suitable to own such security of the Company if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires more than 5% of any class of a Registered Corporation's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of any class of a Registered Corporation's voting securities apply to the Nevada Commission for a finding of suitability within 30 days after the Chairman of the Nevada Board mails the written notice requiring such filing. In the event that there is a default in the payment of dividends for six consecutive dividend payment dates for the Company's 11 1/2% Non-Voting Junior Convertible Pay-in-Kind Special Stock, Series E (the "Series E Preferred Stock"), it will qualify as a voting security under the terms of the Nevada Act and will be considered as a separate class of voting securities for purposes of determining beneficial ownership. Under certain circumstances, an "institutional investor", as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of a class of a Registered Corporation's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were 18 19 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Registered Corporation, any change in the corporate charter, bylaws, management, policies or operations of the Registered Corporation, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Registered Corporation's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, the Intermediary Companies or the Corporate Licensees, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities, including, if necessary, the immediate purchase of said voting securities for cash at fair market value. Additionally, the Clark County Board has taken the position that it has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. The Nevada Commission may in its discretion require the holder of any debt securities of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if, without the prior approval of the Nevada Commission, it (i) pays the unsuitable person any dividend, interest or any distribution whatsoever, (ii) recognizes any voting right by such unsuitable person in connection with such securities, (iii) pays the unsuitable person renumeration in any form, or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to impose a requirement that a Registered Corporation's stock certificates bear a legend indicating that the securities are subject to the Nevada Act. The Nevada Commission has imposed this requirement on the Company. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. In addition, (i) a Corporate Licensee may not guarantee a security issued by a Registered Corporation pursuant to a public offering without the prior approval of the Nevada Commission; and (ii) restrictions on the transfer of an equity security issued by a 19 20 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Corporate Licensee or Intermediary Company and agreements not to encumber such securities (collectively, "Stock Restrictions") are ineffective without the prior approval of the Nevada Commission. The Nevada Commission has also imposed a requirement on the Company that it must receive the prior administrative approval of the Nevada Board Chairman for any offer for the sale of an equity security in a private transaction. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission on a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as a part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada corporate gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse affects of these business practices on Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before a Registered Corporation can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Registered Corporation's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada, and to the counties and cities in which the Licensees' respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either (i) a percentage of the gross revenues received, (ii) the number of gaming devices operated, or (iii) the number of games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling of food or refreshments. The Corporate Licensees that hold a license as an operator of a gaming device route or a manufacturer's or distributor's license also pay certain fees to the State of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of its participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ a person in the foreign operations who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages at establishments operated by a Corporate Licensee is subject to licensing, control and regulation by applicable regulatory agencies. All licenses are revocable and are not transferable. The agencies 20 21 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse affect upon the operations of the Corporate Licensees. Louisiana. The manufacture, distribution, servicing and operation of video draw poker devices ("Devices") in Louisiana is subject to the Louisiana Video Draw Poker Devices Control Law and the Rules and Regulations promulgated thereunder (the "Louisiana Act"). Until May 1, 1996 licensing and regulatory control was maintained by the Video Gaming Division of the Gaming Enforcement Section of the Office of State Police within the Department of Public Safety and Corrections (the "Division"). The Louisiana legislature passed a bill which created a single gaming control board for the regulation of gaming in Louisiana. This Board is called the Louisiana Gaming Control Board (the "Louisiana Board") which oversees all licensing for all forms of legalized gaming in Louisiana (including gaming on Native American lands). The Division will continue to perform investigatory functions for the Louisiana Board. The laws and regulations of Louisiana are based upon a primary consideration of maintaining the health, welfare and safety of the general public and upon a policy which is concerned with protecting the video gaming industry from elements of organized crime, illegal gambling activities and other harmful elements as well as protecting the public from illegal and unscrupulous gaming to ensure the fair play of devices. Each of the indirect operating subsidiaries for the Company's gaming operations in Louisiana, VSI and SVS, has been granted a license as a device owner by the Division. The other indirect subsidiary of the Company, VDSI, has been granted a license as a distributor by the Division. These gaming subsidiaries are Louisiana Licensees (the "Louisiana Licensees") under the terms of the Louisiana Act. The licenses held by the Louisiana Licensees expire at midnight on June 30 of each year and must be renewed annually through payment of fees. All license fees must be paid on or before May 15 in each year licenses are renewable. The Louisiana Board may deny, impose a condition on or suspend or revoke a license, renewal or application for a license for violations of any rules and regulations of the Louisiana Board or any violations of the Louisiana Act. In addition, fines for violations of gaming laws or regulations may be levied against the Louisiana Licensees and the persons involved for each violation of the gaming laws. The issuance, condition, denial, suspension or revocation is deemed a pure and absolute privilege and is at the discretion of the Louisiana Board in accordance with the provisions of the Louisiana Act. A license is not property or a protected interest under the constitution of either the United States or the State of Louisiana. The Division has the authority to conduct overt and covert investigations of any person involved directly or indirectly in the video gaming industry in Louisiana. These investigations have extended to information regarding a prospective licensee's and his or her spouse's immediate family and relatives and their affiliations with certain organizations or other business entities. The investigation may also extend to any person who has or controls more than a 5% ownership, income or profits interest in an applicant for or holder of a license or who is a key employee, or who has the ability to exercise significant influence over the licensee. All persons or entities investigated must meet all suitability requirements and qualifications for a licensee. The Louisiana Board may deny an application for licensing for any cause which it may deem reasonable. The applicant for licensing must pay a filing fee which also covers the cost of the investigation. In order for a corporation to be licensed as an operator or distributor of video poker gaming devices by the Louisiana Board, a majority of the stock of the corporation must be owned by persons who have been domiciled in Louisiana for a period of at least two years prior to the date of the application. In addition to licensure as a manufacturer of devices under the Louisiana Act, Gaming has been licensed as a manufacturer under the Louisiana Riverboat Economic Development and Gaming Control Act (the "Louisiana Riverboat Act"). Gaming's application for a permanent manufacturer's license as it relates to the land-based casino in New Orleans was pending before the Louisiana Economic Development and Gaming Corporation ("LEDGC") at the time the operator of the land-based casino filed for bankruptcy reorganization and ceased operations, resulting in the termination of funding for and effective closure of the LEDGC regulatory operations. The authority and duties 21 22 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 of LEDGC regarding licensing and regulation of the land-based casino will now fall within the jurisdiction of the Louisiana Board. The Louisiana Board has recently promulgated regulations governing its operation and the Company has been in contact with representatives of the Louisiana Board to coordinate the submission of all materials required for the Louisiana Board to issue the Company such licenses, permits or approvals as may be required. Mississippi. The manufacture and distribution of gaming and associated equipment and the ownership and operation of casino facilities in Mississippi are subject to extensive state and local regulation, primarily the licensing and regulatory control of the Mississippi Gaming Commission (the "Mississippi Commission") and the Mississippi State Tax Commission. The Mississippi Gaming Control Act (the "Mississippi Act"), which legalized dockside casino gaming in Mississippi, was enacted on June 29, 1990. Although not identical, the Mississippi Act is similar to the Nevada Gaming Control Act. The Mississippi Commission has adopted regulations which are also similar in many respects to the Nevada gaming regulations. The laws, regulations and supervisory procedures of Mississippi and the Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity; (ii) establish and maintain responsible accounting practices and procedures; (iii) maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and making periodic reports to the Mississippi Commission; (iv) prevent cheating and fraudulent practices; (v) provide a source of state and local revenues through taxation and licensing fees; and (vi) ensure that gaming licensees, to the extent practicable, employ Mississippi residents. The regulations are subject to amendment and interpretation by the Mississippi Commission. Changes in Mississippi law or regulations may limit or otherwise materially affect the types of gaming that may be conducted and could have an adverse effect on the Company and the Company's Mississippi gaming operations. The Mississippi Act provides for legalized dockside gaming at the discretion of the 14 counties that either border the Gulf Coast or the Mississippi River but only if the voters in such counties have not voted to prohibit gaming in that county. As of July 1997, dockside gaming was permissible in nine of the 14 eligible counties in the state and gaming operations had commenced in Adams, Hancock, Harrison, Tunica, Warren and Washington counties. Under Mississippi law, gaming vessels must be located on the Mississippi River or on navigable waters in eligible counties along the Mississippi River, or in the waters of the State of Mississippi lying south of the state in eligible counties along the Mississippi Gulf Coast. Litigation is pending with respect to the expansion of eligible gaming sites in which a landowner and a license applicant have appealed a finding of suitability by the Mississippi Commission of a site on the Big Black River in Warren County near Interstate 20 between Jackson and Vicksburg, Mississippi, where the Rainbow Casino, operated by RCVP, is located. The law permits unlimited stakes gaming on permanently moored vessels on a 24-hour basis and does not restrict the percentage of space which may be utilized for gaming. There are no limitations on the number of gaming licenses which may be issued in Mississippi. The Company, RCVP, Gaming and their affiliates are subject to the licensing and regulatory control of the Mississippi Commission. The Company is registered under the Mississippi Act as a publicly traded holding company of RCVP and Gaming is required to periodically submit detailed financial and operating reports to the Mississippi Commission and furnish any other information which the Mississippi Commission may require. If the Company is unable to continue to satisfy the registration requirements of the Mississippi Act, the Company and its affiliates cannot own or operate gaming facilities or continue to act as a manufacturer and distributor in Mississippi. RCVP must maintain a gaming license from the Mississippi Commission to operate a casino in Mississippi and Gaming must maintain a manufacturer and distributor license from the Mississippi Commission to manufacture and distribute gaming products. Such licenses are issued by the Mississippi Commission subject to certain conditions, including continued compliance with all applicable state laws and regulations. 22 23 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Gaming and manufacturer and distributor licenses are not transferable, are issued for a two-year period and must be renewed periodically thereafter. RCVP was granted a renewal of its gaming license by the Mississippi Commission in 1996 and such license must be renewed in June 1998. Gaming was granted a renewal of its manufacturer and distributor license in April 1997 and such license must be renewed in April 1999. No person may become a stockholder of, or receive any percentage of profits from, a licensed subsidiary of a holding company without first obtaining licenses and approvals from the Mississippi Commission. The Company and its affiliates have obtained such approvals from the Mississippi Commission. Certain officers and employees of the Company and the officers, directors and certain key employees of the Company's licensed subsidiaries must be found suitable or be licensed by the Mississippi Commission. The Company believes it has obtained, applied for, or is in the process of, applying for all necessary findings of suitability with respect to such persons affiliated with the Company, RCVP or Gaming, although the Mississippi Commission, in its discretion, may require additional persons to file applications for findings of suitability. In addition, any person having a material relationship or involvement with the Company may be required to be found suitable, in which case those persons must pay the costs and fees associated with such investigation. The Mississippi Commission may deny an application for a finding of suitability for any cause that it deems reasonable. Changes in certain licensed positions must be reported to the Mississippi Commission. In addition to its authority to deny an application for a findings of suitability, the Mississippi Commission has jurisdiction to disapprove a change in a licensed position. The Mississippi Commission has the power to require the Company and its registered or licensed subsidiaries to suspend or dismiss officers, directors and other key employees or sever relationships with other persons who refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities. Employees associated with gaming must obtain work permits that are subject to immediate suspension under certain circumstances. The Mississippi Commission must refuse to issue a work permit to a person convicted of a felony and it may refuse to issue a work permit to a gaming employee if the employee has committed certain misdemeanors or knowingly violated the Mississippi Act or for any other reasonable cause. At any time, the Mississippi Commission has the power to investigate and require the finding of suitability of any record or beneficial stockholder of the Company. Mississippi law requires any person who acquires more than 5% of the common stock of a publicly traded corporation registered with the Mississippi Commission to report the acquisition to the Mississippi Commission, and such person may be required to be found suitable. Also, any person who becomes a beneficial owner of more than 10% of the common stock of such a company, as reported to the Securities and Exchange Commission, must apply for a finding of suitability by the Mississippi Commission and must pay the costs and fees that the Mississippi Commission incurs in conducting the investigation. The Mississippi Commission has generally exercised its discretion to require a finding of suitability of any beneficial owner of more than 5% of a public company's common stock. However, the Mississippi Commission has adopted a policy that permits certain institutional investors to own beneficially up to 10% of a registered public company's common stock without a finding of suitability. If a stockholder who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Mississippi Commission may be found unsuitable. Management believes that compliance by the Company with the licensing procedures and regulatory requirements of the Mississippi Commission will not affect the marketability of the Company's securities. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of the securities of the Company beyond such time as the Mississippi Commission prescribes may be guilty of a misdemeanor. The Company is subject to disciplinary action if, after receiving notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company or its licensed subsidiaries, the Company: (i) pays the unsuitable person any dividend or other distribution upon the voting securities of the Company; (ii) recognizes the exercise, directly or indirectly, of any voting rights conferred by 23 24 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 securities held by the unsuitable person; (iii) pays the unsuitable person any remuneration in any form for services rendered or otherwise, except in certain limited and specific circumstances; or (iv) fails to pursue all lawful efforts to require the unsuitable person to divest himself of the securities, including, if necessary, the immediate purchase of the securities for cash at a fair market value. The Company may be required to disclose to the Mississippi Commission upon request the identities of the holders of any debt securities. In addition, under the Mississippi Act, the Mississippi Commission may in its discretion (i) require holders of debt securities of registered corporations to file applications, (ii) investigate such holders and (iii) require such holders to be found suitable to own such debt securities. Although the Mississippi Commission generally does not require the individual holders of obligations such as notes to be investigated and found suitable, the Mississippi Commission retains the discretion to do so for any reason, including but not limited to a default, or where the holder of the debt instrument exercises a material influence over the gaming operations of the entity in question. Any holder of debt securities required to apply for a finding of suitability must pay all investigative fees and costs of the Mississippi Commission in connection with such an investigation. RCVP and Gaming must maintain in Mississippi a current ledger with respect to the ownership of their equity securities and the Company must maintain a current list of stockholders in the principal office of RCVP which must reflect the record ownership of each outstanding share of any equity issued by the Company. The ledger and stockholder lists must be available for inspection by the Mississippi Commission at any time. If any securities of the Company are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Commission. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company must also render maximum assistance in determining the identify of the beneficial owner. The Mississippi Act requires that the certificates representing securities of a registered publicly traded corporation bear a legend to the general effect that such securities are subject to the Mississippi Act and the regulations of the Mississippi Commission. The Company has received from the Mississippi Commission an exemption from this legend requirement. The Mississippi Commission has the power to impose additional restrictions on the holders of the Company's securities at any time. Substantially all loans, leases, sales of securities and similar financing transactions by a licensed gaming subsidiary must be reported to or approved by the Mississippi Commission. A licensed gaming subsidiary may not make a public offering of its securities, but may pledge or mortgage casino facilities if it obtains the prior approval of the Mississippi Commission. The Company may not make a public offering of its securities without the prior approval of the Mississippi Commission if any part of the proceeds of the offering is to be used to finance the construction, acquisition or operation of gaming facilities in Mississippi or to retire or extend obligations incurred for one or more such purposes. Such approval, if given, does not constitute a recommendation or approval of the investment merits of the securities subject to the offering. Changes in control of the Company through merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover cannot occur without the prior approval of the Mississippi Commission. The Mississippi Commission may also require controlling stockholders, officers, directors, and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction. The Mississippi legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and other corporate defense tactics that affect corporate gaming licensees in Mississippi and corporations whose stock is publicly traded that are affiliated with those licensees may be injurious to stable and productive corporate gaming. The Mississippi Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Mississippi's gaming industry and to further Mississippi's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; 24 25 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Mississippi Commission before the Company may make exceptional repurchases of voting securities above the current market price of its common stock (commonly called "greenmail") or before a corporate acquisition opposed by management may be consummated. Mississippi's gaming regulations will also require prior approval by the Mississippi Commission if the Company adopts a plan or recapitalization proposed by its Board of Directors opposing a tender offer made directly to the stockholders for the purpose of acquiring control of the Company. Neither the Company nor any subsidiary may engage in gaming activities in Mississippi while also conducting gaming operations outside of Mississippi without approval of the Mississippi Commission. The Mississippi Commission may require determinations that, among other things, there are means for the Mississippi Commission to have access to information concerning the out-of-state gaming operations of the Company and its affiliates. The Company has previously obtained a waiver of foreign gaming approval from the Mississippi Commission for operations in Nevada and will be required to obtain the approval or a waiver of such approval from the Mississippi Commission prior to engaging in any additional future gaming operations outside of Mississippi. If the Mississippi Commission decides that a licensed gaming subsidiary violated a gaming law or regulation, the Mississippi Commission could limit, condition, suspend or revoke the license of the subsidiary. In addition, the licensed subsidiary, the Company and the persons involved could be subject to substantial fines for each separate violation. Because of such a violation, the Mississippi Commission could attempt to appoint a supervisor to operate the casino facilities. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's and RCVP's gaming operations and/or Gaming's manufacturer and distributor operations. License fees and taxes, computed in various ways depending on the type of gaming involved, are payable to the State of Mississippi and to the countries and cities in which a licensed gaming subsidiary's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon (i) a percentage of the gross gaming revenues received by the casino operation, (ii) the number of slot machines operated by the casino or (iii) the number of table games operated by the casino. The license fee payable to the State of Mississippi is based upon "gaming receipts" (generally defined as gross receipts less payouts to customers as winnings) and equals 4% of gaming receipts of $50,000 or less per month, 6% of gaming receipts over $50,000 and less than $134,000 per month, and 8% of gaming receipts over $134,000. The foregoing license fees are allowed as a credit against the Company's Mississippi income tax liability for the year paid. The gross revenue fee imposed by the City of Vicksburg, Mississippi, where RCVP's casino operations are located, equals approximately 4% of gaming receipts. The Mississippi Commission has adopted a regulation requiring as a condition of licensure or license renewal that a gaming establishment's plan include a 500-car parking facility in close proximity to the casino complex and infrastructure facilities which will amount to at least 25% of the casino cost. Management of the Company believes it is in compliance with this requirement. The sale of alcoholic beverages by the Rainbow Casino operated by RCVP is subject to the licensing, control and regulation by both the City of Vicksburg and the Alcoholic Beverage Control Division (the "ABC") of the Mississippi State Tax Commission. The Rainbow Casino area has been designated as a special resort area, which allows the Rainbow Casino to serve alcoholic beverages on a 24-hour basis. The ABC has the full power to limit, condition, suspend or revoke any license for the serving of alcoholic beverages or to place such a licensee on probation with or without conditions. Any such disciplinary action could (and revocation would) have a material adverse effect upon the Rainbow Casino's operations. Certain officers and managers of the Rainbow Casino must be investigated by the ABC in connection with its liquor permits, and changes in certain positions must be approved by the ABC. 25 26 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 New Jersey. Gaming has previously been licensed by the New Jersey Commission as a gaming-related casino service industry ("CSI") in accordance with the New Jersey Casino Control Act (the "Casino Control Act"). Due to the change of ownership of Gaming as a result of the Acquisition, Gaming's CSI license was invalidated. Prior to the change of ownership of Gaming and in anticipation of same, the Company submitted an application for CSI licensure. The New Jersey Commission deemed the application complete and, as a result, since the Acquisition the Company's operations in New Jersey continue uninterrupted pursuant to transactional waivers which have been granted, and which the Company believes should continue to be granted, by the New Jersey Commission on a six-month blanket basis for parts and service and on a sale-by-sale basis for all other products pending final action on the Company's application for CSI licensure. In considering the qualifications of an applicant for a CSI license, the New Jersey Commission may require that the officers, directors, key personnel, financial sources and stockholders (in particular those with holdings in excess of 5%) of the applicant and its holding and intermediary companies demonstrate their qualifications. In this regard, such persons and entities may be investigated and may be required to make certain regulatory filings and to disclose and/or to provide consents to disclose personal and financial data. The costs associated with such investigation are typically borne by the applicant. Federal Registration. The operating subsidiaries of the Company that are involved in gaming activities are required to file annually with the Attorney General of the United States in connection with the sale, distribution or operation of gaming machines. All currently required filings have been made. The U.S. Congress has created the National Gambling Impact and Policy Commission to conduct a comprehensive study of all matters relating to the economic and social impact of gaming in the United States. The enabling legislation provides that, not later than two years after the enactment of such legislation, the commission would be required to issue a report containing its findings and conclusions, together with recommendations for legislation and administrative actions. Any such recommendations, if enacted into law, could adversely affect the gaming industry and have a material adverse effect on the Company's business, financial condition or results of operations. From time to time, certain legislators have proposed the imposition of a federal tax on gross gaming revenues. No specific proposals for the imposition of such a federal tax are currently pending. However, no assurance can be given that such a tax will not be imposed in the future. Any such tax could have a material adverse effect on the Company's business, financial condition or results of operations. Germany. German legislative authorities regulate and monitor the wall machine industry so as to ensure certain manufacturing standards and the fairness of each machine to users. The most significant legislation presently affecting the wall machine industry relates to prescribed licensing procedures, the use, installation and operation of machines and the taxation of same. Wall machine manufacturers are dependent upon the successful introduction of new products each year and currently are required to receive prior government approval for each new product introduction. Manufacturers are required to apply for licenses through an agency of the German federal Ministry of Economics. Such agency maintains a policy of accepting only two licensing applications from an individual applicant at any given time. Bally Wulff, through affiliates and subsidiaries, is in a position to file up to six concurrent applications. After receiving a prototype of a machine for which the applicant seeks government licensing approval, the federal agency deliberates for periods that range from approximately 6 to 24 months. If that product is approved, the wall machine manufacturer is permitted to reproduce the sample machine initially submitted for government approval. Every wall machine carries with it a small license card that permits the machine to be operated for up to four years from the initial date of sale, after which it may not be used in Germany. In Germany, wall machines sold via the secondary market may be operated by a new owner but only for the residual time remaining on each machine's four-year life. In addition to licensing requirements for manufacturers, any person or entity which intends to operate a licensed wall machine must apply to local regulatory authorities for a license, which will not be granted by the authorities if 26 27 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 facts justify the assumption that the applicant does not possess the requisite reliability. In this proceeding, the applicant must furnish a police certificate of conduct. German legislation prohibits the public play of wall machines by individuals under age 18. Voluntary agreements among manufacturers and certain amusement game trade associations, among other things, restrict wall machine advertising and the ability of a player to play more than two machines at once, require all machines to carry visible warning notices and provide that every wall machine is automatically switched off for three minutes after one hour of continuous play. The Spielverordnung (gaming ordinance) specifically governs wall machines. These regulations limit game payouts to DM 4.00 (approximately $2.29) per game, require a minimum payout percentage, detail where the machines may be installed, how many may be installed and by whom, which games are prohibited, the technical requirements of the machines and technical review and approval. Operators must comply with regulations which stipulate how many machines may operate within defined square foot areas (15 square meters per machine, with a maximum of ten machines per location). The Spielverordnung was modified in 1985 to achieve a significant reduction of gaming machines. Gaming halls which through December 19, 1985 had more gaming machines than permitted under the revised regulations had a transition period through December 31, 1995 to comply with the revised regulations. Such facilities were allowed to keep the number of wall machines used in operations in 1985 until December 31, 1990. During the period January 1, 1991 to December 31, 1995 they were entitled to two-thirds of such total number, but had to be in compliance with the new limits by January 1, 1996. In taverns, restaurants, hotels and certain other establishments, no more than two gaming machines are permitted. The Baunutzungsverordnung (Ordinance Regarding the Use of Real Estate) governs the zoning classification of land and the type and density of development within the various zoning classifications. Effective January 27, 1990, the Baunutzungsverordnung was amended essentially to restrict the development of larger gaming halls to core commercial areas, limit the permissibility of smaller gaming halls in various types of mixed use zones and to ban gaming halls in most types of residential and all types of industrial use areas. Prior to such amendment, gaming halls, regardless of size, were generally allowed in core, business, mixed and industrial zones. In addition, on a case by case basis, each local zoning agency is authorized to exclude certain types of otherwise permissible uses, including gaming halls. Subject to certain exceptions, V.A.T. of 15% is generally assessed on the sale or supply of any goods and services in Germany. Since the total amount paid for particular goods or services is considered to be the gross price in calculating such tax, the actual rate is 13.04%. The basis for taxation is the cash remaining in the machines. The rule requiring a minimum payout percentage is applied to the amount remaining in the cash box net of such V.A.T. Depending on the municipality in which a machine is located, operators may also have to pay a monthly leisure tax on each machine of up to DM 600 (approximately $344). The German tax court recently let stand a regulation that permits local municipalities to impose additional taxes on gaming machine operators. The business conducted by Bally Wulff had benefited from the Berlin Promotion Act, a special tax statute which was intended to support the economy of West Berlin in various ways. With the reunification of Germany, the need for benefits provided by the law is perceived to have decreased. Consequently, the German government enacted amendments to the Berlin Promotion Act which phased out, over a number of years, most of the tax benefits and incentives provided by the law. This phase out is now complete. During fiscal 1996, Bally Wulff increased the amount of tax reserves by $1.0 million (to a total reserve of $1.4 million) as a result of developments in an ongoing quadrennial audit of Wulff's tax returns for the years 1988 through 1991. The German tax authorities have proposed preliminary adjustments which range from $1.4 million (which has been accrued) to $5.0 million. 27 28 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Additional Jurisdictions. The Company, in the ordinary course of its business, routinely considers business opportunities to expand its gaming operations into additional jurisdictions. Although the laws and regulations of the various jurisdictions in which the Company operates or into which the Company may expand its gaming operations vary in their technical requirements and are subject to amendment from time to time, virtually all of those jurisdictions require licenses, permits, documentation of qualification, including evidence of financial stability, and other forms of approval for companies engaged in the manufacture and distribution of gaming machines as well as for the officers, directors, major stockholders and key personnel of such companies. The Company and its key personnel have obtained, or applied for, all government licenses, registrations, findings of suitability, permits and approvals necessary for the manufacture and distribution, and operation where permitted, of their gaming machines in the jurisdictions in which the Company currently does business. The Company and the holders of its securities may be subject to the provisions of the gaming laws of each jurisdiction where the Company or its subsidiaries are licensed and/or conduct business, including, without limitation, the States of Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Jersey, New Mexico, South Dakota, Wisconsin, and the local regulatory authority within each such state as well as Australian, Canadian and other foreign gaming jurisdictions in which BGII and its subsidiaries are licensed or conduct business. As a result of the consummation of the Acquisition, the Company and its officers and directors have been required to apply for any government licenses, permits and approvals necessary or required by each of these jurisdictions. Holders of common stock of an entity licensed to manufacture and sell gaming machines, and in particular those with holdings in excess of 5%, should note that local laws and regulations may affect their rights regarding the purchase of such common stock and may require such persons or entities to make certain regulatory filings, or seek licensure, findings of qualification or other approvals. ln some cases this process may require the holder or prospective holder to disclose and/or provide consents to disclose personal and financial data in connection with necessary investigations, the costs of which are typically borne by the applicant. The investigatory and approval process can take three to six months to complete under normal circumstances. 28 29 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 ITEM 2. PROPERTIES The following table sets forth information regarding the Company's leased properties (exclusive of space leases in connection with its gaming device routes) as of June 30, 1997, all of which are fully utilized unless otherwise noted:
ANNUAL BUILDING RENTAL LOCATION USE SQUARE FEET PAYMENTS -------- --- ----------- -------- (IN 000S) Las Vegas, Nv. Partially subleased 72,000 $ 515 Las Vegas, Nv. Route Operations building 18,500 180 Las Vegas, Nv. Advanced Product Development Group 3,600 43 New York, N.Y. Administrative offices 4,400 158 Sparks, Nv. Administrative offices and 38,000 275 warehousing Sparks, Nv. Sales offices and warehousing 11,000 114 Absecon, N.J. Sales offices and warehousing 15,800 90 Biloxi, Ms. Sales offices 6,400 24 Golden, Co. Sales offices 1,500 16 Rosemont, Il. Sales offices 4,900 34 Dania, Fl. Sales offices 3,400 36 Elko, Nv. Sales office and route operations 4,200 36 Laughlin, Nv. Sales offices 600 10 Atlantic City, N.J. Administrative offices 750 10 San Juan, Puerto Rico Sales offices 1,000 12 Sidney, Australia Sales offices 700 36 Johannesburg, So. Sales offices 2,000 20 Africa Las Vegas, Nv. Warehousing 103,500 390 Berlin, Germany Administrative offices and manufacturing 98,000 535 Hannover, Germany Administrative offices and warehousing 32,000 240 Reno/Sparks, Nv. Route operations 12,100 76 Carson City, Nv. Route operations 2,500 8 Winnemucca, Nv. Route operations 1,200 4 Las Vegas, Nv. Route location 8,000 444 Las Vegas, Nv. (1) Ground Lease --- 327 Sparks, Nv. (2) Ground Lease --- 5 Vicksburg, MS Administrative offices 2,700 19 Vicksburg, MS Administrative offices 1,200 9 New Orleans, La. Administrative offices & route 6,000 57 operations Covington, La. OTB Operation 2,500 36 Metairie, La. OTB Operation 11,000 54 New Orleans, La. OTB Operation 5,100 25
(1) Lease consists of ground lease for parking at the Trolley Stop. (2) Lease consists of long-term land lease for parking at the Plantation. 29 30 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 The following table sets forth information regarding properties owned by the Company as of June 30, 1997, all of which are fully utilized unless otherwise noted:
BUILDING LOCATION USE SQUARE FEET (1) -------- --- --------------- (IN 000S) Las Vegas, Nv. Administrative offices and manufacturing (a) 150,000 Reno/Sparks, Nv. Casino (a) 35,000 Vicksburg, Ms. Casino 24,000 Vicksburg, Ms. Administrative offices 3,200 Vicksburg, Ms. Vacant- Land --- Las Vegas, Nv. Tavern/Land 5,000 North Las Vegas, Nv. Parking --- Atlantic City, N.J. Subleased office space 7,000
(a) These facilities are collateral for the New Credit Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - - Liquidity and Capital Resources". In addition, the Company leases 21 properties that have been subleased in connection with its Route Operations. The properties range in size from approximately 1,750 square feet to 7,700 square feet. The remaining terms of the leases range from one to 13 years with monthly payments ranging from approximately $1,700 to $10,500. In addition to the principal facilities, the Company has 21 leased locations and two owned locations in Germany which are primarily used for sales and service offices as well as for warehousing purposes. The properties range in size from approximately 2,800 square feet to 27,000 square feet. The leased locations have terms of occupancy varying from month-to-month tenancies to five years with monthly payments ranging from approximately $1,000 to $21,200. See Note 9 of Notes to Consolidated Financial Statements for information as to the Company's lease commitments with respect to the foregoing rental properties. The Company believes its facilities are suitable for its needs and the Company has no future expansion plans that would make these properties inadequate. ITEM 3. LEGAL PROCEEDINGS LITIGATION In an action filed on December 2, 1996, the Company was named as a defendant in an action brought by Canpartners Investments IV and Cerberus Partners, in federal district court for the Southern District of New York. The Company entered into certain loan commitment letters with the plaintiffs in August 1995, contemplating that the plaintiffs would lend approximately $30 million to partially fund the Company's then pending hostile tender offer for BGII. The Company entered into a merger agreement with BGII in October 1995 and did not use funds provided by the plaintiffs to fund the acquisition of BGII which was completed in June 1996. The plaintiffs have asserted claims based upon the loan commitment letters and failure to pay termination fees in connection with such loan commitment, and seek damages on various theories, ranging from $2.2 million (breach of contract and fraudulent concealment) to in excess of $12.0 million (breach of duty of good faith and fair dealing). The Company believes that it has strong defenses and has filed a motion to dismiss the compliant. The Company intends to defend the action vigorously. On September 25, 1995, BGII was named as a defendant in a class action lawsuit filed in Federal District Court in Nevada, by Larry Schreirer on behalf of himself and all others similarly situated. The plaintiffs filed suit against BGII and approximately 45 other defendants. Each defendant is involved in the gaming business as either a gaming machine 30 31 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 manufacturer, distributor, or casino operator. The class action lawsuit arises out of alleged fraudulent marketing and operation of casino video poker machines and electronic slot machines. The plaintiffs allege that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce people into playing their gaming machines based on a false belief concerning how those machines actually operate as well as the extent to which there is actually an opportunity to win on any given play. The plaintiffs allege that the defendants' actions constitute violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and give rise to claims of common law fraud and unjust enrichment. The plaintiffs are seeking monetary damages in excess of $1.0 billion, and are asking that any damage awards be trebled under applicable Federal law. Management believes the plaintiffs' lawsuit to be without merit. The Company intends to vigorously pursue all legal defenses available to it. In August 1996, the Company received demand notices from a holder of customer notes receivable which were sold on a recourse basis to a third party for which payments were in arrears from December 1995. In December 1996 the holder of the notes filed suit against the Company seeking payment from the Company of approximately $3.6 million. The Company intends to vigorously pursue all legal defenses available to it. The Company is also a party to various lawsuits relating to routine matters incidental to its business. Management does not believe that the outcome of such litigation, including the matters above, in the aggregate, will have a material adverse effect on the Company. The Company settled its litigation with WMS Industries, Inc. ("WMS") for $4.5 million, which was paid in April 1997. The lawsuit arose out of a dispute concerning a break-up fee due under the then proposed WMS merger with BGII. This settlement was treated as an adjustment to goodwill in the accompanying consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 16, 1997, the Company held its annual shareholders meeting at which the shareholders were asked to vote on two matters: 1) the re-election of Mr. Anthony DiCesare and Mr. Joel Kirschbaum to the Board of Directors, and 2) the adoption of the 1996 Long-Term Incentive Plan. Of the 31,838,632 shares of common stock eligible to vote, 28,925,387 shares were voted for, and 1,214,681 against Mr. DiCesare and 28,923,767 shares for, and 1,216,301 voted against Mr. Kirschbaum. Of the 21,750,236 votes cast related to the 1996 Plan, 14,673,246 shares voted in favor of the 1996 Plan, 6,976,278 voted against and 100,712 abstained. 31 32 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Common Stock is traded on the Nasdaq National Market under the symbol "ALLY". The following table sets forth the high and low closing bid price of the Common Stock as reported by Nasdaq for the periods indicated. These prices reflect inter-dealer prices, without retail mark-up or mark-down or commissions and may not necessarily represent actual transactions.
PRICE RANGE OF COMMON STOCK -------------------- High Low ---- --- FISCAL YEAR ENDED JUNE 30, 1996 1st Quarter $ 6.25 $ 4.56 2nd Quarter 5.63 2.75 3rd Quarter 5.38 3.00 4th Quarter 5.00 2.88 FISCAL YEAR ENDED JUNE 30, 1997 1st Quarter $ 4.00 $ 2.00 2nd Quarter 4.38 3.00 3rd Quarter 4.56 3.38 4th Quarter 4.00 3.07
As of September 11, 1997 the Company had approximately 1,750 holders of record of its Common Stock. There is currently no established public trading market for the Company's Series E Special Stock. The Company has never declared or paid cash dividends on its Common Stock. The indenture for the Company's 12 7/8% Notes (substantially all of which were repurchased subsequent to June 30, 1997), the indenture for the Company's 10% Senior Subordinated Notes (the "Indenture") and the credit agreement for the Company's new credit facility, each restrict the Company's ability to pay any dividends or make any other payment or distribution of any of its Restricted Subsidiaries' Equity Interests (as defined). The Company intends to follow a policy of retaining earnings, if any, to finance growth of its business and does not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be at the sole discretion of the Board of Directors and will depend on the Company's profitably, ability to pay dividends under the terms of the Indenture and the Company's financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant. 32 33 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data have been derived from the audited financial statements of the Company. The table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto.
FISCAL YEARS ENDED JUNE 30, ----------------------------------------------------------------- 1993 1994 1995(1) 1996(2) 1997 --------- --------- --------- --------- --------- (IN 000'S, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF OPERATIONS DATA Revenues: Gaming equipment and systems $ 99 $ 65 --- $ 10,575 $ 134,734 Wall machines and amusement games --- --- --- 3,356 131,934 Route operations 96,282 102,830 106,854 109,938 127,028 Casino operations 16,710 20,159 25,134 48,509 51,450 --------- --------- --------- --------- --------- 113,091 123,054 131,988 172,378 445,146 --------- --------- --------- --------- --------- Costs and expenses: Cost of gaming equipment and systems 49 20 --- 7,213 84,496 Cost of wall machines and amusement games --- --- --- 2,022 68,426 Cost of route operations 72,614 76,332 79,887 84,212 95,716 Cost of casino operations 11,543 14,955 14,231 22,046 22,269 Selling, general and administrative 19,758 22,629 28,249 30,620 100,415 Provision for doubtful receivables 461 705 400 1,020 9,059 Depreciation and amortization 8,718 9,530 9,520 10,988 22,606 Direct acquisition costs (3) --- --- 1,669 55,843 --- Unusual items --- 6,351 2,293 5,498 700 --------- --------- --------- --------- --------- 113,143 130,522 136,249 219,462 403,687 --------- --------- --------- --------- --------- Operating income (loss) (52) (7,468) (4,261) (47,084) 41,459 Other income (expense) Interest income 998 2,084 2,798 1,571 1,620 Interest expense (5,046) (6,830) (8,133) (8,897) (23,626) Rainbow royalty (4) --- --- (810) (4,070) (4,722) Minority interest --- (506) (397) (963) (1,092) Other, net 450 (167) 317 301 139 --------- --------- --------- --------- --------- Income (loss) before income taxes (3,650) (12,887) (10,486) (59,142) 13,778 Income tax provision --- (241) (265) (755) (7,993) --------- --------- --------- --------- --------- Net income (loss) (3,650) (13,128) (10,751) (59,897) 5,785 Special stock dividends, including repurchase premium --- --- --- (362) (11,974) --------- --------- --------- --------- --------- Net loss applicable to common shares (3,650) (13,128) (10,751) (60,259) (6,189) ========= ========= ========= ========= ========= Net loss per common share $ (0.38) $ (1.28) $ (0.95) $ (4.64) $ (0.19) ========= ========= ========= ========= ========= OTHER DATA Operating income (loss) before unusual items and direct acquisition costs $ (52) $ (1,117) $ (299) $ 14,257 $ 42,159
33 34 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
AS OF JUNE 30 --------------------------------------------------------- 1993 1994 1995 1996 1997 ------ ------ ----- ----- ---- (In 000's) BALANCE SHEET DATA (5) Cash and cash equivalents and securities available for sale $9,580 49,574 $37,414 $48,057 28,924 Working capital 7,991 50,926 31,476 111,009 110,795 Total assets 73,768 119,416 126,348 375,504 352,016 Total long term debt, including current maturities 44,798 90,726 101,397 191,344 173,839 Series B Special Stock --- --- --- 51,552 58,981 Total stockholders' equity 22,665 15,099 9,985 69,846 53,555
(1) The Company acquired the general partnership interest in the Rainbow Casino Vicksburg Partnership, L.P. (RCVP) on March 29, 1995 and began consolidating the results or RCVP since that date. (2) The Company acquired BGII on June 18, 1996. Therefore the results of operations for the year ended June 30, 1996 include the results of operations of BGII for the last twelve days of that fiscal year. See note 2 to the Consolidated Financial Statements. (3) Includes non-cash accounting loss on debenture conversion of $30,079,000 in fiscal year 1996 as a result of the conversion of the Company's Convertible Debentures into equity securities. (4) Represents royalty fee related to the HFS financing at the Rainbow Casino. The Company repurchased this royalty obligation from HFS on August 12, 1997. (5) See discussion of refinancing transaction completed in August 1997 in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". 34 35 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES In August 1997 the Company completed a series of related transactions as described below ("the Refinancing") which consisted of the private placement of $150.0 million of Senior Subordinated Notes and the closing of $230.0 million of bank financing. The bank financing provides for (i) term loans in the aggregate amount of up to $140.0 million, comprised of a $75.0 million tranche with a 7 1/2-year term (the "Tranche B Term Loan"), a $40.0 million tranche with an 8-year term (the "Tranche C Term Loan", and together with the Tranche B Term Loan, the "Term Loan Facilities") and a $25.0 million tranche with a 7 1/2-year term (the "Delayed Draw Term Facility"); and (ii) a $90.0 million revolving credit facility with a 6-year term (the "Revolving Credit Facility"). As part of the Refinancing, the Company used the proceeds of the Senior Subordinated Note offering, together with borrowings under the Revolving Credit Facility, the Term Loan Facilities and the Delayed Draw Term Facility and cash on hand to fund (a) the repurchase at a premium of substantially all of the Company's 12 7/8% Notes, plus accrued interest to August 8, 1997 totaling $183.7 million, (b) the redemption at liquidation value of all of the Company's Series B Preferred Stock on September 8, 1997 totaling $77.6 million, (c) the purchase from HFS Gaming Corporation of the right to receive royalty payments based on revenues of the Rainbow Casino and the purchase of related debt owed to an HFS affiliate, National Gaming Mississippi, Inc. on August 12, 1997 totaling $26.3 million and (d) the payment of transaction fees and expenses totaling $16.5 million. At June 30, 1997, based on the terms of the new $90.0 million Revolving Credit Facility, the Company would have been able to borrow the full amount of the revolving credit line, of which the Company had initial borrowings of approximately $14.5 million on August 8, 1997. The borrowing base for the revolving credit facility consists of eligible receivables and inventory, as defined in the credit agreement. Additionally, in July 1997 the Company redeemed the remaining balance of its 7 1/2 Convertible Debentures at a price of 104, or a total of $1.7 million. On a pro forma basis for the year ended June 30, 1997, assuming the Refinancing had occurred on July 1, 1996, the Company would have reported earnings before interest, taxes, and depreciation and amortization, less casino royalty and minority interest plus direct acquisition costs and unusual items (EBITDA) of $63.7 million, net income available to common shares of $6.4 million and net income per share of $0.16 or a $0.35 improvement over the reported net loss per share of $0.19. In conjunction with the Refinancing, the Company incurred fees and expenses totaling approximately $78.4 million, including the premium on the repurchase of the 12 7/8% Notes of $27.7 million and $16.4 million for the difference between the carrying value and the liquidation value of the Series B Preferred Stock, all of which will be recorded in the quarter ended September 30, 1997. On a pro forma basis as of June 30, 1997, in comparison to the actual year end balances, the Refinancing would have resulted in a decrease in cash and cash equivalents of $12.8 million, a decrease in net working capital of $13.5 million, an increase in total long-term debt of $128.0 million, but the elimination of the 12 7/8% Notes and Series B Preferred Stock. On an ongoing basis the Company will continue to be highly leveraged and will have significant interest costs, however in the near term the Company will have only limited principal payments required on its long-term indebtedness. At June 30, 1997, the Company actually had $28.9 million in cash and cash equivalents and $24.1 million in availability on its former revolving lines of credit. In addition the Company had working capital of approximately $110.8 million, a decrease of approximately $0.2 million from June 30, 1996 which is explained below. Consolidated cash and cash equivalents at June 30, 1997 includes approximately $9.0 million of cash which is utilized in Casino and Route Operations which is held in vaults, cages or change banks. Management believes that cash flow from operating activities, cash and cash equivalents held and the new $90.0 million Revolving Credit Facility will provide the Company with sufficient capital resources and liquidity. At June 30, 1997, the Company did not have any significant commitments for capital expenditures. 35 36 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 The following table presents the components of consolidated working capital at June 30, 1996 and 1997:
Balances at June 30, 1996 1997 Change ---- ---- ------ (In $000's) Cash and Cash Equivalents $ 48,057 $ 28,924 $(19,133) Accounts and Notes Receivable, net 93,502 87,701 (5,801) Inventories, net 41,656 37,329 (4,327) Other Current Assets 8,354 9,627 1,273 -------- -------- -------- Total Current Assets 191,569 163,581 (27,988) Accounts Payable 16,240 14,270 1,970 Accrued Liabilities 38,543 37,392 1,151 Current Maturities of Long-Term Debt 25,777 1,124 24,653 -------- -------- -------- Total Current Liabilities 80,560 52,786 27,774 -------- -------- -------- Net Working Capital $111,009 $110,795 $ (214) ======== ======== ========
The net change in cash and cash equivalents during the fiscal year ended June 30, 1997 resulted from EBITDA generated, offset by: cash used for capital expenditures of approximately $13.3 million; cash used for principal payments on debt including the revolving lines of credit borrowings of approximately $7.5 million in the United States and approximately $4.1 million in Germany and payment of the VSI loan and other debt totaling approximately $6.8 million; and payments made for accrued direct acquisition costs, the accrued distribution payable to the limited partner in the Rainbow Casino Vicksburg Partnership, L.P., the payment of the Rainbow Royalty and the payment of the WMS litigation settlement. In addition, approximately $3.9 million of cash was used to purchase shares of Series B Special Stock during fiscal year 1997. The Company also made its semi-annual interest payments on the Senior Secured Notes on December 30, 1996 and June 30, 1997 aggregating $20.5 million. During the fiscal year ended June 30, 1997, current maturities of long term debt were reduced primarily due to principal payments plus, due to the Refinancing in August 1997, the current portion of the lines of credit and certain other debt instruments were reclassified to long-term debt as of June 30, 1997. The primary change to all other working capital components during fiscal year 1997 were the result of a decrease in the translation rate between the German mark and the U.S. dollar. During the year ended June 30, 1997, the Company generated cash flows from operating activities of $24.1 million, an increase of $23.2 million over the prior year. The following table presents the Company's EBITDA. For purposes of comparability the 1996 amounts are further adjusted to include BGII's results for the entire year.
Year Ended June 30, 1996 1997 ---- ---- (In $000's) EBITDA by business unit: Gaming Equipment and Systems $15,716 $16,671 Wall Machines and Amusement Games 13,376 29,719 Route Operations 16,691 20,200 Casino Operations (a) 11,229 12,630 Corporate expenses (17,300) (19,177) Minority interest (963) (1,092) ------- ------- EBITDA $38,749 $58,951 ======= =======
(a) Presented after deducting Casino Royalty 36 37 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 The Company believes that the above analysis of EBITDA (which excludes direct acquisition costs and unusual items) is a useful adjunct to net income, cash flow and other GAAP measurements. However, this information should not be construed as an alternative to net income or any other GAAP measure of performance as an indicator of the Company's performance or to GAAP-defined cash flows generated by operating, investing and financing activities as an indicator of cash flows or a measure of liquidity. Customer Financing Management believes that customer financing terms and leasing have become an increasingly important competitive factor for the Gaming Equipment and Systems and Wall Machine and Amusement Games business units, respectively. Competitive conditions sometimes require Gaming Equipment and Systems to grant extended payment terms on gaming machines systems and other gaming equipment, especially for sales in emerging markets. While these financings are normally collateralized by such equipment, the resale value of the collateral in the event of default may be less than the amount financed. In conjunction with sales by Gaming Equipment and Systems, with recourse to the Company, of certain trade receivables to third parties, the Company had guaranteed amounts due from various customers of approximately $10.5 million at June 30, 1997. The Company has reserved approximately $8.3 million at June 30, 1997 for all of its sales of receivables with recourse to the Company. It is possible that one or more customers whose obligation has been guaranteed by Gaming Equipment and Systems may be unable to make payments as such amounts become due. In such event, Gaming Equipment and Systems may become responsible for repayment of at least a portion of such amounts over the term of the receivables. Accordingly, the Company will have greater exposure to the financial condition of its customers in emerging markets than has historically been the case in established markets like Nevada and Atlantic City. In August 1996, the Company received demand notices from the holder of notes related to one customer's trade receivables for which payments were in arrears since December 1995 and in December 1996 the holder of the notes filed suit against the Company to seek payment from the Company. The lawsuit is for approximately $3.6 million. Bally Wulff provides customer financing for approximately 10% of its sales and also provides lease financing to its customers. Lease terms are generally for six months, but are also available for 12 and 43 month terms. RESULTS OF OPERATIONS 1997 COMPARED WITH 1996 GENERAL To enhance the comparability for the following discussion of the results of operations, the operating results for 1996 are presented on a pro forma basis assuming the BGII acquisition had occurred prior to the start of the 1996 year. The acquisition of BGII actually occurred on June 18, 1996. GAMING EQUIPMENT AND SYSTEMS For the year ended June 30, 1997, Gaming Equipment and Systems reported revenues of $134.7 million, an increase of 2%, compared to revenues of $132.3 million in the prior year. Bally Gaming reported shipments of approximately 18,200 new gaming machines, an increase of 1% compared to shipments of approximately 18,000 in the prior year. The volume improvement resulted primarily from a general increase in replacement demand from existing casinos offset by a lower number of new casino openings in the year ended June 30, 1997. By market segment, Bally Gaming's unit sales for the current year consisted of approximately 8,300 units to the Nevada and Atlantic City markets, 7,600 units to international markets and 2,300 units to riverboats, Native American and other domestic markets. Bally Gaming reported revenues from the sale of new gaming machines of $96.7 million, an increase of 6%, compared to $91.3 million in the prior year due to higher unit volume and higher average selling prices of new machines. Bally Systems reported revenues of $22.3 million, an increase of 22%, compared to revenues of $18.2 million in the prior year period. 37 38 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Bally Systems revenue improvement resulted primarily from increased shipments to new installations such as New York-New York, Casino Niagara, Casino Rama, and the Harrah's Riverboat and Players Island Casinos in St. Louis. For the year ended June 30, 1997, gross profit margins improved to 37% from 35% in the prior year period. The gross margin improvement resulted primarily from a higher average sales price for new machines and the impact of higher Bally Systems sales. Gaming Equipment and Systems reported operating income of $10.6 million, a decrease of 23%, compared to operating income of $13.8 million in the prior year period. The operating income decrease resulted primarily from greater selling, general and administrative expenses (including higher research and development costs) and the impact of greater depreciation expense from amortizing goodwill and other intangibles as a result of the BGII acquisition, partially offset by the aforementioned revenue and gross margin increases. WALL MACHINES AND AMUSEMENT GAMES For the year ended June 30, 1997, Wall Machines and Amusement Games reported revenues of $131.9 million, an increase of 23%, compared to revenues of $107.1 million in the prior year. The revenue improvement resulted primarily from an 87% increase in new wall machine units sold as Wall Machines and Amusement Games expanded its market share due to popularity of its product offerings and, to a lesser extent, demand increased as a result of a change in German regulations effective January 1, 1997, requiring all wall machines to have internal meters to track play. In addition, Wall Machines and Amusement Games enhanced its leasing program whereby new wall machines are leased to customers pursuant to operating leases which provide a stream of revenues and cash flows over the term of the leases which range from six months to three and one half years. For the year ended June 30, 1997, Wall Machines and Amusement Games leased approximately 4,000 new wall machines, which is a 300% increase from the prior year period. Revenues were unfavorably impacted by a decrease in amusement game sales as operators weighted their mix of capital expenditures toward new wall machines. The currency translation impact of the fluctuation of the German mark versus the U.S. dollar reduced revenues by $12.2 million during the current year. For the year ended June 30, 1997, gross profit margin improved to 48% from 39% in the prior year. The gross margin improvement resulted primarily from the favorable impact of greater production volume in Wall Machines and Amusement Games' production facility. Wall Machines and Amusement Games reported operating income of $23.3 million, an increase of 207%, compared to $7.6 million in the prior year period. The operating income improvement resulted primarily from the aforementioned revenue and gross margin increases, partially offset by an increased provision for doubtful receivables as well as higher selling, general and administrative expenses due to increased marketing costs. ROUTE OPERATIONS For the year ended June 30, 1997, the Route Operations business unit reported total revenues of approximately $127.0 million, an increase of 16%, compared to revenues of $110.0 million in the prior year. Revenues from Nevada route operations increased approximately $15.0 million (16%) over the prior year. This increase was attributable to an increase in the average net win per gaming machine per day of 8% to $52.40 from $48.60 in the prior year and an increase in the weighted average number of gaming machines during the current year of 7% to 5,660 units as compared to 5,290 units in the prior year. Gamblers' Bonus, a cardless club and player tracking system launched in December 1995, had a favorable impact on the net win per day. As of June 30, 1997, the Gamblers' Bonus product was installed in approximately 1,500 gaming machines at 130 locations statewide. Revenues from route operations in Louisiana increased $2.0 million (12%) primarily as a result of an improvement in the net win per gaming machine per day of 8% to $74.10 from $68.50 in the prior year and a 3% increase in the average number of machines to 700 from 680 in the prior year. For the year ended June 30, 1997, cost of revenues for Route Operations totaled $95.7 million, an increase of $11.5 million (14%) compared to the prior year. As a percentage of revenues, costs of revenues improved to 75.4% from 76.6% in the prior year. Cost of revenues for Nevada route operations increased 14% as compared to the prior year, but, as a percent of related revenues, improved to 77.3% from 79.0% in the prior year due primarily to higher revenues 38 39 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 while costs associated with new and renewed contracts remained relatively flat. Costs of revenues for route operations in Louisiana increased 13% primarily as a result of the increase in revenues. As a percent of related revenues, cost of revenues for route operations in Louisiana increased to 64.2% from 63.3% in the prior primarily due to a slight increase in the percentage of revenues paid to the Fairgrounds Racetrack. Cost of route revenues for Route Operations includes rents under both space lease and revenue sharing arrangements, gaming taxes and direct labor, including related payroll taxes and benefits. In the year ended June 30, 1996, Nevada route operations incurred unusual items totaling $2.1 million. Reserves were increased by $1.4 million for certain parts inventories which became obsolete and were subsequently disposed of due to the impact of recent technological changes to gaming devices being deployed as a result of the new Gambler's Bonus product. In addition an accrual of $0.7 million was established to reserve for the present value of the future lease payments for one small casino location for which cash flows received under the participation agreement are currently inadequate to service the building lease paid by the Company. For the fiscal year ended June 30, 1997, the Route Operations business unit reported operating income of $13.1 million, an increase of 41% compared to operating income of $9.3 million in the prior year. The operating income improvement resulted from the aforementioned increase in revenues and the improvement in operating costs as a percentage of revenues and the lack of unusual items in the current year, partially offset by an increase in selling, general, and administration expenses, primarily greater marketing costs at both operations and an increased provision for doubtful receivables for the Nevada route operations. CASINO OPERATIONS For the year ended June 30, 1997, the Casino Operations business unit reported revenues of $51.5 million, an increase of 13%, compared to revenues of $45.4 million in the prior year excluding revenues from closed casinos and taverns as described below. This increase is due to a 17% increase at the Rainbow Casino and a 2% increase at the Rail City Casino. The improvement at the Rainbow Casino was attributable to the continuing impact of its direct marketing campaigns and a higher average market share than in the prior year. Revenues during the current year at the Rail City Casino were adversely impacted by severe weather in the Reno area during the third quarter and an internal remodeling project, which has now been completed. For the year ended June 30, 1997, the cost of revenues for Casino Operations increased 13% to $22.3 million compared to $19.8 million in the prior year excluding cost of revenues from closed casinos and taverns. As a percentage of revenues, the costs of revenues improved slightly to 43.3% compared to 43.6% in the prior year. As a percent of related revenues, cost of revenues for the Rainbow Casino increased to 37.1% from 36.4% in fiscal 1996 primarily due to increased costs associated with taking over operations at the newly remodeled restaurant . Cost of revenues for the Rail City, as a percent of related revenues, improved to 64.1% from 64.7% in the prior year due primarily to higher revenues while direct costs remained relatively stable. Cost of casino revenues includes cost of goods sold, gaming taxes, rent and direct labor including related taxes and benefits. For the year ended June 30, 1997, the Casino Operations business unit reported operating income, net of casino royalty, of $10.7 million, an increase of 14%, compared to operating income of $9.4 million in the prior year. The operating income improvement resulted from the aforementioned increase in revenues and reduced operating costs as a percentage of revenues, partially offset by an increase in selling, general and administrative costs, principally due to increased marketing efforts at both locations. On August 12, 1997, the Company purchased from Hospitality Franchise Systems the right to receive royalty payments based on revenues of the Rainbow Casino. The Rainbow Casino royalty fees incurred during the fiscal year ended June 30, 1997 totaled $4.7 million. REVENUES AND EXPENSES FOR CLOSED CASINOS AND TAVERNS During the year ended June 30, 1996, the Company disposed of or terminated operations at several small casinos and taverns as these operations were not deemed to be compatible with the Company's long-term strategy. No revenues or 39 40 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 expenses were reported for these properties in the fiscal year ended June 30, 1997. For the fiscal year ended June 30, 1996, revenues for these properties are included in Casino Operations revenues and totaled $3.1 million. The related costs of revenues are included in cost of Casino Operations and totaled $2.3 million. The related selling, general and administrative expenses totaled $1.1 million. CONSOLIDATED The following discussion of the Company's consolidated results of operations for the year ended June 30, 1997 is presented in comparison to the actual consolidated results of operations for the prior year which include the results of operations of the Gaming Equipment and Systems and Wall Machines and Amusement Games business units for only the last twelve days of the year ended June 30, 1996. Total revenues for the year ended June 30, 1997 were approximately $445.1 million, an increase of $272.7 million (158%) over revenues of $172.4 in prior year. This increase is primarily due to the incremental revenues of $252.7 million from Gaming Equipment and System sales and Wall Machines and Amusement Games sales, as well as the aforementioned increases in revenues at both the Route Operations and Casino Operations business units. Cost of revenues for the year ended June 30, 1997 were approximately $270.9, an increase of $155.4 million (135%) compared to $115.5 in prior year. This increase is due to the incremental cost of revenues of $143.7 million and from Gaming Equipment and System sales and Wall Machines and Amusement Games sales, as well as the aforementioned increases in cost of revenues at both the Route Operations and Casino Operations business units. Selling, general and administrative expenses for the year ended June 30, 1997 were approximately $100.4 million, an increase of $69.8 million (228%) compared to costs of $30.6 for the prior year. This increase is due to the impact of including the Gaming Equipment and Systems and the Wall Machines and Amusement Games business units expenses for the entire year and higher legal and professional fees in the current year, partially offset by cost savings such as elimination of certain duplicative costs. Provision for doubtful receivables for the year ended June 30, 1997 was $9.1 million, an increase of $8.1 million from the prior year. The increase was due primarily to the impact of including the provisions related to the Gaming Equipment and Systems and the Wall Machines and Amusement Games business units for the entire year, as well as the aforementioned increase in the provision at the Route Operations. Depreciation and amortization for the fiscal year ended June 30, 1997 was $22.6 million, an increase of 105% compared to depreciation and amortization of $11.0 million in the prior fiscal year. This increase is due to the inclusion of Gaming Equipment and Systems and Wall Machine and Amusement Game depreciation and amortization in the entire fiscal year, higher depreciation and amortization in the Route Operations business unit and the impact of amortizing goodwill and other intangibles resulting from the BGII acquisition. During the year ended June 30, 1996, the Company expensed direct acquisition costs related to the acquisition of BGII, totaling $55.8 million. Such costs included the $30.1 million non-cash, accounting loss on the debenture conversion portion of the financing for the acquisition, plus legal, accounting, financial advisory, printer, SEC filing fees and other related expenses. During the year ended June 30, 1997, the Company incurred $0.7 million in unusual items related primarily to separation costs of Alliance personnel subsequent to the BGII acquisition. During the year ended June 30, 1996, the Company incurred $5.5 million in unusual items including a provision of $3.4 million to fully reserve the net book value of assets that the Company deemed impaired and the aforementioned unusual items at its Route Operations business unit of $2.1 million. 40 41 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 INTEREST INCOME AND EXPENSE AND INCOME TAXES Net interest expense in the year ended June 30, 1997, increased to $22.0 million, an increase of 201% compared to the net interest expense of $7.3 million in the prior year. The increase is due primarily to interest on the Company's 12 7/8% Senior Secured Notes due 2003 which were issued in June 1996, partially offset by lower interest expense on the Company's 7 1/2% Convertible Debentures due 2003, substantially all of which were converted into equity as part of the financing of the BGII acquisition. The Company recorded an income tax provision of $8.0 million in the year ended June 30, 1997, compared to a provision of $0.8 million in the prior year. The current year provision is due primarily to income taxes at Wall Machines and Amusement Games and domestic state income taxes. The effective tax rate is 58%, which resulted from taxable income currently being generated in Germany, which has a higher effective rate than in the U.S. At June 30, 1997, the Company has net operating loss carry forwards for federal income tax purposes of approximately $21.5 million which are available to offset future federal taxable income, if any, expiring in the years 2007 through 2011. At June 30, 1997 the Company has foreign tax credit carry forwards of approximately $11.8 million and alternative minimum tax credit (AMT) carry forwards of approximately $1.5 million. Foreign tax credits are available to offset future taxes due in the U.S. on future foreign taxable income and expire between 1998 and 2002 unless utilized prior to such time. AMT credits are available to be carried forward indefinitely and may be utilized against regular U.S. corporate tax to the extent it does not exceed computed AMT calculations. In addition, the Company's annual limitation with respect to net operating losses is limited pursuant to Section 382 of the Internal Revenue Code. 1996 COMPARED WITH 1995 General The following discussion of the results of operations includes only the Company's two business units that existed prior to the acquisition of BGII on June 18, 1996. See the "Consolidated" section below for the impact of the BGII results for the 12 days prior to 1996 year-end. ROUTE OPERATIONS Total revenues from Route Operations for the year ended June 30, 1996 were approximately $109.9 million, an increase of $3.1 million (2.9%) over the prior year. Revenues from Nevada route operations increased approximately $1.8 million (2.0%) over the prior year. This increase was attributable to an increase in the average net win per gaming machine per day from $47.70 in the prior year to $48.60 in the current year and an increase in the weighted average number of gaming machines during the current year to 5,290 units as compared to 5,260 units in the prior year. During the year ended June 30, 1996 the Company received regulatory approval for its Gambler's Bonus product, and began installation into locations in Southern Nevada. The revenues at locations in which the Gambler's Bonus product has not been installed experienced a slight decrease in revenues in comparison to the prior year. Revenues from route operations in Louisiana increased $1.3 million (8.4%) primarily as a result of an expansion of operations from the opening of a new OTB parlor in October 1995. In addition, Louisiana revenues increased as a result of an improvement in the net win per gaming machine per day from $56.40 in the prior year to $68.50 in the current year, which resulted from higher revenues earned on a lower average number of machines. The average number of gaming machines in the Louisiana route operations decreased from 720 for the prior year to 680 for the current year. Cost of revenues for Route Operations for the year ended June 30, 1996 totaled $84.2 million, an increase of $4.3 million (5.4%) over the prior year. Cost of revenues for Nevada route operations increased $3.5 million (5.4%) as compared to the prior year and increased slightly as a percent of related revenues due primarily to increased costs associated with new and renewed contracts. Costs of revenues for route operations in Louisiana increased $0.8 million (7.6%) primarily as a result of the increase in revenues. As a percent of related revenues, cost of revenues for Route 41 42 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Operations in Louisiana remained relatively constant, at approximately 63.8%. Cost of route revenues for Route Operations includes rents under both space lease and revenue sharing arrangements, gaming taxes and direct labor, including related payroll taxes and benefits. In the year ended June 30,1996, Nevada route operations incurred unusual items totaling $2.1 million. Reserves were increased by $1.4 million for certain parts inventories which became obsolete and were subsequently disposed of due to the impact of recent technological changes to gaming devices being deployed as a result of the new Gambler's Bonus product. In addition an accrual of $0.7 million was established to reserve for the present value of the future lease payments for one small casino location for which cash flows received under the participation agreement are currently inadequate to service the building lease paid by the Company. For the year ended June 30, 1996, the Route Operations business unit reported operating income of $13.1 million, an increase of 7% compared to operating income of $12.2 million in the prior year. The operating income improvement resulted from the aforementioned increase in revenues partially offset by a slight increase in operating costs as a percentage of revenues. Selling, general and administrative expenses related to Route Operations for the current year remained relatively flat from the prior year. CASINO OPERATIONS Revenues from Casino Operations for the year ended June 30, 1996 were approximately $45.4 million (excluding revenues of closed casinos and taverns as discussed below), an increase of $27.1 million or 149.3% from the prior year. This increase is due primarily to the impact of the Rainbow Casino in Vicksburg, Mississippi. Due to a change in Rainbow Casino's ownership structure on March 29, 1995, the Company began consolidating the results of the Rainbow Casino and thus the prior year included only three months of the Rainbow Casino results of operations. The current year results reflect twelve months of Rainbow Casino operations plus the impact of having all of the amenities of the facility in operation for the full year. Rainbow Casino revenues were $33.9 million for the current year compared to $7.6 million in the prior year. During the approximately nine-month period ended March 29, 1995, the Company recorded royalty income from the Rainbow Casino of $0.9 million, and such royalty was terminated upon the change in ownership referred to above. Revenues from the Rail City Casino were relatively flat at $11.5 million, resulting from lower patronage during the first six months of the current year during which there was significant road construction near the property offset by increased revenues from improved casino ambiance after the completion of an internal remodeling project and a successful series of marketing campaigns to attract local patrons back to the casino after completion of the nearby road construction. The cost of revenues for Casino Operations for the year ended June 30, 1996, including costs of food and beverage revenues, were approximately $19.8 million, an increase of $9.6 million or 94.6% compared to the prior year. The increase is primarily due to the aforementioned impact of the Rainbow Casino operations. The cost of revenues at the Rail City Casino were relatively flat at $7.4 million. Cost of casino revenues includes cost of goods sold, gaming taxes, rent and direct labor, including related taxes and benefits. For the year ended June 30, 1996, the Casino Operations business unit reported operating income, net of casino royalty, of $9.4 million, an increase of 261%, compared to operating income of $2.6 million in the prior year. The operating income improvement resulted from the aforementioned impact of the Rainbow Casino operations, partially offset by higher selling, general and administrative costs at the Rail City Casino primarily for the marketing campaigns to attract local patrons back to the casino after completion of the nearby road construction. The Rainbow Casino royalty fees incurred during the year ended June 30, 1996 totaled $4.1 million. REVENUES AND EXPENSES FOR CLOSED CASINOS AND TAVERNS During the years ended June 30, 1995 and 1996 the Company disposed of or terminated operations at several small casinos and taverns, as these operations were not deemed to be compatible with the Company's long-term strategy. Revenues for these properties are included in casino revenues and totaled $6.1 million and $3.1 million for the years ended June 30, 1995 and 1996, respectively and the related costs of revenues are included in casino cost of revenues 42 43 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 and totaled $4.1 million and $2.3 million for such periods, respectively. The related selling, general and administrative expenses totaled $1.8 million and $1.1 million for the years ended June 30, 1995 and 1996, respectively. CONSOLIDATED Total revenues for the year ended June 30, 1996 were approximately $172.4 million, an increase of $40.4 million (30.6%) over fiscal year 1995. This increase is due to Gaming Equipment and Systems and Wall Machines and Amusement Games revenues of $13.9 million during the post-acquisition period as well as the aforementioned increases in revenues at both the Route Operations and Casino Operations business units. Cost of revenues for the year ended June 30, 1996 increased to $115.5 million (22.7%) over the prior year due to Gaming Equipment and Systems and Wall Machines and Amusement Games cost of revenues of $9.2 million during the post-acquisition period as well as the aforementioned increases in cost of revenues at both the Route Operations and Casino Operations business units. The total cost of revenues as a percentage of total revenues, including those of Gaming Equipment and Systems and Wall Machines and Amusement Games in the post-acquisition period improved by 4.1% compared to the prior year. Selling, general and administrative expenses for the year ended June 30, 1996 were approximately $30.6 million, an increase of $2.4 million (8.5%) from the prior year. After excluding the prior year unusual item of compensation expense of $1.3 million, the increase was primarily due to Gaming Equipment and Systems and Wall Machines and Amusement Games selling, general and administrative expenses of $2.0 million during the post-acquisition period as well as the aforementioned increases at the Casino Operations business unit. Provision for doubtful receivables for the year ended June 30, 1996 increased $0.6 million from the prior year. The increase was due primarily to a $0.4 million provision for specifically identified bad debt accounts in the Company's Route Operations business unit and the impact of including Gaming Equipment and Systems and the Wall Machines and Amusement Games business units provisions in the post-acquisition period of $0.2 million. During the years ended June 30, 1995 and 1996, the Company expensed direct acquisition costs of $1.7 million and $55.8 million, respectively. Such costs for the 1996 year include the $30.1 million non-cash, accounting loss on the debenture conversion portion of the financing for the BGII acquisition, plus legal, accounting, financial advisory, printer, SEC filing fees and other related expenses. During the year ended June 30, 1996, the Company incurred $5.5 million in unusual items, including a provision of $3.4 million to fully reserve the net book value of assets that the Company deemed impaired and the aforementioned unusual items at its Route Operations business unit of $2.1 million. INTEREST INCOME AND EXPENSE AND INCOME TAXES In the year ended June 30, 1996, interest income decreased $1.2 million from the prior year to $1.6 million, resulting from a decline in the level of cash invested during the 1996 year. In the 1996 year, interest expense increased $0.8 million from the prior year to $8.9 million. This increase was a result of the aforementioned impact of consolidating the Rainbow Casino results of operations for the full twelve months in the 1996 year, plus additional borrowings at the Rainbow Casino to complete the facility, and, to a lesser extent, the interest expense associated with the Senior Secured Notes, offset by the reduction in interest associated with the $83.4 million of the convertible debentures which converted into equity instruments. The provision for income taxes in the year ended June 30, 1996 year increased $0.5 million from the prior year to $0.8 million. This increase was a result of a provision for alternative minimum tax due to the taxable nature of the conversion of the Company's old convertible debentures for new convertible debentures in the exchange offer, increased state income taxes in Louisiana and the tax effects related to the accounting for unrealized gains and losses on the BGII stock classified for accounting purposes as available for sale prior to consummation of the BGII acquisition. 43 44 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 RISK FACTORS This Annual Report on Form 10-K and the Company's other filings with the Securities and Exchange Commission may contain forward-looking statements. Set forth below are certain important factors that could cause actual results to differ materially from those in such statements. HIGH LEVERAGE; ABILITY TO SERVICE DEBT After the completion of the Refinancing, the Company has a substantially increased amount of indebtedness. As of June 30, 1997, after giving effect to the Refinancing, the aggregate outstanding principal amount of the Company's long-term indebtedness including current maturities would have been $302.6 million, versus long-term indebtedness including current maturities prior to the Refinancing of $173.8 million. Following the Refinancing, the Company also has available to it up to $90.0 million in borrowing capacity under the Revolving Credit Facility, of which $14.5 million was used to repay outstanding indebtedness under existing credit lines. On a pro forma basis after giving effect to the Refinancing (assuming the Refinancing occurred June 30, 1996) and the use of proceeds thereof, the Company's ratio of earnings to fixed charges (excluding the imputed fixed charges for contingent rental expense related to revenue-sharing agreements in its Route Operations of approximately $23.0 million annually) would have been 1.4x for the year ended June 30, 1997. On a pro forma basis, the Company would have had a net capital deficiency at June 30, 1997 of $24.9 million, reflecting a reduction in paid-in capital of $16.4 million for the difference between liquidation value and book value for the Series B Preferred Stock and a larger accumulated deficit resulting from the $19.0 million Rainbow Royalty Buyout, the premium on the redemption of the 12 7/8% Notes, write-off of the deferred financing costs and initial discount related to the 12 7/8% Notes and a portion of the fees and expenses of the Refinancing. The new credit facility and the indenture contain a number of significant covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries to dispose of assets, incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests (as defined) or subordinated indebtedness, issue or sell equity interests of the Company's subsidiaries (as defined), engage in mergers or consolidations, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities. There can be no assurance that such restrictions will not adversely affect the Company's ability to finance its future operations or capital needs or engage in other business activities that may be in the interest of the Company. In addition, the new credit facility also requires the Company to maintain compliance with certain financial ratios. The ability of the Company to comply with such ratios may be affected by events beyond the Company's control. A breach of any of these covenants or the inability of the Company to comply with the required financial ratios could result in a default under the new credit facility. In the event of any such default, the lenders under the new credit facility could elect to declare all borrowings outstanding under the new credit facility, together with accrued interest and other fees, to be due and payable, to require the Company to apply all of its available cash to repay such borrowings or to prevent the Company from making debt service payments on the Senior Subordinated Notes, any of which would be an event of default under the Senior Subordinated Notes. If the Company were unable to repay any such borrowings when due, the lenders could proceed against their collateral. If the indebtedness under the new credit facility or the Notes were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay such indebtedness in full. The Company's obligations to make principal and interest payments on outstanding indebtedness, and to comply with the covenants in the Indenture and the agreements governing borrowings under the new credit facility, will have several important effects on its future operations including the following: (i) the portion of the Company's cash flow from operations which will be dedicated to the payment of principal and interest on its indebtedness will not be available for other purposes; (ii) certain of the Company's borrowings are at variable rates of interest, which could result in higher expense in the event of increases in interest rates; (iii) the Company may be more vulnerable to downturns in its business or in the general economy and may be restricted from making acquisitions, introducing 44 45 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 new technologies or exploiting business opportunities; and (iv) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, general corporate or other purposes may be impaired. Additionally, the Company's ability to meet its debt service obligations and to reduce its total debt will be dependent upon the Company's future performance, which will be subject to general economic and regulatory conditions and to financial, business and other factors affecting the operations of the Company, many of which are beyond its control. No assurance can be given that the Company will be able to generate the cash flow necessary to permit the Company to meet its fixed charges and repayment obligations. Any inability of the Company to service its fixed charges and repayment obligations would have a significant adverse effect on the Company. OPERATING HISTORY--RECENT LOSSES The Company incurred net losses of $10.8 million and $59.9 million (including $55.8 million of costs related to the BGII acquisition) for its fiscal years ended June 30, 1995 and 1996, respectively, and net income of $5.8 million for the fiscal year ended June 30, 1997. In conjunction with the Refinancing, the Company incurred fees, expenses and charges totaling approximately $78.4 million, including the premium on the repurchase of the 12 7/8% notes of $27.7 million and $16.4 million for the difference between the carrying value and the liquidation value of the Series B Preferred Stock, which will be recorded in the quarter ended September 30, 1997. There can be no assurance that the Company will be profitable, and that there will not be similar or other unusual or non-recurring charges, in the future. COMPETITION Gaming Equipment and Systems. The market for gaming machines is extremely competitive, and there are a number of established, well-financed and well-known companies producing machines that compete with each of Gaming's product lines in each of Gaming's markets. The domestic market for gaming machines is dominated by a single competitor, International Game Technology ("IGT"), with a number of smaller competitors in the field. In addition, certain technology-oriented companies have recently entered or may enter the gaming machine market. Management believes that some of these competitors have greater capital resources than the Company. Competition among gaming machine manufacturers, particularly with respect to sales of gaming machines into new and emerging markets, is based on competitive customer pricing and financing terms, appeal to the player and quality of the product, and having an extensive distribution and sales network. Sales to established casinos in Nevada normally require completion of a successful trial period for the machines in the casino. The competition for the computerized monitoring systems designed and sold by Systems currently consists of IGT, Casino Data Systems and, to a lesser extent, Acres Gaming, Inc., Gaming Systems International, Inc. and Mikohn Gaming Corporation. Competition is keen in this market due to the number of providers and the limited number of casinos and the jurisdictions in which they operate. Pricing, product feature and function, accuracy, and reliability are all main factors in determining a provider's success in selling its system. Systems believes the future success of its operations will be determined by its ability to bring new and innovative products to the marketplace while at the same time maintaining the base of loyal existing customers. Wall Machines and Amusements Games. Germany's wall machine manufacturing industry is dominated by Bally Wulff and two of its competitors. Management believes these three entities collectively account for more than 90% of the entire market for wall machines (which exists almost exclusively in Germany). Bally Wulff's two major competitors have greater resources than the Company and own and operate a significant number of arcades, which gives them a competitive advantage arising from a built-in market for their games and the ability to test market new games in their own arcades. In addition, wall machines compete for floor space in arcades with token machines, which are not subject to the strict German licensing requirements governing wall machines. 45 46 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Route Operations. The competition for obtaining and renewing route contracts in Nevada is high and continues to intensify. Such competition has, over time, reduced the Company's gross profit margins for such operations. In addition, such competition has required the Company to provide financial incentives to retain or obtain certain route locations. Such incentives include long-term lease commitments, guarantees of leases in favor of owners of local establishments, substantial advance deposits, payments of lease rentals in advance and loans for buildings and tenant-improvement costs. Although the Company believes that it now has adequate procedures for evaluating and managing such risks, historically substantial losses have been incurred in connection with such transactions reflecting, in part, former management's willingness to accept higher levels of risk to further its policy of emphasizing market share. Notwithstanding the change in the Company's business strategy to one emphasizing profitability rather than market share, the future success of the Company's Route Operations will continue to be dependent to some extent on its ability and willingness to provide such financial inducements. Although the Company has historically generated sufficient new route contracts to offset the loss of old route contracts, due to increased competition, the increased sophistication and bargaining power of customers and possibly other factors not yet known, there can be no assurance that the Company will be able to obtain new route contracts or renew or extend its route contracts upon their expiration or termination, or that, if renewed or extended, the terms will be favorable to the Company. In Louisiana, the Company's Route Operations at the racetrack and OTBs compete with various truck stops and locations with liquor licenses throughout the New Orleans area, as well as riverboat gaming and one land-based casino which may re-open in New Orleans. Casino Operations. The operation of casinos is also a highly competitive business. The principal competitive factors in the industry include the quality and location of the facility, the nature and quality of the amenities and customer services offered and the implementation and success of marketing programs. In Sparks, Nevada, the principal competition for the Company's operations comes from larger casinos focusing on the local market. The Company's Rainbow Casino in Vicksburg, Mississippi faces intense direct competition from other gaming facilities serving this market. Competition from casinos in nearby locations may also be reducing the market area from which Vicksburg casinos draw most of their patrons. Moreover, additional potential gaming sites remain in and around Vicksburg and Sparks; some of these sites may be closer to larger population centers and, if developed, might enjoy a competitive advantage over the Company's casinos. PRODUCT DEVELOPMENT The future success of the Company depends to a large extent upon its ability to design, manufacture and market technologically sophisticated products that achieve high levels of player acceptance. The development of a successful new product or product design by a competitor could adversely affect sales of the Company's products and force it to respond quickly with its own competing products. The Company's plans with respect to the introduction of more sophisticated technology into the electronic gaming machine market are designed to lead to an increase in market share and profitability for the Company. However, there is no assurance that any such products will be developed, or that if developed they will receive necessary regulatory approvals or be commercially successful. SALES TO NON-TRADITIONAL GAMING MARKETS The continued growth of the non-traditional markets outside of Nevada and Atlantic City for electronic gaming machines is contingent upon the public's acceptance of these markets and an ongoing regulatory approval process by Federal, state and local governmental authorities. The Company cannot predict which new jurisdictions or markets, if any, will approve the operation of electronic gaming machines, the timing of any such approval or the level of the Company's participation in any such markets or that jurisdictions currently permitting gaming will continue to do so in the future. FOREIGN OPERATIONS 46 47 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 The Company's business in foreign markets is subject to the risks customarily associated with such activities. These risks include fluctuations in foreign currency exchange rates and controls, expropriation, nationalization and other economic, tax and regulatory policies of local governments as well as the laws and policies of the United States affecting foreign trade and investment. The Company does not generally enter into foreign exchange contracts to hedge its exposure to foreign exchange rate fluctuations. In addition, the proposed conversion of currency in Germany from the Deutschemark to the Euro will require the Company to redesign new and, possibly, existing Bally Wulff wall machines and gaming devices to accept such new currencies, the financial impact of which is uncertain. DEPENDENCE ON KEY PERSONNEL The success of the Company will be dependent, to a significant extent, upon the continued services of a relatively small group of executive personnel. The loss or unavailability of one or more of such executive officers or the inability to attract or retain key employees in the future could have an adverse effect upon the Company's operations. In December 1996, the Company's President and Chief Executive Officer stepped down as the Company's strategic direction changed after the BGII acquisition. In June, 1997, the Company named Morris Goldstein as its President and Chief Executive Officer. STRICT REGULATION BY GAMING AUTHORITIES The manufacture and distribution of gaming machines and the conduct of gaming operations is subject to extensive Federal, state, local and foreign regulation by various gaming authorities (each, a "Gaming Authority"). Although the laws and regulations of the various jurisdictions in which the Company operates vary in their technical requirements and are subject to amendment from time to time, virtually all these jurisdictions require licenses, permits, documentation of the qualification, including evidence of integrity and financial stability, and other forms of approval for companies engaged in gaming operations and the manufacture and distribution of gaming machines as well as for the officers, directors, major stockholders and key personnel of such companies. The Company and its key personnel have obtained, or applied for, all government licenses, registrations, findings of suitability, permits and approvals necessary for the manufacture and distribution, and operation where permitted, of its gaming machines in the jurisdictions in which it currently does business. However, there can be no assurance that such licenses, registrations, findings of suitability, permits or approvals will be given or renewed in the future or that the Company will obtain the licenses necessary to operate in emerging markets. Gaming was previously licensed by the New Jersey Commission as a gaming-related casino service industry, which is required by the New Jersey Casino Control Act in order for the Company to sell gaming devices and systems in New Jersey. Due to the change of ownership of Gaming as a result of the BGII acquisition, Gaming's New Jersey license was invalidated. Prior to the change of ownership of Gaming and in anticipation of same, the Company submitted an application for casino service industry licensure. The New Jersey Commission deemed the application complete and, as a result, since the BGII acquisition the Company's operations in New Jersey have continued uninterrupted pursuant to transactional waivers which have been granted by the New Jersey Commission on a six-month blanket basis for parts and service and on a sale-by-sale basis for all other products pending final action on the Company's license application. The Company's business is dependent on regulatory requirements. For example, recurring demand exists for Bally Wulff's products because German regulations limit the permissible use of wall machines to a period of four years. A change in applicable regulations could adversely affect the market for the Company's products and services. The Company currently has an agreement with Fair Grounds Corporation, Jefferson Downs Corporation and Finish Line Management Corporation to be the exclusive operator of video poker machines at the only racetrack and ten associated OTBs in the greater New Orleans area. On November 5, 1996 voters in Louisiana approved a proposition to allow video poker to continue in six of the seven parishes in which the Company operates off-track betting locations in the greater New Orleans area. In addition, voters approved video poker in three parishes in the 47 48 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 greater New Orleans area where the Company currently does not operate. In the one parish in which the Company operates where video poker was voted down, the Company will be allowed to continue to conduct business through June 30, 1999. For the nine months ended March 31, 1997, the two off-track betting locations in this parish accounted for $1.7 million of revenues and approximately 11% of operating income of the Company's Route Operations in Louisiana or approximately 1% of the Company's operating income. These operations also depend on the financial viability of the racetrack, which is beyond the control of the Company. See "Business--Gaming Regulations and Licensing". GAMING TAXES AND VALUE ADDED TAXES Gaming operators are typically subject to significant taxes and fees in addition to corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these taxes or fees, which could occur prospectively or retroactively, would adversely affect the Company. Sales of Bally Wulff's products in Germany are generally subject to value added taxes ("V.A.T."). The operations of Bally Wulff had benefitted from a special tax rebate that was phased out from January 1, 1992 to January 1, 1994. During 1995, Bally Wulff increased the amount of V.A.T. reserves by $1.0 million as a result of developments to date in an ongoing quadrennial audit of Bally Wulff's tax returns for the years 1988 through 1991. The German tax authorities have proposed preliminary adjustments which range from approximately $1.4 million (which has been accrued) to approximately $5.0 million. The German Federal Constitutional Court recently let stand a regulation that permits local municipalities to impose additional taxes on gaming machine operators. In the past, the imposition of such taxes by certain municipalities has adversely affected Bally Wulff's sales. There can be no assurance that municipalities will not impose new taxes or raise existing taxes in the future. The Company pays and expects to continue to pay substantial taxes and fees in Nevada, Louisiana and Mississippi and expects to pay substantial taxes and fees in any other jurisdiction in which it conducts gaming operations. There can be no assurance as to future increases in taxation on gaming operations. CHANGE OF CONTROL Upon the occurrence of a Change of Control (as defined), each holder of the Senior Subordinated Notes may require the Company to repurchase the Senior Subordinated Notes held by such holder at 101% of the principal amount thereof, plus accrued interest to the date of repurchase. The new credit facility prohibits the Company from purchasing any Senior Subordinated Notes, and provides that the occurrence of certain change of control events with respect to the Company would constitute a default thereunder. In the event of a change of control, the Company must offer to repay all borrowings under the new credit facility or obtain the consent of its lenders under the credit agreement to the purchase of Senior Subordinated Notes. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Senior Subordinated Notes. In such case, the Company's failure to repurchase tendered Senior Subordinated Notes would constitute a default under the indenture, which, in turn, would constitute a default under the new credit facility. There can be no assurance that the Company will have the financial ability to purchase the Senior Subordinated Notes upon the occurrence of a change of control. There can be no assurance that the Company will be able to comply with all of its obligations under the new credit facility, the indenture, and its other indebtedness upon the occurrence of a change of control. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements, including the notes thereto, and supplementary financial information are listed in Part IV, Item 14, of this Report and included after the signature page beginning at page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 48 49 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from the Proxy Statement which will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year covered by this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the Proxy Statement which will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the Proxy Statement which will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year covered by this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the Proxy Statement which will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year covered by this report. 49 50 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report: PAGE ---- 1. Financial Statements: Independent Auditors' Report F-1 Consolidated Balance Sheets as of June 30, 1996 and 1997 F-2 Consolidated Statements of Operations for the Years Ended June 30, 1995, 1996 and 1997 F-3 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1995, 1996 and 1997 F-4 Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997 F-5 Notes to Consolidated Financial Statements F-6 2. Consolidated Supplemental Schedules: Not applicable. 3. Exhibits:
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 Agreement and Plan of Merger among Alliance, BGII Acquisition Corp. and BGII, dated as of October 18, 1995, as amended and restated (incorporated herein by reference to Annex I to the prospectus included in Alliance's Form S-4, Registration Number 333-02799 ). 2.2 Basic Agreement, dated as of October 29, 1993, among United Gaming, Inc., The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel, and exhibits thereto (incorporated herein by reference to Alliance's Form 8-K dated October 29, 1993). 2.4 Consolidation Agreement, dated March 29, 1995 among United Gaming Rainbow, Inc., RCC, RCVP, NGM, HFS, National Gaming Corporation, Rainbow Development Corporation and Leigh Seippel and John A. Barrett, Jr. (incorporated herein by reference to Alliance's Form 8-K dated March 29, 1995). 3.1 Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to Alliance's Form S-2, Registration Number 33-72990).
50 51 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.2 Revised By-Laws of the Registrant (incorporated herein by reference to Alliance's Form 10-K for the year ended June 30, 1994.) 3.4 Certificate of Designations, Preferences, and Relative, Participating, Optional and Other Special Rights of Special Stock and Qualifications, Limitations and Restrictions of 11 1/2% Non-Voting, Pay-in-Kind Special Stock, Series E (incorporated herein by reference to Exhibit 9(c)(5) to Amendment No. 1 to Alliance's Schedule E-4 dated May 9, 1996). 4.1 Form of Indenture among the Company, certain Guarantors referred to therein and United States Trust Company of New York, as Trustee, in respect of Alliance's 10% Senior Subordinated Notes due 2007 (including form of Senior Subordinated Note and Guarantee). The Registrant agrees to furnish to the Commission upon request copies of agreements with respect to its other long-term debt. 4.3 Credit Agreement among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH and various lenders, and Credit Suisse First Boston, dated August 8, 1997. 10.1 Loan and Warrant Agreement dated March 24, 1993 between United Gaming, Inc., Video Services, Inc. and Alfred H. Wilms (incorporated herein by reference to Alliance's Form 8-K dated March 31, 1992). 10.4 Alliance Gaming Corporation 1996 Long Term Incentive Plan (incorporated herein by reference to Alliance Form S-8 filed August 12, 1997).* 10.5 Letter of Agreement dated June 25, 1993 among United Gaming, Inc. and Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment Corporation and as to certain provisions, Alfred H. Wilms, including Exhibit A (Form of Securities Purchase Agreement), Exhibit B (Form of Stockholders Agreement), Exhibit C (Form of Certificate of Designations of Non-Voting Junior Convertible Preferred Stock), Exhibit D (Form of Warrant Agreement), and Exhibit E (Form of press release) thereto (incorporated herein by reference to Alliance's Form 8-K dated June 25, 1993). 10.6 Advisory Agreement, dated June 25, 1993 among United Gaming, Inc., Gaming Systems Advisors, L.P. and, as to certain provisions, Mr. Alfred H. Wilms, including Exhibit A (Form of Warrant Agreement) and Exhibit B (Form of press release) thereto (incorporated herein by reference to Alliance's Form 8-K dated June 25, 1993).
51 52 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.7 United Gaming, Inc. 1991 Long-Term Incentive Stock Option Plan (incorporated herein by reference to Alliance's Form S-8 Registration Number 33-45811 and Registration Number 33-75308).* 10.8 Gaming and Technology, Inc. 1984 Employee Stock Option Plan (incorporated herein by reference to Alliance's Form S-8 Registration Number 2-98777).* 10.9 Agreement, dated as of September 14, 1993, by and among United Gaming, Inc., Kirkland-Ft. Worth Investments Partners, L.P., Kirkland Investment Corporation, Gaming Systems Advisors, L.P. and Alfred H. Wilms (incorporated herein by reference to Alliance's Form 8-K dated September 21, 1993). 10.10 Warrant Agreement, dated as of September 21, 1993, by and between United Gaming, Inc. and Kirkland-Ft. Worth Investment Partners, L.P. relating to warrants to purchase 2.75 million shares of Common Stock (incorporated herein by reference to Alliance's Form 8-K dated September 21, 1993). 10.11 Warrant Agreement, dated as of September 21, 1993, by and between United Gaming, Inc. and Gaming Systems Advisors, L.P. relating to warrants to purchase 1.25 million shares of Common Stock (incorporated herein by reference to Alliance's Form 8-K dated September 21, 1993). 10.12 Stockholders Agreement, dated as of September 21, 1993, by and among United Gaming, Inc., Kirkland-Ft. Worth Investment Partners, L.P., and Alfred H. Wilms (incorporated herein by reference to Alliance's Form 8-K dated September 21, 1993). 10.13 Amendment to Stockholders Agreement dated as of October 20, 1994 (incorporated herein by reference to Alliance's Form S-8 Registration Number 33-45811 and Registration Number 33-75308). 10.14 Selling Stockholder Letter Agreement dated as of March 20, 1995 (incorporated herein by reference to Alliance's Form S-3 Registration Number 33-58233). 10.15 Securities Purchase Agreement, dated as of September 21, 1993, by and among United Gaming, Inc., Kirkland-Ft. Worth Investment Partners, L.P. and Kirkland Investment Corporation (incorporated herein by reference to Alliance's Form 8-K dated September 21, 1993). 10.19 Management Agreement, dated as of October 29, 1993, among Rainbow Casino-Vicksburg Partnership, L.P., The Rainbow Casino Corporation and Mississippi Ventures, Inc., as manager (incorporated herein by reference to Alliance's Form 8-K dated October 29, 1993). 10.22 Warrant Agreement, dated as of August 2, 1993, between United Gaming, Inc. and Alfred H. Wilms (incorporated herein by reference to Alliance's Form S-2, Registration Number 33-72990). 10.27 Letter Agreement, dated as of February 25, 1994, among United Gaming, Inc., The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel (incorporated herein by reference to Alliance's Form 8-K dated March 15, 1994). 10.28 Letter Agreement, dated as of June 29,1994, among United Gaming, Inc., The Rainbow Casino
52 53 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997
EXHIBIT NUMBER DESCRIPTION - ------ ----------- Corporation, John A. Barrett, Jr. and Leigh Seippel, consented to by HFS Gaming Corporation (incorporated herein by reference to Alliance's Form 8-K dated August 11, 1994). 10.29 Letter Agreement, dated as of July 16, 1994, among United Gaming, Inc., The Rainbow Casino Corporation, John A. Barrett, Jr. and Leigh Seippel, consented to by HFS Gaming Corporation (incorporated herein by reference to Alliance's Form 8-K dated August 11, 1994). 10.30 Second Amendment to Casino Financing Agreement, dated as of August 11, 1994, among United Gaming, Inc., United Gaming Rainbow, Inc., Rainbow Casino-Vicksburg Partnership, L.P., The Rainbow Casino Corporation, John A. Barrett, Jr., Leigh Seippel and HFS Gaming Corporation (incorporated herein by reference to Alliance's Form 8-K dated August 11, 1994). 10.31 Partnership Agreement of Rainbow Casino-Vicksburg Partnership, L.P., dated as of July 8, 1994 (incorporated herein by reference to Alliance's Form 8-K dated August 11, 1994). 10.32 Second Amended and Restated Agreement of Limited Partnership, dated March 29,1995, between United Gaming Rainbow and RCC (incorporated herein by reference to Alliance's Form 8-K dated March 29, 1995). 10.33 Promissory Note, dated as of July 16, 1994, from United Gaming Rainbow, Inc. to The Rainbow Casino Corporation (incorporated herein by reference to Alliance's Form 8-K dated August 11, 1994). 10.34 Pledge Agreement, dated as of July 16, 1994, from United Gaming Rainbow, Inc. to The Rainbow Casino Corporation (incorporated herein by reference to Alliance's Form 8-K dated August 11, 1994). 10.36 Escrow Agreement, dated as of August 11, 1994, among United Gaming Rainbow, Inc., The Rainbow Casino Corporation, John A. Barrett, Jr., Leigh Seippel and Butler, Snow, O'Mara, Stevens & Cannada, together with Agreement dated February 7, 1995, as amended July 11, 1994 between Rainbow Casino-Vicksburg Partnership, L.P. and the City of Vicksburg, Mississippi (incorporated herein by reference to Alliance's Form 8-K dated August 11, 1994). 10.42 Agreement, dated March 20, 1995, between Alliance and Joel Kirschbaum (incorporated herein by reference to Alliance's Form S-3 Registration Number 33-58233).* 10.43 Letter Agreement, dated March 29, 1995, among United Gaming Rainbow, RCC, Leigh Seippel, John A. Barrett, Jr. and Butler, Snow, O'Mara, Stevens & Cannada (incorporated herein by reference to Alliance's Form 8-K dated March 29, 1995). 10.44 Class A Note Payable, dated March 29, 1995, issued by RCVP to United Gaming Rainbow (incorporated herein by reference to Alliance's Form 8-K dated March 29, 1995). 10.45 Class B Note Payable, dated March 29, 1995, issued by RCVP to United Gaming Rainbow (incorporated herein by reference to Alliance's Form 8-K dated March 29, 1995). 10.46 Class B Note Payable, dated March 29, 1995, issued by RCVP to National Gaming Mississippi, Inc. (incorporated herein by reference to Alliance's Form 8-K dated March 29, 1995).
53 54 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.49 Agreement, dated March 31, 1995 between Anthony DiCesare and Alliance Gaming Corporation (incorporated by reference to exhibit 10.54 to Form S-2 registration statement, registration Number 333-02147).* 10.50 Trademark License Agreement, dated November 11, 1991 between Bally Manufacturing Corporation and Bally Gaming International, Inc. (incorporated herein by reference to exhibit 10(i)(d) included in BGII's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 10.51 Amended and Restated Trademark License Agreement, dated July 8, 1992, by and between Bally Gaming International, Inc. and Bally Manufacturing Corporation (incorporated herein by reference to exhibit 10(i)(d) included in BGII's Registration Statement on Form S-1 No. 33-48347 filed on July 9, 1992). 10.53 Second Amendment to Trademark License Agreement and Settlement Agreement, dated March 31, 1995, by and between Bally Entertainment Corporation and Bally Gaming International, Inc. (incorporated herein by reference to Exhibit I, included in BGII's Current Report on Form 8-K dated April 3, 1995). 10.54 Third Amendment to Trademark License Agreement and Settlement Agreement, dated May 10, 1996, by and between Bally Entertainment Corporation, Alliance Gaming Corporation and BGII Acquisition Corp. (incorporated by reference to exhibit 10.77 to S-2 Registration Statement No. 333-02147). 10.55 1991 Incentive Plan of Bally Gaming International, Inc. (incorporated herein by reference to exhibit 10(iii)(a) included in BGII's Registration Statement No. 33-42227 on Form S-1, effective November 8, 1991).* 10.56 Amendment No. 1 to the 1991 Incentive Plan of Bally Gaming International, Inc. effective February 6, 1993 (incorporated herein by reference to exhibit 10(iii)(b) included in BGII's Registration Statement No. 33-42227 on Form S-1 effective November 1, 1991).* 10.57 Amendment No. 2 to 1991 Incentive Plan of Bally Gaming International, Inc. (incorporated herein by reference to exhibit 99(e) included in BGII's Registration Statement No. 33-71154 on Form S-3 filed on November 1, 1993).* 10.58 Amendment No 3 to 1991 Incentive Plan of Bally Gaming International, Inc. (incorporated by reference to Annex III of S-4 registration statement No. 333-01527).* 10.59 1991 Non-Employee Directors' Option Plan of Bally Gaming International, Inc. (incorporated herein by reference to exhibit 10(iii)(f) included in BGII's Annual Report on Form 10-K for the fiscal year ended December 31, 1991).* 10.60 Amendment No. 1 to the 1991 Non-Employee Directors' Option Plan of Bally Gaming International, Inc. (incorporated herein by reference to exhibit 10(iii)(g) included in BGII's Annual Report on Form 10-K for the fiscal year ended December 31, 1991).* 10.61 Amendment No. 2 to the 1991 Non-Employee Directors' Option Plan of Bally Gaming International, Inc. (incorporated by reference to S-4 registration statement No. 333-01527).*
54 55 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.62 Amendment No. 3 to the 1991 Non-Employee Directors' Option Plan of Bally Gaming International, Inc. (incorporated by reference to Annex IV of S-4 registration statement No. 333-01527).* 10.64 Bally Gaming International, Inc. 1994 Stock Option Plan for Non-employee Directors, as amended (incorporated herein by reference to exhibit 10(iii)(k) included in BGII's Annual Report on Form 10-K for the period ended December 31, 1994.) 10.65 Employment Agreements, as amended, between Hans Kloss and each of Bally Wulff Automaten GmbH and Bally Wulff Vertriebs GmbH (incorporated herein by reference to exhibit 10(iii)(b) included in BGII's Registration Statement No. 33-42227 on Form S-1, effective November 3, 1991).* 10.66 Third Amendments, dated June 2, 1993, to Employment Agreements between Hans Kloss and each of Bally Wulff Automaten GmbH and Bally Wulff Vertriebs GmbH (incorporated herein by reference to exhibit 99(c) included in BGII's Registration Statement No. 33-71154 on Form S-3 filed on November 1, 1993).* 10.70 Separation Agreement, dated as of November 5, 1996 between the Company and Steve Greathouse.* 10.71 Employment Agreement, dated as of March 31, 1995, between the Company and David D. Johnson (incorporated by reference to the Company quarterly report on Form 10-Q for March 31, 1997).* 10.72 Employment Agreement Supplement, dated as of August 29, 1996, between the Company and Joel Kirschbaum (incorporated by reference to the Company quarterly report on Form 10-Q for March 31, 1997).* 10.73 Employment Agreement Supplement, dated as of August 29, 1996, between the Company and Anthony DiCesare (incorporated by reference to the Company quarterly report on Form 10-Q for March 31, 1997).* 10.74 Employment Agreement, dated as of June 24, 1996, between the Company and Scott D. Schweinfurth (incorporated by reference to the Company quarterly report on Form 10-Q for March 31, 1997).* 10.75 Employment Agreement, dated as of June 17, 1997 between the Company and Morris Goldstein .* 10.76 Employment Agreement, dated July 1, 1997 between the Company and Joel Kirschbaum.* 10.77 Employment Agreement, dated July 1, 1997 between the Company and Anthony DiCesare .* 10.78 Agreement, between the Company and Kirkland Investment Corporation dated July 1, 1997 . 10.79 Amendment Number 1 to the agreement between the Company and Kirkland Investment Corporation dated July 1, 1997 . 21 Subsidiaries of the Registrant.
55 56 ALLIANCE GAMING CORPORATION FORM 10-K YEAR ENDED JUNE 30, 1997
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 23.1 Consent of KPMG Peat Marwick LLP 27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (b) Reports on Form 8-K: There were no reports filed on Form 8-K for the three months ended June 30, 1997. (c) See Item 14(a)(3) above. (d) See Item 14(a)(2) above. 56 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLIANCE GAMING CORPORATION DATED: September 24, 1997 By /s/ MORRIS GOLDSTEIN ------------------------------------- Morris Goldstein, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ MORRIS GOLDSTEIN President and Chief Executive Officer September 24, 1997 - -------------------- (Principal Executive Officer) Morris Goldstein /s/ SCOTT D. SCHWEINFURTH Sr. Vice President, Treasurer and Chief September 24, 1997 - ------------------------- Financial Officer (Principal Financial and Scott D. Schweinfurth Accounting Officer) /s/ JACQUES ANDRE Director September 24, 1997 - ------------------- Jacques Andre /s/ ANTHONY DICESARE Director September 24, 1997 - -------------------- Anthony DiCesare /s/ MICHAEL HIRSCHFELD Director September 24, 1997 - ---------------------- Michael Hirschfeld /s/ JOEL KIRSCHBAUM Director September 24, 1997 - -------------------- Joel Kirschbaum /s/ ALFRED H. WILMS Director September 24, 1997 - ------------------- Alfred H. Wilms
58 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Alliance Gaming Corporation: We have audited the accompanying consolidated balance sheets of Alliance Gaming Corporation and Subsidiaries as of June 30, 1996 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alliance Gaming Corporation and Subsidiaries as of June 30, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Las Vegas, Nevada September 3, 1997 F-1 59 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In 000's except share amounts)
ASSETS June 30, June 30, 1996 1997 --------- --------- Current assets: Cash and cash equivalents $ 48,057 $ 28,924 Accounts and notes receivable, net of allowance for doubtful accounts of $17,727 and $21,929 93,502 87,701 Inventories, net of reserves of $9,484 and $8,856 41,656 37,329 Other current assets 8,354 9,627 --------- --------- Total current assets 191,569 163,581 --------- --------- Long-term notes receivable, net of allowance for doubtful accounts of $1,770 and $1,972 14,184 8,981 Leased equipment, net 3,507 7,902 Property, plant and equipment, net 74,577 74,647 Excess of costs over net assets of acquired businesses, net of accumulated amortization of $422 and $1,723 60,292 62,098 Intangible assets, net of accumulated amortization of $5,216 and $9,626 20,247 18,231 Deferred tax assets, net of valuation allowance 5,459 11,776 Other assets, net of reserves of $3,679 and $3,502 5,669 4,800 --------- --------- $ 375,504 $ 352,016 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 16,240 $ 14,270 Accrued compensation and related costs 7,309 6,974 Other accrued liabilities 31,234 30,418 Current maturities of long term debt 25,777 1,124 --------- --------- Total current liabilities 80,560 52,786 --------- --------- Senior Secured Notes, net of unamortized discount of $3,071 and $2,776 150,929 151,224 Other long term debt, less current maturities 14,638 21,491 Deferred tax liabilities 4,731 10,365 Other liabilities 2,100 2,068 --------- --------- Total liabilities 252,958 237,934 --------- --------- Minority interest 1,148 1,546 Series B Special Stock, $.10 par value, $100 liquidation value; 684,551 and 754,198 shares issued and outstanding, net of discount 51,552 58,981 Commitments and contingencies Stockholders' equity: Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 113,160 shares and 123,689 shares issued and outstanding 11,316 12,368 Common Stock, $.10 par value; 175,000,000 shares authorized, 31,763,000 and 31,852,000 shares issued and outstanding 3,176 3,185 Additional paid-in capital 139,031 138,590 Cumulative translation adjustment (287) (11,719) Accumulated deficit (83,390) (88,869) --------- --------- Total stockholders' equity 69,846 53,555 --------- --------- $ 375,504 $ 352,016 ========= =========
See accompanying notes to consolidated financial statements. F-2 60 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In 000's, except per share amounts)
Years Ended June 30, ------------------------------------------- 1995 1996 1997 --------- --------- --------- Revenues: Gaming equipment and systems $ --- $ 10,575 $ 134,734 Wall machines and amusement games --- 3,356 131,934 Route operations 106,854 109,938 127,028 Casino operations 25,134 48,509 51,450 --------- --------- --------- 131,988 172,378 445,146 --------- --------- --------- Costs and expenses: Cost of gaming equipment and systems --- 7,213 84,496 Cost of wall machines and amusement games --- 2,022 68,426 Cost of route operations 79,887 84,212 95,716 Cost of casino operations 14,231 22,046 22,269 Selling, general and administrative 28,249 30,620 100,415 Provision for doubtful receivables 400 1,020 9,059 Depreciation and amortization 9,520 10,988 22,606 Direct acquisition costs 1,669 55,843 --- Unusual items 2,293 5,498 700 --------- --------- --------- 136,249 219,462 403,687 --------- --------- --------- Operating income (loss) (4,261) (47,084) 41,459 Other income (expense): Interest income 2,798 1,571 1,620 Interest expense (8,133) (8,897) (23,626) Rainbow royalty (810) (4,070) (4,722) Minority interest (397) (963) (1,092) Other, net 317 301 139 --------- --------- --------- Income (loss) before income taxes (10,486) (59,142) 13,788 Income tax provision (265) (755) (7,993) --------- --------- --------- Net income (loss) (10,751) (59,897) 5,785 Special Stock dividends, including repurchase premium --- (362) (11,974) --------- --------- --------- Net loss applicable to common shares $ (10,751) $ (60,259) $ (6,189) ========= ========= ========= Net loss per common share $ (0.95) $ (4.64) $ (0.19) ========= ========= ========= Weighted average common shares outstanding 11,300 13,000 31,822 ========= ========= =========
See accompanying notes to consolidated financial statements. F-3 61 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In 000's)
Initial Series and Series E Total Common Stock Special Stock Additional Unrealized Cumulative Stock- -------------------- -------------------- Paid-in Accum. Loss on Translation holders' Shares Dollars Shares Dollars Capital Deficit Securities Adjustment Equity --------- --------- --------- --------- ---------- --------- ---------- ----------- --------- Balances at June 30, 1994 10,506 $ 1,051 1,333 $ 133 $ 26,716 $ (12,380) $ (421) - $ 15,099 Net loss - - - - - (10,751) - - (10,751) Shares issued for acquisition 712 71 - - 3,683 - - - 3,754 Compensatory stock issued 250 25 - - 1,288 - - - 1,313 Net change in unrealized loss on securities available for sale - - - - - - 105 - 105 Shares issued upon exercise of options 186 18 - - 447 - - - 465 --------- --------- --------- --------- --------- --------- --------- --------- --------- Balances at June 30, 1995 11,654 1,165 1,333 133 32,134 (23,131) (316) - 9,985 Net loss - - - - - (59,897) - - (59,897) Shares issued for acquisition and related financing 2,145 215 7,496 - - - 7,711 Initial Series Special Stock converted into common stock 1,333 133 (1,333) (133) - - - - - Conversion of subordinated debentures 15,136 1,513 113 11,316 95,151 - - - 107,980 Common stock issued in private placement 1,495 150 - - 4,250 - - - 4,400 Special Stock dividend - - - - - (362) - - (362) Net change in unrealized loss on securities available for sale - - - - - - 316 - 316 Foreign currency translation adjustment - - - - - - - (287) (287) --------- --------- --------- --------- --------- --------- --------- --------- --------- Balances at June 30, 1996 31,763 3,176 113 11,316 139,031 (83,390) - (287) 69,846 Net income - - - - - 5,785 - - 5,785 Shares issued upon exercise of options 92 9 - - 281 - - - 290 Adjustments to acquisition consideration (3) - - - (12) - - - (12) Special Stock dividends - - 10 1,052 - (11,264) - - (10,212) Special Stock repurchase premium - - - - (710) - - - (710) Foreign currency translation adjustment - - - - - - - (11,432) (11,432) --------- --------- --------- --------- --------- --------- --------- --------- --------- Balances at June 30, 1997 31,852 $ 3,185 123 $ 12,368 $ 138,590 $ (88,869) $ - $ (11,719) $ 53,555 ========= ========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements. F-4 62 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In 000's)
Years Ended June 30, --------------------------------------- 1995 1996 1997 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ (10,751) $ (59,897) $ 5,785 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 9,520 10,988 22,606 Amortization of debt discounts 297 245 807 Loss on debenture conversion - 30,079 - Writedown of other assets 2,796 6,095 1,075 Loss on sale of assets - 105 1,233 Provision for doubtful receivables 400 1,020 9,059 Other 1,282 1,544 (651) Change in operating assets and liabilities, net of effects of businesses acquired: Accounts and notes receivable 1,345 (5,934) (4,601) Inventories (40) 5,844 (6,898) Other current assets 255 (95) (1,549) Accounts payable (447) (1,889) (1,970) Accrued liabilities (2,355) 12,780 (760) --------- --------- --------- Net cash provided by operating activities 2,302 885 24,136 --------- --------- --------- Cash flows from investing activities: Acquisitions of businesses, net of cash acquired 2,481 (79,209) - Additions to property, plant and equipment (8,887) (8,101) (13,257) Proceeds from disposal of property and equipment 351 2,282 254 Sales (purchases) of securities available for sale (11,086) 13,516 - Additions to intangible assets (425) (1,097) (6,749) Additions to other long-term assets (5,427) (3,994) (1,825) --------- --------- --------- Net cash used in investing activities (22,993) (76,603) (21,577) --------- --------- --------- Cash flows from financing activities: Proceeds from long-term debt, net of expenses - 145,420 - Reduction of long-term debt (3,125) (51,446) (6,774) Net change in credit lines - - (11,578) Issuance of Series B Special Stock, net of discount - 15,000 - Fees paid for conversion of convertible debentures - (3,333) - Issuance of common stock 465 4,400 - Repurchase of Series B Special Stock - - (3,879) Proceeds from exercise of stock options - - 767 --------- --------- --------- Net cash provided by (used in) financing activities (2,660) 110,041 (21,464) --------- --------- --------- Effect of exchange rate changes on cash - - (228) --------- --------- --------- Cash and cash equivalents: Increase (decrease) for year (23,351) 34,323 (19,133) Balance, beginning of year 37,085 13,734 48,057 --------- --------- --------- Balance, end of year $ 13,734 $ 48,057 $ 28,924 ========= ========= =========
See accompanying notes to consolidated financial statements. F-5 63 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1995, 1996 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS Description of business Alliance Gaming Corporation ("Alliance" or the "Company") is a diversified, worldwide gaming company that (i) designs and manufactures gaming machines and computerized monitoring systems for gaming machines, (ii) owns and manages a significant installed base of gaming machines, (iii) owns and operates two regional casinos and (iv) in Germany, is a full-service supplier of wall-mounted gaming machines and amusement games Principles of consolidation The accompanying consolidated financial statements include the accounts of Alliance Gaming Corporation, and its wholly-owned and partially owned, controlled subsidiaries. In the case of Video Services, Inc. ("VSI"), the Company owns 100% of the voting stock. The Company is entitled to receive 71% of dividends declared by VSI, if any, at such time that dividends are declared. Effective March 29, 1995 the Company acquired the general partnership interest in a dockside casino in Vicksburg, Mississippi and accordingly the results of operations of the Rainbow Casino have been included in the accompanying consolidated financial statements since that date. Effective June 18, 1996, the Company acquired Bally Gaming International, Inc. ("BGII"); the results of operations of BGII have been included in the accompanying consolidated financial statements since that date. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior year financial statements to conform with the current year presentation. Cash and cash equivalents Cash equivalents consist of highly liquid debt instruments purchased with an original maturity of three months or less at the date of purchase and are carried at cost, which approximates market value. Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Cost elements included for work-in-process and finished goods include raw materials, freight, direct labor and manufacturing overhead. Inventories consist of the following at June 30, 1996 and 1997:
1996 1997 ------- ------- (In 000's) Raw materials $13,339 $ 9,356 Work-in-process 1,264 1,683 Finished goods 27,053 26,290 ------- ------- Total $41,656 $37,329 ======= =======
Property, plant and equipment Property, plant and equipment are stated at cost and depreciated over the estimated useful lives or lease terms, if less, using the straight line method as follows; buildings and improvements, 30-39 years; gaming equipment, 5-7 years; furniture, fixtures and equipment, 3-10 years; and leasehold improvements, 5-20 years. F-6 64 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Significant replacements and improvements are capitalized; other maintenance and repairs are expensed. The cost and accumulated depreciation of assets retired or otherwise disposed of are eliminated from the accounts and any resulting gain or loss is credited or charged to income as appropriate. Property, plant and equipment consists of the following at June 30, 1996 and 1997:
1996 1997 -------- -------- (In 000's) Land $ 20,336 $ 21,610 Buildings and leasehold improvements 29,819 30,027 Gaming equipment 36,895 46,247 Furniture, fixtures and equipment 15,614 16,458 Less accumulated depreciation and amortization (28,087) (39,695) -------- -------- Property, plant and equipment, net $ 74,577 $ 74,647 ======== ========
Excess of costs over net assets of acquired businesses Excess of costs over net assets of acquired businesses is the excess of the cost over the fair value of net assets of acquired businesses and is generally amortized on the straight-line method over a period of 40 years. Intangible assets Intangible assets consist primarily of costs associated with the acquisition of location leases which are capitalized and amortized using the straight-line method over the terms of the leases, ranging from one to 24 years, with an average life of approximately 10 years, and deferred issuance costs for financing which are amortized over the life of the related financing. The Company continually evaluates whether events and circumstances have occurred that indicate the estimated useful life may warrant revision or that the remaining balance may not be recovered. Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impairment recognition Management evaluates the carrying value of all long-lived assets to determine recoverability based on an analysis of non-discounted future cash flows. Based on its most recent analysis, management believes that no material impairment in the value of long-lived assets exists at June 30, 1997. Revenue recognition The Company sells equipment and systems on normal credit terms (90 days or less), over longer term installments of up to 36 months or more or through payments from the net winnings of the machines until the purchase price is paid. Revenue from sales of gaming machines and amusement games is normally recognized at the time products are shipped and title has passed to the customer. Revenue from sales of software included in computerized monitoring systems is recognized at the time the system is accepted by the customer, which normally coincides with installation of the equipment. Revenue from sales of hardware included in computerized monitoring systems is recognized at the time the product is shipped. F-7 65 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In accordance with industry practice, the Company recognizes gaming revenues as the net win from gaming machine operations, which is the difference between coins and currency deposited into the machines and payments to customers and, for other games, the difference between gaming wins and losses. The Company recognizes total net win from gaming devices as revenues for route operations which operate under revenue-sharing arrangements and revenue-sharing payments as a cost of route operations. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. Unusual items The Company discloses as a separate component of operating income (loss), income and expense items that are unusual and infrequently occurring. During the year ended June 30, 1997 the Company incurred unusual charges of $0.7 million related primarily to separation costs of Alliance personnel subsequent to the BGII acquisition. During the year ended June 30, 1996 the Company incurred unusual charges for the write off of its investments in projects in Kansas and one Native American development project, totaling $3.4 million. Also in fiscal year 1996 the Company incurred unusual charges in its route operations for reserves for certain parts inventories which became obsolete due to technological changes to gaming devices being deployed as a result of the new Gambler's Bonus product, as well as an accrual to reserve for the present value of the future lease payments for one small casino location for which cash flows received under the participation agreement were inadequate to service the building lease paid by the Company, totaling $2.1 million. During 1995 the Company incurred unusual items consisting of $1.3 million in compensation expense recognized upon the issuance of 250,000 shares of Common Stock to the Company's then President, Chief Executive Officer and Chairman of the Board, in connection with his employment agreement, and $1.0 million related to certain contracts and termination costs. Foreign currency translation The functional currency of the Company's foreign subsidiaries is their local currency. Assets and liabilities of foreign operations are translated into U.S. dollars at the rate of exchange at the end of the period, and the income and expense accounts are translated at the average rate of exchange for the period. Translation adjustments are reflected as a separate component of stockholders' equity. Gains and losses on foreign currency transactions are included in the accompanying consolidated statements of operations. Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of the Company's foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they are located. Loss per share of common stock Loss per share of common stock has been computed by dividing the net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding. Fully diluted earnings per share is not presented because the effect of the common stock equivalents would be anti-dilutive. F-8 66 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fair value of financial instruments The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts at June 30, 1997 for the Company's financial instruments approximate fair value. Recently Issued Accounting Pronouncements In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" (SFAS No. 128) which establishes standards for computing and presenting earnings per share ("EPS"), and supersedes APB Opinion No. 15. The Statement replaces primary EPS with basic EPS and requires dual presentation of basic and diluted EPS. The Statement is effective for both interim and annual periods ending after December 15, 1997 and earlier application is not permitted. After adoption, all prior period EPS data must be restated to conform to SFAS No. 128. For the years ended June 30, 1995, 1996 and 1997 the basic EPS does not differ from the reported primary EPS, and diluted EPS would have been antidilutive for each of these periods. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" which establishes requirements for disclosure of comprehensive income and becomes effective for the Company for the year ending June 30, 1999. Comprehensive income includes items such as foreign currency translation adjustments which are currently being presented by the Company as a component of stockholders' equity. This is a disclosure item only and will have no impact on reported earnings per share. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers and will supersede SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." The new standard becomes effective for years beginning after December 15, 1997. This is a disclosure item only and will have no impact on reported earnings per share. 2. ACQUISITIONS On June 18, 1996, the Company completed the acquisition of all the outstanding shares of BGII. The consideration paid consisted of approximately $77.2 million in cash, $3.0 million in the Company's common stock and $36.6 million in the Company's Series B Special Stock which totaled $11.84 per share for the 9,855,500 shares of BGII outstanding (excluding the 1,000,000 shares beneficially owned by the Company). The acquisition has been accounted for as a purchase and the results of operations of BGII have been included in the consolidated financial statements beginning on June 18, 1996. The purchase price was allocated based on estimated fair values at the date of the acquisition. At June 30, 1997, the excess of purchase price over the fair value of the net assets acquired was approximately $61.2 million which is being amortized on a straight-line basis over 40 years. During fiscal 1997 the Company made certain adjustments aggregating approximately $6.6 million to the goodwill originally recorded, related to the settlement of certain pre-acquisition contingencies. On a pro forma basis for the year ended June 30, 1996 assuming the acquisition of BGII occurred on July 1, 1995, the Company would have had revenues of $397.9 million and a net loss applicable to common shares of $26.5 million (or an $0.83 loss per common share). The Company incurred direct acquisition costs of $1.7 million and $55.8 million during the fiscal years ended June 30, 1995, and 1996, respectively. The direct acquisition costs have been presented separately in the Company's consolidated statements of operations, as management believes that such presentation provides additional relevant information. Direct acquisition costs in fiscal year 1996 included the $30.1 million non-cash accounting loss on the exchange offer component of the financing for the acquisition plus legal, accounting, transaction financing fees, public and investor relations, printing costs and related costs. F-9 67 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. RECEIVABLES The Gaming Equipment and Systems and Wall Machines and Amusement Games business units grant certain customers extended payment terms under contracts of sale. These contracts are generally for terms of one to three years, with interest at prevailing rates, and are generally collateralized by the related equipment sold although the value of such equipment, if repossessed, may be less than the receivable balance outstanding. See "Concentration of Credit Risk". The Company's Nevada route operations from time to time make loans to location operators for build-outs, tenant improvements and initial operating expenses, which are generally secured by the personal guarantees of the operators and the locations' assets. The majority of the loans bear interest rates between 8% to 14%. They are expected to be repaid over a period of time not to exceed the life of the revenue sharing arrangement and have due dates ranging from July 1997 to April 2007. The following table represents, at June 30, 1997, scheduled collections of accounts and notes receivable (net of allowances for doubtful accounts) by fiscal year:
Years ended June 30, (In 000's) ---------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- $ 87,701 $ 5,024 $ 2,001 $ 381 $ 562 $ 1,013 $ 96,682 ==============================================================================================
4. REFINANCING TRANSACTION In August 1997 the Company effected a series of related transactions (as described below, the "Refinancing"). The Refinancing consisted of the private placement of $150 million of Senior Subordinated Notes and the closing of $230 million of bank financing. The bank financing provides for (i) term loans in the aggregate amount of up to $140.0 million, comprised of a $75.0 million tranche with a 7 1/2-year term (the "Tranche B Term Loan"), a $40.0 million tranche with an 8-year term (the "Tranche C Term Loan", and together with the Tranche B Term Loan, the "Term Loan Facilities") and a $25.0 million tranche with a 7 1/2-year term (the "Delayed Draw Term Facility"); and (ii) a $90.0 million revolving credit facility (the "Revolving Credit Facility") with a 6 year term. Each of these credit facilities are variable rate borrowings in accordance with a credit grid. The interest rates at the highest level of the credit grid and maturity dates are as follows:
Initial Maturity Rate Date ------------ ---------------- Tranche B Term Loan LIBOR + 2.75% January 31, 2005 Tranche C Term Loan LIBOR + 3.00% July 31, 2005 Delayed Draw Term Facility LIBOR + 2.75% January 31, 2005 Revolving Credit Facility LIBOR + 2.25% July 31, 2003
As part of the Refinancing, the Company used the proceeds of the Subordinated Note offering, together with borrowings under the Revolving Credit Facility, the Term Loan Facilities and the Delayed Draw Term Facility and cash on hand to fund (a) the repurchase at a premium of substantially all of the Company's 12 7/8% Notes, plus accrued interest to August 8, 1997 totaling $183.7 million, (b) the redemption at liquidation value of all of the Company's Series B Preferred Stock on September 8, 1997 totaling $77.6 million, (c) the purchase from HFS Gaming Corporation of the right to receive royalty payments based on revenues of the Rainbow Casino and the repayment of related debt owed to an HFS affiliate, National Gaming Mississippi, Inc. on August 12, 1997 totaling $26.3 million and (d) the payment of transaction fees and expenses totaling $16.6 million. At June 30, 1997, based on the terms of the new $90.0 million Revolving Credit Facility, the Company would have been able to borrow the full amount of the revolving credit line, of which the Company had initial borrowings of approximately $14.5 million on August 8, 1997. The borrowing base for the revolving credit facility includes eligible receivables and inventory (as defined). Additionally, in July F-10 68 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1997 the Company redeemed the remaining balance of the 7 1/2 Convertible Debentures at a price of 104, or a total of $1.7 million. In conjunction with the Refinancing, the Company incurred fees, expenses, and charges totaling approximately $78.4 million, including the premium on the repurchase of the 12 7/8% notes of $27.7 million and $16.4 million for the difference between the carrying value and the liquidation value of the Series B Preferred Stock, which will be recorded in the quarter ended September 30, 1997. On a pro forma basis as of June 30, 1997, in comparison to the actual year end balances, the Refinancing would have resulted in a decrease in cash and cash equivalents of $12.8 million, a decrease in working capital of $13.5 million, an increase in total long-term debt of $128.0 million, but the elimination of the 12 7/8% Notes and Series B Preferred Stock. The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are general unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt (as defined) of the Company, including indebtedness under the new credit facility. The Senior Subordinated Notes will be fully and unconditionally guaranteed on a joint and several senior subordinated basis by all existing and future domestic Restricted Subsidiaries (as defined) of the Company, subject to certain exceptions including the partially-owned entities through which its Mississippi casino and Louisiana route operations are conducted. The Subsidiary Guarantees (as defined) are general unsecured obligations of the Guarantors, ranking subordinate in right of payment to all Senior Debt of the Guarantors. The Company will be able to designate other current or future subsidiaries as Unrestricted Subsidiaries (as defined) under certain circumstances. Unrestricted Subsidiaries will not be required to issue a Subsidiary Guarantee and will not be subject to many of the restrictive covenants set forth in the Indenture pursuant to which the Senior Subordinated Notes were issued. The Indenture for the Company's Senior Subordinated Notes contains various covenants, including limitations on incurrence of additional indebtedness, on restricted payments and on dividend and payment restrictions on subsidiaries. The Senior Subordinated Notes may not be redeemed for the first five years. Upon the occurrence of a Change of Control (as defined), the holders of the Senior Subordinated Notes will have the right to require the Company to purchase their Notes at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase. The new credit facility is guaranteed by each domestic subsidiary of the U.S. Borrower and German Subsidiaries (both as defined), other than the entity which holds the Company's interest in its Louisiana operations and other non-material subsidiaries (as defined), and is subject to both a U.S. and German Pledge Agreement (both as defined). The new credit facility contains a number of maintenance covenants and together with the indenture, both have other significant covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries to dispose of assets, incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests (as defined) or subordinated indebtedness, issue or sell equity interests of the Company's subsidiaries (as defined), engage in mergers or consolidations, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities. After considering the Refinancing transaction described above, the resulting maturities of long-term debt, for each of the five fiscal years ending subsequent to June 30, 1997 are as follows:
Years ended June 30, (In 000's) -------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- $1,989 $2,468 $1,974 $1,974 $2,017 $297,944 $308,366 ======================================================================================
F-11 69 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. DEBT AND LINES OF CREDIT As discussed in Note 4, substantially all of the Company's indebtedness shown below was repaid as part of the Refinancing. Prior to the Refinancing, long-term debt and lines of credit at June 30, 1996 and 1997 consisted of the following:
1996 1997 -------- -------- (In 000's) 12 7/8% Senior Secured Notes due 2003, net of unamortized discount of $3,071,000 and $2,776,000 $150,929 $151,224 7 1/2% Convertible subordinated debentures due 2003, unsecured 1,642 1,642 Hospitality Franchise Systems note payable, secured by the assets of the Rainbow Casino 7,864 6,569 Subordinated note payable to stockholder 2,268 - Bally Wulff revolving lines of credit 13,664 9,611 Bally Gaming and Systems revolving line of credit 7,525 - Other, secured by related equipment 7,452 4,793 -------- -------- 191,344 173,839 Less current maturities 25,777 1,124 -------- -------- Long-term debt, less current maturities $165,567 $172,715 ======== ========
In connection with the acquisition of BGII, the Company issued $154.0 million aggregate principal amount of 12 7/8% Senior Secured Notes due 2003 (the "12 7/8% Notes") and 15% Non Voting Senior Pay-in-Kind Special Stock Series B (the "Series B Preferred Stock") with an original liquidation value of $68.5 million. The 12 7/8% Notes were secured by pledges of equity interests in certain of the Company's subsidiaries, and were fully and unconditionally guaranteed on a joint and several senior basis by each present and future subsidiary, as defined. During 1995, Hospitality Franchise Systems, Inc. ("HFS") and its affiliate, National Gaming Mississippi, Inc. ("NGM"), together agreed to loan up to $12.0 million to the Company's majority controlled subsidiary Rainbow Casino Vicksburg Partnership, L.P. ("RCVP"). Of these loan commitments, RCVP ultimately borrowed $10.0 million and $1.3 million from HFS and NGM respectively. The notes bear interest at 7.5% and 10%, respectively, and required monthly payments of principal and interest over an 84-month period. Prior to the Refinancing, HFS was entitled to receive a monthly royalty fee based on the Rainbow Casino's gaming revenues of 12% on the first $40.0 million, 11% on the next $10.0 million, and 10% thereafter. The Bally Wulff entities held two bank lines of credit which provided for borrowings of DM16,000,000 and DM750,000 (approximately $9.2 million and $0.4 million, respectively at June 30, 1997). The DM750,000 line of credit amortizes by DM250,000 per quarter and bears interest at 6.95%. The DM16,000,000 credit line bears interest at a rate tied to an international borrowing rate plus 1% (4.30% at June 30, 1997) and is due on demand. These lines were fully drawn at June 30, 1997. The Bally Wulff entities also had a DM16,300,000 (approximately $9.4 million at June 30, 1997) revolving line of credit for general working capital purposes which bears interest at a rate tied to an international borrowing rate plus 1% (4.30% at June 30, 1997) and was due on demand. No amounts were outstanding under this line at June 30, 1997. In March 1997, BGII's domestic subsidiary, Bally Gaming, Inc., obtained a bank revolving line of credit which, as amended, provided for borrowings tied to a percentage of Bally Gaming, Inc.'s eligible (as defined in the credit agreement) inventory and accounts receivable with a maximum borrowing capacity of $30.0 million. Borrowings under this agreement bore interest at one and one-half percent above the bank's prime rate (9.75% at June 30, 1997). Eligible borrowing capacity under this agreement at June 30, 1997 was $30.0 million and no amounts were outstanding at June 30, 1997. In March 1992, Alfred H. Wilms, a director and the Company's largest stockholder, provided to VSI, a majority-controlled subsidiary of Alliance, a subordinated loan for $6.5 million (the "VSI Loan"). During 1993 the loan was funded and interest was charged based on the London Interbank Offered Rate plus 2%. F-12 70 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) All scheduled principal and interest payments were made until September 1996 when the loan was paid in full. In July 1997, the Company redeemed the remaining 7 1/2% Convertible Debentures at a price of 104, or a total of $1.7 million. 6. STOCKHOLDERS' EQUITY, OPTIONS AND WARRANTS Special Stock The Company's Articles of Incorporation authorize the issuance of up to 10,000,000 shares of special stock ("Special Stock"). To date, there have been three series of Special Stock issued: the Initial Series, the Series B and the Series E. Special Stock consists of non-voting stock where no holder of the Special Stock shall be entitled to vote at any meeting of stockholders or otherwise, except as may be specifically provided by law or as approved by the Board of Directors in certain limited circumstances at the time of the stock issuance. The Special Stock may be issued from time to time in one or more series, each series having such designations, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions as shall be stated and expressed in the resolution providing for the issuance of Special Stock or any series thereof adopted by the Board of Directors. The Board had designated an initial series of Special Stock as "Non-voting Junior Convertible Special Stock" which consisted of 1,333,333 shares (the "Initial Series") which were sold to Kirkland - Ft. Worth Investment Partners, L.P. ("Kirkland"), pursuant to a Letter Agreement dated June 25, 1993, for $5.0 million. The Initial Series had certain conditions relating to regulatory licensing, which, when met allowed the holder to convert on a one-for-one basis into shares of common stock. The licensing condition was met and during fiscal year 1996 Kirkland elected to convert its shares to common stock. In June 1996, the Company completed an offering of 200,000 shares of its 15% Non-Voting Senior Pay-in-Kind Special Stock, Series B (the "Series B Special Stock"). The Series B Special Stock was also issued as part of the consideration in the BGII acquisition. During fiscal year 1997 the Company recorded non-cash dividends in the form of additional shares of Series B Special Stock totaling $10.2 million. During fiscal year 1997 the Company repurchased a total of 18,000 shares of Series B Special Stock at a premium to their carrying value of $0.7 million. As discussed in Note 4, on September 8, 1997 the Company redeemed all of the outstanding shares of Series B Special Stock at their liquidation price of $100 per share, plus accrued dividends. Each share of Series E Special Stock accrues cumulative dividends until June 18, 1999 at an annual rate of 111/2%, payable quarterly in cash or, at the Company's option, in additional shares of Series E Special Stock. The Series E Special Stock is convertible after June 18, 1998 into common stock at a conversion price of $5.88 per share (equivalent to a conversion rate of approximately 17.004 shares of common stock per share of Series E Special Stock), subject to adjustment under certain circumstances, and has a $100 liquidation preference per share. Upon default in the payment of dividends for six consecutive dividend payment dates, the number of directors constituting the Board of Directors of the Company will be increased by two, and the holders of shares of Series E Special Stock will have the right, voting separately as a class with the holders of any parity stock, to elect two directors to the Company's Board of Directors. Such right will exist until all dividends accumulated on such shares have been paid or set apart for payment in full. Other than as described above, the holders of shares of Series E Special Stock have no other voting rights except as required by law. Stock Option Plans In 1984, the Company created an Employee Stock Option Plan (the "1984 Plan") that provides for the issuance of up to 2,000,000 shares of common stock to Company employees and directors. Generally, options are granted at the fair market value of the Company's Common Stock at the date of the grant and are exercisable over ten years. F-13 71 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In 1992, the Company created the 1991 Long Term Incentive Plan (the "Incentive Plan") that, as amended, provides for the issuance of up to 3,000,000 shares of common stock to Company employees and directors. Generally, options are granted at the fair market value of the Company's Common Stock at the date of the grant and are exercisable over five to ten years. In April 1997 the Company's shareholders approved the 1996 Long-Term Incentive Plan (the "1996 Plan") which provides for the issuance of up to 3,000,000 shares of common stock to Company employees, directors and designated paid consultants. Generally, options are granted at the fair value of the Company's common stock at the date of grant and are exercisable over five to ten years. Pursuant to the BGII acquisition agreement, the Company assumed BGII's obligations with respect to each of its outstanding stock options, and such options became exercisable pursuant to employee election (except for certain identified former executive officers and directors of BGII) for a number of shares of Common Stock equal to the number of shares of BGII common stock subject thereto. Such options must be exercised by June 18, 1999. On August 29, 1996, the Board of Directors repriced the exercise price of previously issued, unexercised options for substantially all current employees and directors to $3.4375 per share which was the closing price of the Company's common stock on June 18, 1996. The closing price of the Company's common stock on August 29, 1996 was $2.50. Transactions involving stock options are summarized as follows: Options Outstanding
Shares Weighted-Average ------ Exercise Price ---------------- Balance, June 30, 1994 1,490,500 $5.60 ---------------------- Granted 1,598,334 6.15 Exercised (186,000) 2.38 Canceled (285,000) 6.90 --------- ---- Balance, June 30, 1995 2,617,834 6.00 ---------------------- Granted 689,000 3.39 Exercised --------- ---- Canceled (621,000) 5.97 --------- ---- Balance, June 30, 1996 2,685,834 5.53 ---------------------- Granted 3,726,319 3.50 Exercised (91,836) 1.65 Canceled (1,704,000) 5.97 ----------- ---- Balance, June 30, 1997 4,616,317 $3.84 ---------------------- ========= ===== Exercisable at June 30, 1997 3,633,972 $4.02 ========= =====
The following options were outstanding as of June 30, 1997:
Options Outstanding Options Exercisable ------------------- ------------------- Weighted-Avg. Weighted-Avg. Range of Remaining Outstanding Remaining Outstanding Exercise Prices Contractual Life Shares Contractual Life Shares --------------- ---------------- ----------- ---------------- ----------- $2.25 - $3.00 3.47 92,500 3.47 92,500 $3.01 - $4.00 6.12 4,085,483 5.87 3,129,250 $4.01 - $5.00 4.60 30,000 4.60 30,000 over $5.01 1.32 408,334 1.32 382,222 --------- --------- 4,616,317 3,633,972 ========= =========
At June 30, 1997, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $2.25 - $8.375 and 5.64 years, respectively. F-14 72 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company accounts for its stock-based employee compensation awards in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, because the exercise price of the Company's employee stock options equals or exceeds the market price on date of grant, no compensation expense is recognized. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, "Accounting for Stock Based Compensation," the Company's net loss applicable to common shares would have increased from $60.3 million (or $(4.64) per share) to $61.2 million (or $(4.71) per share) on a pro forma basis for the year ended June 30, 1996, and from a loss of $6.2 million (or $(.19) per share) to $8.3 million (or $(.26) per share) on a pro forma basis for the year ended June 30, 1997. Pro forma net loss reflects only options granted in 1996 and 1997. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period, generally three years, and compensation cost for options granted prior to July 1, 1995 is not considered. The per share weighted-average fair value of stock options granted during 1996 and 1997 was $5.80 and $1.43, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1996 and 1997: expected dividend yield of 0%, risk free interest rate of 6.5%, a volatility factor of .79 for 1996 and .51 for 1997, and expected lives varying from 3 to 10 years. Warrants At June 30, 1997, Mr. Wilms held warrants to purchase 2,000,000 shares of Common Stock at $2.50 per share, subject to adjustment that expire September 1, 1998. These warrants were issued in connection with the funding of the $6.5 million five year subordinated loan for VSI. Upon closing of the private placement of the Company's 7 1/2% Convertible Subordinated Debentures and the $5.0 million equity investment in the Initial Series by Kirkland-Ft. Worth Investment Partners, L.P. ("Kirkland") on September 21, 1993, the Company issued warrants to purchase up to 2,750,000 shares of Common Stock at $1.50 per share to Kirkland which expire September 21, 1999, but under certain circumstances the expiration date may be extended. These warrants are exercisable one year after the grant date and in equal increments only after the market price of the Common Stock reaches $11, $13 and $15. Under the same terms, the Company issued warrants to purchase 1,250,000 and 30,000 shares of Common Stock to Gaming Systems Advisors, L.P. ("GSA") and L.H. Friend, Weinress & Frankson, Inc. ("Friend"), respectively. The Company also issued warrants to purchase 500,000 and 250,000 shares of Common Stock at $8.25 per share to the initial purchasers of the 7 1/2% Convertible Debentures; Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Oppenheimer & Co., Inc. ("Oppenheimer"), respectively, each of which expire on September 21, 1999. During the year ended June 30, 1996, in connection with the commencement of employment with the Company, the then Board Chairman and then Vice-Chairman each were each granted warrants to purchase 250,000 shares of common stock on the same terms as the Kirkland warrants described above except that such warrants expire on September 21, 2000. At the completion of the BGII acquisition, GSA was issued an additional 2,500,000 warrants on the same terms as the original warrants issued to Kirkland described above. During the financing stage of the BGII acquisition, Cerberus Partners L.P. and certain affiliates of Canyon Partners, Inc. were issued warrants to purchase 250,000 shares of Common Stock at $5.00 per share which expire on August 31, 2002. None of the warrants granted to Kirkland, GSA, Friend, and the now former Board members were exercisable at June 30, 1997. BGII had issued warrants to purchase 1,200,000 shares of common stock at a purchase price of $12.50 per share expiring on July 29, 1998 all of which are currently exercisable. Pursuant to the merger agreement, the Company has assumed BGII's obligation with respect to each outstanding warrant, and such warrants will be exercisable for the merger consideration per share of BGII common stock subject to such warrants. F-15 73 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At June 30, 1997, shares of the Company's Common Stock were reserved for future issuance as follows:
(In 000's) Shares underlying stock options issued or issuable under the 1984 Plan 102 Shares underlying stock options issued or issuable under the 1991 Plan 2,970 Shares underlying stock options issued or issuable under the 1996 Plan 3,000 Shares underlying all warrants issued 10,125 Shares for former BGII option holders 431 ------ Total 16,628 ======
7. INCOME TAXES The components of the Company's income tax expense for the years ended June 30, 1995, 1996 and 1997 are as follows:
1995 1996 1997 ------- ------- ------- (In 000s) Current tax expense: U. S. Federal $ - $ 533 $ 225 Foreign - 172 7,701 State 102 50 750 ------- ------- ------- 102 755 8,676 ------- ------- ------- Deferred tax expense U. S. Federal 163 - - Foreign - - (683) State - - - ------- ------- ------- Total provision for income taxes $ 265 $ 755 $ 7,993 ======= ======= =======
A reconciliation of the Company's income tax provision as compared to the tax provision calculated by applying the statutory federal tax rate (35%) to the income (loss) before income taxes for the years ended June 30, 1995, 1996 and 1997 are as follows:
1995 1996 1997 -------- -------- -------- (In 000's) Computed expected income tax expense (benefit) at 35% $ (3,670) $(20,700) $ 4,826 Change in valuation allowance 3,736 (6,453) 169 Change in estimates, principally due to changes in estimated tax depreciation and NOL's 1,166 686 State income taxes, net of federal benefit 67 33 488 Tax gain on conversion of debt to equity, net 18,265 Acquisition costs not currently deductible 7,102 Foreign taxes, net of federal benefit - - 1,940 Other, net 132 1,342 (116) -------- -------- -------- $ 265 $ 755 $ 7,993 ======== ======== ========
F-16 74 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The major components of the deferred tax assets and liabilities as of June 30, 1996 and 1997 are presented below.
1996 1997 -------- -------- (In 000's) Deferred Tax Assets: Net operating loss carry forwards $ 8,923 $ 7,510 Foreign tax credit carry forwards 11,843 11,843 Inventory obsolescence reserves 3,721 4,048 Bad debt reserves 4,719 6,359 Accruals not currently deductible for tax purposes 2,831 3,581 Reserve for abandoned projects 1,863 1,311 Other 2,087 7,800 -------- -------- Total gross deferred tax assets 35,987 42,452 Less: Valuation allowance (30,528) (30,676) -------- -------- Deferred tax assets $ 5,459 $ 11,776 ======== ======== Deferred Tax Liabilities: Property and equipment, principally due to depreciation differences 3,172 3,703 Other 1,559 6,662 -------- -------- Total gross deferred tax liabilities 4,731 10,365 -------- -------- Net deferred tax assets $ 728 $ 1,411 ======== ========
Management has considered certain tax planning strategies as permitted by Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". Management has determined that tax benefits associated with recorded deferred tax assets, net of valuation allowance, are more likely than not realizable through future taxable income and future reversals of existing taxable temporary differences. At June 30, 1997, the Company had net operating loss carry forwards for federal income tax purposes of approximately $21.5 million which are available to offset future federal taxable income, if any, expiring in the years 2007 through 2011 and is subject to annual limitations with respect to net operating losses pursuant to Section 382 of the Internal Revenue Code of approximately $4.7 million. At June 30, 1997 the Company has foreign tax credit carry forwards of approximately $11.8 million and alternative minimum tax credit (AMT) carry forwards of approximately $1.5 million. Foreign tax credits are available to offset future taxes due in the U.S. on future foreign taxable income and expire between 1998 and 2002 unless utilized prior to such time. AMT credits are available to be carried forward indefinitely and may be utilized against regular U.S. Corporate tax to the extent it does not exceed computed AMT calculations. F-17 75 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SUPPLEMENTAL CASH FLOW INFORMATION The following supplemental information is related to the consolidated statements of cash flows. The Company recorded the following significant non-cash items for the years ended June 30, 1995, 1996 and 1997:
1995 1996 1997 ------- ------ ------ (In 000s) Acquisition of the general partnership interest in RCVP: Property, plant and equipment $23,400 $ $ Long-term debt 13,839 Convertible debentures converted to equity securities 83,358 Common and Series B Special Stock issued in the BGII Acquisition 42,738 BGII common stock purchased in fiscal year 1995 and canceled upon consummation of the BGII Acquisition 10,481 Accrual of contingent payment to RCC 1,000 Dividends for Series E and Series B Special Stock 11,264 Translation rate adjustment 11,204 Valuation adjustments to pre-acquisition contingencies 962 Reclassify inventory to property, plant and equipment 9,642 Reclassify receivables to other assets 1,837 Reclassify other assets to property, plant and equipment 1,074 1,818
Payments for interest expense in fiscal years 1995, 1996 and 1997 were approximately $5.6 million, $8.0 million and $22.5 million respectively. Payments for income taxes in fiscal years 1995, 1996 and 1997 were approximately $0.1 million, $0.3 million and $3.5 million respectively. 9. COMMITMENTS AND CONTINGENCIES Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, or other sources are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The Company is obligated under several patent agreements to pay royalties ranging from approximately $50 to $200 per game depending on the components in the gaming machines. Additionally, based on an amendment to the trademark licensing agreement between BGII and Bally Entertainment Corporation dated May 10, 1996, the Company is obligated to pay a royalty on new machines sold or leased after June 18, 1996 of $35 per machine with a minimum annual royalty payment of $1.0 million for the initial five-year term of the amended agreement, which is subject to annual renewals thereafter at the option of the Company. Royalty expense under this agreement for the year ended June 30, 1997 was $1.0 million. F-18 76 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company leases office space, equipment, warehouse and repair facilities, Route Operation locations, casino and other locations under non-cancelable operating leases. Certain Route Operation location leases provide only for contingent rentals based upon a percentage of gaming revenue and are cancelable at any time by either party. Future minimum rentals under non-cancelable operating leases at June 30, 1997 are:
Year Total Net Ended Minimum Sublease Minimum June 30, Rentals Income Rentals ------- -------- -------- -------- (In 000's) 1998 $12,658 $1,354 $11,304 1999 10,287 1,263 9,024 2000 7,958 829 7,129 2001 6,344 478 5,866 2002 4,574 446 4,128 Thereafter 42,805 1,755 41,050 -------- ------- -------- $ 84,626 $ 6,125 $ 78,501 ======== ======= ========
Operating lease rental expense, including contingent lease rentals, for years ended June 30 1995, 1996 and 1997 was as follows:
1995 1996 1997 -------- -------- -------- (In 000's) Minimum rentals $ 9,704 $ 10,194 $ 15,126 Contingent rentals 58,113 60,525 70,744 -------- -------- -------- 67,817 70,719 85,870 Sublease rental income (1,192) (1,487) (1,606) -------- -------- -------- $ 66,625 $ 69,232 $ 84,264 ======== ======== ========
In conjunction with sales by Bally Gaming, Inc., with recourse to the Company, of certain trade receivables to third parties, the Company has guaranteed amounts due from three customers of approximately $10.5 million at June 30, 1997. It is possible that one or more of Bally Gaming, Inc.'s customers whose obligation has been guaranteed may be unable to make payments as such become due. In such an event, Bally Gaming, Inc. may become responsible for repayment of at least a portion of such amounts over the term of the receivables. At June 30, 1997, amounts due from one customer under three contracts totaling $3.6 million were past due and these amounts and subsequent installments have not been paid. In general, under the terms of these contracts, the Company may be responsible for monthly payments of the outstanding obligations. In August 1996, the Company received demand notices from the holder of notes related to one customer's trade receivables for which payments were in arrears from December 1995 and in December 1996, the holder of the notes filed suit against the Company to seek payment from the Company for approximately $3.6 million. The outcome of this issue is not anticipated to have a material effect on the financial position, results of operations or cash flows of the Company. A provision for doubtful accounts of approximately $8.3 million on all receivables with recourse is included in the Company's allowance for doubtful accounts at June 30, 1997. Through a wholly-owned subsidiary, the Company originally purchased a 45% limited partnership interest in Rainbow Casino Vicksburg Partnership, L.P. ("RCVP"), a Mississippi limited partnership which owns the casino, all assets (including the gaming equipment) associated with the casino and certain adjacent parcels of land. In March 1995, Alliance increased its ownership position from 45% to 100%. Pursuant to the transactions consummated in March 1995, Rainbow Casino Corporation (RCC), the former owner of 55% of the Rainbow Casino, is now entitled to receive 10% of the net available cash flow after debt service and other items, as defined (which amount increases to 20% of such amount when revenues exceed $35.0 million but F-19 77 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) only on such incremental amount), for a period of 15 years, such period being subject to one year extensions for each year in which a minimum payment of $50,000 is not made. In addition, the agreement required that, if under defined circumstances the casino achieved earnings of at least $10.5 million before deducting depreciation, amortization, royalty and income taxes, then the Company would be obligated to make a one time payment to certain principals of the original partnership of $1.0 million which payment was earned in fiscal 1996 and paid in cash in September 1996. During fiscal 1996, Bally Wulff increased the amount of tax reserves by $1.0 million (to a total reserve of $1.4 million) as a result of developments in an ongoing quadrennial audit of Wulff's tax returns for the years 1988 through 1991. The German tax authorities have proposed preliminary adjustments which range from $1.4 million (which has been accrued) to $5.0 million. LITIGATION In the action filed on December 2, 1996, the Company was named as a defendant in an action brought by Canpartners Investments IV and Cerberus Partners, pending in federal district court for the Southern District of New York. The Company entered into certain loan commitment letters with the plaintiffs in August 1995, contemplating that the plaintiffs would lend approximately $30.0 million to partially fund the Company's then pending hostile tender offer for BGII. The Company entered into a merger agreement with BGII in October 1995 and did not use funds provided by the plaintiffs to fund the acquisition of BGII in June 1996. The plaintiffs have asserted claims based upon the loan commitment letters and failure to pay termination fees in connection with such loan commitment, and seek damages on various theories, ranging from $2.2 million (breach of contract and fraudulent concealment) to in excess of $12.0 million (breach of duty of good faith and fair dealing). The Company believes that it has strong defenses and has filed a motion to dismiss the complaint. The Company intends to defend the action vigorously. On September 25, 1995, BGII was named as a defendant in a class action lawsuit filed in Federal District Court in Nevada, by Larry Schreirer on behalf of himself and all others similarly situated. The plaintiffs filed suit against BGII and approximately 45 other defendants. Each defendant is involved in the gaming business as either a gaming machine manufacturer, distributor, or casino operator. The class action lawsuit arises out of alleged fraudulent marketing and operation of casino video poker machines and electronic slot machines. The plaintiffs allege that the defendants' actions constitute violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and give rise to claims of common law fraud and unjust enrichment. The plaintiffs are seeking monetary damages in excess of $1.0 billion, and are asking that any damage awards be trebled under applicable Federal law. Management believes the plaintiffs' lawsuit to be without merit. The Company intends to vigorously pursue all legal defenses available to it. In August 1996, the Company received demand notices from a holder of customer notes receivable which were sold on a recourse basis to a third party for which payments were in arrears from December 1995. In December 1996 the holder of the notes filed suit against the Company seeking payment from the Company of approximately $3.6 million. The Company intends to vigorously pursue all legal defenses available to it. The Company is also a party to various lawsuits relating to routine matters incidental to its business. Management does not believe that the outcome of such litigation, including the matters above, in the aggregate, will have a material adverse effect on the Company. 10. CONCENTRATION OF CREDIT RISK The financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts and notes receivable and customer obligations guaranteed by the Company. Each of the Company's business units conducts business in and the resulting receivables are concentrated in specific legalized gaming regions. The Company also distributes its products through third party distributors resulting in distributor receivables. At June 30, 1997 net accounts and notes receivable, including obligations of three F-20 78 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) customers which are guaranteed by the Company, by region as a percentage of total net receivables are as follows:
Wall Machines Gaming and Amusement Equipment Route Casino Games and Systems Operations Operations Total ------------- ----------- ---------- ---------- ----- Germany 46.7% % % % 46.7% Other International jurisdictions 1.4 19.7 21.1 Nevada 12.4 4.2 16.6 Mississippi 3.7 3.7 Atlantic City 2.6 2.6 Others individually less than 5% 9.3 9.3 ---- ---- ---- ---- ----- 48.1% 47.7% 4.2% % 100.0% ==== ==== ==== ==== =====
Receivables and customer obligations guaranteed by the Company from emerging market customers contain increased risk factors compared to receivables at the Bally Wulff entities or other traditional markets for Bally Gaming, Inc. 11. SEGMENT INFORMATION The Company has operations based primarily in Germany and the United States. The German operation's customers are a diverse group of operators of wall machines and amusement games at arcades, hotels, restaurants and taverns, primarily in Germany. Gaming Equipment and Systems' customers are primarily casinos and gaming machine distributors in the United States and abroad. Receivables of the German operations and Gaming Equipment and Systems are generally collateralized by the related equipment. See "Concentration of Credit Risk". The table below presents information as to the Company's identifiable assets at June 30, 1996 and 1997, and revenues, operating income, capital expenditures and depreciation and amortization by geographic region for the year ended June 30, 1997. As the operations from BGII were consolidated for only the last twelve days of the year ended June 30, 1996, the geographic segment information related to the statements of operations is not material and has not been presented for fiscal year 1996.
At June 30, -------------------------- 1996 1997 --------- --------- (In 000's) Identifiable assets: Germany $ 107,545 $ 110,371 United States 267,959 242,450 Eliminations - (805) --------- --------- Consolidated $ 375,504 $ 352,016 ========= =========
F-21 79 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year ended June 30, 1997 -------------------------------------------------------------- (In 000's) Operating Capital Depreciation and Revenues Income (Loss) Expenditures Amortization --------- ------------- ------------ ---------------- Germany $ 142,961 $ 23,356 $ 2,091 $ 6,579 United States 311,334 19,346 11,166 16,027 Eliminations (9,149) (1,243) - - --------- --------- --------- --------- Consolidated $ 445,146 $ 41,459 $ 13,257 $ 22,606 ========= ========= ========= =========
12. INTERIM FINANCIAL INFORMATION (UNAUDITED) Following is the unaudited quarterly results of the Company for the years ended June 30, 1996 and 1997. This information is not covered by the Independent Auditors' Report.
Quarter ------------------------------------------------------------ First Second Third Fourth --------- --------- --------- --------- (In 000's, except per share data) 1996 ---- Revenues $ 38,541 $ 37,687 $ 40,568 $ 55,582 Operating loss (1,465) (2,059) (2,348) (41,212) Net loss (3,418) (6,013) (5,398) (45,068) Net loss applicable to common shares (3,418) (6,013) (5,398) (45,430) Loss per share (.29) (.50) (.42) (3.43) 1997 ---- Revenues $ 102,912 $ 128,703 $ 101,691 $ 111,840 Operating income 8,956 13,909 8,882 9,712 Net income 635 4,145 561 444 Net income (loss) applicable to common shares (2,261) 1,051 (2,420) (2,559) Income (loss) per share (.07) .03 (.08) (.08)
13. CONSOLIDATING FINANCIAL STATEMENTS The following consolidating financial statements are presented to provide certain financial information regarding guaranteeing and non-guaranteeing subsidiaries in relation to the Company's Senior Subordinated Notes which were issued in the Refinancing transaction completed in August 1997 (see note 4). The financial information presented includes Alliance Gaming Corporation (the "Parent") and its wholly-owned guaranteeing subsidiaries (together the "Parent and Guaranteeing Subsidiaries"), and the non-guaranteeing subsidiaries Video Services, Inc., United Gaming Rainbow, BGI Australia Pty. Limited, Bally Gaming de Puerto Rico, Inc., and Alliance Automaten GmbH & Co. KG (the subsidiary that holds the Company's German interests) (together the "Non-Guaranteeing Subsidiaries"). The notes to consolidating financial statements should be read in conjunction with these consolidating financial statements. F-22 80 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING BALANCE SHEETS June 30, 1996 (In 000's) ASSETS
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Current assets: Cash and cash equivalents $ 36,954 $ 11,103 $ - $ 48,057 Accounts and notes receivable, net 39,327 55,473 (1,298) 93,502 Inventories, net 23,818 17,838 - 41,656 Other current assets 6,274 2,080 - 8,354 --------- --------- --------- --------- Total current assets 106,373 86,494 (1,298) 191,569 --------- --------- --------- --------- Long-term notes receivable, net 97,227 1,773 (84,816) 14,184 Leased equipment, net - 3,507 - 3,507 Property, plant and equipment, net 39,170 35,407 - 74,577 Excess of costs over net assets of acquired businesses, net 36,890 23,402 - 60,292 Intangible assets, net 19,826 421 - 20,247 Investments in subsidiaries 98,599 - (98,599) - Deferred tax assets 4,131 1,328 - 5,459 Other assets, net 14,088 (5,521) (2,898) 5,669 --------- --------- --------- --------- $ 416,304 $ 146,811 $(187,611) $ 375,504 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 14,361 $ 4,439 $ (2,560) $ 16,240 Accrued liabilities 29,635 10,549 (1,641) 38,543 Current maturities of long-term debt 8,200 17,577 - 25,777 --------- --------- --------- --------- Total current liabilities 52,196 32,565 (4,201) 80,560 --------- --------- --------- --------- Senior Secured Notes due 2003, net 150,929 - - 150,929 Other long-term debt, less current maturities 83,289 15,647 (84,298) 14,638 Deferred tax liabilities 4,731 - - 4,731 Other liabilities 2,613 - (513) 2,100 --------- --------- --------- --------- Total liabilities 293,758 48,212 (89,012) 252,958 --------- --------- --------- --------- Minority interest 1,148 - - 1,148 Series B Special Stock 51,552 - - 51,552 Commitments and contingencies Stockholders' equity: Series E Special Stock 11,316 - - 11,316 Common Stock 3,176 17,832 (17,832) 3,176 Additional paid-in-capital 139,031 70,373 (70,373) 139,031 Cumulative translation adjustment (287) (314) 314 (287) Retained earnings (accumulated deficit) (83,390) 10,708 (10,708) (83,390) --------- --------- --------- --------- Total stockholders' equity 69,846 98,599 (98,599) 69,846 --------- --------- --------- --------- $ 416,304 $ 146,811 $(187,611) $ 375,504 ========= ========= ========= =========
See accompanying notes F-23 81 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING BALANCE SHEETS June 30, 1997 (In 000's) ASSETS
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Current assets: Cash and cash equivalents $ 16,462 $ 12,462 $ - $ 28,924 Accounts and notes receivable, net 31,799 57,207 (1,305) 87,701 Inventories, net 19,231 18,778 (680) 37,329 Other current assets 6,695 2,932 - 9,627 --------- --------- --------- --------- Total current assets 74,187 91,379 (1,985) 163,581 --------- --------- --------- --------- Long-term notes receivable, net 96,271 1,501 (88,791) 8,981 Leased equipment, net - 7,902 - 7,902 Property, plant and equipment, net 41,836 32,811 - 74,647 Excess of costs over net assets of acquired businesses, net 41,185 21,031 (118) 62,098 Intangible assets, net 17,979 252 - 18,231 Investment in subsidiaries 100,478 - (100,478) - Deferred tax assets 6,265 5,511 - 11,776 Other assets, net 16,045 (11,269) 24 4,800 --------- --------- --------- --------- $ 394,246 $ 149,118 $(191,348) $ 352,016 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,936 $ 4,262 $ 72 $ 14,270 Accrued liabilities 21,129 16,727 (464) 37,392 Current maturities of long-term debt 585 1,348 (809) 1,124 --------- --------- --------- --------- Total current liabilities 31,650 22,337 (1,201) 52,786 --------- --------- --------- --------- Senior Secured Notes due 2003, net 151,224 - - 151,224 Other long-term debt, less current maturities 87,924 22,676 (89,109) 21,491 Deferred tax liabilities 6,865 3,500 - 10,365 Other liabilities 2,501 - (433) 2,068 --------- --------- --------- --------- Total liabilities 280,164 48,513 (90,743) 237,934 --------- --------- --------- --------- Minority interest 1,546 - - 1,546 Series B Special Stock 58,981 - - 58,981 Commitments and contingencies Stockholders' equity: Series E Special Stock 12,368 - - 12,368 Common Stock 3,185 17,832 (17,832) 3,185 Additional paid-in capital 138,590 68,699 (68,699) 138,590 Cumulative translation adjustment (11,719) (11,880) 11,880 (11,719) Retained earnings (accumulated deficit) (88,869) 25,954 (25,954) (88,869) --------- --------- --------- --------- Total stockholders' equity 53,555 100,605 (100,605) 53,555 --------- --------- --------- --------- $ 394,246 $ 149,118 $(191,348) $ 352,016 ========= ========= ========= =========
See accompanying notes. F-24 82 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS Year ended June 30, 1995 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Revenues: Route operations $ 92,034 $ 14,820 $ --- $ 106,854 Casino operations 20,698 4,436 --- 25,134 --------- --------- --------- --------- 112,732 19,256 --- 131,988 --------- --------- --------- --------- Costs and expenses: Cost of route operations 70,649 9,238 --- 79,887 Cost of casino operations 12,047 2,184 --- 14,231 Selling, general and administrative 25,627 2,964 (342) 28,249 Provision for doubtful receivables 387 13 --- 400 Depreciation and amortization 8,175 1,345 --- 9,520 Direct acquisition costs 1,669 --- --- 1,669 Unusual items 2,293 --- --- 2,293 --------- --------- --------- --------- 120,847 15,744 (342) 136,249 --------- --------- --------- --------- Operating income (loss) (8,115) 3,512 342 (4,261) Earnings in consolidated subsidiaries 1,208 --- (1,208) --- Other income (expense): Interest income 2,786 115 (103) 2,798 Interest expense (7,131) (1,105) 103 (8,133) Rainbow royalty --- (810) --- (810) Minority interest (397) --- --- (397) Other, net 464 195 (342) 317 --------- --------- --------- --------- Income (loss) before income taxes (11,185) 1,907 (1,208) (10,486) Income tax benefit (provision) 434 (699) --- (265) --------- --------- --------- --------- Net income (loss) $ (10,751) $ 1,208 $ (1,208) $ (10,751) ========= ========= ========= =========
See accompanying notes. F-25 83 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS Year ended June 30, 1996 (In 000's) Alliance
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Revenues: Gaming equipment and systems $ 11,700 $ 1,223 $ (2,348) $ 10,575 Wall machines and amusement games --- 3,356 --- 3,356 Route operations 93,037 16,901 --- 109,938 Casino operations 14,747 33,862 (100) 48,509 --------- --------- --------- --------- 119,484 55,342 (2,448) 172,378 --------- --------- --------- --------- Costs and expenses: Cost of gaming equipment and systems 8,531 1,030 (2,348) 7,213 Cost of wall machines and amusement games --- 2,022 --- 2,022 Cost of route operations 73,436 10,776 --- 84,212 Cost of casino operations 9,722 12,324 --- 22,046 Selling, general and administrative 18,915 11,797 (92) 30,620 Provision for doubtful receivables 973 47 --- 1,020 Depreciation and amortization 8,746 2,242 --- 10,988 Direct acquisition costs 55,843 --- --- 55,843 Unusual items 5,498 --- --- 5,498 --------- --------- --------- --------- 181,664 40,238 (2,440) 219,462 --------- --------- --------- --------- Operating income (loss) (62,180) 15,104 (8) (47,084) Earnings in consolidated subsidiaries 8,378 --- (8,378) --- Other income (expense): Interest income 1,654 391 (474) 1,571 Interest expense (7,407) (1,964) 474 (8,897) Rainbow royalty --- (4,070) --- (4,070) Minority interest (963) --- --- (963) Other, net 987 209 (895) 301 --------- --------- --------- --------- Income (loss) before income taxes (59,531) 9,670 (9,281) (59,142) Income tax benefit (provision) (366) (1,292) 903 (755) --------- --------- --------- --------- Net income (loss) (59,897) 8,378 (8,378) (59,897) --------- --------- --------- --------- Special Stock dividends (362) --- --- (362) --------- --------- --------- --------- Net loss applicable to common shares $ (60,259) $ 8,378 $ (8,378) $ (60,259) ========= ========= ========= =========
See accompanying notes. F-26 84 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS Year ended June 30, 1997 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ----- ------------ Revenues: Gaming equipment and systems $ 130,764 $ 11,070 $ (7,100) $ 134,734 Wall machines and amusement games -- 131,954 (20) 131,934 Route operations 108,148 18,880 -- 127,028 Casino operations 11,738 39,712 -- 51,450 --------- --------- --------- --------- 250,650 201,616 (7,120) 445,146 --------- --------- --------- --------- Costs and expenses: Cost of gaming equipment and systems 82,673 8,796 (6,973) 84,496 Cost of wall machines and amusement games -- 68,437 (11) 68,426 Cost of route operations 83,592 12,124 -- 95,716 Cost of casino operations 7,528 14,741 -- 22,269 Selling, general and administrative 55,565 44,859 (9) 100,415 Provision for doubtful receivables 5,049 4,010 -- 9,059 Depreciation and amortization 13,390 9,216 -- 22,606 Unusual items 700 -- -- 700 --------- --------- --------- --------- 248,497 162,183 (6,993) 403,687 --------- --------- --------- --------- Operating income (loss) 2,153 39,433 (127) 41,459 Earnings in consolidated subsidiaries 23,497 -- (23,497) -- Other income (expense): Interest income 1,635 369 (384) 1,620 Interest expense (21,042) (2,968) 384 (23,626) Rainbow royalty -- (4,722) -- (4,722) Minority interest (1,092) -- -- (1,092) Other, net 135 4 -- 139 --------- --------- --------- --------- Income (loss) before income taxes 5,286 32,116 (23,624) 13,778 Income tax benefit (provision) 499 (8,492) -- (7,993) --------- --------- --------- --------- Net income (loss) 5,785 23,624 (23,624) 5,785 Special Stock dividends (11,974) -- -- (11,974) --------- --------- --------- --------- Net loss applicable to common shares $ (6,189) $ 23,624 $ (23,624) $ (6,189) ========= ========= ========= =========
See accompanying notes. F-27 85 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING STATEMENTS OF CASH FLOWS Year ended June 30, 1995 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ----- ------------ Cash flows from operating activities: Net income (loss) $(10,751) $ 1,208 $ (1,208) $(10,751) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,175 1,345 -- 9,520 Amortization of debt discounts 62 235 -- 297 Write down of other assets 2,892 (96) -- 2,796 Provision for doubtful receivables 387 13 -- 400 Other 1,282 -- -- 1,282 Change in operating assets and liabilities, net of effects of business acquired: Accounts and notes receivable 1,530 66 (251) 1,345 Inventories (40) -- -- (40) Other current assets 251 4 -- 255 Accounts payable (254) (193) -- (447) Accrued expenses (2,540) 185 -- (2,355) Intercompany accounts (3,040) 249 2,791 -- -------- -------- -------- -------- Net cash provided by (used in) operating activities (2,046) 3,016 1,332 2,302 -------- -------- -------- -------- Cash flows from investing activities: Acquisition of businesses, net of cash acquired -- 2,481 -- 2,481 Additions to property and equipment (7,643) (1,244) -- (8,887) Proceeds from disposal of property and equipment 225 126 -- 351 Purchases of securities available for sale (11,086) -- -- (11,086) Other (5,852) -- -- (5,852) -------- -------- -------- -------- Net cash provided by (used in) investing activities (24,356) 1,363 -- (22,993) -------- -------- -------- -------- Cash flows from financing activities: Proceeds from long-term debt, net of expenses -- 1,504 (1,504) -- Reduction of long-term debt (578) (2,719) 172 (3,125) Issuance of common stock 465 -- -- 465 -------- -------- -------- -------- Net cash used in financing activities (113) (1,215) (1,332) (2,660) -------- -------- -------- -------- Cash and cash equivalents: Increase (decrease) for year (26,515) 3,164 -- (23,351) Balance, beginning of year 34,750 2,335 -- 37,085 -------- -------- -------- -------- Balance, end of year $ 8,235 $ 5,499 $ -- $ 13,734 ======== ======== ======== ========
See accompanying notes. F-28 86 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING STATEMENTS OF CASH FLOWS Year ended June 30, 1996 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Cash flows from operating activities: Net income (loss) $ (59,897) $ 8,378 $ (8,378) $ (59,897) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,746 2,242 - 10,988 Amortization of debt discounts 9 236 - 245 Loss on debenture conversion 30,079 - - 30,079 Write down of other assets 6,117 (22) - 6,095 (Gain) loss on sale of property and equipment (13) 118 - 105 Provision for doubtful receivables 973 47 - 1,020 Other 2,839 (1,295) - 1,544 Change in operating assets and liabilities, net of effects of business acquired: Accounts and notes receivable (3,642) (2,389) 97 (5,934) Inventories 5,754 90 - 5,844 Other current assets (1,508) 1,413 - (95) Intercompany accounts (7,038) (1,340) 8,378 - Accounts payable (3,195) 1,403 (97) (1,889) Accrued liabilities 12,930 (174) 24 12,780 --------- --------- --------- --------- Net cash provided by (used in) operating activities (7,846) 8,707 24 885 --------- --------- --------- --------- Cash flows from investing activities: Acquisition of business, net of cash acquired (79,209) - - (79,209) Additions to property, plant and equipment (6,290) (1,811) - (8,101) Proceeds from disposal of property and equipment 2,106 176 - 2,282 Purchases of securities available for sale 13,516 - - 13,516 Other (7,156) 2,065 - (5,091) --------- --------- --------- --------- Net cash provided by (used in) investing activities (77,033) 430 - (76,603) --------- --------- --------- --------- Cash flows from financing activities: Proceeds from long-term debt, net of expenses 144,764 1,301 (645) 145,420 Reduction of long-term debt (47,233) (4,834) 621 (51,446) Issuance of Special Stock 15,000 - - 15,000 Fees paid for conversion of convertible debentures (3,333) - - (3,333) Issuance of Common Stock 4,400 - - 4,400 --------- --------- --------- --------- Net cash provided by (used in) financing activities 113,598 (3,533) (24) 110,041 --------- --------- --------- --------- Cash and cash equivalents: Increase for year 28,719 5,604 - 34,323 Balance, beginning of year 8,235 5,499 - 13,734 --------- --------- --------- --------- Balance, end of year $ 36,954 $ 11,103 $ - $ 48,057 ========= ========= ========= =========
See accompanying notes. F-29 87 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING STATEMENTS OF CASH FLOWS Year ended June 30, 1997 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Cash flows from operating activities: Net income (loss) $ 5,785 $ 23,624 $(23,624) $ 5,785 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 13,390 9,216 - 22,606 Amortization of debt discounts 295 512 - 807 Write down of other assets 803 272 - 1,075 Loss on sale of property and equipment 503 730 - 1,233 Provision for doubtful receivables 5,049 4,010 - 9,059 Other 32 (683) - (651) Change in operating assets and liabilities, net of effects of business acquired: Accounts and notes receivable 1,912 (10,495) 3,982 (4,601) Inventories 4,587 (12,165) 680 (6,898) Other current assets (287) (1,262) - (1,549) Intercompany accounts (20,345) 5,673 14,672 - Accounts payable (4,425) (177) 2,632 (1,970) Accrued liabilities (8,943) 7,269 914 (760) -------- -------- -------- -------- Net cash provided by (used in) operating activities (1,644) 26,524 (744) 24,136 -------- -------- -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (9,198) (4,059) - (13,257) Proceeds from disposal of property and equipment 78 176 - 254 Other (8,375) (199) - (8,574) -------- -------- -------- -------- Net cash provided by (used in) investing activities (17,495) (4,082) - (21,577) -------- -------- -------- -------- Cash flows from financing activities: Net change in credit lines (7,525) (4,053) (11,578) Reduction of long-term debt (767) (6,751) 744 (6,774) Proceeds from exercise of stock options 767 - - 767 Repurchase of Series B Special Stock (3,879) - - (3,879) Dividends (paid) received 10,051 (10,051) - - -------- -------- -------- -------- Net cash provided by (used in) financing activities (1,353) (20,855) 744 (21,464) -------- -------- -------- -------- Effect of exchange rates on cash - (228) (228) Cash and cash equivalents: Increase for year (20,492) 1,359 - (19,133) Balance, beginning of year 36,954 11,103 - 48,057 -------- -------- -------- -------- Balance, end of year $ 16,462 $ 12,462 $ - $ 28,924 ======== ======== ======== ========
See accompanying notes. F-30 88 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1996 AND 1997 BASIS OF PRESENTATION These notes to consolidating financial statements should be read in conjunction with the consolidated financial statements and notes thereto. Certain reclassifications have been made to prior years' financial statements to conform with the current year presentation. DEBT AND LINES OF CREDIT Long-term debt and lines of credit at June 30, 1997 consist of the following :
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ----- ------------ (in 000's) 12 7/8% Senior Secured notes due 2003 net of unamortized discount $ 151,224 $ 151,224 7.5% Convertible subordinated debentures due 2003, unsecured 1,642 1,642 Hospitality Franchise Systems note payable 6,569 6,569 Bally Wulff revolving lines of credit 9,611 9,611 Intercompany notes payable 85,815 4,103 (89,918) -- Other 1,052 3,741 4,793 --------- --------- --------- --------- 239,733 24,024 (89,918) 173,839 Less current maturities 585 1,348 (809) 1,124 --------- --------- --------- --------- Long-term debt, less current maturities $ 239,148 $ 22,676 $ (89,109) $ 172,715 ========= ========= ========= =========
INCOME TAXES The federal, foreign and state income tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of June 30, 1996 are as follows:
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ----- ------------ Deferred Tax Assets: (in 000's) Net operating loss carry forwards $ 8,923 $ $ $ 8,923 Inventory obsolescence reserves 3,070 651 3,721 Bad debt reserves 4,719 4,719 Foreign tax credit carry forwards 11,843 11,843 Reserves for abandoned projects 1,863 1,863 Accruals not currently deductible for tax purposes 2,831 2,831 Other 918 1,169 2,087 -------- -------- -------- -------- Total gross deferred tax assets 34,167 1,820 35,987 Less: Valuation allowance (30,036) (492) (30,528) -------- -------- -------- -------- Deferred tax assets $ 4,131 $ 1,328 $ $ 5,459 -------- -------- -------- --------
F-31 89 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Deferred Tax Liabilities: Property and equipment, principally due to depreciation differences $ 3,172 $ 3,172 Other 1,559 1,559 -------- -------- -------- -------- Total gross deferred tax liabilities 4,731 4,731 -------- -------- -------- Net deferred tax assets (liabilities) $ (600) $ 1,328 $ $ 728 ======== ======== ======== ========
The federal, foreign and state income tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of June 30, 1997 are as follows (in 000's):
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ----- ------------ Deferred Tax Assets: Net operating loss carry forwards $ 7,510 $ $ $ 7,510 Inventory obsolescence reserves 3,400 648 4,048 Bad debt reserves 6,359 6,359 Foreign tax credit carry forwards 11,843 11,843 Reserves for abandoned projects 1,311 1,311 Accruals not currently deductible for tax purposes 3,581 3,581 Other 2,937 4,863 7,800 -------- -------- -------- -------- Total gross deferred tax assets 36,941 5,511 42,452 Less: Valuation allowance (30,676) (30,676) -------- -------- -------- -------- Deferred tax assets $ 6,265 $ 5,511 $ -- $ 11,776 -------- -------- -------- -------- Deferred Tax Liabilities: Property and equipment, principally due to depreciation differences $ 3,703 $ $ $ 3,703 Other 3,162 3,500 6,662 -------- -------- -------- -------- Total gross deferred tax liabilities 6,865 3,500 -- 10,365 -------- -------- -------- Net deferred tax assets (liabilities) $ (600) $ 2,011 $ -- $ 1,411 ======== ======== ======== ========
F-32 90 ALLIANCE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. RESERVES AND ALLOWANCES The following tables represent the activity for each of the fiscal years ended June 30, 1995, 1996 and 1997 for each of the valuation reserve and allowance accounts (in 000's):
Balance at Balance at Beginning of End of Year Additions Deductions Year ---- --------- ---------- ---- Allowance for doubtful accounts: Year ended June 30, 1997 $19,497 $ 9,179 $ 4,775 $23,901 Year ended June 30, 1996 1,659 18,995 (a) 1,157 19,497 Year ended June 30, 1995 1,389 1,258 988 1,659 Inventory valuation allowance: Year ended June 30, 1997 $ 9,484 $ 1,719 $ 2,347 $ 8,856 Year ended June 30, 1996 -- 11,315 (a) 1,831 9,484 Other assets valuation reserve: Year ended June 30, 1997 $ 3,679 $ 162 $ 339 $ 3,502 Year ended June 30, 1996 631 4,629 1,581 3,679 Year ended June 30, 1995 1,762 213 1,344 631
(a) Includes reserves assigned to BGII receivables and inventory in purchase accounting of $17.6 million and $9.8 million, respectively. F-33 EX-4.1 2 EXHIBIT 4.1 1 EXHIBIT 4.1 INDENTURE dated as of August 8, 1997 between Alliance Gaming Corporation, a Nevada corporation (the "Company"), the Guarantors (as defined below) and United States Trust Company of New York (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 10% Series A Senior Subordinated Notes due 2007 (the "Series A Notes") and the 10% Series B Senior Subordinated Notes due 2007 (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than dispositions of assets or rights in the ordinary course of business, including, without limitation, sales of inventory and damaged, surplus or obsolete property in the ordinary course of business, provided, however, that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall not be deemed to be an "Asset Sale", and shall be governed by Sections 4.15 and/or 5.01 hereof, and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $100,000 or (b) for net proceeds in excess of $100,000. Notwithstanding the foregoing, the following will not be deemed to be "Asset Sales": (i) a transfer of assets or rights by the Company to a Wholly Owned Restricted Subsidiary or a Guarantor, or by a 2 Restricted Subsidiary to the Company or to a Wholly Owned Restricted Subsidiary or a Guarantor, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary or a Guarantor to the Company or to a Wholly Owned Restricted Subsidiary or a Guarantor, (iii) a Restricted Payment that is permitted by Section 4.07 hereof and (iv) a Permitted Investment. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Bally Wulff" means, collectively, Alliance Automaten GmbH & Co. KG, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, Geda Automatengrosshandel GmbH, Erkens Vertriebs GmbH, Bally Gaming International GmbH, Kuepper GmbH and Westav Westdeutscher Vertriebs GmbH. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars and German Deutschemarks (or the Euro, if and when such currency replaces the German Deutschemark), (ii) securities issued or directly fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank or commercial bank of a foreign country recognized by the United States, in each case having capital and surplus in excess of $500 million (or the foreign currency equivalent thereof) and having outstanding debt which is rated "A" (or similar equivalent thereof) or higher by at least one nationally recognized statistical rating organization (as defined under Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having one of the two highest ratings obtainable from Moody's Investors 2 3 Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than an Exempt Person, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than an Exempt Person, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of 50% or more of the Voting Stock of the Company (measured by voting power rather than number of shares), (iv) during any period of 12 consecutive months after the date of this Indenture, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Company, together with any Continuing Directors, cease for any reason to constitute a majority of the Board of Directors of the Company then in office; and (v) the Company consolidates with, or merges with or into, any Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance), but only if the condition specified in clause (iv) also has occurred. "Company" means Alliance Gaming Corporation, a Nevada corporation, or any successor pursuant to Section 5.02 hereof. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Swap and Hedging Obligations), to the extent that any such expense was deducted 3 4 in computing such Consolidated Net Income, plus (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, plus (v) prepayment premiums and other charges incurred in connection with the Refinancing. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent that a corresponding amount would be permitted at the date of determination to be dividended or distributed to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, redeems, retires, repurchases or defeases any Indebtedness or Disqualified Stock (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Consolidated Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Consolidated Coverage Ratio is made (the "Calculation Date"), then the Consolidated Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment redemption, retirement, repurchase or defeasance of Indebtedness or Disqualified Stock, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions of and investments in Restricted Subsidiaries that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or investments or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded and (iii) the Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Interest Expense will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. 4 5 "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Swap and Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), and (iv) all dividend payments, whether or not in cash, on any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (to the extent positive) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends and distributions by that Restricted Subsidiary of Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income or loss of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Subsidiaries, (iv) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (v) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. 5 6 "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 13.02 hereof or such other address as to which the Trustee may give written notice to the Company. "Credit Facilities" means, with respect to any Person, one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks or other institutional lenders as agent providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under this Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clauses (i) and (ii) of the definition of Permitted Debt. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Notes" means Notes that are in the form of the Notes attached hereto as Exhibit A, that do not include the information called for by footnotes 1 and 2 thereof. "Depository" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depository with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depository" shall mean or include such successor. "Designated Senior Debt" means (i) any Indebtedness outstanding under the New Credit Facility; provided that Indebtedness outstanding under any Credit Facility that refinanced in part, but not in whole, the Indebtedness outstanding under the New Credit Facility shall constitute Designated Senior Debt only if it meets the requirements of succeeding clause (ii), and (ii) any other Senior Debt of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to at least $25.0 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Debt as "Designated Senior Debt" for purposes of this Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable other than at the Company's option), or upon the happening of any event (other than the disqualification of the holder thereof by a Gaming Authority), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the Holder thereof, in whole or in part, on or prior to the first anniversary of 6 7 the Stated Maturity of the Notes other than for Equity Interests (other than Disqualified Stock); provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions set forth in Sections 4.10 and 4.15. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an underwritten primary offering of common stock of the Company pursuant to an effective registration statement, or a private placement of common stock exempt from registration, under the Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the offer that may be made by the Company pursuant to the Registration Rights Agreement to exchange Series B Notes for Series A Notes. "Exempt Affiliate Transactions" means (i) any extension or renewal in accordance with their terms, of those certain Employment Agreements dated as of July 1, 1997 between the Company and each of Anthony L. DiCesare and Joel Kirschbaum (collectively, the "Employment Agreements") and that certain letter agreement dated July 1, 1997 between the Company and Kirkland Investment Corporation providing for the payment of overhead expenses, as well as any restructuring of the Employment Agreements, provided that, in the case of a restructuring of any Employment Agreement, the Board of Directors has determined that the restructured terms are fair to the Company and, if the restructuring involves aggregate consideration in excess of $10.0 million, the Company delivers a fairness opinion of the type specified in clause (b) of Section 4.11 and (ii) any agreements between the Company and Alfred H. Wilms or any of his Affiliates providing for the payment by the Company of consulting fees or similar fees in an aggregate amount not to exceed $500,000 per annum. "Exempt Person" means (i) the Company or any employee benefit plan or stock ownership plan of either the Company or any subsidiary of the Company, (ii) any of Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment Corporation, Gaming Systems Advisors, L.P., Alfred H. Wilms, or any of their respective Affiliates, or any successor to Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment Corporation or Gaming Systems Advisors, L.P. or any of their respective Affiliates by merger, sale or transfer of assets or similar transaction, or by a transfer from Alfred H. Wilms to any estate planning vehicle controlled by Alfred H. Wilms or established for the benefit of Alfred H. Wilms' family or his estate. "Existing Indebtedness" means Indebtedness in existence on the date of this Indenture, until such amounts are repaid. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified 7 8 Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture. "Gaming Authority" means any governmental agency which regulates gaming in a jurisdiction in which the Company or any of its Subsidiaries conducts a Gaming Business. "Gaming Business" means the business conducted (or proposed to be conducted) by the Company and its Subsidiaries as of the date of this Indenture, including the management and operation of gaming machines and casinos, the design, manufacture and distribution of gaming machines, equipment, monitoring systems and amusement equipment, and other gaming- related businesses, including but not limited to amusements, arcades, Internet-based gaming, pari-mutuel and lottery-related activities, and any and all businesses that in the good faith judgment of the Board of Directors of the Company are materially related businesses. "Gaming Licenses" means every material license, material franchise, or other material authorization required to own, lease, operate or otherwise conduct or manage riverboat, dockside or land-based gaming (including any applicable liquor licenses) or to design, manufacture or distribute gaming machines, equipment or systems in any state or jurisdiction where the Company or any of its Subsidiaries conducts such business. "Global Note" means a Note that contains the paragraph referred to in footnote 1 and the additional schedule referred to in footnote 2 to the form of the Note attached hereto as Exhibit A. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of (i) the Subsidiaries of the Company that is a party to this Indenture, and (ii) any other Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with Article XI hereof, and their respective successors and assigns. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Interest Swap 8 9 and Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Interest Swap and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof in the case of any other Indebtedness, except for Indebtedness of others secured by a Lien on any asset of such Person, in which case the amount of such Indebtedness shall be deemed to be the lesser of the stated amount of such Indebtedness and the value of the assets of such Person securing such Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time, including, without limitation, the provisions of the TIA that are deemed to be a part of and govern this instrument and any supplemental indenture, respectively. "Interest Swap and Hedging Obligations" means any obligation of any person pursuant to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate exchange agreement, currency exchange agreement or any other agreement or arrangement designed to protect (and not for the purpose of speculative investment) against fluctuations in interest rates or currency values, including, without limitation, any arrangement whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in Section 4.07. "Key Subsidiaries" means United Coin Machine Co., Bally Gaming International, Inc., Bally Gaming, Inc., Alliance Automaten GmbH & Co. KG, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, Foreign Gaming Ventures, Inc., Mississippi Ventures, Inc., 9 10 Louisiana Ventures, Inc., Video Services, Inc., United Gaming Rainbow and Rainbow Casino-Vicksburg Partnership, L.P. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Net Available Cash" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash payments received by way of a deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under Credit Facilities) secured by a Lien on the asset or assets that are the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable by the Company as a result thereof. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary 10 11 or nonrecurring gain or loss and (iii) prepayment premiums and other charges incurred in connection with the Refinancing. "New Credit Facility" means the Credit Agreement to be entered into by and among the Company, certain of its Subsidiaries, the lenders referred to therein and Credit Suisse First Boston, as Administrative Agent, together with the related documents thereto (including without limitation the term loans and revolving loans thereunder, any guarantees and security documents), as amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refund or refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such New Credit Facility or a successor New Credit Facility, whether by the same or any other lender or group of lenders. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than Indebtedness represented by the Notes or outstanding under the New Credit Facility or any replacement Credit Facility) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities and amounts payable under the documentation governing any Indebtedness. "Offering" means the Offering of the Notes by the Company. "Officer" means, with respect to any Person (other than the Trustee), the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 13.05 hereof. 11 12 "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Permitted Investments" means (i) any Investment in the Company, a Wholly Owned Restricted Subsidiary of the Company or a Guarantor, in each case that is engaged in a Gaming Business, or any Investment in the form of a loan to a foreign Restricted Subsidiary that is engaged in a Gaming Business; (ii) any Investment in Cash Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (a) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or a Guarantor and is engaged in a Gaming Business or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company, a Wholly Owned Restricted Subsidiary of the Company or a Guarantor and is engaged in a Gaming Business; (iv) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10; (v) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (vi) payments made to consummate the transactions contemplated by that certain agreement dated as of July 11, 1996 among HFS Gaming Corporation, National Gaming Mississippi, Inc. and the Company; (vii) repurchase of Notes; (viii) Investments acquired by the Company or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Company or such Restricted Subsidiary in connection with or as a result of a bankruptcy workout, reorganization or recapitalization of the issuer of such Investment or accounts receivable or (b) as a result of a foreclosure by the Company or such Restricted Subsidiary or other transfer of title with respect to any secured Investment in default; (ix) Investments by the Company or any of its Restricted Subsidiaries in securities issued directly or indirectly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof in an amount outstanding at any time equal to the net present value of the aggregate amount of payments owed to winners of jackpots from progressive games and having maturities that are approximately the same as the due dates for future jackpot payments; and (x) Investments in any Person engaged in the Gaming Business having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (x) that are at the time outstanding (after giving effect to any such Investments that are returned or repaid to the Company or to any Restricted Subsidiary, without restriction, in cash or property on or prior to the date of any such calculation), not to exceed an amount equal to (A) $20.0 million, plus (B) 50% of any dividends or distributions received by the Company or any Restricted Subsidiary after the date of this Indenture from Unrestricted Subsidiaries of the Company in excess of the full amount of all outstanding Investments of the Company and its Restricted Subsidiaries in Unrestricted Subsidiaries, provided that such dividends may be used to make an Investment only if the Consolidated Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Investment is made would have been at least 2.25 to 1. 12 13 "Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified Stock of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus premium and accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses (including defeasance costs) incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date the same as or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by (a) the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded or (b) the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "RCVP" means Rainbow Casino-Vicksburg Partnership, L.P., a Mississippi limited partnership. "Refinancing" means collectively (i) the Company's cash tender offer to purchase any and all of the Company's 12 7/8% Senior Secured Notes due 2003, plus accrued interest to the date of purchase, (ii) the redemption at liquidation value of all of the Company's Series B Preferred Stock plus an amount equal to accrued dividends thereon, (iii) the purchase from HFS Gaming Corporation of the right to receive royalty payments based on revenues of the Rainbow Casino and the purchaser of related debt owed to National Gaming Mississippi, Inc., (iv) the repayment of certain existing lines of credit and other indebtedness, (v) the offer and sale of the Notes, (vi) entering into the New Credit Facility and (vii) the payment of related transaction fees and expenses. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of August 8, 1997, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Representative" means any trustee, agent or representative for any issue of Senior Debt; provided, however, that if and for so long as any Senior Debt lacks such a representative, then the Representative for such Senior Debt shall at all times be the holders of a majority in outstanding principal amount of such Senior Debt. 13 14 "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company or a Guarantor, as applicable, secured by a Lien. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means, with respect to the Company or any Guarantor (i) all Indebtedness outstanding under Credit Facilities and all Interest Swap and Hedging Obligations, (ii) any other Indebtedness permitted to be incurred by the Company or such Guarantor, as the case may be, under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes (in the case of Senior Debt of the Company) or the relevant Guarantee (in the case of Senior Debt of such Guarantor), and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (t) any Indebtedness described under clause (xii) of Section 4.09, (u) any liability for federal, state, local or other taxes owed or owing by the Company or such Guarantor, as the case may be, (v) any Indebtedness of the Company or such Guarantor to any of their respective Subsidiaries, (w) any trade payables, (x) that portion of any Indebtedness which at the time of incurrence is incurred in violation of this Indenture (but as to any such Indebtedness under the New Credit Facility, no such violation shall be deemed to exist if the Representative of the Lenders thereunder shall have received an officer's certificate of the Company to the effect that the issuance of such Indebtedness does not violate this Indenture and, if incurred pursuant to the first paragraph under the limitation on incurrence of indebtedness covenant, setting forth in reasonable detail the reasons therefor), (y) any Indebtedness represented by the Company's 127/8% Senior Secured Notes due 2003 that remain outstanding after the date of this Indenture and any Indebtedness represented by any guarantees made by any of the Company's Subsidiaries in respect thereof, or (z) any Indebtedness of any of the Company's Subsidiaries existing on the date of this Indenture. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. 14 15 "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "SVS" means Southern Video Services, Inc., a Louisiana corporation. "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. SectionSection 77aaa-77bbbb), as in effect on the date on which this Indenture is qualified under the TIA, except as otherwise provided in Section 9.03. "Transfer Restricted Securities" means securities that bear or are required to bear the legend set forth in Section 2.06 hereof. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means any Subsidiary (other than the Key Subsidiaries or any successor to any of them) that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (iii) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the provisions of Section 4.07. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date 15 16 (and, if such Indebtedness is not permitted to be incurred as of such date under the provisions of Section 4.09, the Company shall be in default of such covenant). "VDS" means Video Distributing Services, Inc., a Louisiana corporation. "VSI" means Video Services, Inc., a Louisiana corporation. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares or shares held by foreign nationals in each case to the extent required by applicable law) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS.
Term Defined in Section -------------------------------- ------------------ "Affiliate Transaction" 4.11 "Asset Sale Offer" 4.10 "Change of Control Offer" 4.15 "Change of Control Payment" 4.15 "Change of Control Payment Date" 4.15 "Covenant Defeasance" 8.03 "DTC" 2.03 "Event of Default" 6.01 "Excess Proceeds" 4.10 "incur" 4.09 "Legal Defeasance" 8.02 "Offer Amount" 3.09 "Offer Period" 3.09 "Paying Agent" 2.03 "Payment Blockage Notice" 10.03 "Permitted Debt" 4.09 "Purchase Date" 3.09
16 17 "Registrar" 2.03 "Restricted Payments" 4.07 "Subsidiary Guarantees" 11.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. 17 18 ARTICLE II THE NOTES SECTION 2.01. FORM AND DATING. The Notes and the Trustee's certificate of authentication in respect thereof shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (a) Global Securities. Notes offered and sold to "qualified institutional buyers" in reliance on Rule 144A under the Securities Act or to non-U.S. persons in reliance on Regulation S under the Securities Act, in each case as provided in a Purchase Agreement relating to the Notes, dated August 4, 1997, between the Company, and Credit Suisse First Boston Corporation as Initial Purchaser, shall be issued initially in the form of one or more permanent global Notes in definitive, fully registered form without interest coupons with the legends set forth in Exhibit A hereto (each, a "Global Note"), which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at the Corporate Trust Office of the Trustee, as custodian for the Depository (or with such other custodian as the Depository may direct), and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated and delivered by the Trustee as hereinafter provided. The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee in accordance with instructions given by the Holder thereof as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Note or the nominee of such Depository and (b) shall apply only to a Global Note deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Notes that (a) shall be registered in the name of the Depository or the nominee of such Depository and (b) shall be delivered by the Trustee to the Depository or pursuant to the Depository's instructions or held by the Trustee as custodian for the Depository. Members of or participants in the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under such Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any 18 19 agent of the Company of the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Note. (c) Certificated Securities. Except as provided in Section 2.06(d), owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of Notes in certificated form. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company or any of their respective Subsidiaries. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. 19 20 The Company initially appoints The Depository Trust Company ("DTC") to act as Depository with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent in connection with the Notes and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any assets distributed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company, a Guarantor or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders or the Trustee all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall cause the Registrar to furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented by a Holder to the Registrar with a request (x) to register the transfer of the Definitive Notes or (y) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, however, that the Definitive Notes presented or surrendered for register of transfer or exchange (i) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by such Holder or by his attorney, duly authorized in writing, and (ii) in the case of a Definitive Note that is a Transfer Restricted Security, such request shall be accompanied by the following additional information and documents, as applicable: (A) if such Transfer Restricted Security is being delivered to the Registrar by a Holder for registration in the name of such Holder without transfer, a certification to that effect 20 21 from such Holder (in substantially the form of Exhibit B hereto); or (B) if such Transfer Restricted Security is being transferred to a "qualified institutional buyer" in accordance with Rule 144A under the Securities Act, outside the United States to a non-U.S. person in a transaction meeting the requirements of Rule 904 under the Securities Act, pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit B hereto); or (C) if such Transfer Restricted Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from such Holder (in substantially the form hereto) and an Opinion of Counsel from such Holder or the transferee and other evidence reasonable satisfactory reasonably acceptable to the Company, the Trustee and to the Registrar to the effect that such transfer is in compliance with the Securities Act. (b) Transfer of a Definitive Note for a Beneficial Interest in a Global Note. A Definitive Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Registrar of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Registrar, together with (i) if such Definitive Note is a Transfer Restricted Security, a certification from the Holder thereof (in substantially the form of Exhibit B hereto) to the effect that such Definitive Note is being transferred by such Holder to a "qualified institutional buyer" in accordance with Rule 144A under the Securities Act or, outside the United States to a non-U.S. person in a transaction meeting the requirements of Rule 904 under the Securities Act; and (ii) whether or not such Definitive Note is a Transfer Restricted Security, written instructions from the Holder thereof directing the Registrar to make, or to direct the Note Custodian to make, an endorsement on the Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, the Registrar shall cancel such Definitive Note in accordance with Section 2.11 hereof and cause, or direct the Note Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Note Custodian, the aggregate principal amount of Notes represented by the Global Note to be increased accordingly, provided, however, that such Definitive Note shall not be cancelled if the Global Notes have been previously exchanged for Definitive Notes. If no Global Notes are then outstanding, the Company shall issue and the Trustee, upon receipt of an authentication order in the form of an Officers' Certificate, shall authenticate and deliver a new Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture and the procedures of the Depository therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. A transferor of a beneficial interest in a Global Note shall deliver to the Registrar a written order given in accordance with the Depository's procedures containing information regarding the participant account of the Depository to be credited with a beneficial interest in the Global Note. The Registrar shall, in accordance with such instructions, instruct the Depository to credit to the account of the Person specified in such instructions a beneficial interest in the Global Note and to debit the account of the Person making the transfer the beneficial interest in the Global Note being transferred. 21 22 (d) Transfer of a Beneficial Interest in a Global Note for a Definitive Note. (i) A Global Note deposited with the Depository or with the Trustee as custodian for the Depository pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of Definitive Notes in an aggregate principal amount equal to the principal amount of such Global Note, in exchange for such Global Note, only if such transfer complies with the following paragraph (ii), and (A) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a "clearing agency" registered under the Exchange Act and a successor depository is not appointed by the Company within 90 days of such notice, or (B) an Event of Default has occurred and is continuing or (C) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Notes under this Indenture. (ii) If permitted under the preceding paragraph (i) and an owner of a beneficial interest in a Global Note deposited with the Depository or with the Trustee as custodian for the Depository desires to transfer its interest in such Global Note to a Person who is required to take delivery thereof in the form of a Definitive Note, such owner may, subject to the rules and procedures of Euroclear or Cedel, if applicable, and the Depository, cause the exchange of such interest for one or more certificated Notes of any authorized denomination or denominations and of the same aggregate principal amount at maturity. Upon receipt by the Registrar of written instructions or such other form of instructions as is customary for the Depository from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Note, and, in the case of a Transfer Restricted Security, the following additional information and documents (all of which may be submitted by facsimile): (A) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification to that effect from such Person (in substantially the form of Exhibit B hereto); or (B) if such beneficial interest is being transferred to a "qualified institutional buyer" in accordance with Rule 144A under the Securities Act, outside the United States to a non-U.S. person in a transaction meeting the requirements of Rule 904 under the Securities Act, pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit B hereto); or (C) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit B hereto) and an Opinion of Counsel from the transferee and other evidence reasonably satisfactory to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act, the Registrar or the Note Custodian, at the direction of the Trustee, shall, in accordance with the standing instructions and procedures existing between the Depository and the Note Custodian, cause the aggregate principal amount of Global Notes to be reduced accordingly and, following such reduction, the Company shall execute and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate and deliver to the transferee a Definitive Note in the appropriate principal amount. 22 23 (iii) Definitive Notes issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.06(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Registrar. The Registrar shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding any other provision of this Indenture (other than the provisions set forth in subsection (f) of this Section 2.06), a Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (f) Authentication of Definitive Notes in Absence of Depository. If at any time, (i) the Depository for the Notes notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Notes and a successor Depository for the Global Notes is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture, then the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.02 hereof, authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Notes in exchange for such Global Notes. (g) Legend. (i) Except as permitted by the following paragraphs (ii) and (iii), each Note certificate evidencing Global Notes and Definitive Notes (and all Notes issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: "THE SECURITY EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 23 24 904 UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE." (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, (A) in the case of any Transfer Restricted Security that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Note that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) in the case of any Transfer Restricted Security represented by a Global Note, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above, but shall continue to be subject to the provisions of Section 2.06(c) hereof; provided, however, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Note for a Definitive Note that does not bear the legend set forth in (i) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 (such certification to be substantially in the form of Exhibit B hereto). (iii) Notwithstanding the foregoing, upon consummation of the Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate Series B Notes in exchange for Series A Notes accepted for exchange in the Exchange Offer, which Series B Notes shall not bear the legend set forth in (i) above, and the Registrar shall rescind any restriction on the transfer of such Notes, in each case unless the Holder of such Series A Notes is either (A) a broker-dealer, (B) a Person participating in the distribution of the Series A Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in Global Notes have been exchanged for Definitive Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or the Notes Custodian, at the direction of the Trustee, to reflect such reduction. (i) General Provisions Relating to Transfers and Exchanges. 24 25 (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Notes and Global Notes at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.07, 4.10, 4.15 and 9.05 hereto). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Definitive Notes and Global Notes issued upon any registration of transfer or exchange of Definitive Notes or Global Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Notes or Global Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Definitive Notes and Global Notes in accordance with the provisions of Section 2.02 hereof. SECTION 2.07. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, in the absence of notice to the Company and the Trustee that such Note has been acquired by a bona-fide purchaser, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate and deliver a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the 25 26 Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses (including the fees and expenses of the Trustee) in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a bona fide purchaser, in which case the replacement Note shall cease to be outstanding, subject to the provisions of Section 8-405 of the Uniform Commercial Code. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate and deliver temporary Notes upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company and the Trustee consider appropriate. Without 26 27 unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same rights, privileges and benefits under this Indenture as permanent Notes authenticated and delivered hereunder. SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel and destroy all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. Subject to Section 2.07, the Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section 2.11, except as expressly permitted in the form of Notes and as permitted by this Indenture. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that each such special record date shall not be more than 15 days nor less than 10 days prior to the related payment date for such defaulted interest, whether or not such day is a Business Day, and if the Company does not promptly fix any special record date, the Trustee may fix such date. At least 10 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to each Holder a notice that states the special record date, the related payment date and the amount of such defaulted interest to be paid. ARTICLE III REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this 27 28 Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Any such notice to the Trustee may be cancelled at any time up to one Business Day prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company, the Registrar and the Paying Agent, if applicable, in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) the CUSIP number of the Notes to be redeemed and that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting 28 29 that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. At least one Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent (other than the Company or any Affiliate of the Company) money in immediately available funds sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate and deliver to the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. 29 30 SECTION 3.07. OPTIONAL REDEMPTION. (a) Except as set forth in clauses (b) and (c) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to August 1, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on August 1 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2002 105.000% 2003 103.333% 2004 101.667% 2005 and thereafter 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time prior to August 9, 2000, the Company may redeem up to an aggregate of 33 1/3% of the original aggregate principal amount of the Notes at a redemption price of 110% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that in each case, at least 66 2/3% of the original aggregate principal amount of the Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of each such Equity Offering. (c) Notwithstanding any other provisions hereof, if any Gaming Authority requires that a Holder or beneficial owner of Notes must be licensed, qualified or found suitable under any applicable gaming law and such Holder or beneficial owner fails to apply for a license, qualification or a finding of suitability within 30 days after being requested to do so by the Gaming Authority (or such lesser period that may be required by such Gaming Authority), or if such Holder or such beneficial owner is not so licensed, qualified or found suitable, the Company will have the right, at its option, (i) to require such Holder or beneficial owner to dispose of such Holder's or beneficial owner's Notes within 30 days of receipt of such notice of such finding by the applicable Gaming Authority or such earlier date as may be ordered by such Gaming Authority or (ii) to redeem the Notes of such Holder or beneficial owner at the lesser of (a) the price at which such Holder or beneficial owner acquired such Notes, without accrued interest or Liquidated Damages, if any, unless the payment of such interest or Liquidated Damages, if any, is permitted by the applicable Gaming Authority, in which case such interest and Liquidated Damages, if any, shall be paid through 30 31 the date of redemption, (b) the fair market value of such Notes on such redemption date and (c) the principal amount of such Notes without accrued interest or Liquidated Damages, if any, thereon, unless the payment of such interest or Liquidated Damages, if any, is permitted by the applicable Gaming Authority, in which case such interest and Liquidated Damages, if any, shall be paid through the date of redemption. The Holder or beneficial owner of Notes applying for a license, qualification or a finding of suitability must pay all costs of the licensure or investigation for such qualification or finding of suitability. The Company is not required to pay or reimburse any Holder or beneficial owner of Notes who is required to apply for such license, qualification or finding of suitability for the costs of the licensure or investigation for such qualification or finding of suitability. (d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.15 hereof, the Company shall not be required to make mandatory redemption payments with respect to the Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. (a) In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an Asset Sale Offer, it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes validly tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. (b) Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state (i) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (ii) the Offer Amount, the purchase price and the Purchase Date; (iii) that any Note not tendered or accepted for payment shall continue to accrue interest; (iv) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (v) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect only to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (vi) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or 31 32 transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (vii) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (viii) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (ix) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). (c) On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depository or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written order pursuant to an Officers' Certificate from the Company shall authenticate and deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. (d) Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE IV COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 12:00 p.m. New York City time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. 32 33 The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. SECTION 4.03. REPORTS. Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish to the Holders of Notes, within 15 days after the Company is or would have been required to file each of the following with the SEC, (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail on the face of the financial statements, in the footnotes thereto or in Management's Discussion and Analysis of Financial Condition and Results of Operations the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company) and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the 33 34 Company were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, for so long as any Notes remain outstanding, the Company and the Guarantors shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Notwithstanding anything to the contrary herein, the Trustee shall have no duty to review such documents for purposes of determining compliance with any provisions of the Indenture. SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate complying with Section 314(a)(4) of the TIA and stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company and its Subsidiaries have kept, observed, performed and fulfilled each and every covenant contained in this Indenture and are not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company and/or its Subsidiaries is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company and/or its Subsidiaries is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article IV or Article V hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. The Trustee shall not be deemed to have knowledge of any Default or Event of Default unless one of its Responsible Officers receives written notice thereof from the Company or any of the Holders. 34 35 (d) The Issuer shall, within 30 days of the date of this Indenture, deliver to the Trustee an Officer's Certificate listing all entities constituting Gaming Authorities as of such date, and shall further deliver to the Trustee, for so long as any of the Notes are outstanding, written notice of any changes from or additions to such list within 15 Business Days of becoming aware of any such change or addition. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Restricted Subsidiaries, directly or indirectly, to: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and dividends and distributions payable solely to the Company or to a Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"); unless, at the time of and after giving effect to such Restricted Payment: 35 36 (A) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (B) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in Section 4.09; and (C) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (ii), (iii) and (viii) of the next succeeding paragraph and excluding 50% of Restricted Payments made to holders of Equity Interests not held by the Company or any of its Restricted Subsidiaries to the extent permitted by clause (iv) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds, or the GAAP purchase accounting valuation of assets or property (determined on the date of issuance or conversion), received by the Company from the issue or sale since the date of this Indenture of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests, Disqualified Stock or convertible debt securities sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) the amount by which Indebtedness or Disqualified Stock of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Restricted Subsidiary of the Company) subsequent to the date of this Indenture of any Indebtedness or Disqualified Stock of the Company convertible or exchangeable for Capital Stock of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange), plus (iv) the amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any of its Restricted Subsidiaries in any Person resulting from (a) dividends or distributions on or repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser, reductions in amounts guaranteed, and repayments of loans or advances or other transfers of assets by such Person to the Company or any Restricted Subsidiary of the Company or (b) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued as provided in the second succeeding paragraph); provided, however, that no amount shall be included under this clause (iv) to the extent it is already included in Consolidated Net Income. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness that is subordinated to the Notes or Equity Interests of the Company out of the Net Cash Proceeds of the substantially concurrent sale 36 37 (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock) issued after the date of this Indenture or any exchange of Equity Interests of the Company (other than Disqualified Stock) issued after the date of this Indenture for any Indebtedness that is subordinated to the Notes or Equity Interests of the Company; provided that the amount of any such Net Cash Proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of Indebtedness that is subordinated to the Notes with the Net Cash Proceeds from an incurrence of or exchange for Permitted Refinancing Indebtedness; (iv) the payment of any dividend or distribution on account of Equity Interests by a Restricted Subsidiary of the Company to the holders of its respective Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by employees of the Company (or any of its Subsidiaries) pursuant to any stock ownership or option plan in effect from time to time; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1.0 million in any twelve-month period; (vi) loans and advances to officers and directors of the Company or any of its Restricted Subsidiaries made in the ordinary course of business the aggregate of which shall not exceed $1.5 million outstanding at any time; (vii) the redemption by the Company or any Restricted Subsidiary of any subordinated debt or Equity Interest if (A) counsel to the Company delivers an opinion that failure to so redeem would subject the Company to a materially adverse action by a Gaming Authority (or, if applicable, a failure so to act with a materially adverse consequence to the Company) or is required to preserve a Gaming License and (B) the Company determines (as evidenced by a resolution of the Board of Directors of the Company delivered to the Trustee) that such adverse action or failure so to act would be likely to have a material adverse effect on the Company; (viii) the redemption of all outstanding shares of the Company's 15% Non-Voting Senior Pay-In-Kind Special Stock, Series B, within 60 days following the date of this Indenture; and (ix) payments that would otherwise be Restricted Payments in an aggregate amount not to exceed $7.5 million. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the fair market value of such Investments at the time of such designation. Such designation will be permitted only if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Upon a redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Unrestricted Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Unrestricted Subsidiary) of the fair market value of the net assets of such Unrestricted Subsidiary at the time that such Subsidiary is so redesignated a Restricted Subsidiary. 37 38 The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. Not later than ten business days following the end of each fiscal quarter, the Company shall deliver to the Trustee an Officers' Certificate identifying each Restricted Payment made by the Company during such fiscal quarter and stating that each such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) the New Credit Facility as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that the dividend and other payment restrictions contained therein are no more restrictive than those contained in the New Credit Facility as in effect on the date of this Indenture, (b) any agreement in effect at or entered into on the date of this Indenture, (c) this Indenture and the Notes, (d) any instrument or agreement of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such instrument or agreement was entered into in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (e) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (g) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (h) restrictions contained in security agreements or mortgages to the extent such restrictions restrict the transfer of the property or assets subject to such security agreements or mortgages, (i) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the capital stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition, (j) any restriction in any agreement that is not more restrictive than the restrictions under the terms of the New Credit 38 39 Facility as in effect on the date of this Indenture and (k) in the case of clause (iii) above, encumbrances and restrictions in the ordinary course of business that do not individually or in the aggregate detract from the value of property or assets of the Company or a Restricted Subsidiary in a material manner. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company and the Guarantors shall not issue any Disqualified Stock and the Company shall not permit any of its Restricted Subsidiaries which are not Guarantors to issue any shares of preferred stock; provided, however, that the Company and any Guarantor may incur Indebtedness (including Acquired Debt and Indebtedness under the New Credit Facility) or issue shares of Disqualified Stock if the Consolidated Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, and such net proceeds been applied, at the beginning of such four-quarter period. The provisions of the first paragraph of this Section 4.09 will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company or any of its Restricted Subsidiaries of term Indebtedness under the New Credit Facility; provided that the aggregate principal amount of all term Indebtedness outstanding under the New Credit Facility after giving effect to each such incurrence does not exceed an amount equal to $115.0 million plus an additional $25.0 million of deferred term Indebtedness which shall be utilized to effect the Rainbow Royalty Buyout and to repurchase the Rainbow Note Payable, less the aggregate amount of all principal repayments actually made from time to time after the date of this Indenture with respect to such Indebtedness (other than principal payments made from any permitted refinancings thereof); (ii) the incurrence by the Company or any of its Restricted Subsidiaries of revolving credit Indebtedness (inclusive of letters of credit, which shall be deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) under the New Credit Facility; provided that the aggregate principal amount of all revolving credit Indebtedness outstanding under the New Credit Facility after giving effect to such incurrence, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (ii), does not exceed the greater of (x) $90.0 million and (y) the sum of (A) 75% of the book value of the accounts receivable of the Company and its Restricted Subsidiaries and (B) 40% of the book value of the inventory of the Company and its Restricted Subsidiaries; 39 40 (iii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iv) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary; provided that the aggregate principal amount of such Indebtedness that is not Non-Recourse Debt (except as to the property, plant or equipment being financed) does not exceed $20.0 million at any time outstanding (including any Permitted Refinancing Indebtedness relating thereto); (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness or Disqualified Stock that was permitted by this Indenture to be incurred (other than pursuant to clause (i) or (ii) of this paragraph); (vii) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (A) if the Company is the obligor on such Indebtedness and the payee is not a Guarantor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (B)(1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary or (2) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (viii) the incurrence by the Company of Interest Swap and Hedging Obligations; (ix) the incurrence by the Company or any of its Restricted Subsidiaries of (A) Indebtedness in respect of performance, completion, guarantee, surety or similar bonds provided by the Company or any Restricted Subsidiary in the ordinary course of business, or (B) Indebtedness in respect of any bond or surety obligation in order to prevent the loss or material impairment of or to obtain a Gaming License or as otherwise required by an order of any Gaming Authority to the extent required by applicable law and consistent in character and amount with customary industry practice; (x) the incurrence by the Company or any of its Restricted Subsidiaries of reimbursement obligations with respect to letters of credit in respect of workers' compensation claims consistent in character and amount with customary industry practice; 40 41 (xi) the guarantee by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; (xii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by liabilities for jackpots payable for progressive games in a manner consistent with industry practice; (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness (which may, but need not, be incurred under the New Credit Facility) in an aggregate principal amount (or accreted value, as applicable) not to exceed $20.0 million at any time outstanding (including any Permitted Refinancing Indebtedness relating thereto). For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiii) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Neither the accrual of interest nor the accretion of accreted value will be deemed to be an incurrence of Indebtedness for purposes of this covenant. The maximum amount of Indebtedness that the Company or a Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded with respect to any outstanding Indebtedness due solely to the result of the fluctuations in the exchange rates of currencies. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) or Indebtedness of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this paragraph. Within 360 days after the receipt of any Net Available Cash from any Asset Sale, the Company or any Restricted Subsidiary shall apply such Net Available Cash, at its option, (a) 41 42 to repay Senior Debt (and to correspondingly reduce commitments with respect thereto in the case of revolving borrowings) of the Company or any Restricted Subsidiary or, in the case of any Asset Sale involving assets of any Restricted Subsidiary that is not a Guarantor, to repay any Indebtedness of such Restricted Subsidiary, or (b) to invest in assets and property (other than notes, bonds, obligations and securities) which in the good faith judgment of the Board of Directors of the Company will constitute or be a part of a Gaming Business immediately following such transaction. Pending the final application of any such Net Available Cash, the Company may temporarily reduce Senior Debt or otherwise invest such Net Available Cash in any manner that is not prohibited by this Indenture. Notwithstanding the foregoing provisions of this paragraph, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this paragraph except to the extent that the aggregate Net Available Cash from all Asset Sales which is not applied in accordance with this paragraph exceeds $5.0 million. Any Net Available Cash (other than Net Available Cash not so applied pursuant to the preceding sentence) from Asset Sales that is not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company and any Restricted Subsidiary may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any transaction (including the purchase, sale, lease or exchange of property or the rendering of services) with any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Company of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (w) any Exempt Affiliate Transaction, (x) any compensation or indemnity arrangement with any officer or 42 43 director of the Company (pertaining to his or her duties as an officer or director) entered into in the ordinary course of business, (y) transactions between or among the Company and/or its Restricted Subsidiaries and (z) Restricted Payments that are permitted by the provisions of Section 4.07 of this Indenture, in each case, shall not be deemed Affiliate Transactions. SECTION 4.12. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES. The Company (i) shall not, and shall not permit any Wholly Owned Restricted Subsidiary of the Company or RCVP, VSI, SVS or VDSI to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company, RCVP, VSI, SVS or VDSI to any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Restricted Subsidiary, RCVP, VSI, SVS or VDSI and (b) the Net Available Cash from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof and (ii) shall not permit any Wholly Owned Restricted Subsidiary of the Company or RCVP, VSI, SVS or VDSI to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary of the Company; provided that the Company may sell or cause to be issued to a third party Equity Interests of Alliance Automaten GmbH & Co, KG or any other Wholly Owned Restricted Subsidiary into which the Company consolidates or transfers its Bally Wulff operations in advance of such offering of Equity Interests (provided that the Equity Interests sold to a third party represent no more than 20% of the Equity Interests of such entity outstanding immediately after such sale) if such sale complies in all respects with the provisions of Section 4.10 hereof. SECTION 4.13. LINE OF BUSINESS. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than a Gaming Business, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. SECTION 4.14. CORPORATE EXISTENCE. Subject to Article V hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. 43 44 SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Subject to compliance with paragraph (b) below, within 10 days following any Change of Control, the Company shall mail a notice to each Holder stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes validly tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 business days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not repurchased will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. (b) If the terms of the New Credit Facility prohibit the Company from making the foregoing offer upon a Change of Control or from purchasing any Notes pursuant thereto, prior to the mailing of the notice to Holders described in the preceding paragraph, but in any event within 30 days following any Change of Control, the Company covenants to (i) repay in full all indebtedness outstanding under the New Credit Facility or offer to repay in full all such indebtedness and repay the indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the New Credit Facility to permit the purchase of the Notes as described above. The Company must first comply with the covenant described in the preceding sentence before it will be required to purchase Notes in the event of a Change of Control; provided, however, that the Company's failure to comply with the covenant described in the preceding sentence or to make a Change of Control Offer because of any such failure shall constitute a Default described in clause (d) of Section 6.01 (and not under clause (b) or (c) thereof). The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. 44 45 (c) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee, upon receipt of an authentication order in the form of an Officers' Certificate from the Company, will promptly authenticate and deliver (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to the unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (d) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. SECTION 4.16. NO SENIOR SUBORDINATED DEBT. Notwithstanding the provisions of Section 4.09 hereof, the Company shall not, and shall not permit any Guarantor to, incur (i) any Indebtedness if such Indebtedness is expressly subordinate or junior in right of payment to any Senior Debt of the Company or such Guarantor and senior in any respect of right of payment to the Notes, or (ii) any Secured Indebtedness (other than Indebtedness described under clause (xii) of Section 4.09 hereof) that is not Senior Debt unless contemporaneously therewith effective provision is made to secure the Notes or the relevant Guarantee, as applicable, equally and ratably with such Secured Debt for so long as such Secured Debt is secured by a Lien. SECTION 4.17. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS. Company shall not permit any domestic Restricted Subsidiary that is not a Guarantor, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company unless such Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for the Subsidiary Guarantee of the payment of the Notes by such Restricted Subsidiary, which Subsidiary Guarantee shall be senior to or pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness (except in the case of Guarantees issued in respect of Senior Debt, which shall be senior to any Subsidiary Guarantee of the payment of the Notes). Notwithstanding the foregoing, (i) RCVP shall not be required to issue such a Guarantee as a result of RCVP providing a Guarantee of the Company's Obligations under the New Credit Facility or in respect of any similar Credit Facility and (ii) any Guarantee of the Notes by a Restricted Subsidiary pursuant to this covenant shall provide by its terms that it shall be automatically and 45 46 unconditionally released and discharged upon any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's stock in, or all or substantially all the assets of, such Subsidiary, which sale, exchange or transfer is made in compliance with the applicable provisions of the Indenture. SECTION 4.18. REDEMPTION OF SERIES B PREFERRED STOCK. On the date of this Indenture, the Company shall issue a notice of redemption pursuant to the requirements of the certificate of designation governing the rights of the Company's Series B Preferred Stock and, as soon as practicable after the first day that redemption is permitted under such certificate of designation, and in any event within 60 days following the giving of such notice, shall redeem all of the Company's outstanding Series B Preferred Stock. SECTION 4.19. DESIGNATION OF AN UNRESTRICTED SUBSIDIARY AS A RESTRICTED SUBSIDIARY. The Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary, provided that (i) at the time of such designation, after giving pro forma effect thereto as if such designation had occurred and as if any Non-Recourse Debt previously incurred by such Unrestricted Subsidiary had been incurred at the beginning of the Company's most recently completed four fiscal quarters for which internal financial statements are available preceding the date of such designation, (a) the Company would be permitted to incur $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in Section 4.09, or (b) the Consolidated Coverage Ratio of the Company is increased by such designation; (ii) except if not required under Section 11.10, such newly designated Restricted Subsidiary executes and delivers a Subsidiary Guarantee and an opinion of counsel relating to the enforceability and authorization of such Subsidiary Guarantee as required by this Indenture; and (iii) no Default has occurred and is continuing immediately preceding such designation and after giving pro forma effect thereto. SECTION 4.20. DESIGNATION OF A SUBSIDIARY AS AN UNRESTRICTED SUBSIDIARY. The Company may designate any newly-organized Subsidiary as an Unrestricted Subsidiary at the time of its formation, provided that such Subsidiary has total assets of $1,000 or less at the time of such designation. The Company may designate any Restricted Subsidiary as an Unrestricted Subsidiary (at which time such Restricted Subsidiary's Guarantee will terminate), provided that, (i) at the time of such designation after giving pro forma effect thereto as if such designation had occurred at the beginning of the Company's most recently completed four fiscal quarters for which internal financial statements are available preceding the date of such designation, (A) the Company would be permitted to incur $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in Section 4.09 and (B) if the Restricted Subsidiary is a Key Subsidiary, the Consolidated Coverage Ratio is not less than 80% of the Consolidated Coverage Ratio for such period without giving pro forma effect to such designation; and (ii) no Default has occurred and is continuing immediately preceding such designation and after giving pro forma effect thereto, including the requirement set forth 46 47 in Section 4.07 that any Investment in such Restricted Subsidiary be deemed to be a Restricted Payment made on the date of such designation. SECTION 4.21. LIMITATION ON STATUS AS INVESTMENT COMPANY. The Company and its Subsidiaries shall take all actions (and refrain from taking all actions) necessary to ensure that neither the Company nor any of its Subsidiaries will be required to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or will otherwise become subject to regulation under the Investment Company Act. ARTICLE V SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in Section 4.09 hereof; and (v) any such transaction would not require the Holders of Notes generally to obtain a Gaming License or be qualified under the laws of any applicable gaming jurisdiction in the absence of such transactions, provided that a transaction involving a jurisdiction that does not require the licensing or qualification of any of the Holders of the Notes, but reserves the discretionary right to require the licensing or qualification of any Holder of Notes, shall not be prohibited pursuant to the terms of this clause (v). 47 48 On or prior to the consummation of a proposed transaction contemplated by Section 5.01, the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (a) such consolidation, merger, sale, assignment, conveyance, transfer, lease or disposition and such supplemental indenture executed in connection therewith comply with this Indenture and (b) such transaction will not impair the rights and powers of the Trustee and Holders of the Notes thereunder. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor Person formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all or substantially all of the Company's properties or assets that meets the requirements of Section 5.01 hereof. ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on, or Liquidated Damages with respect to, the Notes and such default continues for a period of 30 days (whether or not prohibited by the subordination provisions of this Indenture); (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption or otherwise (whether or not prohibited by the subordination provisions of the Indenture); (c) the Company fails to comply with the repurchase provisions set forth in Section 4.10 hereof; (d) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice in writing to the Company by the Trustee, or to the Company and the Trustee by the 48 49 Holders of at least 25% in principal amount of the Notes then outstanding, specifying such default and requiring that it be remedied; (e) a default occurs under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $10 million or more; (f) the Company or any of its Significant Subsidiaries fails to pay final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days and, in the event such judgments are covered by insurance, an enforcement proceeding has been commenced by any creditor upon any of such judgments which is not promptly stayed; (g) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property or (iv) makes a general assignment for the benefit of its creditors; (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case; (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries or for all or substantially all of the property of the Company or any of its Significant Subsidiaries; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries; and the order or decree remains unstayed and in effect for 60 consecutive days; (i) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; or (j) any Gaming License of the Company or any of its Restricted Subsidiaries is revoked, terminated or suspended or otherwise ceases to be effective, resulting in the cessation or suspension, for a period of more than 90 days, of operations of any portion of the business of the Company or any of its Restricted Subsidiaries that accounted for more than 10% of the Consolidated Cash Flow of the Company for the period of the four consecutive fiscal quarters most recently ended for which internal financial statements are available, provided that any voluntary relinquishment of a Gaming License if such relinquishment is, in the reasonable, good faith judgment of the Board of Directors of the Company, evidenced by a resolution of such Board, both desirable in the conduct of the business of the Company and 49 50 its Restricted Subsidiaries, taken as a whole, and not disadvantageous in any material respect to the Holders of the Notes, shall not constitute an Event of Default hereunder. SECTION 6.02. ACCELERATION. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes, by notice in writing to the Company (and to the Trustee if such notice is given by such Holders), may, and the Trustee at the request of such Holders shall, declare all unpaid principal of, premium, if any, Liquidated Damages, if any, and accrued interest on all Notes to be due and payable. Upon any such declaration, such principal, premium, Liquidated Damages and interest on the Notes shall become due and payable immediately; provided that if upon such declaration there are any amounts outstanding under the New Credit Facility and the amounts thereunder have not been accelerated, such principal and interest shall be due and payable upon the earlier of such time such amounts are accelerated or five Business Days after the receipt by the Company and the Representative under the New Credit Facility of such declaration. Notwithstanding the foregoing, if an Event of Default specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the Company, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Subject to Section 6.08, Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. In the 50 51 case of any such waiver, the Company, the Trustee and the Holders of all the Notes shall be restored to their former positions and rights hereunder, respectively. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that (i) conflicts with law or this Indenture, (ii) the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or (iii) may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. No Holder of any Note shall have any right to order or direct the Trustee to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder unless: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred or reasonably probable to be incurred in compliance with such order or direction; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. 51 52 SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims, and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article VI, it shall pay out the money in the following order: first, to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all reasonable compensation, expense and liabilities incurred, and all reasonable advances, if any, made, by the Trustee and the costs and expenses of collection; second, to the holders of Senior Debt to the extent required by Article X; third, to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and fourth, to the Company or to such party as a 52 53 court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Note by its acceptance thereof shall be deemed to have agreed, that in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE VII TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default, (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that, (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. 53 54 (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to the provisions of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder or Holders shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may otherwise agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both, which shall conform to Sections 12.04 and 12.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture or the TIA. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. 54 55 (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (h) The Trustee shall have no duty to inquire as to the performance with the Company's covenants in Article IV hereof or as to the performance by any Agent of its duties hereunder. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except any Default or Event of Default of which the Trustee shall have received written notification or with respect to which a Responsible Officer or Trustee shall have actual knowledge. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, subject to and in accordance with Section 310(b) of the TIA, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as the Board of Directors of the Trustee, the executive committee or a trust committee of such Board of Directors and/or Responsible Officer in good faith determines that withholding the notice is in the interests of the Holders of the Notes. 55 56 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). If applicable, the Trustee also shall comply with TIA Section 313(b) and Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange or automated quotation system. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances, if any, and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its gross negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except money or property held in trust to pay principal and interest on particular Notes. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the compensation for the 56 57 services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor trustee with the Company's consent. The Company may remove the Trustee and the Holder of any Notes who has been a beneficial Holder of a Note for at least six months may, on behalf of such Holder and all Holders similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee if (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company or the court of competent jurisdiction, as the case may be, shall promptly appoint a successor Trustee. Within one year after the successor Trustee is appointed, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall, if such successor corporation is otherwise eligible hereunder, be the successor Trustee. 57 58 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creDitor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article VIII. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article II (other than Section 2.12) and Section 4.02 hereof, (c) the rights, powers, 58 59 trusts, duties and immunities of the Trustee and the Company's obligations in connection therewith and (d) this Article VIII. Subject to compliance with this Article VIII, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.04, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, 11.10 and the provisions of Section 5.01(iv) and (v) hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(f) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient (without the need to reinvest), in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium and Liquidated Damages, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal 59 60 Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article VIII concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee and the Paying Agent against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government 60 61 Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article VIII to the contrary notwithstanding, the Trustee and the Paying Agent shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and, without limiting the effect of any applicable abandoned property law, the Holder of such Note shall thereafter, as a general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. 61 62 SECTION 8.08. SUBORDINATION. Notwithstanding anything to the contrary herein, the rights and obligations of the parties under this Article VIII are subject to the subordination provisions set forth in Article X of this Indenture to the extent set forth therein. ARTICLE IX AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article V hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note in any material respect; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. (a) Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10 and 4.15 hereof) and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt 62 63 by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. (b) It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. (c) After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. (d) Notwithstanding the foregoing, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (iii) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (v) make any Note payable in money other than that stated in the Notes; (vi) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; (vii) waive a redemption payment with respect to any Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; or (viii) make any change in the foregoing amendment and waiver provisions. 63 64 (e) In connection with any amendment, supplement or waiver under this Article X, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an authentication order in the form of an Officers' Certificate from the Company, authenticate and deliver new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article IX if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in conclusively relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. 64 65 SECTION 9.07. SUBORDINATION. Notwithstanding anything to the contrary herein, no amendment may be made to the subordination provisions set forth in Article X or XII or elsewhere in this Indenture or the Notes if such amendment adversely affects the rights of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or their Representative) consent to such change. ARTICLE X SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each holder of a Note by accepting a Note agrees, that the payment of principal of, premium, if any, and interest and Liquidated Damages on, and all other Obligations with respect to, the Notes are subordinated in right of payment, to the extent and in the manner provided in this Article X, to the prior payment in full, in cash, of all Obligations with respect to Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), including the obligations of the Company and the Guarantors under the New Credit Facility, and that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt of the Company. SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment or distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, or upon an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, in each case whether voluntary or involuntary: (a) the holders of Senior Debt of the Company shall be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including all interest accruing after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not such interest is an allowed claim under applicable law) before Holders of Notes shall be entitled to receive any payment or distribution with respect to the Notes (except that Holders of Notes may receive payments made from any trust created pursuant to Section 8.05 hereof so long as, at the time of deposit thereof in such trust, such payments did not violate this Article X and otherwise complied with the provisions of Article VIII); and (b) until all Obligations with respect to Senior Debt of the Company are paid in full in cash, any payment or distribution to which Holders of Notes would be entitled but for this Article X shall be made to holders of Senior Debt of the Company (except that Holders of Notes may receive payments made from any trust created pursuant to Section 8.05 hereof so 65 66 long as, at the time of deposit thereof in such trust, such payments did not violate this Article X and otherwise complied with the provisions of Article VIII). SECTION 10.03. DEFAULT ON SENIOR DEBT. In addition to the provisions of preceding Section 10.02, neither the Company nor any Person on its behalf may make any payment (in cash, property or other assets) upon or in respect of the Notes (other than payments made from any trust created pursuant to Section 8.05 hereof so long as, at the time of deposit thereof in such trust, such payments did not violate this Article X and otherwise complied with the provisions of Article VIII) until all principal and other Obligations with respect to all Senior Debt of the Company have been paid in full in cash if: (a) any Obligations with respect to Senior Debt of the Company are not paid when due; or (b) any other default on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Representative of the holders of such Designated Senior Debt. The Company may and shall resume payments on the Notes: (a) in cases where clause (a) of the immediately preceding paragraph is applicable, upon such date when all payment defaults as described therein are cured or waived, or (b) in the case described in clause (b) of the immediately preceding paragraph, 179 days after the date on which the applicable Payment Blockage Notice is received (or earlier if the respective payment blockage period is terminated (i) by written notice to the Trustee and the Company from the person or persons who gave the respective Payment Blockage Notice or (ii) because no defaults continue in existence which would permit the acceleration of maturity of any Designated Senior Debt at such time), unless the maturity of any Designated Senior Debt has been accelerated (with each payment blockage period described above in this clause (b) being herein called a ("Payment Blockage Period"). No new Payment Blockage Period may be commenced pursuant to clause (b) of the first paragraph of this Section 10.03 unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default which existed or was continuing (it being acknowledged that any subsequent action that would give rise to a default pursuant to any provision under which a default previously existed or was continuing, and any failure to comply with a financial covenant for a subsequent period, shall constitute a new default for this purpose) on the date of the commencement of any Payment Blockage Period shall be the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Debt, even if not within a period of 360 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days. 66 67 SECTION 10.04. ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder of Notes receives any payment of any Obligations with respect to the Notes at a time when such payment is prohibited by Section 10.02 or 10.03 hereof, such payment shall be held by the Trustee or such Holder of Notes, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt of the Company as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of the Company remaining unpaid to the extent necessary to pay such Obligations in full in cash in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of the Company . With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article X, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. Notwithstanding anything to the contrary herein, the Trustee shall not be deemed to owe any fiduciary duty to any present or future holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holder of Notes or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article X and in Article XII, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.06. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article X, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article X. SECTION 10.07. SUBROGATION. After all Obligations with respect to Senior Debt of the Company are paid in full in cash and until the Notes are paid in full, Holder of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt of the Company to receive distributions applicable to Senior Debt of the Company to the extent that distributions otherwise payable to the Holder of Notes have been applied to the payment of Senior Debt of the Company. A distribution made under this Article X to holders of Senior Debt of the Company that otherwise would have been made to Holders of Notes is 67 68 not, as between the Company and such Holders of Notes, a payment by the Company on the Notes. SECTION 10.08. RELATIVE RIGHTS. This Article X defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (a) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (b) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt of the Company; or (c) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt of the Company to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article X to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default in accordance with the provisions of Section 6.01. SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY ACTS OF OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR DEBT. No right of any present or future holders of any Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act of failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article X or the obligations hereunder of the Holders of the Notes to the holders of the Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt, or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. 68 69 SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article X, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article X. SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article X or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article X. Only the Company, a Guarantor, a holder of Senior Debt or a Representative for holders of Senior Debt may give the notice. Nothing in this Article X shall (x) impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof or (y) affect the Obligations of Holders of Notes pursuant to Section 10.05 with respect to any payments received by them when prohibited by Section 10.02 or 10.03 hereof, as the case may be. The Trustee in its individual or any other capacity may hold Senior Debt of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of a Note by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article X, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. 69 70 SECTION 10.13. AMENDMENTS. The provisions of this Article X shall not be amended or modified in any manner that is adverse to the holders of any Senior Debt without the written consent of all such holders of Senior Debt or their Representative. ARTICLE XI GUARANTEES SECTION 11.01. UNCONDITIONAL GUARANTEE. Subject to the provisions of this Article XI, each Guarantor hereby unconditionally, jointly and severally, on a senior subordinated basis, guarantees (each such Guarantee being a "Subsidiary Guarantee" and all such Guarantees being the "Subsidiary Guarantees") to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Notes or this Indenture, that: (i) the principal of and interest and Liquidated Damages, if any, on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest to the extent lawful, of the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Subsidiary Guarantees will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in the Subsidiary Guarantees. If any Holder of Notes or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder of Notes, the Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of the Subsidiary Guarantees, notwithstanding any stay, injunction or other 70 71 prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of the Subsidiary Guarantees. SECTION 11.02. SUBORDINATION OF GUARANTEE. The obligations of each Guarantor under the Subsidiary Guarantees and under this Indenture are expressly subordinate and subject in right of payment to the prior payments in full in cash of all Obligations with respect to Senior Debt of such Guarantor, to the extent and in the manner provided in Article XII. SECTION 11.03. SEVERABILITY. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04. RELEASE OF A GUARANTOR. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Available Cash of such sale or other disposition shall be applied in accordance with Section 4.10 and the other applicable provisions of the Indenture. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.04. Any Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article XI. SECTION 11.05. LIMITATION OF GUARANTOR'S LIABILITY. Each Guarantor and by its acceptance of a Note each Holder confirms that it is the intention of all such parties that the Subsidiary Guarantee by such Guarantor pursuant to its Subsidiary Guarantee does not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Subsidiary Guarantees shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including without limitation all guarantees of such Guarantor given in respect of the New Credit Facility and all other Senior Debt of such Guarantor) and after giving effect to any collections from or 71 72 payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under the Subsidiary Guarantees or pursuant to Section 11.07, result in the obligations of such Guarantor under the Subsidiary Guarantees not constituting such fraudulent transfer or conveyance. SECTION 11.06. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor (other than mergers with or into the Company or another Guarantor) unless (i) subject to the provisions of Section 11.04, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes and this Indenture; and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. SECTION 11.07. CONTRIBUTION. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under the Subsidiary Guarantees, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the net assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other Guarantor's obligations with respect to the Subsidiary Guarantees. SECTION 11.08. WAIVER OF SUBROGATION. Each Guarantor hereby irrevocably waives, until and unless all of the Obligations guaranteed hereby are indefeasibly discharged, any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Subsidiary Guarantees and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements 72 73 contemplated by this Indenture and that the waiver set forth in this Section 11.08 is knowingly made in contemplation of such benefits. SECTION 11.09. EXECUTION OF GUARANTEE. To evidence their guarantee to the Holder of Notes specified in Section 11.01, the Guarantors hereby agree to execute the Subsidiary Guarantees in substantially the form of Exhibit A recited to be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that the Subsidiary Guarantees set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Subsidiary Guarantees. Each such Subsidiary Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Subsidiary Guarantee prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Subsidiary Guarantee on behalf of such Guarantor. Such signatures upon the Subsidiary Guarantees may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Subsidiary Guarantees, and in case any such officer who shall have signed the Subsidiary Guarantees shall cease to be such officer before the Note on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the person who signed the Subsidiary Guarantees had not ceased to be such officer of the Guarantor. SECTION 11.10. ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Restricted Subsidiaries shall acquire or create another Subsidiary after the date of the Indenture, then such newly acquired or created Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel relating to the enforceability and authorization of such Subsidiary Guarantee in accordance with the terms of the Indenture, pursuant to which such Subsidiary shall become a Guarantor, on a senior subordinated basis, of the Company's payment obligations under the Notes and this Indenture; provided, that this covenant shall not apply to any Subsidiary during such period as such Subsidiary (w) is organized in any jurisdiction outside the United States, (x) is organized in any jurisdiction in which the issuance of a Subsidiary Guarantee requires regulatory approval by a Gaming Authority, provided that the Company or such Subsidiary has made a good faith effort to obtain such approval and such approval is denied, (y) has been properly designated as an Unrestricted Subsidiary in accordance with this Indenture for so long as it continues to constitute an Unrestricted Subsidiary or (z) has less than $100,000 of outstanding Indebtedness owed to any Person other than the Company or any Restricted Subsidiary. Notwithstanding the foregoing, each of RCVP, VSI, SVS and VDSI shall become subject to the terms of this covenant upon becoming a Wholly Owned Restricted Subsidiary. ARTICLE XII 73 74 SUBORDINATION OF GUARANTEES SECTION 12.01. AGREEMENT TO SUBORDINATE. Each Guarantor agrees, and each holder of a Note by accepting a Note agrees, that the payment of principal of, premium, if any, and interest and Liquidated Damages on, and all other Obligations with respect to, the Notes are subordinated in right of payment, to the extent and in the manner provided in this Article XII, to the prior payment in full, in cash, of all Obligations with respect to Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) of the Guarantor; including the obligations of the Guarantors under, or with respect to, the New Credit Facility, and that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt of the Guarantor. SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment or distribution to creditors of any Guarantor in a liquidation or dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guarantor or its property, or upon an assignment for the benefit of creditors or any marshalling of such Guarantor's assets and liabilities, in each case whether voluntary or involuntary: (a) the holders of Senior Debt of such Guarantor shall be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including all interest accruing after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not such interest is an allowed claim under applicable law) before Holders of Notes shall be entitled to receive any payment or distribution with, under or with respect to, the Subsidiary Guarantee of such Guarantor (except that Holders of Notes may receive payments made from any trust created pursuant to Section 8.05 hereof so long as, at the time of deposit thereof in such trust, such payments did not violate this Article XII and otherwise complied with the provisions of Article VIII); and (b) until all Obligations with respect to all Senior Debt of such Guarantor are paid in full in cash, any payment or distribution to which Holders of Notes would be entitled but for this Article XII shall be made to holders of Senior Debt of such Guarantor (except that Holders of Notes may receive payments made from any trust created pursuant to Section 8.05 hereof so long as, at the time of deposit thereof in such trust, such payments did not violate this Article XII and otherwise complied with the provisions of Article VIII). SECTION 12.03. DEFAULT ON SENIOR DEBT. In addition to the provisions of preceding Section 12.02, no Guarantor nor any Person on its behalf may make any payment (in cash, property or other assets) upon or in respect of the Notes or any Subsidiary Guarantee (other than payments made from any trust created pursuant to Section 8.05 hereof so long as, at the time of deposit thereof in such trust, such payments did not violate this Article XII and otherwise complied with the provisions of Article 74 75 VIII) until all principal and other Obligations with respect to all Senior Debt of such Guarantor has been paid in full in cash if: (a) any Obligations with respect to Senior Debt of, or guaranteed by, such Guarantor are not paid when due; or (b) any Payment Blockage Period is then in effect pursuant to Section 10.03. The Company may and shall resume payments on the Notes: (a) in cases where clause (a) of the immediately preceding paragraph is applicable, upon such date when all payment defaults as described therein are cured or waived, or (b) in the case described in clause (b) of the immediately preceding paragraph, when the respective Payment Blockage Period has ended in accordance with the provisions of Section 10.03 unless the maturity of any Designated Senior Debt has been accelerated. SECTION 12.04. ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, each Guarantor shall promptly notify, or cause to be notified, holders of Senior Debt of such Guarantor of the acceleration. SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder of Notes receives any payment of any Obligations with respect to any Subsidiary Guarantee at a time when such payment is prohibited by Section 12.02 or 12.03 hereof, such payment shall be held by the Trustee or such Holder of Notes in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt of the respective Guarantor as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt of the Guarantor may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of the respective Guarantor remaining unpaid to the extent necessary to pay such Obligations in full in cash in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of the respective Guarantor. With respect to the holders of Senior Debt of the Guarantors, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in Article X and in this Article XII, and no implied covenants or obligations with respect to the holders of Senior Debt of the Guarantors shall be read into this Indenture against the Trustee. Notwithstanding anything to the contrary herein, the Trustee shall not be deemed to owe any fiduciary duty to any present or future holders of Senior Debt of such Guarantors, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holder of Notes or the Company or any other Person money or assets to which any holders 75 76 of Senior Debt of such Guarantors shall be entitled by virtue of this Article XII, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 12.06. NOTICE BY GUARANTORS. Each Guarantor shall promptly notify the Trustee and the Paying Agent of any facts known to such Guarantor that would cause a payment of any Obligations with respect to the Subsidiary Guarantees to violate this Article XII, but failure to give such notice shall not affect the subordination of the Subsidiary Guarantees to the Senior Debt of the Guarantors as provided in this Article XII. SECTION 12.07. SUBROGATION. After all Obligations with respect to Senior Debt of the Guarantors are paid in full in cash and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt of the Guarantor to receive distributions applicable to Senior Debt of the Guarantor to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt of the Guarantor. A distribution made under this Article XII to holders of Senior Debt of the Guarantor that otherwise would have been made to Holders of Notes is not, as between the Company and such Holders of Notes, a payment of the Guarantor on the Notes. SECTION 12.08. RELATIVE RIGHTS. This Article XII defines the relative rights of Holders of Notes and holders of Senior Debt of the Guarantor. Nothing in this Indenture shall: (a) impair, as between the Guarantors and Holders of Notes, the obligation of the Guarantors, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with the terms of the Subsidiary Guarantees; (b) affect the relative rights of Holders of Notes and creditors of the Guarantors other than their rights in relation to holders of Senior Debt of the Guarantors; or (c) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt of the Guarantors to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article XII to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default in accordance with the provisions of Section 6.01. 76 77 SECTION 12.09. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE GUARANTORS OR HOLDERS OF SENIOR DEBT. No right of any present or future holders of any Senior Debt of any Guarantor to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or any failure to act on the part of any Guarantor or by any act of failure to act, in good faith, by any such holder, or by any noncompliance by any Guarantor with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt of a Guarantor may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article XII or the obligations hereunder of the Holders of the Notes to the holders of such Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Debt, or any instrument evidencing the same or any agreement under which such Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Senior such Debt; and (iv) exercise or refrain from excising any rights against such Guarantor and any other Person. SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt of any Guarantor, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of any Guarantor referred to in this Article XII, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the respective Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII. SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article XII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article XII. Only the Company, a Guarantor, a Representative or 77 78 a holder of Senior Debt of a Guarantor may give the notice. Nothing in this Article XII shall (i) impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof or (ii) affect the Obligations of Holders of Notes pursuant to Section 12.05 with respect to any payments received by them when prohibited by Section 12.02 or 10.03 hereof, as the case may as be. The Trustee in its individual or any other capacity may hold Senior Debt of any Guarantor with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of a Note by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article XII, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. SECTION 12.13. AMENDMENTS. The provisions of this Article XII shall not be amended or modified in any manner that is adverse to the holders of any Senior Debt of the Guarantors without the written consent of such holders of Senior Debt or their Representative. ARTICLE XIII MISCELLANEOUS SECTION 13.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 13.02. NOTICES. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight courier guaranteeing next day delivery, to the others' address: 78 79 If to the Company or any Guarantor: Alliance Gaming Corporation 6601 South Bermuda Road Las Vegas, Nevada 89119 Telecopier No.: (702) 263-5636 Attention: Corporate Secretary If to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036-153 Telecopier No.: (212) 852-1626 Attention: Corporate Trust and Agency Division The Company or the Trustee, by written notice to the others, may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other HoLders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). 79 80 SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 13.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder (or other Person performing similar functions with respect to a Person that is not a corporation) of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 13.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES. 80 81 SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.10. SUCCESSORS AND ASSIGNS. All agreements of the Company and the Guarantors in this Indenture and the Notes shall bind their successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 13.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 81 82 SIGNATURES Dated as of August 8, 1997 ALLIANCE GAMING CORPORATION By:______________________________________ Name: Scott Schweinfurth Title: Senior Vice President - Finance, Chief Financial Officer and Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 APT GAMES, INC. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 UNITED COIN MACHINE CO. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) S-1 83 Dated as of August 8, 1997 PLANTATION INVESTMENTS, INC. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 ALLIANCE HOLDING COMPANY By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 BALLY GAMING INTERNATIONAL, INC. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 BALLY GAMING, INC. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) S-2 84 Dated as of August 8, 1997 FOREIGN GAMING VENTURES, INC. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 LOUISIANA VENTURES, INC. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 UNITED GAMING RAINBOW By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) Dated as of August 8, 1997 NATIVE AMERICAN INVESTMENT, INC. By:______________________________________ Name: Scott Schweinfurth Title: Treasurer Attest: ___________________________ (SEAL) S-3 85 Dated as of August 8, 1997 UNITED STATES TRUST COMPANY OF NEW YORK By:______________________________________ Name: John Guiliano Title: Vice President Attest: ___________________________ S-4 86 EXHIBIT A (Face of Note) No. GR-1 $150,000,000 CUSIP #01859PAF1 ALLIANCE GAMING CORPORATION 10% [SERIES A][SERIES B] SENIOR SUBORDINATED NOTES DUE 2007 Alliance Gaming Corporation promises to pay to __________ or registered assigns the principal sum of one _____________________ Dollars on August 1, 2007. Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Dated: ______________ Alliance Gaming Corporation By:______________________________________ Name: Title: ----------------------------------------- Attest This is one of the (SEAL) Notes referred to in the within-mentioned Indenture: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:__________________________________ Authorized Signature: A-1 87 (Back of Note) 10% [Series A] [Series B] Senior Subordinated Notes due 2007 Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.(1) THE SECURITY EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN OF RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS - ---------- (1) This paragraph should be included only if the Note is issued in global form. A-2 88 REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. Capitalized terms used herein shall have the meanings assigned to them in this Indenture referred to below unless otherwise indicated. 1. INTEREST. Alliance Gaming Corporation, a Nevada corporation (the "Company"), promises to pay interest on the principal amount of this Note at 10% per annum from August 8, 1997 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on February 1 and August 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be February 1, 1998. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the January 15 or July 15 next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of this Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Liquidated Damages at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may, subject to certain exceptions, act in any such capacity. A-3 89 4. INDENTURE. The Company issued the Notes under an Indenture dated as of August 8, 1997 (the "Indenture") between the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to this Indenture and such Act for a statement of such terms. The Notes are unsecured senior subordinated obligations of the Company limited to $150,000,000 in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to August 1, 2002. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on August 1 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2002..................................................... 105.000% 2003..................................................... 103.333% 2004..................................................... 101.667% 2005 and thereafter...................................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to August 9, 2000, the Company may redeem up to an aggregate of 33 1/3% of the original aggregate principal amount of the Notes at a redemption price equal to 110% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that at least 66 2/3% of the original aggregate principal amount of the Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of each such Equity Offering. (c) Notwithstanding any other provisions hereof, if any Gaming Authority requires that a Holder or beneficial owner of Notes must be licensed, qualified or found suitable under any applicable gaming law and such Holder or beneficial owner fails to apply for a license, qualification or a finding of suitability within 30 days after being requested to do so by the Gaming Authority (or such lesser period that may be required by such Gaming Authority), or if such Holder or such beneficial owner is not so licensed, qualified or found suitable, the Company will have the right, at its option, (i) to require such Holder or beneficial owner to dispose of such Holder's or beneficial owner's Notes within 30 days of receipt of such notice of such finding by the applicable Gaming Authority or such earlier date as may be ordered by such Gaming Authority or (ii) to redeem the Notes of such Holder or beneficial owner at the lesser of (a) the price at which such Holder or beneficial owner acquired such Notes, without A-4 90 accrued interest or Liquidated Damages, if any, unless the payment of such interest or Liquidated Damages, if any, is permitted by the applicable Gaming Authority, in which case such interest and Liquidated Damages, in any, shall be paid through the date of redemption, (b) the fair market value of such Notes on such redemption date and (c) the principal amount of such Notes without accrued interest or Liquidated Damages, if any, thereon, unless the payment of such interest or Liquidated Damages, if any, is permitted by the applicable Gaming Authority, in which case such interest and Liquidated Damages, if any, shall be paid through the date of redemption. The Holder or beneficial owner of Notes applying for a license, qualification or a finding of suitability must pay all costs of the licensure or investigation for such qualification or finding of suitability. The Company is not required to pay or reimburse any Holder or beneficial owner of Notes who is required to apply for such license, qualification or finding of suitability for the costs of the licensure or investigation for such qualification or finding of suitability. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required, subject to the provisions of Section 4.15 of the Indenture, to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall, subject to the provisions of Section 4.15 of the Indenture, mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Section 4.10 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or any Restricted Subsidiary) may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. A-5 91 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. SUBORDINATION. The payment of the principal of, interest on or any other amounts due on the Notes is subordinated in right of payment to all existing and future Senior Debt of the Company, as described in the Indenture. Each holder, by accepting a Note, agrees to such subordination and authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee as its attorney-in-fact for such purpose. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in this Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by this Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, this Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under this Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act. 13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or A-6 92 otherwise, (iii) failure by the Company to comply with Section 4.10 of the Indenture; (iv) failure by the Company for 60 days after written notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with any other covenant, representation, warranty or other agreement in the Indenture or the Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity and the principal amount of all Indebtedness the maturity of which has been so accelerated aggregates $10.0 million or more; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; (viii) any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect; and (ix) any Gaming License of the Company or any of its Restricted Subsidiaries is revoked, terminated or suspended or otherwise ceases to be effective, resulting in the cessation or suspension, for a period of more than 90 days, of operations of any portion of the business of the Company or any of its Restricted Subsidiaries that accounted for more than 10% of the Consolidated Cash Flow of the Company for the period of the four consecutive fiscal quarters most recently ended for which internal financial statements are available, provided that any voluntary relinquishment of a Gaming License if such relinquishment is, in the reasonable good faith judgment of the Board of Directors of the Company, evidenced by a resolution of such Board, both desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and not disadvantageous in any material respect to the Holders of the Notes shall not constitute an Event of Default hereunder. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately; provided that if upon such declaration there are any amounts outstanding under the New Credit Facility and the amounts thereunder have not been accelerated, such principal and interest shall be due and payable upon the earlier of the time such amounts are accelerated or five Business Days after the receipt by the Company and the Representative under the New Credit Facility of such declaration. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default to deliver to the Trustee a statement specifying such Default or Event of Default. 14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. A-7 93 15. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or stockholder (or other Person performing similar functions with respect to a Person that is not a corporation) of the Company, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In addition to the rights provided to Holders of Notes under this Indenture, Holders of Transferred Restricted Securities shall have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of August 8, 1997, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of this Indenture and/or the Registration Rights Agreement. Requests may be made to: Alliance Gaming Corporation 6601 South Bermuda Road Las Vegas, Nevada 89119 Attention: Secretary A-8 94 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:____________ Your Signature:_____________________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee:_____________________________________ (Signature must be guaranteed) A-9 95 OPTION OF HOLDER TO ELECT PURCHASE If you want to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of this Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of this Indenture, state the amount you elect to have purchased: $___________ Date:____________ Your Signature:_____________________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:____________________________ Signature Guarantee:_____________________________________ (Signature must be guaranteed) A-10 96 SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE(2) The following exchanges of a part of this Global Note for Definitive Notes have been made:
Principal amount of Signature of Amount of decrease Amount of increase this Global Note authorized officer in principal amount in principal amount following such of Trustee or Note Date of Exchange of this Global Note of this Global Note decrease(or increase) Custodian ---------------- ------------------- ------------------- --------------------- ------------------
- ---------- (2) This should be included only if the Note is issued in global form. A-11 97 [FORM OF NOTATION ON NOTE RELATING TO GUARANTEE] SUBORDINATED GUARANTEE For good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the Guarantors (as defined in the Indenture (the "Indenture") referred to in the Note upon which this notation is endorsed and each hereinafter referred to as a "Guarantor," which term includes any successor person under the Indenture) have, jointly and severally, unconditionally guaranteed on a senior subordinated unsecured basis (such guarantee by each Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest and Liquidated Damages, if any, on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest and Liquidated Damages, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Articles XI and XII of the Indenture and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Guarantor to the Holders of Notes and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth, and are senior subordinated unsecured obligations, of each such Guarantor to the extent and in the manner provided in Section 11.02 and Article XII of the Indenture and may be released under certain circumstances. Reference is hereby made to such Indenture for the precise terms of the Guarantee therein made. No past, present or future director, officer, employee, incorporator or stockholder (or other Persons performing similar functions with respect to a Person that is not a corporation) of any Guarantor, as such, shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. GUARANTORS: APT GAMES, INC. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer A-12 98 UNITED COIN MACHINE CO. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer PLANTATION INVESTMENTS, INC. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer ALLIANCE HOLDING COMPANY By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer BALLY GAMING INTERNATIONAL, INC. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer BALLY GAMING, INC. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer A-13 99 FOREIGN GAMING VENTURES, INC. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer LOUISIANA VENTURES, INC. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer UNITED GAMING RAINBOW By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer NATIVE AMERICAN INVESTMENT, INC. By:_____________________________________ Name: Scott Schweinfurth Title: Treasurer A-14 100 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES Re: 10% Senior Subordinated Notes due 2007 of Alliance Gaming Corporation. This Certificate relates to $_____ principal amount of Notes held in * ________ book-entry or *_______ definitive form by ________________ (the "Transferor"). The Transferor*: [ ] has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depository a Note or Notes in definitive, registered form of authorized denominations in an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or [ ] has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with this Indenture relating to the above captioned Notes and as provided in Section 2.06 of such Indenture, the transfer of this Note does not require registration under the Securities Act (as defined below) because:* [ ] Such Note is being acquired for the Transferor's own account without transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(ii)(A) of this Indenture). [ ] Such Note is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")) in reliance on Rule 144A (in satisfaction of Section 2.06(a)(ii)(B), Section 2.06(b)(A) or Section 2.06(d)(ii) (B) of this Indenture) or outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06(d)(ii)(B) of this Indenture.) - ---------- *Check applicable box. B-1 101 [ ] Such Note is being transferred in accordance with Rule 144 under the Securities Act, or pursuant to an effective registration statement under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06(d)(ii)(B) of this Indenture). [ ] Such Note is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to the effect that such transfer does not require registration under the Securities Act accompanies this Certificate (in satisfaction of Section 2.06(a)(ii)(C) or Section 2.06(d)(ii)(C) of this Indenture). ----------------------------------------- [INSERT NAME OF TRANSFEROR] By:______________________________________ Date:_______________________________ - ---------- *Check applicable box. B-2 102 ================================================================================ ALLIANCE GAMING CORPORATION SERIES A AND SERIES B 10% SENIOR SUBORDINATED NOTES DUE 2007 ----------------- INDENTURE Dated as of August 8, 1997 ----------------- UNITED STATES TRUST COMPANY OF NEW YORK ----------------- ================================================================================ 103 CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310 (a)(1) .................................................... 7.10 (a)(2)..................................................... 7.10 (a)(3) .................................................... N.A. (a)(4)..................................................... N.A. (a)(5)..................................................... 7.10 (b) ....................................................... 7.10 (c) ....................................................... N.A. 311 (a) ....................................................... 7.11 (b) ....................................................... 7.11 (c) ....................................................... N.A. 312 (a)........................................................ 2.05 (b)........................................................ 11.03 (c) ....................................................... 11.03 313 (a) ....................................................... 7.06 (b)(1) .................................................... 10.03 (b)(2) .................................................... 7.07 (c) ....................................................... 7.06;11.02 (d)........................................................ 7.06 314 (a) ....................................................... 4.03;11.02 (b) ....................................................... 10.02 (c)(1) .................................................... 11.04 (c)(2) .................................................... 11.04 (c)(3) .................................................... N.A. (d)........................................................ 10.03, 10.04, 10.05 (e) ...................................................... 11.05 (f)........................................................ N.A. 315 (a)........................................................ 7.01 (b)........................................................ 7.05,11.02 (c) ...................................................... 7.01 (d)........................................................ 7.01 (e)........................................................ 6.11 316 (a)(last sentence) ........................................ 2.09 (a)(1)(A).................................................. 6.05 (a)(1)(B) ................................................. 6.04 (a)(2) .................................................... N.A. (b) ....................................................... 6.07 (c) ....................................................... 2.12 317 (a)(1) .................................................... 6.08 (a)(2)..................................................... 6.09 (b) ....................................................... 2.04 318 (a)........................................................ 11.01 (b)........................................................ N.A. (c)........................................................ 11.01
N.A. means not applicable. *This Cross-Reference Table is not part of this Indenture. 104 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions............................................ 1 Section 1.02. Other Definitions...................................... 16 Section 1.03. Incorporation by Reference of Trust Indenture Act...... 17 Section 1.04. Rules of Construction.................................. 17 ARTICLE II THE NOTES Section 2.01. Form and Dating........................................ 18 Section 2.02. Execution and Authentication........................... 19 Section 2.03. Registrar and Paying Agent............................. 19 Section 2.04. Paying Agent to Hold Money in Trust.................... 20 Section 2.05. Holder Lists........................................... 20 Section 2.06. Transfer and Exchange.................................. 20 Section 2.07. Replacement Notes...................................... 25 Section 2.08. Outstanding Notes...................................... 26 Section 2.09. Treasury Notes......................................... 26 Section 2.10. Temporary Notes........................................ 26 Section 2.11. Cancellation........................................... 27 Section 2.12. Defaulted Interest..................................... 27 ARTICLE III REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee..................................... 27 Section 3.02. Selection of Notes to Be Redeemed...................... 28 Section 3.03. Notice of Redemption................................... 28 Section 3.04. Effect of Notice of Redemption......................... 29 Section 3.05. Deposit of Redemption Price............................ 29 Section 3.06. Notes Redeemed in Part................................. 29 Section 3.07. Optional Redemption.................................... 30 Section 3.08. Mandatory Redemption................................... 31 Section 3.09. Offer to Purchase by Application of Excess Proceeds.... 31 ARTICLE IV COVENANTS Section 4.01. Payment of Notes....................................... 32 Section 4.02. Maintenance of Office or Agency........................ 33 Section 4.03. Reports................................................ 33 Section 4.04. Compliance Certificate................................. 34 Section 4.05. Taxes.................................................. 35 Section 4.06. Stay, Extension and Usury Laws......................... 35 Section 4.07. Restricted Payments.................................... 35 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries................................. 38 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock........................................ 39 Section 4.10. Asset Sales............................................ 41 Section 4.11. Transactions with Affiliates........................... 42 Section 4.12. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries............. 43
i 105 Section 4.13. Line of Business....................................... 43 Section 4.14. Corporate Existence.................................... 43 Section 4.15. Offer to Repurchase Upon Change of Control............. 44 Section 4.16. No Senior Subordinated Debt............................ 45 Section 4.17. Limitation on Issuances of Guarantees of Indebtedness........................................... 45 Section 4.18. Redemption of Series B Preferred Stock................. 46 Section 4.19. Designation of an Unrestricted Subsidiary as a Restricted Subsidiary.................................. 46 Section 4.20. Designation of a Subsidiary as an Unrestricted Subsidiary............................................. 46 Section 4.21. Limitation on Status as Investment Company............. 47 ARTICLE V SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets............... 47 Section 5.02. Successor Corporation Substituted...................... 48 ARTICLE VI DEFAULTS AND REMEDIES Section 6.01. Events of Default...................................... 48 Section 6.02. Acceleration........................................... 50 Section 6.03. Other Remedies......................................... 50 Section 6.04. Waiver of Past Defaults................................ 50 Section 6.05. Control by Majority.................................... 51 Section 6.06. Limitation on Suits.................................... 51 Section 6.07. Rights of Holders of Notes to Receive Payment.......... 51 Section 6.08. Collection Suit by Trustee............................. 52 Section 6.09. Trustee May File Proofs of Claim....................... 52 Section 6.10. Priorities............................................. 52 Section 6.11. Undertaking for Costs.................................. 53 ARTICLE VII TRUSTEE Section 7.01. Duties of Trustee...................................... 53 Section 7.02. Rights of Trustee...................................... 54 Section 7.03. Individual Rights of Trustee........................... 55 Section 7.04. Trustee's Disclaimer................................... 55 Section 7.05. Notice of Defaults..................................... 55 Section 7.06. Reports by Trustee to Holders of the Notes............. 56 Section 7.07. Compensation and Indemnity............................. 56 Section 7.08. Replacement of Trustee................................. 57 Section 7.09. Successor Trustee by Merger, etc....................... 57 Section 7.10. Eligibility; Disqualification.......................... 58 Section 7.11. Preferential Collection of Claims Against Company................................................ 58 ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance............................................. 58 Section 8.02. Legal Defeasance and Discharge......................... 58 Section 8.03. Covenant Defeasance.................................... 59 Section 8.04. Conditions to Legal or Covenant Defeasance............. 59 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions....... 60 Section 8.06. Repayment to Company................................... 61 Section 8.07. Reinstatement.......................................... 61
ii 106 Section 8.08. Subordination.......................................... 62 ARTICLE IX AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes.................... 62 Section 9.02. With Consent of Holders of Notes....................... 62 Section 9.03. Compliance with Trust Indenture Act.................... 64 Section 9.04. Revocation and Effect of Consents...................... 64 Section 9.05. Notation on or Exchange of Notes....................... 64 Section 9.06. Trustee to Sign Amendments, etc........................ 64 Section 9.07. Subordination.......................................... 65 ARTICLE X SUBORDINATION Section 10.01. Agreement to Subordinate............................... 66 Section 10.02. Liquidation; Dissolution; Bankruptcy................... 66 Section 10.03. Default on Senior Debt................................. 66 Section 10.04. Acceleration of Notes.................................. 67 Section 10.05. When Distribution Must Be Paid Over.................... 67 Section 10.06. Notice by Company...................................... 68 Section 10.07. Subrogation............................................ 68 Section 10.09. Subordination May Not Be Impaired by Acts of Omissions of the Company............................... 69 Section 10.10. Distribution or Notice to Representative............... 69 Section 10.11. Rights of Trustee and Paying Agent..................... 70 Section 10.12. Authorization to Effect Subordination.................. 70 Section 10.13. Amendments............................................. 70 ARTICLE XI GUARANTEES Section 11.01. Unconditional Guarantee................................ 70 Section 11.02. Subordination of Guarantee............................. 71 Section 11.03. Severability........................................... 72 Section 11.04. Release of a Guarantor................................. 72 Section 11.05. Limitation of Guarantor's Liability.................... 72 Section 11.06. Guarantors May Consolidate, etc., on Certain Terms.................................................. 72 Section 11.07. Contribution........................................... 73 Section 11.08. Waiver of Subrogation.................................. 73 Section 11.09. Execution of Guarantee................................. 73 Section 11.10. Additional Subsidiary Guarantees....................... 74 ARTICLE XII SUBORDINATION OF GUARANTEES Section 12.01. Agreement to Subordinate............................... 74 Section 12.02. Liquidation; Dissolution; Bankruptcy................... 75 Section 12.03. Default on Senior Debt................................. 75 Section 12.04. Acceleration of Notes.................................. 76 Section 12.05. When Distribution Must Be Paid Over.................... 76 Section 12.06. Notice by Guarantors................................... 76 Section 12.07. Subrogation............................................ 77 Section 12.09. Subordination Rights Not Impaired by Acts or Omissions of the Guarantors ........................... 77 Section 12.10. Distribution or Notice to Representative............... 78 Section 12.11. Rights of Trustee and Paying Agent..................... 78
iii 107 Section 12.12. Authorization to Effect Subordination.................. 78 Section 12.13. Amendments............................................. 79 ARTICLE XIII MISCELLANEOUS Section 13.01. Trust Indenture Act Controls........................... 79 Section 13.02. Notices................................................ 79 Section 13.03. Communication by Holders of Notes with Other Holders of Notes....................................... 80 Section 13.04. Certificate and Opinion as to Conditions Precedent.............................................. 80 Section 13.05. Statements Required in Certificate or Opinion.......... 80 Section 13.06. Rules by Trustee and Agents............................ 81 Section 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders............................. 81 Section 13.08. Governing Law.......................................... 81 Section 13.09. No Adverse Interpretation of Other Agreements.......... 81 Section 13.10. Successors and Assigns................................. 81 Section 13.11. Severability........................................... 81 Section 13.12. Counterpart Originals.................................. 82 Section 13.13. Table of Contents, Headings, etc....................... 82 EXHIBITS Exhibit A FORM OF NOTE Exhibit B CERTIFICATE OF TRANSFEROR
iv EX-4.3 3 EXHIBIT 4.3 1 EXHIBIT 4.3 ================================================================================ CREDIT AGREEMENT among ALLIANCE GAMING CORPORATION, BALLY WULFF VERTRIEBS GMBH, BALLY WULFF AUTOMATEN GMBH, VARIOUS LENDERS, and CREDIT SUISSE FIRST BOSTON, as ADMINISTRATIVE AGENT ---------------------------------- Dated as of August 8, 1997 ---------------------------------- ================================================================================ 2 TABLE OF CONTENTS
Page SECTION 1. Amount and Terms of Credit................................................................ 1 1.01 The Commitments........................................................................... 1 1.02 Minimum Amount of Each Borrowing.......................................................... 11 1.03 Notice of Borrowing....................................................................... 11 1.04 Disbursement of Funds..................................................................... 12 1.05 Notes..................................................................................... 13 1.06 Conversions............................................................................... 18 1.07 Pro Rata Borrowings....................................................................... 19 1.08 Interest.................................................................................. 19 1.09 Interest Periods.......................................................................... 21 1.10 Increased Costs, Illegality, etc.......................................................... 22 1.11 Compensation.............................................................................. 26 1.12 Lending Offices; Changes Thereto.......................................................... 26 1.13 Replacement of Lenders.................................................................... 27 SECTION 2. Letters of Credit......................................................................... 29 2.01 Letters of Credit......................................................................... 29 2.02 Maximum Letter of Credit Outstandings; Final Maturities............................................................................. 31 2.03 Letter of Credit Requests; Notices of Issuance; Minimum Stated Amount.................................................................. 32 2.04 Letter of Credit Participations........................................................... 33 2.05 Agreement to Repay Letter of Credit Drawings.............................................. 36 2.06 Increased Costs........................................................................... 37 SECTION 3. Commitment Commission; Fees; Reductions of Commitment............................................................................. 38 3.01 Fees...................................................................................... 38 3.02 Voluntary Termination of Unutilized Commitments........................................... 39 3.03 Mandatory Reduction of Commitments........................................................ 40 SECTION 4. Prepayments; Payments; Taxes.............................................................. 43 4.01 Voluntary Prepayments..................................................................... 43 4.02 Mandatory Repayments and Commitment Reductions............................................ 44 4.03 Method and Place of Payment............................................................... 55
(i) 3
Page 4.04 Net Payments.............................................................................. 56 4.05 Waivable Repayments....................................................................... 59 SECTION 5A. Conditions Precedent to Initial Credit Events............................................. 61 5A.01 Execution of Agreement; Notes............................................................. 61 5A.02 Opinions of Counsel....................................................................... 61 5A.03 Corporate Documents; Proceedings; etc..................................................... 62 5A.04 Fees, etc................................................................................. 62 5A.05 Issuance of New Senior Subordinated Notes................................................. 62 5A.06 Existing Senior Secured Notes Tender Offer/Consent Solicitation; etc...................................................................... 63 5A.07 Notice of Existing PIK Preferred Stock Redemption......................................... 63 5A.08 Indebtedness to be Refinanced............................................................. 64 5A.09 Outstanding Indebtedness and Preferred Stock.............................................. 65 5A.10 Adverse Change, etc....................................................................... 65 5A.11 Litigation................................................................................ 65 5A.12 Subsidiary Guaranties..................................................................... 66 5A.13 U.S. Pledge Agreement..................................................................... 66 5A.14 U.S. Security Agreement................................................................... 66 5A.15 German Security Documents................................................................. 67 5A.16 Mortgages; Title Insurance; Survey........................................................ 68 5A.17 Pro Forma Balance Sheet................................................................... 69 5A.18 Borrowing Base Certificates............................................................... 69 5A.19 Solvency Certificate; Environmental Analyses; Insurance Analyses............................................................................... 69 SECTION 5B. Conditions Precedent to Initial Delayed Draw Term Loans................................... 70 5B.01 Occurrence of Initial Borrowing Date...................................................... 70 5B.02 Purchase of Rainbow Royalty Payments; Rainbow Mortgage Debt.......................................................................... 70 5B.03 Execution of Guaranty and Security Documents by RCVP...................................... 70 5B.04 Opinions of Counsel....................................................................... 71 SECTION 6. Conditions Precedent to All Credit Events................................................. 71 6.01 No Default; Representations and Warranties................................................ 71 6.02 Notice of Borrowing; Letter of Credit Request............................................. 71 6.03 Regulations U and G..................................................................................... 71 SECTION 7. Representations, Warranties and Agreements................................................ 72
(ii) 4
Page 7.01 Corporate and Other Status................................................................ 72 7.02 Corporate and Other Power and Authority................................................... 73 7.03 No Violation.............................................................................. 73 7.04 Governmental Approvals.................................................................... 73 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc.......................................................... 73 7.06 Litigation................................................................................ 75 7.07 True and Complete Disclosure.............................................................. 75 7.08 Use of Proceeds; Margin Regulations....................................................... 76 7.09 Tax Returns and Payments.................................................................. 76 7.10 Compliance with ERISA..................................................................... 77 7.11 The Security Documents.................................................................... 79 7.12 Representations and Warranties in Other Documents......................................... 81 7.13 Properties................................................................................ 81 7.14 Capitalization............................................................................ 81 7.15 Subsidiaries.............................................................................. 81 7.16 Compliance with Statutes, etc............................................................. 82 7.17 Investment Company Act.................................................................... 82 7.18 Public Utility Holding Company Act........................................................ 82 7.19 Environmental Matters..................................................................... 82 7.20 Labor Relations........................................................................... 83 7.21 Patents, Licenses, Franchises and Formulas................................................ 84 7.22 Indebtedness.............................................................................. 84 7.23 Transaction............................................................................... 84 7.24 Existing Senior Secured Notes............................................................. 84 7.25 Specified Inactive Subsidiaries and Specified Non- Material Subsidiaries.................................................................. 85 7.26 Existing Senior Secured Notes Collateral.................................................. 85 7.27 Margin Stock.............................................................................. 85 SECTION 8. Affirmative Covenants..................................................................... 85 8.01 Information Covenants..................................................................... 86 8.02 Books, Records and Inspections............................................................ 91 8.03 Maintenance of Property; Insurance........................................................ 91 8.04 Corporate Franchises...................................................................... 92 8.05 Compliance with Statutes, etc............................................................. 92 8.06 Compliance with Environmental Laws........................................................ 93 8.07 ERISA..................................................................................... 94 8.08 End of Fiscal Years; Fiscal Quarters...................................................... 95
(iii) 5
Page 8.09 Obtaining Approvals....................................................................... 95 8.10 Payment of Taxes.......................................................................... 96 8.11 Additional Security; Further Assurances; etc.............................................. 96 8.12 Foreign Subsidiaries Security............................................................. 98 8.13 Permitted Acquisitions.................................................................... 99 8.14 Actions With Respect to Certain Subsidiaries..............................................100 8.15 Margin Stock..............................................................................102 8.16 Existing Senior Secured Notes Collateral..................................................103 8.17 Covenant Defeasance of Existing Senior Secured Notes......................................103 SECTION 9. Negative Covenants........................................................................104 9.01 Liens.....................................................................................104 9.02 Consolidation, Merger, Purchase or Sale of Assets, etc....................................107 9.03 Restricted Payments.......................................................................111 9.04 Indebtedness..............................................................................112 9.05 Advances, Investments and Loans...........................................................114 9.06 Transactions with Affiliates..............................................................119 9.07 Capital Expenditures......................................................................120 9.08 Consolidated Fixed Charge Coverage Ratio..................................................121 9.09 Consolidated Interest Coverage Ratio......................................................122 9.10 Maximum Leverage Ratio....................................................................122 9.11 Minimum Consolidated EBITDA...............................................................123 9.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc........................................................................123 9.13 Limitation on Certain Restrictions on Subsidiaries........................................124 9.14 Limitation on Issuance of Capital Stock...................................................124 9.15 Business..................................................................................125 9.16 Limitation on Creation of Subsidiaries....................................................125 SECTION 10. Events of Default.........................................................................126 10.01 Payments..................................................................................126 10.02 Representations, etc......................................................................126 10.03 Covenants.................................................................................126 10.04 Default Under Other Agreements............................................................127 10.05 Bankruptcy, etc...........................................................................127 10.06 ERISA.....................................................................................128 10.07 Security Documents........................................................................129
(iv) 6
Page 10.08 Guaranties................................................................................129 10.09 Judgments.................................................................................129 10.10 Change of Control.........................................................................129 10.11 Gaming Licenses...........................................................................129 10.12 Bailee Agreement..........................................................................129 10.13 Subsidiary Stock Restrictions.............................................................130 SECTION 11. Definitions and Accounting Terms..........................................................131 11.01 Defined Terms.............................................................................131 SECTION 12. The Administrative Agent..................................................................187 12.01 Appointment...............................................................................187 12.02 Nature of Duties..........................................................................187 12.03 Lack of Reliance on the Administrative Agent..............................................188 12.04 Certain Rights of the Administrative Agent................................................188 12.05 Reliance..................................................................................188 12.06 Indemnification...........................................................................189 12.07 The Administrative Agent in its Individual Capacity.......................................189 12.08 Holders...................................................................................189 12.09 Resignation by the Administrative Agent...................................................189 SECTION 13. Miscellaneous.............................................................................190 13.01 Payment of Expenses, etc..................................................................190 13.02 Right of Setoff...........................................................................192 13.03 Notices...................................................................................192 13.04 Benefit of Agreement; Assignments; Participations.........................................192 13.05 No Waiver; Remedies Cumulative............................................................197 13.06 Payments Pro Rata.........................................................................197 13.07 Calculations; Computations................................................................198 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL....................199 13.09 Counterparts..............................................................................200 13.10 Effectiveness.............................................................................200 13.11 Headings Descriptive......................................................................201 13.12 Amendment or Waiver; etc..................................................................201 13.13 Survival..................................................................................202 13.14 Domicile of Loans.........................................................................203 13.15 Register..................................................................................203
(v) 7
Page 13.16 Judgment Currency.........................................................................204 13.17 Confidentiality...........................................................................204 13.18 Applicable Gaming Laws; Requisite Gaming Approvals........................................205 13.19 Gaming Authorities........................................................................208 13.20 Nevada Gaming Collateral..................................................................208 13.21 Limitation on Additional Amounts, etc.....................................................208 13.22 Power of Attorney.........................................................................209 13.23 Post Closing Actions......................................................................209 13.24 Specific Provisions Regarding German Borrowers............................................211 13.25 Specific Provisions Regarding BGI Chattel Paper...........................................211 13.26 Special Provisions Regarding United Coin Machine Notes....................................212 13.27 Override Provisions Regarding Margin Stock................................................212 SECTION 14. Parent Guaranty...........................................................................212 14.01 The Parent Guaranty.......................................................................212 14.02 Bankruptcy................................................................................213 14.03 Nature of Liability.......................................................................213 14.04 Independent Obligation....................................................................214 14.05 Authorization.............................................................................214 14.06 Reliance..................................................................................215 14.07 Subordination.............................................................................215 14.08 Waiver....................................................................................216 14.09 Limitation on Enforcement.................................................................217
SCHEDULE I-A Commitments SCHEDULE I-B German Revolving Loan Sub-Commitments SCHEDULE II Lender Addresses and Applicable Lending Offices SCHEDULE III Real Property SCHEDULE IV Subsidiaries SCHEDULE V Existing Indebtedness SCHEDULE VI Insurance SCHEDULE VII Existing Liens SCHEDULE VIII Existing Investments SCHEDULE IX ERISA Matters SCHEDULE X Approvals SCHEDULE XI Exceptions to Capitalization Representation SCHEDULE XIII Existing Senior Secured Notes Collateral
(vi) 8 EXHIBIT A Notice of Borrowing EXHIBIT B-1 U.S. Borrower Tranche A Term Note EXHIBIT B-2 German Borrower Tranche A Term Note EXHIBIT B-3 Delayed Draw Term Note EXHIBIT B-4 Tranche B Term Note EXHIBIT B-5 Tranche C Term Note EXHIBIT B-6 Dollar Revolving Note EXHIBIT B-7 Deutsche Mark Revolving Note EXHIBIT B-8 Swingline Note EXHIBIT C Letter of Credit Request EXHIBIT D Section 4.04(b)(ii) Certificate EXHIBIT E-1 Opinion of Milbank, Tweed, Hadley & McCloy, special U.S. counsel to the Credit Parties EXHIBIT E-2 Opinion of Bruckhaus Westrick Stegmann, special German counsel to the Credit Parties EXHIBIT E-3 Opinion of Schreck Morris, special Nevada counsel to the Credit Parties EXHIBIT E-4 Opinion of Watkins Ludlam & Stennis, P.A., special Mississippi counsel to the Credit Parties EXHIBIT E-5 Opinion of Hoffman Sutterfield Ensenat, special Louisiana counsel to the Credit Parties EXHIBIT F Officers' Certificate EXHIBIT G Bailee Agreement EXHIBIT H-1 U.S. Subsidiaries Guaranty EXHIBIT H-2 German Subsidiaries Guaranty EXHIBIT I U.S. Pledge Agreement EXHIBIT J U.S. Security Agreement EXHIBIT K German Security Agreement EXHIBIT L German Pledge Agreement EXHIBIT M Solvency Certificate EXHIBIT N-1 U.S. Borrower Borrowing Base Certificate EXHIBIT N-2 German Borrowers Borrowing Base Certificate EXHIBIT O Intercompany Loan Subordination Provisions EXHIBIT P Assignment and Assumption Agreement
(vii) 9 CREDIT AGREEMENT, dated as of August 8, 1997, among ALLIANCE GAMING CORPORATION, a Nevada corporation (the "U.S. Borrower"), BALLY WULFF VERTRIEBS GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("Bally Wulff Vertriebs"), BALLY WULFF AUTOMATEN GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("Bally Wulff Automaten" and, together with Bally Wulff Vertriebs, the "German Borrowers," and each a "German Borrower" and the German Borrowers, together with the U.S. Borrower, the "Borrowers," and each a "Borrower"), the LENDERS party hereto from time to time and CREDIT SUISSE FIRST BOSTON, as Administrative Agent (all capitalized terms used herein and defined in Section 11 are used herein as therein defined). W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the U.S. Borrower and the German Borrowers the respective credit facilities provided for herein; NOW, THEREFORE, IT IS AGREED: SECTION 1. Amount and Terms of Credit. 1.01 The Commitments. (a) Subject to and upon the terms and conditions set forth herein, each Lender with a U.S. Borrower Tranche A Term Loan Commitment severally agrees to make, on the Initial Borrowing Date and on the PIK Preferred Drawdown Date, a term loan or term loans (each a "U.S. Borrower Tranche A Term Loan" and, collectively, the "U.S. Borrower Tranche A Term Loans") to the U.S. Borrower, which U.S. Borrower Tranche A Term Loans (i) shall be made and maintained in Dollars, (ii) shall, in the case of U.S. Borrower Tranche A Term Loans made on the Initial Borrowing Date, be made by each Lender with a U.S. Borrower Tranche A Term Loan Commitment in that principal amount as is equal to the U.S. Borrower Tranche A Term Loan Commitment of such Lender on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(b)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to 3.03(b)(iii)) less such Lender's A Share of the A PIK Preferred Holdback Amount as in effect on the Initial Borrowing Date, (iii) shall, in the case of the U.S. Borrower Tranche A Term Loans made on the PIK Preferred Drawdown Date, be made by each Lender with a U.S. Borrower Tranche A Term Loan Commitment in an amount equal to the U.S. Borrower Tranche A Term Loan Commitment of such Lender as in effect on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(b)(ii) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(b)(i) and (iii)) and 10 (iv) shall, at the option of the U.S. Borrower, be incurred and/or maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all U.S. Borrower Tranche A Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) except as expressly provided in the immediately succeeding sentence, no more than three Borrowings of U.S. Borrower Tranche A Term Loans maintained as Eurodollar Loans may be incurred or maintained prior to the earlier of (1) the 90th day after the Initial Borrowing Date or, if an Interest Period relating to any then outstanding U.S. Borrower Tranche A Term Loans beginning before such 90th day extends thereafter, the last day of such Interest Period, and (2) that date (the "Syndication Date") upon which the Administrative Agent shall have determined in its sole discretion (and shall have notified the U.S. Borrower) that the primary syndication (and resultant addition of institutions as Lenders pursuant to Section 13.04(b)) has been completed (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and the first of which Borrowings may only be made on a single date on or after the Initial Borrowing Date and on or prior to the sixth Business Day following the Initial Borrowing Date, and the second and third of which Borrowings may only be made on the last day of the immediately preceding Interest Period). Notwithstanding the foregoing, to the extent that U.S. Borrower Tranche A Term Loans are incurred after the Initial Borrowing Date and at a time when the proviso to clause (iv) of the immediately preceding sentence is applicable, then if the respective U.S. Borrower Tranche A Term Loan is incurred during an Interest Period referenced in the proviso to clause (iv) of the immediately preceding sentence, and to the extent that one or more Interest Periods of less than one month's duration are then available to all of the Lenders (which are making such U.S. Borrower Tranche A Term Loan) which end on or prior to the last day of the Interest Period then in effect pursuant to the proviso to clause (iv) of the immediately preceding sentence, such shorter interest period shall be permitted to be selected, in each case so long as on the last day of each Interest Period referenced in the proviso to clause (iv) of the immediately preceding sentence no interest periods remain in effect pursuant to this sentence which will end after such last day. Once repaid, U.S. Borrower Tranche A Term Loans incurred hereunder may not be reborrowed. (b) Subject to and upon the terms and conditions set forth herein, each Lender with a German Borrower Tranche A Term Loan Commitment severally agrees to make, on the Initial Borrowing Date, a term loan or term loans (each a "German Borrower Tranche A Term Loan" and, collectively, the "German Borrower Tranche A Term Loans") to the German Borrowers, which German Borrower Tranche A Term Loans (i) shall be made and maintained in Deutsche Marks, (ii) shall be made by each such Lender in that initial aggregate principal amount as is equal to the German Borrower Tranche A Term Loan Commitment of such Lender on the Initial Borrowing Date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(c)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(c)(ii)) and (iii) shall, at the option of the German Borrowers, be incurred and/or -2- 11 maintained as, and/or converted into, one or more Borrowings of Deutsche Mark Loans, provided that no more than three Borrowings of German Borrower Tranche A Term Loans may be incurred or maintained prior to the earlier of (1) the 90th day after the Initial Borrowing Date or, if an Interest Period relating to any then outstanding German Borrower Tranche A Term Loans beginning before such 90th day extends thereafter, the last day of such Interest Period, and (2) the Syndication Date (each of which Borrowings may only have an Interest Period of one month, and the first of which Borrowings must begin on or after the Initial Borrowing Date and on or prior to the sixth Business Day following the Initial Borrowing Date, and which must be the first day of the first Interest Period, if any, selected pursuant to the proviso to clause (iv) of the first sentence of Section 1.01(a), and the second and third of which Borrowings may only be made on the last day of the immediately preceding Interest Period). The proceeds of each German Borrower Tranche A Term Loan shall be made available to the German Borrowers as directed by them (with the proceeds to be used by the German Borrowers as agreed by them), it being understood and agreed that the German Borrowers shall be jointly and severally obligated with respect to each German Borrower Tranche A Term Loan for the repayment thereof and all amounts owing with respect thereto. Once repaid, German Borrower Tranche A Term Loans incurred hereunder may not be reborrowed. (c) Subject to and upon the terms and conditions set forth herein, each Lender with a Delayed Draw Term Loan Commitment severally agrees to make, on any Delayed Draw Term Loan Borrowing Date occurring on or prior to the Delayed Draw Term Loan Commitment Termination Date, a term loan or term loans (each a "Delayed Draw Term Loan" and, collectively, the "Delayed Draw Term Loans") to the U.S. Borrower, which Delayed Draw Term Loans (i) shall be made and maintained in Dollars, (ii) shall, in the case of the Delayed Draw Term Loans being made on any Delayed Draw Term Loan Borrowing Date, be made by each Lender with a Delayed Draw Term Loan Commitment in such principal amount (as requested by the U.S. Borrower) as does not exceed the Delayed Draw Term Loan Commitment of such Lender on such date (before giving effect to any reductions thereto on such date pursuant to Sections 3.03(d)(i) and (ii), but after giving effect to any reductions prior to such date pursuant to Sections 3.03(d)(i) and (ii) and giving effect to any reductions thereto on or prior to such date pursuant Section 3.03(d)(iii)) and (iii) shall, at the option of the U.S. Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Delayed Draw Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) except as expressly provided in the immediately succeeding sentence, no more than three Borrowings of Delayed Draw Term Loans maintained as Eurodollar Loans may be incurred or maintained prior to the earlier of (1) the 90th day after the Initial Borrowing Date or, if an Interest Period relating to any then outstanding Delayed Draw Term Loans beginning before such 90th day extends thereafter, the last day of such Interest Period, and (2) the Syndication Date (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and each of which Interest Periods -3- 12 must begin and end on the same day as an Interest Period selected pursuant to clause (B) of the proviso to clause (iv) of the first sentence of Section 1.01(a)). Notwithstanding the foregoing, to the extent that Delayed Draw Term Loans are incurred after the Initial Borrowing Date and at a time when the proviso to clause (iv) of the first sentence of Section 1.01(a) is applicable, then if the respective Delayed Draw Term Loan is incurred during an Interest Period referenced in the proviso to clause (iv) the first sentence of Section 1.01(a), and to the extent that one or more Interest Periods of less than one month's duration are then available to all of the Lenders (which are making such Delayed Draw Term Loan) which end on or prior to the last day of the Interest Period then in effect pursuant to the proviso to clause (iv) of the first sentence of Section 1.01(a), such shorter interest period shall be permitted to be selected, in each case so long as on the last day of each Interest Period referenced in the proviso to clause (iv) of the first sentence of Section 1.01(a) no interest periods remain in effect pursuant to this sentence which will end after such last day. Once repaid, Delayed Draw Term Loans incurred hereunder may not be reborrowed. (d) Subject to and upon the terms and conditions set forth herein, each Lender with a Tranche B Term Loan Commitment severally agrees to make, on the Initial Borrowing Date and on the PIK Preferred Drawdown Date, a term loan or term loans (each a "Tranche B Term Loan" and, collectively, the "Tranche B Term Loans") to the U.S. Borrower, which Tranche B Term Loans (i) shall be made and maintained in Dollars, (ii) shall, in the case of Tranche B Term Loans made on the Initial Borrowing Date, be made by each Lender with a Tranche B Term Loan Commitment in that principal amount as is equal to the Tranche B Term Loan Commitment of such Lender on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(e)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to 3.03(e)(iii)) less such Lender's B Share of the B PIK Preferred Holdback Amount as in effect on the Initial Borrowing Date, (iii) shall, in the case of the Tranche B Term Loans made on the PIK Preferred Drawdown Date, be made by each Lender with a Tranche B Term Loan Commitment in an amount equal to the Tranche B Term Loan Commitment of such Lender as in effect on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(e)(ii) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(e)(iii)) and (iv) shall, at the option of the U.S. Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Tranche B Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) except as expressly provided in the immediately succeeding sentence, no more than three Borrowings of Tranche B Term Loans maintained as Eurodollar Loans may be incurred or maintained prior to the earlier of (1) the 90th day after the Initial Borrowing Date or, if an Interest Period relating to any then outstanding Tranche B Term Loans beginning before such 90th day extends thereafter, the last day of such Interest Period, and (2) the Syndication Date (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and each of which -4- 13 Interest Periods must begin and end on the same day as an Interest Period selected pursuant to clause (B) of the proviso to clause (iv) of the first sentence of Section 1.01(a)). Notwithstanding the foregoing, to the extent that Tranche B Term Loans are incurred after the Initial Borrowing Date and at a time when the proviso to clause (iv) of the first sentence of Section 1.01(a) is applicable, then if the respective Tranche B Term Loan is incurred during an Interest Period referenced in the proviso to clause (iv) the first sentence of Section 1.01(a), and to the extent that one or more Interest Periods of less than one month's duration are then available to all of the Lenders (which are making such Tranche B Term Loan) which end on or prior to the last day of the Interest Period then in effect pursuant to the proviso to clause (iv) of the first sentence of Section 1.01(a), such shorter interest period shall be permitted to be selected, in each case so long as on the last day of each Interest Period referenced in the proviso to clause (iv) of the first sentence of Section 1.01(a) no interest periods remain in effect pursuant to this sentence which will end after such last day. Once repaid, Tranche B Term Loans incurred hereunder may not be reborrowed. (e) Subject to and upon the terms and conditions set forth herein, each Lender with a Tranche C Term Loan Commitment severally agrees to make, on the Initial Borrowing Date and on the PIK Preferred Drawdown Date, a term loan or term loans (each a "Tranche C Term Loan" and, collectively, the "Tranche C Term Loans") to the U.S. Borrower, which Tranche C Term Loans (i) shall be made and maintained in Dollars, (ii) shall, in the case of Tranche C Term Loans made on the Initial Borrowing Date, be made by each Lender with a Tranche C Term Loan Commitment in that principal amount as is equal to the Tranche C Term Loan Commitment of such Lender on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(f)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to 3.03(f)(iii)) less such Lender's C Share of the C PIK Preferred Holdback Amount as in effect on the Initial Borrowing Date, (iii) shall, in the case of the Tranche C Term Loans made on the PIK Preferred Drawdown Date, be made by each Lender with a Tranche C Term Loan Commitment in an amount equal to the Tranche C Term Loan Commitment of such Lender as in effect on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(f)(ii) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(f)(iii)) and (iv) shall, at the option of the U.S. Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Tranche C Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) except as expressly provided in the immediately succeeding sentence, no more than three Borrowings of Tranche C Term Loans maintained as Eurodollar Loans may be incurred prior to the earlier of (1) the 90th day after the Initial Borrowing Date or, if an Interest Period relating to any then outstanding Tranche C Term Loans beginning before such 90th day extends thereafter, the last day of such Interest Period, and (2) the Syndication Date (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and each of which Interest Periods must begin -5- 14 and end on the same day as an Interest Period selected pursuant to clause (B) of the proviso to clause (iv) of the first sentence of Section 1.01(a)). Notwithstanding the foregoing, to the extent that Tranche C Term Loans are incurred after the Initial Borrowing Date and at a time when the proviso to clause (iv) of the first sentence of Section 1.01(a) is applicable, then if the respective Tranche C Term Loan is incurred during an Interest Period referenced in the proviso to clause (iv) the first sentence of Section 1.01(a), and to the extent that one or more Interest Periods of less than one month's duration are then available to all of the Lenders (which are making such Tranche C Term Loan) which end on or prior to the last day of the Interest Period then in effect pursuant to the proviso to clause (iv) of the first sentence of Section 1.01(a), such shorter interest period shall be permitted to be selected, in each case so long as on the last day of each Interest Period referenced in the proviso to clause (iv) of the first sentence of Section 1.01(a) no interest periods remain in effect pursuant to this sentence which will end after such last day. Once repaid, Tranche C Term Loans incurred hereunder may not be reborrowed. (f) Subject to and upon the terms and conditions set forth herein, each Lender with a Revolving Loan Commitment severally agrees, at any time and from time to time on and after the Initial Borrowing Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or revolving loans to the U.S. Borrower (individually), and each German Revolving Lender severally agrees, at any time and from time to time on and after the Initial Borrowing Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or revolving loans to the German Borrowers (on a joint and several basis) (with the revolving loans made to the U.S. Borrower (individually) or the German Borrowers (on a joint and several basis) pursuant to this Section 1.01(f) being each called a "Revolving Loan" and, collectively, the "Revolving Loans"), which Revolving Loans (i) shall, in the case of Revolving Loans made to the U.S. Borrower, be made and maintained in Dollars (each a "Dollar Revolving Loan" and, collectively, the "Dollar Revolving Loans"), which Dollar Revolving Loans shall, at the option of the U.S. Borrower, be incurred and maintained as, and/or -6- 15 converted into, Base Rate Loans and Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Dollar Revolving Loans comprising the same Borrowing shall at all times be of the same Type and (B) except as expressly provided in the immediately succeeding sentence, no more than three Borrowings of Revolving Loans maintained as Eurodollar Loans may be incurred or maintained prior to the earlier of (1) the 90th day after the Initial Borrowing Date and (2) the Syndication Date (each of which Borrowings of Eurodollar Loans may only have an Interest Period of one month, and each of which Interest Periods must begin and end on the same day as an Interest Period selected pursuant to clause (B) of the proviso to clause (iv) of the first sentence of Section 1.01(a)), (ii) shall, in the case of Revolving Loans made to the German Borrowers, be made and maintained in Deutsche Marks (each a "Deutsche Mark Revolving Loan" and, collectively, the "Deutsche Mark Revolving Loans"), which Deutsche Mark Revolving Loans shall, at the option of the German Borrowers, be incurred and/or maintained as, and/or converted into, one or more Borrowings of Deutsche Mark Revolving Loans, provided that no more than three Borrowings of Deutsche Mark Revolving Loans may be incurred or maintained prior to the earlier of (1) the 90th day after the Initial Borrowing Date or, if an Interest Period relating to any then outstanding Loans beginning before such 90th day extends thereafter, the last day of such Interest Period and (2) the Syndication Date (each of which Borrowings may only have an Interest Period of one month, and each of which Interest Periods must begin and end on the same day as an Interest Period selected pursuant to clause (B) of the proviso to clause (iv) of the first sentence of Section 1.01(a)), (iii) may be repaid and reborrowed in accordance with the provisions hereof, (iv) shall not exceed for any Lender at the time of the making of any such Revolving Loans, and after giving effect thereto, that aggregate principal amount (for this purpose, using the Dollar Equivalent of each outstanding Deutsche Mark Revolving Loan of such Lender or any Affiliate thereof acting as a German Revolving Lender) which, when added to the sum of (I) the aggregate principal amount of all other Revolving Loans then outstanding from such Lender (for this purpose, using the Dollar Equivalent of each Deutsche Mark Revolving Loan then outstanding from such Lender or any Affiliate thereof acting as a German Revolving Lender) and (II) the product of (A) such Lender's RL Percentage and (B) the sum of (x) the aggregate amount of all U.S. Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time and (y) the aggregate principal -7- 16 amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding and (III) the product of (A) such Lender's (or its respective Affiliate's) German RL Percentage and (B) the aggregate amount of all German Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, equals the Revolving Loan Commitment of such Lender at such time, (v) shall not, in the case of Deutsche Mark Revolving Loans, exceed for any German Revolving Lender at the time of the making of any such Deutsche Mark Revolving Loans, and after giving effect thereto, that aggregate principal amount (for this purpose, using the Dollar Equivalent thereof) which, when added to the sum of (I) the aggregate principal amount of all other Deutsche Mark Revolving Loans then outstanding from such German Revolving Lender (for this purpose, using the Dollar Equivalent thereof) and (II) the product of (A) such German Revolving Lender's German RL Percentage and (B) the aggregate amount of all German Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective Deutsche Mark Revolving Loans) at such time, equals the German Revolving Loan Sub-Commitment of such German Revolving Lender at such time, (vi) shall not, in the case of Dollar Revolving Loans, at any time exceed in aggregate outstanding principal amount, when added to (x) the aggregate amount of all U.S. Letter of Credit Outstandings (exclusive of any Unpaid Drawings with respect thereto which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Dollar Revolving Loans) and (y) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of Dollar Revolving Loans), the U.S. Borrowing Base at such time, (vii) shall not, in the case of Deutsche Mark Revolving Loans (expressed in Deutsche Marks), at any time exceed in aggregate outstanding principal amount, when added to the aggregate amount of all German Letter of Credit Outstandings (expressed in Deutsche Marks (and taking the Deutsche Mark Equivalent of the Stated Amount of any German Letter of Credit denominated in a currency other than Deutsche Marks)) (exclusive of any Unpaid Drawings with respect thereto which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective Deutsche Mark Revolving Loans), the German Borrowing Base at such time and (viii) shall not, in the case of all Deutsche Mark Revolving Loans, at any time exceed in aggregate outstanding principal amount (for this purpose, using the Dollar Equivalent of each outstanding Deutsche Mark Revolving Loan), when added to the aggregate amount of all German Letter of Credit Outstandings (exclusive of any Unpaid Drawings with respect thereto which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective Deutsche Mark Revolving Loans), the lesser of (x) the Total German Revolving Loan Sub-Commitment at such time and (y) $55,000,000. Notwithstanding the foregoing, to the extent that Dollar Revolving Loans are incurred after the Initial Borrowing Date and at a time when the proviso to clause (iv) of the first sentence of Section 1.01(a) is applicable, then if the respective Dollar Revolving Loan is incurred during an Interest Period referenced in the proviso to clause (iv) the first sentence of Section 1.01(a), and to the extent that one or more Interest Periods of less than one month's duration are then available to all of the Lenders (which are making such Dollar Revolving Loan) which end on or prior to the last day of the Interest Period then in effect pursuant to the proviso to clause (iv) of the first sentence of Section 1.01(a), such shorter interest period shall be permitted to be selected, in each case so long as on the last day of each Interest Period referenced in the proviso to clause (iv) of the first sentence of Section 1.01(a) no interest periods remain in effect pursuant to this sentence which will end after such last day. The proceeds of each Deutsche Mark Revolving Loan shall be made available to the German Borrowers as directed by them (with the proceeds to be used by the German Borrowers as agreed by them), it being understood and agreed that the German Borrowers shall be jointly and severally obligated with respect to each Deutsche Mark Revolving Loan for the repayment thereof and all amounts owing with respect thereto. The German Borrowers shall have no liability with respect to any Dollar Revolving Loans, which shall be extended to, and shall constitute obligations of, the U.S. Borrower. (g) Subject to and upon the terms and conditions set forth herein, CSFB in its individual capacity agrees to make, from time to time after the Initial Borrowing Date and prior to the Swingline Expiry Date, a revolving loan or revolving loans (each a "Swingline Loan" and, collectively, the "Swingline Loans") to the U.S. Borrower, which Swingline Loans (i) shall be made and maintained in Dollars, (ii) shall be made and maintained as Base Rate Loans, (iii) may be repaid and reborrowed in accordance with the -8- 17 provisions hereof, (iv) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans (for this purpose, using the Dollar Equivalent of each outstanding Deutsche Mark Revolving Loan) then outstanding and the Letter of Credit Outstandings at such time, an amount equal to the Total Revolving Loan Commitment at such time (after giving effect to any reductions to the Total Revolving Loan Commitment on such date), (v) shall not exceed in the aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Dollar Revolving Loans then outstanding and the U.S. Letter of Credit Outstandings at such time, an amount equal to the U.S. Borrowing Base at such time and (vi) shall not exceed in aggregate principal amount at any time outstanding, the Maximum Swingline Amount. CSFB shall not be obligated to make any Swingline Loans at a time when a Lender Default exists unless CSFB has entered into arrangements satisfactory to it to eliminate CSFB's risk with respect to the Defaulting Lender's or Lenders' participation in such Swingline Loans, including by cash collateralizing such Defaulting Lender's or Lenders' RL Percentage of the outstanding Swingline Loans. Notwithstanding anything to the contrary contained in this Section 1.01(g), CSFB shall not make any Swingline Loan after it has received written notice from the U.S. Borrower, any German Borrower or the Required Lenders stating that a Default or an Event of Default exists and is continuing until such time as CSFB shall have received written notice (i) of rescission of all such notices from the party or parties originally delivering such notice, (ii) of the waiver of such Default or Event of Default by the Required Lenders or (iii) that the Administrative Agent in good faith believes such Default or Event of Default has ceased to exist. (h) On any Business Day, CSFB may, in its sole discretion, give notice to the Lenders that its outstanding Swingline Loans shall be funded with a Borrowing of Dollar Revolving Loans (provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 10.05 or upon the exercise of any of the remedies provided in the last paragraph of Section 10), in which case a Borrowing of Dollar Revolving Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding Business Day by all Lenders with a Revolving Loan Commitment (without giving effect to any reductions thereto pursuant to the last paragraph of Section 10) pro rata based on each Lender's RL Percentage (determined on such date, but before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 10) and the proceeds thereof shall be applied directly to CSFB to repay CSFB for such outstanding Swingline Loans. All Dollar Revolving Loans made pursuant to each Mandatory Borrowing shall constitute obligations of the U.S. Borrower, and not of the German Borrowers. Each such Lender hereby irrevocably agrees to make Revolving Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by CSFB notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the minimum amount for Borrowings otherwise required -9- 18 hereunder, (ii) whether any conditions specified in Section 6 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) the date of such Mandatory Borrowing and (v) the amount of the Total Revolving Loan Commitment or the U.S. Borrowing Base at such time. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the U.S. Borrower), then each such Lender hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the U.S. Borrower on or after such date and prior to such purchase) from CSFB such participations in the outstanding Swingline Loans as shall be necessary to cause such Lenders to share in such Swingline Loans ratably based upon their respective RL Percentages (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 10), provided that (x) all interest payable on the Swingline Loans shall be for the account of CSFB until the date as of which the respective participation is required to be purchased and, to the extent attributable to the purchased participation, shall be payable to the participant from and after such date and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing Lender shall be required to pay CSFB interest on the principal amount of the participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the overnight Federal Funds Rate for the first three days and at the rate otherwise applicable to Revolving Loans maintained as Base Rate Loans hereunder for each day thereafter. 1.02 Minimum Amount of Each Borrowing. The aggregate principal amount of each Borrowing of Loans shall not be less than the respective Minimum Borrowing Amount for the respective Type and Tranche of Loans to be made or maintained pursuant to the respective Borrowing. More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than three (or ten in the case of Revolving Loans only) Borrowings of Euro Rate Loans of a single Tranche. 1.03 Notice of Borrowing. (a) Whenever the U.S. Borrower or the German Borrowers desire to incur Loans hereunder (excluding Borrowings (x) of Swingline Loans and (y) Revolving Loans incurred pursuant to a Mandatory Borrowing), it (or they) shall give the Administrative Agent at its Notice Office at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Base Rate Loan and at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Euro Rate Loan to be incurred hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 12:00 Noon (New York time) on such day. Each such written notice or written confirmation of telephonic notice (each a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be irrevocable and shall be given by the U.S. Borrower or the German Borrowers, as the case may be, in the form of Exhibit A, -10- 19 appropriately completed to specify (i) the name of such Borrower or Borrowers, (ii) the aggregate principal amount of the Loans to be incurred pursuant to such Borrowing (stated in the Applicable Currency), (iii) the date of such Borrowing (which shall be a Business Day), (iv) whether the Loans being incurred pursuant to such Borrowing shall constitute U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans, Delayed Draw Term Loans, Tranche B Term Loans, Tranche C Term Loans or Revolving Loans, (v) in the case of Dollar Loans, whether the Loans being incurred pursuant to such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans and (vi) in the case of Euro Rate Loans, the initial Interest Period to be applicable thereto. The Administrative Agent shall promptly give each Lender which is required to make Loans of the Tranche specified in the respective Notice of Borrowing, notice of such proposed Borrowing, of such Lender's proportionate share thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing. (b)(i) Whenever the U.S. Borrower desires to incur Swingline Loans hereunder, it shall give CSFB not later than 2:00 P.M. (New York time) on the date that a Swingline Loan is to be incurred, written notice or telephonic notice promptly confirmed in writing of each Swingline Loan to be incurred hereunder. Each such notice shall be irrevocable and specify in each case (A) the date of Borrowing (which shall be a Business Day) and (B) the aggregate principal amount of the Swingline Loans to be made pursuant to such Borrowing. (ii) Mandatory Borrowings shall be made upon the notice specified in Section 1.01(h), with the U.S. Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in Section 1.01(h). (c) Without in any way limiting the obligation of any Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Administrative Agent, CSFB (in the case of a Borrowing of Swingline Loans) or the Issuing Bank (in the case of issuances of Letters of Credit), as the case may be, may act without liability upon the basis of such telephonic notice, believed by the Administrative Agent, CSFB or the Issuing Bank, as the case may be, in good faith to be from an Authorized Telephone Officer of the U.S. Borrower (or, in the case of any Loan to the German Borrowers, such notice shall be given by an Authorized Telephone Officer of either the U.S. Borrower or either German Borrower) prior to receipt of written confirmation. In each such case, each Borrower hereby waives the right to dispute the Administrative Agent's, CSFB's or Issuing Bank's record of the terms of such telephonic notice. 1.04 Disbursement of Funds. Not later than 12:00 Noon (New York time or, in the case of any Deutsche Mark Loan to be made available in Frankfurt, 12:00 Noon -11- 20 Frankfurt time, if so requested by a German Borrower) on the date specified in each Notice of Borrowing (or (x) in the case of Swingline Loans, not later than 4:00 P.M. (New York time) on the date specified in Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not later than 12:00 Noon (New York time) on the date specified in Section 1.01(h)), each Lender with a Commitment of the respective Tranche will make available its pro rata portion (determined in accordance with Section 1.07) of each such Borrowing requested to be made on such date (or in the case of Swingline Loans, CSFB shall make available the full amount thereof) in the manner provided below. All such amounts will be made available in Dollars (in the case of Dollar Loans) or Deutsche Marks (in the case of Deutsche Mark Loans), as the case may be, and in immediately available funds at the appropriate Payment Office of the Administrative Agent, and the Administrative Agent will make available to the U.S. Borrower or German Borrowers, as the case may be, by depositing to its, or their, relevant account as directed by the respective Borrower or Borrowers the aggregate of the amounts so made available by the Lenders in the type of funds received. Unless the Administrative Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Administrative Agent such Lender's portion of any Borrowing to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing and the Administrative Agent may, in reliance upon such assumption, make available to the relevant Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the U.S. Borrower or, in the case of German Loans, the German Borrowers and the respective Borrower or Borrowers shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Lender or the U.S. Borrower or German Borrowers, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the respective Borrower or Borrowers until the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if recovered from such Lender, the overnight Federal Funds Rate as in effect from time to time and (ii) if recovered from the respective Borrower or Borrowers, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be deemed to relieve any Lender from its obligation to make Loans hereunder or to prejudice any rights which the relevant Borrower or Borrowers may have against any Lender as a result of any failure by such Lender to make Loans required to be made by it hereunder. 1.05 Notes. (a) The U.S. Borrower's or, in the case of Deutsche Mark Loans, the German Borrowers' obligation to pay the principal of, and interest on, the Loans made by each Lender shall be evidenced (i) if U.S. Borrower Tranche A Term -12- 21 Loans, by a promissory note duly executed and delivered by the U.S. Borrower substantially in the form of Exhibit B-1, with blanks appropriately completed in conformity herewith (each a "U.S. Borrower Tranche A Term Note" and, collectively, the "U.S. Borrower Tranche A Term Notes"), (ii) if German Borrower Tranche A Term Loans, by a promissory note duly executed and delivered by the German Borrowers substantially in the form of Exhibit B-2, with blanks appropriately completed in conformity herewith (each a "German Borrower Tranche A Term Note" and collectively, the "German Borrower Tranche A Term Notes"), (iii) if Delayed Draw Term Loans, by a promissory note to be executed and delivered by the U.S. Borrower substantially in the form of Exhibit B-3, with blanks appropriately completed in conformity herewith (each a "Delayed Draw Term Note" and, collectively, the "Delayed Draw Term Notes"), (iv) if Tranche B Term Loans, by a promissory note duly executed and delivered by the U.S. Borrower substantially in the form of Exhibit B-4, with blanks appropriately completed in conformity herewith (each a "Tranche B Term Note" and, collectively, the "Tranche B Term Notes"), (v) if Tranche C Term Loans, by a promissory note duly executed and delivered by the U.S. Borrower substantially in the form of Exhibit B-5, with blanks appropriately completed in conformity herewith (each a "Tranche C Term Note" and, collectively, the "Tranche C Term Notes"), (vi) if Dollar Revolving Loans, by a promissory note duly executed and delivered by the U.S. Borrower substantially in the form of Exhibit B-6, with blanks appropriately completed in conformity herewith (each a "Dollar Revolving Note" and, collectively, the "Dollar Revolving Notes"), (vii) if Deutsche Mark Revolving Loans, by a promissory note duly executed and delivered by the German Borrowers substantially in the form of Exhibit B-7, with blanks appropriately completed in conformity herewith (each a "Deutsche Mark Revolving Note" and, collectively, the "Deutsche Mark Revolving Notes") and (viii) if Swingline Loans, by a promissory note duly executed and delivered by the U.S. Borrower substantially in the form of Exhibit B-8, with blanks appropriately completed in conformity herewith (the "Swingline Note"). (b) The U.S. Borrower Tranche A Term Note issued to each Lender that has a U.S. Borrower Tranche A Term Loan Commitment or outstanding U.S. Borrower Tranche A Term Loans shall (i) be executed by the U.S. Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount equal to the U.S. Borrower Tranche A Term Loans of such Lender plus, if the respective U.S. Borrower Tranche A Term Note is issued at any time when the U.S. Borrower Tranche A Term Loan Commitment of such Lender remains in effect, the amount of such Lender's U.S. Borrower Tranche A Term Loan Commitment on the date of such issuance, and be payable in Dollars in the outstanding principal amount of U.S. Borrower Tranche A Term Loans evidenced thereby, (iv) mature on the Tranche A Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as -13- 22 provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) The German Borrower Tranche A Term Note issued to each Lender that has a German Borrower Tranche A Term Loan Commitment or outstanding German Borrower Tranche A Term Loans shall be (i) executed by the German Borrowers, on a joint and several basis (with each of the German Borrowers being jointly and severally liable for all amounts owing under, or evidenced by, each German Borrower Tranche A Term Note), (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount equal to the German Borrower Tranche A Term Loans of such Lender and payable in Deutsche Marks in the outstanding principal amount of German Borrower Tranche A Term Loans evidenced thereby, (iv) mature on the Tranche A Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Deutsche Mark Loans evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and other Credit Documents. (d) The Delayed Draw Term Note issued to each Lender that has a Delayed Draw Term Loan Commitment or outstanding Delayed Draw Term Loans shall (i) be executed by the U.S. Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount equal to the Delayed Draw Term Loans, if any, of such Lender plus, if the respective Delayed Draw Term Note is issued at any time when the Delayed Draw Term Loan Commitment of such Lender remains in effect, the amount of such Lender's Delayed Draw Term Loan Commitment on the date of such issuance, and be payable in Dollars in the outstanding principal amount of Delayed Draw Term Loans evidenced thereby, (iv) mature on the Delayed Draw Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (e) The Tranche B Term Note issued to each Lender that has a Tranche B Term Loan Commitment or outstanding Tranche B Term Loans shall (i) be executed by the U.S. Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount equal to the Tranche B Term Loans of such Lender plus, if the respective Tranche B Term Note is issued at any time when the Tranche B Term Loan Commitment of such Lender remains in effect, the amount of such Lender's Tranche B Term Loan Commitment on the date of such issuance, and be payable in Dollars in the outstanding principal amount of Tranche B Term Loans evidenced thereby, (iv) mature on -14- 23 the Tranche B Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (f) The Tranche C Term Note issued to each Lender that has a Tranche C Term Loan Commitment or outstanding Tranche C Term Loans shall (i) be executed by the U.S. Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount equal to the Tranche C Term Loans of such Lender plus, if the respective Tranche C Term Note is issued at any time when the Tranche C Term Loan Commitment of such Lender remains in effect, the amount of such Lender's Tranche C Term Loan Commitment on the date of such issuance, and be payable in Dollars in the outstanding principal amount of Tranche C Term Loans evidenced thereby, (iv) mature on the Tranche C Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (g) The Dollar Revolving Note issued to each Lender that has a Revolving Loan Commitment or outstanding Dollar Revolving Loans shall (i) be executed by the U.S. Borrower, (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Lender and be payable in Dollars in the outstanding principal amount of Dollar Revolving Loans evidenced thereby, (iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (h) The Deutsche Mark Revolving Note issued to each Lender that has a German Revolving Loan Sub-Commitment or outstanding Deutsche Mark Revolving Loans shall (i) be executed by the German Borrowers, on a joint and several basis (with each of the German Borrowers being jointly and severally liable for all amounts owing under, or evidenced by, each Deutsche Mark Revolving Note), (ii) be payable to the order of such Lender and be dated the Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount (expressed in Deutsche Marks) equal to the Deutsche Mark Equivalent (as of the date of issuance) of the Revolving Loan Commitment of such Lender; provided that if, because of fluctuations in exchange rates after the Initial Borrowing Date, the Deutsche Mark Revolving Note of any Lender would -15- 24 not be at least as great as the outstanding principal amount of Deutsche Mark Revolving Loans made by such Lender at any time outstanding, the respective Lender may request (and in such case the German Borrowers shall promptly execute and deliver) a new Deutsche Mark Revolving Note in an amount equal to the Deutsche Mark Equivalent of such Lender's Revolving Loan Commitment on the date of the issuance of such new Deutsche Mark Revolving Note, (iv) be payable in Deutsche Marks in the outstanding principal amount of the Deutsche Mark Revolving Loans evidenced thereby, (v) mature on the Revolving Loan Maturity Date, (vi) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Deutsche Mark Revolving Loans evidenced thereby, (vii) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (viii) be entitled to the benefits of this Agreement and the other Credit Documents. (i) The Swingline Note issued to CSFB shall (i) be executed by the U.S. Borrower, (ii) be payable to the order of CSFB and be dated the Initial Borrowing Date (or, if issued thereafter, the date of the issuance thereof), (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in Dollars in the principal amount of the outstanding Swingline Loans evidenced thereby from time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (j) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Notes endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in such notation shall not affect the U.S. Borrower's or, in the case of Deutsche Mark Loans, the German Borrowers' obligations in respect of such Loans. (k) Notwithstanding anything to the contrary contained above or elsewhere in this Agreement, Delayed Draw Term Notes, Tranche B Term Notes and Tranche C Term Notes shall only be delivered to Lenders with Loans of the respective Tranches which at any time specifically request the delivery of such Notes. No failure of any Lender to request or obtain a Note evidencing its Loans of any Tranche shall affect or in any manner impair the obligations of the respective Borrower or Borrowers to pay the Loans (and all related Obligations) which would otherwise be evidenced thereby in accordance with the requirements of this Agreement, and shall not in any way affect the security or guaranties therefor provided pursuant to the various Credit Documents. Any Lender which does not have a Note evidencing its outstanding Loans shall in no event be required to make the notations otherwise described in preceding clause (j). At any time when any Lender requests the delivery of a Note to evidence its Loans of any Tranche, the -16- 25 respective Borrower or Borrowers shall promptly execute and deliver to the respective Lender the requested Note or Notes in the appropriate amount or amounts to evidence such Loans. 1.06 Conversions. The U.S. Borrower (but not in respect of Deutsche Mark Loans or Swingline Loans) shall have the option to convert, on any Business Day, all or a portion equal to at least the Minimum Borrowing Amount for Loans of the respective Type and Tranche into which the respective conversion is being made, of the outstanding principal amount of Loans made to the U.S. Borrower, pursuant to one or more Borrowings (so long as of the same Tranche of Loans) of one or more Types of Loans into a Borrowing (of the same Tranche of Loans) of either Type of Loan, provided that, (i) except as otherwise provided in Section 1.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable to the Loans being converted and no such partial conversion of Eurodollar Loans shall reduce the outstanding principal amount of such Eurodollar Loans made pursuant to a single Borrowing to less than the Minimum Borrowing Amount for Eurodollar Loans of the respective Tranche, (ii) Base Rate Loans may not be converted into Eurodollar Loans if any Default or Event of Default exists on the date of conversion pursuant to Section 10.05, (iii) Base Rate Loans may not be converted into Eurodollar Loans if any Default under Section 10.01 or any Event of Default is in existence on the date of the conversion, if the Required Lenders have previously advised the Administrative Agent that conversions will not be permitted while said Default of Event of Default remains in existence, (iv) unless the Administrative Agent otherwise shall have determined that the Syndication Date has occurred, prior to the 90th day after the Initial Borrowing Date, conversions of Base Rate Loans into Eurodollar Loans may only be made if the conversion is effective on the first day of the first, second or third Interest Period referred to in clause (B) of the proviso to the first sentence of Section 1.01(a) and so long as such conversion does not result in a greater number of Borrowings of Eurodollar Loans prior to the earlier of the 90th day after the Initial Borrowing Date or the Syndication Date than are permitted under the relevant provisions of Section 1.01 and (v) no conversion pursuant to this Section 1.06 shall result in a greater number of Borrowings of Eurodollar Loans than is permitted under Section 1.02. Each such conversion shall be effected by the U.S. Borrower, by giving the Administrative Agent at its Notice Office prior to 12:00 Noon at least three Business Days' prior notice (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made and, if to be converted into Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans. 1.07 Pro Rata Borrowings. All Borrowings of U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans, Delayed Draw Term Loans, Tranche B Term Loans and Tranche C Term Loans under this Agreement shall be incurred from the Lenders pro rata on the basis of their U.S. Borrower Tranche A Term -17- 26 Loan Commitments, German Borrower Tranche A Term Loan Commitments, Delayed Draw Term Loan Commitments, Tranche B Term Loan Commitments, or Tranche C Term Loan Commitments, as the case may be. All Borrowings of Dollar Revolving Loans under this Agreement (including all Mandatory Borrowings) shall be incurred from the Lenders pro rata on the basis of their RL Percentages. All Borrowings of Deutsche Mark Revolving Loans under this Agreement shall be incurred from the German Revolving Lenders pro rata on the basis of their German RL Percentages. It is understood that no Lender shall be responsible for any default by any other Lender of its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder. 1.08 Interest. (a) The U.S. Borrower hereby severally agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan made to it from the date the proceeds thereof are made available to the U.S. Borrower until the earlier of (x) the maturity thereof (whether by acceleration, prepayment or otherwise) and (y) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate, each as in effect from time to time. (b) The U.S. Borrower hereby severally agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan made to it from the date the proceeds thereof are made available to such Borrower until the earlier of (x) the maturity thereof (whether by acceleration, prepayment or otherwise) and (y) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin as in effect from time to time plus the Eurodollar Rate for such Interest Period. (c) The German Borrowers hereby jointly and severally agree to pay interest in respect of the unpaid principal amount of each Deutsche Mark Loan from the date the proceeds thereof are made available to the German Borrowers, until the maturity thereof (whether by acceleration, prepayment or otherwise) at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin as in effect from time to time plus the Deutsche Mark Euro Rate for such Interest Period; provided that for the period from the Initial Borrowing Date until the first day of the first Interest Period applicable to the German Borrower Tranche A Term Loans pursuant to the relevant provisions of Section 1.01(b) (which in any event shall occur within six Business Days after the Initial Borrowing Date), the rate of interest applicable to all outstanding Deutsche Mark Loans shall be deemed to be 5.75% per annum. (d) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall, in -18- 27 each case, bear interest at a rate per annum (1) in the case of overdue principal of, and interest or other amounts owing with respect to, Deutsche Mark Loans, equal to 2% per annum in excess of the Applicable Margin (without reduction for any Interest Reduction Discount) plus the Deutsche Mark Euro Rate for such successive periods not exceeding three months as the Administrative Agent may determine from time to time in respect of amounts comparable to the amount not paid and (2) in all other cases, equal to the greater of (x) 2% per annum in excess of the rate otherwise applicable to Base Rate Loans of the respective Tranche (or in the case of amounts which do not relate to a given Tranche of outstanding Dollar Loans, 2% per annum in excess of the rate otherwise applicable to Revolving Loans maintained as Base Rate Loans) from time to time and (y) the rate which is 2% in excess of the rate then borne by such Loans. (e) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment Date, (ii) in the case of any Eurodollar Loan, on the date of any conversion to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10, as applicable (on the amount so converted), (iii) in respect of each Euro Rate Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (iv) in respect of each Loan, on any repayment or prepayment (on the amount repaid or prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand; provided that, in the case of Dollar Revolving Loans maintained as Base Rate Loans, interest shall not be payable pursuant to preceding clause (iv) at the time of any repayment or prepayment thereof unless the respective repayment or prepayment is made in conjunction with a termination of the Total Revolving Loan Commitment. (f) Upon each Interest Determination Date, the Administrative Agent shall determine the respective Euro Rate for the respective Interest Period or Interest Periods to be applicable to Euro Rate Loans and shall promptly notify the respective Borrower and the Lenders thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. 1.09 Interest Periods. At the time it gives any Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, any Euro Rate Loan (in the case of the initial Interest Period applicable thereto) or on the third Business Day prior to the expiration of an Interest Period applicable to such Euro Rate Loan (in the case of any subsequent Interest Period), the respective Borrower or Borrowers shall have the right to elect, by giving the Administrative Agent notice thereof, the interest period (each an "Interest Period") applicable to such Euro Rate Loan, which Interest Period shall, at the option of such Borrower, be a one, two, three or six-month period, provided that: (i) all Euro Rate Loans comprising a single Borrowing shall at all times have the same Interest Period; -19- 28 (ii) the initial Interest Period for any Borrowing of Euro Rate Loans shall commence on the date of such Borrowing (including, in the case of Dollar Loans, the date of any conversion thereto from a Dollar Loan of a different Type) or, in the case of Deutsche Mark Loans incurred on the Initial Borrowing Date (or thereafter but prior to the first day of the first Interest Period pursuant to Section 1.01), the date otherwise specified in the relevant provisions of Section 1.01, and each Interest Period occurring thereafter in respect of such Euro Rate Loans shall commence on the day on which the next preceding Interest Period applicable thereto expires; (iii) if any Interest Period for a Euro Rate Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period for a Euro Rate Loan would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for a Euro Rate Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period may be selected at any time when a Default or Event of Default under Section 10.05 is in existence; (vi) no Interest Period may be selected if any Default or Event of Default (other than a Default or Event of Default described in preceding clause (v)) is in existence if the Required Lenders have previously advised the Administrative Agent that the selection of new Interest Periods will not be permitted while said Default or Event of Default remains in existence; (vii) no Interest Period in respect of any Borrowing of any Tranche of Loans shall be selected which extends beyond the respective Maturity Date for such Tranche of Loans; and (vii) no Interest Period in respect of any Borrowing of Term Loans of any Tranche shall be selected which extends beyond any date upon which a mandatory repayment of such Tranche of Term Loans will be required to be made under Section 4.02(b) if the aggregate principal amount of Term Loans of such Tranche which have Interest Periods which will expire after such date will be in excess of the aggregate principal amount of Term Loans of such Tranche then outstanding less the aggregate amount of such required repayment. -20- 29 Prior to the termination of any Interest Period applicable to Deutsche Mark Loans, the German Borrowers may, at their option, designate that the respective Borrowing subject thereto be split into more than one Borrowing (for purposes of electing multiple Interest Periods to be subsequently applicable thereto), so long as each such Borrowing resulting from the action taken pursuant to this sentence meets the Minimum Borrowing Amount for Deutsche Mark Loans of the respective Tranche. If upon the expiration of any Interest Period applicable to a Borrowing of Euro Rate Loans, the U.S. Borrower has or, in the case of Deutsche Mark Loans, the German Borrowers have failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Euro Rate Loans as provided above, such Borrower shall be deemed to have elected (x) if Eurodollar Loans, to convert such Eurodollar Loans into Base Rate Loans and (y) if Deutsche Mark Loans, to select a one-month Interest Period for such Deutsche Mark Loans, in either case effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that any Lender shall have determined in good faith (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clauses (i) and (iv) below, may be made only by the Administrative Agent): (i) on any Interest Determination Date that, by reason of any changes arising after the date of this Agreement affecting the applicable interbank market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of the respective Euro Rate; or (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Euro Rate Loan because of (x) any change arising after the date of this Agreement in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Lender of the principal of or interest on the Notes or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits or franchise taxes based on net income of such Lender pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein) or (B) a change in official reserve requirements (except to the extent covered by Section 1.10(d) in respect of Deutsche Mark Loans or included in the computation of the Eurodollar Rate) or any special deposit, assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (or its applicable lending office) and/or (y) other circumstances since the date of this -21- 30 Agreement affecting such Lender or the applicable interbank market or the position of such Lender in such market; or (iii) at any time after the date of this Agreement, that the making or continuance of any Euro Rate Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Lender in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the applicable interbank market; or (iv) at any time that Deutsche Marks are not available in sufficient amounts, as determined in good faith by the Administrative Agent, to fund any Borrowing of Deutsche Mark Loans requested pursuant to Section 1.01; then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i) or (iv) above) shall promptly give notice (by telephone promptly confirmed in writing) to the respective Borrower or Borrowers and, except in the case of clauses (i) and (iv) above, to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (w) in the case of clause (i) above, (A) in the event that Eurodollar Loans are so affected, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the U.S. Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the U.S. Borrower with respect to Eurodollar Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by the U.S. Borrower, and (B) in the event that any Deutsche Mark Loan is so affected, the Deutsche Mark Euro Rate shall be determined on the basis provided in the proviso to the definition of Deutsche Mark Euro Rate, (x) in the case of clause (ii) above, the respective Borrower or Borrowers shall, subject to the provisions of Section 13.21 (to the extent applicable), pay to such Lender, upon its written request therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing in reasonable detail the basis for the calculation thereof, submitted to the respective Borrower or Borrowers by such Lender shall, absent manifest error, be final and conclusive and binding on all the parties hereto), (y) in the case of clause (iii) above, the respective Borrower or Borrowers shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law and (z) in the case of clause (iv) above, Deutsche Mark Loans (exclusive of Deutsche Mark Loans which have theretofore been funded) shall no longer be available until such time as the Administrative Agent notifies the German Borrowers and the Lenders that the circumstances giving rise to -22- 31 such notice by the Administrative Agent no longer exists, and any Notice of Borrowing given by the German Borrowers with respect to such Deutsche Mark Loans which have not been incurred shall be deemed rescinded by the German Borrowers. (b) At any time that any Euro Rate Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the respective Borrower or Borrowers may (and in the case of a Euro Rate Loan affected by the circumstances described in Section 1.10(a)(iii) shall) either (x) if the affected Euro Rate Loan is then being made initially or pursuant to a conversion, cancel the respective Borrowing by giving the Administrative Agent telephonic notice (confirmed in writing) on the same date that such Borrower was notified by the affected Lender or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected Euro Rate Loan is then outstanding, upon at least three Business Days' written notice to the Administrative Agent, (A) in the case of a Eurodollar Loan, request the affected Lender to convert such Eurodollar Loan into a Base Rate Loan and (B) in the case of a Deutsche Mark Loan, repay such Deutsche Mark Loan in full, provided that, (i) if the circumstances described in Section 1.10(a)(iii) apply to any Deutsche Mark Loan, the German Borrowers may, in lieu of taking the actions described above, maintain such Deutsche Mark Loan outstanding, in which case the Deutsche Mark Euro Rate shall be determined on the basis provided in the proviso to the definition of Deutsche Mark Euro Rate, unless the maintenance of such Deutsche Mark Loan outstanding on such basis would not stop the conditions described in Section 1.10(iii) from existing (in which case the actions described above, without giving effect to the proviso, shall be required to be taken) and (ii) if more than one Lender is affected at any time as described above in this clause (b), then all affected Lenders must be treated the same pursuant to this Section 1.10(b). (c) If at any time after the date of this Agreement any Lender determines that the introduction of or any change (which introduction or change shall have occurred after the date of this Agreement) in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender based on the existence of such Lender's Commitments hereunder or its obligations hereunder, then the Borrowers jointly and severally agree to pay, subject to the provisions of Section 13.21 (to the extent applicable), to such Lender, upon its written demand therefor, such additional amounts as shall be required to compensate such Lender or such other corporation for the increased cost to such Lender or such other corporation or the reduction in the rate of return to such Lender or such other corporation as a result of such increase of capital. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Lender's determination of compensation owing under this Section 1.10(c) shall, absent manifest -23- 32 error, be final and conclusive and binding on all the parties hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to the Borrowers, which notice shall show in reasonable detail the basis for calculation of such additional amounts. (d) In the event that any Lender shall in good faith determine (which determination shall, absent manifest error, be final and conclusive and binding on all parties hereto) at any time that such Lender is required to maintain reserves (including, without limitation, any marginal, emergency, supplemental, special or other reserves required by applicable law) which have been established by any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body with jurisdiction over such Lender (including any branch, Affiliate or funding office thereof) in respect of any Deutsche Mark Loans or any category of liabilities which includes deposits by reference to which the interest rate on any Deutsche Mark Loan is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to non-United States residents, then, unless such reserves are included in the calculation of the interest rate applicable to such Deutsche Mark Loans or in Section 1.10(a)(ii), such Lender shall promptly notify the German Borrowers in writing specifying the additional amounts required to indemnify such Lender against the cost of maintaining such reserves (such written notice to provide in reasonable detail a computation of such additional amounts) and the German Borrowers shall, and shall be jointly and severally obligated to, pay to such Lender such specified amounts as additional interest at the time that the German Borrowers are otherwise required to pay interest in respect of such Deutsche Mark Loan or, if later, on written demand therefor by such Lender. 1.11 Compensation. The respective Borrower or Borrowers shall, subject to the provisions of Section 13.21 (to the extent applicable), compensate each Lender, upon its written request (which request shall set forth in reasonable detail the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Euro Rate Loans, but excluding loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender or the Administrative Agent) a Borrowing of, or conversion from or into, Euro Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including any repayment made pursuant to Section 4.01 or 4.02 or as a result of an acceleration of the Loans pursuant to Section 10) or conversion of any Euro Rate Loans occurs on a date which is not the last day of an Interest Period with respect thereto; (iii) if any prepayment of any Euro Rate Loans is not made on any date specified in a notice of prepayment given by the respective Borrower or Borrowers; or (iv) as a consequence of (x) any other default by the respective Borrower or Borrowers to repay its Loans when re- -24- 33 quired by the terms of this Agreement or any Note held by such Lender or (y) any election made pursuant to Section 1.10(b). 1.12 Lending Offices; Changes Thereto. (a) Each Lender may at any time or from time to time designate, by written notice to the Administrative Agent to the extent not already reflected on Schedule II, one or more lending offices (which, for this purpose, may include Affiliates of the respective Lender) for the various Loans made, and Letters of Credit participated in, by such Lender (including by designating a separate lending office (or Affiliate) to act as such with respect to Dollar Loans and U.S. Letter of Credit Outstandings versus Deutsche Mark Loans and German Letter of Credit Outstandings); provided that, for designations made after the Initial Borrowing Date, to the extent such designation shall result in increased costs under Section 1.10, 2.06 or 4.04 in excess of those which would be charged in the absence of the designation of a different lending office (including a different Affiliate of the respective Lender), then the Borrowers shall not be obligated to pay such excess increased costs (although the Borrowers, in accordance with and pursuant to the other provisions of this Agreement, shall be obligated to pay the costs which would apply in the absence of such designation and any subsequent increased costs of the type described above resulting from changes after the date of the respective designation). Each lending office and Affiliate of any Lender designated as provided above shall, for all purposes of this Agreement, be treated in the same manner as the respective Lender (and shall be entitled to all indemnities and similar provisions in respect of its acting as such hereunder). (b) Each Lender agrees that on the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 1.10(d), Section 2.06 or Section 4.04 with respect to such Lender, it will, if requested by the applicable Borrower or Borrowers, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of any Borrower or the right of any Lender provided in Sections 1.10, 2.06 and 4.04. 1.13 Replacement of Lenders. (x) If any Lender becomes a Defaulting Lender or otherwise defaults in its obligations to make Loans or fund Unpaid Drawings, (y) upon the occurrence of an event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 1.10(d), Section 2.06 or Section 4.04 with respect to any Lender which results in such Lender charging to any Borrower increased costs in excess of those being generally charged by the other Lenders or (z) in the case of the refusal by a Lender to consent to proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders as (and to the -25- 34 extent) provided in Section 13.12 (b), the U.S. Borrower shall have the right, if no Default or Event of Default will exist immediately after giving effect to such replacement), to either (1) replace such Lender (the "Replaced Lender") with one or more other Eligible Transferees, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the "Replacement Lender") and each of whom shall be required to be reasonably acceptable to the Administrative Agent or (2) at the option of the U.S. Borrower, replace only (a) the Revolving Loan Commitment (and outstandings pursuant thereto and the related German Revolving Loan Sub- Commitment, if any, of the respective Lender) of the Replaced Lender with an identical Revolving Loan Commitment (and related outstandings and German Revolving Loan Sub-Commitment, if any) provided by the Replacement Lender or (b) in the case of a replacement as provided in Section 13.12(b) where the consent of the respective Lender is required with respect to less than all Tranches of its Loans or Commitments, the Commitments and/or outstanding Term Loans of such Lender in respect of each Tranche where the consent of such Lender would otherwise be individually required, with identical Commitments and/or Term Loans of the respective Tranche provided by the Replacement Lender, provided that (i) any replacement pursuant to this Section 1.13 shall be required to comply with the requirements of Section 13.04(b) and at the time of any replacement pursuant to this Section 1.13, the Replacement Lender shall enter into one or more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section 13.04(b) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans (or, in the case of the replacement of only (a) the Revolving Loan Commitment, the Revolving Loan Commitment (and related German Revolving Loan Sub-Commitment, if any) and outstanding Revolving Loans and partici- pations in Letter of Credit Outstandings and/or (b) the outstanding Term Loans and/or Term Loan Commitments of the respective Tranche or Tranches) of, and in each case (except for the replacement of only the outstanding Term Loans (and/or Term Loan Commitments, as the case may be) of one or more Tranches of the respective Lender) participations in Letters of Credit by, the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (I) the principal of, and all accrued interest on, all outstanding Loans (or of the Loans of the respective Tranche or Tranches being replaced) of the Replaced Lender, (II) all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time and (III) all accrued, but theretofore unpaid, Fees owing to the Replaced Lender (but only with respect to the relevant Tranche, in the case of the replacement of less than all Tranches of Loans then held by the respective Replaced Lender) pursuant to Section 3.01 and (y) except in the case of the replacement of only the outstanding Term Loans of one or more Tranches of a Replaced Lender, each Issuing Bank an amount equal to such Replaced Lender's RL Percentage or German RL Percentage, as the case may be, of any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Lender to such Issuing Bank and (ii) all obligations of the Borrowers due and owing to the Replaced Lender at such time (other -26- 35 than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) above, recordation of the assignment on the Register by the Administrative Agent pursuant to Section 13.15 and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the respective Borrowers, the Replacement Lender shall become a Lender hereunder and, unless the respective Replaced Lender continues to have outstanding Term Loans or a Commitment hereunder, the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01), which shall survive as to such Replaced Lender. In connection with any replacement of Lenders pursuant to, and as contemplated by, this Section 1.13, each of the German Borrowers hereby irrevocably authorizes the U.S. Borrower to take all necessary action, in the name of the German Borrowers, as described above in this Section 1.13 in order to effect the replacement of the respective Lender or Lenders in accordance with the preceding provisions of this Section 1.13. SECTION 2. Letters of Credit. 2.01 Letters of Credit. (a) Subject to and upon the terms and conditions set forth herein, the U.S. Borrower or the German Borrowers may request that any Issuing Bank issue, at any time and from time to time on and after the Initial Borrowing Date and prior to the fifth Business Day prior to the Revolving Loan Maturity Date (or the 30th day prior to the Revolving Loan Maturity Date in the case of Trade Letters of Credit), (x) for the account of the U.S. Borrower (in the case of requests made by it) or for the joint and several account of the German Borrowers (in the case of requests made by them) and for the benefit of any holder (or any trustee, agent or other similar representative for any such holders) of L/C Supportable Obligations of the respective such Account Party or any of its or their Subsidiaries, an irrevocable sight standby letter of credit, in a form customarily used by such Issuing Bank or in such other form as has been approved by such Issuing Bank (each such standby letter of credit, a "Standby Letter of Credit") in support of such L/C Supportable Obligations and (y) for the account of the respective such Account Party and for the benefit of sellers of goods, materials and services used in the ordinary course of business of the respective such Account Party or any of its or their Subsidiaries an irrevocable sight commercial letter of credit in a form customarily used by such Issuing Bank or in such other form as has been approved by such Issuing Bank (each such commercial letter of credit, a "Trade Letter of Credit", and each such Trade Letter of Credit and each Standby Letter of Credit, a "Letter of Credit") in support of commercial transactions of the respective such Account Party and its or their Subsidiaries. -27- 36 (b) All (x) U.S. Letters of Credit shall be issued, and denominated, in Dollars, and shall be issued for the account of the U.S. Borrower, and (y) German Letters of Credit shall be issued, and denominated, in Deutsche Marks (or, in any specific instance, such other currency as is acceptable to the Administrative Agent and the respective Issuing Bank), and shall be issued for the joint and several account of each of the German Borrowers. Notwithstanding anything to the contrary contained above, in no event shall a German Letter of Credit denominated in a currency other than Deutsche Marks be issued if, after giving effect to such issuance, the aggregate amount of Letter of Credit Outstandings at such time in respect of German Letters of Credit issued in currencies other than Deutsche Marks would exceed $5,000,000. (c) Each Issuing Bank hereby agrees that it will (subject to the terms and conditions contained herein), at any time and from time to time on and after the Initial Borrowing Date and prior to the fifth Business Day prior to the Revolving Loan Maturity Date (or the 30th day prior to the Revolving Loan Maturity Date in the case of Trade Letters of Credit), following its receipt of the respective Letter of Credit Request, issue for the account of the respective Account Party, subject to the terms and conditions of this Agreement, one or more Letters of Credit (x) in the case of Standby Letters of Credit, in support of such L/C Supportable Obligations of the respective Account Party or any of its or their Subsidiaries as are permitted to remain outstanding without giving rise to a Default or an Event of Default and (y) in the case of Trade Letters of Credit, in support of sellers of goods or materials used in the ordinary course of business of the respective Account Party or any of its or their Subsidiaries as referenced in Section 2.01(a), provided that the respective Issuing Bank shall be under no obligation to issue any Letter of Credit of the types described above if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Bank from issuing such Letter of Credit or any requirement of law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Bank is not otherwise compensated) not in effect on the date hereof, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuing Bank as of the date hereof and which such Issuing Bank reasonably and in good faith deems material to it; or (ii) such Issuing Bank shall have received notice from the Administrative Agent at the direction of the Required Lenders prior to the issuance of such Letter of Credit of the type described in the second sentence of Section 2.03(b). -28- 37 2.02 Maximum Letter of Credit Outstandings; Final Maturities. (a) Notwithstanding anything to the contrary contained in this Agreement, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time, would exceed either (x) $25,000,000 or (y) when added to the aggregate principal amount of all Revolving Loans (for this purpose, using the Dollar Equivalent of each outstanding Deutsche Mark Revolving Loan) then outstanding and the aggregate amount of all Swingline Loans then outstanding, the Total Revolving Loan Commitment at such time, (ii) no U.S. Letter of Credit shall be issued the Stated Amount (expressed in Dollars) of which, when added to the U.S. Letter of Credit Outstandings (expressed in Dollars) (exclusive of Unpaid Drawings with respect thereto which are repaid on the date of, and prior to the issuance of, the respective U.S. Letter of Credit) at such time would exceed, when added to the aggregate principal of all Dollar Revolving Loans (expressed in Dollars) then outstanding and the aggregate amount of all Swingline Loans then outstanding, the U.S. Borrowing Base, (iii) no German Letter of Credit shall be issued the Stated Amount (expressed in Deutsche Marks (taking the Deutsche Mark Equivalent of any amount expressed in currencies other than Deutsche Marks)) of which, when added to the German Letter of Credit Outstandings (expressed in Deutsche Marks) (exclusive of Unpaid Drawings with respect thereto which are repaid on the date of, and prior to the issuance of, the respective German Letter of Credit) at such time and the aggregate principal of all Deutsche Mark Revolving Loans (expressed in Deutsche Marks) then outstanding, would exceed the German Borrowing Base at such time, (iv) no German Letter of Credit shall be issued the Stated Amount of which, when added to the German Letter of Credit Outstandings (exclusive of Unpaid Drawings with respect thereto which are repaid on the date, and prior to the issuance of, the respective German Letter of Credit) at such time and the aggregate principal amount of all Deutsche Mark Revolving Loans (taking the Dollar Equivalent thereof) then outstanding, would exceed the lesser of (x) the Total German Revolving Loan Sub-Commitment at such time, and (y) $15,000,000, and (v) each Letter of Credit shall by its terms terminate (A) in the case of Standby Letters of Credit, on or before the earlier of (x) the date which occurs 12 months after the date of the issuance thereof (although any such Standby Letter of Credit may be extendable for successive periods of up to 12 months (which period may be increased by not more than one month to the extent needed to permit the effectiveness of any extension to occur up to one month prior to the then scheduled termination of the respective Standby Letter of Credit), but not beyond the fifth Business Day prior to the Revolving Loan Maturity Date, on terms acceptable to the Issuing Bank thereof) and (y) the fifth Business Day prior to the Revolving Loan Maturity Date and (B) in the case of Trade Letters of Credit, on or before the earlier of (x) the date which occurs 180 days after the date of issuance thereof and (y) 30 days prior to the Revolving Loan Maturity Date. (b) Notwithstanding the foregoing, in the event a Lender Default exists, the Issuing Bank shall not be required to issue any Letter of Credit unless the Issuing Bank -29- 38 has entered into arrangements satisfactory to it and the respective Account Party to eliminate the Issuing Bank's risk with respect to the participation in Letters of Credit of the Defaulting Lender or Lenders, including by cash collateralizing (in Dollars or Deutsche Marks, as appropriate) such Defaulting Lender's or Lenders' RL Percentage of the Letter of Credit Outstandings. 2.03 Letter of Credit Requests; Notices of Issuance; Minimum Stated Amount. (a) Whenever the U.S. Borrower or the German Borrowers, as the case may be, desire that a Letter of Credit be issued for its or their account, the respective such Account Party shall give the Administrative Agent (at the appropriate Notice Office) and the respective Issuing Bank at least five Business Days' (or such shorter period as is acceptable to the respective Issuing Bank) written notice thereof. Each notice shall be in the form of Exhibit C (each a "Letter of Credit Request"). (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the U.S. Borrower or the German Borrowers, as the case may be, that (i) such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 2.02 and (ii) all of the applicable conditions set forth in Section 5 and 6 shall be met at the time of such issuance. Unless the respective Issuing Bank has received notice from the Administrative Agent at the direction of the Required Lenders before it issues a Letter of Credit that one or more of the conditions specified in Section 5 are not satisfied on the Initial Borrowing Date or Section 6 are not then satisfied, or that the issuance of such Letter of Credit would violate Section 2.02, then such Issuing Bank may issue the requested Letter of Credit for the account of the respective Account Party in accordance with such Issuing Bank's usual and customary practices. Upon the issuance of or amendment or modification to any Standby Letter of Credit, the respective Issuing Bank shall promptly notify the Administrative Agent (and the Administrative Agent shall promptly forward such notice to the Lenders) of such issuance, amendment or modification and such notification shall be accompanied by a copy of the issued Standby Letter of Credit or amendment or modification. For Trade Letters of Credit, the Issuing Bank will send to the Administrative Agent by facsimile transmission, promptly on the first Business Day of each week and on each Quarterly Payment Date, the daily aggregate Stated Amount of Trade Letters of Credit issued by such Issuing Bank and outstanding during the preceding week or quarterly period, as the case may be. The Administrative Agent shall deliver to each Lender, after each calendar month end and upon each payment of the Letter of Credit Fee, a report setting forth for the relevant period the daily aggregate Stated Amount of all outstanding Trade Letters of Credit during such period. (c) Each Issuing Bank shall, on the date of issuance of a Letter of Credit by it, give the Administrative Agent and the respective Account Party written notice of the issuance of such Letter of Credit, accompanied by a copy to the Administrative Agent of the Letter of Credit or Letters of Credit issued by it. -30- 39 (d) The initial Stated Amount of each Letter of Credit shall not be less than (x) in the case of U.S. Letters of Credit, $10,000 and (y) in the case of German Letters of Credit, DM20,000, or in each case such lesser amount as is acceptable to the respective Issuing Bank. 2.04 Letter of Credit Participations. (a) Immediately upon the issuance by the respective Issuing Bank of any Letter of Credit, such Issuing Bank shall be deemed to have sold and transferred to (x) in the case of a U.S. Letter of Credit, each Lender (other than such Issuing Bank) with a Revolving Loan Commitment and (y) in the case of a German Letter of Credit, each Lender (other than such Issuing Bank) with a German Revolving Loan Sub-Commitment (each such Lender with respect to any Letter of Credit, in its capacity under this Section 2.04, a "Participant"), and each such Participant shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation, in a percentage equal to such Participant's RL Percentage, in the case of a U.S. Letter of Credit, or German RL Percentage, in the case of a German Letter of Credit, in such Letter of Credit, each drawing or payment made thereunder and the obligations of the respective Account Party under this Agreement with respect thereto, and any security therefor or guaranty pertaining thereto (although Letter of Credit Fees shall be paid directly to the Administrative Agent for the ratable account of the Lenders based on their RL Percentages or German RL Percentages, as the case may be, as provided in Section 3.01(c) and the Participants shall have no right to receive any portion of any Facing Fees). Upon any change in the Revolving Loan Commitments or RL Percentages or German RL Percentages of the Lenders pursuant to this Agreement, it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 2.04 to reflect the new RL Percentages or German RL Percentages, as the case may be, of the various Lenders. (b) In determining whether to pay under any Letter of Credit, the respective Issuing Bank shall have no obligation relative to the other Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to any Account Party, any other Credit Party, any Lender or any other Person. (c) In the event that any Issuing Bank makes any payment under any Letter of Credit and the respective Account Party shall not have reimbursed such amount in full to such Issuing Bank pursuant to Section 2.05(a), such Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to such Issuing Bank -31- 40 the amount of such Participant's RL Percentage (in the case of a U.S. Letter of Credit) or German RL Percentage (in the case of a German Letter of Credit) of such unreimbursed payment (in the case of payments made in any currency other than Dollars, taking the Dollar Equivalent thereof) in Dollars and in same day funds. If the Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any Participant required to fund a payment under a Letter of Credit, such Participant shall make available to the Administrative Agent for the benefit of such Issuing Bank, in Dollars, such Participant's RL Percentage (in the case of a U.S. Letter of Credit) or German RL Percentage (in the case of a German Letter of Credit) of the amount of such payment (or, in the case of payments made in any currency other than Dollars, the Dollar Equivalent thereof) on such Business Day in same day funds. If and to the extent such Participant shall not have so made its RL Percentage or German RL Percentage, as the case may be, of the amount of such payment available to the Administrative Agent for the benefit of such Issuing Bank, such Participant agrees to pay to the Administrative Agent for the benefit of such Issuing Bank, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent for the benefit of such Issuing Bank at the overnight Federal Funds Rate for the first three days and at the interest rate applicable to Dollar Revolving Loans maintained as Base Rate Loans hereunder for each day thereafter. The failure of any Participant to make available to such Issuing Bank its RL Percentage or German RL Percentage, as the case may be, of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to such Issuing Bank its RL Percentage or German RL Percentage, as the case may be, of any unreimbursed payment with respect to a Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to the Administrative Agent for the benefit of such Issuing Bank such other Participant's RL Percentage or German RL Percentage, as the case may be, of any such payment. (d) Whenever any Issuing Bank receives a payment of a reimbursement obligation as to which it has received any payments from the Participants pursuant to clause (c) above, such Issuing Bank shall pay to the Administrative Agent for the benefit of each Participant which has paid its RL Percentage or German RL Percentage, as the case may be, thereof, in Dollars and in same day funds, an amount equal to such Participant's share (based upon the proportionate aggregate amount originally funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations. (e) Upon the request of any Participant, each Issuing Bank shall furnish to such Participant copies of any Letter of Credit issued by it and such other documentation as may reasonably be requested by such Participant. -32- 41 (f) The obligations of the Participants to make payments to the Administrative Agent for the benefit of each Issuing Bank with respect to Letters of Credit issued by it shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, setoff, defense or other right which the respective Revolving Loan Borrower or any of its Subsidiaries or Affiliates may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the respective Account Party or any Subsidiary or Affiliate of the respective Account Party and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or (v) the occurrence of any Default or Event of Default. 2.05 Agreement to Repay Letter of Credit Drawings. (a) The U.S. Borrower hereby agrees, in the case of all U.S. Letters of Credit, and the German Borrowers hereby jointly and severally agree, in the case of all German Letters of Credit, to reimburse the respective Issuing Bank, by making payment in Dollars directly to the Administrative Agent for the benefit of such Issuing Bank, for any payment or disbursement (or, in the case of payments or disbursements made in any currency other than Dollars, the Dollar Equivalent thereof) made by such Issuing Bank under any Letter of Credit issued for the account of the respective Account Party (with each such amount so paid, until reimbursed, an "Unpaid Drawing"), immediately after, and in any event on the date of, such payment or disbursement, with interest on the amount so paid or disbursed by such Issuing Bank, to the extent not reimbursed prior to 2:00 P.M. (New York time or, in the case of German Letters of Credit, Frankfurt time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date -33- 42 such Issuing Bank was reimbursed by the U.S. Borrower or the respective German Borrower, as the case may be, therefor at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans; provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York time or, in the case of German Letters of Credit, Frankfurt time) on the third Business Day following the receipt by the respective Account Party of notice of such payment or disbursement or upon the occurrence of a Default or an Event of Default under Section 10.05, interest shall thereafter accrue on the amounts so paid or disbursed by such Issuing Bank (and until reimbursed by the respective Account Party at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans plus 2%, in each such case, with interest to be payable on demand. The respective Issuing Bank shall give the respective Account Party prompt written notice of each Drawing under any Letter of Credit, provided that the failure to give any such notice shall in no way affect, impair or diminish the respective Account Party's obligations hereunder. (b) The obligations of the U.S. Borrower (with respect to U.S. Letters of Credit) and the joint and several obligations of the German Borrowers (with respect to German Letters of Credit) under this Section 2.05 to reimburse the respective Issuing Bank with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the respective Account Party may have or have had against any Lender (including in its capacity as issuer of the Letter of Credit or as Participant), including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit (each a "Drawing") to conform to the terms of the Letter of Credit or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing; provided that any reimbursement made by the respective Account Party, shall be without prejudice to any claim it may have against such Issuing Bank as a result of such Issuing Bank's gross negligence or willful misconduct in determining whether any documents required to be delivered under the respective Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of the respective Letter of Credit. 2.06 Increased Costs. If at any time after the date of this Agreement, the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Issuing Bank or any Participant with any request or directive by any such authority (whether or not having the force of law), shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against letters of credit issued by any Issuing Bank or participated in by any Participant, or (ii) impose on any Issuing Bank or any Participant any other conditions relating, directly or indirectly, to this Agreement; and the result of any of the foregoing is to increase the cost to any Issuing Bank or any -34- 43 Participant of issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Issuing Bank or any Participant hereunder or reduce the rate of return on its capital with respect to Letters of Credit (except for changes in the rate of tax on, or determined by reference to, the net income or profits or franchise taxes based on net income of such Issuing Bank or such Participant pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), then, upon written demand to the U.S. Borrower or the German Borrowers, as the case may be, by such Issuing Bank or any Participant (a copy of which certificate shall be sent by such Issuing Bank or such Participant to the Administrative Agent), the U.S. Borrower or the German Borrowers, as the case may be, shall, subject to the provisions of Section 13.21 (to the extent applicable), pay to such Issuing Bank or such Participant such additional amount or amounts as will compensate such Lender for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital. Any Issuing Bank or any Participant, upon determining that any additional amounts will be payable pursuant to this Section 2.06, will give prompt written notice thereof to the U.S. Borrower or the German Borrowers, as the case may be, which notice shall include a certificate submitted to the U.S. Borrower or the German Borrowers, as the case may be, by such Issuing Bank or such Participant (a copy of which certificate shall be sent by such Issuing Bank or such Participant to the Administrative Agent), setting forth in reasonable detail the basis for the calculation of such additional amount or amounts necessary to compensate such Issuing Bank or such Participant. The certificate required to be delivered pursuant to this Section 2.06 shall, absent manifest error, be final and conclusive and binding on the U.S. Borrower or the German Borrowers, as the case may be. SECTION 3. Commitment Commission; Fees; Reductions of Commitment. 3.01 Fees. (a) The U.S. Borrower agrees to pay to the Administrative Agent for distribution to each Non-Defaulting Lender with a Term Loan Commitment, a commitment commission (the "Term Loan Commitment Commission") for the period from and including the Effective Date to but excluding the date on which the Total Term Loan Commitment shall have been terminated, computed at a rate for each day equal to the Applicable Commitment Commission Percentage on the daily average sum of the Term Loan Commitments of such Lender. Accrued Term Loan Commitment Commission shall be due and payable on the Initial Borrowing Date, quarterly in arrears on each Quarterly Payment Date and on the date on which the Total Term Loan Commitments shall have been terminated. (b) The Revolving Loan Borrowers jointly and severally agree to pay to the Administrative Agent in Dollars for distribution to each Non-Defaulting Lender with a Revolving Loan Commitment a commitment commission (the "Revolving Loan Commitment Commission") for the period from and including the Effective Date to but -35- 44 excluding the Revolving Loan Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall have been terminated), computed at a rate for each day equal to the Applicable Commitment Commission Percentage on the daily average Unutilized Revolving Loan Commitment of such Lender. Accrued Revolving Loan Commitment Commission shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity Date or such earlier date upon which the Total Revolving Loan Commitment is terminated. (c) The U.S. Borrower agrees to pay to the Administrative Agent for distribution to each Lender with a Revolving Loan Commitment (based on their respective RL Percentages) in Dollars a fee in respect of each U.S. Letter of Credit issued hereunder, and the German Borrowers jointly and severally agree to pay to the Administrative Agent for distribution to each Lender with a German Revolving Loan Sub-Commitment (based on their respective German RL Percentages) in Dollars a fee in respect of each German Letter of Credit issued hereunder (with all fees payable as described in this clause (c) being herein referred to as "Letter of Credit Fees"), in each case for the period from and including the date of issuance of the respective Letter of Credit to and including the date of termination of such Letter of Credit (or, in the case of a Trade Letter of Credit, the date of the stated expiration thereof), computed at a rate per annum equal to the Applicable Margin for Revolving Loans maintained as Eurodollar Loans on the daily average Stated Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable by the respective Account Party quarterly in arrears on each Quarterly Payment Date and on the first day after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding. (d) The U.S. Borrower agrees, and the German Borrowers jointly and severally agree, to pay to each Issuing Bank, for its own account, in Dollars, a facing fee in respect of each Letter of Credit issued by such Issuing Bank for the account of such Account Party (the "Facing Fee"), for the period from and including the date of issuance of such Letter of Credit to and including the date of the termination of such Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the daily average Stated Amount of such Letter of Credit. Accrued Facing Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day after the termination of the Total Revolving Loan Commitment upon which no Letter of Credit remains outstanding. (e) The respective Account Party shall pay, upon each payment under, issuance of, or amendment to, any Letter of Credit, such amount as shall at the time of such event be the administrative charge and the reasonable expenses which the applicable Issuing Bank is generally imposing in connection with such occurrence with respect to letters of credit denominated in the respective Applicable Currency. (f) The Borrowers shall pay to the Administrative Agent, for its own -36- 45 account, such other fees as have been agreed to in writing by the Borrowers and the Administrative Agent. 3.02 Voluntary Termination of Unutilized Commitments. Upon at least three Business Days' prior notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), the U.S. Borrower shall have the right, at any time or from time to time, without premium or penalty, to terminate the Total Unutilized Revolving Loan Commitment, in whole or in part, in integral multiples of $500,000 in the case of partial reductions to the Total Unutilized Revolving Loan Commitment. Each reduction to the Total Unutilized Revolving Loan Commitment pursuant to this Section 3.02 shall apply (i) first, in an amount equal to the lesser of the reduction to the Total Unutilized Revolving Loan Commitment then being effected or the Total Non-German Revolving Loan Sub- Commitment then in effect, to reduce the Revolving Loan Commitment (and the Non- German Revolving Loan Sub-Commitment) of each Lender, pro rata based on the relative Non-German Revolving Loan Sub-Commitments of the various Lenders (or their respective Affiliates) and (ii) to the extent in excess of the amount to be applied pursuant to preceding clause (i), to reduce the remaining Revolving Loan Commitments (and the German Revolving Loan Sub-Commitments) of the various Lenders pro rata based on the German Revolving Loan Sub-Commitments of the various Lenders. Notwithstanding anything to the contrary contained in the immediately preceding sentence, at the time of any reduction to the Total Unutilized Revolving Loan Commitment pursuant to this Section 3.02, the U.S. Borrower may, but shall not be required to, elect that all or portion of such reduction first be applied as provided in clause (ii) of the immediately preceding sentence, with any excess over the amount of the Total German Revolving Loan Sub-Commitment as then in effect to be applied as provided in clause (i) of the immediately preceding sentence. 3.03 Mandatory Reduction of Commitments. (a) The Total Commitments (and the U.S. Borrower Tranche A Term Loan Commitment, the German Borrower Tranche A Term Loan Commitment, the Delayed Draw Term Loan Commitment, the Tranche B Term Loan Commitment, the Tranche C Term Loan Commitment, the Revolving Loan Commitment, the German Revolving Loans Sub-Commitment and the Non-German Revolving Loans Sub-Commitment of each Lender) shall terminate in their entirety on September 30, 1997 unless the Initial Borrowing Date has occurred on or before such date. (b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total U.S. Borrower Tranche A Term Loan Commitment shall (i) be reduced on the Initial Borrowing Date (after giving effect to the making of U.S. Borrower Tranche A Term Loans on such date), in an amount equal to the aggregate principal amount of U.S. Borrower Tranche A Term Loans incurred on such date, (ii) terminate in its entirety (to the extent not theretofore terminated) at 5:00 P.M. (New York -37- 46 time) on the earlier to occur of the PIK Preferred Drawdown Date (after giving effect to the making of U.S. Borrower Tranche A Term Loans on such date) or the U.S. Borrower Tranche A Term Loan Commitment Termination Date, whether or not any U.S. Borrower Tranche A Term Loans are incurred on such date and (iii) prior to the termination of the Total U.S. Borrower Tranche A Term Loan Commitment, be reduced from time to time to the extent required by Section 4.02. (c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total German Borrower Tranche A Term Loan Commitment shall (i) terminate in its entirety (to the extent not theretofore terminated) at 5:00 P.M. (New York time) on the Initial Borrowing Date (after giving effect to the making of German Borrower Tranche A Term Loans on such date) and (ii) prior to the termination of the Total German Borrower Tranche A Term Loan Commitment, be reduced from time to time to the extent required by Section 4.02. (d) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Delayed Draw Term Loan Commitment shall (i) be reduced on each Delayed Draw Term Loan Borrowing Date (after giving effect to the making of Delayed Draw Term Loans on such date), in the amount equal to the aggregate principal amount of Delayed Draw Term Loans incurred on such date, (ii) terminate in its entirety (to the extent not theretofore terminated) at 5:00 P.M. (New York time) on the Delayed Draw Term Loan Commitment Termination Date, whether or not any Delayed Draw Term Loans are incurred on such date and (iii) prior to the termination of the Total Delayed Draw Term Loan Commitment, be reduced from time to time to the extent required by Section 4.02. (e) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Tranche B Term Loan Commitment shall (i) be reduced on the Initial Borrowing Date (after giving effect to the making of Tranche B Term Loans on such date), in an amount equal to the aggregate principal amount of Tranche B Term Loans incurred on such date, (ii) terminate in its entirety (to the extent not theretofore terminated) at 5:00 P.M. (New York time) on the earlier to occur of the PIK Preferred Drawdown Date (after giving effect to the making of Tranche B Term Loans on such date) or the Tranche B Term Loan Commitment Termination Date, whether or not any Tranche B Term Loans are incurred on such date and (iii) prior to the termination of the Total Tranche B Term Loan Commitment, be reduced from time to time to the extent required by Section 4.02. (f) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Tranche C Term Loan Commitment shall (i) be reduced on the Initial Borrowing Date (after giving effect to the making of Tranche C Term Loans on such date), in an amount equal to the aggregate principal amount of Tranche C Term Loans incurred on such date, (ii) terminate in its entirety (to the extent not theretofore -38- 47 terminated) at 5:00 P.M. (New York time) on the earlier to occur of the PIK Preferred Drawdown Date (after giving effect to the making of Tranche C Term Loans on such date) or the Tranche C Term Loan Commitment Termination Date, whether or not any Tranche C Term Loans are incurred on such date and (iii) prior to the termination of the Total Tranche C Term Loan Commitment, be reduced from time to time to the extent required by Section 4.02. (g) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving Loan Commitment, the German Revolving Loan Sub-Commitment and the Non-German Revolving Loan Sub-Commitment of each Lender) shall terminate in its entirety on the earlier to occur of (x) the date (if any) after the Initial Borrowing Date and occurring on or prior to the Subsidiary Stock Restrictions Approval Date, upon which any Lien is created with respect to, or any disposition occurs with respect to, any capital stock of any Subsidiary of the U.S. Borrower identified in the definition of "Subsidiary Stock Restrictions" contained herein if such Lien or disposition, as the case may be, would not be permitted if the Subsidiary Stock Restrictions contained in this Agreement were then effective in accordance with the terms thereof had the Subsidiary Stock Restrictions Approval Date theretofore occurred and (y) the Revolving Loan Maturity Date. (h) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on the Initial Borrowing Date (but immediately before the making of any Loans pursuant to this Agreement) to the extent that any of the U.S. Borrower's Existing Senior Secured Notes have not been accepted for purchase pursuant to the Existing Senior Secured Notes Tender Offer, an amount equal to the amount which would have been paid to repurchase all such Existing Senior Secured Notes not tendered pursuant to the Existing Senior Secured Notes Tender Offer (if same had been tendered pursuant thereto), but only if such amount exceeds $250,000, shall be applied to reduce the Total U.S. Borrower Tranche A Term Loan Commitment, the Total Tranche B Term Loan Commitment and the Total Tranche C Term Loan Commitment on a pro rata basis -39- 48 (based upon the relative amounts of such Commitments before giving effect to the reduction thereto pursuant to this sentence) (with the aggregate amount of commitment reductions pursuant to this sentence being herein called the "Existing Senior Secured Notes Reduction Amount"). Furthermore, on the Initial Borrowing Date (but immediately before the making of any Loans pursuant to this Agreement) (i) to the extent that less than an amount equal to $275 million less the Existing Senior Secured Notes Reduction Amount is to be used, on the Initial Borrowing Date or within 45 days thereafter, to effect the Refinancing (excluding (i) the uses made or to be made with proceeds available under the Delayed Draw Term Loan Facility and (ii) payments of fees in connection herewith and in connection with the Refinancing, but including amounts to be used to redeem the Existing PIK Preferred Stock), an amount equal to such difference shall be applied to reduce the Total U.S. Borrower Tranche A Term Loan Commitment, the Total Tranche B Term Loan Commitment and the Total Tranche C Term Loan Commitment on a pro rata basis (based upon the relative amounts of such Commitments before giving effect to any reductions thereto pursuant to this sentence) and (ii) to the extent the net cash proceeds from the issuance of the New Senior Subordinated Notes will exceed $150 million, the amount of such excess shall apply to reduce the Total U.S. Borrower Tranche A Term Loan Commitment, the Total Tranche B Term Loan Commitment and the Total Tranche C Term Loan Commitment on a pro rata basis (based upon the relative amounts of such Commitments before giving effect to any reductions thereto pursuant to this sentence). (i) Each reduction to the Total U.S. Borrower Tranche A Term Loan Commitment, the Total German Borrower Tranche A Term Loan Commitment, the Total Delayed Draw Term Loan Commitment, the Total Tranche B Term Loan Commitment, the Total Tranche C Term Loan Commitment and the Total Revolving Loan Commitment pursuant to this Section 3.03 (or pursuant to Section 4.02) shall be applied proportionately to reduce the U.S. Borrower Tranche A Term Loan Commitment, the German Borrower Tranche A Term Loan Commitment, the Delayed Draw Term Loan Commitment, the Tranche B Term Loan Commitment, the Tranche C Term Loan Commitment or the Revolving Loan Commitment, as the case may be, of each Lender with such a Commitment. -40- 49 SECTION 4. Prepayments; Payments; Taxes. -41- 50 4.01 Voluntary Prepayments. Each Borrower shall have the right to prepay the Loans made to such Borrower, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) such Borrower shall give the Administrative Agent prior to 2:00 P.M. (New York time) at its Notice Office (x) in the case of Base Rate Loans, at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay such Base Rate Loans (or same day notice in the case of Swingline Loans, provided such notice is given prior to 12:00 Noon (New York time)) and (y) in all other cases, at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Euro Rate Loans, whether U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans, Delayed Draw Term Loans, Tranche B Term Loans, Tranche C Term Loans, Dollar Revolving Loans or Deutsche Mark Revolving Loans shall be prepaid, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Euro Rate Loans, the specific Borrowing or Borrowings pursuant to which made, which notice the Administrative Agent shall promptly transmit to each of the Lenders with Loans of the respective Tranche; (ii) each prepayment shall be in an aggregate principal amount of at least (x) in the case of Base Rate Loans, $1,000,000 (or $100,000 in the case of Swingline Loans) and (y) in the case of Euro Rate Loans, at least $2,000,000 (or the Deutsche Mark Equivalent thereof in the case of Deutsche Mark Loans), provided that if any partial prepayment of Euro Rate Loans made pursuant to any Borrowing shall reduce the outstanding Euro Rate Loans made pursuant to such Borrowing to an amount less than the respective Minimum Borrowing Amount for such Tranche and Type of Loans, then such Borrowing (x) in the case of Dollar Loans, shall be converted at the end of the then current Interest Period into a Borrowing of Base Rate Loans and (y) in the case of Deutsche Mark Loans, shall be repaid in full at the end of the then current Interest Period; (iii) each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans; (iv) subject to the immediately succeeding sentence, each voluntary prepayment of Term Loans pursuant to this Section 4.01(a) shall be applied pro rata to each Tranche of Term Loans (based upon the then outstanding principal amount of U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans (taking the Dollar Equivalent thereof), Delayed Draw Term Loans, Tranche B Term Loans and Tranche C Term Loans); and (v) subject to the immediately succeeding sentence, each voluntary prepayment of any Tranche of Term Loans (after giving effect to any applicable requirements set forth above) shall apply to reduce the then remaining Scheduled Repayments of such Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amounts of such Scheduled Repayments of the respective Tranche of Term Loans, after giving effect to all prior reductions thereto). Notwithstanding clauses (iv) and (v) of the immediately preceding sentence, the U.S. Borrower may direct that any voluntary prepayment of Term Loans be applied (x) first, to Scheduled Repayments of Term Loans which shall be due and payable within 12 months from the date of the respective voluntary pre-payment, in direct order of maturity (which may result in a disproportionate allocation to the various Tranches of Term Loans) and (y) to the extent in excess of the amounts to be applied pursuant to the -42- 51 preceding clause (x), as provided in the immediately preceding sentence (without giving regard to this sentence). The provisions of this Section 4.01 are further subject to the provisions of Section 4.05. 4.02 Mandatory Repayments and Commitment Reductions. (a) (i) On any day on which the sum of the aggregate outstanding principal amount of the Swingline Loans, Revolving Loans (for this purpose, using the Dollar Equivalent thereof in the case of outstanding Deutsche Mark Revolving Loans) and the Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment as then in effect, the U.S. Borrower shall prepay on such day the principal of outstanding Swingline Loans and, after the Swingline Loans have been repaid in full, the U.S. Borrower shall repay the principal of outstanding Dollar Revolving Loans and/or the German Borrowers shall repay the principal of outstanding Deutsche Mark Revolving Loans (allocated between Dollar Revolving Loans and Deutsche Mark Revolving Loans as the Revolving Loan Borrowers may elect) in an amount equal to such excess. If, after giving effect to the prepayment in full of all outstanding Swingline Loans and Revolving Loans, the aggregate amount of the Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment as then in effect, the respective Account Parties shall pay to the Administrative Agent at the appropriate Payment Office on such day an amount of cash or Cash Equivalents of such excess (up to a maximum amount equal to the Letter of Credit Outstandings at such time), such cash or Cash Equivalents to be held as security for all obligations of the respective Account Party hereunder in a cash collateral account to be established by the Administrative Agent. (ii) If on any date the sum of the aggregate outstanding principal amount of Swingline Loans, Dollar Revolving Loans and the U.S. Letter of Credit Out- standings exceeds the U.S. Borrowing Base as then in effect, the U.S. Borrower shall prepay on such day principal of outstanding Swingline Loans and, after the Swingline Loans have been repaid in full, Dollar Revolving Loans in an amount equal to such excess. If, after giving effect to the prepayment in full of all outstanding Swingline Loans and Dollar Revolving Loans, the aggregate amount of the U.S. Letter of Credit Outstandings exceeds the U.S. Borrowing Base as then in effect, the U.S. Borrower shall pay to the Administrative Agent at the appropriate Payment Office on such day an amount of cash or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the U.S. Letter of Credit Outstandings at such time), such cash or Cash Equivalents to be held as security for all obligations of the U.S. Borrower hereunder in a cash collateral account to be established by the Administrative Agent. (iii) If on any date the sum of the aggregate outstanding principal amount of Deutsche Mark Revolving Loans and the German Letter of Credit Outstand- ings (each expressed in Deutsche Marks for purposes of following clause (x) and each expressed in Dollars, taking the Dollar Equivalent of all Deutsche Mark Revolving Loans then outstanding, for purposes of following clauses (y) and (z)) exceeds the least of (x) the German Borrowing Base as then in effect, (y) $55,000,000 or (z) the Total German -43- 52 Revolving Loan Sub-Commitment as then in effect, then the German Borrowers shall prepay (and shall be jointly and severally obligated to prepay) on such day principal of outstanding Deutsche Mark Revolving Loans in an amount equal to such excess. If, after giving effect to the prepayment in full of all outstanding Deutsche Mark Revolving Loans, the aggregate amount of the German Letter of Credit Outstandings (expressed in Deutsche Marks (and taking the Deutsche Mark Equivalent of the Stated Amount of any German Letter of Credit denominated in a currency other than Deutsche Marks) for purposes of following clause (x) only) exceeds the least of (x) the German Borrowing Base as then in effect, (y) $55,000,000 or (z) the Total German Revolving Loan Sub-Commitment as then in effect, then the German Borrowers shall pay (and shall be jointly and severally obligated to pay) to the Administrative Agent at the appropriate Payment Office on such day an amount of cash or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the German Letter of Credit Outstandings at such time), such cash or Cash Equivalents to be held as security for all obligations of the German Borrowers hereunder in a cash collateral account to be established by the Administrative Agent. (b)(i) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the U.S. Borrower shall be required to repay that principal amount of U.S. Borrower Tranche A Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(h) through (j), inclusive, a "U.S. Borrower Tranche A Scheduled Repayment," and each such date, a "U.S. Borrower Tranche A Scheduled Repayment Date"):
U.S. Borrower Tranche A Scheduled Repayment Date Amount ------------------------ ------ Tranche A Term Loan Maturity Date $0
(ii) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the German Borrowers shall be required, and shall be jointly and severally obligated, to repay that principal amount of German Borrower Tranche A Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(h) through (j), inclusive, a "German Borrower Tranche A Scheduled Repayment," and each such date, a "German Borrower Tranche A Scheduled Repayment Date"): -44- 53 German Borrower Tranche A Scheduled Repayment Date Amount ------------------------ ------- Tranche A Term Loan Maturity Date DM 0 (iii) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the U.S. Borrower shall be required to repay that principal amount of Delayed Draw Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(h) through (j), inclusive, a "Delayed Draw Scheduled Repayment," and each such date, a "Delayed Draw Scheduled Repayment Date"):
Delayed Draw Scheduled Repayment Date Amount ------------------------ ------ October 31, 1998 $ 62,500 January 31, 1999 $ 62,500 April 30, 1999 $ 62,500 July 31, 1999 $ 62,500 October 31, 1999 $ 62,500 January 31, 2000 $ 62,500 April 30, 2000 $ 62,500 July 31, 2000 $ 62,500 October 31, 2000 $ 62,500 January 31, 2001 $ 62,500 April 30, 2001 $ 62,500 July 31, 2001 $ 62,500 October 31, 2001 $ 125,000 January 31, 2002 $ 125,000 April 30, 2002 $ 125,000 July 31, 2002 $ 125,000 October 31, 2002 $1,250,000 January 31, 2003 $1,250,000 April 30, 2003 $1,250,000 July 31, 2003 $1,250,000 October 31, 2003 $3,125,000 January 31, 2004 $3,125,000 April 30, 2004 $3,125,000 July 31, 2004 $3,125,000 October 31, 2004 $3,125,000 Delayed Draw Term Loan Maturity Date $3,125,000
-45- 54 If at the time of the termination of the Total Delayed Draw Term Loan Commitment (and after giving effect to the incurrence of any Delayed Draw Term Loans at such time) the U.S. Borrower has not theretofore incurred at least $25,000,000 of Delayed Draw Term Loans, then each of the Delayed Draw Scheduled Repayments set forth in the table above shall be reduced on a pro rata basis (based on the relative proportion that the amount of each such Delayed Draw Scheduled Repayment bears to the aggregate amount of all such Delayed Draw Scheduled Repayments as set forth in the table above. (iv) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the U.S. Borrower shall be required to repay that principal amount of Tranche B Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(h) through (j), inclusive, a "Tranche B Scheduled Repayment," and each such date, a "Tranche B Scheduled Repayment Date"):
Tranche B Scheduled Repayment Date Amount ------------------------ ------ October 31, 1997 $ 187,500 January 31, 1998 $ 187,500 April 30, 1998 $ 187,500 July 31, 1998 $ 187,500 October 31, 1998 $ 187,500 January 31, 1999 $ 187,500 April 30, 1999 $ 187,500 July 31, 1999 $ 187,500 October 31, 1999 $ 187,500 January 31, 2000 $ 187,500 April 30, 2000 $ 187,500 July 31, 2000 $ 187,500 October 31, 2000 $ 187,500 January 31, 2001 $ 187,500 April 30, 2001 $ 187,500 July 31, 2001 $ 187,500 October 31, 2001 $ 187,500 January 31, 2002 $ 187,500 April 30, 2002 $ 187,500 July 31, 2002 $ 187,500 October 31, 2002 $ 3,187,500 January 31, 2003 $ 3,187,500 April 30, 2003 $ 3,187,500
-46- 55 July 31, 2003 $ 3,187,500 October 31, 2003 $ 9,375,000 January 31, 2004 $ 9,375,000 April 30, 2004 $ 9,375,000 July 31, 2004 $ 9,375,000 October 31, 2004 $10,500,000 Tranche B Term Loan Maturity Date $10,500,000
(v) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the U.S. Borrower shall be required to repay that principal amount of Tranche C Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(h) through (j), inclusive, a "Tranche C Scheduled Repayment," and each such date, a "Tranche C Scheduled Repayment Date"):
Tranche C Scheduled Repayment Date Amount ------------------------ ------ October 31, 1997 $ 100,000 January 31, 1998 $ 100,000 April 30, 1998 $ 100,000 July 31, 1998 $ 100,000 October 31, 1998 $ 100,000 January 31, 1999 $ 100,000 April 30, 1999 $ 100,000 July 31, 1999 $ 100,000 October 31, 1999 $ 100,000 January 31, 2000 $ 100,000 April 30, 2000 $ 100,000 July 31, 2000 $ 100,000 October 31, 2000 $ 100,000 January 31, 2001 $ 100,000 April 30, 2001 $ 100,000 July 31, 2001 $ 100,000 October 31, 2001 $ 100,000 January 31, 2002 $ 100,000 April 30, 2002 $ 100,000 July 31, 2002 $ 100,000 October 31, 2002 $ 100,000 January 31, 2003 $ 100,000 April 30, 2003 $ 100,000 July 31, 2003 $ 100,000 October 31, 2003 $ 4,700,000
-47- 56 January 31, 2004 $ 4,700,000 April 30, 2004 $ 4,700,000 July 31, 2004 $ 4,700,000 October 31, 2004 $ 4,700,000 January 31, 2005 $ 4,700,000 April 30, 2005 $ 4,700,000 Tranche C Term Loan Maturity Date $ 4,700,000
(c) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Effective Date upon which the U.S. Borrower or any of its Subsidiaries receives any cash proceeds from any capital contribution or any sale or issuance of its equity (other than equity contributions to any Subsidiary of the U.S. Borrower made by the U.S. Borrower or any other Subsidiary of the U.S. Borrower), an amount equal to 50% of the cash proceeds of such capital contribution or sale or issuance (net of underwriting or placement discounts and commissions and other costs and expenses associated therewith) shall, subject to Section 4.02(k), be applied in accordance with the requirements of Sections 4.02(h) and (i). Notwithstanding anything to the contrary contained above, an amount equal to the Net Cash Proceeds received by the U.S. Borrower or any of its Subsidiaries from any sale or disposition as described in Section 9.02(ix) shall be applied in accordance with the requirements of this clause (c). (d) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Effective Date upon which the U.S. Borrower or any of its Subsidiaries receives any cash proceeds from any incurrence by the U.S. Borrower or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred pursuant to Section 9.04 as such Section is in effect on the Effective Date), an amount equal to 100% of the cash proceeds of the respective incurrence of Indebtedness (net of underwriting or placement discounts and commissions and other costs associated therewith) shall, subject to Sections 4.02(j) and (k), be applied in accordance with the requirements of Sections 4.02(h) and (i). (e) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Effective Date upon which the U.S. Borrower or any of its Subsidiaries receives cash proceeds from any sale of assets (including capital stock and securities held thereby, but excluding sales of assets permitted by clauses (v), (vi), (viii), (ix) (although all proceeds received as a result of any disposition pursuant to said clause (ix) shall be applied in accordance with the requirements of preceding Section 4.02(c), regardless of whether the transaction is structured as the sale of equity interests by the owners thereof or an issuance by the German Parent or other entity described in said clause (ix)) and (x) of Section 9.02, an amount equal to 100% of the Net Sale Proceeds therefrom shall, subject to Sections -48- 57 4.02(j) and (k), be applied in accordance with the requirements of Sections 4.02(h) and (i); provided, however, that so long as no Default or Event of Default then exists, the Net Sale Proceeds from any sale or disposition pursuant to Section 9.02(vii) shall not be required to be so applied on such date to the extent that such proceeds shall be used (and the U.S. Borrower notifies the Administrative Agent in writing on the date the respective repayment would otherwise be required that such proceeds are intended by it to be used, specifying the amount of such proceeds) to purchase replacement or other assets (excluding current assets) used or to be used in the business of U.S. Borrower and its Subsidiaries as permitted by Section 9.15 within twelve months following the date the respective such sale of assets, and, provided further, that (x) in no event shall elections pursuant to the immediately preceding proviso apply to more than $5,000,000 of Net Sale Proceeds in any fiscal year of the U.S. Borrower and (y) if all or any portion of any such Net Sale Proceeds not required to be so applied as a mandatory repayment as provided above are not so reinvested within such twelve month period, such remaining portions shall be applied on the last day of such twelve month period as a mandatory repayment in accordance with the requirements of this Section 4.02(e). (f) In addition to any other mandatory repayments pursuant to this Section 4.02, on each Excess Cash Payment Date, an amount equal to 50% of the Excess Cash Flow for the relevant Excess Cash Payment Period shall be applied in accordance with the requirements of Sections 4.02(h) and (i). (g) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, within 30 days following each date after the Effective Date on which the U.S. Borrower or any of its Subsidiaries receives any proceeds from any Recovery Event, an amount equal to 100% of the proceeds of such Recovery Event (net of costs and taxes incurred in connection with such Recovery Event) shall, subject to Section 4.02(j), be applied in accordance with the requirements of Sections 4.02(h) and (i), provided that (x) so long as no Default or Event of Default then exists pursuant to Section 10.05, and if any other Default or Event of Default then exists so long as the Required Lenders do not otherwise direct the Administrative Agent at any time, and so long as such proceeds do not exceed $2,000,000, such proceeds shall not be required to be so applied (and to the extent held or received by the Administrative Agent or the Collateral Agent, shall be released to the U.S. Borrower) on such date to the extent that the U.S. Borrower has delivered a certificate to the Administrative Agent on or prior to such date stating that such proceeds shall be used to replace or restore any properties or assets in respect of which such proceeds were paid within 365 days (or 540 days, so long as contractually committed to be so used within 365 days) following the date of such Recovery Event (which certificate shall set forth the estimates of the proceeds to be so expended) and (y) so long as no Default or Event of Default then exists pursuant to Section 10.05, and if any other Default or Event of Default then exists so long as the Required Lenders do not otherwise direct the Administrative Agent at any time, and so long as to the extent that (a) the amount of such proceeds exceeds $2,000,000, (b) the U.S. Borrower has delivered to the Administrative Agent a certificate on or prior to the -49- 58 date the application would otherwise be required pursuant to this Section 4.02(g) in the form described in clause (x) above and also certifying the sufficiency of business interruption insurance as required by succeeding clause (c), and (c) the U.S. Borrower has delivered to the Administrative Agent such evidence as the Administrative Agent may reasonably request in form and substance reasonably satisfactory to the Administrative Agent establishing that the U.S. Borrower and/or its relevant Subsidiaries have sufficient business interruption insurance and that the U.S. Borrower and/or its relevant Subsidiaries will be receiving regular payments thereunder in such amounts and at such times as are necessary, in conjunction with any cash and Cash Equivalents then held by the U.S. Borrower and its Subsidiaries or otherwise available to them and cash flow reasonably expected to be generated in the ordinary course of business (in each case which funds will be accessible and permitted to be used for such purposes) to satisfy all obligations and expenses of the U.S. Borrower and its Subsidiaries (including, without limitation, all debt service requirements, including pursuant to this Agreement), without any delay or extension thereof, for the period from the date of the respective casualty, condemnation or other event giving rise to the Recovery Event and continuing through the completion of the replacement or restoration of respective properties or assets, then the entire amount and not just the portion in excess of $2,000,000 shall be deposited as security for the Obligations with the Administrative Agent for the benefit of the Secured Creditors pursuant to a cash collateral arrangement reasonably satisfactory to the Administrative Agent whereby such proceeds shall be disbursed to the U.S. Borrower or its respective Subsidiary from time to time as needed to pay actual costs incurred by it in connection with the replacement or restoration of the respective properties or assets (pursuant to such reasonable certification requirements as may be established by the Administrative Agent), provided further, that at any time while an Event of Default has occurred and is continuing, the Required Lenders may direct the Administrative Agent (in which case the Administrative Agent shall, and is hereby authorized by the Borrowers to, follow said directions) to apply any or all proceeds then on deposit in such collateral account to the repayment of Obligations hereunder in the same manner as proceeds would be applied pursuant to the U.S. Security Agreement, and, provided further, that if all or any portion of such proceeds not required to be applied as a mandatory repayment and/or commitment reduction pursuant to the second preceding proviso are either (A) not so used within 365 days after the date of receipt of proceeds from the respective Recovery Event or (B) if contractually committed to be used within 365 days after the date of receipt of proceeds from the respective Recovery Event and not so used within 540 days after the date of receipt of proceeds from the respective Recovery Event, then, in either case, such remaining portion not used or contractually committed to be used in the case of the preceding clause (A) and not used in the case of preceding clause (B), shall be applied on the date which is 365 days following the date of receipt of proceeds from the respective Recovery Event in the case of clause (A) above, or the date which is 540 days after the date of receipt of proceeds from the respective Recovery Event in the case of clause (B) above, in accordance with the requirements of Section 4.02(h), (i) and (j). -50- 59 (h) Each amount required to be applied to Term Loans pursuant to this clause (h) as a result of the requirements of Sections 4.02(c), (d), (e), (f) and (g), shall, subject to the relevant provisions of following clauses (j) and (k) and Section 4.05, be applied (after any conversion by the respective Borrower of any amounts received in a currency other than the relevant Applicable Currency or Applicable Currencies, into the respective Applicable Currency or Applicable Currencies) to repay the outstanding principal amount of U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans, Delayed Draw Term Loans (to the extent then outstanding), Tranche B Term Loans and Tranche C Term Loans (or, if the Initial Borrowing Date has not yet occurred, to reduce the related Commitments) of the respective Tranches (with each Tranche of Term Loans being allocated that percentage of the amount to be so applied as is equal to a fraction (expressed as a percentage) the numerator of which is equal to the outstanding principal amount of such Tranche of Term Loans (or, if the Initial Borrowing Date has not yet occurred, the aggregate Term Loan Commitments of the Lenders with respect to such Tranche) and the denominator of which is equal to the then outstanding principal amount of all Term Loans (or if the Initial Borrowing Date has not yet occurred, the Total Term Loan Commitment at such time)). Any amount required to be applied to any Tranche of Term Loans pursuant to the requirements of the immediately preceding sentence, or pursuant to following clause (j), shall be applied to repay the outstanding principal amount of Term Loans of the respective Tranche (or if the Initial Borrowing Date has not yet occurred, to reduce the Total U.S. Borrower Tranche A Term Loan Commitment, the Total German Borrower Tranche A Term Loan Commitment, the Total Delayed Draw Term Loan Commitment, the Total Tranche B Term Loan Commitment, or the Total Tranche C Term Loan Commitment, as the case may be). The amount of each principal repayment of U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans, Delayed Draw Term Loans, Tranche B Term Loans and Tranche C Term Loans (and the amount of each reduction to the related Term Loan Commitments) made as required by this clause (h), or by following clause (j), shall be applied pro rata to reduce the then remaining Scheduled Repayments of the respective Tranche based upon the then remaining amount of each Scheduled Repayment of the respective Tranche, after giving effect to all prior reductions thereto. (i) With respect to each repayment of Loans required by this Section 4.02, the respective Borrower may designate the Types of Loans of the respective Tranche which are to be repaid and, in the case of Euro Rate Loans, the specific Borrowing or Borrowings of the respective Tranche pursuant to which made, provided that: (i) in the case of repayments of Dollar Loans, repayments of Eurodollar Loans of the respective Tranche pursuant to this Section 4.02 may only be made on the last day of an Interest Period applicable thereto unless all Eurodollar Loans of the respective Tranche with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Tranche have been paid in full; (ii) if any repayment of Euro Rate Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the respective Minimum Borrowing Amount for the -51- 60 respective Tranche and Type of Loan, such Borrowing (x) in the case of Dollar Loans, shall be converted at the end of the then current Interest Period into a Borrowing of Base Rate Loans and (y) in the case of Deutsche Mark Loans, shall be repaid in full at the end of the then current Interest Period (with the amount of any such repayment to be applied pro rata to reduce the then remaining Scheduled Repayments of the respective Tranche based upon the then remaining amount of each Scheduled Repayment of the respective Tranche after giving effect to all prior reductions thereto); and (iii) each repayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. In the absence of a designation by the respective Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion. (j) Notwithstanding anything to the contrary contained in this Section 4.02, to the extent that any mandatory repayment after the Initial Borrowing Date is required pursuant to any of Sections 4.02(d), (e) and (g), and if the respective repayment is based on an event occurring with respect to either of the German Borrowers or any of the German Subsidiaries, then, at the time the respective repayment is otherwise required pursuant to this Section 4.02, the U.S. Borrower may designate that the amount of the respective such repayment shall be applied (i) first, to the repayment of principal of German Borrower Tranche A Term Loans then outstanding (to the extent of the amount thereof), which amount shall be applied in accordance with the requirements of the second and third sentences of Section 4.02(h) and the requirements of Section 4.02(i), and (ii) second, to the extent the respective repayment exceeds the aggregate principal amount of then outstanding German Borrower Tranche A Term Loans, as otherwise required pursuant to preceding Sections 4.02(h) and (i) (without regard to the provisions of this clause (j)). (k) Notwithstanding anything to the contrary contained in this Section 4.02, to the extent that mandatory repayments after the Initial Borrowing Date would be required pursuant to one or more of Sections 4.02(c), (d), (e) and/or (g), then (x) in each fiscal year of the U.S. Borrower, not more than $1 million of cash proceeds otherwise required to be applied in accordance with the requirements of said Sections may be excluded therefrom (in the aggregate for all such Sections in any such fiscal year) and (y) to the extent that proceeds (after giving effect to preceding clause (x)) at any time to be applied pursuant to one or more of Sections 4.02(c), (d), (e) and/or (g) aggregate less than $1,000,000, the required repayment may be deferred until the first date upon which the amount of proceeds to be applied pursuant to said Sections (taking into account any subsequent event of the type described in said Sections and all pro- ceeds which would otherwise have been required to be applied pursuant thereto but which have been deferred pursuant to this clause (y)) equal or exceed $1,000,000. (l) Notwithstanding anything to the contrary contained in this Agreement or in any other Credit Document, all then outstanding Loans of any Tranche -52- 61 shall be repaid in full on the respective Maturity Date for such Tranche of Loans or, if earlier, the date (if any) occurring after the Initial Borrowing Date and on or prior to the Subsidiary Stock Restrictions Approval Date, upon which any Lien is created with respect to, or any disposition occurs with respect to, any capital stock of any Subsidiary of the U.S. Borrower identified in the definition of "Subsidiary Stock Restrictions" contained herein if such Lien or disposition, as the case may be, would not be permitted if the Subsidiary Stock Restrictions contained in this Agreement were then effective in accordance with the terms thereof had the Subsidiary Stock Restrictions Approval Date theretofore occurred. 4.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement or any Note shall be made to the Administrative Agent for the account of the Lender or Lenders entitled thereto not later than 2:00 P.M. (local time in the city in which the Payment Office for the respective payments is located) on the date when due and shall be made in (x) Dollars in immediately available funds at the appropriate Payment Office of the Administrative Agent in respect of any obligation of the Borrowers under this Agreement except as otherwise provided in the immediately following clause (y) and (y) Deutsche Marks in immediately available funds at the appropriate Payment Office of the Administrative Agent, if such payment is made in respect of (i) principal of or interest on Deutsche Mark Loans, or (ii) any increased costs, indemnities or other amounts owing with respect to Deutsche Mark Loans (or Commitments relating thereto), in the case of this clause (ii) to the extent the respective Lender which is charging same denominates the amounts owing in Deutsche Marks. The Administrative Agent will thereafter cause to be distributed on the same day (if payment was actually received by the Administrative Agent prior to 2:00 P.M. local time in the city in which such payments are to be made)) like funds relating to the payment of principal, interest or Fees ratably to the Lenders entitled thereto. Any payments under this Agreement which are made later than 2:00 P.M. (local time in the city in which such payments are to be made) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest and fees shall be payable at the applicable rate during such extension. 4.04 Net Payments. (a) All payments made by any Borrower hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Sections 4.04(b) and (c), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or profits or franchise taxes -53- 62 based on net income of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the respective Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the respective Borrower agrees to reimburse each Lender, upon the written request of such Lender, for the net additional amount of taxes imposed on or measured by the net income or profits of such Lender (after taking into account the amount of any credits realized by such Lender) pursuant to the laws of the jurisdiction in which the principal office or applicable lending office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which the principal office or applicable lending office of such Lender is located and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The respective Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the respective Borrower. Each Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the U.S. Borrower and the Administrative Agent on or prior to the Effective Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 13.04 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. -54- 63 In addition, each Lender agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the U.S. Borrower and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the U.S. Borrower and the Administrative Agent of its inability to deliver any such Form or Certificate in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the U.S. Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the U.S. Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the U.S. Borrower shall not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the U.S. Borrower the Internal Revenue Service Forms required to be provided to the U.S. Borrower pursuant to this Section 4.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the U.S. Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. -55- 64 (c) Each Lender that is not a resident of the Federal Republic of Germany for Federal Republic of Germany tax purposes agrees to (i) deliver to the German Borrowers and the Administrative Agent such declaration of non-residence or other similar certificate as shall be requested by the German Borrowers (giving the Lender sufficient time to satisfy such requirement), as is required by statute, treaty or regulation of the Federal Republic of Germany existing on the date hereof or which are not substantially more onerous than those existing on the date hereof and which do not impose an unreasonable burden (in time, resources or otherwise) on the Lender, or (ii) within 45 days after the date hereof, make the requisite filing with the taxing authority of the Federal Republic of Germany in order to certify that such Lender is subject to income tax on a net basis in the United States (and/or the taxing authority of the jurisdiction in which such Lender's principal office is located) as required to establish its entitlement to an exemption from Federal Republic of Germany withholding under the double tax treaty currently in force between the United States (or the jurisdiction in which such Lender's principal office is located) and the Federal Republic of Germany. Notwithstanding anything to the contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the German Borrowers shall be entitled, to the extent required to do so by law, to deduct and withhold income or similar taxes imposed by the Federal Republic of Germany on interest, Fees or other amounts payable hereunder for the account of any Lender which is not a resident of the Federal Republic of Germany for Federal Republic of Germany tax purposes to the extent that (I) such Lender has not provided forms, declarations or other certification required to establish a complete exemption from such deduction or withholding or (II) the German Borrowers are required to do so by any thin capitalization laws or regulations in the Federal Republic of Germany which recharacterize the interest payments as dividends and (y) the German Borrowers shall not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Lender in respect of income or similar taxes imposed by the Federal Republic of Germany if such Lender has not provided to the German Borrowers the forms or declarations required to be provided by such Lender pursuant to the preceding sentence. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04, and except as set forth in Section 13.04(b), the German Borrowers agree to pay any additional amounts and to indemnify each Lender in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. For the avoidance of doubt, nothing herein shall require any Lender to disclose any information regarding its tax affairs or computations to the German Borrowers or any of its Affiliates and no Lender shall be obligated to disclose any of its tax returns to the German Borrowers or any of its Affiliates or any agent of the foregoing. -56- 65 (d) If any Borrower pays any additional amount under this Section 4.04 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid, such Lenders shall pay to the Borrower an amount that the Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. 4.05 Waivable Repayments. Notwithstanding anything to the contrary contained in Sections 4.01 and 4.02 or elsewhere in this Agreement, at the time any voluntary or mandatory repayment of outstanding Term Loans is to be made pursuant to any of Sections 4.01 or 4.02 (c), (d), (e), (f) or (g) (each a "Waivable Repayment"), (x) to the extent that U.S. Borrower Tranche A Term Loans and/or German Borrower Tranche A Term Loans (taking the Dollar Equivalent thereof) are then outstanding and will be outstanding after giving effect to the application of that portion of the respective Waivable Repayment which is required to be applied to such Loans pursuant to Section 4.01 or 4.02, as the case may be, before giving effect to the application of this Section 4.05 (with the aggregate principal amount which will be so outstanding being herein called the "Outstanding A Term Loan Amount"), the U.S. Borrower shall have the option, in its sole discretion, to give the Lenders with outstanding Delayed Draw Term Loans, Tranche B Term Loans and Tranche C Term Loans (collectively, the "Longer Maturity Term Loans") the option to waive their pro rata shares of the respective Waivable Repayment upon the terms and provisions set forth in this Section 4.05; provided that the aggregate amount to which the option to waive pursuant to this clause (x) shall apply shall in no event exceed the Outstanding A Term Loan Amount at such time and (y) at such time as no U.S. Borrower Tranche A Term Loans or German Borrower Tranche A Term Loans remain outstanding, the U.S. Borrower shall have the option, in its sole discretion, to give the Lenders with outstanding Tranche C Term Loans the option to waive their pro rata share of any Waivable Repayment, so long as the amount they are permitted to waive pursuant to this clause (y) does not exceed the amount of Delayed Draw Term Loans and Tranche B Term Loans which will be outstanding immediately before the application of the amounts waived as contemplated by this Section 4.05. If the U.S. Borrower elects to exercise the option referred to in the immediately preceding sentence, the U.S. Borrower shall give the Administrative Agent written notice of its intention to give the Lenders holding Longer Maturity Term Loans or Tranche C Term Loans, as the case may be, the right to waive the respective Waivable Repayment (including in such notice the aggregate amount of such proposed or required repayment) at least five Business Days prior to the date of the proposed prepayment, in the case of prepayments pursuant to Section 4.01, or on the date the respective repayment would otherwise be required to be made, in the case of repayments required pursuant to Section 4.02 (c), (d), (e), (f) or (g), which notice the Administrative Agent shall promptly forward to all Lenders (including in such notice the amount of such repayment to be applied to such Lenders' outstanding Longer Maturity Term Loans or Tranche C Term Loans, as the case may be). The U.S. Borrower's offer -57- 66 to permit the Lenders holding Longer Maturity Term Loans or Tranche C Term Loans, as the case may be, to waive any such Waivable Repayment may apply to all or part of such repayment, provided that any offer to waive part of such repayment must be made ratably to the Lenders holding Longer Maturity Term Loans or Tranche C Term Loans, as the case may be, on the basis of their outstanding such Loans. In the event that any such Lender desires to waive its pro rata share of such Lender's right to receive any such Waivable Repayment in whole or in part, such Lender shall so advise the Administrative Agent no later than 4:00 P.M. (New York time) on the date which is two Business Days after the date of such notice from the Administrative Agent, which notice shall also include the amounts that Lender desires to receive in respect of such repayment. If any Lender does not reply to the Administrative Agent within two Business Days, such Lender shall be deemed not to have waived any part of such repayment. If any Lender does not specify an amount it wishes to receive, such Lender will be deemed to have accepted 100% of its share of such repayment. In the event that any such Lender waives all or part of its share of any such Waivable Repayment, the Administrative Agent shall apply 100% of the amount so waived by such Lender (x) first, to outstanding U.S. Borrower Tranche A Term Loans and German Borrower Tranche A Term Loans, if any, in accordance with Section 4.01 or 4.02(h) and (i), as the case may be, in each case as if no Longer Maturity Term Loans are then outstanding and (ii) next, to the extent in excess thereof, to repay outstanding principal of Delayed Draw Term Loans and Tranche B Term Loans in accordance with the requirements in Section 4.01 or 4.02(h) and (i), as the case may be, in each case determined as if no Tranche C Term Loans were then outstanding. To the extent that the U.S. Borrower exercises its option pursuant to this Section 4.05, any repayment otherwise required to be made to the Longer Maturity Term Loans or Tranche C Term Loans, as the case may be, pursuant to Section 4.02 (c), (d), (e), (f) or (g) shall be deferred until the date which is three Business Days after the date upon which such repayment would otherwise have been made. To the extent that any waivers are at any time granted pursuant to this Section 4.05, then all repayments of outstanding Borrowings within any Tranche of outstanding Term Loans shall be made in such manner as is necessary so that the various Lenders of such Tranche continue to participate in the outstanding Borrowings of the respective Tranche in such manner so that their percentage of each outstanding Borrowing will be the same (it being understood that the percentages of the various Lenders in the total outstandings may change, but that they will not have differing percentages in the various outstanding Borrowings). SECTION 5A. Conditions Precedent to Initial Credit Events. The obligation of each Lender to make Loans, and the obligation of any Issuing Bank to issue Letters of Credit, on the Initial Borrowing Date, is subject to the satisfaction of the following conditions: 5A.01 Execution of Agreement; Notes. On or prior to the Initial Borrowing Date (i) the Effective Date shall have occurred and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Lenders the appropriate U.S. -58- 67 Borrower Tranche A Term Note, German Borrower Tranche A Term Note, Delayed Draw Term Note, Tranche B Term Note, Tranche C Term Note, Dollar Revolving Note and/or Deutsche Mark Revolving Note executed by the appropriate Borrower or Borrowers and to CSFB, the Swingline Note executed by the U.S. Borrower, in each case in the amount, maturity and as otherwise provided herein. 5A.02 Opinions of Counsel. On the Initial Borrowing Date, the Administrative Agent shall have received from (i) Milbank, Tweed, Hadley & McCloy, special U.S. counsel to the Credit Parties, an opinion addressed to the Administrative Agent, the Collateral Agent and each of the Lenders and dated the Initial Borrowing Date in the form set forth as Exhibit E-1, (ii) Bruckhaus Westrick Stegemann, special German counsel to the Credit Parties, an opinion addressed to the Administrative Agent, the Collateral Agent and each of the Lenders and dated the Initial Borrowing Date in the form set forth as Exhibit E-2, (iii) Schreck Morris, special Nevada counsel to the Credit Parties, an opinion addressed to the Administrative Agent, the Collateral Agent and each of the Lenders and dated the Initial Borrowing Date in the form set forth as Exhibit E-3, (iv) Watkins Ludlam & Stennis, P.A., special Mississippi counsel to the Credit Parties, an opinion addressed to the Administrative Agent, the Collateral Agent and each of the Lenders and dated the Initial Borrowing Date in the form set forth as Exhibit E-4 and (v) Hoffman Sutterfield Ensenat, special Louisiana counsel to the Credit Parties, an opinion addressed to the Administrative Agent, the Collateral Agent and each of the Lenders and dated the Initial Borrowing Date in the form set forth as Exhibit E-5, and in each case covering such other matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request. 5A.03 Corporate Documents; Proceedings; etc. (a) On the Initial Borrowing Date, the Administrative Agent shall have received a certificate of each Credit Party, dated the Initial Borrowing Date, signed by an Authorized Officer of such Credit Party, and attested to by the Secretary or any Assistant Secretary of such Credit Party, in the form of Exhibit F with appropriate insertions, together with copies of the certificate of incorporation (or equivalent organizational document) and by-laws of such Credit Party and the resolutions of such Credit Party referred to in such certificate, and the foregoing shall be reasonably acceptable to the Administrative Agent. (b) All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals and good standing certificates if any, which the Administrative Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. -59- 68 5A.04 Fees, etc. On the Initial Borrowing Date, all costs, fees and expenses, and all other costs contemplated by this Agreement, due to the Administrative Agent and the Lenders (including, without limitation, reasonable legal fees and expenses) shall have been paid to the extent then due. 5A.05 Issuance of New Senior Subordinated Notes. (a) On or prior to the Initial Borrowing Date, the U.S. Borrower shall have received gross cash proceeds of at least $125 million from the issuance of the New Senior Subordinated Notes. (b) On or prior to the Initial Borrowing Date, there shall have been delivered to the Administrative Agent true and correct copies of all of the New Senior Subordinated Note Documents (other than copies of the New Senior Subordinated Notes actually issued) and all of the terms and conditions of the New Senior Subordinated Note Documents shall (x) be consistent with the New Senior Subordinated Notes Offering Memorandum and (y) be in form and substance satisfactory to the Administrative Agent and the Required Lenders. The issuance of the New Senior Subordinated Notes shall have occurred in all material respects in accordance with the terms and conditions of the New Senior Subordinated Note Documents and applicable law. 5A.06 Existing Senior Secured Notes Tender Offer/Consent Solicitation; etc. On or prior to the Initial Borrowing Date and concurrently with the Credit Events then occurring, the U.S. Borrower shall have consummated a tender offer/consent solicitation with respect to the outstanding Existing Senior Secured Notes (the "Existing Senior Secured Notes Tender Offer/Consent Solicitation"), pursuant to which (1) the U.S. Borrower shall offer, subject to the terms and conditions contained in the Existing Senior Secured Notes Tender Offer/Consent Solicitation, to purchase all of the outstanding Existing Senior Secured Notes at the cash price set forth in the Existing Senior Secured Notes Tender Offer/Consent Solicitation and (2) consents shall be solicited to proposed amendments to the Existing Senior Secured Notes Indenture and other Existing Senior Secured Notes Collateral Documents, on terms and conditions satisfactory to the Administrative Agent and the Required Lenders, which amendment shall provide for the substantial elimination of the financial and certain operating covenants contained in the Existing Senior Secured Notes Indenture and the amendment of certain other provisions in the Existing Senior Secured Notes Collateral Documents. In connection with the requirements of this Section 5A.06, it is acknowledged and agreed that the terms outlined in the Offer to Purchase and Consent Solicitation Statement dated July 3, 1997 are acceptable to the Administrative Agent and the Lenders. All terms and conditions of the Existing Senior Secured Notes Tender Offer/Consent Solicitation shall be satisfactory to the Administrative Agent and the Required Lenders, and the period for tendering Existing Senior Secured Notes pursuant thereto shall terminate on or prior to the Initial Borrowing Date. On or prior to the Initial Borrowing Date, (x) the U.S. Borrower shall have received sufficient consents to authorize the execution and delivery of the Existing Senior -60- 69 Secured Notes Indenture Supplement (which shall include the Existing Senior Secured Notes Collateral Documents Amendments), (y) the U.S. Borrower and the trustee under the Existing Senior Secured Notes Indenture shall have duly executed and delivered the Existing Senior Secured Notes Indenture Supplement and (z) the trustee pursuant to the Existing Senior Secured Notes Indenture, as well as any other agent, sub-agent, collateral agent or custodian which holds any of the collateral for the Existing Senior Secured Notes, shall have entered into a bailee agreement for the benefit of the Secured Creditors in substantially the form attached hereto as Exhibit G (the "Bailee Agreement"). On the Initial Borrowing Date and concurrently with the Credit Events then occurring, the U.S. Borrower shall have repurchased all Existing Senior Secured Notes tendered, and not theretofore withdrawn, pursuant to the Existing Senior Secured Notes Tender Offer/Consent Solicitation (the "Existing Senior Secured Notes Tender Offer Repurchases") and, after giving effect thereto, not more than $30 million aggregate principal amount of Existing Senior Secured Notes shall remain outstanding. 5A.07 Notice of Existing PIK Preferred Stock Redemption. On the Initial Borrowing Date, the U.S. Borrower shall, or shall cause the transfer agent to, deliver notices of redemption, in accordance with and meeting the requirements of the Existing PIK Preferred Stock Documents, notifying the holders thereof that the Existing PIK Preferred Stock shall be redeemed in full, in accordance with the terms thereof, on a date to occur not later than 45 days after the Initial Borrowing Date. 5A.08 Indebtedness to be Refinanced. (a) On or prior to the Initial Borrowing Date or concurrently with the Credit Events then occurring, the total commitments in respect of the Indebtedness to be Refinanced shall have been terminated, and all loans and notes issued thereunder shall have been repaid in full, together with interest thereon, all letters of credit issued thereunder shall have been terminated or collateralized by new back-to-back letters of credit in form and substance, and issued by an issuer, satisfactory to the respective letter of credit issuers or otherwise supported in a manner satisfactory to the respective letter of credit issuers, and all other amounts owing pursuant to Indebtedness to be Refinanced shall have been repaid in full and all documents in respect of the Indebtedness to be Refinanced and all guarantees with respect thereto shall have been terminated and be of no further force or effect except for continuing indemnification obligations described therein. (b) On or prior to the Initial Borrowing Date or concurrently with the Credit Events then occurring, the creditors in respect to the Indebtedness to be Refinanced shall have terminated and released all security interests and Liens on the assets owned or to be owned by the U.S. Borrower or any of its Subsidiaries granted in connection with the Indebtedness to be Refinanced. The Administrative Agent shall have received such releases of security interests in and Liens on the assets owned or to be owned by the U.S. Borrower and its Subsidiaries as may have been reasonably requested by the Administrative Agent, which releases shall be in form and substance reasonably satisfac- -61- 70 tory to the Administrative Agent. Without limiting the foregoing, there shall have been delivered (i) proper termination statements (Form UCC-3 or the appropriate equivalent) for filing under the UCC of each jurisdiction where a financing statement (Form UCC-1 or the appropriate equivalent) was filed with respect to the U.S. Borrower or any of its Subsidiaries, or their respective predecessors in interest, in connection with the security interests created with respect to the Indebtedness to be Refinanced and the documentation related thereto, (ii) terminations or assignments of any security interest in, or Lien on, any patents, trademarks, copyrights, or similar interests of the U.S. Borrower or any of its Subsidiaries, on which filings have been made, (iii) terminations of all mortgages, leasehold mortgages and deeds of trust created with respect to property of the U.S. Borrower or any of its Subsidiaries, or their respective predecessors in interest, in each case, to secure the obligations in respect of the Indebtedness to be Refinanced, all of which shall be in form and substance reasonably satisfactory to the Administrative Agent and (iv) all collateral owned by the U.S. Borrower or any of its Subsidiaries in the possession of any of the creditors in respect of the Indebtedness to be Refinanced or any collateral agent or trustee under any related security document shall have been returned to the U.S. Borrower or such Subsidiary, as the case may be. 5A.09 Outstanding Indebtedness and Preferred Stock. On the Initial Borrowing Date, and after giving effect to the transactions described above, the U.S. Borrower and its Subsidiaries shall have no outstanding Indebtedness or Preferred Stock other than (i) Indebtedness pursuant to this Agreement, (ii) the New Senior Subordinated Notes, (iii) the U.S. Borrower's Series E Preferred Stock with an aggregate liquidation preference not to exceed $13 million, (iv) not more than $30 million aggregate principal amount of Existing Senior Secured Notes not accepted for purchase pursuant to the Existing Senior Secured Notes Tender Offer/Consent Solicitation, (v) the U.S. Borrower's Existing PIK Preferred Stock and (vi) such Existing Indebtedness, if any, as is identified in Schedule V hereto. 5A.10 Adverse Change, etc. (a) On or prior to the Initial Borrowing Date, nothing shall have occurred (and neither the Administrative Agent nor the Lenders shall have become aware of any facts, conditions or other information not previously known) which the Administrative Agent or the Required Lenders shall determine could reasonably be expected to have a material adverse effect on the rights or remedies of the Administrative Agent or the Lenders, or on the ability of any Credit Party to perform its obligations to the Administrative Agent and the Lenders or which could reasonably be expected to have a Material Adverse Effect. (b) Except as set forth on Schedule X hereto, all necessary governmental (domestic and foreign) and third party approvals and/or consents in connection with any Credit Event and the Transaction, the other transactions contemplated by the Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action -62- 71 being taken by any competent authority which restrains, prevents, or imposes materially adverse conditions upon, the consummation of any Credit Event and the Transaction or the other transactions contemplated by the Documents or otherwise referred to herein or therein. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon any Credit Event or the Transaction or the other transactions contemplated by the Documents. 5A.11 Litigation. On the Initial Borrowing Date, no litigation by any entity (private or governmental) shall be pending or threatened with respect to this Agreement, any other Document or any documentation executed in connection herewith or therewith or the transactions contemplated hereby or thereby, or which the Administrative Agent or the Required Lenders shall determine could reasonably be expected to have a material adverse effect on the Transaction or a Material Adverse Effect. 5A.12 Subsidiary Guaranties. (a) On the Initial Borrowing Date, each Domestic Subsidiary of the U.S. Borrower (other than (w) the Specified Inactive Subsidiaries, (x) RCVP unless any Delayed Draw Term Loan is to be incurred on the Initial Borrowing Date, (y) VSI, SVS and VDSI and (z) the Specified Non-Material Subsidiaries as same exist on the Initial Borrowing Date; provided that no Subsidiary shall be excluded pursuant to preceding clauses (w) through (z), inclusive, if the respective Subsidiary executes and delivers any guaranty in respect of the New Senior Subordinated Notes) shall have duly authorized, executed and delivered a guaranty in the form of Exhibit H-1 (as amended, modified or supplemented from time to time, the "U.S. Subsidiaries Guaranty"), guaranteeing all of the obligations of each of the Borrowers as more fully provided therein, and the U.S. Subsidiaries Guaranty shall be in full force and effect. (b) On the Initial Borrowing Date, each German Subsidiary (other than the German Borrowers) shall have duly authorized, and executed and delivered a guaranty in the form of Exhibit H-2 (as amended, modified or supplemented from time to time, the "German Subsidiaries Guaranty"), guaranteeing all of the obligations of the German Borrowers as more fully provided therein, and the German Subsidiaries Guaranty shall be in full force and effect. 5A.13 U.S. Pledge Agreement. On the Initial Borrowing Date, the U.S. Borrower and each U.S. Subsidiary Guarantor shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit I (as amended, modified or supplemented from time to time, the "U.S. Pledge Agreement") and, subject to the provisions of Section 4 of the U.S. Pledge Agreement, shall have delivered to the Collateral Agent, as Pledgee thereunder, all of the Pledged Securities, if any, referred to therein then owned by the U.S. Borrower and each U.S. Subsidiary Guarantor, (x) -63- 72 endorsed in blank in the case of promissory notes constituting Pledged Securities and (y) together with executed and undated stock powers in the case of capital stock constituting Pledged Securities. 5A.14 U.S. Security Agreement. On the Initial Borrowing Date, the U.S. Borrower and each U.S. Subsidiary Guarantor shall have duly authorized, executed and delivered a Security Agreement in the form of Exhibit J (as modified, supplemented or amended from time to time, the "U.S. Security Agreement") covering all of the U.S. Borrower's and each such U.S. Subsidiary Guarantor's present and future U.S. Security Agreement Collateral, together with: (i) proper Financing Statements (Form UCC-1 or the equivalent) fully executed for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by the U.S. Security Agreement; (ii) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, dated as at a recent date listing all effective financing statements that name the U.S. Borrower or any of the U.S. Subsidiary Guarantors as debtor and that are filed in the jurisdictions referred to in clause (i) above, together with copies of such other financing statements that name the U.S. Borrower or any of the U.S. Subsidiary Guarantors as debtor (none of which shall cover the Collateral except to the extent evidencing Permitted Liens or in respect of which the Collateral Agent shall have received termination statements (Form UCC-3) or such other termination statements as shall be required by local law fully executed for filing); (iii) evidence of the execution and delivery of all other instruments for recording and filing of, or with respect to, U.S. Security Agreement as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by the U.S. Security Agreement; and (iv) evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect and protect the security interests purported to be created by the U.S. Security Agreement have been taken. 5A.15 German Security Documents. (a) On the Initial Borrowing Date, each of the German Subsidiaries (including the German Borrowers) shall have duly authorized, executed and delivered a Security Agreement in substantially the form of Exhibit K (the "German Security Agreement") together with: (i) evidence of the completion of all other recordings and filings of, or -64- 73 with respect to, the German Security Agreement as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by the German Security Agreement including, without limitation, the delivery of the German Security Agreement; and (ii) evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect and protect the security interests purported to be created by the German Security Agreement have been taken. (b) On the Initial Borrowing Date, the Pledgors (as defined in the German Pledge Agreement referred to below) shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit L (the "German Pledge Agreement"). 5A.16 Mortgages; Title Insurance; Survey. On the Initial Borrowing Date, the Collateral Agent shall have received: (i) fully executed counterparts of mortgages, deeds of trust or deeds to secure debt, in each case in form and substance reasonably satisfactory to the Administrative Agent (as modified, supplemented or amended from time to time, each a "Mortgage" and, collectively, the "Mortgages"), which Mortgages shall cover such of the Real Property, if any, owned or leased by the U.S. Borrower and its Domestic Subsidiaries as shall be designated as a Mortgaged Property on Schedule III (each a "Mortgaged Property" and, collectively, the "Mortgaged Properties"), together with evidence that counterparts of the Mortgages have been delivered to the title insurance company insuring the Lien of the Mortgages for recording in all places to the extent necessary or, in the reasonable opinion of the Collateral Agent, desirable to effectively create a valid and enforceable first priority mortgage lien on each Mortgaged Property in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors, subject to such exceptions as are listed in the respective Mortgage Policy; (ii) a mortgagee title insurance policy on each Mortgaged Property issued by a title insurer reasonably satisfactory to the Collateral Agent (the "Mortgage Policies") in amounts reasonably satisfactory to the Administrative Agent assuring the Collateral Agent that the Mortgages on such Mortgaged Properties are valid and enforceable first priority mortgage liens on the respective Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances and such Mortgage Policies shall otherwise be in form and substance reasonably satisfactory to the Administrative Agent and shall include, as appropriate, an endorsement for future advances under this Agreement and the -65- 74 Notes and for any other matter that the Administrative Agent in its reasonable discretion may reasonably request, shall not include an exception for mechanics' liens, and shall provide for affirmative insurance as the Administrative Agent in its discretion may reasonably request; and (iii) a survey, in form and substance reasonably satisfactory to the Administrative Agent, of each Mortgaged Property, certified by a licensed professional surveyor reasonably satisfactory to the Administrative Agent. 5A.17 Pro Forma Balance Sheet. On or prior to the Initial Borrowing Date, there shall have been delivered to the Administrative Agent an unaudited pro forma consolidated balance sheet of the U.S. Borrower and its Subsidiaries, after giving effect to the Transaction and the incurrence of all Indebtedness contemplated herein and prepared in accordance with generally accepted accounting principles, which pro forma consolidated balance sheets shall not be materially different than the pro forma balance sheet delivered to the Administrative Agent on July 8, 1997. 5A.18 Borrowing Base Certificates. On the Initial Borrowing Date, each of the U.S. Borrower and the German Borrowers shall have delivered to the Administrative Agent its or their initial Borrowing Base Certificate meeting the requirements of Section 8.01(j). 5A.19 Solvency Certificate; Environmental Analyses; Insurance Analyses. On the Initial Borrowing Date, there shall have been delivered to the Administrative Agent: (i) a solvency certificate in the form of Exhibit M from the chief financial officer of the U.S. Borrower and dated the Initial Borrowing Date; (ii) environmental and hazardous substance assessment and analyses in scope, and in form and substance, satisfactory to the Administrative Agent and the results of which do not disclose any environmental liabilities or potential environmental liabilities reasonably likely to result in a Material Adverse Effect; and (iii) analyses and evidence of insurance complying with the requirements of Section 8.03 for the business and properties of the U.S. Borrower and its Subsidiaries, in scope, form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders and naming the Collateral Agent as an additional insured and as loss payee, and stating that such insurance shall not be cancelled or revised without at least 30 days prior written notice by the insurer to the Collateral Agent. -66- 75 SECTION 5B. Conditions Precedent to Initial Delayed Draw Term Loans. The obligation of each Lender with a Delayed Draw Term Loan Commitment to make Delayed Draw Term Loans is subject to the satisfaction of the following conditions: 5B.01 Occurrence of Initial Borrowing Date. On or prior to the date of the making of the initial Delayed Draw Term Loans (the "Initial Delayed Draw Term Loan Borrowing Date"), the Initial Borrowing Date shall have occurred. 5B.02 Purchase of Rainbow Royalty Payments; Rainbow Mortgage Debt. On or prior to the Initial Delayed Draw Term Loan Borrowing Date, the U.S. Borrower shall have (i) purchased 100% of the Rainbow Royalty Payments for an amount not to exceed $19 million and (ii) purchased the Rainbow Debt in the amount of approximately $7.4 million, for cash consideration not to exceed $7.4 million. All rights of the U.S. Borrower with respect to the Rainbow Royalty Payments shall have been pledged as security for the Secured Lenders pursuant to the U.S. Security Agreement, and the Rainbow Debt shall have been pledged (and all promissory notes or chattel paper with respect thereto shall have been delivered for pledge) pursuant to the U.S. Pledge Agreement. 5B.03 Execution of Guaranty and Security Documents by RCVP. On the Initial Delayed Draw Term Loan Borrowing Date, RCVP shall have executed and delivered a counterpart of the U.S. Subsidiaries Guaranty pursuant to which RCVP unconditionally guaranties all Obligations of the Borrowers pursuant to this Agreement; provided that it is expressly acknowledged and agreed that the guaranty executed and delivered by RCVP pursuant to this Section 5B.03 may be expressly limited as provided in the U.S. Subsidiaries Guaranty. Furthermore, RCVP shall have executed and delivered counterparts to the U.S. Security Agreement and the U.S. Pledge Agreement (or substantially similar security documents or such other security documents as may be reasonably requested by the Administrative Agent or Collateral Agent), providing security interests in its assets to secure its obligations pursuant to the guaranty referenced in the immediately preceding sentence. Furthermore, on the Initial Delayed Draw Term Loan Borrowing Date, the Collateral Agent shall have received security interests (whether pursuant to mortgages, deeds of trusts, security agreements or other documentation) in such other assets of RCVP as shall have been requested by the Administrative Agent, the Collateral Agent or the Required Lenders. In connection with the actions to be taken pursuant to this Section 5B.03, the U.S. Borrower and RCVP shall be required to take such actions, and execute such ancillary documentation and furnish such opinions of counsel, as would have been required (and as specified by the Administrative Agent or the Collateral Agent) had the actions required by this Section 5B been taken on the Initial Borrowing Date pursuant to Section 5A. All actions taken pursuant to this Section 5B.03 shall be taken to the satisfaction of the Administrative Agent and Collateral Agent. 5B.04 Opinions of Counsel. Without limiting the foregoing, the -67- 76 Administrative Agent shall receive such opinions of counsel in connection with the actions taken pursuant to this Section 5B as shall be reasonably requested by the Administrative Agent, the Collateral Agent or the Required Lenders, which opinions (and the counsel delivering same) shall be satisfactory in form and substance to the Administrative Agent and the Collateral Agent. SECTION 6. Conditions Precedent to All Credit Events. The obligation of each Lender to make Loans (including Loans made on the Initial Borrowing Date and the Initial Delayed Draw Term Loan Borrowing Date, but excluding Mandatory Borrowings to be made thereafter, which shall be made as provided in Section 1.01(h)), and the obligation of any Issuing Bank to issue any Letter of Credit, is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions: 6.01 No Default; Representations and Warranties. At the time of each such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the making of each Loan (excluding Swingline Loans), the Administrative Agent shall have received a Notice of Borrowing meeting the requirements of Section 1.03(a). Prior to the making of any Swingline Loan, CSFB shall have received the notice required by Section 1.03(b)(i). (b) Prior to the issuance of each Letter of Credit, the Administrative Agent and the respective Issuing Bank shall have received a Letter of Credit Request meeting the requirements of Section 2.03. 6.03 Regulations U and G. If at any time any Margin Stock is pledged or required to be pledged pursuant to any of the Security Documents, all actions required to be taken pursuant to Section 8.15 shall have been taken to the reasonable satisfaction of the Administrative Agent. The acceptance of the proceeds of each Loan or the making of each Letter of Credit Request (occurring on the Initial Borrowing Date and thereafter) shall constitute a representation and warranty by each Credit Party to the Administrative Agent and each of the Lenders that all the conditions specified in Section 5A (with respect to Credit Events on the Initial Borrowing Date), in Section 5B (with respect to Credit Events on the Initial -68- 77 Delayed Draw Term Loan Borrowing Date) and in this Section 6 (with respect to Credit Events on and after the Initial Borrowing Date) and applicable to such Credit Event exist as of that time. All of the Notes, certificates, legal opinions and other documents and papers referred to in Section 5A, 5B and in this Section 6, unless otherwise specified, shall be delivered to the Administrative Agent at the Notice Office for the account of each of the Lenders and, except for the Notes, in sufficient counterparts or copies for each of the Lenders and shall be in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders. SECTION 7. Representations, Warranties and Agreements. In order to induce the Lenders to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, each Borrower (as to itself and its Subsidiaries) makes the following representations, warranties and agreements, in each case after giving effect to the actions taken pursuant to Section 5A on the Initial Borrowing Date, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and issuance of the Letters of Credit, with the occurrence of each Credit Event on or after the Initial Borrowing Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct in all material respects on and as of the Initial Borrowing Date and in all material respects on the date of each such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 7.01 Corporate and Other Status. Each Borrower and each of its Subsidiaries, other than Specified Inactive Subsidiaries, (i) is a duly organized and validly existing corporation, partnership or other entity in good standing under the laws of the jurisdiction of its incorporation, (ii) has the requisite corporate or other power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the ownership, leasing or operation of its property or the conduct of its business requires such qualification except for failures to be so qualified which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 7.02 Corporate and Other Power and Authority. Each Credit Party has the requisite corporate or other power and authority to execute, deliver and perform the terms and provisions of each of the Documents to which it is party and has taken all necessary corporate or other action to authorize the execution, delivery and performance by it of each of such Documents. Each Credit Party has duly executed and delivered each of the Documents to which it is (as determined on each date upon which this representation is made) party, and each of such Documents constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, -69- 78 moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 7.03 No Violation. Neither the execution, delivery or performance by any Credit Party of the Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the property or assets of any Credit Party or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument, to which any Borrower or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the certificate of incorporation or by-laws (or equivalent organizational documents) of any Borrower or any of its Subsidiaries. 7.04 Governmental Approvals. Except as specifically described in Schedule X, no order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made on or prior to the Initial Borrowing Date), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of any Document or (ii) the legality, validity, binding effect or enforceability of any such Document. 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. (a) The consolidated balance sheet of the U.S. Borrower and its Subsidiaries at June 30, 1995, June 30, 1996 and March 31, 1997 and the related statements of consolidated income, consolidated cash flows and shareholders' equity of the U.S. Borrower and its Subsidiaries for the fiscal year or the nine-month period ended on such date, as the case may be, and furnished to the Lenders prior to the Initial Borrowing Date, fairly present in all material respects the consolidated results of the operations of the U.S. Borrower and its Subsidiaries for the respective fiscal year or nine-month period ended on such date, as the case may be, and consolidated financial position of the U.S. Borrower and its Subsidiaries at the date of such balance sheet. All such consolidated financial statements have been prepared in accordance with generally accepted accounting principles consistently applied, subject to normal year-end audit adjustments and the absence of footnotes in the case of the March 31, 1997 financial statements. (b) The consolidated balance sheet of Alliance Automaten & Co. KG and its Subsidiaries (excluding Bally Gaming International GmbH) at March 31,1997 and the related statements of consolidated income for the nine months ended on such date and -70- 79 furnished to the Lenders prior to the Initial Borrowing Date, were prepared in accordance with GAAP as of March 31, 1997 and give a true and fair view of the state of affairs of Alliance Automaten & Co. KG and its Subsidiaries (excluding Bally Gaming International GmbH) at March 31, 1997 and for the nine months then ended. (c) Since March 31, 1996 (but for this purpose, assuming that the Transaction had been consummated on such date), there has been no material adverse change in the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the U.S. Borrower and its Subsidiaries taken as a whole. (d) (i) On and as of the Initial Borrowing Date, after giving effect to the Transaction and to all Indebtedness (including the Loans) being incurred or assumed and Liens created by the Credit Parties in connection therewith, (a) the sum of the assets, at a fair valuation, of the U.S. Borrower and its Subsidiaries taken as a whole and each of the U.S. Borrower, Bally Wulff Automaten and Bally Wulff Vertriebs on a stand-alone basis will exceed their respective debts; (b) the U.S. Borrower and its Subsidiaries taken as a whole and each of the U.S. Borrower, Bally Wulff Automaten and Bally Wulff Vertriebs on a stand-alone basis have not incurred and do not intend to incur, and do not believe that they will incur, debts beyond their ability to pay such debts as such debts mature; and (c) the U.S. Borrower and its Subsidiaries taken as a whole and each of the U.S. Borrower, Bally Wulff Automaten and Bally Wulff Vertriebs on a stand-alone basis will have sufficient capital with which to conduct their respective businesses. For purposes of this Section 7.05(d), "debt" means any liability on a claim, and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (e) Except (i) as disclosed in the financial statements delivered pursuant to Sections 7.05(a) and (b) and except for the Transaction and (ii) liabilities arising in the ordinary course of business since March 31, 1997, there were as of the Initial Borrowing Date no liabilities or obligations with respect to the U.S. Borrower or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to the U.S. Borrower and its Subsidiaries taken as a whole. As of the Initial Borrowing Date, and except for the Transaction, no Borrower knows of any basis for the assertion against it or any of its Subsidiaries of any liability or obligation of any nature whatsoever that is not disclosed in the financial statements delivered pursuant to Sections 7.05(a) and (b) which, either individually or in the aggregate, could reasonably be expected to be material to the U.S. Borrower or the U.S. Borrower and its Subsidiaries taken as a whole. -71- 80 (f) On and as of the Initial Borrowing Date, the Projections have been prepared in good faith and are based on reasonable assumptions under the then known facts and circumstances (it being understood that nothing contained herein shall constitute a representation that the results forecasted in such Projections will in fact be achieved), and there are no statements or conclusions in any of the Projections which are based upon or include information known to any Borrower to be misleading in any material respect or which knowingly fail to take into account material information regarding the matters reported therein. On the Initial Borrowing Date, each Borrower believes that the Projections are reasonable and attainable based upon the then known facts and circumstances, it being understood that nothing contained herein shall constitute a representation that the results forecasted in such Projections will in fact be achieved. 7.06 Litigation. There are no actions, suits or proceedings pending or, to the best knowledge of each Borrower, threatened (i) with respect to any Document or (ii) that are reasonably likely to result in a Material Adverse Effect. 7.07 True and Complete Disclosure. All factual information (other than the Projections, which are covered in Section 7.05(f)) (taken as a whole) furnished by any Credit Party in writing to the Administrative Agent or any Lender (including, without limitation, all information contained in the Documents), is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any Credit Party in writing to the Administrative Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. 7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the U.S. Borrower Tranche A Term Loans, the German Borrower Tranche A Term Loans, the Tranche B Term Loans and the Tranche C Term Loans will be used by the Borrowers (i) to finance the Refinancing (including, without limitation, to refinance Revolving Loans theretofore incurred to finance purchases of Existing PIK Preferred Stock before the PIK Preferred Drawdown Date pursuant to Section 9.03(iv)) and (ii) to pay fees and expenses related to the Transaction. (b) All proceeds of the Delayed Draw Term Loans shall be used by the U.S. Borrower to purchase the assets as contemplated in Section 5B.02. (c) The proceeds of Revolving Loans incurred by each Revolving Loan Borrower will be used for such Revolving Loan Borrower's and its Subsidiaries' general corporate and working capital purposes, provided that no proceeds of any Revolving Loan may be used to finance the Refinancing (although up to $10 million of -72- 81 Revolving Loans may be utilized on the Initial Borrowing Date to fund working capital requirements of the U.S. Borrower and its Subsidiaries (including refinancing amounts owing under Indebtedness to be Refinanced) and proceeds of Revolving Loans may be used after the Initial Borrowing Date to pay fees and expenses incurred in connection with the Refinancing). In addition, Revolving Loans may be incurred to finance acquisitions permitted under Section 9.02 and otherwise in accordance with the terms of this Agreement. (d) No part of the proceeds of any Loan (other than Revolving Loans and Swingline Loans incurred after the Initial Borrowing Date) will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof nor the occurrence of any other Credit Event will violate or be inconsistent with the provisions of Regulation G, T, U or X. 7.09 Tax Returns and Payments. The U.S. Borrower and each of its Subsidiaries have timely filed or caused to be timely filed with the appropriate taxing authority, all Federal, and all material state, local, foreign and other returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of the U.S. Borrower and/or any of its Subsidiaries. The Returns accurately reflect all liability for taxes of the U.S. Borrower and its Subsidiaries for the periods covered thereby. The U.S. Borrower and each of its Subsidiaries have paid all taxes payable by them other than taxes contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles. On the Effective Date, there is no material action, suit, proceeding, investigation, audit or claim now pending or, to the knowledge of any Borrower, threatened by any authority regarding any taxes relating to the U.S. Borrower or any of its Subsidiaries. As of the Initial Borrowing Date, neither the U.S. Borrower nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of the U.S. Borrower or any of its Subsidiaries, is aware of any agreement or waiver extending any statute of limitations relating to the payment or collection of other taxes of the U.S. Borrower or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of the U.S. Borrower or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. 7.10 Compliance with ERISA. (a) Schedule IX sets forth each Plan in effect on the date hereof; each Plan (and each related trust, insurance contract or fund) is in compliance with its terms and with all applicable laws, including without limitation ERISA and the Code except to the extent that such a failure to comply could not reasonably be expected to result in a Material Adverse Effect; each Plan (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a -73- 82 determination letter from the Internal Revenue Service to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code or a request for such a determination letter is pending; no Reportable Event has occurred; to the best knowledge of the U.S. Borrower no Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization if such insolvency or reorganization could reasonably be expected to have a Material Adverse Effect; no Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds an amount that could reasonably be expected to result in a Material Adverse Effect; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA in an amount that could reasonably be expected to result in a Material Adverse Effect; all contributions required to be made with respect to a Plan have been timely made except to the extent that the failure to make any such contribution could not reasonably be expected to result in a Material Adverse Effect; neither the U.S. Borrower nor any Subsidiary of the U.S. Borrower or any ERISA Affiliate has incurred any liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any such liability under any of the foregoing sections with respect to any Plan which could reasonably be expected to result in a Material Adverse Effect; to the best knowledge of the U.S. Borrower or any Subsidiary of the U.S. Borrower or any ERISA Affiliate, no condition exists which presents a material risk to the U.S. Borrower or any Subsidiary of the U.S. Borrower or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code an amount that could reasonably be expected to result in a Material Adverse Effect; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan which is subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, or, to the best knowledge of the U.S. Borrower or any Subsidiary of the U.S. Borrower or any ERISA Affiliate, expected or threatened which could reasonably be expected to result in a Material Adverse Effect; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the U.S. Borrower and its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Credit Event, would not exceed an amount that could reasonably be expected to result in a Material Adverse Effect; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of the U.S. Borrower, any Subsidiary of the U.S. Borrower, or any ERISA Affiliate has at all times -74- 83 been operated in substantial compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code, except to the extent that any such failure to so comply could not reasonably be expected to result in a Material Adverse Effect; no lien, not permitted by Section 9.01(i), imposed under the Code or ERISA on the assets of the U.S. Borrower or any Subsidiary of the U.S. Borrower or any ERISA Affiliate exists or, to the best knowledge of the U.S. Borrower or any Subsidiary of the U.S. Borrower or any ERISA Affiliate, is likely to arise on account of any Plan; and the U.S. Borrower and its Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan the obligations with respect to which could reasonably be expected to have a material adverse effect on the ability of the U.S. Borrower to perform its obligations under this Agreement. (b) Each Foreign Pension Plan has been maintained in compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities except to the extent that such a failure to comply could not reasonably be expected to result in a Material Adverse Effect. All contributions required to be made with respect to a Foreign Pension Plan have been timely made except to the extent that the failure to make any such contribution could not reasonably be expected to result in a Material Adverse Effect. Neither the U.S. Borrower nor any of its Subsidiaries has incurred any obligation in connection with the termination of or withdrawal from any Foreign Pension Plan an amount that could reasonably be expected to result in a Material Adverse Effect. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of the U.S. Borrower's most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities by more than an amount that could reasonably be expected to result in a Material Adverse Effect. 7.11 The Security Documents. (a) The provisions of the U.S. Security Agreement are effective to create in favor of the Collateral Agent for the benefit of the Secured Creditors a legal, valid and enforceable security interest in all right, title and interest of the Credit Parties party thereto in the U.S. Security Agreement Collateral described therein, subject to the provisions of the U.S. Security Agreement, and the Collateral Agent, for the benefit of the Secured Creditors, has a fully perfected first lien on, and security interest in, all right, title and interest in all of the U.S. Security Agreement Collateral described therein to the extent such pledge and security interest can be perfected under the applicable UCC, subject to no other Liens other than Permitted Liens. The recordation of the Assignment of Security Interest in U.S. Patents and Trademarks in the form attached to the U.S. Security Agreement in the United States Patent and Trademark Office together with filings on Form UCC-1 made pursuant to the U.S. Security Agreement will create a perfected security interest granted to the Collateral Agent in the -75- 84 trademarks and patents covered by the U.S. Security Agreement and the recordation of the Assignment of Security Interest in U.S. Copyrights in the form attached to the U.S. Security Agreement with the United States Copyright Office together with filings on Form UCC-1 made pursuant to the U.S. Security Agreement will create a perfected security interest granted to the Collateral Agent in the copyrights covered by the U.S. Security Agreement. (b) Subject to the last sentence of this Section 7.11(b) and the provisions of Section 4 of the U.S. Pledge Agreement, the security interests created in favor of the Collateral Agent, as Pledgee, for the benefit of the Secured Creditors under the U.S Pledge Agreement constitute first priority perfected security interests in the Collateral described in the U.S. Pledge Agreement (as same exists on each date this representation and warranty is made), subject to no security interests of any other Person. Notwithstanding anything to the contrary contained above in this Section 7.11(b) or elsewhere in this Agreement, so long as any Existing Senior Secured Notes remain outstanding, the security interests described above arising pursuant to the U.S. Pledge Agreement in any collateral which has been pledged or in which a security interest has been granted to secure the Existing Senior Secured Notes shall be subject to the prior security interests created in favor of the holders of the Existing Senior Secured Notes; provided that at all times the security interests created pursuant to the U.S. Pledge Agreement in all such collateral shall be required to be fully perfected (pursuant to the Bailee Agreement or, after all Existing Senior Secured Notes have been repaid in full, by delivery of the relevant collateral to the Collateral Agent pursuant to the U.S. Pledge Agreement). (c) Subject to the terms of the Mortgages, the Mortgages (if any) create, for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and mortgage lien on all of the Mortgaged Properties in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors, superior to and prior to the rights of all third persons (except that the security interest and mortgage lien created in the Mortgaged Properties may be subject to the Permitted Encumbrances related thereto) and subject to no other Liens (other than Liens permitted under Section 9.01). Schedule III contains a true and complete list of each parcel of Real Property owned or leased by the U.S. Borrower and its Subsidiaries on the Initial Borrowing Date, and the type of interest therein held by the U.S. Borrower or such Subsidiary. The U.S. Borrower and each of its Subsidiaries have good and marketable title to all fee-owned Real Property and valid leasehold title to all Leaseholds, in each case free and clear of all Liens except those described in the first sentence of this subsection (c). (d) Subject to the terms of the respective German Security Documents, the security interests created in favor of the Collateral Agent for the benefit of the Secured Creditors under the German Security Documents constitute first priority perfected security -76- 85 interests in the assets pledged or in which a Lien is granted pursuant to the German Security Documents (as same exists on each date this representation and warranty is made), subject to no security interests of any other Person. No filings or recordings are required in order to perfect (or maintain the perfection or priority of) the security interests created in the assets charged pursuant to the German Security Documents. (e) Notwithstanding anything to the contrary contained above in this Section 7.11 or in any of the Security Documents, the foregoing representations and warranties shall not be deemed violated if at any time there is a failure in perfection of the security interest in any Collateral as otherwise provided above, so long as the aggregate fair market value of all Collateral with respect to which such defects in perfection exist at any time does not in the aggregate exceed $1,000,000. The provisions of the foregoing sentence shall not excuse the U.S. Borrower or the other relevant Credit Parties from taking such action as may be required to be taken by them in accordance with the terms of the various Credit Documents. 7.12 Representations and Warranties in Other Documents. All representations and warranties set forth in the Documents (other than the Credit Documents) were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made). 7.13 Properties. The U.S. Borrower and each of its Subsidiaries have good and marketable title to all material properties owned by them, including all property reflected in the financial statements referred to in Sections 7.05(a) and (b) (except as sold or otherwise disposed of since the date of such balance sheet in the ordinary course of business), free and clear of all Liens, other than Liens permitted by Section 9.01. 7.14 Capitalization. On the Initial Borrowing Date (or on June 30, 1997 in the case of the U.S. Borrower), the authorized capital stock of (x) the U.S. Borrower shall consist of (i) 175,000,000 shares of common stock, $.01 par value per share, of which approximately 31.8 million were on such date issued and outstanding, (ii) 10,000,000 shares of Special Stock of which approximately 124,000 shares of Series E Preferred Stock were on such date issued and outstanding and of which approximately 754,000 shares of Existing PIK Preferred Stock were on such date issued and outstanding, (y) Bally Wulff Automaten shall consist of one share, in the nominal amount of DM 6,509,000, held by the German Parent and (z) Bally Wulff Vertriebs shall consist of one share, in the nominal amount of DM 37,190,000, held by the German Parent. All such outstanding shares have been duly and validly issued, are fully paid and nonassessable and are free of preemptive rights. Except for as disclosed on Schedule XII, on the Initial Borrowing Date, neither the U.S. Borrower nor any of its Subsidiaries has outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, -77- 86 commitments or claims of any character relating to, its capital stock. 7.15 Subsidiaries. Schedule IV correctly sets forth, as of the Initial Borrowing Date and after giving effect to the Transaction, each Subsidiary of the U.S. Borrower (including the full and correct legal name thereof, the type of organization and jurisdiction under which it is organized), and the direct and indirect ownership interests of the U.S. Borrower therein. Schedule IV also includes an accurate organization chart showing the U.S. Borrower, each of its Subsidiaries, and the direct and indirect ownership interests therein, in each case as of the Initial Borrowing Date. 7.16 Compliance with Statutes, etc. Each Borrower and each of its Subsidiaries is in compliance with all applicable statutes, regulations (including, without limitation, all applicable Gaming Regulations) and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign (including, without limitation, all relevant Gaming Authorities), in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to the Gaming Business and environmental standards and controls), except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 7.17 Investment Company Act. Neither the U.S. Borrower nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 7.18 Public Utility Holding Company Act. Neither the U.S. Borrower nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.19 Environmental Matters. (a) Each Borrower and each of its Subsidiaries have complied with, and on the date of such Credit Event are in compliance with, all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws. There are no pending or, to the best knowledge of each Borrower, overtly threatened Environmental Claims against any Borrower or any of its Subsidiaries (including any such Environmental Claim arising out of the ownership or operation by any Borrower or any of its Subsidiaries of any Real Property no longer owned by any Borrower or any of its Subsidiaries) or, to the best knowledge of each Borrower, any Real Property owned or operated by any Borrower or any of its Subsidiaries. There are no facts, circumstances, conditions or occurrences with respect to the business or operations of any Borrower or any of its Subsidiaries or any Real Property owned or operated by any Borrower or any of its Subsidiaries (including any Real Property formerly owned or operated by any Borrower or any of its Subsidiaries but no -78- 87 longer owned by any Borrower or any of its Subsidiaries) or, to the best knowledge of any Borrower, any real property adjoining or adjacent to any such Real Property that would reasonably be expected (i) to form the basis of an Environmental Claim against any Borrower or any of its Subsidiaries or any Real Property owned or operated by any Borrower or any of its Subsidiaries, or (ii) to cause any Real Property owned or operated by any Borrower or any of its Subsidiaries to be subject to any restrictions on the ownership, occupancy or transferability of such Real Property by any Borrower or any of its Subsidiaries under any applicable Environmental Law. (b) Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, any Real Property owned or operated by any Borrower or any of its Subsidiaries where such generation, use, treatment, storage or transportation has violated or would reasonably be expected to violate any applicable Environmental Law. Hazardous Materials have not at any time been Released on or from any Real Property owned or operated by any Borrower or any of its Subsidiaries where such Release has violated or would reasonably be expected to violate any applicable Environmental Law. (c) Notwithstanding anything to the contrary in this Section 7.19, the representations made in this Section 7.19 shall not be untrue unless the aggregate effect of all violations, Environmental Claims, facts, circumstances, conditions, occurrences, restrictions, failures and noncompliances of the types described above would reasonably be expected to have a Material Adverse Effect. 7.20 Labor Relations. No Borrower or any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (i) no unfair labor practice complaint pending against any Borrower, any of its Subsidiaries or, to the best knowledge of any Borrower, overtly threatened against any of them, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against any Borrower or any of its Subsidiaries or, to the best knowledge of each Borrower, overtly threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against any Borrower or any of its Subsidiaries or, to the best knowledge of each Borrower, overtly threatened against any Borrower or any of its Subsidiaries and, (iii) no payments are due and no circumstances exist which might make any payment due by any of the German Subsidiaries under the provisions of any law, statute, rule or regulation (relating to the U.S. Borrower's or any of its Subsidiaries' labor practices) or any order, writ, injunction or decree (relating to the U.S. Borrower's or any of its Subsidiaries' labor practices) of any court or governmental instrumentality except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as could not reasonably be expected to have a Material Adverse Effect. -79- 88 7.21 Patents, Licenses, Franchises and Formulas. Each Borrower and each of its Subsidiaries owns, or has the right to use, all the patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises, proprietary information (including but not limited to rights in computer programs and databases) and formulas, or rights with respect to the foregoing, or has obtained assignments of all leases and other rights of whatever nature, necessary for the present conduct of its business, without any known conflict with the rights of others which, or the failure to obtain which, as the case may be, could reasonably be expected to result in a Material Adverse Effect. 7.22 Indebtedness. Schedule V sets forth a true and complete list of all Indebtedness of the U.S. Borrower and its Subsidiaries as of the Initial Borrowing Date and which is to remain outstanding after giving effect to the Transaction (excluding the Loans, the Letters of Credit, the Existing Senior Secured Notes, the New Senior Subordinated Notes and any Preferred Stock of the U.S. Borrower which is to remain outstanding, the "Existing Indebtedness"), in each case, showing the aggregate principal amount thereof and the name of the respective borrower and any Credit Party or any of its Subsidiaries which directly or indirectly guaranteed such debt and describing any security therefor. 7.23 Transaction. At the time of consummation thereof, the Transaction shall have been consummated in all material respects in accordance with the terms of the respective Documents and all applicable laws. At the time of consummation thereof, except as specifically set forth on Schedule X, all material consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required in order to make or consummate the Transaction to the extent then required have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). Except as specifically set forth on Schedule X, all applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Transaction. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the Transaction, or the occurrence of any Credit Event or the performance by any Credit Party of its obligations under the Documents to which it is party. 7.24 Existing Senior Secured Notes. At the time of consummation thereof, the Existing Senior Secured Notes Tender Offer/Consent Solicitation shall have been consummated in all material respects in accordance with the terms of the respective Documents therefor and all applicable laws. At the time of consummation thereof, all consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required in order to make or consummate the Existing Senior Secured Notes Tender Offer/Consent Solicitation -80- 89 shall have been obtained, given, filed or taken or waived and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Existing Senior Secured Notes Tender Offer/Consent Solicitation. Additionally, there shall not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the Existing Senior Secured Notes Tender Offer/Consent Solicitation, or the performance by the U.S. Borrower of its obligations under the respective Documents therefor and all applicable laws. 7.25 Specified Inactive Subsidiaries and Specified Non-Material Subsidiaries. (a) On the Initial Borrowing Date, the aggregate assets and liabilities (other than liabilities owed by the respective Specified Inactive Subsidiary to the U.S. Borrower or any Subsidiary of the U.S. Borrower which owns a direct or indirect equity interest in the respective Specified Inactive Subsidiary) of all Specified Inactive Subsidiaries does not exceed $1,000,000. (b) The aggregate book value or fair market value (as determined in good faith by the U.S. Borrower), whichever is greater, of all assets of each Specified Non-Material Subsidiary is less than $5,000,000. Furthermore, the aggregate book value or fair market value (as determined in good faith by the U.S. Borrower), whichever is greater, of all assets of all Specified Non-Material Subsidiaries is less than $15,000,000. 7.26 Existing Senior Secured Notes Collateral. Schedule XIII is an accurate and complete (in all material respects) list of all collateral, as of the Initial Borrowing Date, which is held by the trustee under the Existing Senior Secured Notes Indenture, or any other agent, sub-agent, collateral agent or other custodian for the benefit of the holders of the Existing Senior Secured Notes, which schedule lists the respective collateral and identifies the Person or Persons which have custody of same. 7.27 Margin Stock. On the Initial Borrowing Date, the aggregate fair market value of all Margin Stock owned by the U.S. Borrower and its Subsidiaries does not exceed $100,000. SECTION 8. Affirmative Covenants. Each Borrower hereby covenants and agrees that on and after the Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations (other than contingent indemnification obligations) incurred hereunder and thereunder, are paid in full: 8.01 Information Covenants. The Borrowers will furnish to the Administrative Agent (with sufficient copies for distribution to each of the Lenders): -81- 90 (a) Monthly Reports. Within 40 days (or 45 days in the case of the first twelve fiscal months ended after the Initial Borrowing Date) after the end of each fiscal month of the U.S. Borrower, the consolidated balance sheet of each of (x) the U.S. Borrower and its Subsidiaries and (y) the German Parent and its Subsidiaries (other than Bally Gaming International GmbH), each as at the end of such fiscal month and the related statements (consolidated, in the case of the U.S. Borrower and the German Parent) of income for such fiscal month and for the elapsed portion of the fiscal year ended with the last day of such fiscal month, in each case, setting forth comparative figures for the corresponding fiscal month in the prior fiscal year and comparable budgeted income figures for such fiscal month (except that, in the case of balance sheets, such comparison shall be to the last day of the prior fiscal year). (b) Quarterly Financial Statements. Within 45 days after the close of the first three quarterly accounting periods in each fiscal year of the U.S. Borrower, (i) the consolidated and consolidating balance sheets of the U.S. Borrower and its Subsidiaries, as at the end of such quarterly accounting period, and the related consolidated and, in the case of income statements only, consolidating statements of income and retained earnings and statement of cash flows for such quarterly accounting period (in the case of the statements of income and retained earnings) and for the elapsed portion of the fiscal year (in each case) ended with the last day of such quarterly accounting period, in each case setting forth comparative figures for the related periods in the prior fiscal year (except that, in the case of balance sheets, such comparison shall be to the last day of the prior fiscal year), all of which shall be certified by the chief financial officer of the U.S. Borrower, subject to normal year-end audit adjustments and the absence of footnotes and (ii) management's discussion and analysis of the important operational and financial developments during the quarterly and year-to-date periods. (c) Annual Financial Statements. Within 90 days after the close of each fiscal year of the U.S. Borrower, (i) the consolidated and consolidating balance sheets of the U.S. Borrower and its Subsidiaries, as at the end of such fiscal year, and the related consolidated and, in the case of income statements only, consolidating statements of income and retained earnings and of cash flows for such fiscal year setting forth comparative figures for the preceding fiscal year and certified (x) in the case of the consolidating financial statements, by the chief financial officer of the U.S. Borrower and (y) in the case of the consolidated financial statements, by independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that in the course of its regular audit of the respective financial statements, which audit was conducted in accordance with -82- 91 generally accepted auditing standards, nothing came to the attention of such accountants that caused them to believe that the U.S. Borrower was not in compliance with any of Sections 4.02(f) or 9, insofar as such Sections relate to accounting matters, or, if in the opinion of such accounting firm any such non-compliance has occurred and is continuing, a statement as to the nature thereof and (ii) management's discussion and analysis of the important operational and financial developments during the respective fiscal year. (d) Management Letters. Promptly after the U.S. Borrower's or any of its Subsidiaries' receipt thereof, a copy of any "management letter" addressed to the board of directors of the U.S. Borrower or such Subsidiary from its certified public accountants and the management's responses thereto. (e) Budgets. No later than 30 days after the first day of each fiscal year (or not later than September 15, 1997, for the fiscal year ended June 30, 1998) of the U.S. Borrower, a budget in form satisfactory to the Administrative Agent and the Required Lenders (including budgeted statements of income and sources and uses of cash and balance sheets) prepared by the U.S. Borrower for (x) each of the months of such fiscal year prepared in reasonable detail (although budgeted statements of sources and uses of cash and balance sheets shall be prepared on a quarterly (or annual in the case of the budget for the fiscal year ended June 30, 1998) basis only) and (y) the immediately following fiscal year prepared in summary form, in each case accompanied by the statement of the chief financial officer of the U.S. Borrower to the effect that, to the best of his knowledge, the budget is a reasonable estimate for the period covered thereby. (f) Officer's Certificates. At the time of the delivery of the financial statements provided for in Sections 8.01(b) and (c), a certificate of the chief financial officer of the U.S. Borrower to the effect that, to the best of such officer's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which certificate shall (w) contain a calculation of the Cumulative Net Income Amount as of the last day of such fiscal quarter or year, as the case may be, showing in reasonable detail the accretions thereto and deductions therefrom, in each case in accordance with the definition of Cumulative Net Income Amount contained herein, during the respective fiscal quarter or year, as the case may be, (x) set forth in reasonable detail the calculations required to establish whether the U.S. Borrower and its Subsidiaries were in compliance with the provisions of Section 4.02(f) (to the extent delivered with the financial statements required by Section 8.01(c)), 9.03, 9.04, 9.05 and 9.07 through 9.11, inclusive, at the end of such fiscal quarter or year, as the case may be, (y) if delivered with the financial statements required by Section 8.01(c), set forth in reasonable detail the amount of Excess Cash Flow for the Excess Cash Payment -83- 92 Period and (z) contain a list of all Specified Inactive Subsidiaries in existence, and a list of all Specified Non-Material Subsidiaries, as of the last day of the immediately preceding fiscal quarter or year, as the case may be, and containing calculations required to establish whether the respective Subsidiaries so designated as Specified Non-Material Subsidiaries continue to qualify as such in accordance with the definition of Specified Non-Material Subsidiaries contained herein. (g) Notice of Default or Litigation. Promptly, and in any event within three Business Days (or ten Business Days in the case of following clause (ii)) after any Knowledgeable Officer of any Borrower obtains actual knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or an Event of Default and (ii) any litigation or governmental investigation or proceeding pending (x) against the U.S. Borrower or any of its Subsidiaries which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, (y) with respect to any material Indebtedness of the U.S. Borrower or any of its Subsidiaries or (z) with respect to any Document. (h) Other Reports and Filings. Promptly after the filing or delivery thereof, copies of all financial information, proxy materials and reports, if any, which the U.S. Borrower or any of its Subsidiaries shall publicly file with the Securities and Exchange Commission or any successor thereto (the "SEC") or the Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt fur den Wertpapierhandel) or shall deliver to its shareholders or to holders of its Indebtedness (but only if the respective issue of Indebtedness is in excess of $10,000,000 outstanding principal amount or, if less, the notice relates to a default or event of default under the respective Indebtedness) pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor). (i) Environmental Matters. Promptly upon, and in any event within ten Business Days after, any Knowledgeable Officer of any Borrower obtains knowledge thereof, notice of one or more of the following environmental matters, unless such environmental matters would not, individually or when aggregated with all other such environmental matters, be reasonably expected to have a Material Adverse Effect: (i) any pending or threatened Environmental Claim against the U.S. Borrower or any of its Subsidiaries or any Real Property owned or operated by the U.S. Borrower or any of its Subsidiaries; (ii) any condition or occurrence on or arising from any Real Property owned or operated by the U.S. Borrower or any of its Subsidiaries that (a) results in noncompliance by the U.S. Borrower or any of its -84- 93 Subsidiaries with any applicable Environmental Law or (b) would reasonably be expected to form the basis of an Environmental Claim against the U.S. Borrower or any of its Subsidiaries or any such Real Property; (iii) any condition or occurrence on any Real Property owned or operated by the U.S. Borrower or any of its Subsidiaries that would reasonably be expected to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability by the U.S. Borrower or any of its Subsidiaries of such Real Property under any Environmental Law; and (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned or operated by the U.S. Borrower or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency (with the items described above in preceding clauses (i) through (iv) being herein called, collectively, "Environmental Matters"). All such notices shall describe in reasonable detail the nature of the respective Environmental Matter and the U.S. Borrower's or such Subsidiary's intended response thereto. In addition, the U.S. Borrower or any of its Subsidiaries will provide the Administrative Agent (with sufficient copies for distribution to each of the Lenders) with copies of all communications between the U.S. Borrower or any of its Subsidiaries and any government or governmental agency relating to Environmental Laws which would reasonably be expected to have a Material Adverse Effect, all notices of any Environmental Claims, and such detailed reports of any outstanding Environmental Claim as may reasonably be requested by the Lenders; provided, that in any event the U.S. Borrower and its Subsidiaries shall deliver to the Administrative Agent (with sufficient copies for distribution to each of the Lenders) all notices received by the U.S. Borrower or any of its Subsidiaries from any government or governmental agency under, or pursuant to, CERCLA which identify the U.S. Borrower or any of its Subsidiaries as potentially responsible parties for response costs or which otherwise notify the U.S. Borrower or any of its Subsidiaries of potential liability under CERCLA. (j) Borrowing Base Certificates. (i) On the Initial Borrowing Date and (ii) no later than 10:00 a.m. (New York time or Frankfurt time, as appropriate) on the 40th day (or 45th day in the case of the first 12 calendar months ended after the Initial Borrowing Date) after the last day of each calendar month, a borrowing base certificate of (a) the U.S. Borrower in the form of Exhibit N-1 and (b) the German Borrowers in the form of Exhibit N-2 (each a "Borrowing Base Certificate"), with respect to the Eligible Receivables and Eligible Inventory of the respective Borrower or Borrowers (and (x) the Wholly-Owned U.S. Subsidiary Guarantors, in the case of a Borrowing Base Certificate -85- 94 delivered by the U.S. Borrower and (y) Bally Gaming International GmbH, in the case of a Borrowing Base Certificate delivered by the German Borrowers) as of (x) in the case of clause (i), June 30, 1997 (after giving effect to the transactions contemplated hereby and by the other Credit Documents) and (y) in the case of clause (ii), the last day of such calendar month, and in all such cases, certified by the chief financial officer of the respective Borrower or Borrowers. (k) Annual Meetings with Lenders. At the request of the Administrative Agent, at a date to be mutually agreed upon between the Administrative Agent and the U.S. Borrower occurring on or prior to the 120th day after the close of each fiscal year of the U.S. Borrower, the U.S. Borrower shall hold a meeting with all of the Lenders at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of the U.S. Borrower and its Subsidiaries and the budgets presented for the current fiscal year of the U.S. Borrower and its Subsidiaries. (l) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to the U.S. Borrower or any of its Subsidiaries as any Lender may reasonably request, including, without limitation, copies of financial reports or documents filed by the U.S. Borrower or any of its Subsidiaries with any Gaming Authority. 8.02 Books, Records and Inspections. Each Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and accounts in which full, true and correct entries in conformity with generally accepted accounting principles and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. Upon prior notice, each Borrower will, and will cause each of its Subsidiaries to, permit officers and designated representatives of the Administrative Agent or any Lender to visit and inspect, during regular business hours and under guidance of officers of the U.S. Borrower or such Subsidiary, any of the properties of the U.S. Borrower or such Subsidiary, and to examine the books of account of the U.S. Borrower or such Subsidiary and discuss the affairs, finances and accounts of the U.S. Borrower or such Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as the Administrative Agent or such Lender may request. 8.03 Maintenance of Property; Insurance. (a) Schedule VI sets forth a true and complete listing of all insurance maintained by the U.S. Borrower and its Subsidiaries as of the Initial Borrowing Date. Each Borrower will, and will cause each of its Subsidiaries to, (i) keep all property necessary to the business of the U.S. Borrower and its Subsidiaries in reasonably good working order and condition, ordinary wear and tear excepted, (ii) maintain insurance on all such property in at least such amounts and against at least such risks as is consistent and in accordance with industry practice for companies similarly situated owning similar properties in the same general areas in which -86- 95 the U.S. Borrower or any of its Subsidiaries operates, and (iii) furnish to the Administrative Agent or any Lender, upon written request, full information as to the insurance carried. (b) The U.S. Borrower will, and will cause each of its Subsidiaries to, at all times keep its property insured in favor of the Collateral Agent, and all policies or certificates (or certified copies thereof) with respect to such insurance (and any other insurance maintained by the U.S. Borrower and/or its Subsidiaries) (i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as loss payee and/or additional insured), (ii) shall state that such insurance policies shall not be cancelled or revised without at least 30 days' prior written notice thereof by the respective insurer to the Collateral Agent, (iii) shall provide that the respective insurers irrevocably waive any and all rights of subrogation with respect to the Collateral Agent and the Secured Creditors, (iv) shall contain the standard non-contributing mortgage clause endorsement in favor of the Collateral Agent with respect to hazard liability insurance, (v) shall provide that any losses shall be payable notwithstanding (A) any act or neglect of the U.S. Borrower or any of its Subsidiaries, (B) the occupation or use of the properties for purposes more hazardous than those permitted by the terms of the respective policy if such coverage is obtainable at commercially reasonable rates and is of the kind from time to time customarily insured against by Persons owning or using similar property and in such amounts as are customary, (C) any foreclosure or other proceeding relating to the insured properties or (D) any change in the title to or ownership or possession of the insured properties and (vi) shall provide that all proceeds thereof shall be deposited with the Collateral Agent (although such proceeds received thereunder shall be permitted to be used by the U.S. Borrower and its Subsidiaries to the extent provided in Section 4.02(g)). Except as may otherwise be specifically agreed from time to time by the Collateral Agent, copies of all insurance policies and certificates from time to time maintained by the U.S. Borrower and its Subsidiaries, as described above, shall be furnished to the Collateral Agent by the U.S. Borrower promptly after same are obtained by the U.S. Borrower or one or more of its Subsidiaries. (c) If the U.S. Borrower or any of its Subsidiaries shall fail to insure its property in accordance with this Section 8.03, or if the U.S. Borrower, or any of its Subsidiaries shall fail to so endorse all policies or certificates with respect thereto as provided in this Section 8.03, the Collateral Agent shall have the right (but shall be under no obligation), upon 10 Business Days' prior notice to the U.S. Borrower, to procure such insurance and the U.S. Borrower agrees to reimburse the Collateral Agent for all costs and expenses of procuring such insurance. 8.04 Corporate Franchises. Each Borrower will, and will cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents; -87- 96 provided, however, that nothing in this Section 8.04 shall prevent (i) transactions permitted under Sections 8.14 and 9.02, (ii) the withdrawal by the U.S. Borrower or any of its Subsidiaries of its qualification as a foreign corporation in any jurisdiction where such withdrawal could not reasonably be expected to have a Material Adverse Effect or (iii) the liquidation or dissolution of any other Subsidiary that no longer conducts any business and the aggregate assets (taken at fair market value as determined in good faith by the U.S. Borrower) and liabilities (taking the reasonable probable liability in the case of any contingent obligations) of which are less than $100,000. 8.05 Compliance with Statutes, etc. Each Borrower will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations (including without limitation all applicable Gaming Regulations) and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign (including without limitation all relevant Gaming Authorities), in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to the Gaming Business and environmental standards and controls), except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.06 Compliance with Environmental Laws. (a) Each Borrower will comply, and will cause each of its Subsidiaries to comply, with all Environmental Laws applicable to the ownership or use of its Real Property now or hereafter owned or operated by the U.S. Borrower or any of its Subsidiaries, except for any non-compliance that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, will promptly pay or cause to be paid all costs and expenses incurred in connection with such compliance, and will keep or cause to be kept all such Real Property free and clear of any Liens (except Permitted Liens) imposed pursuant to such Environmental Laws. No Borrower nor any of its Subsidiaries will generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of Hazardous Materials on any Real Property now or hereafter owned or operated by the U.S. Borrower or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property, except for Hazardous Materials generated, used, treated, stored, released or disposed of at any such Real Properties in compliance in all material respects with all applicable Environmental Laws and as is reasonably required in connection with the operation, use and maintenance of the business or operations of the U.S. Borrower or any of its Subsidiaries. (b) At the written request of the Administrative Agent or the Required Lenders, which request shall specify in reasonable detail the basis therefor, at any time and from time to time, the U.S. Borrower will provide, at its sole cost and expense, an environmental site assessment report concerning any Real Property owned or operated by the U.S. Borrower and its Subsidiaries, prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent, indicating the presence or absence of -88- 97 Hazardous Materials and the estimated reasonably likely cost of any removal or remedial action required under Environmental Laws in connection with such Hazardous Materials on such Real Property, provided that in no event shall such request be made more often than once every two years for any particular Real Property unless either (i) an Event of Default shall be in existence or (ii) the Lenders receive notice under Section 8.01(i) of any Environmental Matter for which notice is required to be delivered for any such Real Property. If the U.S. Borrower fails to provide the same within ninety days after such request was made, the Administrative Agent may order the same, the cost of which shall be borne by the U.S. Borrower, and the U.S. Borrower shall grant and hereby grants to the Administrative Agent and the Lenders and their agents access to such Real Property and specifically grant the Administrative Agent and the Lenders an irrevocable non-exclusive license, subject to the rights of tenants, to undertake such an assessment using a nationally recognized environmental consulting firm reasonably acceptable to the U.S. Borrower at any reasonable time upon reasonable notice to the U.S. Borrower, all at the sole costs and reasonable expense of the U.S. Borrower. 8.07 ERISA. As soon as reasonably practicable and, in any event, within fifteen (15) days after any Knowledgeable Officer of the U.S. Borrower obtains actual knowledge of the occurrence of any of the following, to the extent that the same could reasonably be expected to have a Material Adverse Effect, either individually or in the aggregate, the U.S. Borrower will deliver to the Administrative Agent a notice setting forth the reasonable details as to such occurrence and the action, if any, that the U.S. Borrower, any Subsidiary or any ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the U.S. Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred (except to the extent that the U.S. Borrower has previously delivered to the Lenders a notice (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may reasonably be expected to be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any contribution required to be made with respect to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may reasonably be expected to be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a -89- 98 proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan which proceeding is not dismissed within (30) days of the institution of such proceeding; that the U.S. Borrower, any Subsidiary of the U.S. Borrower or any ERISA Affiliate will or may reasonably be expected to incur any liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the U.S. Borrower or any Subsidiary of U.S. Borrower may reasonably be expected to incur any liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan. Upon request by the respective Lender, the U.S. Borrower will deliver to such Lender (i) a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service and (ii) copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition to any certificates or notices delivered to the Lenders pursuant to the first sentence hereof, copies of any material notices received from the PBGC by the U.S. Borrower, any Subsidiary of the U.S. Borrower or any ERISA Affiliate with respect to any Plan or Foreign Pension Plan shall be delivered to the Lenders no later than fifteen (15) days after the date such notice has been received by the U.S. Borrower, such Subsidiary or the ERISA Affiliate, as applicable. 8.08 End of Fiscal Years; Fiscal Quarters. Each Borrower will cause (i) each of its, and each of its Subsidiaries', fiscal years to end on June 30 (except that the U.S. Borrower may elect to change its, and its Subsidiaries', fiscal year ends to December 31, in which event (x) a short fiscal year shall exist as a result of such election (which fiscal year shall end on the respective December 31 and shall begin on the prior July 1) and (y) at all times thereafter, each such fiscal year of each Borrower and each of its Subsidiaries shall be required to end on a December 31), and (ii) each of its, and each of its Subsidiaries' fiscal quarters to end on September 30, December 31, March 31 and June 30. Notwithstanding anything to the contrary contained elsewhere in this Agreement, in the event the U.S. Borrower changes its fiscal year as provided above, then in each instance in this Agreement where basket or other amounts are expressly permitted to be incurred or remain outstanding on a fiscal year basis, the amount shall be appropriately reduced on a proportionate basis for the respective short fiscal year resulting from the actions taken as described above. 8.09 Obtaining Approvals. Each Borrower will, and will cause each of its -90- 99 Subsidiaries to, use their respective best efforts to obtain all approvals listed on Schedule X as soon as practicable following the Initial Borrowing Date. Furthermore, if at any time any approval of any Gaming Authority or any other governmental or similar approval is required in connection with the execution, delivery or performance of any Credit Document, or the taking by the Administrative Agent, the Collateral Agent or any Secured Creditors of any remedial action pursuant thereto, then each of the Borrowers shall, and shall cause the respective Subsidiaries to, use their best efforts to obtain any such approvals, upon request from the Administrative Agent, the Collateral Agent or the Required Lenders. 8.10 Payment of Taxes. Each Borrower will, and will cause each of its Subsidiaries to, pay and discharge, or cause to be paid and discharged, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, in each case on a timely basis, and all material lawful claims which, if unpaid, might become a lien or charge upon any properties of the U.S. Borrower or any of its Subsidiaries; provided that neither the U.S. Borrower nor any of its Subsidiaries will be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by appropriate proceedings if it has maintained adequate reserves with respect thereto in accordance with generally accepted accounting principles. 8.11 Additional Security; Further Assurances; etc. (a) The U.S. Borrower will, and will cause each of the other Credit Parties to, (x) grant to the Collateral Agent security interests and mortgages in such assets and properties of the Credit Parties as are not covered by the original Security Documents and (y) enter into any additional security documentation as may be deemed by the Administrative Agent or the Required Lenders as necessary or desirable (including, in the case of any pledge of stock of, or assets by, a Foreign Subsidiary, such additional documentation or actions requested under the relevant local law of the jurisdiction of organization of the Foreign Subsidiary as may be requested), in each case as may be reasonably requested from time to time by the Administrative Agent or the Required Lenders (collectively, together with any security documents entered into pursuant to the other provisions of this Section 8.11 or pursuant to Section 8.12, the "Additional Security Documents"). Notwithstanding anything to the contrary contained above in this clause (b), in no event will (i) the U.S. Borrower or any U.S. Subsidiary Guarantor be required to pledge a greater percentage of the voting stock of any Foreign Subsidiary, in support of Obligations of the U.S. Borrower, than is originally provided in the U.S. Pledge Agreement, except to the extent otherwise required by following Section 8.12, (ii) any German Subsidiary Guarantor or German Borrower be required to grant a security interest in its assets in support of Obligations of the U.S. Borrower, except to the extent otherwise required by following Section 8.12 or (iii) any security interest be required to be granted pursuant to this Section 8.11(b) to the extent same would violate applicable law. To the extent the granting of a security interest in any assets, properties or equity interests is not permitted by reason of clause (iii) of the -91- 100 immediately preceding sentence, at the request of the Administrative Agent or Required Lenders, the U.S. Borrower will, and will cause each of the other Credit Parties to, take all action as may be reasonably requested to obtain any necessary approvals or to isolate the assets which would give rise to the respective violation, or cause the respective Gaming Regulations to apply, in a special purpose Subsidiary of the U.S. Borrower, as is intended to be done with the Missouri License Subsidiary pursuant to Section 13.18. (b) All security interests and mortgages created as required by this Section 8.11 shall be granted pursuant to documentation in form and substance (and shall be governed by law) reasonably satisfactory to the Administrative Agent and shall constitute (after giving effect to any filings or recording required in accordance with applicable law, which filings and recordings shall be required to be made) valid and enforceable perfected security interests and mortgages superior to and prior to the rights of all third Persons (and subject to no other Liens) except for any such rights or Liens constituting Permitted Liens. The Additional Security Documents or instruments related thereto shall have been duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Additional Security Documents and all taxes, fees and other charges payable in connection therewith shall have been paid in full by the U.S. Borrower or their respective Subsidiaries. (c) The U.S. Borrower will, and will cause each of its Subsidiaries to, at the expense of the U.S. Borrower and its Subsidiaries, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, real property surveys, reports and other assurances or instruments, and take such further steps relating to the collateral covered by any of the Security Documents, as the Collateral Agent may reasonably require in order to effect, protect or further evidence the grant or perfection of Liens provided for in the Security Documents, provided that in no event shall the U.S. Borrower be required to obtain any consent from Bally Entertainment Corporation. Furthermore, the U.S. Borrower will cause to be delivered to the Collateral Agent such opinions of counsel, title insurance and other related documents as may be reasonably requested by the Administrative Agent to assure themselves that this Section 8.11 has been complied with. (d) The U.S. Borrower agrees that each action required above by this Section 8.11 shall be completed within 30 days (or (x) 60 days if the Administrative Agent agrees to such longer period in a specific instance or (y) in any case, such longer period as may be required under local law or as may be necessary to obtain required governmental approvals) after such action is either requested to be taken by the Administrative Agent or the Required Lenders or required to be taken by the U.S. Borrower and its Subsidiaries pursuant to the terms of this Section 8.11. It is understood that the foregoing provisions of this Section 8.11 are subject to the provisions of Section 13.18. -92- 101 8.12 Foreign Subsidiaries Security. If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, the U.S. Borrower does not cause Milbank, Tweed, Hadley & McCloy or such other counsel for the U.S. Borrower as may be reasonably acceptable to the Administrative Agent, within 30 days after a request from the Administrative Agent or the Required Lenders, to deliver evidence, in form and substance mutually satisfactory to the Administrative Agent and the U.S. Borrower, with respect to any Foreign Subsidiary of the U.S. Borrower, that (i) a pledge of 66-2/3% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, (ii) the entering into by such Foreign Subsidiary of a security agreement in substantially the form of the U.S. Security Agreement and (iii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the U.S. Subsidiaries Guaranty, in each case in support of Obligations of the U.S. Borrower pursuant to this Agreement, would cause the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes, then in the case of a failure to deliver the evidence described in clause (i) above, that portion of such Foreign Subsidiary's outstanding capital stock so issued by such Foreign Subsidiary, in each case not theretofore pledged pursuant to the U.S. Pledge Agreement in respect of all Obligations shall be pledged to the Collateral Agent for the benefit of the Secured Creditors pursuant to the U.S. Pledge Agreement in respect of all Obligations (or another pledge agreement in substantially similar form, if needed), and in the case of a failure to deliver the evidence described in clause (ii) above, such Foreign Subsidiary will execute and deliver the U.S. Security Agreement (or another security agreement in substantially similar form, if needed), granting the Secured Creditors a security interest in all of such Foreign Subsidiary's assets and securing the Obligations of all Borrowers under the Credit Documents and under any Interest Rate Protection Agreement or Other Hedging Agreement and, in the event that the respective Foreign Subsidiary shall have executed and delivered a Guaranty, the obligations of such Foreign Subsidiary thereunder, and in the case of a failure to deliver the evidence described in clause (iii) above, such Foreign Subsidiary will execute and deliver the U.S. Subsidiaries Guaranty (or another guaranty in substantially similar form, if needed), guaranteeing the Obligations of all Borrowers under the Credit Documents and under any Interest Rate Protection Agreement or Other Hedging Agreement, in each case to the extent that the entering into of the respective security documents or guaranty is permitted by the laws of the respective foreign jurisdiction and with all documents delivered pursuant to this Section 8.12 to be in form and substance reasonably satisfactory to the Administrative Agent. Notwithstanding anything to the contrary contained above, (x) a Foreign Subsidiary which is not a Wholly-Owned Subsidiary of the U.S. Borrower shall not be required to become a party to a Guaranty or Security Document, in each case as otherwise contemplated above, (y) any German Leasing Subsidiary established after the Initial Borrowing Date shall not be required to become party to a Guaranty or Security Document, in each case as otherwise -93- 102 contemplated above, and (z) any Wholly-Owned Foreign Subsidiary may, if the preceding provisions of this Section 8.12 are applicable to it, be designated as constituting a Specified Non-Material Subsidiary to the same extent as a Wholly-Owned Domestic Subsidiary may be so designated (in which case the respective Specified Non-Material Subsidiary would not be required to become a party to the Credit Documents otherwise contemplated above in this Section 8.12 except to the extent required by Section 8.14). 8.13 Permitted Acquisitions. Subject to the provisions of this Section 8.13, Section 9.02(ii) and the requirements contained in the definition of Permitted Acquisition (and, if applicable, Two-Step Permitted Acquisition), the U.S. Borrower and its Wholly-Owned Subsidiaries may from time to time after the Initial Borrowing Date effect Permitted Acquisitions, so long as (i) the U.S. Borrower shall have given the Administrative Agent and the Lenders at least 10 Business Days' prior written notice of any Permitted Acquisition, (ii) based on calculations made by the U.S. Borrower on a Pro Forma Basis after giving effect to the respective Permitted Acquisition and any Indebtedness (including, without limitation, Acquired Indebtedness and any Revolving Loans) incurred, issued or assumed in connection with the respective Permitted Acquisition or to finance same, no Default or Event of Default will exist under, or would have existed during the periods covered by, the financial covenants contained in Sections 9.08 through 9.11, inclusive, of this Agreement; provided that if the respective Permitted Acquisition is a Two-Step Permitted Acquisition, the calculations required pursuant to this clause (ii) and following clause (iii) shall be required to be made on a Pro Forma Basis as otherwise required above or below, as the case may be, both after giving effect to (x) first, the acquisition of shares of the Target actually acquired pursuant to the First Step of the respective Two-Step Permitted Acquisition (but not giving effect to any subsequent merger or compulsory share acquisition to be effected as part of the Two-Step Permitted Acquisition) and (y) second, to the actions described in preceding clause (x) and the subsequent merger or compulsory share acquisition which will conclude the respective Two-Step Permitted Acquisition, and both sets of calculations shall show that the financial covenants referenced above or below, as the case may be, would have been (or are projected to be) complied with in both scenarios described in preceding clauses (x) and (y) of this proviso (i.e., whether or not the subsequent merger or compulsory share acquisition is ever effected), (iii) based on good faith projections prepared by the U.S. Borrower for the period from the date of the consummation of the Permitted Acquisition to the date which is one year thereafter, the level of financial performance measured by the covenants set forth in Sections 9.08 through 9.11 inclusive shall be better than or equal to such level as would be required to provide that no Default or Event of Default would exist under the financial covenants contained in Sections 9.08 through 9.11, inclusive, of this Agreement as compliance with such covenants would be required through the date which is one year from the date of the consummation of the respective Permitted Acquisition; provided that if the respective Permitted Acquisition is a Two-Step Permitted Acquisition, the calculations required pursuant to this clause (iii) shall be subject to the requirements contained in the proviso to preceding clause (ii), (iv) the U.S. Borrower shall -94- 103 certify that the proposed Permitted Acquisition could not reasonably be expected to result in increased tax (excluding income and similar tax liabilities as a result of increased earnings which may result from the respective Permitted Acquisition), ERISA or environmental liabilities with respect to the U.S. Borrower or any of its Subsidiaries, in each case that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, it being understood that any determination of whether the proposed Permitted Acquisition could reasonably be expected to result in such a Material Adverse Effect shall take into account, inter alia, (x) any available indemnities and (y) the timing and likelihood of payment thereunder and (v) the U.S. Borrower shall have delivered to the Administrative Agent an officer's certificate executed by an Authorized Representative of the U.S. Borrower, certifying (A) to the best of his knowledge, compliance with the requirements of preceding clauses (i), (ii) and (iii) and containing the calculations required by the preceding clauses (ii) and (iii) and (B) compliance with the requirements of Section 9.02(ii). 8.14 Actions With Respect to Certain Subsidiaries. (a) Within 150 days after the Initial Borrowing Date, the U.S. Borrower shall cause all Specified Inactive Subsidiaries to be dissolved or liquidated. If any Specified Inactive Subsidiary is, for any reason, not so dissolved or liquidated within 150 days after the Initial Borrowing Date, then on or prior to such date the U.S. Borrower shall have caused such Subsidiary to execute and deliver counterparts of the U.S. Subsidiaries Guaranty, the U.S. Pledge Agreement and the U.S. Security Agreement, and shall have caused all actions to be taken in connection therewith as would have been taken if the respective Subsidiary were a Credit Party on the Initial Borrowing Date. (b) If at any time any Domestic Subsidiary of the U.S. Borrower which was not theretofore a Wholly-Owned Subsidiary becomes a Wholly-Owned Subsidiary of the U.S. Borrower, or any Wholly-Owned Domestic Subsidiary is created, established or acquired, then on such date, unless at such time the respective such Subsidiary is designated as a Specified Non-Material Subsidiary in accordance with the definition thereof (and so long as such Subsidiary meets the requirements of such definition), such Subsidiary shall be required to execute and deliver counterparts of the U.S. Subsidiaries Guaranty, the U.S. Pledge Agreement and the U.S. Security Agreement, and take all action in connection therewith as would otherwise have been required to be taken pursuant to Section 5 if such Subsidiary were a Credit Party on the Initial Borrowing Date. (c) If at any time any Domestic Subsidiary which was theretofore a Specified Non-Material Subsidiary ceases to qualify as such in accordance with the definition thereof, such Subsidiary shall on such date be required to execute and deliver counterparts of the U.S. Subsidiaries Guaranty, the U.S. Pledge Agreement and the U.S. Security Agreement, and take all action in connection therewith as would otherwise have been required to be taken pursuant to Section 5 if such Subsidiary had been a Credit Party -95- 104 on the Initial Borrowing Date. Furthermore, if the aggregate assets of all Specified Non-Material Subsidiaries exceed the threshold provided in the definition of Specified Non-Material Subsidiaries contained herein, then one or more Subsidiaries which were theretofore designated as Specified Non-Material Subsidiaries shall cease to constitute same (as designated by the U.S. Borrower or the Administrative Agent in accordance with the definition of Specified Non-Material Subsidiaries contained herein), and each such Subsidiary, as well as any other Subsidiary which the U.S. Borrower at any time notifies the Administrative Agent in writing shall no longer constitute a Specified Non-Material Subsidiary, shall take all actions specified in the immediately preceding sentence. (d) In addition to the foregoing requirements, if at any time any Subsidiary of the U.S. Borrower executes and delivers any guaranty in respect of the New Senior Subordinated Notes, such Subsidiary shall automatically and without any further action cease to constitute a Specified Non-Material Subsidiary (if same was theretofore designated as a Specified Non-Material Subsidiary) and, in any event, the respective Subsidiary shall on such date be required to execute and deliver counterparts of the U.S. Subsidiaries Guaranty, the U.S. Pledge Agreement and the U.S. Security Agreement, and take all action in connection therewith as would otherwise have been required to be taken pursuant to Section 5 if such Subsidiary were a Credit Party on the Initial Borrowing Date. (e) If at any time the U.S. Borrower or any of its Subsidiaries creates, establishes or acquires any new German Subsidiaries (excluding any German Leasing Subsidiary), then on the date of the creation, establishment or acquisition thereof, such Subsidiary shall be required, unless it is designated as a Specified Non-Material Subsidiary in accordance with the definition thereof contained herein, to execute and deliver such Credit Documents as the respective such Subsidiary would have had to execute and deliver on the Initial Borrowing Date had such German Subsidiary existed on such date. (f) Each Subsidiary required to take actions pursuant to preceding Section 8.14(a) through (e), inclusive, shall execute and deliver, or cause to be executed and delivered, all other relevant documentation of the type described in Section 5 (including without limitation opinions of counsel) as such Subsidiary would have had to deliver if such new Subsidiary were a Credit Party on the Initial Borrowing Date, with all actions to be taken pursuant to this Section 8.14 to be taken to the reasonable satisfaction of the Administrative Agent and the Collateral Agent. 8.15 Margin Stock. The U.S. Borrower will, and will cause each of its Subsidiaries to, take any and all actions as may be required to ensure that no Margin Stock (other than Margin Stock owned on the Initial Borrowing Date the fair market value of which does not exceed the amount referenced in Section 7.27) is at any time owned by the U.S. Borrower and its Subsidiaries, except that (i) after the Initial Borrowing Date, the U.S. Borrower and its Subsidiaries may acquire and own (so long as the respective -96- 105 acquisition is permitted by the other covenants contained in this Agreement, including without limitation Section 9.05) Margin Stock so long as the fair market value thereof at no time, when aggregated with the fair market value of any Margin Stock owned on the Initial Borrowing Date as referenced in Section 7.27 which continues to be owned by the U.S. Borrower and/or its Subsidiaries at such time, exceeds $7,500,000 (except as a result of appreciation in such fair market value after the acquisition of such Margin Stock by the U.S. Borrower or its respective Subsidiary) and (ii) in addition to Margin Stock at any time held pursuant to preceding clause (i), Margin Stock may be acquired in connection with a Two-Step Permitted Acquisition where the consummation of the First Step thereof results in the acquisition of Margin Stock. Notwithstanding anything to the contrary contained above, at the time the U.S. Borrower or any of its Subsidiaries acquires any Margin Stock, and if at such time the aggregate fair market value of all Margin Stock owned by the U.S. Borrower and its Subsidiaries exceeds (or would exceed) $100,000, the U.S. Borrower shall immediately notify the Administrative Agent of such acquisition (providing in reasonable detail a description of the Margin Stock and the fair market value thereof) and, to the extent required by the terms of the various Security Documents, the Margin Stock so acquired shall be pledged thereunder. In addition, at any time when, and upon the occurrence of each Credit Event during any period when, Obligations hereunder are secured by Margin Stock, (i) the Borrower will, and will cause its Subsidiaries to, take any and all actions as may be required, or as may be reasonably requested by the Administrative Agent, to establish compliance with Regulations G and U, (ii) the U.S. Borrower shall deliver to each Lender a duly completed Form U-1 or G-3, as appropriate, referred to in Regulations U and G and (iii) each Lender shall be able in good faith to complete said Form U-1 or G-3, as the case may be, showing that the Loans and other extensions of credit by the Lenders pursuant to this Agreement comply with Regulations U and G, including with respect to the collateral valuation requirements thereof. Furthermore, as promptly as practicable after the consummation of any Two-Step Permitted Acquisition and in any event within 30 days thereafter, the U.S. Borrower will, and will cause its Subsidiaries to, take any and all actions as may be required to ensure that no capital stock acquired pursuant to such Two-Step Permitted Acquisition shall continue to, or at any time thereafter, constitute Margin Stock. 8.16 Existing Senior Secured Notes Collateral. From time to time as requested by the Administrative Agent, the U.S. Borrower shall, so long as any Existing Senior Secured Notes remain outstanding, furnish to the Administrative Agent an updated Schedule XIII, which shall list all collateral, as of the date such updated schedule is prepared, held by the trustee under the Existing Senior Secured Notes Indenture, or any other agent, sub-agent, collateral agent or other custodian for the benefit of the holders of the Existing Senior Secured Notes, which schedule shall list the respective collateral and identify the person or persons which have custody of same. The U.S. Borrower shall take all actions so that, at all times after the Initial Borrowing Date, each Person holding collateral for the benefit of the holders of the Existing Senior Secured Notes, whether in its capacity as trustee, agent, sub-agent, collateral agent or other custodian, shall have -97- 106 executed and delivered to the Administrative Agent a copy of the Bailee Agreement (or an agreement in substantially similar form which is acceptable to the Administrative Agent). The U.S. Borrower shall notify the Administrative Agent before any such additional trustee, agent, sub-agent, collateral agent or other custodian is so appointed. It is understood and agreed that the foregoing covenant shall not apply to any cash or government securities deposited in defeasance of any Existing Senior Secured Notes which remain outstanding after the Initial Borrowing Date. 8.17 Covenant Defeasance of Existing Senior Secured Notes. The U.S. Borrower shall take all action as is required so that, within 180 days of the Initial Borrowing Date, (x) any Existing Senior Secured Notes which remain outstanding at such time are defeased pursuant to a covenant defeasance meeting the requirements of the Existing Senior Secured Notes Indenture and (y) all collateral (other than cash and U.S. government securities deposited to effect such defeasance) held by the trustee under the Existing Senior Secured Notes Indenture, or any other agent, sub-agent, collateral agent or other custodian for the benefit of the holders of Existing Senior Secured Notes, is released from the security interests created pursuant to the Existing Senior Secured Notes Collateral Documents and is, as contemplated by the Bailee Agreement, delivered to (or as directed by) the Collateral Agent to be held by it (or a sub-agent designated by the Collateral Agent) pursuant to the terms of the Security Documents; provided that any such collateral so released at the time of a covenant defeasance with respect to the Existing Senior Secured Notes as contemplated above which is not permitted to be granted as security pursuant to the Security Agreements under Applicable Gaming Regulations as contemplated by the provisions of Section 13 hereof, shall (to the extent such collateral is not permitted to be held in pledge at such time) be delivered to the U.S. Borrower. SECTION 9. Negative Covenants. Each of the Borrowers hereby covenant and agree that subject to receipt of the Subsidiary Stock Restrictions Requisite Approvals, on and after the Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations (other than contingent indemnification obligations) incurred hereunder and thereunder, are paid in full: 9.01 Liens. Such Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of such Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to such Borrower or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 9.01 shall not prevent the creation, incurrence, assumption or existence of the following (Liens -98- 107 described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles; (ii) Liens in respect of property or assets of the U.S. Borrower or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the property and assets of the U.S. Borrower and its Subsidiaries taken as a whole or materially impair the use thereof in the operation of the business of the U.S. Borrower or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) Liens in existence on the Initial Borrowing Date (but not securing the Existing Senior Secured Notes) which are listed, and the property subject thereto described, in Schedule VII, but only to the respective date, if any, set forth in such Schedule VII for the removal, replacement and termination of any such Liens, plus renewals, replacements and extensions of such Liens to the extent set forth on Schedule VII, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such renewal, replacement or extension and (y) any such renewal, replacement or extension does not encumber any additional assets or properties of the U.S. Borrower or any of its Subsidiaries; (iv) Permitted Encumbrances; (v) Liens created pursuant to the Security Documents; (vi) licenses, leases, sublicenses or subleases granted to other Persons not materially interfering with the conduct of the business of the U.S. Borrower and its Subsidiaries taken as a whole; (vii) Liens upon assets of the U.S. Borrower or its Subsidiaries subject to Capitalized Lease Obligations to the extent such Capitalized Lease Obligations are permitted by Section 9.04(iv), provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capitalized Lease Obliga- -99- 108 tion and (y) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the U.S. Borrower or any Subsidiary of the U.S. Borrower; (viii) Liens placed upon equipment or machinery used in the ordinary course of business of the U.S. Borrower or any of its Subsidiaries at the time of acquisition thereof by the U.S. Borrower or any such Subsidiary or within 90 days thereafter to secure Indebtedness incurred to pay all or a portion of the purchase price thereof or to secure Indebtedness incurred solely for the purpose of financing the acquisition of any such equipment or machinery or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that (x) the aggregate outstanding principal amount of all Indebtedness secured by Liens permitted by this clause (viii) shall not at any time exceed $1,000,000 and (y) in all events, the Lien encumbering the equipment or machinery so acquired does not encumber any other asset of the U.S. Borrower or such Subsidiary; (ix) easements, rights-of-way, restrictions, encroachments and other similar charges or encumbrances, and minor title deficiencies, in each case not securing Indebtedness and not materially interfering with the conduct of the business of the U.S. Borrower or any of its Subsidiaries; (x) Liens arising from precautionary UCC financing statement filings regarding operating leases entered into by the U.S. Borrower or any of its Subsidiaries in the ordinary course of business; (xi) Liens arising out of the existence of judgments, decrees or awards not constituting an Event of Default under Section 10.09, provided that no cash or property is deposited or delivered to secure the respective judgment or award (or any appeal bond in respect thereof, except as permitted by following clause (xiii)); (xii) statutory and common law landlords' liens under leases to which the U.S. Borrower or any of its Subsidiaries is a party; (xiii) Liens (other than any Lien imposed by ERISA) (x) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security or (y) to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) and (z) deposits made in the ordinary course of business to secure liability for premiums to insurance carriers, provided that the aggregate amount of deposits at any time pursuant to clauses (y) and (z) shall not exceed $15,000,000 in the -100- 109 aggregate; (xiv) Liens securing Acquired Indebtedness incurred in accordance with Section 9.04(ix) and, to the extent provided therein, (xiii) provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the U.S. Borrower or a Subsidiary of the U.S. Borrower and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the U.S. Borrower or a Subsidiary of the U.S. Borrower and (B) such Liens do not extend to or cover any property or assets of the U.S. Borrower or of any of its Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such indebtedness became Acquired Indebtedness of the U.S. Borrower or a Subsidiary of the U.S. Borrower and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the U.S. Borrower or a Subsidiary of the U.S.Borrower; (xv) (a) until the 180th day after the Initial Borrowing Date (or any earlier date upon which the covenant defeasance with respect to the Existing Senior Secured Notes is effected as required by Section 8.17), Liens on capital stock of Subsidiaries of the U.S. Borrower which secured the Existing Senior Secured Notes prior to the Initial Borrowing Date and Liens on any proceeds thereof, in each case pursuant to the requirements of the Existing Senior Secured Note Documents, and so long as the Collateral Agent, on behalf of the Secured Creditors, maintains a second priority perfected security interest therein as contemplated by the Bailee Agreement and the U.S. Pledge Agreement, and (b) at any time after the covenant defeasance of the Existing Senior Secured Notes has been effected as required by Section 8.17, Liens created on Cash Equivalents or Investments made as described in Section 9.05 (xix)(b) which have been deposited in order to effect the covenant defeasance of the Existing Senior Secured Notes; (xvi) Liens may be created on Cash Equivalents or Investments made as described in Section 9.05(xix)(a) securing liabilities for jackpots payable for progressive games in a manner consistent with industry practice and applicable Gaming Regulations; (xvii) any German Leasing Subsidiary may create Liens on its assets to secure its outstanding Non-Recourse German Leasing Subsidiary Debt, so long as the respective Non-Recourse German Leasing Subsidiary Debt is permitted pursuant to Section 9.04(xiv); and (xviii) additional Liens, so long as neither the fair market value of all assets subject thereto, nor the aggregate amount of obligations secured thereby, exceeds $1,000,000 in the aggregate at any time outstanding. -101- 110 9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. Subject to receipt of Subsidiary Stock Restrictions Requisite Gaming approvals, the U.S. Borrower will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of its property or assets, or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) of any Person, except that: (i) Capital Expenditures by the U.S. Borrower and its Subsidiaries shall be permitted to the extent not in violation of Section 9.07; (ii) the U.S. Borrower and its Wholly-Owned Subsidiaries shall be permitted to make Permitted Acquisitions so long as (A) such Permitted Acquisitions are effected in accordance with the requirements of Section 8.13, (B) after giving effect to any Permitted Acquisition effected after the Effective Date, the aggregate amount paid (including for the purpose of this clause (ii) all cash consideration, the fair market value of all non-cash consideration and the aggregate principal amount of all Acquired Indebtedness issued, incurred or assumed in connection with Permitted Acquisitions effected after the Effective Date, but excluding any U.S. Borrower Common Stock directly issued as consideration in connection with Permitted Acquisitions) by the U.S. Borrower and its Subsidiaries in connection with all Permitted Acquisitions effected after the Effective Date shall not exceed $30 million, except to the extent the Cumulative Net Income Amount (as in effect on the date the respective Permitted Acquisition is consummated) is used to pay (or justify the payment of) consideration in connection with one or more Permitted Acquisitions, and (C) with respect to each Permitted Acquisition, no Default or Event of Default is in existence at the time of the consummation of such Permitted Acquisition or would exist after giving effect thereto; (iii) Investments may be made to the extent permitted by Section 9.05; (iv) the U.S. Borrower and its Subsidiaries may lease (as lessee) real or personal property in the ordinary course of business (so long as any such lease does not create a Capitalized Lease Obligation except to the extent permitted by Section 9.04); (v) the U.S. Borrower and its Subsidiaries may sell and lease (but not pursuant to Sale and Leaseback Transactions or to any German Leasing Subsidiary or German Leasing Joint Venture) inventory (including, without limitation, gaming equipment) in the ordinary course of business; -102- 111 (vi) the U.S. Borrower and its Subsidiaries may sell used and obsolete gaming equipment in the ordinary course of business; provided that at least 85% of the consideration therefor shall constitute cash (for this purpose, treating the amount of credit for trade-ins on new gaming equipment as cash receipts); (vii) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, the U.S. Borrower and its Subsidiaries may sell equipment and other assets, to the extent not otherwise permitted under any other clause of this Section 9.02, at the fair market value thereof (as determined in good faith by management of the U.S. Borrower), provided that (x) of the total consideration received therefor (taking the amount of cash and the fair market value of any non-cash consideration), at least 85% of such consideration shall be in cash and (y) the aggregate consideration (valued as described above) for all sales pursuant to this clause (vii) shall not exceed (1) $10,000,000 in any fiscal year of the U.S. Borrower or (2) $50,000,000 in the aggregate; (viii) the U.S. Borrower and its Subsidiaries may, in the ordinary course of business, license, as licensor or licensee, patents, trademarks, copyrights and know-how to third Persons and to one another; (ix) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, the sale or initial public offering of up to 20% of the capital stock or other equity interests in the German Parent, or any other Wholly-Owned Foreign Subsidiary into which the U.S. Borrower consolidates or transfers its German operations in advance of such offering of capital stock or equity interests, shall be permitted, provided that (x) such sale or initial public offering does not impair the ability of the German Parent (or other entity described above) and its Subsidiaries to repatriate cash freely to the U.S. Borrower in a percentage at least equal to the U.S. Borrower's direct and indirect equity interests therein, (y) 100% of the net after tax proceeds of such sale or initial public offering shall remain with the U.S. Borrower and/or its Subsidiaries and (z) 50% of such proceeds of such sale or initial public offering shall be required to be applied as a mandatory prepayment and/or commitment reduction pursuant to Section 4.02(c); (x) the U.S. Borrower and its Subsidiaries may, subject to compliance with Section 9.06, transfer inventory (including, without limitation, gaming equipment) to each other in the ordinary course of business, provided that transfers of inventory to one or more German Leasing Subsidiaries shall not be permitted pursuant to this clause (x); (xi) the U.S. Borrower and its Subsidiaries may enter into agreements -103- 112 to effect acquisitions and dispositions of stock or assets so long as the respective transaction is permitted pursuant to the provisions of this Section 9.02; provided that the U.S. Borrower and its Subsidiaries may enter into agreements to effect acquisitions and dispositions of capital stock or assets in transactions not permitted by the provisions of this Section 9.02 at the time the respective agreement is entered into, so long as in the case of each such agreement, such agreement shall be expressly conditioned upon obtaining the requisite consent of the Required Lenders under this Agreement as a condition precedent to the consummation of their respective transaction and, if for any reason the transaction is not consummated because of the failure to obtain such consent, the aggregate liability of the U.S. Borrower and its Subsidiaries under any such agreement shall not exceed $1,000,000; (xii) the German Parent and its Subsidiaries may sell and/or otherwise transfer German lease receivables, gaming equipment leased in Germany or gaming equipment to be leased in Germany, to one or more German Leasing Subsidiaries and/or German Leasing Joint Ventures, in each case so long as the aggregate fair market value of all assets so transferred pursuant to this clause (xii) in any fiscal year of the U.S. Borrower does not exceed $12,500,000 and so long as the German Parent and its Subsidiaries (excluding German Leasing Subsidiaries) receive in return (at the time of transfer or within one Business Day thereafter) cash equal to at least 70% of the fair market value (as determined in good faith by the U.S. Borrower) of the assets so transferred; (xiii) liquidations and dissolutions of Subsidiaries expressly contemplated by Sections 8.04 and 8.14 shall be permitted; and (xiv)(a) the German Borrowers may transfer assets to each other, (b) any Wholly-Owned Subsidiary Guarantor of the U.S. Borrower may merge into the U.S. Borrower (so long as the U.S. Borrower is the surviving corporation thereof) or with or into any other Wholly-Owned Subsidiary Guarantor and (c) the U.S. Borrower and one or more Wholly-Owned Subsidiary Guarantors may sell or transfer assets to each other, in each case so long as the action or actions taken pursuant to this clause (xiv) does not, or do not, adversely affect the Lenders or the security interests in assets or guarantees given in respect of the Obligations hereunder. To the extent the Required Lenders waive the provisions of this Section 9.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 9.02, in each case so long as the respective sale is to a Person other than a Borrower or any of its Subsidiaries (other than a German Leasing Subsidiary in a case of transfers pursuant to clause (xii) above), such Collateral shall be sold free and clear of the Liens created by the Security Documents, and the Administrative Agent and the Collateral Agent shall be -104- 113 authorized to take any actions deemed appropriate in order to effect the foregoing. Notwithstanding anything to the contrary contained above in this Section 9.02, except as expressly permitted pursuant to Section 9.02(ix), no capital stock of, or equity interests in, any Subsidiary shall be sold, transferred or otherwise disposed of pursuant to this Section 9.02 to any Person which is not the U.S. Borrower or a Wholly-Owned Subsidiary thereof, in each case unless 100% of the equity interest of the U.S. Borrower and its Subsidiaries in the respective such Subsidiary (and any Subsidiary of the respective such Subsidiary) are sold pursuant to a sale effected in accordance with the applicable requirements of this Section 9.02. If 100% of the equity interests of any Subsidiary are sold to Persons other than the U.S. Borrower and its Subsidiaries in a transaction effected in accordance with the requirements of this Section 9.02, then the respective Person wherein the equity the interests were so sold and each of its Subsidiaries shall be released from its obligations pursuant to any Subsidiary Guaranty to which it was a party and all other Credit Documents to which it was a party, in each case so long as the respective Subsidiary is also released from all guarantees theretofore executed and delivered by and in respect of the New Senior Subordinated Notes. 9.03 Restricted Payments. The U.S. Borrower will not, and will not permit any of its Subsidiaries to, authorize, declare, pay or make any Restricted Payments, except that (i) any Subsidiary of the U.S. Borrower (x) may make Restricted Payments to the U.S. Borrower or any Wholly-Owned Subsidiary of the U.S. Borrower and (y) if such Subsidiary is not a Wholly-Owned Subsidiary, may pay cash dividends to their minority shareholders (not to exceed their proportionate share thereof as determined in accordance with the relevant documentation relating to the minority interests) upon a payment of dividends by the respective such non-Wholly-Owned Subsidiary to the U.S. Borrower and its Subsidiaries; (ii) so long as (x) no Default or Event of Default is in existence (or will exist after given effect to the respective Restricted Payment) and (y) the Leverage Ratio is no greater than 3.50:1.00 as tested on the last day of the Test Period last ended (and would remain so after the respective Restricted Payment), the U.S. Borrower and its Subsidiaries may make Restricted Payments so long as the amount thereof would not exceed the Cumulative Net Income Amount as in effect immediately before the making of the respective Restricted Payment (it being understood and agreed that, if any dividend is declared by the U.S. Borrower pursuant to this clause (ii) at a time when the foregoing requirements are met (and would be met if the respective dividend were paid on such date), such dividend may be made within sixty days after the date of such declaration; provided that in the event of any such declaration the amount so declared shall be deemed a usage of the Cumulative Consolidated Net Income Amount on the date of the respective declaration); (iii) so long as there exists no Default or Event of Default (both before and after giving effect to the payment thereof), the U.S. Borrower may repurchase outstanding shares of its common stock (or options to purchase such common stock) following the death, disability or termination of employment of employees of the U.S. Borrower or any of its Subsidiaries, provided that the aggregate amount of Restricted Payments made by the U.S. Borrower pursuant to this clause (iii) shall not exceed -105- 114 $300,000 in any fiscal year of the U.S. Borrower; (iv) the U.S. Borrower may, within 45 days after the Initial Borrowing Date, redeem its outstanding Existing PIK Preferred Stock in connection with the Refinancing (and, prior to the redemption of the Existing PIK Preferred Stock as required by this Agreement, the U.S. Borrower may make open market or negotiated purchases of any outstanding Existing PIK Preferred Stock so long as the U.S. Borrower does not pay consideration therefor which exceeds the amount which would have been payable in connection with the redemption of same and so long as any Existing PIK Preferred Stock so repurchased is retired); (v) the U.S. Borrower may repurchase the Existing Senior Secured Notes pursuant to the Existing Senior Secured Notes Tender Offer/Consent Solicitation; (vi) so long as not more than $12.5 million aggregate principal amount of Existing Senior Secured Notes remain outstanding following the consummation of the Existing Senior Secured Notes Tender Offer/Consent Solicitation, same may be repurchased (and cancelled) or redeemed at any time when no Default or Event of Default is in existence (or would exist immediately after giving effect thereto), provided that the aggregate amounts spent pursuant to preceding clause (vi) shall not exceed $12.5 million; (vii) the U.S. Borrower may repay any then outstanding Existing Senior Secured Notes at maturity in accordance with the terms thereof; and (viii) Bally Gaming International, Inc. may pay up to $2,350,000 in respect of the settlement of options outstanding on the Initial Borrowing Date under previously adopted employee benefit plans. 9.04 Indebtedness. The U.S. Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to this Agreement and the other Credit Documents; (ii) Indebtedness with respect to performance bonds, surety bonds, appeal bonds or customs bonds required in the ordinary course of business or in connection with the enforcement of rights or claims of the U.S. Borrower or any of its Subsidiaries or in connection with judgments that do not result in a Default or an Event of Default, provided that the aggregate outstanding amount of all such performance bonds, surety bonds, appeal bonds and customs bonds permitted by this clause (ii) shall not at any time exceed $15,000,000; (iii) Indebtedness under Interest Rate Protection Agreements which are non-speculative in nature and are entered into to protect the U.S. Borrower and/or its Subsidiaries against fluctuations in interest rates in respect of floating rate Indebtedness outstanding at the time of the respective Interest Rate Protection Agreements are entered into (or expected to be outstanding within 30 days thereafter), which floating rate Indebtedness is otherwise permitted to remain outstanding or be incurred, as the case may be, pursuant to this Section 9.04; -106- 115 (iv) Indebtedness evidenced by Capitalized Lease Obligations entered into in connection with Capital Expenditures permitted pursuant to Section 9.07, provided that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (iv) exceed $3,000,000 at any time outstanding; (v) Indebtedness subject to Liens permitted under Section 9.01(viii); (vi) Existing Indebtedness outstanding on the Initial Borrowing Date and listed on Schedule V, without giving effect to any subsequent extension, renewal or refinancing thereof, except that with respect to the Existing Indebtedness specifically identified on Schedule V as being permitted to be refinanced, such Existing Indebtedness may be extended, renewed or refinanced (and successively extended, renewed or refinanced) so long as (x) the principal amount thereof is not increased, (y) no additional security is furnished in connection therewith and (z) the obligor remains the same and no additional guaranties are furnished in connection therewith; (vii) Indebtedness constituting intercompany loans and advances to the extent permitted by Section 9.05(viii); (viii) Indebtedness under Other Hedging Agreements providing protection against fluctuations in currency values in connection with the U.S. Borrower's or any of its Subsidiaries' operations so long as management of the U.S. Borrower's or such Subsidiary, as the case may be, has determined that the entering into of such Other Hedging Agreements are bona fide hedging activities and are not speculative in nature; (ix) Acquired Indebtedness may be incurred or assumed in connection with Permitted Acquisitions, so long as the aggregate principal amount of all Acquired Indebtedness incurred or assumed after the Initial Borrowing Date does not exceed $10,000,000; (x) the New Senior Subordinated Notes shall be permitted to be issued and remain outstanding (and may be guaranteed, on a subordinated basis, by any U.S. Subsidiary Guarantor other than RCVP); provided that the aggregate principal amount thereof at no time outstanding shall exceed the principal amount thereof originally issued on or prior to the Initial Borrowing Date less the amount of all repayments thereof made after the Initial Borrowing Date in accordance with Section 9.03; (xi) the Existing Senior Secured Notes not purchased pursuant to the -107- 116 Existing Senior Secured Notes Tender Offer/Consent Solicitation shall be permitted to remain outstanding (and may be guaranteed, to the extent required in accordance with the Existing Senior Secured Notes Documents by one or more U.S Subsidiary Guarantors) so long as (A) the aggregate principal amount thereof at no time outstanding exceeds the remainder of (x) the aggregate principal amount of such Existing Senior Secured Notes not tendered pursuant to the Existing Senior Secured Notes Tender Offer/Consent Solicitation less (y) the aggregate principal amount thereof repaid after the Initial Borrowing Date pursuant to Section 9.03 and (B) on and after the 180th day after the Initial Borrowing Date, the provisions of Section 8.17 have been complied with; (xii) Indebtedness incurred by the U.S. Borrower or any of its Subsidiaries represented by liabilities for jackpots payable for progressive games in a manner consistent with industry practice and applicable Gaming Regulations; (xiii) in addition to Indebtedness otherwise permitted above or pursuant to clause (xiv) below, the U.S. Borrower and its Subsidiaries may from time to time issue or incur Indebtedness (of which (x) up to $5,000,000 may be incurred in connection with Permitted Acquisitions and (y) no more than $1,000,000 may be secured by Liens pursuant to Section 9.01(viii)) so long as the aggregate principal amount of all Indebtedness at any time outstanding pursuant to this clause (xiii) does not exceed $10,000,000; and (xiv) Non-Recourse German Leasing Debt incurred by one or more German Leasing Subsidiaries, so long as the aggregate principal amount of Indebtedness incurred pursuant to this clause (xiv)(a) in no fiscal year of the U.S. Borrower exceeds $10,000,000 and (b) at no time outstanding exceeds $40,000,000. 9.05 Advances, Investments and Loans. The U.S. Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or, Cash Equivalents (each of the foregoing an "Investment" and, collectively, "Investments"), except that the following shall be permitted: (i) the U.S. Borrower and its Subsidiaries may acquire and hold accounts receivables, trade receivables, notes receivables, prepaid expenses and similar items owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms, and the U.S. Borrower and its Subsidiaries may own Investments received in -108- 117 connection with the bankruptcy, work-out, reorganization, liquidation or similar proceeding of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (ii) the U.S. Borrower and its Subsidiaries may acquire and hold cash and Cash Equivalents; (iii) the U.S. Borrower and its Subsidiaries may hold the Investments held by them on the Initial Borrowing Date and described on Schedule VIII without giving effect to any additions thereto or replacements thereof; (iv) the U.S. Borrower and its Subsidiaries may make loans and advances in the ordinary course of business to their respective employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed $1,000,000; (v) the U.S. Borrower and its Subsidiaries may enter into Interest Rate Protection Agreements to the extent permitted by Section 9.04(iii); (vi) the U.S. Borrower and its Subsidiaries may enter into Other Hedging Agreements to the extent permitted by Section 9.04(viii); (vii) the U.S. Borrower and its Subsidiaries shall be permitted to make Capital Expenditures to the extent permitted by Section 9.07; (viii) after the Initial Borrowing Date, (a) the U.S. Borrower and the Wholly-Owned Subsidiary Guarantors may make, or permit to remain outstanding, Investments in each other; provided that if at any time any Person ceases to be a Wholly-Owned Subsidiary Guarantor no Investments (excluding equity contributions which are not returned in the case of the sale of 100% of the equity interests in said Wholly-Owned Subsidiary to a Person other than the U.S. Borrower and its Subsidiaries in a transaction effected in compliance with Section 9.02) theretofore made in such Person shall cease to be permitted pursuant to this clause (a), (b) Investments may be made by the U.S. Borrower and its Wholly-Owned Domestic Subsidiaries in other Wholly-Owned Domestic Subsidiaries that are Specified Non-Material Subsidiaries, provided that if, as a result of the respective Investment or otherwise, the respective Subsidiary ceases to qualify as a Specified Non-Material Subsidiary, it shall be required to take the actions specified in Section 8.14 and, provided further, if the respective Specified Non-Material Subsidiary ceases to be a Wholly-Owned Domestic Subsidiary, any Investments theretofore made therein (other than equity contributions which are not returned in -109- 118 the case of the sale of 100% of the equity interests in said Wholly- Owned Subsidiary to a Person other than the U.S. Borrower and its Subsidiaries in a transaction effected in compliance with Section 9.02) shall cease to be permitted pursuant to this clause (b), (c) the German Borrowers may make unlimited Investments in each other without limitation, (d) the German Parent may make Investments in the German Borrowers without limitation, (e) the German Borrowers may make intercompany loans to any German Subsidiary Guarantor, which intercompany loans shall be evidenced by an inter-company note which, in a case of loans to Bally Gaming International GmbH, shall be Bally Gaming International GmbH Senior Secured Loans secured by the inventory and receivables of Bally Gaming International GmbH, (f) Subsidiaries of the German Parent or German Borrowers (excluding German Leasing Subsidiaries and German Leasing Joint Ventures) may lend and advance money to the German Parent and/or German Borrowers on an unsecured basis, (g) Investments may be made in Domestic Subsidiaries which are not Wholly-Owned Subsidiaries, and may be made in Wholly-Owned Foreign Subsidiaries, in each case which have provided unlimited guarantees (in form and substance reasonably satisfactory to the Administrative Agent) of all Obligations owing pursuant to this Agreement, so long as the aggregate amount of such Investments at no time outstanding (determined without regard to any write-downs or write-offs thereof) does not exceed $10,000,000, and (h) any Subsidiary of the U.S. Borrower may make intercompany loans to the U.S. Borrower, provided that all such loans are subordinated to the Obligations of the U.S. Borrower pursuant to subordination provisions in substantially the form attached hereto as Exhibit O, provided further that if any loans made pursuant to this clause (viii) are evidenced by a promissory note, the respective promissory note shall be pledged to the extent such pledge is required by the terms of any Security Document; (ix) the U.S. Borrower and its Subsidiaries may make any Investments (x) expressly permitted pursuant to Section 9.02(ii) or (y) consisting of non-cash consideration to the extent permitted in connection with dispositions pursuant to Section 9.02(vi) and (vii); (x) the U.S. Borrower may purchase the Rainbow Royalty Payments and Rainbow Debt with proceeds of Delayed Draw Term Loans, as contemplated by Section 5B.02 and, at any time after the Rainbow Royalty Payments and Rainbow Debt have been so purchased, the U.S. Borrower may make additional Investments in RCVP (a) to repurchase minority interests, so long as the aggregate amount spent pursuant to this clause (x) to purchase minority interests does not exceed $4,000,000 and/or (b) by way of intercompany loans to RCVP, so long as the aggregate principal amount of such loans at no time outstanding (determined without regard to any write-downs or write-offs thereof) exceeds $2,500,000; -110- 119 (xi) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, the U.S. Borrower may make Investments in a joint venture with a gaming company identified in a letter delivered to the Administrative Agent prior to the Initial Borrowing Date, in an aggregate amount not to exceed $5,000,000; (xii) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, the U.S. Borrower may make investments in a Japanese company identified in a letter delivered to the Administrative Agent prior to the Initial Borrowing Date, in an aggregate amount not to exceed $5,000,000; (xiii) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, Investments in Kansas Gaming Partners, LLC and Kansas Financial Partners, LLC, so long as the respective entity is a Subsidiary of the U.S. Borrower, shall be permitted so long as the aggregate amount of Investments made pursuant to this clause (xiii) does not exceed $3,000,000; (xiv) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, Investments, so long as same constitute Subsidiaries of the U.S. Borrower, may be made in VSI, SVS and VDSI, in each case to repurchase minority equity interests therein, so long as the aggregate amount of Investments made pursuant to this clause (xiv) does not exceed $4,000,000; (xv) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, Investments may be made through Native American Investments, Inc., in connection with the development of gaming facilities at the Cuyapaipe Indian Reservation in San Diego County, California, so long as the aggregate amount of Investments made pursuant to this clause (xv) does not exceed $3,000,000; (xvi) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, additional Investments may be made at any time so long as the amount thereof, on the date the respective Investment is made, does not exceed the Cumulative Net Income Amount as in effect on such date (immediately before the making of the respective Investment); (xvii) the U.S. Borrower and its Wholly-Owned Subsidiaries may establish Subsidiaries to the extent permitted by Section 9.16 (although any Investments therein must be independently justified pursuant to the other provisions of this Section 9.05); -111- 120 (xviii) the German Parent and its Subsidiaries may make Investments in one or more German Leasing Subsidiaries or German Leasing Joint Ventures, in each case resulting from transfers of assets to the respective German Leasing Subsidiaries and German Leasing Joint Ventures effected in accordance with the requirements of Section 9.02(xii); (xix) Investments by the U.S. Borrower or any of its Subsidiaries in securities issued directly or indirectly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (a) in an amount outstanding at any time equal to the net present value of the aggregate amount of payments owed to winners of jackpots from progressive games and having maturities that are approximately the same as the due dates for future jackpot payments and/or (b) in such amounts as are needed to, and that are deposited pursuant to the requirements of the Existing Senior Secured Notes Indenture in order to, effect a covenant defeasance of the Existing Senior Secured Notes as required by Section 8.17; and (xx) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, in addition to the investments permitted by clauses (i) through (xvii) above, the U.S. Borrower and its Subsidiaries may make additional Investments to or in one or more Persons, so long as all such Investments (determined without regard to any write-downs or write-offs thereof) do not exceed in aggregate amount $9,500,000 at any time outstanding. The aggregate amount of an Investment at any time outstanding for purposes of determinations pursuant to this Section 9.05 shall be deemed to be equal to the aggregate amount of cash, together with the aggregate fair market value of all non-cash assets, loaned, advanced, contributed, transferred or otherwise invested that gives rise to such Investment, together with the maximum amount of credit extended (including by way of guaranties) in respect of any such Investment. For purposes of preceding clauses (xi), (xii), (xiii), (xv) and (xx), the amount invested at any time shall be deemed reduced by the net reduction in the respect of such Investments resulting from dividends or distributions on or repurchases or redemptions of such Investments by the Person in which the Investment was made, proceeds realized upon the sale of such Investment to an unaffiliated purchaser, reductions in amounts guaranteed and repayments of loans or advances or other transfers of assets by such Person to the U.S. Borrower or its Subsidiary thereof that made the respective Investment; provided, however, that no amount shall be included pursuant to this sentence as a reduction in Investment to the extent that is already included in Consolidated Net Income. Notwithstanding anything to the contrary contained above in the Section 9.05, (x) after the creation thereof, Investments in the Missouri License Subsidiary shall be limited to amounts determined by the U.S. Borrower to be reasonably necessary in connection with the conduct of the Gaming Business of the U.S. Borrower and its -112- 121 Subsidiaries in the State of Missouri and (y) if any other special purpose Subsidiary is created in a manner similar to the Missouri License Subsidiary for the reasons expressed in the last sentence of Section 8.11(a) or in Section 9.16(c), the Investments in the respective such Subsidiary shall be limited to those amounts as the U.S. Borrower reasonably determines are necessary in connection with the conduct of the Gaming Business required to be isolated in the respective such special purpose Subsidiary. 9.06 Transactions with Affiliates. The U.S. Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction (including the purchase, sale, lease or exchange of property or the rendering of services) with any Affiliate (each of the foregoing, an "Affiliate Transaction") unless (i) such Affiliate Transaction is on terms that are no less favorable to the U.S. Borrower or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the U.S. Borrower or such Subsidiary with an unrelated Person and (ii) the U.S. Borrower delivers to the Administrative Agent (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the board of directors of the U.S. Borrower set forth in an officer's certificate of the U.S. Borrower certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the board of directors of the U.S. Borrower and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the U.S. Borrower of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (v) any Exempt Affiliate Transaction, (w) any compensation or indemnity arrangement with any officer or director of the U.S. Borrower (pertaining to his or her duties as an officer or director) entered into in the ordinary course of business, (x) transactions between or among the U.S. Borrower and/or its Independent Subsidiaries, (y) Restricted Payments that are permitted by the provisions of Section 9.03 and (z) Investments permitted pursuant to Section 9.05 in persons which are Independent Subsidiaries or who otherwise constitute an Affiliate of the U.S. Borrower, but only because of the Investment or Investments made by the U.S. Borrower and/or its Subsidiaries in such Person pursuant to Section 9.05, in each case, shall not be deemed Affiliate Transactions. -113- 122 9.07 Capital Expenditures. (a) The U.S. Borrower will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that the U.S. Borrower and its Subsidiaries may make Capital Expenditures so long as the aggregate amount of such Capital Expenditures does not exceed, during any period of four consecutive fiscal quarters (taken as one accounting period) ending on the last day of a fiscal quarter described below, the amount set forth opposite such fiscal quarter below:
Period of Four Consecutive Fiscal Quarters Ended Closest to Amount - -------------------------------- ------ June 30, 1998 $18.5 million June 30, 1999 $18.5 million June 30, 2000 $15 million June 30, 2001 $15 million each June 30 ended thereafter $16 million
(b) Notwithstanding anything to the contrary contained in clause (a) above, to the extent that the amount of Capital Expenditures (excluding Capital Expenditures made pursuant to following clause (c)) made by the U.S. Borrower and its Subsidiaries in any period of four consecutive fiscal quarters set forth in clause (a) above is less than the amount permitted to be made in such period (without giving effect to any additional amount available as a result of this clause (b)), the amount of such difference, but not in excess of 50% of the amount originally permitted to be spent in said period pursuant to said clause (a), may be carried forward and used to make Capital Expenditures in the immediately succeeding period of four consecutive fiscal quarters of the U.S. Borrower. Any amount carried forward into a four consecutive- fiscal quarter period pursuant to this clause (b) shall, if not used to make Capital Expenditures in such four consecutive-fiscal quarter period, terminate at the end thereof (and shall not be carried forward to a subsequent period). (c) In addition to the Capital Expenditures permitted to be made pursuant to preceding clauses (a) and (b) of this Section 9.07, (i) the U.S. Borrower and its Subsidiaries may make additional Capital Expenditures with the amount of (x) insurance proceeds received by the U.S. Borrower or any of its Subsidiaries from any Recovery Event so long as such proceeds are used to replace or restore any properties or assets in respect of which such proceeds were paid within the time periods set forth in Section 4.02(g) and (y) the Net Sale Proceeds from sales of assets pursuant to Section 9.02(vii) to the extent such Net Sale Proceeds are permitted to be reinvested pursuant to Section 4.02(e) and are in fact reinvested in accordance with the requirements of said Section 4.02(e), (ii) Permitted Acquisitions shall be permitted to be made in accordance with Sections 9.02 and 8.13, (iii) the U.S. Borrower and its Subsidiaries may make additional Capital Expenditures in connection with the establishment of new Proprietary Gaming Operations, provided that the aggregate amount of Capital Expenditures made pursuant to -114- 123 this clause (iii) shall not exceed $5,000,000 and (iv) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto, the U.S. Borrower and its Subsidiaries may at any time make additional Capital Expenditures so long as the amount thereof does not exceed the Cumulative Net Income Amount as in effect on the date the respective Capital Expenditure is made (immediately before the making of such Capital Expenditure). To the extent Capital Expenditures are made as permitted by this clause (c), same shall not count as Capital Expenditures for purposes of determining compliance with clause (a) or (b) of this Section 9.07. 9.08 Consolidated Fixed Charge Coverage Ratio. The Borrowers will not permit the Consolidated Fixed Charge Coverage Ratio for any Test Period ended on the last day of a fiscal quarter of the U.S. Borrower ended on or after June 1, 1998, to be less than (x) in the case of any such Test Period ended on or prior to June 1, 1999, 1.00:1 and (y) in the case of any Test Period ended after June 1, 1999, 1.05:1. 9.09 Consolidated Interest Coverage Ratio. The Borrowers will not permit the Consolidated Interest Coverage Ratio for any Test Period ended after December 1, 1997 and during a period described below to be less than the ratio set forth opposite such period below:
Test Periods Ending Ratio - ------------------- ----- After December 1, 1997 and on or prior to June 1, 1999 1.75:1 After June 1, 1999 and on or prior to June 1, 2000 2.00:1 After June 1, 2000 and on or prior to June 1, 2001 2.25:1 Thereafter 2.75:1
-115- 124 9.10 Maximum Leverage Ratio. The Borrowers will not permit the Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below:
Period Ratio - ------ ----- From and including December 31, 1997 to but excluding June 30, 1999 5.75:1 From and including June 30, 1999 to but excluding June 30, 2000 5.00:1 From and including June 30, 2000 to but excluding June 30, 2001 4.50:1 Thereafter 3.75:1
9.11 Minimum Consolidated EBITDA. The Borrowers will not permit Consolidated EBITDA for any Test Period ended during a period described below to be less than the respective amount set forth opposite such period below:
Period Amount - ------ ------ After December 1, 1997 to and including June 1, 1998 $50 million After June 1, 1998 to and including June 1, 1999 $52 million After June 1, 1999 to and including June 1, 2000 $58 million After June 1, 2000 to and including June 1, 2001 $65 million Thereafter $74 million
9.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. The U.S. Borrower will not, and will not permit any of its Subsidiaries to, (i) amend, modify or change its certificate of incorporation (including, without limitation, by the filing or modification of any certificate of designation) or by-laws or any agreement entered into by it, with respect to its capital stock (including any Shareholders' -116- 125 Agreement), or enter into any new agreement with respect to its capital stock unless such amendment, modification, change or other action contemplated by this clause (i) could not reasonably be expected to be adverse to the interests of the Lenders under the Credit Documents in any material respect (it being understood and agreed that the adoption of a Permitted Rights Plan shall be permitted), (ii) amend, modify or change, or permit the amendment, modification or change of any provision of any New Senior Subordinated Notes or the New Senior Subordinated Notes Documents unless such amendment, modification or change to the New Senior Subordinated Notes Documents could not be adverse to the interests of the Lenders in any respect (it being understood and agreed that, in no event shall any amendment be permitted which relates to the subordination provisions contained in the New Senior Subordinated Notes Documents), (iii) after giving effect to the amendments effected pursuant to the Existing Senior Secured Notes Tender Offer/Consent Solicitation, amend, modify or change, or permit the amendment, modification or change of, any provision of any Existing Senior Secured Notes or the Existing Senior Secured Notes Documents unless such amendment, modification or change to the Existing Senior Secured Notes Documents could not be adverse to the interest of the Lenders in any respect or (iv) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any Person money or securities before due for the purpose of paying when due), exchange or purchase, redeem or acquire for value (whether as a result of a Change of Control, the consummation of asset sales or otherwise) any Existing Senior Secured Note or any New Senior Subordinated Note, in each case except to the extent expressly permitted pursuant to Section 9.03. -117- 126 9.13 Limitation on Certain Restrictions on Subsidiaries. The U.S. Borrower will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the U.S. Borrower or any of its Subsidiaries, or pay any Indebtedness owed to the U.S. Borrower or any of its Subsidiaries, (b) make loans or advances to the U.S. Borrower or any of its Subsidiaries or (c) transfer any of its properties or assets to the U.S. Borrower or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) the New Senior Subordinated Notes and the other New Senior Subordinated Notes Documents, (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the U.S. Borrower or any of its Subsidiaries, (v) customary provisions restricting assignment of any licensing agreement entered into by the U.S. Borrower or any of its Subsidiaries in the ordinary course of business, and (vi) restrictions on the transfer of any asset subject to a Lien permitted by Sections 9.01(iii), (vii), (viii), (xiv) or (xvi), and (vii) any restriction with respect to a Subsidiary of the U.S. Borrower imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the capital stock or assets of such Subsidiary, so long as the respective sale or disposition is permitted pursuant to Section 9.02, pending the close of such sale or disposition. 9.14 Limitation on Issuance of Capital Stock. Subject to receipt of Subsidiary Stock Restrictions Requisite Gaming approvals, the U.S. Borrower will not permit any of its respective Subsidiaries to issue any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and other issuances which do not decrease the percentage ownership of the U.S. Borrower or any of its Subsidiaries in any class of the capital stock of such Subsidiary, (iii) to qualify directors to the extent required by applicable law, (iv) issuances to the U.S. Borrower and its Wholly-Owned Subsidiaries, so long as such issuances in no event reduce the percentage of the capital stock of the respective issuer (if any) pledged at such time pursuant to the Security Documents and (v) in the case of the German Parent or other entity described in Section 9.02(ix), issuances permitted pursuant to Section 9.02(ix). 9.15 Business. The U.S. Borrower will not, and will not permit any of its Subsidiaries to, engage (directly or indirectly) in any business other than a Gaming Business. 9.16 Limitation on Creation of Subsidiaries. (a) Except as otherwise specifically provided in following clause (b), the U.S. Borrower will not, and will not per- -118- 127 mit any of its Subsidiaries to, establish, create or acquire after the Initial Borrowing Date any Subsidiary; provided that, (i) the U.S. Borrower and its Wholly-Owned Subsidiaries shall be permitted to establish or create Wholly-Owned Subsidiaries so long as the capital stock of such new Subsidiary that is owned by any Credit Party is pledged pursuant to, and to the extent required by, the U.S. Pledge Agreement or other relevant Security Document and the certificates representing such stock, together with stock powers duly executed in blank, are delivered to the Collateral Agent for the benefit of the Secured Creditors, (ii) such new Subsidiary, if a Domestic Subsidiary or a German Subsidiary, executes a counterpart of the U.S. Subsidiaries Guaranty or the German Subsidiaries Guaranty, as is appropriate, and (x) in the case of any Domestic Subsidiary, the U.S. Pledge Agreement and the U.S. Security Agreement and (y) in the case of the German Subsidiary, such other security documentation as may be requested by the Administrative Agent, the Collateral Agent or the Required Lenders, and (iii) such new Subsidiary, to the extent requested by the Administrative Agent or the Required Lenders, takes all actions required pursuant to Section 8.11. In addition, each new Wholly-Owned Subsidiary shall execute and deliver, or cause to be executed and delivered, all other relevant documentation of the type described in Section 5 as such new Subsidiary would have had to deliver if such new Subsidiary were a Credit Party on the Initial Borrowing Date. Without prejudice to the preceding provisions of this Section 9.16(a), the Collateral Agent may require that the capital stock of a new Subsidiary (in the case of a Foreign Subsidiary, subject to limitations on the percentage of voting stock required to be pledged which are consistent with the limitations provided in the Security Documents as originally in effect) be pledged pursuant to an agreement in a form suitable for enforcement in the jurisdiction in which the new Subsidiary in incorporated. (b) In addition to Subsidiaries created pursuant to preceding clause (a), the U.S. Borrower may establish or acquire one or more Subsidiaries after the Initial Borrowing Date as a result of Investments expressly permitted to be made pursuant to Section 9.05 or acquisitions expressly permitted pursuant to Section 9.02; provided that (x) all capital stock of each such Subsidiary shall be pledged by any Credit Party which owns same to the extent required by the U.S. Pledge Agreement or other relevant Security Document and (y) if any such Subsidiary is, or becomes, a Wholly-Owned Subsidiary of the U.S. Borrower, such Subsidiary shall at such time take all actions as would otherwise be required pursuant to Section 9.16(a) in connection with the creation of a new Wholly-Owned Subsidiary. (c) Notwithstanding anything to the contrary contained above, if any Subsidiary created, acquired or established as contemplated above in this Section 9.16 is a Specified Non-Material Subsidiary, such Subsidiary shall not be required to execute and deliver a Guaranty or any Security Documents, in each case except to the extent thereafter required in accordance with the provisions of Section 8.14. Furthermore, no action shall be required pursuant to the foregoing provisions of this Section 9.16 to the extent the taking of such action would violate applicable law. If, and to the extent, the immediately -119- 128 preceding sentence is applicable, at the request of the Administrative Agent or the Required Lenders, the U.S. Borrower will, and will cause each of its Subsidiaries to, take all action as may be reasonably requested to obtain any necessary approvals or to isolate the assets which would give rise to the respective violation, or cause the respective Gaming Regulations to apply, in a special purpose Subsidiary of the U.S. Borrower, as is intended to be done with the Missouri License Subsidiary pursuant to Section 13.18. SECTION 10. Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"): 10.01 Payments. Any Borrower shall (i) default in the payment when due of any principal of any Loan or any Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any interest on any Loan or Note, any Unpaid Drawing or any Fees or any other amounts owing hereunder or thereunder; or 10.02 Representations, etc. Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in any certificate delivered to the Administrative Agent or any Lender pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 10.03 Covenants. Any Credit Party shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.01(g)(i), 8.08 or 8.13 or Section 9 or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement or any other Credit Document (other than those set forth in Sections 10.01 and 10.02 and clause (ii) of this Section 10.03) and such Default as described in this clause (ii) shall continue unremedied for a period of 30 days after written notice thereof to the U.S. Borrower by the Administrative Agent or any Lender; or 10.04 Default Under Other Agreements. (i) The U.S. Borrower or any of its Subsidiaries shall (x) default in any payment of any Indebtedness (other than the Notes) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (y) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Notes) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, without any further notice (other than notice of acceleration or demand for payment) or any further lapse of time, such Indebtedness to become due prior to its stated maturity, or (ii) any Indebtedness (other than the Notes) of the U.S. Borrower or any of its Subsidiaries shall be declared to be (or shall become) due and payable, or required to be prepaid other than by a regularly scheduled required -120- 129 prepayment, prior to the stated maturity thereof, provided that it shall not be a Default or an Event of Default under this Section 10.04 unless the aggregate principal amount of all Indebtedness as described in preceding clauses (i) and (ii) is at least $2,500,000 (or in the case of currencies other than Dollars, the Dollar Equivalent thereof); or 10.05 Bankruptcy, etc. The U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries) shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries), and the petition is not controverted within 15 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries), or the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries) commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency, receivership, administration or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries), or there is commenced against the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries) any such proceeding which remains undismissed for a period of 60 days, or the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries) is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries) suffers any appointment of any custodian, administrator, administrative receiver or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries) makes a general assignment for the benefit of creditors; or any corporate action is taken by the U.S. Borrower or any of its Subsidiaries (excluding Insignificant Subsidiaries) for the purpose of effecting any of the foregoing; or 10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan which is subject to Title IV of ERISA shall have had or is likely to have a trustee appointed to administer such Plan, any -121- 130 Plan which is subject to Title IV of ERISA is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made with respect to a Plan or a Foreign Pension Plan has not been timely made, the U.S. Borrower or any Subsidiary of the U.S. Borrower or any ERISA Affiliate has incurred or is likely to incur any liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the U.S. Borrower or any Subsidiary of the U.S. Borrower has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans or Foreign Pension Plans; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) such lien, security interest or liability, individually, and/or in the aggregate has had, or could reasonably be expected to have, a Material Adverse Effect; or 10.07 Security Documents. At any time after the execution and delivery thereof, (i) any of the Security Documents (except as expressly provided by the terms thereof) shall cease to be in full force and effect, or shall cease to give the Collateral Agent for the benefit of the Secured Creditors the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral to the extent required in accordance with the requirements of the respective Security Documents, in favor of the Collateral Agent, superior to and prior to the rights of all third Persons (except as permitted by Section 9.01), and subject to no other Liens (except as permitted by Section 9.01), or (ii) any Credit Party shall default, and in the case of this clause (ii) such default shall continue unremedied for a period of 30 days after written notice thereof to the U.S. Borrower by the Administrative Agent, the Collateral Agent or any Lender, in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any of the Security Documents and such default shall continue beyond any grace period specifically applicable thereto pursuant to the terms of such Security Document; or 10.08 Guaranties. Except in accordance with the express terms of the respective Guaranty, any Guaranty or any provision thereof shall cease to be in full force or effect as to the relevant Guarantor, or any Guarantor or Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under the relevant Guaranty; or 10.09 Judgments. One or more judgments or decrees shall be entered against the U.S. Borrower or any Subsidiary of the U.S. Borrower involving in the -122- 131 aggregate for the U.S. Borrower and its Subsidiaries a liability (not paid or fully covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 30 consecutive days, and the aggregate amount of all such judgments exceeds $1,000,000 (or in the case of currencies other than Dollars, the Dollar Equivalent thereof); or 10.10 Change of Control. A Change of Control shall occur; or 10.11 Gaming Licenses. At any time after the Effective Date, the U.S. Borrower or any of its Subsidiaries shall lose, or fail to obtain, any Gaming License or Gaming Licenses if the aggregate effect of all such losses and failures at any time is reasonably likely to result in a Material Adverse Effect; or 10.12 Bailee Agreement. Except in accordance with the express terms thereof, any Bailee Agreement or any provision thereof shall cease to be in full force or effect, or the Bailee under any Bailee Agreement shall (except to the extent it has turned over all Collateral held by it to the Collateral Agent) default in its obligations thereunder or notify the Administrative Agent, the Collateral Agent, any Lender or the U.S. Borrower or any of its Subsidiaries that it no longer holds the collateral thereunder for the benefit of the Collateral Agent and the Secured Creditors; or 10.13 Subsidiary Stock Restrictions. At any time on or prior to the Subsidiary Stock Restrictions Approval Date, any Lien shall be created with respect to, or any disposition shall occur with respect to, any capital stock or any Subsidiary or the U.S. Borrower identified in the definition of "Subsidiary Stock Restrictions" contained herein if such Lien or disposition, as the case may be, would not have been permitted if the Subsidiary Stock Restrictions contained in this Agreement were then fully effective in accordance with the terms thereof; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written request of the Required Lenders, shall by written notice to the Borrowers, take any or all of the following actions, without prejudice to the rights of the Administrative Agent, any Lender or the holder of any Note to enforce its claims against any Credit Party (provided, that, if an Event of Default specified in Section 10.05 shall occur with respect to any Borrower, the result which would occur upon the giving of written notice by the Administrative Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitments terminated, whereupon all Commitments of each Lender shall forthwith terminate immediately and any Commitment Commission shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, -123- 132 forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; (iv) direct the U.S. Borrower to pay (and U.S. Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 10.05 with respect to any Borrower, it will pay) to the Collateral Agent at the appropriate Payment Office such additional amount of cash, to be held as security by the Collateral Agent, as is equal to the aggregate Stated Amount of all U.S. Letters of Credit then outstanding; (v) direct the German Borrowers to pay (and the German Borrowers jointly and severally agree that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 10.05 with respect to any Borrower, it will pay) to the Collateral Agent at the appropriate Payment Office such additional amount of cash, to be held as security by the Collateral Agent, as is equal to the aggregate Stated Amount of all German Letters of Credit then outstanding; (vi) enforce, as Collateral Agent, all of the Liens and security interests created pursuant to the Security Documents; and (vii) apply any cash collateral held pursuant to Section 4.02 to the repayment of the Obligations of the U.S. Borrower or the German Borrowers, as the case may be. SECTION 11. Definitions and Accounting Terms. 11.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A PIK Preferred Holdback Amount" shall mean $0. "A Share" shall mean, for each Lender with a U.S. Borrower Tranche A Term Loan Commitment, a fraction the numerator of which is the U.S. Borrower Tranche A Term Loan Commitment of such Lender at such time and the denominator of which is the Total U.S. Borrower Tranche A Term Loan Commitment at such time. "Account Party" shall mean (x) in the case of each U.S. Letter of Credit, the U.S. Borrower and (y) in the case of each German Letter of Credit, both of the German Borrowers, as joint and several account parties with respect such Letter of Credit. "Acquired Indebtedness" means, with respect to any specified Person, Indebtedness of any other Person (the "Acquired Person") existing at the time such Acquired Person becomes a Subsidiary of or merges or consolidates with such specified Person or any of its Subsidiaries pursuant to a Permitted Acquisition (and not redeemed, defeased, retired or otherwise repaid at the time of or upon consummation of such merger or acquisition) or Indebtedness assumed in connection with the acquisition of assets from such Acquired Person pursuant to a Permitted Acquisition, but in each case excluding any Indebtedness incurred or secured by Liens (on additional assets or otherwise) in connection -124- 133 with, or in anticipation or contemplation of, such Acquired Person merging or consolidating with, or becoming a Subsidiary of, such specified Person. "Additional Guaranty" shall mean any guaranty executed and delivered by a Domestic Subsidiary of the U.S. Borrower in accordance with relevant requirements of Sections 8.11, 8.14 or 9.16 of this Agreement. "Additional Security Documents" shall have the meaning provided in Section 8.11. "Adjusted Consolidated Net Income" for any period shall mean Consolidated Net Income for such period plus, without duplication, the sum of the amount of all net non-cash charges (including, without limitation, depreciation, amortization, deferred tax expense, non-cash interest expense) and net non-cash losses which were included in arriving at Consolidated Net Income for such period less all net non-cash gains included in arriving at Consolidated Net Income for such period; provided that gains or losses from sales of assets (other than sales of inventory in the ordinary course of business) shall be excluded to the extent same would otherwise be included in Adjusted Consolidated Net Income for the respective period. "Adjusted Consolidated Working Capital" at any time shall mean Consolidated Current Assets (but excluding therefrom all cash and Cash Equivalents) less Consolidated Current Liabilities at such time. "Administrative Agent" shall mean Credit Suisse First Boston, in its capacity as Administrative Agent for the Lenders hereunder, and shall include any successor to the Administrative Agent appointed pursuant to Section 12.09. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with, such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities, of a Person shall be deemed to be control. "Affiliate Transactions" shall have the meaning provided in Section 9.06. "Aggregate Non-German Revolving Exposure" at any time shall mean the aggregate principal amount of all Dollar Revolving Loans and Swingline Loans then outstanding and the aggregate amount of all U.S. Letter of Credit Outstandings at such time. -125- 134 "Agreement" shall mean this Credit Agreement, as modified, supplemented or amended (including any amendment and restatement hereof) from time to time. "Applicable Commitment Commission Percentage" and "Applicable Margin" shall mean, during each Margin Adjustment Period beginning after the Initial Borrowing Date, the percentage set forth below opposite the respective Tranche of Loan (or opposite Applicable Commitment Commission Percentage in the case of the Applicable Commitment Commission Percentage) and under the respective Level (i.e., Level 1, Level 2, Level 3, Level 4, Level 5 or Level 6, as the case may be) indicated to have been achieved on the applicable Test Date for such Margin Adjustment Period (as shown in the respective officer's certificate delivered pursuant to Section 8.01(f)): Level 1: Leverage Ratio is less than 3.00 to 1. Level 2: Leverage Ratio is greater than or equal to 3.00 to 1 but less than 3.50 to 1. Level 3: Leverage Ratio is greater than or equal to 3.50 to 1 but less than 4.00 to 1. Level 4: Leverage Ratio is greater than or equal to 4.00 to 1 but less than 4.50 to 1. Level 5: Leverage Ratio is greater than or equal to 4.50 to 1 but less than 4.75 to 1. Level 6: Leverage Ratio is greater than or equal to 4.75 to 1.
Level Level Level Level Level Level Ratio 1 2 3 4 5 6 ----- ----- ----- ----- ----- ----- ----- Euro Rate Loan Margin for U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans and Re- volving Loans 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% Base Rate Loan Margin for U.S. Borrower Tranche A Term Loans, Revolving Loans and Swingline Loans 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% Euro Rate Loan Margin for Delayed Draw Term Loans and Tranche B Term Loans 2.25% 2.25% 2.25% 2.50% 2.50% 2.75%
-126- 135 Base Rate Loan Margin for Delayed Draw Term Loans and Tranche B Term Loans 1.25% 1.25% 1.25% 1.50% 1.50% 1.75% Euro Rate Loan Margin for Tranche C Term Loans 2.50% 2.50% 2.50% 2.75% 2.75% 3.00% Base Rate Loan Margin for Tranche C Term Loans 1.50% 1.50% 1.50% 1.75% 1.75% 2.00% Applicable Commit- ment Commission Percentage 0.20% 0.25% .375% 0.40% 0.45% 0.50%
; provided, however, that if the U.S. Borrower fails to deliver the officer's certificate as described in Section 8.01(f) by the date required by such Section, then Level 6 Pricing shall apply for the period from the date upon which the respective certificate is required to be delivered pursuant to said Section 8.01(f) until the date of the actual delivery thereof (except that, to the extent the respective certificate is delivered within one week of the date when required pursuant to the terms of this Agreement and before the respective payment of Commitment Commission or interest is required to be made, the respective payment shall be based on the certificate actually delivered). Furthermore, and notwithstanding anything to the contrary contained above, (i) for the period from the Effective Date to but not including the first Start Date after the U.S. Borrower's fiscal quarter ended September 30, 1997, Level 6 pricing shall apply, (ii) if at any time after the 270th day after the Initial Borrowing Date, either (x) the Collateral Agent has not received a pledge of all the capital stock of the Subsidiaries of the U.S. Borrower (excluding the Missouri License Subsidiary, so long as established as contemplated by Section 13.18 but in any event including all the capital stock of Bally Gaming International, Inc. and Bally Gaming, Inc.) which would be required to be pledged pursuant to the Security Documents, in the absence of otherwise applicable requirements of law (including without limitation requirements of applicable Gaming Regulations, Gaming Authorities or requirements to obtain Gaming Licenses) or (y) the Subsidiary Stock Restrictions Approval Date has not theretofore occurred, then at all times when either (x) any capital stock of any Subsidiary of the U.S. Borrower (excluding the Missouri License Subsidiary) which would otherwise be required to be pledged pursuant to the relevant Security Documents is not pledged because of the requirements of applicable law (including, without limitation, all Gaming Regulations) or the need to obtain Gaming Approvals or the requirements of any Gaming License, and at any time prior to the occurrence of the Subsidiary Stock Restrictions Approval Date, all percentages set forth in the table above (other than Applicable Commitment Commission Percentage) shall be deemed to be increased by .50%, and (iii) Level 6 pricing shall apply at all times when any Default exists under Section 10.01 or -127- 136 10.05, or when any Event of Default (excluding Events of Default arising pursuant to clause (ii) of Section of 10.03, unless the respective Event of Default is as a result of a failure to deliver information required pursuant to Section 8.01(b), (c), (f) or (j)) exists. "Applicable Currency" shall mean Dollars or Deutsche Marks, as the case may be. "Applicable Gaming Regulations" shall have the meaning provided in Section 13.18(a). "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales and leases of assets or rights in the ordinary course of business, including, without limitation, sales of inventory and damaged, surplus or obsolete property in the ordinary course of business and (ii) the issue or sale by U.S. Borrower or any of its Subsidiaries of Equity Interests of any of the U.S. Borrower's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $100,000 or (b) for net proceeds in excess of $100,000. Notwithstanding the foregoing, the following will not be deemed to be Asset Sales: (i) transfers of assets between the U.S. Borrower and/or one or more of its Subsidiaries in accordance with the relevant requirements of Section 9.02; (ii) an issuance of Equity Interests by a Subsidiary of the U.S. Borrower to the U.S. Borrower or to another Subsidiary of the U.S Borrower; (iii) a Restricted Payment that is permitted pursuant to Section 9.03; and (iv) an Investment permitted pursuant to Section 9.05. "Assignment and Assumption Agreement" shall mean the Assignment and Assumption Agreement substantially in the form of Exhibit P (appropriately completed). "Authorized Officer" of any Credit Party shall mean any of the President, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, any Vice-President, the Secretary or any Assistant Secretary of such Credit Party or any other officer of such Credit Party which is designated in writing to the Administrative Agent, CSFB and the Issuing Bank by any of the foregoing officers of such Credit Party as being authorized to give such notices under this Agreement. "Authorized Telephone Officer" shall mean (x) in respect of the U.S. Borrower, any of Scott Schweinfurth, Steve Des Champs, John Garner and Cindy Tregaskis or (y) in the case of the German Borrowers, any of Ernst Konnecke, Renata Oden and Ingrid Schwan, and in each case such additional Authorized Officers as may from time to time be designated in writing to the Administrative Agent by any of the foregoing officers of the U.S. Borrower or, in the case of clause (y) only, the German Borrowers as being an Authorized Telephone Officer for purposes of this Agreement. -128- 137 "B PIK Preferred Holdback Amount" shall mean $50,595,200. "B Share" shall mean, for each Lender with a Tranche B Term Loan Commitment, a fraction the numerator of which is the Tranche B Term Loan Commitment of such Lender at such time and the denominator of which is the Total Tranche B Term Loan Commitment at such time. "Bailee" shall mean any bailee party to a Bailee Agreement. "Bailee Agreement" shall have the meaning provided in Section 5A.06. "Bally Gaming International GmbH Senior Secured Loans" shall mean loans made by either German Borrower to Bally Gaming International GmbH, which loans shall be evidenced by intercompany promissory notes pledged by the respective German Borrower pursuant to the German Security Documents and which intercompany notes shall be secured by the inventory and receivables of Bally Gaming International GmbH (or such inventory and receivables of Bally Gaming International GmbH which are to be included as German Eligible Inventory or German Eligible Receivables, as the case may be). All Bally Gaming International GmbH Senior Secured Loans shall be made pursuant to promissory notes in form and substance reasonably satisfactory to the Administrative Agent, and the Administrative Agent shall have received satisfactory opinions of counsel as to the validity thereof and of the security interests created to secure same. "Bally Wulff Automaten" shall have the meaning provided in the first paragraph of this Agreement. "Bally Wulff Vertriebs" shall have the meaning provided in the first paragraph of this Agreement. "Bank Information Memorandum" shall mean the Confidential Memorandum, dated July, 1997, of the U.S. Borrower with respect to this Agreement, which was distributed to the Lenders prior to the Initial Borrowing Date. "Bankruptcy Code" shall have the meaning provided in Section 10.05. "Base Rate" at any time shall mean the higher of (i) 1/2 of 1% in excess of the overnight Federal Funds Rate and (ii) the Prime Lending Rate. "Base Rate Loan" shall mean each Dollar Loan designated or deemed designated as such by the U.S. Borrower at the time of the incurrence thereof or conversion thereto. -129- 138 "BGI Chattel Paper" shall mean Chattel Paper evidencing obligations of account debtors to Bally Gaming, Inc., arising from the sale of inventory on an installment basis in the ordinary course of business. "Borrowers" shall have the meaning provided in the first paragraph of this Agreement. "Borrowing" shall mean the borrowing of one Type of Loan of a single Tranche from all the Lenders having Commitments of the respective Tranche on a given date (or resulting from a conversion or conversions on such date) having in the case of Euro Rate Loans the same Interest Period, provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans. "Borrowing Base Certificate" shall have the meaning provided in Section 8.01(j). "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Euro Rate Loans and German Letters of Credit, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the London interbank market and which shall not be a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close in the city where the applicable Payment Office of the Administrative Agent is located in respect of Euro Rate Loans or German Letters of Credit, as the case may be. "C PIK Preferred Holdback Amount" shall mean $27,004,800. "C Share" shall mean, for each Lender with a Tranche C Term Loan Commitment, a fraction the numerator of which is the Tranche C Term Loan Commitment of such Lender at such time and the denominator of which is the Total Tranche C Term Loan Commitment at such time. "Capital Expenditures" shall mean, with respect to any Person, all expenditures by such Person which should be shown as capital expenditures in accordance with generally accepted accounting principles and, without duplication, the amount of Capitalized Lease Obligations incurred by such Person. "Capitalized Lease Obligations" of any Person shall mean all rental obligations which, under generally accepted accounting principles, are or will be required to be -130- 139 capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. "Cash Equivalents" means (i) United States dollars and German Deutsche Marks, (ii) securities issued or directly fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank or commercial bank of a foreign country recognized by the United States, in each case having capital and surplus in excess of $500 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or similar equivalent thereof) or higher by at least one nationally recognized statistical rating organization (as defined under Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having one of the two highest ratings obtainable form Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. Section 9601 et seq. "Change of Control" shall mean (i) the board of directors of the U.S. Borrower shall at any time cease to consist of a majority of Continuing Directors, (ii) any Person, entity or "group" (as such term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (other than a Permitted Holder) is or becomes the beneficial owner of an amount of outstanding Voting Stock, or of outstanding common stock, of the U.S. Borrower in excess of 35%, and the Permitted Holders own less than such Person, entity or group (as defined above), of the total amount of fully diluted shares of outstanding Voting Stock or common stock, as the case may be, of the U.S. Borrower, or (iii) any Change of Control under, and as defined in, the New Senior Subordinated Notes Indenture shall occur. "Chattel Paper" shall mean any writing or writings which evidence both a monetary obligation and the security interest in or a lease of specific goods, which would constitute "chattel paper" under, and as defined in, the Uniform Commercial Code as in effect in the State of Nevada. "Code" shall mean the Internal Revenue Code of 1986, as amended from -131- 140 time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purport to be granted) pursuant to any Security Document, including, without limitation, all U.S. Pledge Agreement Collateral, all U.S. Security Agreement Collateral, the Mortgaged Properties, if any, and all cash and Cash Equivalents delivered as collateral pursuant to Section 4.02 or 10 hereof. "Collateral Agent" shall mean the Administrative Agent acting as collateral agent for the Secured Creditors pursuant to the Security Documents. "Commitment" shall mean any of the commitments of any Lender, i.e., whether, the U.S. Borrower Tranche A Term Loan Commitment, the German Borrower Tranche A Term Loan Commitment, the Delayed Draw Term Loan Commitment, the Tranche B Term Loan Commitment, the Tranche C Term Loan Commitment or the Revolving Loan Commitment. "Commitment Commission" shall mean and include all Term Loan Commitment Commission and all Revolving Loan Commitment Commission. "Committed Financing" shall mean and include, at any time (i) the Total Unutilized Revolving Loan Commitment under this Agreement at such time and (ii) other financings permitted under this Agreement, as then in effect, for which a binding commitment to provide same, extending for at least 270 days, is then in place, which commitment, and the terms and conditions and issue thereof, shall be reasonably satisfactory to the Administrative Agent and (iii) cash on hand. "Consolidated Cash Interest Expense" means, for any period, Consolidated Interest Expense for such period, adjusted by excluding therefrom all non-cash interest expense (i.e., interest expense which was not paid in cash during the respective period and which does not represent regularly accruing items which are required, or expected, to be paid in cash (other than through the repayment of principal of the respective Indebtedness at maturity) during a subsequent period) reflected therein. "Consolidated Current Assets" shall mean, at any time, the consolidated current assets of the U.S. Borrower and its Subsidiaries at such time. "Consolidated Current Liabilities" shall mean, at any time, the consolidated current liabilities of the U.S. Borrower and its Subsidiaries at such time, but excluding (i) -132- 141 the current portion of any long-term Indebtedness which would otherwise be included therein and (ii) the current portion of Indebtedness constituting Capitalized Lease Obligations. "Consolidated EBITDA" shall mean, for any period, Consolidated Net Income, adjusted by adding thereto the amount of all amortization and depreciation and all interest and income or similar tax expense, in each case that were deducted in arriving at Consolidated Net Income for such period. To the extent that Consolidated EBITDA is being determined for any period during which the transactions contemplated by Section 5B.02 were actually consummated, determinations of Consolidated EBITDA for such period shall give pro forma effect to the transactions effected as contemplated by said Section 5B.02 as if same were consummated on the first day of such period. "Consolidated Fixed Charge Coverage Ratio" for any period shall mean the ratio of Consolidated EBITDA to Consolidated Fixed Charges for such period. "Consolidated Fixed Charges" for any period shall mean the sum, without duplication, of (i) Consolidated Net Cash Interest Expense for such period, (ii) the amount of all cash payments by the U.S. Borrower and its Subsidiaries in respect of taxes or tax liabilities during such period (net of any cash tax refunds actually received during such period), (iii) the scheduled principal amount of all amortization payments on all Indebtedness (including, without limitation, the principal component of all Capitalized Lease Obligations) of the U.S. Borrower and its Subsidiaries for such period (as determined on the first day of the respective period of, if later, on the Initial Borrowing Date) and (iv) the aggregate amount of all Capital Expenditures made by the U.S. Borrower and its Subsidiaries during such period (but excluding (x) Capital Expenditures made pursuant to Section 9.07(c) and (y) during each Test Period, not more than $2,500,000 of Capital Expenditures made pursuant to Sections 9.07(a) and (b) which were financed pursuant to Capitalized Lease Obligations or with proceeds of purchase money Indebtedness incurred from third parties during the respective Test Period to finance same (but not with proceeds of Loans pursuant to this Agreement)). Notwithstanding anything to the contrary contained above, no amounts shall be included pursuant to clause (iii) of the immediately preceding sentence in respect of Indebtedness to be refinanced pursuant to the Refinancing. "Consolidated Indebtedness" shall mean, at any time, the aggregate amount of all Indebtedness of the U.S. Borrower and its Subsidiaries determined on a consolidated basis with respect to borrowed money or other obligations of such Persons which would appear on the balance sheet of such Persons as indebtedness plus, to the extent same remains outstanding after the 45th day after the Initial Borrowing Date, the aggregate liquidation preference of all outstanding Existing PIK Preferred Stock. Notwithstanding anything to the contrary contained above or pursuant to GAAP, to the extent the consolidated balance sheet of the U.S. Borrower and its Subsidiaries reflects liabilities for -133- 142 jackpots payable (or other similar liabilities however designated), including but not limited to jackpot liabilities with respect to progressive games, then the aggregate amount of such liabilities, as reduced (but not below zero) by amounts shown on the consolidated balance sheet of the U.S. Borrower and its Subsidiaries as constituting assets in the nature of Cash Equivalents or government securities pledged, deposited or "restricted" to offset said liabilities, shall be included as (and shall be deemed to increase the amount of) Consolidated Indebtedness. "Consolidated Interest Coverage Ratio" for any period shall mean the ratio of Consolidated EBITDA to Consolidated Interest Expense for such period; provided that in determining the Consolidated Interest Coverage Ratio for (i) the Test Period ended closest to December 31, 1997, Consolidated Interest Expense for the two fiscal quarters then ended (taken as one accounting period), multiplied by two, shall be used in lieu of Consolidated Interest Expense for such period and (ii) for the Test Period ended closest to March 31, 1998, Consolidated Interest Expense for the three fiscal quarters then ended (taken as one accounting period), multiplied by 4/3 shall be used in lieu of Consolidated Interest Expense for such period. "Consolidated Interest Expense" means, for any period, the sum, without duplication, of (i) the consolidated interest expense of the U.S. Borrower and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Protection Agreements or Other Hedging Agreements), (ii) the consolidated interest expense of the U.S. Borrower and its Subsidiaries that was capitalized during such period, and (iii) the product of (a) all dividend payments, whether or not in cash, on any series of Preferred Stock of such Person or any of its Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the U.S. Borrower, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of the U.S. Borrower, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. Notwithstanding anything to the contrary contained above, Consolidated Interest Expense shall not, pursuant to clause (iii) of the immediately preceding sentence, include any amounts in respect of the Existing PIK Preferred Stock so long as same is redeemed within 45 days after the Initial Borrowing Date. "Consolidated Net Cash Interest Expense" means, for any period, Consolidated Cash Interest Expense for such period, reduced by cash interest income received by the U.S. Borrower and its Subsidiaries on a consolidated basis during such period (but not including any interest income attributable to Cash Equivalents or other Investments deposited or dedicated to the payment of liabilities of the U.S. Borrower and -134- 143 its Subsidiaries, where such cash interest secures said obligation and is not available to the U.S. Borrower and its Subsidiaries for their use). "Consolidated Net Income" means for any period, the aggregate of the Net Income of the U.S. Borrower and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (without duplication of exclusions) (i) the Net Income (to the extent positive) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the U.S. Borrower or a Wholly Owned Subsidiary thereof, (ii) to the extent Consolidated Net Income reflects amounts attributable to minority interests in Subsidiaries that are not Wholly-Owned Subsidiaries of the U.S. Borrower, Consolidated Net Income shall be reduced by the amounts attributable to such minority interests, (iii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends and distributions by that Subsidiary of Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iv) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (v) the cumulative effect of a change in accounting principles shall be excluded. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Continuing Directors" shall mean the directors of the U.S. Borrower on -135- 144 the Initial Borrowing Date and each other director of the U.S. Borrower if such director's nomination for election to the Board of Directors of the U.S. Borrower is recommended by a majority of the then Continuing Directors. "Credit Documents" shall mean this Agreement and, after the execution and delivery thereof pursuant to the terms of this Agreement, each Note, the Bailee Agreement, each Guaranty and each Security Document. "Credit Event" shall mean the making of any Loan or the issuance of any Letter of Credit. "Credit Party" shall mean each Borrower and each Subsidiary Guarantor. "CSFB" shall mean Credit Suisse First Boston in its individual capacity. "Cumulative Net Income Amount" at any date shall mean (i) an amount equal to 50% of Consolidated Net Income for the period (taken as one accounting period) from the Initial Borrowing Date to the end of the U.S. Borrower's most recently ended fiscal quarter for which financial statements have been delivered to the Lenders pursuant to Section 8.01(b) or (c), as the case may be, at the time of such determination, minus (ii) the aggregate amount of consideration (including the amount of any Indebtedness assumed) in connection with acquisitions effected pursuant to Section 9.02(ii) after the Effective Date and on or prior to such date, in each case to the extent the amount of such consideration was justified based on the Cumulative Net Income Amount (as opposed to a usage of the $30 million provided in said clause (ii)), minus (iii) the aggregate amount of Restricted Payments made (or, without duplication, declared) pursuant to clause (ii) of Section 9.03 after the Effective Date and prior to such date, minus (iv) the aggregate amount of Investments made pursuant to Section 9.05(xvi) after the Effective Date and on or prior to such date, minus (v) the aggregate amount of Capital Expenditures made after the Effective Date and prior to such date pursuant to Section 9.07(c)(iv). "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" shall mean any Lender with respect to which a Lender Default is in effect. "Delayed Draw Scheduled Repayment" shall have the meaning provided in Section 4.02(b)(iii). -136- 145 "Delayed Draw Scheduled Repayment Date" shall have the meaning provided in Section 4.02(b)(iii). "Delayed Draw Term Loan" shall have the meaning provided in Section 1.01(c). "Delayed Draw Term Loan Borrowing Date" shall mean each date on or after the Initial Borrowing Date and on or prior to the Delayed Draw Term Loan Commitment Termination Date on which Delayed Draw Term Loans are incurred hereunder. "Delayed Draw Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I-A directly below the column entitled "Delayed Draw Term Loan Commitment", as the same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "Delayed Draw Term Loan Commitment Termination Date" shall mean January 31, 1998. "Delayed Draw Term Loan Maturity Date" shall mean January 31, 2005. "Delayed Draw Term Note" shall have the meaning provided in Section 1.05(a). "Deutsche Mark Equivalent" of an amount denominated in a currency other than Deutsche Marks (the "Other Applicable Currency") shall mean, at any time for the determination thereof, the amount of Deutsche Marks which could be purchased with the amount of such Other Applicable Currency involved in such computation at the spot rate of exchange therefor as quoted by the Administrative Agent as of 11:00 A.M. (Frankfurt time) on the date two Business Days prior to the date of any determination thereof for purchase on such date; provided that to the extent this Agreement requires the calculation of the Deutsche Mark Equivalent of the Stated Amount of any German Letter of Credit issued in a currency other than Deutsche Marks, the Deutsche Mark Equivalent of such Other Applicable Currency shall be revalued on a quarterly basis using the spot exchange rate therefor quoted in the Wall Street Journal on the last Business Day of each calendar quarter; provided, however, that the Administrative Agent may revalue the Deutsche Mark Equivalent of any such amounts described in the preceding proviso of this definition at any time at its sole discretion or at the direction of the Required Lenders. "Deutsche Mark Euro Rate" means, in respect of Deutsche Marks for an Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of the relevant Interest Period (as specified in the applicable Notice of Borrowing or Notice of Conversion) by reference to the "British Bankers' Association Interest Settlement Rates" for deposits in Deutsche Marks (as set forth by any service -137- 146 selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period (rounded, if necessary, upward to the nearest whole multiple of 1/16th of 1%); provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "Deutsche Mark Euro Rate" shall be the interest rate per annum determined by the Administrative Agent to be the rate (rounded, if necessary, upward to the nearest whole multiple of 1/16th of 1% per annum, if such average is not such a multiple) per annum at which deposits in Deutsche Marks are offered for such relevant Interest Period to major banks in the London interbank market in London, England by CSFB at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of such Interest Period. Notwithstanding anything to the contrary contained above, in the event the Administrative Agent has made any determination pursuant to Section 1.10(a)(i) in respect of Deutsche Mark Loans, or in the circumstances described in clause (i) to the proviso to Section 1.10(b) in respect to Deutsch Mark Loans, the Deutsche Mark Euro Rate determined pursuant to this definition shall instead be the rate determined by CSFB as the all-in-cost of funds for CSFB to fund a Deutsche Mark Loan with maturities comparable to the Interest Period applicable thereto. "Deutsche Mark Loan" shall mean each German Borrower Tranche A Term Loan and each Deutsche Mark Revolving Loan. "Deutsche Mark Revolving Loan" shall have the meaning provided in Section 1.01(f). "Deutsche Mark Revolving Note" shall have the meaning provided in Section 1.05(a). "Deutsche Marks" and "DM" shall mean (i) freely and transferable lawful money of the Federal Republic of Germany and (ii) in the event that the Deutsche Mark is replaced by a European Currency of the European Union (the "Euro"), Euros having a corresponding value, calculated in accordance with the relevant provisions of the treaty on the European Union. "Distribution" with respect to any Person shall mean that such Person has declared or paid a dividend or returned any equity capital to its stockholders or partners or authorized or made any other distribution, payment or delivery of property (other than common stock of the U.S. Borrower) or cash to its stockholders or partners as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for any consideration (other than for common stock of the U.S. Borrower) any shares of any class of its capital stock or any partnership interests outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock or any partnership interests), or set aside any funds for any of the foregoing purposes, or shall -138- 147 have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock or any partnership interests of such Person outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock). Without limiting the foregoing, "Distributions" with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes. "Documents" shall mean the Credit Documents, the Existing Senior Secured Notes Tender Offer/Consent Solicitation Documents, the Existing PIK Preferred Stock Redemption Documents and the New Senior Subordinated Notes Documents. "Dollar Equivalent" of an amount denominated in a currency other than Dollars (the "Other Currency") shall mean, at any time for the determination thereof, the amount of Dollars which could be purchased with the amount of Other Currency involved in such computation at the spot exchange rate therefor as quoted by the Administrative Agent as of 11:00 A.M. (New York time) on the date two Business Days prior to the date of any determination thereof for purchase on such date; provided that the Dollar Equivalent of any Unpaid Drawing in a currency other than Dollars shall be determined at the time the drawing under the related Letter of Credit was paid or disbursed by the Issuing Bank; provided further, that for purposes of (x) determining compliance with Sections 1.01(f), 1.01(g), 2.02(a) and 4.01(a) and (y) calculating Term Loan Commitment Commission pursuant to Section 3.01(a), Revolving Loan Commitment Commission pursuant to Section 3.01(b), Letter of Credit Fees pursuant to Section 3.01(c) and Facing Fees pursuant to Section 3.03(d), the Dollar Equivalent of any portion of the Total Term Loan Commitment or the Revolving Loan Commitment denominated in Deutsche Marks and the Stated Amount of any outstanding Letters of Credit and any Unpaid Drawings, in each case denominated in a currency other than Dollars, shall be revalued on a quarterly basis using the spot exchange rate therefor quoted in the Wall Street Journal on the last Business Day of each calendar quarter, provided, however, that the Administrative Agent may revalue the Dollar Equivalent of any such amounts described in the second proviso of this definition at any time at its sole discretion or at the direction of the Required Lenders. "Dollar Loan" shall mean each U.S. Borrower Tranche A Term Loan, each Delayed Draw Term Loan, each Tranche B Term Loan, each Tranche C Term Loan, each Dollar Revolving Loan and each Swingline Loan. "Dollar Revolving Loan" shall have the meaning provided in Section 1.01(f). "Dollar Revolving Note" shall have the meaning provided in Section 1.05(a). -139- 148 "Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States. "Domestic Subsidiary" shall mean each Subsidiary of the U.S. Borrower incorporated or organized in the United States or any State or territory thereof. "Drawing" shall have the meaning provided in Section 2.05(b). "Effective Date" shall have the meaning provided in Section 13.10. "Eligible Inventory" shall mean German Eligible Inventory or U.S. Eligible Inventory, as the case may be. "Eligible Receivables" shall mean German Eligible Receivables or U.S. Eligible Receivables, as the case may be. "Eligible Transferee" shall mean and include a commercial bank, financial institution, any fund that invests in bank loans and any other "accredited investor" (as defined in Regulation D of the Securities Act), in each case which Person shall not have been denied an approval or a license, or found unsuitable under the Applicable Gaming Regulations (including, without limitation, Nevada Gaming Regulations) applicable to lenders, shall not have been found unsuitable by the Mississippi Gaming Commission and which meets the requirements of all other jurisdictions relating to the Gaming Business of the U.S. Borrower and its Subsidiaries to the extent that the U.S. Borrower has so notified the Banks of such requirements of such other jurisdiction pursuant to Section 13.04(e). "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, notices of non-compliance or violation, investigations or proceedings arising under any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief in connection with alleged injury or threat of injury to human health, safety or the environment due to the presence of Hazardous Materials. "Environmental Law" shall mean any Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, guideline, written policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, con- -140- 149 sent decree or judgment, relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C. Section 1801 et seq. and the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq.; and any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "Environmental Matters" shall have the meaning provided in Section 8.01(i). "Equity Interests" means capital stock or general partnership or limited partnership interests and all warrants, options or other rights to acquire capital stock or such interests (but excluding any debt security that is convertible into, or exchangeable for, capital stock or such interests). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the U.S. Borrower or a Subsidiary of the U.S. Borrower would be deemed to be a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code. "Euro Rate" shall mean and include each of the Eurodollar Rate and the Deutsche Mark Euro Rate. "Euro Rate Loan" shall mean each Eurodollar Loan and each Deutsche Mark Loan. "Eurodollar Loan" shall mean each Dollar Loan designated as such by the U.S. Borrower at the time of the incurrence thereof or conversion thereto. "Eurodollar Rate" shall mean (a) for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of the relevant Interest Period (as specified in the applicable Notice of Borrowing or Notice of -141- 150 Conversion) by reference to the "British Bankers' Association Interest Settlement Rates" for deposits in Dollars (as set forth by any service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the rate to be used for purposes of this clause (a) shall be the interest rate per annum determined by the Administrative Agent to be the rate per annum at which deposits in Dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by CSFB at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of such Interest Period, divided (and rounded, if necessary, upward to the nearest whole multiple of 1/16 of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserve required by applicable law) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "Event of Default" shall have the meaning provided in Section 10. "Excess Cash Flow" shall mean, for any period, the remainder of (i) the sum of (a) Adjusted Consolidated Net Income for such period and (b) the decrease, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period, minus (ii) the sum of (a) the amount of Capital Expenditures (but excluding Capital Expenditures (x) financed with Indebtedness (other than proceeds of Revolving Loans) or equity proceeds or (y) made pursuant to Section 9.07(c)(i), (ii) or (iv)) made by the U.S. Borrower and its Subsidiaries during such period in accordance with Section 9.07, (b) the aggregate amount of permanent principal payments of Indebtedness for borrowed money of the U.S. Borrower and its Subsidiaries (excluding payments pursuant to the Transaction, payments of Indebtedness with proceeds of refinancing Indebtedness or proceeds of Asset Sales and excluding repayments of Loans, provided that repayments of Loans shall be deducted in determining Excess Cash Flow if such repayments were (x) required as a result of a Scheduled Repayment under Section 4.02(b) or (y) made as a voluntary prepayment by the Borrowers with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans, only to the extent accompanied by a voluntary reduction to the Total Revolving Loan Commitment)) during such period, (c) the amount of cash Investments made during such period pursuant to clauses (x) (but only to the extent constituting a usage of the $4,000,000 permitted to be used to repurchase minority equity issuances in RCVP), (xi), (xii), (xiii), (xiv), (xv) and (xx) of Section 9.05 during such period, reduced by the amount of all reductions to such Investments during such period as a result of the provisions of the penultimate sentence of Section 9.05, and (d) the increase, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period. -142- 151 "Excess Cash Payment Date" shall mean the date occurring 90 days after the last day of each fiscal year of Holdings ended after the Initial Borrowing Date. "Excess Cash Payment Period" shall mean, with respect to the repayment required on each Excess Cash Payment Date, the immediately preceding fiscal year of the U.S. Borrower. "Exempt Affiliate Transaction" means (i) any extension or renewal, in accordance with their terms, of those certain Employment Agreements dated as of July 1, 1997 between the U.S. Borrower and each of Anthony L. DiCesare, Joel Kirschbaum and Stephen C. Perry (collectively, the "Employment Agreements") and that certain letter agreement dated July 1, 1997 between the U.S. Borrower and Kirkland Investment Corporation providing for the payment of overhead expenses, as well as any restructuring of the Employment Agreements, provided in the case of a restructuring of any Employment Agreement, that the board of directors of the U.S. Borrower has determined that the restructured terms are fair to the U.S. Borrower and if the restructuring involves aggregate consideration in excess of $10,000,000, the U.S. Borrower delivers a fairness opinion of the type specified in Section 9.06 and (ii) any agreements between U.S. Borrower and Mr. Wilms or any of his Affiliates providing for the payment by the U.S. Borrower of consulting fees or similar fees in an aggregate amount not to exceed $500,000 per annum. "Existing Credit Agreements" shall mean (i) the Credit Agreement among Bally Wulff Vertriebs, Bally Wulff Automaten and Berliner Bank AG dated as of January 22, 1997, (ii) the Credit Agreement among Bally Wulff Vertriebs, Bally Wulff Automaten, certain other debtors and Berliner Bank dated as of March 3, 1993, (iii) the Credit Agreement among Bally Wulff Automaten and Dresdner Bank, (iv) the Guaranty Credit Agreement among Bally Wulff Vertriebs, Bally Wulff Automaten and Berliner Bank dated as of December 20, 1994 and (iv) the Loan and Security Agreement between Congress Financial Corporation (Western) and Bally Gaming, Inc. dated March 31, 1997. "Existing Indebtedness" shall have the meaning provided in Section 7.22. "Existing PIK Preferred Stock" shall mean the U.S. Borrower's 15% Non-Voting Senior Special Stock, Series B. "Existing PIK Preferred Stock Documents" shall mean the certificate of designation with respect to the Existing PIK Preferred Stock and all other documents relating thereto. "Existing PIK Preferred Stock Redemption Documents" shall mean the notice of redemption of the Existing PIK Preferred Stock plus any other documents or -143- 152 agreements entered into in connection with the redemption of the Existing PIK Preferred Stock. "Existing Senior Secured Notes" shall mean the $154,000,000 aggregate principal amount of the U.S. Borrower's 12-7/8% Senior Secured Notes due 2003 which were issued pursuant to the Existing Senior Secured Notes Indenture. "Existing Senior Secured Notes Collateral Documents" shall mean all documents securing, or creating Liens to secure, the Existing Senior Secured Notes from time to time outstanding. "Existing Senior Secured Notes Collateral Documents Amendments" shall mean the amendments to the Existing Senior Secured Notes Collateral Documents in the form contemplated by the Existing Senior Secured Notes Tender Offer/Consent, Solicitation Documents and entered into by the parties to the respective Existing Senior Secured Notes Collateral Documents in connection with the Existing Senior Secured Notes Tender Offer/Consent Solicitation. "Existing Senior Secured Notes Documents" shall mean the Existing Senior Secured Notes Indenture, the Existing Senior Secured Notes Indenture Supplement, the Existing Senior Secured Notes, the Existing Senior Secured Notes Collateral Documents, the Existing Senior Secured Notes Collateral Documents Amendments and each of the other agreements and documents entered into in connection therewith. "Existing Senior Secured Notes Indenture" shall mean the Indenture, dated as of June 18, 1996, among the U.S. Borrower, as issuer, certain Guarantors (as defined therein) and United States Trust Company of New York, as trustee (as amended, modified or supplemented from time to time, including pursuant to the Existing Senior Secured Notes Indenture Supplement, in accordance with the terms of this Agreement). "Existing Senior Secured Notes Indenture Supplement" shall mean the First Supplemental Indenture to the Existing Senior Secured Notes Indenture in the form delivered to the Administrative Agent pursuant to Section 5A.06 and entered into by the U.S. Borrower and the trustee for the Existing Senior Secured Notes in connection with the Existing Senior Secured Notes Tender Offer/Consent Solicitation. "Existing Senior Secured Notes Reduction Amount" shall have the meaning provided in Section 3.03(h). "Existing Senior Secured Notes Tender Offer/Consent Solicitation" shall have the meaning provided in Section 5A.06. "Existing Senior Secured Notes Tender Offer/Consent Solicitation -144- 153 Documents" shall mean the Existing Senior Secured Notes Tender Offer/Consent Solicitation, the Existing Senior Secured Notes Indenture Supplement and each of the other agreements and documents entered into in connection with the Existing Senior Subordinated Notes Tender Offer/Consent Solicitation. "Existing Senior Secured Notes Tender Offer Repurchases" shall have the meaning provided in Section 5A.06. "Facing Fee" shall have the meaning provided in Section 3.01(d). "Federal Funds Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent. "Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01. "First-Step" shall have the meaning provided in the definition of Two- Step Permitted Acquisition. "Foreign Pension Plan" shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by the U.S. Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the U.S. Borrower or such Subsidiaries residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Foreign Subsidiaries Guaranty" shall mean and include the German Subsidiaries Guaranty and each Additional Guaranty delivered by a Foreign Subsidiary pursuant to Section 8.11, 8.12, 8.14 or 9.16. "Foreign Subsidiary" shall mean each Subsidiary of the U.S. Borrower other than a Domestic Subsidiary. "Former Lender" shall have the meaning provided in Section 13.04(c). -145- 154 "GAAP" shall mean generally accepted accounting principles in the United States consistently applied throughout the periods involved. "Gaming Authority" shall mean the governmental authorities charged with the administration and enforcement of the Gaming Regulations. "Gaming Business" means the business conducted by the U.S. Borrower and its Subsidiaries as of the Effective Date, including the management and operation of gaming machines and casinos, the design, manufacture and distribution of gaming machines, equipment, monitoring systems and amusement equipment, and other gaming-related businesses, including but not limited to amusements, arcades, Internet-based gaming, pari-mutuel and lottery-related activities, and any and all businesses that in the good faith judgment of the board of directors of the U.S. Borrower are materially related businesses. "Gaming License" means every license, permit, registration, finding of suitability, franchise, approval or other authorization required to own, lease, operate or otherwise conduct or manage riverboat, dockside or land-based gaming (including any applicable liquor licenses) or to design, manufacture or distribute gaming machines, equipment or systems, or to conduct any Gaming Business, in any state or jurisdiction where the U.S. Borrower or any of its Subsidiaries conduct such business. "Gaming Regulations" shall mean the laws, rules, regulations, ordinances and orders applicable to the casino and Gaming Business or activities of U.S. Borrower or any of its Subsidiaries, as in effect from time to time, including the policies, interpretations and administration thereof by the Gaming Authorities. "German Borrower" shall mean each of Bally Wulff Vertriebs and Bally Wulff Automaten, as joint and several obligors hereunder. "German Borrower Tranche A Scheduled Repayment" shall have the meaning provided in Section 4.02(b)(ii). "German Borrower Tranche A Scheduled Repayment Date" shall have the meaning provided in Section 4.02(b)(ii). "German Borrower Tranche A Term Loan" shall have the meaning provided in Section 1.01(b). "German Borrower Tranche A Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I-A directly below the column entitled "German Borrower Tranche A Term Loan Commitment", as the same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 -146- 155 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "German Borrower Tranche A Term Note" shall have the meaning provided in Section 1.05(a). "German Borrowing Base" shall mean, as of any date of which the amount thereof is being determined, an amount (expressed in Deutsche Marks) equal to the sum of (i) 75% of German Eligible Receivables and (ii) 40% of German Eligible Inventory, each as determined for the Borrowing Base Certificate most recently delivered by the German Borrowers pursuant to Section 8.01(j). "German Eligible Inventory" shall mean the book value of the inventory of the German Borrowers and Bally Gaming International GmbH, so long as Bally Gaming International GmbH is a Wholly-Owned Subsidiary of Bally Wulff Vertriebs and is party to a German Subsidiaries Guaranty and German Security Agreement, which conforms to the representations and warranties contained in the German Security Agreement which inventory is located in the Republic of Germany, less (i) any supplies (other than raw materials), goods returned or rejected (except to the extent that such returned or rejected goods continue to conform to the representations and warranties contained in the German Security Agreement) by customers and goods returned to suppliers, (ii) all used equipment otherwise reflected in such inventory, (iii) any advance payments made by customers with respect to inventory of the German Borrowers or Bally Gaming International GmbH and (iv) inventory subject to any Lien other than Liens created under the German Security Agreement. Notwithstanding anything to the contrary contained above, German Eligible Inventory of Bally Gaming International GmbH shall be included as otherwise provided above only to the extent same secures Bally Gaming International GmbH Senior Secured Loans which are then outstanding; provided that the amount of German Eligible Inventory and German Eligible Receivables of Bally Gaming International GmbH at any time included in the German Borrowing Base (i.e., after reducing same by the percentages specified in the definition of German Borrowing Base) shall at no time exceed the lesser of (x) $10,000,000 (or the Deutsche Mark Equivalent thereof) or (y) the aggregate principal amount of Bally Gaming International GmbH Senior Secured Loans then outstanding. "German Eligible Receivables" shall mean the gross book value of the receivables of the German Borrowers and Bally Gaming International GmbH, so long as Bally Gaming International GmbH is a Wholly-Owned Subsidiary of Bally Wulff Vertriebs and is party to a German Subsidiaries Guaranty and German Security Agreement arising from the sale or lease of inventory or services by such Persons in the ordinary course of business which conform to the representations and warranties contained in the German Security Agreement (including, without limitation, that the Collateral Agent shall have and maintain a first priority perfected security interest in all such receivables) less any returns and claims of any nature (whether issued, owing, granted or outstanding) and -147- 156 excluding (i) bill and hold (deferred shipment) and consignment transactions, (ii) contracts or sales to any Affiliate, (iii) all installment or lease receivables where the respective account debtor has two or more installments which are past due, (iv) all receivables from any party subject to any bankruptcy, receivership insolvency or like proceedings by the account debtor, and (v) excluding one-third of the amount of all receivables to account debtors outside the Federal Republic of Germany which would otherwise have been included as German Eligible Receivables. Notwithstanding anything to the contrary contained above, (x) to the extent that the book reserves in respect of receivables of the German Borrowers or Bally Gaming International GmbH, as the case may be, would exceed 20% of the gross book value of the receivables of such Person or Persons on its financial statements as prepared in accordance with GAAP, the amount of such excess reserves shall apply to reduce the amount of German Eligible Receivables and (y) German Eligible Receivables of Bally Gaming International GmbH shall be included as otherwise provided above only to the extent same secures Bally Gaming International GmbH Senior Secured Loans which are then outstanding; provided that the amount of German Eligible Inventory and German Eligible Receivables of Bally Gaming International GmbH at any time included in the German Borrowing Base (i.e., after reducing same by the percentages specified in the definition of German Borrowing Base) shall at no time exceed the lesser of (x) $10,000,000 (or the Deutsche Mark Equivalent thereof) or (y) the aggregate principal amount of Bally Gaming International GmbH Senior Secured Loans then outstanding. "German Leasing Joint Venture" shall mean any Person, which is not a Subsidiary of the U.S. Borrower, but in which the German Parent or one or more of its Subsidiaries makes Investments, which is established for the same purpose described in the definition of German Leasing Subsidiary. "German Leasing Subsidiary" shall mean a German Subsidiary formed for the special purpose of acquiring gaming equipment and leasing the same to customers in the ordinary course of business, and obtaining third-party financing for the gaming equipment so acquired; provided that no German Leasing Subsidiary shall engage in any business other than as contemplated by the immediately preceding sentence. "German Letter of Credit" shall mean each Letter of Credit issued for the joint and several account of the German Borrowers pursuant to Section 2.01. "German Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all outstanding German Letters of Credit and (ii) the amount of all Unpaid Drawings with respect to German Letters of Credit. "German Parent" shall mean Alliance Automaten GmbH & Co. KG (and its successors). "German Pledge Agreement" shall have the meaning provided in Section -148- 157 5A.15. "German Pledge Documents" shall have the meaning provided in Section 5A.15. "German RL Percentage" of any German Revolving Lender at any time shall mean a fraction (expressed as a percentage) the numerator of which is the German Revolving Loan Sub-Commitment of such German Revolving Lender at such time and the denominator of which is the aggregate amount of German Revolving Loan Sub- Commitments of all German Revolving Lenders at such time, provided that if the German RL Percentage of any German Revolving Lender is to be determined after the Total Revolving Loan Commitment has been terminated, then the German RL Percentages of the German Revolving Lenders shall be determined immediately prior (and without giving effect) to such termination. "German Revolving Lender" means (i) each Person listed on Schedule I-B, and (ii) each additional Person that becomes a German Revolving Lender party hereto in accordance with Section 1.13 and/or 13.04. A German Revolving Lender shall cease to be a "German Revolving Lender" when it has assigned all of its German Revolving Loan Sub-Commitments in accordance with Section 1.13 and/or 13.04. For purposes of this Agreement, "Lender" includes each German Revolving Lender unless the context otherwise requires. "German Revolving Loan Sub-Commitment" means, as to any German Revolving Lender, (i) the amount set forth opposite such German Revolving Lender's name in Schedule I-B directly below the column entitled "German Revolving Loan Sub- Commitment", as same may be (x) reduced from time to time pursuant to Section 3.02, 3.03 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). The German Revolving Loan Sub-Commitment of each German Revolving Lender is a sub-limit of the Revolving Loan Commitment of the respective German Revolving Lender (or its respective Affiliate which is a Lender with the related Revolving Loan Commitment) and not an additional commitment and, in no event, may exceed at any time the amount of the Revolving Loan Commitment of such German Revolving Lender (or its respective Affiliate which is a Lender with the related Revolving Loan Commitment). "German Security Agreement" shall have the meaning provided in Section 5A.15. "German Security Documents" shall mean the German Security Agreement, each German Pledge Document and, after the execution and delivery thereof, each Additional Security Document executed and delivered by any Subsidiary of the U.S. Borrower incorporated or organized under the laws of Germany. -149- 158 "German Subsidiaries Guaranty" shall have the meaning provided in Section 5A.12. "German Subsidiary" shall mean each Subsidiary of the U.S. Borrower incorporated or organized under the laws of the Federal Republic of Germany. "German Subsidiary Guarantors" shall mean each German Subsidiary of the U.S. Borrower which has executed and delivered the German Subsidiaries Guaranty. "Guaranteed Creditors" shall mean and include each of the Agent, the Collateral Agent, the Lenders and each party (other than any Credit Party) party to an Interest Rate Protection Agreement or Other Hedging Agreement to the extent that the obligations under such Interest Rate Protection Agreement or Other Hedging Agreement constitute Guaranteed Obligations. "Guaranteed Obligations" shall mean (i) the principal and interest on each Note issued by the German Borrowers to each Lender, and Loans made to the German Borrowers under this Agreement and all reimbursement obligations and Unpaid Drawings with respect to German Letters of Credit, together with all the other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities (including, without limitation, indemnities, fees and interest thereon) of the German Borrowers to such Lender, the Agent and the Collateral Agent now existing or hereafter incurred under, arising out of or in connection with this Agreement or any other Credit Document and the due performance and compliance with all the terms, conditions and agreements contained in the Credit Documents by the German Borrowers and (ii) all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of the German Borrowers or any of their respective Subsidiaries owing under any Interest Rate Protection Agreement or Other Hedging Agreement entered into by any German Borrower or any of their respective Subsidiaries with any Lender or any affiliate thereof (even if such Lender subsequently ceases to be a Lender under this Agreement for any reason) so long as such Lender or affiliate participate in such Interest Rate Protection Agreement or Other Hedging Agreement, and their subsequent assigns, if any, whether now in existence or hereafter arising, and the due performance and compliance with all terms, conditions and agreements contained therein. "Guaranteed Party" shall mean each German Borrower. "Guaranty" shall mean and include each of the Parent Guaranty, the U.S. Subsidiaries Guaranty, the German Subsidiaries Guaranty and each additional guaranty delivered pursuant to Section 8.11, 8.12, 8.14 and/or 9.16. -150- 159 "Hazardous Materials" means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous substances," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, which are regulated under any applicable Environmental Law; and (c) any other chemical, material or substance, the Release of which is prohibited, limited or regulated by any governmental authority. "Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services (excluding accounts payable and accrued expenses arising in the ordinary course of business), (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person (provided, that, if the Person has not assumed or otherwise become liable in respect of such Indebtedness, such Indebtedness shall be deemed to be in an amount equal to the fair market value of the property to which such Lien relates as determined in good faith by such Person), (iv) the aggregate amount required to be capitalized under leases under which such Person is the lessee, (v) all obligations of such person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person and (vii) all obligations under any Interest Rate Protection Agreement, any Other Hedging Agreement or under any similar type of agreement. "Indebtedness to be Refinanced" shall mean collectively, the indebtedness, rising pursuant to the Existing Credit Agreements. "Independent Subsidiary" shall mean each Subsidiary of the U.S. Borrower wherein no Equity Interests are held, directly or indirectly (except as a result of ownership interests in the U.S. Borrower) by any Person (other than another Subsidiary of the U.S. Borrower) which is an Affiliate of the U.S. Borrower. "Initial Borrowing Date" shall mean the date occurring on or after the Effective Date on which the initial Borrowing of Loans hereunder occurs. "Initial Delayed Draw Term Loan Borrowing Date" shall have the meaning provided in Section 5B.01. -151- 160 "Insignificant Subsidiary" shall mean any Subsidiary of the U.S. Borrower (excluding the German Parent and the German Borrowers) which has assets of not greater than $2,500,000 in the aggregate and which, if aggregated with all other Subsidiaries of the Borrower with respect to which an event described in Section 10.05 has occurred and is continuing, would have assets of not greater than $2,500,000. "Interest Determination Date" shall mean, (x) with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan and (y) with respect to any Deutsche Mark Loan, the second Business Day prior to the commencement of any Interest Period relating to such Deutsche Mark Loan. "Interest Period" shall have the meaning provided in Section 1.09. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement or other similar agreement or arrangement. "Investments" shall have the meaning provided in Section 9.05. "Issuing Bank" shall mean CSFB and any other Lender which at the request of the Account Parties (or the respective Account Party) and with the consent of the Administrative Agent agrees, in such Lender's sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2. The sole Issuing Bank on the Initial Borrowing Date is CSFB. "Judgment Currency" shall have the meaning provided in Section 13.16(a). "Judgment Currency Conversion Date" shall have the meaning provided in Section 13.16(a). "Knowledgeable Officer" shall mean with respect to any Borrower, the chief financial officer and chief executive officer of such Borrower, the treasurer, controller and any other financial officer of such Borrower, and the general counsel or any assistant general counsel of such Borrower; provided to the extent the matter relates to environmental matters, a Knowledgeable Officer shall also include any environmental officer of the respective Borrower and any other officer with responsibility for environmental matters. "L/C Supportable Obligations" of each Account Party shall mean obligations of such Account Party or any of its (or their) Subsidiaries incurred in the ordinary course of business and which do not violate the applicable provisions, if any, of this Agreement. -152- 161 "Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "Lender" shall mean each financial institution listed on Schedule I, as well as any Person which becomes a "Lender" hereunder pursuant to Section 1.13 or 13.04(b). Unless the context otherwise requires, each reference in this Agreement to a Lender includes each German Revolving Lender and, if the reference is to a specific Lender which has a Revolving Loan Commitment hereunder, shall include references to any Affiliate of any such Lender which is acting as a German Revolving Lender. "Lender Default" shall mean (i) the refusal (which has not been retracted) or the failure of a Lender to make available its portion of any Borrowing (including any Mandatory Borrowing) or to fund its portion of any unreimbursed payment under Section 2.04(c) or (ii) a Lender having notified in writing any Borrower and/or the Administrative Agent that such Lender does not intend to comply with its obligations under Section 1.01 or 2. "Letter of Credit" shall have the meaning provided in Section 2.01(a). "Letter of Credit Fee" shall have the meaning provided in Section 3.01(c). "Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the amount of all Unpaid Drawings. "Letter of Credit Request" shall have the meaning provided in Section 2.03(a). "Leverage Ratio" shall mean, at any time, the ratio of Consolidated Indebtedness at such time to Consolidated EBITDA for the then most recently ended Test Period; provided that to the extent any Permitted Acquisition, any discontinuance of operations or any Assets Sale (or any similar material transaction which requires a waiver or a consent of the Required Lenders pursuant to Section 9.02) has occurred during the relevant Test Period, Consolidated EBITDA shall be determined for the respective Test Period on a Pro Forma Basis. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease -153- 162 having substantially the same effect as any of the foregoing). "Loan" shall mean each U.S. Borrower Tranche A Term Loan, each German Borrower Tranche A Term Loan, each Delayed Draw Term Loan, each Tranche B Term Loan, each Tranche C Term Loan, each Revolving Loan and each Swingline Loan. "Longer Maturity Term Loans" shall have the meaning provided in Section 4.05. "LVI" shall mean Louisiana Ventures, Inc., a Nevada corporation which is a Wholly-Owned Subsidiary of the U.S. Borrower. "Majority Lenders" of any Tranche shall mean those Non-Defaulting Lenders which would constitute the Required Lenders under, and as defined in, this Agreement if all outstanding Obligations of the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated. "Mandatory Borrowing" shall have the meaning provided in Section 1.01(h). "Margin Adjustment Period" shall mean each period which shall commence on the date occurring after the Effective Date on which the respective officer's certificate is delivered pursuant to Section 8.01(f) (or, in the case of Margin Adjustment Periods beginning after the initial such Margin Adjustment Period, which shall begin on the last day of the Margin Adjustment Period then ending) and which shall end on the earlier of (i) the date of actual delivery of the next officer's certificate pursuant to Section 8.01(f) and (ii) the latest date on which the next officer's certificate is required to be delivered. "Margin Stock" shall have the meaning provided in Regulation U. "Material Adverse Effect" shall mean any material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the U.S. Borrower and its Subsidiaries taken as a whole. "Maturity Date" shall mean, with respect to any Tranche of Loans, the Tranche A Term Loan Maturity Date, Delayed Draw Term Loan Maturity Date, the Tranche B Term Loan Maturity Date, the Tranche C Term Loan Maturity Date or the Revolving Loan Maturity Date, as the case may be. "Maximum Swingline Amount" shall mean $10,000,000. "Minimum Borrowing Amount" shall mean, for each Type and Tranche -154- 163 of Loans hereunder, the respective amount specified below: (i) in the case of a Borrowing of Euro Rate Loans of any Tranche $2,000,000 (or the Deutsche Mark Equivalent thereof in the case of a Borrowing of Deutsche Mark Loans); (ii) in the case of a Borrowing (but excluding Borrowings of Swingline Loans) of Base Rate Loans of any Tranche, $1,000,000; and (iii) in the case of a Borrowing of Swingline Loans, $100,000. "Missouri Equity Pledge Restriction" shall have the meaning provided in Section 13.18(b). "Missouri License Subsidiary" shall have the meaning provided in Section 13.18(b). "Mortgage" shall have the meaning provided in Section 5A.16. "Mortgage Policy" shall have the meaning provided in Section 5A.16. "Mortgaged Property" shall have the meaning provided in Section 5A.16. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding (without duplication), however, (i) any gain or loss together with any related provision for taxes on such gain or loss realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to Sale and Leaseback Transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries, (ii) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss, and (iii) prepayment premiums and other charges incurred in connection with the Refinancing and any gains or losses directly related to the consummation of the Transaction. "Net Sale Proceeds" shall mean for any sale of assets, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from such sale of assets, net of (a) cash expenses of sale (including, without limitation, brokerage fees, if any, transfer taxes and payment of principal, premium and interest of Indebtedness other than the Loans required to be repaid as a result of such asset sale) and (b) all foreign, federal, state and local taxes to the extent payable as a direct consequence of any such asset sale. -155- 164 "Nevada Gaming Regulations" shall mean the Nevada Gaming Control Act, as codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to time, and the regulations of the Nevada Gaming Commission promulgated thereunder, as amended from time to time. "New Senior Subordinated Note Indenture" shall mean the Indenture, dated as of August 8, 1997, among the U.S. Borrower, certain of its Subsidiaries and United States Trust Company of New York, as trustee thereunder, as in effect on the Effective Date and as the same may be modified, amended or supplemented from time to time in accordance with the terms hereof and thereof. "New Senior Subordinated Notes" shall mean the Borrower's 10% Senior Subordinated Notes due 2007, as in effect on the Effective Date and as the same may be modified, supplemented or amended from time to time pursuant to the terms hereof and thereof. "New Senior Subordinated Notes Documents" shall mean and include each of the documents and other agreements entered into (including, without limitation, the New Senior Subordinated Note Indenture) relating to the issuance by the U.S. Borrower of the New Senior Subordinated Notes, as in effect on the Effective Date and as the same may be modified, supplemented or amended from time to time pursuant to the terms hereof and thereof. "New Senior Subordinated Notes Offering Memorandum" shall mean the Offering Memorandum, dated August 4, 1997, in connection with the offering of the New Senior Subordinated Notes. "Non-Defaulting Lender" shall mean and include each Lender other than a Defaulting Lender. "Non-German Revolving Loan Sub-Commitment" means, for any Lender at any time, such Lender's Revolving Loan Commitment minus, in the case of a Lender that is, or whose Affiliate is, a German Revolving Lender, such Lender's or such Affiliate's German Revolving Loan Sub-Commitment. "Non-Recourse German Leasing Subsidiary Debt" means Indebtedness (i) as to which neither the U.S. Borrower nor any of its Subsidiaries (other than one or more German Leasing Subsidiaries) (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor, general partner or otherwise) and (ii) as to which the respective lenders have been notified in writing that they will not have any recourse to the stock or assets of the U.S. Borrower or any of its Subsidiaries (other than the respective -156- 165 German Leasing Subsidiary or German Leasing Subsidiaries). "Note" shall mean each U.S. Borrower Tranche A Term Note, each German Borrower Tranche A Term Note, each Delayed Draw Term Note, each Tranche B Term Note, each Tranche C Term Note, each Dollar Revolving Note, each Deutsche Mark Revolving Note and the Swingline Note. "Notice of Borrowing" shall have the meaning provided in Section 1.03(a). "Notice of Conversion" shall have the meaning provided in Section 1.06. "Notice Office" shall mean the office of the Administrative Agent located at 11 Madison Avenue, New York, New York 10010, Attention: Bruce MacKenzie, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto; provided that in the case of German Letters of Credit, the "Notice Office" shall mean the office specified above, with a copy of the respective notice to be delivered at the same time as otherwise required pursuant to the terms of this Agreement to the office of the Administrative Agent located at Messefurm 60308, Frankfurt AM, Main, Germany, attention: Hamad Urf. "Obligation Currency" shall have the meaning provided in Section 13.16(a). "Obligations" shall mean all amounts owing to the Administrative Agent, the Collateral Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document. "Other Creditor" shall have the meaning provided in the Security Documents. "Other Hedging Agreement" shall mean any foreign exchange contracts, currency swap agreements, commodity agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values. "Outstanding A Term Loan Amount" shall have the meaning provided in Section 4.05. "Parent Guarantor" shall mean the U.S. Borrower in its capacity as a Guarantor pursuant to Section 14 of this Agreement. "Parent Guaranty" shall mean the guaranty of the U.S. Borrower pursuant to Section 14 of this Agreement. -157- 166 "Participant" shall have the meaning provided in Section 2.04(a). "Payment Office" shall mean (i) in respect of Dollar Loans, U.S. Letters of Credit, Fees (other than Letter of Credit Fees and Facing Fees with respect to German Letters of Credit) and, except as provided in clause (ii) below, all other amounts owing under this Agreement and the other Credit Documents, the office of the Administrative Agent located at 11 Madison Avenue, New York, New York 10010, ABA Number: 026009179, Account Name: Alliance Gaming Clearing Account, Account Number: 931268-31, Attention: Bruce MacKenzie, and (ii) in the case of Deutsche Mark Loans, German Letters of Credit, the office of the Administrative Agent located at Messeturm 60308, Frankfurt AM Main, Germany Credit Suisse First Boston, Aktiengesellschaft Frankfurt, Germany, Swift address: CRESDEFF, Account Number: 000333361, Reference: Alliance Gaming, Attention: Client Services or in each case such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Permitted Acquisition" shall mean the acquisition (regardless of form and whether by purchase of assets, purchase of stock, merger, consolidation or otherwise) by the U.S. Borrower or any of the U.S. Subsidiary Guarantors which is a Wholly-Owned Subsidiary of the U.S. Borrower of assets constituting a business or division of any Person or of at least 80% of the Equity Interests of any Person which Person shall, as a result of such acquisition, become a Subsidiary of the U.S. Borrower, provided that (A) the consideration paid by the U.S. Borrower and/or its Subsidiaries consists solely of cash, the issuance of common stock of the U.S. Borrower and the issuance or assumption, as the case may be, of Indebtedness permitted in Section 9.04(ix) and/or (xiii), (B) the assets acquired, or the business of the Person whose stock is acquired, shall be in the Gaming Business, and (C) in the case of the acquisition of 80% of the Equity Interests of any Person (the "Acquired Person"), such Acquired Person shall own no Equity Interests of any other Person unless (x) such Acquired Person owns at least 80% of the Equity Interests of such other Person or (y) (1) such Acquired Person and/or its Wholly-Owned Subsidiaries own 80% of the consolidated assets of such other Person and its Subsidiaries and (2) any non-Wholly-Owned Subsidiary of such Acquired Person was non-Wholly-Owned prior to the date of such Permitted Acquisition of such Acquired Person. Notwithstanding anything to the contrary contained in the immediately preceding sentence, (x) a Permitted Acquisition of at least 80% of the Equity Interests in a Person may be effected by means of a two-step transaction, but only so long as such acquisition is effected by means of a Two-Step Permitted Acquisition (complying with all requirements of the definition thereof) and, in any event, all requirements set forth in this definition of Permitted Acquisition shall in any event be satisfied, except as the requirement of 80% ownership of the Equity Interests of the Target need not be satisfied until the earlier to -158- 167 occur of the consummation of the subsequent merger or compulsory share acquisition referenced in the definition of Two-Step Permitted Acquisition or the date which occurs 270 days after the consummation of the first step of the Two-Step Permitted Acquisition and (y) any acquisition shall be a Permitted Acquisition only if all requirements of Sections 8.13 and 9.02(ii) applicable to Permitted Acquisitions are met with respect thereto. "Permitted Encumbrance" shall mean, with respect to any Mortgaged Property, such exceptions to title as are set forth in the title insurance policy or title commitment delivered with respect thereto, all of which exceptions must be acceptable to the Administrative Agent in its reasonable discretion. "Permitted Holders" shall mean Joel Kirschbaum, Koots DiCesare or Fred Wilms (or any entity controlled by one or more of such individuals). "Permitted Liens" shall have the meaning provided in Section 9.01. "Permitted Rights Plan" shall mean any shareholder rights plan adopted by the U.S. Borrower (i.e., a "poison pill"), so long as the respective rights plan only entitles the holders (or specified holders) of the U.S. Borrower's common stock to obtain or purchase additional shares of the U.S. Borrower's stock or preferred stock meeting the requirements of the immediately succeeding sentence (but not preferred stock, promissory notes or other assets) in accordance with the terms provided in the respective plan. Any preferred stock to be issued pursuant to any Permitted Rights Plan shall be preferred stock of the U.S. Borrower which is not redeemable (except at the sole option of the U.S. Borrower) prior to the second anniversary of the Tranche C Term Loan Maturity Date as then in effect, provides that dividends may be paid thereon in kind (through the issuance of additional shares of such preferred stock), rather than in cash, and expressly provides that no payments shall be permitted to be made thereon if the making of the respective such payment will violate the terms of this Agreement or any other agreement relating to Indebtedness for borrowed money of the U.S. Borrower. "Person" shall mean any individual, partnership, joint venture, limited liability company, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "PIK Preferred Drawdown Date" shall mean the date occurring after the Initial Borrowing Date upon which payments are made to redeem all of the then outstanding Existing PIK Preferred Stock, which date must occur on or prior to the date which occurs 45 days after the Initial Borrowing Date. "Plan" shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute -159- 168 of) the U.S. Borrower or a Subsidiary of the U.S. Borrower or an ERISA Affiliate, and each such plan for the five year period immediately following the latest date on which the U.S. Borrower, or a Subsidiary of the U.S. Borrower or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreement" shall mean and include the U.S. Pledge Agreement and the German Pledge Documents. "Pledged Securities" shall mean all "Pledged Securities" as defined in the relevant Pledge Agreement. "Pledged Securities Requisite Gaming Approvals" shall have the meaning provided in Section 13.18(c). "Preferred Stock" as applied to the capital stock of any Person, means capital stock of such Person (other than common stock of such Person) of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of capital stock of any other class of such Person. "Prime Lending Rate" shall mean the rate which CSFB announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. CSFB may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "Pro Forma Basis" shall mean, as to any Person, for any of the following events which occur subsequent to the commencement of a period for which the financial effect of such event is being calculated, and giving effect to the event for which such calculation is being made, such calculation as will give pro forma effect to such event as if same had occurred at the beginning of such period of calculation, and (i) for purposes of the foregoing calculation, the transaction giving rise to the need to calculate the pro forma effect to any of the following events shall be assumed to have occurred on the first day of the four fiscal quarter period last ended before the occurrence of the respective event for which such pro forma effect is being determined (the "Reference Period"), and (ii) in making any determination with respect to the incurrence or assumption of any Indebtedness during the Reference Period or subsequent to the Reference Period and on or prior to the date of the transaction referenced in clause (i) above (the "Transaction Date"), (x) all Indebtedness (including the Indebtedness -160- 169 incurred or assumed and for which the financial effect is being calculated, whether incurred under this Agreement or otherwise, but excluding normal fluctuations in revolving indebtedness incurred for working capital purposes and not to finance any Permitted Acquisition) incurred or permanently repaid during the Reference Period shall be deemed to have been incurred or repaid at the beginning of such period, (y) Consolidated Interest Expense of such Person attributable to interest or dividends on any Indebtedness, as the case may be, bearing floating interest rates should be computed on a pro forma basis as if the rate in effect on the Transaction Date had been the applicable rate for the entire period and (z) Consolidated Interest Expense will be increased or reduced by the net cost (including amortization of discount) or benefit (after giving effect to amortization of discount) associated with the Interest Rate Protection Agreements, which will remain in effect for the twelve-month period after the Transaction Date and which shall have the effect of fixing the interest rate on the date of computation, and (iii) in making any determination of Consolidated EBITDA, pro forma effect shall be given to any Permitted Acquisition, any discontinued operations and any Asset Sale, in each case which occurred during the Reference Period or subsequent to the Reference Period and prior to the Transaction Date, as if such Permitted Acquisition, discontinuance of operations or Asset Sale, as the case may be, occurred on the first day of the Reference Period. All pro forma determinations required above shall be determined in accordance with GAAP. For purposes of this definition, whenever pro forma effect is to be given to any occurrence or event, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the U.S. Borrower. "Projections" shall mean the projected financial statements of the U.S. Borrower and its subsidiaries contained in the Bank Information Memorandum. "Proprietary Gaming Operations" shall mean and include networked progressive systems and games, second feature/multi-level niche games, network gaming, new video product platforms and any electronic gaming machines for which the U.S. Borrower and its Subsidiaries receive a participation in revenues. "Quarterly Payment Date" shall mean the last Business Day of each October, January, April and July occurring after the Initial Borrowing Date. "Rainbow Debt" shall mean Indebtedness of RCVP in the original principal amount of $12,000,000 in respect of loans made by National Gaming Mississippi, Inc. to RCVP. "Rainbow Royalty Payments" shall mean the payments required to be paid -161- 170 made by Rainbow Casino Corporation ("RCC") under a Marketing and Services Agreement dated as of March 15, 1994 between RCC and HFS Games Corp., which payment obligations of RCC were assumed by RCVP upon the contribution by RCC of the Rainbow Casino to RCVP. "RCRA" shall mean the Resource Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C. Section 6901 et seq. "RCVP" shall mean Rainbow Casino-Vicksburg Partnership, L.P., a Mississippi Limited partnership. "Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recovery Event" shall mean the receipt by the U.S. Borrower or any of its Subsidiaries of any cash insurance proceeds or condemnation awards payable (i) by reason of theft, loss, physical destruction or damage or any other similar event with respect to any property or assets of the U.S. Borrower or any of its Subsidiaries and (ii) under any policy of insurance required to be maintained under Section 8.03; provided that the term "Recovery Event" shall exclude any receipt of cash insurance proceeds or condemnation awards in connection with a single occurrence or event (but treating a series of related occurrences or events as a single occurrence or event) where the aggregate amount of cash proceeds so received by the U.S. Borrower and its Subsidiaries does not exceed $100,000. "Refinancing" shall mean the various refinancing transactions described in clauses (ii), (iii) and (v) of the definition of Transaction contained herein. "Register" shall have the meaning provided in Section 13.15. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation X" shall mean Regulation X of the Board of Governors of the -162- 171 Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Release" means disposing, discharging, injecting, spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying, pouring or migrating, into or upon any land or water or air, or otherwise entering into the environment. "Replaced Lender" shall have the meaning provided in Section 1.13. "Replacement Lender" shall have the meaning provided in Section 1.13. "Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. "Required Lenders" shall mean Non-Defaulting Lenders the sum of whose outstanding Term Loans (and, prior to the termination thereof, Term Loan Commitments) and Revolving Loan Commitments (or after the termination thereof, outstanding Revolving Loans and RL Percentage and/or German RL Percentage, as the case may be, of all Letter of Credit Outstandings and outstanding Swingline Loans) represent an amount greater than 50% of the sum of all outstanding Term Loans (and, if prior to the termination thereof, Term Loan Commitments) of Non-Defaulting Lenders and the Total Revolving Loan Commitment less the Revolving Loan Commitments of Defaulting Lenders (or after the termination of the Total Revolving Loan Commitment, the sum of the then total outstanding Revolving Loans of Non-Defaulting Lenders, and the aggregate RL Percentages and/or German RL Percentage, as the case may be, of all Non-Defaulting Lenders of Letter of Credit Outstandings and outstanding Swingline Loans at such time). For purposes of determining Required Lenders, all outstanding Loans and Commitments, as the case may be, that are denominated in Dollars will be calculated in Dollars and all Loans and Commitments, as the case may be, denominated in Deutsche Marks will be calculated according to the Dollar Equivalent thereof. "Restricted Payments" shall mean (a) any payment of any Distributions with respect to the U.S. Borrower or any of its Subsidiaries by the U.S. Borrower or any of its Subsidiaries and (b) the making (or the giving of any notice in respect thereof) by the U.S. Borrower or any of its Subsidiaries of any voluntary or mandatory payment, purchase, acquisition or redemption, whether by the making of any payments of the principal, interest or otherwise, in respect of any Preferred Stock of such Person, the -163- 172 Existing Senior Secured Notes or the New Senior Subordinated Notes; provided that payments of regularly accruing interest and liquidated damages in accordance with the requirements of the Existing Senior Secured Notes and the New Senior Subordinated Notes (to the extent the payment is permitted in accordance the subordination provisions applicable to the New Senior Subordinated Notes) shall not constitute Restricted Payments. "Returns" shall have the meaning provided in Section 7.09. "Revolving Loan" shall have the meaning provided in Section 1.01(f). "Revolving Loan Borrowers" shall mean and include each of the U.S. Borrower and each German Borrower. "Revolving Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I-A directly below the column entitled "Revolving Loan Commitment," as the same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "Revolving Loan Commitment Commission" shall have the meaning provided in Section 3.01(b). "Revolving Loan Maturity Date" shall mean July 30, 2003. "RL Percentage" of any Lender at any time shall mean a fraction (expressed as a percentage) the numerator of which is the Non-German Revolving Loan Sub-Commitment of such Lender at such time and the denominator of which is the aggregate amount of Non-German Revolving Loan Commitments of all Lenders at such time, or, in the case of a Lender that is, or whose Affiliate is, a German Revolving Lender, at any time when the Aggregate Non-German Revolving Exposure equals or exceeds the aggregate of the Non-German Revolving Loan Commitments, such Bank's or such Affiliate's German RL Percentage. Notwithstanding anything to the contrary contained above, if the RL Percentage of any Lender is to be determined after the Total Revolving Loan Commitment has been terminated, then the RL Percentages of the Lenders shall be determined immediately prior (and without giving effect) to such termination. "Sale and Leaseback Transaction" shall mean any transaction structured as a sale and leaseback or similar transaction. "Scheduled Repayment" shall mean each U.S. Borrower Tranche A Scheduled Repayment, each German Borrower Tranche A Scheduled Repayment, each -164- 173 Delayed Draw Scheduled Repayment, each Tranche B Scheduled Repayment and each Tranche C Scheduled Repayment, as the case may be. "SEC" shall have the meaning provided in Section 8.01(h). "Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b)(ii). "Secured Creditors" shall have the meaning assigned that term in the respective Security Documents. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Security Document" shall mean and include each U.S. Security Document, each German Security Document and each security document entered into by the U.S. Borrower or any Subsidiary of the U.S. Borrower pursuant to Section 8.11, 8.12, 8.14 and/or 9.16. "Series E Preferred Stock" shall mean the U.S. Borrower's 11-1/2% Non-Voting Junior Convertible Pay-In-Kind Special Stock Series E. "Shareholders' Agreements" shall mean all agreements entered into by the U.S. Borrower or any of its Subsidiaries governing the terms and relative rights of its capital stock and any agreements entered into by shareholders relating to any such entity with respect to its capital stock. "Specified Inactive Subsidiaries" shall mean and include each of: APT Coin Machines, Inc. Trolley Stop, Inc. Oregon Ventures, Inc. Indiana Gaming Ventures, Inc. United Games, Inc. Mizpah Investments, Inc. United Gaming Ventures, Inc. Mississippi Ventures II, Inc. WCAL, Inc. Slot Palace, Inc. (dba Quality Inn) Vermont Financial Venture, Inc. -165- 174 Missouri Ventures II, Inc. FCJI, Inc. Douglas Eagle Hotel & Casino, Inc. Pennsylvania Gaming Ventures, Inc. Bally Wulff Beteiligungs GmbH Kuepper GmbH "Specified Non-Material Subsidiaries" shall mean (i) on and after the Initial Borrowing Date, each of: Casino Electronics, Inc. Mississippi Ventures, Inc. United Gaming of Iowa, Inc. United Native American, Inc. Kansas Gaming Ventures, Inc. Kansas Gaming Partners, LLC Kansas Financial Partners, LLC Alpine Willow Investments, Inc. and (ii) after the Initial Borrowing Date, any additional Wholly-Owned Subsidiary established, created or acquired after the Initial Borrowing Date which at the time of such establishment, creation or acquisition is designated as a Specified Non-Material Subsidiary; provided that no Subsidiary shall be designated as a Specified Non-Material Subsidiary at any time when (x) the aggregate book value or fair market value (as determined in good faith by the U.S. Borrower), whichever is greater, of all assets of such Subsidiary is equal to or in excess of $5,000,000 or (y) if immediately after giving effect to such designation, the aggregate book value or fair market value (as determined in good faith by the U.S. Borrower), whichever is greater, of all assets of all Specified Non-Material Subsidiaries is equal to or in excess of $15,000,000. Notwithstanding anything to the contrary contained above, (i) at any time when the assets of any Subsidiary therefore designated as a Specified Non-Material Subsidiary exceed the amount provided in clause (x) of the immediately preceding sentence, such Subsidiary shall automatically cease to constitute a Specified Non-Material Subsidiary, (y) at any time when the assets of all Specified Non-Material Subsidiaries exceed the amount specified in clause (y) of the immediately preceding sentence, one or more Specified Non-Material Subsidiaries (as designated by the U.S. Borrower or, in the absence of any such designation, as designated by the Administrative Agent) shall cease to constitute Specified Non-Material Subsidiaries, so that the thresholds described in clause (y) of the immediately preceding sentence are not exceeded and (iii) the U.S. Borrower may, at its discretion, at any time, by giving written notice to the Administrative Agent, designate a Subsidiary as no longer constituting a Specified Non-Material Subsidiary (in which case such Subsidiary shall no longer constitute a Specified Non-Material Subsidiary). -166- 175 "Standby Letter of Credit" shall have the meaning provided in Section 2.01(a). "Start Date" shall mean, with respect to any Margin Adjustment Period, the first day of such Margin Adjustment Period. "Stated Amount" of each Letter of Credit shall, at any time, mean the maximum amount available to be drawn thereunder (in each case determined without regard to whether any conditions to drawing could then be met, but after giving effect to all previous drawings made thereunder), provided that the "Stated Amount" of each Letter of Credit denominated in any currency other than Dollars shall be (except to the extent that calculations are expressly required to be made hereunder in Deutsche Marks), on any date of calculation, the Dollar Equivalent of the maximum amount available to be drawn in such other currency thereunder (determined without regard to whether any conditions to drawing could then be met). "Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. "Subsidiary Guarantor" shall mean each Subsidiary of the U.S. Borrower which has executed and delivered a Guaranty. "Subsidiary Guaranty" shall mean and include the U.S. Subsidiaries Guaranty and each Foreign Subsidiaries Guaranty. "Subsidiary Stock Restrictions" shall mean the negative pledge (i.e., the prohibition of Liens pursuant to Section 9.01), and restrictions on transfers pursuant to Section 9.02, on the capital stock of (x) APT Games, Inc., Casino Electronics, Inc., Bally Gaming International, Inc., Bally Gaming Inc., Plantation Investments, Inc. and United Coin Machine Co. and (y) Bally Gaming, Inc. and the general and limited partnership interests of RCVP, in each case to the extent such restrictions, to be included in the Agreement, require the approval of (i) in the case of the Persons listed in preceding clause (x), the Nevada Gaming Commission acting upon the recommendation of the Nevada State Gaming Control Board and (ii) in the case of the Persons listed in preceding clause (y), the Mississippi Gaming Commission. "Subsidiary Stock Restrictions Approval Date" shall mean the first date -167- 176 occurring after the Initial Borrowing Date upon which (i) all requisite approvals of Gaming Authorities have been obtained to the Subsidiary Stock Restrictions, so that same may be fully effective in accordance with the terms of this Agreement (without giving effect to the limitations provided in Section 13.18(c)) and (ii) the Administrative Agent shall have received a satisfactory opinion of Nevada and Mississippi counsel to the U.S. Borrower to the effect that such approvals have been obtained and that the Subsidiary Stock Restrictions contained in this Agreement are fully enforceable in accordance with the terms hereof, which opinion shall be in form and substance reasonably satisfactory to the Administrative Agent. "Subsidiary Stock Restrictions Requisite Gaming Approvals" shall have the meaning provided in Section 13.18(c). "Substitute Lender" shall have the meaning provided in Section 13.04(c). "Supermajority Lenders" of any Tranche shall mean those Non- Defaulting Lenders which would constitute the Required Lenders under, and as defined in, this Agreement if (x) all outstanding Obligations of the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated and (y) the percentage "50%" contained therein were changed to "66-2/3%." "SVS" shall mean Southern Video Services, Inc., a Louisiana corporation which, as of the Initial Borrowing Date, is 49% owned by LVI. "Swingline Expiry Date" shall mean the date which is five (5) Business Days prior to the Revolving Loan Maturity Date. "Swingline Loan" shall have the meaning provided in Section 1.01(g). "Swingline Note" shall have the meaning provided in Section 1.05(a). "Syndication Date" shall have the meaning provided in Section 1.01(a). "Target" shall have the meaning assigned that term in the definition of "Two-Step Permitted Acquisition". "Taxes" shall have the meaning provided in Section 4.04(a). "Term Loan" shall mean each U.S. Borrower Tranche A Term Loan, each German Borrower Tranche A Term Loan, each Delayed Draw Term Loan, each Tranche B Term Loan and each Tranche C Term Loan. "Term Loan Commitment" shall mean each U.S. Borrower Tranche A -168- 177 Term Loan Commitment, each German Borrower Tranche A Term Loan Commitment, each Delayed Draw Term Loan Commitment, each Tranche B Term Loan Commitment and each Tranche C Term Loan Commitment. "Term Loan Commitment Commission" shall have the meaning provided in Section 3.01(a). "Test Date" shall mean the last day of each fiscal quarter ended after the Initial Borrowing Date. "Test Period" shall mean each period of four consecutive fiscal quarters of the U.S. Borrower ended after the Initial Borrowing Date. "Total Commitments" shall mean, at any time, the sum of the Commitments of each of the Lenders. "Total Delayed Draw Term Loan Commitment" shall mean, at any time, the sum of the Delayed Draw Term Loan Commitments of each of the Lenders. "Total German Borrower Tranche A Term Loan Commitment" shall mean, at any time, the sum of the German Borrower Tranche A Term Loan Commitments of each of the Lenders. "Total German Revolving Loan Sub-Commitment" at any time shall mean the sum of the German Revolving Loan Sub-Commitments of all the German Revolving Lenders; provided that at no time shall the Total German Revolving Loan Sub-Commitment exceed the Total Revolving Loan Commitment as then in effect. "Total Non-German Revolving Loan Sub-Commitment" at any time shall mean the sum of the Non-German Revolving Loan Sub-Commitments of all the Lenders; provided that at no time shall the Total Non-German Revolving Loan Sub- Commitment exceed the Total Revolving Loan Commitment as then in effect. "Total Revolving Loan Commitment" shall mean, at any time, the sum of the Revolving Loan Commitments of each of the Lenders. "Total Term Loan Commitment" shall mean, at any time, the sum of the Total U.S. Borrower Tranche A Term Loan Commitment, the Total German Borrower Tranche A Term Loan Commitment, the Total Delayed Draw Term Loan Commitment, the Total Tranche B Term Loan Commitment and the Total Tranche C Term Loan Commitment. "Total Tranche B Term Loan Commitment" shall mean, at any time, the -169- 178 sum of the Tranche B Term Loan Commitments of each of the Lenders. "Total Tranche C Term Loan Commitment" shall mean, at any time, the sum of the Tranche C Term Loan Commitments of each of the Lenders. "Total Unutilized Revolving Loan Commitment" shall mean, at any time, an amount equal to the remainder of (x) the Total Revolving Loan Commitment then in effect, less (y) the sum of (I) the aggregate principal amount of Revolving Loans then outstanding (or the Dollar Equivalent thereof in the case of Deutsche Mark Revolving Loans then outstanding) plus (II) the aggregate principal amount of Swingline Loans then outstanding plus (III) the then aggregate amount of Letter of Credit Outstandings. "Total U.S. Borrower Tranche A Term Loan Commitment" shall mean, at any time, the sum of the U.S. Borrower Tranche A Term Loan Commitments of each of the Lenders. "Trade Letter of Credit" shall have the meaning provided in Section 2.01(a). "Tranche" shall mean the respective facility and commitments utilized in making Loans hereunder, with there being seven separate Tranches, i.e., U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans, Delayed Draw Term Loans, Tranche B Term Loans, the Tranche C Term Loans, Revolving Loans and Swingline Loans. "Tranche A Term Loan Maturity Date" shall mean July 31, 2003. "Tranche B Scheduled Repayment" shall have the meaning provided in Section 4.02(b)(iv). "Tranche B Scheduled Repayment Date" shall have the meaning provided in Section 4.02(b)(iv). "Tranche B Term Loan" shall have the meaning provided in Section 1.01(d). "Tranche B Term Loan Borrowing Date" shall mean each date on or after the Initial Borrowing Date on which Tranche B Term Loans are incurred hereunder. "Tranche B Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I-A directly below the column entitled "Tranche B Term Loan Commitment", as the same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 and (y) adjusted from time to time as a -170- 179 result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "Tranche B Term Loan Commitment Termination Date" shall mean the date which occurs 45 days after the Initial Borrowing Date. "Tranche B Term Loan Maturity Date" shall mean January 31, 2005. "Tranche B Term Note" shall have the meaning provided in Section 1.05(a). "Tranche C Scheduled Repayment" shall have the meaning provided in Section 4.02(b)(v). "Tranche C Scheduled Repayment Date" shall have the meaning provided in Section 4.02(b)(v). "Tranche C Term Loan" shall have the meaning provided in Section 1.01(e). "Tranche C Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I-A directly below the column entitled "Tranche C Term Loan Commitment", as the same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "Tranche C Term Loan Commitment Termination Date" shall mean the date which occurs 45 days after the Initial Borrowing Date. "Tranche C Term Loan Maturity Date" shall mean July 31, 2005. "Tranche C Term Note" shall have the meaning provided in Section 1.05(a). "Transaction" shall mean, collectively, (i) the issuance by the U.S. Borrower of the Senior Subordinated Notes, (ii) the consummation of the Existing Senior Secured Notes Tender Offer/Consent Solicitation and the making of the Existing Senior Secured Notes Tender Offer Repurchases pursuant thereto and the amendments to the Existing Senior Secured Notes Indenture and Existing Senior Secured Notes Collateral Documents as contemplated therein, (iii) the repayment of all amounts owing, and the termination of all commitments, in respect of the Indebtedness to be Refinanced, (iv) the incurrence of Loans on the Initial Borrowing Date, (v) the redemption of all outstanding Existing PIK Preferred Stock, (vi) the purchase of the Rainbow Royalty Payments and Rainbow Debt as contemplated by Section 5B.02 and (vii) the payment of fees and -171- 180 expenses owing in connection with the foregoing. "Two-Step Permitted Acquisition" shall mean the acquisition by the U.S. Borrower or any Wholly-Owned Subsidiary of the U.S. Borrower of at least 80% of the capital stock of any Person (a "Target") not already a Subsidiary of the U.S. Borrower by way of (x) a tender offer for, or other acquisition of, capital stock of such Target (with the actions taken pursuant to preceding clause (x) being herein called the "First Step" of the respective Two-Step Permitted Acquisition) and (y) a subsequent merger of the Target with and into the U.S. Borrower or with and into a Subsidiary of the U.S. Borrower or a subsequent compulsory acquisition of outstanding shares of capital stock (or common stock) of the Target as a result of which the 80% requirement referred to above is satisfied; provided that (i) any such Two-Step Permitted Acquisition shall be effected in accordance with the definition of Permitted Acquisition, (ii) the subsequent merger or compulsory share acquisition to be effected as part of such Two-Step Permitted Acquisition shall be consummated as soon as practicable after the consummation of the tender offer portion thereof but in any event within 270 days thereafter, (iii) upon the consummation of the First Step of any such Two-Step Permitted Acquisition, the U.S. Borrower or its respective Subsidiary shall have acquired sufficient shares of the outstanding capital stock of the respective Target to effect (without any vote by any other stockholders of Target) the subsequent merger (as a result of which the Target shall be merged into the U.S. Borrower or become an 80%-owned Subsidiary of the U.S. Borrower) or compulsory share acquisition within 270 days after the consummation of said tender offer and (iv) prior to the consummation of the First Step of any such Two-Step Permitted Acquisition, the U.S. Borrower shall have available to it sufficient Committed Financing to effect such Two-Step Permitted Acquisition (and to make all payments owing in connection with both steps thereof). "Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan, a Eurodollar Loan or a Deutsche Mark Loan. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unfunded Current Liability" of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year, determined in accordance with actuarial assumptions at such time consistent with Statement of Financial Accounting Standards No. 87, exceeds the market value of the assets allocable thereto. "United Coin Machine Notes" shall mean promissory notes arising from time to time in the ordinary course of business of United Coin Machine Co. and payable to it by customers (primarily bar and restaurant owners). -172- 181 "United Coin Machine Percentage Notes" shall be any United Coin Machine Note which provides for payments thereon to be based, in whole or in part, on a percentage of the gaming revenues of the respective obligor or equipment financed with the respective promissory note. "United States" and "U.S." shall each mean the United States of America. "Unpaid Drawing" shall have the meaning provided for in Section 2.05(a). "Unutilized Revolving Loan Commitment" with respect to any Lender, at any time, shall mean such Lender's Revolving Loan Commitment at such time less the sum of (x) the aggregate principal amount of Revolving Loans of such Lender (including any Affiliate of any such Lender acting as a German Revolving Lender) then outstanding (taking the Dollar Equivalent thereof in the case of any Deutsche Mark Revolving Loans then outstanding), (y) such Lender's RL Percentage of the U.S. Letter of Credit Outstandings and (z) such Lender's (or the related German Revolving Lender's) German RL Percentage of the German Letter of Credit Outstandings; provided that the Unutilized Revolving Loan Commitment of CFSB shall at any time and from time to time be deemed reduced (but not below zero) by the aggregate principal amount of Swingline Loans made by it which are then outstanding. "U.S. Borrower" shall have the meaning provided in the first paragraph of this Agreement. "U.S. Borrower Common Stock" shall mean the common stock of the U.S. Borrower. "U.S. Borrower Tranche A Term Loan" shall have the meaning provided in Section 1.01(a). "U.S. Borrower Tranche A Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I-A directly below the column entitled "U.S. Borrower Tranche A Term Loan Commitment", as the same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "U.S. Borrower Tranche A Term Loan Commitment Termination Date" shall mean the date which occurs 45 days after the Initial Borrowing Date. "U.S. Borrower Tranche A Term Note" shall have the meaning provided in Section 1.05(a). -173- 182 "U.S. Borrower Tranche A Scheduled Repayment" shall have the meaning provided in Section 4.02(b)(i). "U.S. Borrower Tranche A Scheduled Repayment Date" shall have the meaning provided in Section 4.02(b)(i). "U.S. Borrowing Base" shall mean, as at any date of which the amount thereof is being determined, an amount (expressed in Dollars) equal to the sum of (i) 75% of U.S. Eligible Receivables and (ii) 40% of U.S. Eligible Inventory, each as determined for the Borrowing Base Certificate most recently delivered pursuant to Section 8.01(j). "U.S. Eligible Inventory" shall mean the book value of the inventory of the U.S. Borrower and the Wholly-Owned Subsidiary Guarantors which conforms to the representations and warranties contained in the U.S. Security Agreement (and in which a Lien has been granted pursuant to the U.S. Security Agreement) which inventory is located in the United States less (i) any supplies (other than raw materials), goods returned or rejected (except to the extent that such returned or rejected goods continue to conform to the representations and warranties contained in the U.S. Security Agreement) by customers and goods returned to suppliers, (ii) all used equipment otherwise reflected in such inventory, (iii) any advance payments made by customers with respect to inventory of the U.S. Borrower and Wholly-Owned Subsidiary Guarantors and (iv) inventory subject to any Lien other than Liens created under the Security Agreement. "U.S. Eligible Receivables" shall mean the gross book value of the receivables of the U.S. Borrower and the Wholly-Owned Subsidiary Guarantors arising from the sale or lease of inventory or services by the U.S. Borrower or the Wholly- Owned Subsidiary Guarantors in the ordinary course of business which conform to the representations and warranties contained in the Security Agreement (including, without limitation, that the Collateral Agent shall have and maintain a first priority perfected security interest in all such receivables) less any returns and claims of any nature (whether issued, owing, granted or outstanding) and excluding (i) bill and hold (deferred shipment) and consignment transactions, (ii) contracts or sales to any Affiliate, (iii) all installment or lease receivables where the respective account debtor has two or more installments which are past due, (iv) all receivables from any party subject to any bankruptcy, receivership insolvency or like proceedings by the account debtor, and (v) excluding one-third of the amount of all receivables to account debtors outside the United States of America which would otherwise have been included as U.S. Eligible Receivables. Notwithstanding anything to the contrary contained above, to the extent that the book reserves in respect of receivables of the U.S. Borrower and the Wholly-Owned Subsidiary Guarantors would exceed 20% of the gross book value of the receivables of such Persons on their financial statements as prepared in accordance with GAAP, the amount of such excess reserves shall apply to reduce the amount of U.S. Eligible Receivables. -174- 183 "U.S. Letter of Credit" shall mean each Letter of Credit issued for the account of the U.S. Borrower pursuant to Section 2.01. "U.S. Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all outstanding U.S. Letters of Credit and (ii) the amount of all Unpaid Drawings with respect to U.S. Letters of Credit. "U.S. Pledge Agreement" shall have the meaning provided in Section 5A.13. "U.S. Pledge Agreement Collateral" shall mean all "Collateral" as defined in the U.S. Pledge Agreement. "U.S. Security Agreement" shall have the meaning provided in Section 5A.14. "U.S. Security Agreement Collateral" shall mean all "Collateral" as defined in the U.S. Security Agreement. "U.S. Security Document" shall mean and include each of the U.S. Security Agreement, the U.S. Pledge Agreement, each Mortgage and, after the execution and delivery thereof, each Additional Security Document executed and delivered by the U.S. Borrower or any Domestic Subsidiary thereof. "U.S. Subsidiary Guarantor" shall mean each Domestic Subsidiary of the U.S. Borrower which has executed and delivered a U.S. Subsidiaries Guaranty or an Additional Guaranty unless and until such Person is released from the respective such Guaranty in accordance with the terms thereof. "U.S. Subsidiaries Guaranty" shall have the meaning provided in Section 5A.12. "VDSI" shall mean Video Distributing Services, Inc., a Louisiana corporation which, as of the Initial Borrowing Date, is 49% owned by LVI. "Voting Stock" shall mean, as to any Person, any class or classes of capital stock of such Person pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of such Person. "VSI" shall mean Video Services, Inc., a Louisiana corporation which, as of the Initial Borrowing Date, is 49% owned by LVI. -175- 184 "Waivable Repayment" shall have the meaning provided in Section 4.05. "Wholly-Owned Domestic Subsidiary" shall mean any Subsidiary of the U.S. Borrower which is both a Domestic Subsidiary and a Wholly-Owned Subsidiary of the U.S. Borrower. "Wholly-Owned Foreign Subsidiary" shall mean any Subsidiary of the U.S. Borrower which is both a Foreign Subsidiary and a Wholly-Owned Subsidiary of the U.S. Borrower. "Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time. Notwithstanding anything to the contrary contained above, a Foreign Subsidiary of the U.S. Borrower shall be deemed to be a Wholly-Owned Subsidiary of the U.S. Borrower if both (x) it would satisfy the requirements of the definition contained above with respect to the U.S. Borrower if the percentages "100%" contained above were changed to "99%" and (y) the reduction to 99% as contemplated by preceding clause (x) is necessary because director's qualifying shares, ownership of shares by foreign nationals, or other ownership requirements apply under applicable law (or is necessary to obtain applicable approvals required by law) to the respective such Foreign Subsidiary. "Wholly-Owned Subsidiary Guarantors" shall mean, at any time, each U.S. Subsidiary Guarantor which has executed and delivered a counterpart of the U.S. Subsidiaries Guaranty (unlimited as to the amount guaranteed), and which is a Wholly- Owned Domestic Subsidiary of the U.S. Borrower at such time. "Withdrawal Period" shall have the meaning provided in Section 13.04(d). -176- 185 SECTION 12. The Administrative Agent. 12.01 Appointment. The Lenders hereby designate CSFB as Administrative Agent (for purposes of this Section 12, the term "Administrative Agent" shall include CSFB in its capacity as Collateral Agent pursuant to the Security Documents) to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Administrative Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates. 12.02 Nature of Duties. The Administrative Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and in the other Credit Documents. Neither the Administrative Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. 12.03 Lack of Reliance on the Administrative Agent. Independently and without reliance upon the Administrative Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrowers and their Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrowers and their Subsidiaries and, except as expressly provided in this Agreement, the Administrative Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Administrative Agent shall not be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, -177- 186 effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of any Borrower or any of its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of any Borrower or any of its Subsidiaries or the existence or possible existence of any Default or Event of Default. 12.04 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Lenders; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender and no holder of any Note shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders. 12.05 Reliance. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Administrative Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by the Administrative Agent. 12.06 Indemnification. To the extent the Administrative Agent is not reimbursed and indemnified by the U.S. Borrower or any of its Subsidiaries, the Lenders will reimburse and indemnify the Administrative Agent, in proportion to their respective "percentages" as used in determining the Required Lenders (for this purpose, determined as if there were no Defaulting Lenders at such time), for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. 12.07 The Administrative Agent in its Individual Capacity. With respect to its obligation to make Loans, or issue or participate in Letters of Credit, under this -178- 187 Agreement, the Administrative Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "Majority Lenders," "Supermajority Lenders," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of banking, investment banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if it were not performing the duties specified herein, and may accept fees and other consideration from any Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 12.08 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 12.09 Resignation by the Administrative Agent. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Lenders and the Borrowers. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below, provided that to the extent required by Applicable Gaming Regulations, the incumbent Administrative Agent shall remain the Collateral Agent for the Secured Creditors with respect to any Collateral for which a lienholder must be qualified under such Gaming Regulations until the new Administrative Agent can be so qualified (it being understood that the incumbent Administrative Agent shall be entitled to the indemnities and other protections provided to the Administrative Agent hereunder in such capacity). (b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the U.S. Borrower. (c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the U.S. Borrower (which consent shall not be unreasonably withheld or delayed), shall then appoint a suc- -179- 188 cessor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. -180- 189 SECTION 13. Miscellaneous. -181- 190 13.01 Payment of Expenses, etc. The Borrowers jointly and severally agree that they shall: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Administrative Agent (including, without limitation, the reasonable fees and disbursements of White & Case and the Administrative Agent's local and foreign counsel and consultants) in connection with the preparation, execution and delivery of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of the Administrative Agent in connection with its syndication efforts with respect to this Agreement and of the Administrative Agent and, after the occurrence of an Event of Default, each of the Lenders in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp, excise and other similar documentary taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify the Administrative Agent and each Lender, and each of their respective officers, directors, employees, representatives and agents from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments and suits, and all reasonable (in the context of the actions required to be taken) costs, expenses and disbursements (including reasonable attorneys' and consultants' fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not the Administrative Agent or any Lender is a party thereto) related to the entering into and/or performance of this Agreement or any other Credit Document or the use of any Letter of Credit or the proceeds of any Loans hereunder or the consummation of any transactions contemplated herein or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or ground- water or on the surface or subsurface of any Real Property owned or at any time operated by the U.S. Borrower or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by the U.S. Borrower or any of its Subsidiaries, the non-compliance of any Real Property with foreign, federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against the U.S. Borrower, any of its Subsidiaries or any Real Property owned or at any time operated by the U.S. Borrower or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the -182- 191 gross negligence or willful misconduct of the Person to be indemnified). To the extent that the undertaking to indemnify, pay or hold harmless the Administrative Agent or any Lender set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the U.S. Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. 13.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Lender is hereby authorized (to the extent not prohibited by applicable law) at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of such Credit Party to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Lender pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 13.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to any Credit Party, at the address specified opposite its signature below or in the other relevant Credit Documents; if to any Lender, at its address specified on Schedule II; and if to the Administrative Agent, at its Notice Office; or, as to any Credit Party or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Lender, at such other address as shall be designated by such Lender in a written notice to the U.S. Borrower and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective (x) three Business Days after deposited in the mails, (y) one Business Day after delivered to the telegraph company, cable company or a recognized overnight courier, as the case may be, or (z) when sent by telex or telecopier, except that notices and communications to the Administrative Agent shall not be effective until received by the Administrative Agent. 13.04 Benefit of Agreement; Assignments; Participations. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the -183- 192 respective successors and assigns of the parties hereto; provided, however, that no Borrower may assign or transfer any of its rights, obligations or interest hereunder or under any Credit Document without the prior written consent of the Administrative Agent and all the Lenders (although any German Borrower may, at its request and with the consent of the Required Lenders, otherwise cease to be a Borrower hereunder so long as no Default or Event of Default then exists and all Loans incurred by such German Borrower are repaid in full and the U.S. Borrower shall become the account party with respect to any outstanding Letters of Credit issued for the account of such German Borrower pursuant to documentation satisfactory to the Administrative Agent and the respective Issuing Bank) and, provided further, that, although any Lender may transfer or grant participations in its rights hereunder to any Eligible Transferee, such Lender shall remain a "Lender" for all purposes hereunder (and may not transfer or assign all or any portion of its Revolving Loan Commitments hereunder except as provided in Section 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Lender" hereunder and, provided further, that (x) each Lender which transfers or grants any participation as contemplated above shall provide written notice to the U.S. Borrower of such participation promptly after entering into of the respective participation agreement and (y) no Lender shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in any Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof). In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and the Borrowers shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Credit Documents and all amounts payable by the Borrowers hereunder shall be determined as if such Lender had not sold such participation. (b) Notwithstanding the foregoing, any Lender (or any Lender together with one or more other Lenders) may (x) assign all or a portion of its Commitments and related outstanding Obligations (or, if the Commitments with respect to the relevant Tranche have terminated, outstanding Obligations) hereunder to an Eligible Transferee -184- 193 which is (i) its parent company and/or any affiliate of such Lender which is at least 50% owned by such Lender or its parent company or to one or more Lenders or (ii) in the case of any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is managed or advised by the same investment advisor of such Lender or by an Affiliate of such investment advisor or (y) assign all, or if less than all, a portion equal to at least $5,000,000 in the aggregate for the assigning Lender or assigning Lenders, of such Commitments and related outstanding Obligations (or, if the Commitments with respect to the relevant Tranche have terminated, outstanding Obligations) hereunder to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Assumption Agreement, provided that, (i) the assignment by any Lender of its German Revolving Loan Sub-Commitment (or any portion thereof) shall constitute the assignment of a like amount of such Lender's (or its respective Affiliate's) Revolving Loan Commitment, (ii) any assignment of all or any portion of the Revolving Loan Commitment of any Lender shall be required to be accompanied by the assignment of all or such portions of the German Revolving Loan Sub-Commitment and/or Non-German Revolving Loan Commitment Loan Sub-Commitment of such Lender (or its respective Affiliate) as is equal, in the aggregate, to the amount of the Revolving Loan Commitment being so assigned, (iii) any assignment of all or any portion of the Revolving Loan Commitment and related outstanding Obligations (or, if the Revolving Loan Commitment has terminated, any assignment of Obligations originally extended pursuant to the Revolving Loan Commitments) shall be made on a basis such that the respective assignee participates in Revolving Loans, and in Letter of Credit Outstandings, in accordance with the Revolving Loan Commitment (and Sub-Commitments described above) so assigned (or if the Revolving Loan Commitment has terminated, on the same basis as participated in by the Lenders with Revolving Loan Commitments (and Sub-Commitments described above) prior to the termination thereof), (iv) at such time Schedules I-A and, if applicable, I-B shall be deemed modified to reflect the Commitments (or outstanding Term Loans, as the case may be) of such new Lender and of the existing Lenders, (v) upon the surrender of the relevant Notes by the assigning Lender (or, upon such assigning Lender's indemnifying the respective Borrower for any lost Note pursuant to a customary indemnification agreement) new Notes will be issued, at the Borrowers' expense, to such new Lender and to the assigning Lender upon the request of such new Lender or assigning Lender, such new Notes to be in conformity with the requirements of Section 1.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments (or outstanding Term Loans, as the case may be), (vi) the consent of the Administrative Agent shall be required in connection with any assignment to an Eligible Transferee pursuant to clause (y) above, (vii) at any time when no Event of Default is in existence, and when no Default exists pursuant to Section 10.01 or 10.05, the approval of the U.S. Borrower shall be required (except with respect to assignments of Loans, but not of Commitments, pursuant to clause (x) above), which approval shall not be unreasonably withheld or delayed (and, in instances where the approval of the U.S. Borrower is not required, each Lender which effects any assignment as contemplated in this Section 13.04(b) shall provide written notice to the U.S. Borrower of the respective -185- 194 assignment promptly after entering into the respective assignment agreement), (viii) the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Lender, the payment of a non-refundable assignment fee of $3,500, and (ix) promptly after such assignment, the Borrowers shall have received from the Administrative Agent notice of any such assignment and of the identity, nationality and applicable lending office of any such Eligible Transferee that is not a United States Person (as defined in Section 7701(a)(30) of the Code), together with the copy of the Assignment and Assumption Agreement relating thereto and, provided further, that such transfer or assignment will not be effective until recorded by the Administrative Agent on the Register pursuant to Section 13.15 hereof. To the extent of any assignment pursuant to this Section 13.04(b), the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Commitments. At the time of each assignment pursuant to this Section 13.04(b) to a Person which is not already a Lender hereunder and which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall, to the extent legally entitled to do so, provide to the U.S. Borrower the Internal Revenue Forms (and, if applicable a Section 4.04(b)(ii) Certificate) described Section 4.04(b). To the extent that an assignment of all or any portion of a Lender's Commitments and related outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b) would, at the time of such assignment, result in increased costs under Section 1.10, 2.06 or 4.04 in excess of those being charged by the respective assigning Lender prior to such assignment, then the Borrowers shall not be obligated to pay such excess increased costs (although the Borrowers, in accordance with and pursuant to the other provisions of this Agreement, shall be obligated to pay the costs which are not in excess of those being charged by the respective assigning Lender prior to such assignment and any subsequent increased costs of the type described above resulting from changes after the date of the respective assignment). (c) If the Gaming Authorities shall determine that any Lender does not meet the suitability standards under the Nevada Gaming Regulations or any other Gaming Authority with jurisdiction over the Gaming Business of the U.S. Borrower and its Subsidiaries shall determine that any Lender does not meet its suitability standards (in any such case, a "Former Lender"), the Administrative Agent or the U.S. Borrower shall have the right (but not the duty) to designate an Eligible Transferee or Transferees (in each case, a "Substitute Lender," which may be any Lender or Lenders that agree to become a Substitute Lender) that has agreed to assume the rights and obligations of the Former Lender, subject to receipt by the Administrative Agent of evidence that such Substitute Lender is an Eligible Transferee. The Substitute Lender shall assume the rights and obligations of the Former Lender under this Agreement, which assumption shall become effective in accordance with, the provisions of Section 13.04(b), provided that the purchase price to be paid by the Substitute Lender to the Administrative Agent for the account of the Former Lender for such assumption shall equal the sum of (i) the unpaid principal amount of any Notes held or Loans made by the Former Lender plus accrued interest thereon plus (ii) the Former Lender's pro rata share of the aggregate amount of -186- 195 Drawings under all Letters of Credit that have not been reimbursed by the Borrowers, plus accrued interest thereon, plus (iii) such Former Lender's pro rata share of accrued Fees to the date of the assumption, and, provided further, the Borrowers shall pay all obligations owing to the Former Lender under the Credit Documents (including all obligations, if any, owing pursuant to Section 1.11, but excluding those amounts in respect of which the purchase price is being paid as provided above). Each Lender agrees that if it becomes a Former Lender, upon payment to it by the Borrowers of all such amounts, if any, owing to it under the Credit Documents, it will execute and deliver an Assignment and Assumption Agreement, upon payment of such purchase price. (d) Notwithstanding the provisions of subsection (c) of this Section 13.04, if any Lender becomes a Former Lender, and if the Administrative Agent or the U.S. Borrower fails to find a Substitute Lender pursuant to subsection (c) of this Section within any time period specified by the appropriate Gaming Authority for the withdrawal of a Former Lender (the "Withdrawal Period"), the Borrowers shall, immediately (i) prepay in full the outstanding principal amount of each Note held or Loan made by such Former Lender, together with accrued interest thereon to the earlier of (x) the date of payment or (y) the last day of any Withdrawal Period, and (ii) at the option of the U.S. Borrower either (A) place an amount equal to such Former Lender's RL Percentage or German RL Percentage as the case may be, in each Letter of Credit in a separate cash collateral account with the Administrative Agent for each outstanding Letter of Credit which amount will be applied by the Administrative Agent to satisfy the respective Borrower's reimbursement obligations to the respective Issuing Bank in respect of Drawings under the applicable Letter of Credit or (B) if no Default or Event of Default then exists, terminate the Revolving Loan Commitment of such Former Lender at which time the other Lenders' RL Percentages and German RL Percentages will be automatically adjusted as a result thereof, provided that the option specified in this clause (B) may only be exercised if, immediately after giving effect thereto, no Lender's outstanding Revolving Loans, when added to the product of (a) such Lender's RL Percentage and/or German RL Percentage as the case may be, and (b) the sum of (I) the aggregate amount of all Letter of Credit Outstandings at such time and (II) the aggregate amount of all Swingline Loans then outstanding, would exceed such Lender's Revolving Loan Commitments at such time. (e) Subject to the last sentence of this Section 13.04(e), each Lender agrees that all participations and assignments made hereunder shall be subject to, and made in compliance with, all Gaming Regulations applicable to lenders under this Agreement. Each Lender agrees further that it will not grant participations or assignments prior to receiving notice from the Administrative Agent that it has completed the primary syndication of this facility. The Administrative Agent shall provide such notice to the Lenders promptly after completing such primary syndication. Each Borrower hereby acknowledges that unless the U.S. Borrower has provided the Lenders with a written opinion of counsel as to the suitability standards applicable to lenders of any relevant -187- 196 Gaming Authority with jurisdiction over the Gaming Business of the U.S. Borrower and its Subsidiaries, no Lender shall have the responsibility of determining whether or not a potential assignee of such Lender would be an Eligible Transferee under the Gaming Regulations of any such jurisdiction. (f) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with the consent of the Administrative Agent, any Lender which is a fund may pledge all or any portion of its Notes or Loans to its trustee in support of its obligations to its trustee. No pledge pursuant to this clause (f) shall release the transferor Lender from any of its obligations hereunder. 13.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent, the Collateral Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Borrower or any other Credit Party and the Administrative Agent, the Collateral Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which the Administrative Agent, the Collateral Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent, the Collateral Agent or any Lender to any other or further action in any circumstances without notice or demand. 13.06 Payments Pro Rata. (a) Except as otherwise provided in this Agreement, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of any Borrower in respect of any Obligations hereunder, it shall distribute such payment to the Lenders (other than any Lender that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings, Term Loan Commitment Commission, Revolving Loan Commitment Commission or Letter of Credit Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a -188- 197 greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Credit Party to such Lenders in such amount as shall result in a proportional participation by all the Lenders in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 13.07 Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP, consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the U.S. Borrower to the Lenders). (b) Notwithstanding anything to the contrary contained in clause (a) of this Section 13.07, (i) for purposes of determining compliance with any incurrence tests set forth in Sections 8 and/or 9 (excluding Sections 9.08 through 9.11, inclusive), any amounts so incurred or expended (to the extent incurred or expended in a currency other than Dollars) shall be converted into Dollars on the basis of the Dollar Equivalent of the respective such amounts as in effect on the date of such incurrence or expenditure under any provision of any such Section that has an aggregate Dollar limitation provided for therein (and to the extent the respective incurrence test regulates the aggregate amount outstanding at any time and it is expressed in terms of Dollars, all outstanding amounts originally incurred or spent in currencies other than Dollars shall be converted into Dollars on the basis of the Dollar Equivalent of the respective such amounts as in effect on the date any new incurrence or expenditures made under any provision of any such Section that regulates the Dollar amount outstanding at any time) and (ii) except as otherwise specifically provided herein, all computations determining compliance with Sections 9.08 through 9.11, inclusive, shall utilize accounting principles and policies in conformity with those used to prepare the financial statements delivered to the Lenders pursuant to Section 7.05(a). (c) All computations of interest, Commitment Commission and Fees hereunder shall be made on the basis of a year of 360 days (or 365 days in the case of interest on Base Rate Loans) for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, Commitment Commission or Fees are payable. 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS (EXCEPT, IN THE CASE OF OTHER CREDIT DOCUMENTS, AS SPECIFICALLY OTHERWISE PROVIDED THEREIN) AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND -189- 198 THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK AND APPLICABLE GAMING REGULATIONS. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF (X) THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, OR (Y) THE COURTS IN AND FOR BERLIN, GERMANY, IN THE FEDERAL REPUBLIC OF GERMANY AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH BORROWER, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENTS BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH BORROWER. EACH BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWER IN ANY OTHER JURISDICTION. (b) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH -190- 199 ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 13.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the U.S. Borrower and the Administrative Agent. 13.10 Effectiveness. This Agreement shall become effective on the date (the "Effective Date") on which each Borrower, the Administrative Agent and each of the Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Lenders, shall have given to the Administrative Agent telephonic (confirmed in writing), written or telex notice (actually received) at such office that the same has been signed and mailed to it. The Administrative Agent shall give each Borrower and each Lender prompt written notice of the occurrence of the Effective Date. 13.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party thereto and the Required Lenders (except that additional parties may be added to, and Subsidiaries of the U.S. Borrower may be released from, the various Guaranties and Security Documents in accordance with the provisions thereof, without the consent of the other Credit Parties party thereto or the Required Lenders), provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) with Obligations being directly modified, (i) extend the final scheduled maturity of any Loan or Note or extend the stated expiration date of any Letter of Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) release or terminate any Guaranty provided by the U.S. Borrower or either German Borrower, (iii) release all or substantially all of the Collateral (except as expressly provided in the Credit -191- 200 Documents) under all the Security Documents, (iv) amend, modify or waive any provision of this Section 13.12 (except for technical amendments with respect to additional extensions of credit pursuant to this Agreement which afford the protections set forth in the proviso below to such additional extensions of credit), (v) reduce the percentage specified in the definition of Required Lenders (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Effective Date) or (vi) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termination shall (u) increase the Commitments of any Lender over the amount thereof then in effect without the consent of such Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase of the Commitment of such Lender), (v) without the consent of each Issuing Bank, amend, modify or waive any provision of Section 2 or alter its rights or obligations with respect to Letters of Credit, (w) without the consent of the Administrative Agent, amend, modify or waive any provision of Section 12 or any other provision as same relates to the rights or obligations of the Administrative Agent, (x) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent, (y) except in cases where additional extensions of term loans are being afforded substantially the same treatment afforded to the Term Loans pursuant to this Agreement as originally in effect and except as expressly provided in Section 4.05, without the consent of the Majority Lenders of each Tranche which is being allocated a lesser pre-payment, repayment or commitment reduction as a result of the actions described below (or without the consent of the Majority Lenders of each Tranche in the case of an amendment to the definition of Majority Lenders), amend the definition of Majority Lenders or alter the required application of any prepayments or repayments (or commitment reductions), as between the various Tranches, pursuant to Section 4.01 or 4.02 (excluding Section 4.02(b)) (although the Required Lenders may waive, in whole or in part, any such prepayment, repayment or commitment reduction, so long as the application, as amongst the various Tranches, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered) or (z) without the consent of the Supermajority Lenders of the respective Tranche, waive, or decrease the amount of, any U.S. Borrower Tranche A Scheduled Repayment, German Borrower Tranche A Scheduled Repayment, Delayed Draw Scheduled Repayment, Tranche B Scheduled Repayment or Tranche C Scheduled Repayment or extend the date on which the respective Scheduled Repayment is required to be made. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (i) -192- 201 through (vi), inclusive, of the first proviso to Section 13.12(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the U.S. Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described below, to replace each such non-consenting Lender or Lenders (or, at the option of the U.S. Borrower if the respective Lender's consent is required with respect to less than all Tranches of Loans (or related Commitments), to replace only the respective Tranche or Tranches of Commitments and/or Loans of the respective non-consenting Lender which gave rise to the need to obtain such Lender's individual consent) with one or more Replacement Lenders pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination provided further, that in any event the U.S. Borrower shall not have the right to replace a Lender, terminate its Revolving Loan Commitment or repay its Loans solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 13.12(a). 13.13 Survival. All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Obligations. 13.14 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Lender. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 13.14 would, at the time of such transfer, result in increased costs under Section 1.10, 1.11, 2.06 or 4.04 in excess of those being charged by the respective Lender prior to such transfer, then the Borrowers shall not be obligated to pay such excess increased costs (although the Borrowers, in accordance with and pursuant to the other provisions of this Agreement, shall be obligated to pay the costs which would apply in the absence of such designation and any subsequent increased costs of the type described above resulting from changes after the date of the respective transfer). -193- 202 13.15 Register. Each Borrower hereby designates the Administrative Agent to serve as such Borrower's agent, solely for purposes of this Section 13.15, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation shall not affect the respective Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender. Each Borrower jointly and severally agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 13.15. 13.16 Judgment Currency. (a) The Credit Parties' obligations hereunder and under the other Credit Documents to make payments in the respective Applicable Currency (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent, the Collateral Agent or the respective Lender of the full amount of the Obligation Currency expressed to be payable to the Administrative Agent, the Collateral Agent or such Lender under this Agreement or the other Credit Documents. If for the purpose of obtaining or enforcing judgment against any Credit Party in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made, at the Deutsche Mark Equivalent or the Dollar Equivalent thereof, as the case may be, and, in the case of other currencies, the rate of exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated -194- 203 by the Administrative Agent) determined, in each case, as of the day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrowers covenant and agree to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate or exchange prevailing on the Judgment Currency Conversion Date. (c) For purposes of determining the Deutsche Mark Equivalent or the Dollar Equivalent or any other rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency. 13.17 Confidentiality. (a) Subject to the provisions of clause (b) of this Section 13.17, each Lender agrees that it will use its reasonable best efforts not to disclose without the prior consent of the U.S. Borrower (other than to its employees, auditors, advisors or counsel or to another Lender if the Lender or such Lender's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 13.17 to the same extent as such Lender) any information with respect to the U.S. Borrower or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document, provided that any Lender may disclose any such information (a) as has become generally available to the public other than by virtue of a breach of this Section by such Lender, (b) to the extent such information was legally in possession of such Lender prior to its receipt from or on behalf of the U.S. Borrower or any of its Subsidiaries and was from a source not known to such Lender to be (x) bound by a confidentiality agreement with the U.S. Borrower or (y) otherwise prohibited from transmitting such information to such Lender by a contractual, legal or fiduciary obligation, (c) such information becomes available to such Lender from a source other than the U.S. Borrower or any of its Subsidiaries and such source is not known to such Lender to be (x) bound by a confidentiality agreement with the U.S. Borrower or (y) otherwise prohibited from transmitting such information to such Lender by a contractual, legal or fiduciary obligation, (d) as may be required or reasonably appropriate in any report, statement or testimony submitted to, or in response to a request from, any Gaming Authority or any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board, the Federal Deposit Insurance Corporation, the NAIC or similar organizations (whether in the United States or -195- 204 elsewhere) or their successors, (e) as may be required or reasonably appropriate in respect to any summons or subpoena or in connection with any litigation, (f) in order to comply with any law, order, regulation or ruling applicable to such Lender, (g) to the Administrative Agent or the Collateral Agent or any other Lender, (h) to any direct or indirect contractual counterparties in swap agreements or such contractual counterparties' professional advisors; provided that such contractual counterparty or professional advisor to such contractual counterparty agrees in writing to keep such information confidential to the same extent required of the Lenders thereunder, and (i) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Lender, provided, that such prospective transferee shall have agreed to be subject to the provisions of this Section 13.17(a). (b) Each of the Borrowers hereby acknowledge and agree that each Lender may, in connection with the Transaction or the participation of such Lender pursuant to this Agreement and the other Credit Documents, share with any of its affiliates any information related to the U.S. Borrower or any of its Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of the U.S. Borrower and its Subsidiaries, provided such Persons shall be subject to the provisions of this Section 13.17 to the same extent as such Lender). 13.18 Applicable Gaming Laws; Requisite Gaming Approvals. (a) This Agreement, the Notes, the Credit Documents and the security interests thereunder are subject to the Nevada Gaming Regulations, the Louisiana Video Draw Poker Devices Control Law and the rules and regulations thereunder, the Mississippi Gaming Control Act and the rules and regulations thereunder, Missouri laws relating to licensed gaming activities and excursion gambling boats set forth in SectionSection 313.800 et seq. of the Missouri Code and the rules and regulations thereunder, and the applicable gaming legislation, rules and regulations of the Federal Republic of Germany (collectively, the "Applicable Gaming Regulations") (and each Borrower represents and warrants that all requisite approvals thereunder have been obtained, except as specifically contemplated by following clauses (b) and (c)), and the exercise of remedies under the Security Documents with respect to the collateral thereunder will be subject to the Applicable Gaming Regulations. (b) Notwithstanding anything to the contrary contained above or elsewhere in this Agreement or the other Credit Documents, it is understood and agreed that (x) pursuant to Gaming Regulations as in effect in the State of Missouri on the Initial Borrowing Date, no direct or indirect ownership interest in a Missouri gaming licensee that is not a publicly held entity or a holding company that is not a publicly held entity may be pledged or hypothecated in any way (the "Missouri Equity Pledge Restrictions") and (ii) security interests in gaming equipment located in Missouri are not permitted to be held by any entity not licensed by the Missouri Gaming Commission. The parties hereto hereby agree that, notwithstanding anything to the contrary contained elsewhere in this -196- 205 Agreement or in any Security Document, so long as the applicable laws and Gaming Regulations of the State of Missouri (x) prohibit the pledge of equity interests in any Subsidiary of the U.S. Borrower, such pledge shall not be required or (y) prohibit the granting of security interests in gaming equipment located in Missouri, such security interests shall not be created or deemed to exist. However, the U.S. Borrower hereby covenants and agrees to take all action as may be needed so that a new Wholly-Owned Domestic Subsidiary is established after the Initial Borrowing Date, which Subsidiary (the "Missouri License Subsidiary") shall hold all Missouri gaming licenses theretofore held, or at any time in the future to be held, by the U.S. Borrower or any of its Subsidiaries. The Missouri License Subsidiary may also hold any gaming equipment from time to time located in the State of Missouri, but shall hold no assets (including capital stock of other Persons) except to the extent solely related to the conduct of business in the State of Missouri. Notwithstanding anything to the contrary contained elsewhere in this Agreement or in any of the other Credit Documents, the Missouri License Subsidiary shall conduct no business, shall engage in no operations, and shall hold no assets except in conjunction with the Missouri gaming licenses held by it and the gaming activities of the U.S. Borrower and its Subsidiaries to be conducted in Missouri. The Missouri License Subsidiary shall, to the fullest extent permitted by applicable Missouri law, enter into a counterpart of the U.S. Subsidiaries Guaranty and the various Security Documents (although, to the extent the granting of security interest in any collateral is prohibited under relevant Missouri Gaming Regulations, such prohibition shall control), and the stock of the Missouri License Subsidiary shall not be required to be pledged to the extent such pledge is not prohibited under applicable Missouri Gaming Regulations as in effect from time to time. (c) Notwithstanding anything to the contrary contained above or elsewhere in this Agreement or in the other Credit Documents, it is understood and agreed that, in connection with (i) the pledge of the stock of, or equity interests in, (1) Bally Gaming, Inc. and RCVP which would otherwise be required by this Agreement and the Security Documents, the prior approval of such pledge is required by the Mississippi Gaming Commission pursuant to the Mississippi Gaming Control Act, (2) APT Games, Inc., Casino Electronics, Inc., Bally Gaming International, Inc., Bally Gaming, Inc., Plantation Investments, Inc. and United Coin Machine Co. require the prior approval of the Nevada Gaming Commission acting upon the recommendation of the Nevada State Gaming Control Board (collectively, the "Pledged Securities Requisite Gaming Approvals") and (ii) to become effective, the Subsidiary Stock Restrictions require the approvals described in the definition thereof (the "Subsidiary Stock Restrictions Requisite Gaming Approvals"). On the Initial Borrowing Date, the U.S. Borrower in good faith believes that it shall be able to obtain all Pledged Securities Requisite Gaming Approvals and all Subsidiary Stock Restrictions Requisite Gaming Approvals, and shall be able to establish the Missouri License Subsidiary and transfer assets to it so that the only pledge of stock or equity interests subject to the Missouri Equity Pledge Restrictions is the stock of the Missouri License Subsidiary, in each case within 270 days after the Initial Borrowing -197- 206 Date. Notwithstanding anything to the contrary contained in this Agreement or any other Credit Document, unless and until (x) the relevant Pledged Securities Requisite Gaming Approvals have been obtained with respect to the pledge of the equity interests of any entity described above, the pledge of such equity interests shall not be required and (y) the relevant Subsidiary Stock Restrictions Requisite Gaming Approvals have been obtained, the Subsidiary Stock Restrictions contained in Sections 9.01 and 9.02 shall not apply (although the provisions of Sections 3.03(g), 4.02(l) and 10.12 shall be fully effective in accordance with the terms thereof) with the U.S. Borrower hereby representing and warranting that no Gaming Approvals are required for the effectiveness of said Sections in accordance with the express terms thereof). To the extent the relevant Pledged Securities Requisite Gaming Approvals are obtained with respect to one or more of the entities described above, the equity interests of such entity shall, subject to the provisions of Section 8.13(b) (to the extent applicable) promptly (and in any event within 10 days after obtaining such approvals) be pledged pursuant to the relevant Security Documents. Furthermore, each Borrower agrees to use its best efforts to obtain all Pledged Securities Requisite Gaming Approvals and all Subsidiary Stock Restrictions Requisite Gaming Approvals, and to establish the Missouri License Subsidiary in such manner so that the Missouri Equity Pledge Restrictions apply only to the capital stock of the Missouri License Subsidiary, in each case as promptly as is possible after the Initial Borrowing Date. (d) Notwithstanding anything to the contrary contained above or elsewhere in this Agreement or any of the other Credit Documents, to the extent any promissory note, with respect to which the payee is the U.S. Borrower, APT Games, Inc., Casino Electronics, Inc., Bally Gaming International, Inc., Bally Gaming, Inc., Plantation Investments, Inc. or United Coin Machine Co., that would otherwise be required to be pledged pursuant to the U.S. Pledge Agreement or other relevant Security Document, constitutes a "security" the pledge of which requires the approval of the Nevada Gaming Commission acting upon the recommendation of the Nevada State Gaming Control Board, then the respective such promissory note shall not be required to be pledged unless and until such approval is obtained. If at any time any promissory note of the type described in the first sentence of this clause (d) is outstanding, the U.S. Borrower shall notify the Administrative Agent thereof and, if requested by the Administrative Agent, the Collateral Agent or the Required Lenders, it shall use good faith efforts to obtain all necessary approvals to permit the pledge of such promissory note pursuant to the terms of the relevant Security Documents. Upon obtaining such approvals with respect to one or more promissory notes, the respective promissory note or notes shall be immediately pledged, and delivered for pledge, pursuant to the U.S. Pledge Agreement or other relevant Security Document. 13.19 Gaming Authorities. The Administrative Agent and each Lender agrees to cooperate with any Gaming Authority in connection with such Gaming Authority's administration of its regulatory jurisdiction over the U.S. Borrower and/or its Subsidiaries, including, without limitation, through the provision of such documents or -198- 207 other information as may be requested by any such Gaming Authority relating to the Administrative Agent, any Lender, the U.S. Borrower or any of its Subsidiaries or the Documents. 13.20 Nevada Gaming Collateral. Subject to the release of any Collateral as contemplated by any of the Documents, the Collateral Agent shall (or through one or more of its agents, sub-agents or sub-collateral agents shall), to the extent required by Nevada Gaming Regulations, retain possession of all Pledged Securities delivered to it consisting of capital stock of any Nevada gaming licensee or registered intermediary company within the State of Nevada at a location designated to the Nevada State Gaming Control Board. 13.21 Limitation on Additional Amounts, etc. Notwithstanding anything to the contrary contained in Section 1.10, 1.11 or 2.06 of this Agreement, unless a Lender gives notice to the respective Borrower that it is obligated to pay an amount under the respective Section within one year after the later of (x) the date the Lender incurs the respective increased costs, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital or (y) the date such Lender has actual knowledge of its incurrence of the respective increased costs, loss, expense or liability, reductions in amounts received or receivable or reduction in return on capital, then such Lender shall only be entitled to be compensated for such amount by such Borrower pursuant to said Section 1.10, 1.11 or 2.06, as the case may be, to the extent the costs, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs one year prior to such Lender giving notice to such Borrower that it is obligated to pay the respective amounts pursuant to said Section 1.10, 1.11 or 2.06, as the case may be. This Section 13.21 shall have no applicability to any Section of this Agreement other than said Sections 1.10, 1.11 or 2.06. 13.22 Power of Attorney. Each of the Administrative Agent and the Collateral Agent is hereby authorized by, and on behalf of, each Lender to enter into any Security Document required to be executed and delivered pursuant to this Agreement or the other Credit Documents in order to secure the obligations of the Borrowers and Guarantors hereunder and thereunder. In addition, the Administrative Agent shall be authorized to execute on behalf of each Lender the German Security Documents and the German Subsidiaries Guaranty. The Administrative Agent and the Collateral Agent shall be entitled to all declarations it considers necessary or useful in connection with the aforementioned matters. The Administrative Agent and the Collateral Agent shall further be entitled to rescind, amend and/or execute new and different version of before-mentioned documents. Each Lender hereby grants to each of the Administrative Agent and the Collateral Agent an irrevocable power-of-attorney, in such Lender's name, to take the actions contemplated above in this Section 13.22. -199- 208 13.23 Post Closing Actions. Notwithstanding anything to the contrary contained in this Agreement or the other Credit Documents, the parties hereto acknowledge and agree that: (a) Filing of Financing Statements. The U.S. Borrower and its Subsidiaries shall be required to cause the filing of all financing statements (on Form UCC-1 or other appropriate form) in the relevant filing offices within ten (10) days after the Initial Borrowing Date, but shall not be required to have same filed on the Initial Borrowing Date; (b) Filing of Credit Documents. The U.S. Borrower shall, or shall cause, a loan report and any required Credit Documents to be filed with the Mississippi Gaming Commission and the Nevada Gaming Commission, in each case within 30 days (or 5 days in the case of the Nevada Gaming Commission) after the Initial Borrowing Date. (c) Bailee Agreements. Although a Bailee Agreement shall be required to be executed and delivered on the Initial Borrowing Date by the trustee pursuant to the Existing Senior Secured Notes Indenture, the sub-agent of such trustee which holds collateral in the State of Nevada shall not be required to execute or deliver a Bailee Agreement on the Initial Borrowing Date. Within 10 Business Days after the Initial Borrowing Date, a copy of the executed Bailee Agreement with the trustee pursuant to the Existing Senior Secured Notes Indenture shall be sent to such sub-agent, with a notice, in form and substance reasonably satisfactory to the Collateral Agent, informing the sub-agent that all collateral held by it is subject to the Bailee Agreement and the security interests (subject to the provisions of Section 13.18) created pursuant to the Security Documents. (d) Surveys. To the extent any survey otherwise meeting the requirements of Section 5A.16(iii) is not available with respect to any Mortgaged Property on the Initial Borrowing Date, such survey shall instead be required to be delivered within 60 days after the Initial Borrowing Date. (e) RCVP Actions. If the Delayed Draw Term Loans are incurred on, or within one week after, the Initial Borrowing Date, then all conditions set forth in Section 5B shall be satisfied on the Initial Delayed Draw Term Loan Borrowing Date, except that the actions specified in the third and fourth sentences of Section 5B.03 and the related opinions of counsel with respect to such actions which would be required pursuant to Section 5B.04, shall instead be required to be completed, to the satisfaction of the Collateral Agent, and to the extent requested by the Administrative Agent, the Collateral Agent or the Required Lenders as otherwise provided in Section 5B, within 60 days after the Initial Delayed Draw Term Loan Borrowing Date. (f) Pledge of Specified Inactive Susidiary Stock. The capital stock of -200- 209 specified inactive subsidiaries shall not be required to be pledged, or delivered for pledge, on the Initial Borrowing Date; provided that, to the extent the respective specified Inactive Subsidiary remains in existence on the 60th day after the Initial Borrowing Date, all capital stock thereof owned by the U.S. Borrower and its subsidiaries shall be pledged, and delivered to the Collateral Agent for pledge, in accordance with the requirements of the U.S. Pledge Agreement or other relevant Security Documents. All conditions precedent and representations contained in this Agreement and the other Credit Documents shall be deemed modified to the extent necessary to effect the foregoing (and to permit the taking of the actions described above within the time periods required above, rather than as elsewhere provided in the Credit Documents); provided, that (x) to the extent any representation and warranty would not be true because the foregoing actions were not taken on the Initial Borrowing Date, the respective representation and warranty shall be required to be true and correct in all material respects at the time the respective action is taken (or was required to be taken) in accordance with the foregoing provisions of this Section 13.23 and (y) all representations and warranties relating to the Security Documents shall be required to be true immediately after the actions required to be taken by Section 13.23 have been taken (or were required to be taken). The acceptance of the benefits of each Credit Event shall constitute a representation, warranty and covenant by the Borrowers to each of the Lenders that the actions required pursuant to this Section 13.23 will be, or have been, taken within the relevant time periods referred to in this Section 13.23 and that, at such time, all representations and warranties contained in this Agreement and the other Credit Documents shall then be true and correct without any modification pursuant to this Section 13.23, the parties hereto acknowledge and agree that the failure to take any of the actions required above, within the relevant time periods required above, shall give rise to an immediate Event of Default pursuant to this Agreement. 13.24 Specific Provisions Regarding German Borrowers. It is agreed and acknowledged by the parties hereto that Bally Wulff Automaten and Bally Wulff Vertriebs regularly and customarily use the management services (including, inter alia, financial management and cash management services) of their common parent, Alliance Automaten GmbH & Co. KG. The parties hereto therefore agree and acknowledge that Bally Wulff Automaten and Bally Wulff Vertriebs coordinate their borrowings hereunder through Alliance Automaten GmbH & Co. KG and that Alliance Automaten GmbH & Co. KG shall have the authority to give any notice of borrowing or any other notice or communication hereunder on behalf of, and with legally binding effect on, Bally Wulff Automaten and Bally Wulff Vertriebs. 13.25 Specific Provisions Regarding BGI Chattel Paper. It is acknowledged and agreed by the parties hereto that, notwithstanding anything to the contrary contained in this Agreement or any other Credit Document, BGI Chattel Paper shall not be required to be delivered to the Collateral Agent (or any sub-agent of the -201- 210 Collateral Agent). Notwithstanding the foregoing, if a Specified Default (as defined in the U.S. Security Agreement) has occurred and is continuing at any time, then the Administrative Agent, the Collateral Agent or the Required Lenders may require that all BGI Chattel Paper be delivered to the Collateral Agent or a sub-agent designated by it (in which case the U.S. Borrower shall cause all BGI Chattel Paper to be so deliv- ered). Furthermore, the fact that BGI Chattel Paper need not be delivered to the Collateral Agent at a given time as a result of the provisions of this Section 13.25 shall in no way alter the requirement that a perfected security interest be granted therein pursuant to the U.S. Security Agreement or the requirement that all appropriate filings under the Uniform Commercial Code of the relevant jurisdictions be made and maintained so that such a perfected security interest at all times exists in favor of the Collateral Agent with respect to the BGI Chattel Paper. Furthermore, if requested by the Administrative Agent or the Collateral Agent, the U.S. Borrower shall cause all BGI Chattel Paper to be stamped with a legend indicating that it is subject to the security interests created pursuant to the U.S. Security Agreement. 13.26 Special Provisions Regarding United Coin Machine Notes. It is acknowledged and agreed by the parties hereto that no United Coin Machine Notes shall be pledged, or delivered for pledge, on the Initial Borrowing Date. The U.S. Borrower shall, and shall cause United Coin Machine Co. to, take all actions so that, not later than 90 days after the Initial Borrowing Date, all United Coin Machine Notes shall be pledged, and delivered for pledge, to the Collateral Agent (or a sub-agent designated by the Collateral Agent located in the State of Nevada) pursuant to the U.S. Pledge Agreement; provided that the parties hereto acknowledge and agree that the ability of the Collateral Agent to foreclose on United Coin Machine Percentage Notes may be subject to licensing or other necessary approvals pursuant to Applicable Gaming Regulations. It is further understood and agreed that, with respect to all United Coin Machine Notes required to be pledged pursuant to the immediately preceding sentence (or thereafter acquired), all such United Coin Machine Notes shall be delivered on a weekly or a monthly, as agreed with the Collateral Agent, to a sub-agent designated by the Collateral Agent located in the State of Nevada. Notwithstanding anything to the contrary contained above, it shall not constitute a breach or violation of this Agreement or any related Credit Document if at any time less than $500,000 in aggregate principal amount of outstanding United Coin Machine Notes which are otherwise required to be pledged pursuant to the U.S. Pledge Agreement (and in accordance with the provisions of this Section 13.26) have not been delivered for pledge pursuant thereto (although the U.S. Borrower and its Subsidiaries shall use good faith efforts to deliver said promissory notes on a weekly or monthly basis as agreed with the Collateral Agent as provided above). 13.27 Override Provisions Regarding Margin Stock. Notwithstanding anything to the contrary contained in this Agreement or any other Credit Document, the parties hereto acknowledge and agree that, so long as the aggregate fair market value of all Margin Stock owned by the U.S. Borrower and its Subsidiaries does not exceed -202- 211 $100,000, such Margin Stock shall not be required to be pledged, or delivered for pledge, pursuant to any Security Document. If at any time the aggregate fair market value of all Margin Stock owned by the U.S. Borrower and its Subsidiaries exceeds $100,000, then all Margin Stock owned by the U.S. Borrower and its Subsidiaries shall be pledged, and delivered for pledge, to the extent otherwise required by the terms of this Agreement and the various Security Documents and, in connection therewith, the U.S. Borrower will, or will cause to be taken, all actions required pursuant to Section 8.15. SECTION 14. Parent Guaranty. 14.01 The Parent Guaranty. In order to induce the Lenders to enter into this Agreement and to extend credit hereunder and in recognition of the direct benefits to be received by the Parent Guarantor from the proceeds of the Loans extended to the German Borrowers and the issuance of the Letters of Credit for the account of the German Borrowers, the Parent Guarantor hereby agrees with the Lenders as follows: the Parent Guarantor hereby unconditionally and irrevocably guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all Guaranteed Obligations of each German Borrower to the Guaranteed Creditors. If any or all of the Guaranteed Obligations of any German Borrower to the Guaranteed Creditors becomes due and payable hereunder, the Parent Guarantor unconditionally promises to pay such indebtedness to the Lenders, or order, on demand, together with any and all reasonable expenses which may be incurred by the Guaranteed Creditors (or the Administrative Agent or Collateral Agent) in collecting any of the Guaranteed Obligations. If claim is ever made on upon any Guaranteed Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including the German Borrowers), then and in such event the Parent Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon the Parent Guarantor, notwithstanding any revocation of this Parent Guaranty or any other instrument evidencing any liability of the German Borrowers, and the Parent Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such an amount had never originally been received by any such payee. 14.02 Bankruptcy. Additionally, the Parent Guarantor unconditionally and irrevocably guarantees the payment of any and all of the Guaranteed Obligations of each German Borrower to the Guaranteed Creditors whether or not due or payable by the respective German Borrower upon the occurrence in respect of any Borrower of any of the events specified in Section 10.05, and unconditionally and irrevocably promises to pay such indebtedness to the Guaranteed Creditors, or order, on demand, in lawful money of -203- 212 the United States. 14.03 Nature of Liability. The liability of the Parent Guarantor hereunder is exclusive and independent of any security for or other guaranty of the indebtedness of either German Borrower whether executed by the Parent Guarantor, any other guarantor or by any other party, and the liability of the Parent Guarantor hereunder shall not be affected or impaired by (a) any direction as to application of payment by either German Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the indebtedness of either German Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by either German Borrower, or (e) any payment made to the Administrative Agent or the Guaranteed Creditors on the indebtedness which such Administrative Agent or such Guaranteed Creditor repays either German Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and the Parent Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. 14.04 Independent Obligation. The obligations of the Parent Guarantor hereunder are independent of the obligations of any other guarantor or the German Borrowers, and a separate action or actions may be brought and prosecuted against the Parent Guarantor whether or not action is brought against any other guarantor or either German Borrower and whether or not any other guarantor or either German Borrower be joined in any such action or actions. The Parent Guarantor waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the respective German Borrower or other circumstance which operates to toll any statute of limitations as to either German Borrower shall, to the fullest extent permitted by law, operate to toll the statute of limitations as to the Parent Guarantor. 14.05 Authorization. The Parent Guarantor authorizes the Administrative Agent and the Guaranteed Creditors without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to: (a) subject to the agreement of the respective German Borrower, change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, increase, accelerate or alter, any of the indebtedness (including any increase or decrease in the rate of interest thereon), any security therefor, or any liability incurred directly or indirectly in respect thereof, and the Parent Guaranty herein made shall apply to the indebtedness as so changed, extended, renewed or altered; -204- 213 (b) take and hold security for the payment of the indebtedness and sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the indebtedness or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; (c) exercise or refrain from exercising any rights against the German Borrowers or others or otherwise act or refrain from acting; (d) release or substitute any one or more endorsers, guarantors, the German Borrowers or other obligors; (e) settle or compromise any of the indebtedness, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the German Borrowers to their creditors other than the Lenders; (f) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of a German Borrower to the Banks regardless of what liability or liabilities of the Parent Guarantor or the German Borrowers remain unpaid; and/or (g) consent to or waive any breach of, or any act, omission or default under, this Agreement or any of the instruments or agreements referred to herein, or otherwise, with the agreements required pursuant to Section 13.12, amend, modify or supplement this Agreement or any of such other instruments or agreements. 14.06 Reliance. It is not necessary for the Administrative Agent or any Guaranteed Creditors to inquire into the capacity or powers of either German Borrower or its Subsidiaries or the officers, directors, partners or agent acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 14.07 Subordination. Any indebtedness of a German Borrower now or hereafter owing to the Parent Guarantor is hereby subordinated in right of payment to the indebtedness of the respective German Borrower owing to the Administrative Agent and the Guaranteed Creditors; provided that payment may be made by the respective German Borrower on any such indebtedness owing to the Parent Guarantor so long as the same is not prohibited by this Agreement; and provided further, that if the Administrative Agent so requests at a time when an Event of Default exists, all such indebtedness of the German -205- 214 Borrowers to the Parent Guarantor shall be collected, enforced and received by the Parent Guarantor as trustee for the Guaranteed Creditors and be paid over to the Guaranteed Creditors on account of the indebtedness of the respective German Borrower to the Guaranteed Creditors, but without affecting or impairing in any manner the liability of the Parent Guarantor under the other provisions of this Parent Guaranty. Prior to the transfer by the Parent Guarantor of any note or negotiable instrument evidencing any indebtedness of a German Borrower to the Parent Guarantor, the Parent Guarantor shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. 14.08 Waiver. (a) The Parent Guarantor waives any right (except as shall be required by applicable statute and cannot be waived) to require the Administrative Agent or the Guaranteed Creditors to (i) proceed against either German Borrower, any other guarantor or any other party, (ii) proceed against or exhaust any security held from either German Borrower, any other guarantor or any other party or (iii) pursue any other remedy in the Administrative Agent's or the Guaranteed Creditors' power whatsoever. The Parent Guarantor waives any defense based on or arising out of any defense of either German Borrower, any other guarantor or any other party other than payment in full of the indebtedness, including, without limitation, any defense based on or arising out of the disability of either German Borrower, any other guarantor or any other party, or the unenforceability of the indebtedness or any part thereof from any cause, or the cessation from any cause of the liability of either German Borrower other than payment in full of the indebtedness. The Administrative Agent and the Guaranteed Creditors may, at their election, foreclose on any security held by the Administrative Agent, the Collateral Agent or the Guaranteed Creditors by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Administrative Agent and the Guaranteed Creditors may have against either German Borrower or any other party, or any security, without affecting or impairing in any way the liability of the Parent Guarantor hereunder except to the extent the indebtedness has been paid. The Parent Guarantor waives, to the fullest extent permitted by law, any defense arising out of any such election by the Administrative Agent and the Guaranteed Creditors, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Parent Guarantor against any German Borrower or any other party or any security. (b) The Parent Guarantor waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Parent Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. The Parent Guarantor assumes all responsibility for being and keeping itself informed of each German Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the indebtedness and the nature, scope and extent of the risks which the Parent Guarantor assumes and incurs hereunder, and agrees that the -206- 215 Administrative Agent and the Guaranteed Creditors shall have no duty to advise the Parent Guarantor of information known to them regarding such circumstances or risks. 14.09 Limitation on Enforcement. The Guaranteed Creditors agree that this Parent Guaranty may be enforced only by the action of the Administrative Agent or the Collateral Agent, in each case acting upon the instructions of the Required Lenders and that no Guaranteed Creditors shall have any right individually to seek to enforce or to enforce this Parent Guaranty, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent for the benefit of the Guaranteed Creditors upon the terms of this Agreement. The Guaranteed Creditors further agree that this Parent Guaranty may not be enforced against any Affiliate, director, officer, employee or stockholder of the Parent Guarantor. -207- 216 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written.
Address: - -------- 6601 South Bermuda Road ALLIANCE GAMING CORPORATION Las Vegas, Nevada 89119 Attention: Scott Schweinfurth Telephone No.: (702) 896-7700 By __________________________________ Telecopier No.: (702) 263-5636 Name: Title: 6601 South Bermuda Road BALLY WULFF VERTRIEBS GMBH Las Vegas, Nevada 89119 Attention: Scott Schweinfurth Telephone No.: (702) 896-7700 By __________________________________ Telecopier No.: (702) 263-5636 Name: Title: 6601 South Bermuda Road BALLY WULFF AUTOMATEN GMBH Las Vegas, Nevada 89119 Attention: Scott Schweinfurth Telephone No.: (702) 896-7700 By __________________________________ Telecopier No.: (702) 263-5636 Name: Title:
-208- 217 Eleven Madison Avenue CREDIT SUISSE FIRST BOSTON, New York, New York 10010 Individually and as Administrative Attention: Ed Barr Agent Telephone No.: (212) 325-9151 Telecopier No.: (212) 325-8309 By __________________________________ Name: Title: By __________________________________ Name: Title:
-209- 218 SCHEDULE I-A COMMITMENTS
Tranche A Delayed Draw Tranche B Tranche C Term Loan Term Loan Term Loan Term Loan Revolving Loan Lender Commitment Commitment Commitment Commitment Commitment - ------ ---------- ---------- ---------- ---------- ---------- Credit Suisse $0.00 $11,428,571.43 $37,885,714.29 $18,285,714.28 $22,500,000.00 First Boston The Bank of Nova Scotia $0.00 $0.00 $0.00 $0.00 $22,500,000.00 Southern Pacific Thrift & Loan Association $0.00 $0.00 $0.00 $0.00 $15,000,000.00 The Mitsubishi Trust and Banking Corporation $0.00 $0.00 $0.00 $0.00 $15,000,000.00 Sumitomo Bank of California $0.00 $0.00 $0.00 $0.00 $15,000,000.00 Merrill Lynch Senior Floating Rate Fund, Inc. $0.00 $2,678,571.43 $8,035,714.29 $4,285,714.28 $0.00 MassMutual Life $0.00 $2,142,857.14 $6,428,571.43 $3,428,571.43 $0.00 Insurance Co. Van Kampen American $0.00 $2,142,857.14 $6,428,571.43 $3,428,571.43 $0.00 Prime Rate Income Trust Prime Income Trust $0.00 $1,428,571.43 $4,285,714.28 $2,285,714.29 $0.00 Royalton Company $0.00 $1,250,000.00 $3,750,000.00 $2,000,000.00 $0.00 CIBC Inc. $0.00 $1,071,428.57 $3,214,285.71 $1,714,285.72 $0.00 KZH-ING-1 Corporation, Inc. $0.00 $1,071,428.58 $3,214,285.71 $1,714,285.71 $0.00 Crescent/Mach I Partners, L.P. $0.00 $714,285.71 $342,857.15 $1,142,857.14 $0.00 KZH-Crescent $0.00 $714,285.71 $342,857.14 $1,142,857.15 $0.00 Corporation Deeprock & Company $0.00 $357,142.86 $1,071,428.57 $571,428.57 $0.00 ------------- -------------- -------------- -------------- -------------- TOTAL: $0.00 $25,000,000 $75,000,000 $40,000,000 $90,000,000
219 SCHEDULE I-B GERMAN REVOLVING LOAN SUB-COMMITMENTS
German Revolving Loan German Revolving Lender Sub-Commitments - ----------------------- --------------- Credit Suisse First Boston $16,500,000.00 The Bank of Nova Scotia $16,500,000.00 The Mitsubishi Trust and Banking Corporation $11,000,000.00 Sumitomo Bank of California $11,000,000.00 -------------- TOTAL: $55,000,000
220 SCHEDULE II LENDER ADDRESSES AND APPLICABLE LENDING OFFICES Credit Suisse First Boston Eleven Madison Avenue New York, New York 10010 Telephone No.: (212) 325-9151 Facsimile No.: (212) 325-8309 Attention: Ed Barr The Bank of Nova Scotia One Liberty Plaza New York, New York 10006 Telephone No.: (212) 225-5009 Facsimile No.: (212) 225-5090 Attention: John Hopmans Southern Pacific Thrift & Loan 12300 Wilshire Boulevard Suite 200 Los Angeles, California 90025 Telephone No.: (310) 442-3315 Facsimile No.: (310) 707-4067 Attention: Chuck Martorano Mitsubishi Trust and Banking 801 South Figuero Street Suite 500 Los Angeles, California Telephone No.: (213) 896-4666 Facsimile No.: (213) 687-4639 Attention: Dean Kawai Sumitomo Bank of California 611 West 6th Street Suite 3900 Los Angeles, California Telephone No.: (213) 362-5715 Facsimile No.: (213) 622-1385 Attention: Steven Sloan Merrill Lynch Senior Floating Rate Fund, Inc. 800 Scudders Mill Road Plainsboro, New Jersey 08536 Telephone No.: (609) 282-2092 Facsimile No.: (609) 282-2550 Attention: Anthony Clemente 221 SCHEDULE II Page 2 Deeproch & Company 24 Federal Street Boston, Massachusetts Telephone No.: (617) 348-0115 Facsimile No.: (617) 695-9594 Attention: Juliana Riley KZH-ING-1 Corporation, Inc. 333 South Grand Avenue Suite 400 Los Angeles, California 90071 Telephone No.: (213) 396-3972 Facsimile No.: (213) 626-6552 Attention: Michael Hattley CIBC Inc. 425 Lexington Avenue 7th Floor New York, New York 10017 Telephone No.: (212) 856-3768 Facsimile No.: (212) 856-3799 Attention: Elizabeth Schreiber Massachussetts Mutual Life Insurance Co. 1295 State Street Springfield, Massachusetts 01111 Telephone No.: (413) 744-6228 Facsimile No.: (413) 744-6127 Attention: John Mecler Prime Income Trust Two World Trade Center 72nd Floor New York, New York 10048 Telephone No.: (212) 392-5845 Facsimile No.: (212) 392-5345 Attention: Louis Pistecchia Van Kampen American Capital Prime Rate Income Trust One Parkview Plaza Oakbrook Terrace, Illinois Telephone No.: (630) 684-6438 Facsimile No.: (630) 684-6740 Attention: Jeffrey Maillet 222 SCHEDULE II Page 3 Crescent/Mach I Partners, L.P. 333 South Grand Avenue Suite 400 Los Angeles, California 90071 Telephone No.: (213) 346-3972 Facsimile No.: (213) 626-6552 Attention: Michael Hattley KZH-Crescent Corporation 333 South Grand Avenue Suite 400 Los Angeles, California 90071 Telephone No.: (213) 346-3972 Facsimile No.: (213) 626-6552 Attention: Michael Hattley Royalton Company 840 Newport Center Drive Newport Beach, California 92658 Telephone No.: (714) 640-3407 Facsimile No.: (714) 725-6839 Attention: Jason Rosiak 223 EXHIBIT A 224 EXHIBIT A FORM OF NOTICE OF BORROWING [Date] Credit Suisse First Boston, as Administrative Agent for the Banks party to the Credit Agreement referred to below Eleven Madison Avenue New York, NY 10010 Attention: Ladies and Gentlemen: The undersigned, [Name of Borrower] (the "Borrower"), refers to the Credit Agreement, dated as of August 8, 1997 (as amended from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among Alliance Gaming Corporation, Bally Wulff Automaten GmbH, Bally Wulff Vertriebs GmbH, various lenders from time to time party thereto (the "Lenders"), and you, as Administrative Agent for such Lenders, and hereby gives you notice, irrevocably, pursuant to Section 1.03(a) of the Credit Agreement, that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 1.03(a) of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is________ , 19___.(1) (ii) The Proposed Borrowing shall consist of [U.S. Borrower Tranche A Loans] [German Borrower Tranche A Term Loans] [Delayed Draw Term Loans] [Tranche B Term Loans] [Tranche C Term Loans] [Dollar Revolving Loans] [Deutsche Mark Revolving Loans]. - ---------- (1) Shall be a Business Day at least one Business Day in the case of Base Rate Loans and three Business Days in the case of Euro Rate Loans, in each case after the date hereof. 225 EXHIBIT A Page 2 (iii) The aggregate principal amount of the Proposed Borrowing is __________.(2) [(iv) The Dollar Loans to be made pursuant to the Proposed Borrowing shall be initially maintained as [Base Rate Loans] [Eurodollar Loans].(3) [(iv)/(v) The initial Interest Period for the Proposed Borrowing is month(s).(4) The undersigned hereby certifies that the following statements are true and correct on the date hereof, and will be true and correct on the date of the Proposed Borrowing: (A) the representations and warranties contained in the Credit Agreement and in the other Credit Documents are and will be true and correct in all material respects, both before and after giving effect to the Proposed Borrowing and to the application of the proceeds thereof, as though made on such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); and (B) no Default or Event of Default has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds thereof. Very truly yours, [NAME OF BORROWER(S)] By__________________________ Title: - ---------- (2) Stated in the Applicable Currency. (3) To be included for a Proposed Borrowing of Dollar Loans. (4) To be included for a Proposed Borrowing of Euro Rate Loans. 226 EXHIBIT B 227 EXHIBIT B-1 228 EXHIBIT B-1 FORM OF U.S. BORROWER TRANCHE A TERM NOTE $_____________ New York, New York _______ ___, 199_ FOR VALUE RECEIVED, ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Borrower"), hereby promises to pay to the order of __________ (the "Lender"), in lawful money of the United States of America in immediately available funds, at the appropriate Payment Office (as defined in the Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Tranche A Term Loan Maturity Date (as defined in the Agreement) the principal sum of ______________________ DOLLARS ($__________) or, if less, the unpaid principal amount of the U.S. Borrower Tranche A Term Loans (as defined in the Agreement) made by the Lender pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the U.S. Borrower Tranche A Term Notes referred to in the Credit Agreement, dated as of August 8, 1997, among the Borrower, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the lenders from time to time party thereto (including the Lender), and the Administrative Agent (as amended, modified or supplemented from time to time, the "Agreement") and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by certain of the Security Documents (as defined in the Agreement) and is entitled to the benefits of certain of the Guaranties (as defined in the Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Tranche A Term Loan Maturity Date, in whole or in part, as provided in the Agreement. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ALLIANCE GAMING CORPORATION By________________________________ Title: 229 EXHIBIT B-2 230 EXHIBIT B-2 FORM OF GERMAN BORROWER TRANCHE A TERM NOTE DM_____________ New York, New York _______ ___, 199_ FOR VALUE RECEIVED, BALLY WULFF VERTRIEBS GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("BWV"), and BALLY WULFF AUTOMATEN GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("BWA" and, together with BWV, each a "Borrower" and, collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of __________ (the "Lender"), in lawful money of the Federal Republic of Germany in immediately available funds, at the appropriate Payment Office (as defined in the Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Tranche A Term Loan Maturity Date (as defined in the Agreement), the principal sum of ____________________ DEUTSCHE MARKS (DM__________) or, if less, the unpaid principal amount of the German Borrower Tranche A Term Loans (as defined in the Agreement) made by the Lender pursuant to the Agreement. The Borrowers also jointly and severally promise to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the German Borrower Tranche A Term Notes referred to in the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, the Borrowers, the lenders from time to time party thereto (including the Lender), and the Administrative Agent (as amended, modified or supplemented from time to time, the "Agreement") and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by certain of the Security Documents (as defined in the Agreement) and is entitled to the benefits of certain of the Guaranties (as defined in the Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Tranche A Term Loan Maturity Date, in whole or in part, as provided in the Agreement. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrowers hereby waive presentment, demand, protest or notice of any kind in connection with this Note. 231 EXHIBIT B-2 Page 2 THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. BALLY WULFF VERTRIEBS GMBH By________________________________ Title: BALLY WULFF AUTOMATEN GMBH By________________________________ Title: 232 EXHIBIT B-3 233 EXHIBIT B-3 FORM OF DELAYED DRAW TERM NOTE $_____________ New York, New York _______ ___, 199_ FOR VALUE RECEIVED, ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Borrower"), hereby promises to pay to the order of __________ (the "Lender"), in lawful money of the United States of America in immediately available funds, at the appropriate Payment Office (as defined in the Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Delayed Draw Term Loan Maturity Date (as defined in the Agreement) the principal sum of ______________________ DOLLARS ($__________) or, if less, the unpaid principal amount of the Delayed Draw Term Loans (as defined in the Agreement) made by the Lender pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Delayed Draw Term Notes referred to in the Credit Agreement, dated as of August 8, 1997, among the Borrower, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the lenders from time to time party thereto (including the Lender), and the Administrative Agent (as amended, modified or supplemented from time to time, the "Agreement") and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by certain of the Security Documents (as defined in the Agreement) and is entitled to the benefits of certain of the Guaranties (as defined in the Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Delayed Draw Term Loan Maturity Date, in whole or in part, as provided in the Agreement. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ALLIANCE GAMING CORPORATION By________________________________ Title: 234 EXHIBIT B-4 235 EXHIBIT B-4 FORM OF TRANCHE B TERM NOTE $_____________ New York, New York _______ ___, 199_ FOR VALUE RECEIVED, ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Borrower"), hereby promises to pay to the order of __________ (the "Lender"), in lawful money of the United States of America in immediately available funds, at the appropriate Payment Office (as defined in the Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Tranche B Term Loan Maturity Date (as defined in the Agreement) the principal sum of _______ DOLLARS ($______) or, if less the unpaid principal amount of the Tranche B Term Loans (as defined in the Agreement) made by the Lender pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Tranche B Term Notes referred to in the Credit Agreement, dated as of August 8, 1997, among the Borrower, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the lenders from time to time party thereto (including the Lender), and the Administrative Agent (as amended, modified or supplemented from time to time, the "Agreement") and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by certain of the Security Documents (as defined in the Agreement) and is entitled to the benefits of the Guaranties (as defined in the Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Tranche B Term Loan Maturity Date, in whole or in part, as provided in the Agreement. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ALLIANCE GAMING CORPORATION By________________________________ Title: 236 EXHIBIT-5 237 EXHIBIT B-5 FORM OF TRANCHE C TERM NOTE $_____________ New York, New York _______ ___, 199_ FOR VALUE RECEIVED, ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Borrower"), hereby promises to pay to the order of __________ (the "Lender"), in lawful money of the United States of America in immediately available funds, at the appropriate Payment Office (as defined in the Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Tranche C Term Loan Maturity Date (as defined in the Agreement) the principal sum of _______ DOLLARS ($______) or, if less the unpaid principal amount of the Tranche C Term Loans (as defined in the Agreement) made by the Lender pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Tranche C Term Notes referred to in the Credit Agreement, dated as of August 8, 1997, among the Borrower, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the lenders from time to time party thereto (including the Lender), and the Administrative Agent (as amended, modified or supplemented from time to time, the "Agreement") and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by certain of the Security Documents (as defined in the Agreement) and is entitled to the benefits of the Guaranties (as defined in the Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Tranche C Term Loan Maturity Date, in whole or in part, as provided in the Agreement. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ALLIANCE GAMING CORPORATION By________________________________ Title: 238 EXHIBIT B-6 239 EXHIBIT B-6 FORM OF DOLLAR REVOLVING NOTE $_______________ New York, New York ____________, 199_ FOR VALUE RECEIVED, ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Borrower"), hereby promises to pay to the order of ______________ (the "Lender"), in lawful money of the United States of America in immediately available funds, at the appropriate Payment Office (as defined in the Credit Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Revolving Loan Maturity Date (as defined in the Credit Agreement) the principal sum of _______________ DOLLARS ($______________) or, if less, the then unpaid principal amount of all Dollar Revolving Loans (as defined in the Credit Agreement) made by the Lender pursuant to the Credit Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Dollar Revolving Notes referred to in the Credit Agreement, dated as of August 8, 1997, among the Borrower, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the lenders from time to time party thereto (including the Lender), and the Administrative Agent (as amended, modified or supplemented from time to time, the "Credit Agreement"), and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Credit Agreement). This Note is secured by certain of the Security Documents (as defined in the Credit Agreement) and is entitled to the benefits of certain of the Guaranties (as defined in the Credit Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Revolving Loan Maturity Date, in whole or in part, as provided in the Credit Agreement. In case an Event of Default (as defined in the Credit Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Credit Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ALLIANCE GAMING CORPORATION By_____________________________ Title: 240 EXHIBIT B-7 241 EXHIBIT B-7 FORM OF DEUTSCHE MARK REVOLVING NOTE DM_______________ New York, New York _____________, 199_ FOR VALUE RECEIVED, BALLY WULFF VERTRIEBS GMBH ("BWV"), and BALLY WULFF AUTOMATEN GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("BWA" and, together with BWV, each a "Borrower" and, collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of (the "Lender"), in lawful money of the Federal Republic of Germany in immediately available funds, at the appropriate Payment Office (as defined in the Credit Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Revolving Loan Maturity Date (as defined in the Agreement) the principal sum of ____________ DEUTSCHE MARKS (DM_____) or, if less, the unpaid principal amount of all Deutsche Mark Revolving Loans (as defined in the Agreement) made by the Lender pursuant to the Credit Agreement. The Borrowers also jointly and severally promise to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Deutsche Mark Revolving Notes referred to in the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, the Borrowers, the lenders from time to time party thereto (including the Lender), and the Administrative Agent (as amended, modified or supplemented from time to time, the "Credit Agreement"), and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Credit Agreement). This Note is secured by certain of the Security Documents (as defined in the Credit Agreement) and is entitled to the benefits of the Guaranties (as defined in the Credit Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Revolving Loan Maturity Date, in whole or in part, as provided in the Credit Agreement. In case an Event of Default (as defined in the Credit Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Credit Agreement. The Borrowers hereby waive presentment, demand, protest or notice of any kind in connection with this Note. 242 THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. BALLY WULFF VERTRIEBS GMBH By_____________________________ Title: BALLY WULFF AUTOMATEN GMBH By_____________________________ Title: 243 EXHIBIT B-8 244 EXHIBIT B-8 SWINGLINE NOTE $________ New York, New York ____________, 199_ FOR VALUE RECEIVED, ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Borrower"), hereby promises to pay to the order of CREDIT SUISSE FIRST BOSTON (the "Bank"), in lawful money of the United States of America in immediately available funds, at the appropriate Payment Office (as defined in the Agreement referred to below) of Credit Suisse First Boston (the "Administrative Agent") on the Swingline Expiry Date (as defined in the Agreement) the principal sum of ______________ DOLLARS ($_____________) or, if less, the unpaid principal amount of all Swingline Loans (as defined in the Agreement) made by the Bank pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is the Swingline Note referred to in the Credit Agreement, dated as of August 8, 1997, among the Borrower, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the lenders party thereto (including the Lender) from time to time and CREDIT SUISSE FIRST BOSTON, as Administrative Agent (as amended, modified or supplemented from time to time, the "Agreement") and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by certain of the Security Documents (as defined in the Agreement) and is entitled to the benefits of certain of the Guaranties (as defined in the Agreement). This Note is subject to voluntary prepayment and mandatory repayment prior to the Swingline Expiry Date, in whole or in part, as provided in the Agreement. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may become or be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ALLIANCE GAMING CORPORATION By__________________________ Title: 245 EXHIBIT C 246 EXHIBIT C FORM OF LETTER OF CREDIT REQUEST No. (1) Dated (2) Credit Suisse First Boston, individually and as Administrative Agent under the Credit Agreement (as amended, modified or supplemented from time to time, the "Credit Agreement"), dated as of August 8, 1997, among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH (the "Borrowers" and each a "Borrower"), the Lenders from time to time party thereto, and Credit Suisse First Boston, as Administrative Agent. Eleven Madison Avenue New York, New York 10010 Attention : Dear Sirs: We hereby request that [Name of Proposed Issuing Bank], in its individual capacity, issue a [Standby] [Trade] Letter of Credit for the [joint and several] (3) account of the undersigned on (4) (the "Date of Issuance") in the aggregate stated amount of (5). The requested Letter of Credit shall be denominated in (6) . - ---------------- (1) Letter of Credit Request Number. (2) Date of Letter of Credit Request. (3) Insert in the case a German Letter of Credit is requested. (4) Date of Issuance which shall be at least 5 Business Days from the date hereof (or such shorter period as may be acceptable to the Issuing Bank). (5) Aggregate initial stated amount of Letter of Credit. (6) Specify Dollars in the case of U.S. Letters of Credit and Deutsche Marks in the case of German Letters of Credit. 247 EXHIBIT C Page 2 For purposes of this Letter of Credit Request, unless otherwise defined herein, all capitalized terms used herein which are defined in the Credit Agreement shall have the respective meaning provided therein. The beneficiary of the requested Letter of Credit will be (7), and such Letter of Credit will be in support of (8) and will have a stated expiration date of (9). The Letter of Credit will be a [U.S./German](10) Letter of Credit. We hereby certify that: (1) The representations and warranties contained in the Credit Documents will be true and correct in all material respects on the Date of Issuance, both before and after giving effect to the issuance of the Letter of Credit requested hereby (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). - -------- (7) Insert name and address of beneficiary. (8) Insert description of L/C Supportable Obligations in the case of Standby Letters of Credit and a description of the commercial transaction which is being supported in the case of Trade Letters of Credit. (9) Insert last date upon which drafts may be presented which (i) in the case of Standby Letters of Credit, may not be later than the 12 months after the Date of Issuance or, if earlier, the third Business Day prior to the Revolving Loan Maturity Date (although any such Standby Letter of Credit may be extendable for successive periods of up to 12 months, but not beyond the third Business Day prior to the Revolving Loan Maturity Date on terms acceptable to Issuing Bank) or (ii) in the case of Trade Letters of Credit, may not be later than 180 days after the Date of Issuance or, if earlier, the date which is 30 days prior to the Revolving Loan Maturity Date. (10) Insert appropriate alternative. 248 EXHIBIT C Page 3 (2) No Default or Event of Default has occurred and is continuing nor, after giving effect to the issuance of the Letter of Credit requested hereby, would such a Default or an Event of Default occur. [ALLIANCE GAMING CORPORATION By_____________________________ Title:] [BALLY WULFF VERTRIEBS GMBH By_____________________________ Title: BALLY WULFF AUTOMATEN GMBH By_____________________________ Title: 249 EXHIBIT D 250 EXHIBIT D SECTION 4.04(b)(ii) CERTIFICATE Reference is hereby made to the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the Lenders from time to time party thereto, and Credit Suisse First Boston, as Administrative Agent (as amended from time to time, the "Credit Agreement"). Pursuant to the provisions of Section 4.04(b)(ii) of the Credit Agreement, the undersigned hereby certifies that it is not a "bank" as such term is used in Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended. [NAME OF BANK] By ____________________________ Title: Date: _______________, ____ 251 EXHIBIT F 252 EXHIBIT F [NAME OF CREDIT PARTY] FORM OF OFFICERS' CERTIFICATE I, the undersigned, [Title of Authorized Officer] of [NAME OF CREDIT PARTY], a [corporation] [partnership] organized and existing under the laws of [the State of ________] [Country of incorporation] (the "Company"), DO HEREBY CERTIFY that: 1. This Certificate is furnished pursuant to the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the Lenders from time to time party thereto, and Credit Suisse First Boston, as Administrative Agent (such Credit Agreement, as in effect on the date of this Certificate, being herein called the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this Certificate shall have the meanings set forth in the Credit Agreement. 2. The following named individuals are presently the elected officers of the Company, each holds the office of the Company set forth opposite his or her name below and has held such office as of the date of signing of any Credit Document. The signature written opposite the name and title of each such officer below is his or her correct signature.
Name(1) Office Signature __________________ ____________________ _________________ __________________ ____________________ _________________ __________________ ____________________ _________________
3. Attached hereto as Exhibit A is a true and correct copy of the [Certificate of Incorporation of the Company as filed in the Office of the Secretary of State of the State of its incorporation][equivalent organizational documents], together with all amendments thereto adopted through the date hereof. - -------- (1) Include name, office and signature of each officer who will sign any Credit Document, including the officer who will sign the certification at the end of this Certificate. 253 EXHIBIT F Page 2 4. Attached hereto as Exhibit B is a true and correct copy of the By-Laws (or equivalent organizational document) of the Company, together with all amendments thereto, which were duly adopted and are in full force and effect on the date hereof. 5. Attached hereto as Exhibit C is a true and correct copy of resolutions which were duly adopted on __________, 199_ [by unanimous written consent of the Board of Directors of the Company] [by a meeting of the Board of Directors of the Company at which a quorum was present and acting throughout], and said resolutions have not been rescinded, amended or modified. Except as attached hereto as Exhibit C, no resolutions have been adopted by the Board of Directors of the Company which deal with the execution, delivery or performance of any of the Credit Documents to which the Company is party. [6. Attached hereto as Exhibit D are true and correct copies of all New Senior Subordinated Notes Documents (other than the New Senior Subordinated Notes actually issued). 7. Attached hereto as Exhibit E are true and correct copies of the Existing PIK Preferred Stock Redemption Documents. 8. Attached hereto as Exhibit F are true and correct copies of all Existing Senior Secured Notes Tender Offer/Consent Solicitation Documents (other than the Existing Senior Subordinated Notes actually issued). 9. Attached hereto as Exhibit G are true and correct copies of the Existing Senior Secured Notes Indenture, the Existing Senior Secured Notes Indenture Supplement, the Existing Senior Secured Notes Collateral Documents and the Existing Senior Secured Notes Collateral Document Amendments.](2) [6][10]. On the date hereof, all of the applicable conditions set forth in Sections 5A.05, 5A.06, 5A.07, 5A.08, 5A.09. 5A.10, 5A.11 and 5A.19 of the Credit Agreement have been satisfied.](3) [6][7][11]. On the date hereof, the representations and warranties contained in the Credit Agreement and in the other Credit Documents are true and correct in all material respects, both before and after giving effect to each Credit Event to occur on the date hereof and the application of the proceeds thereof (it being understood and agreed that - -------- (2) Insert only in Officer's Certificate of the U.S. Borrower. (3) Insert only in Officers' Certificate of a Borrower. 254 EXHIBIT F Page 3 any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). [7][8][12]. On the date hereof, no Default or Event of Default has occurred and is continuing or would result from the Credit Events to occur on the date hereof or from the application of the proceeds thereof. [8][9][13]. There is no proceeding for the dissolution or liquidation of the Company or, to the knowledge of the Company, threatening its existence. IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of __________, 1997. [NAME OF CREDIT PARTY] ______________________________ Name: Title: 255 EXHIBIT F Page 4 I, the undersigned, [Secretary] [Assistant Secretary] of the Company, do hereby certify that: 1. [Name of Person making above certifications] is the duly elected and qualified [Title] of the Company and the signature above is [his/her] genuine signature. 2. The certifications made by [name of Person making the above certifications] on behalf of the Company in paragraphs 2, 3, 4, 5 and [8][9][13] above are true and correct. IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of __________, 1997. [NAME OF CREDIT PARTY] ___________________________________ Name: Title: 256 EXHIBIT G 257 EXHIBIT G [CONFORMED AS EXECUTED] BAILEE AGREEMENT THIS BAILEE AGREEMENT (this "Bailee Agreement") is made as of the 8th day of August, 1997 among CREDIT SUISSE FIRST BOSTON, as Administrative Agent and as Collateral Agent under the Credit Agreement and the other Credit Documents and for the benefit of the Lenders from time to time party to the Credit Agreement and the other Secured Creditors from time to time, United States Trust Company of New York (the "Bailee"), ALLIANCE GAMING CORPORATION, a Nevada corporation (the "U.S. Borrower") and each Subsidiary of the U.S. Borrower which is a party to any Indenture Collateral Document. W I T N E S S E T H : WHEREAS, the U.S. Borrower has issued $154,000,000 of the Senior Secured Notes pursuant to the Indenture, of which $153,981,000 aggregate principal amount of Senior Secured Notes has been accepted by the U.S. Borrower for purchase pursuant to its Offer to Purchase dated July 3, 1997; WHEREAS, the obligations of the U.S. Borrower with respect to the Senior Secured Notes which remain outstanding are guaranteed by the Subsidiaries of the U.S. Borrower party to this Agreement, and are secured pursuant to the Indenture Collateral Documents; WHEREAS, the Lenders have entered or are about to enter into the Credit Agreement with the Borrowers pursuant to which CSFB and various other Lenders will, upon certain terms and conditions, make loans and provide other financial accommodations to the Borrowers secured by substantially all of the assets and properties of the U.S. Borrower and its Subsidiaries (a portion of the proceeds of which will be used to pay for the purchase of Senior Secured Notes tendered pursuant to the Offer to Purchase described above in the first recital); 258 EXHIBIT G Page 2 WHEREAS, it is a condition precedent to the extensions of credit pursuant to the Credit Agreement that this Agreement shall have been entered into by the parties hereto; WHEREAS, the parties hereto desire to enter into this Agreement to satisfy the condition precedent referenced in the immediately preceding paragraph and to set forth their respective rights, obligations and responsibilities in connection with various collateral held by the Bailee pursuant to the Indenture Collateral Documents; NOW, THEREFORE, in consideration of the mutual benefits accruing hereunder and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: 1. DEFINITIONS As used above and in this Bailee Agreement, the following terms shall have the meanings ascribed to them below: "Administrative Agent" shall mean the Administrative Agent, under, and as defined in, the Credit Agreement (including its successors in such capacity). "Agreements" shall mean, collectively, the CSFB Agreements, the Senior Secured Notes, the Indenture and the Indenture Collateral Documents. "Bailee" shall have the meaning provided in the first paragraph of this Bailee Agreement. "Bailee Agreement" shall have the meaning provided in the first paragraph hereof. "Borrowers" shall mean any entity at any time which is a Borrower under, and as defined in, the Credit Agreement, as then in effect. "Collateral Agent" shall mean the Collateral Agent under, and as defined in, the Credit Agreement and the various other Credit Documents, including any successor thereto. "Credit Agreement" shall mean the Credit Agreement, dated of even date herewith, among the U.S. Borrower, Bally Wulff Vertriebs GmbH, Bally Wulff 259 EXHIBIT G Page 3 Automaten GmbH, various Lenders party thereto from time to time, and CSFB as Administrative Agent, as such agreement may be amended (including any amendment, restatement or restructuring thereof), supplemented or otherwise modified or replaced from time to time, including any agreement extending the maturity of, refunding, refinancing, increasing the amount available under or replacing such agreement or document or any successor or replacement agreement or document and whether by the same or any other agent, lender or group of lenders. "Credit Documents" shall mean that term as defined in the Credit Agreement. "Creditors" shall mean, collectively, CSFB (including in its capacity as Administrative Agent and Collateral Agent for the various Secured Creditors from time to time) and the Trustee (including in its capacity as the Trustee for the holders of the Senior Secured Notes) and their respective successors and assigns. "CSFB" shall mean Credit Suisse First Boston and its successors and assigns, acting in its capacity as Administrative Agent and Collateral Agent under the Credit Agreement and for the benefit of the Lenders and the other Secured Creditors. "CSFB Agreements" shall mean, collectively, (a) the Credit Agreement, (b) each Interest Rate Agreement or Other Hedging Agreement (each as defined in the Credit Agreement) at any time secured pursuant to the Credit Agreement or the related Credit Documents and (c) each guaranty, security agreement, pledge agreement, mortgage or other Security Document (as defined in the Credit Agreement) or Credit Document from time to time entered into pursuant to, or in connection with, the Credit Agreement or the Interest Rate Agreements or Other Hedging Agreements referenced in preceding clause (b). "Existing Indenture Collateral" shall mean all Indenture Collateral as same exists on the date of this Bailee Agreement (after giving effect to the execution and delivery of the First Supplemental Indenture), as well as all other Indenture Collateral required to be delivered pursuant to the Existing Indenture Collateral Documents in accordance with the terms thereof as in effect on the date of this Bailee Agreement (after giving effect to the execution and delivery of the First Supplemental Indenture), and any proceeds thereof constituting collateral pursuant to said Existing Indenture Collateral Documents as in effect on the date of this Bailee Agreement. "Existing Indenture Collateral Documents" shall mean all Indenture Collateral Documents in effect on the date hereof (after giving effect to the execution 260 EXHIBIT G Page 4 and delivery of the First Supplemental Indenture), which agreements consist of (i) a Pledge Agreement, dated as of June 18, 1996, among Alliance Gaming Corporation, various of its Subsidiaries and the Trustee and (ii) the Pledge and Security Agreement dated as of June 18, 1996, among Alliance Gaming Corporation, various of its Subsidiaries and the Trustee, in each case after giving effect to all amendments or modifications thereto effected on or prior to the date hereof (including pursuant to the First Supplemental Indenture). "First Supplemental Indenture" shall mean the First Supplemental Indenture, dated as of August 8, 1997, supplementing the Indenture and the Existing Indenture Collateral Documents. "Indenture" shall mean the Indenture, dated as of June 18, 1996, among U.S. Borrower the Guarantors referred to therein and the Trustee, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. "Indenture Documents" shall mean, collectively, the Senior Secured Notes, the Indenture and the Indenture Collateral Documents. "Indenture Collateral" shall mean all stock, promissory notes, cash, investments, proceeds thereof and any other collateral whatsoever at any time delivered to the Trustee (or any agent or sub-agent upon its behalf) pursuant to the Indenture or any of the Indenture Collateral Documents. "Indenture Collateral Documents" shall mean all pledge or security agreements, and any other agreement securing, the Senior Secured Notes or any obligations owing pursuant to the Indenture, whether now in existence or at any time entered into, including, without limitation all Collateral Agreements as defined in the Indenture as in effect on the date hereof. "Lenders" shall mean each lender from time to time party to the Credit Agreement. "Obligations" shall mean all obligations, liabilities and indebtedness of every kind, nature and description owing by the U.S. Borrower or any of its Subsidiaries (including each Borrower) to the Creditors, the Secured Creditors or the holders of Senior Secured Notes (and as to CSFB, the Lenders and participants under the Credit Agreement and the other Secured Creditors), including principal, reimbursement obligations, interest, charges, fees, premiums, indemnities and expenses, however evidenced, 261 EXHIBIT G Page 5 whether as principal, surety, endorser, guarantor or otherwise, whether arising under the CSFB Agreements, the Indenture Documents or by operation of law, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the CSFB Agreements or Indenture Documents or after the commencement of any case with respect to the U.S. Borrower or any of its Subsidiaries under the U.S. Bankruptcy Code or any similar statute, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, original, renewed or extended, and shall also include all amounts chargeable to the U.S. Borrower or any of its Subsidiaries under the CSFB Agreements or Indenture Documents, as the case may be, or in connection with any of the foregoing. "Secured Creditors" shall mean each Lender and each other person or entity which constitutes a creditor secured pursuant to any of the Credit Documents or defined as a "Secured Creditor" pursuant to the Credit Agreement. "Senior Secured Notes" shall mean, individually and collectively, the 12-7/8% Senior Secured Notes due 2003 issued by U.S. Borrower pursuant to the Indenture, as the same now exist or may hereafter be amended, modified or supplemented from time to time. "Subsidiary" shall have the meaning provided in the Indenture, as in effect on the date of this Bailee Agreement. "Trustee" shall mean United States Trust Company of New York, acting in its capacity as Trustee on behalf of the holders of the Senior Secured Notes pursuant to the Indenture, and its successors and assigns (and including, without limitation, any successor, assignee or additional person at any time acting as Trustee for the benefit of the holders of the Senior Secured Notes). "U.S. Borrower" shall mean Alliance Gaming Corporation, a Nevada corporation, and its successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession on behalf of the U.S. Borrower or on behalf of any such successor or assign. All terms used herein which are defined in the Uniform Commercial Code, unless otherwise defined herein, shall have the meanings set forth therein. All references to any term in the plural shall include the singular and all references to any term in the singular shall include the plural. 262 EXHIBIT G Page 6 2. NOTICE OF SECURITY INTERESTS; ETC. 2.1 Notice. Notice is hereby given to the Bailee that security interests in all Indenture Collateral (including without limitation all Existing Indenture Collateral in the possession of the Bailee) have been granted pursuant to the Credit Documents to secure all Obligations owing to the Secured Creditors. Such security interests have been created in favor of the Collateral Agent for the benefit of the Secured Creditors, and apply to all Indenture Collateral now or hereafter in the Bailee's possession, including, without limitation, all certificated securities, letters of credit, advices of credit, goods and instruments now or at any time hereafter in the Bailee's possession. The notice given pursuant to this paragraph is intended by the parties hereto to perfect the Collateral Agent's (on behalf of the Secured Creditors) security interests in all Indenture Collateral now or at any time hereafter in your possession. Such notice is given for purposes of all applicable law (including without limitation the provisions of Sections 9-305 and 8-313 of the Uniform Commercial Code as in effect in the States of New York and Nevada). 2.2 Bailee Representations. For the benefit of the Secured Creditors, the Bailee hereby represents that (x) Annex I hereto constitutes a true and correct list, as of the date hereof, of all Existing Indenture Collateral in its possession and (y) Annex II hereto is a true and correct list of each (or any) agent, sub-agent, sub-collateral agent, custodian, bailee or other Person, as of the date hereof, holding any Existing Indenture Collateral for, or at the direction of, the Bailee, together with a true and correct list as of the date hereof of all Existing Indenture Collateral held by such agent, sub-agent, sub-collateral agent, custodian, bailee or other Person. 2.3 Successor Bailee; Resignation of Bailee. (a) If the Bailee at any time resigns as a holder of Indenture Collateral, it shall (contemporaneously with the effectiveness of such resignation) use reasonable efforts to cause any successor to it as holder of Indenture Collateral (if any) to execute a Bailee Agreement in substantially the form of this Bailee Agreement. 3. DELIVERY OF INDENTURE COLLATERAL TO CSFB. 3.1 Delivery of Collateral. (a) If at any time any Indenture Collateral held by the Bailee or any of its agents or sub-agent is, in accordance with the requirements of the respective Indenture Collateral Document, to be delivered to the U.S. Borrower or any of its Subsidiaries (including without limitation as a result of any covenant defeasance effected in accordance with the requirements of the Indenture), the Bailee shall instead directly deliver such Indenture Collateral to CSFB to be held by it 263 EXHIBIT G Page 7 pursuant to the Credit Documents (or released by it in accordance with the terms thereof if same is not required to be held pursuant thereto). (b) If at any time an Event of Default under, and as defined in, the Indenture occurs and the Bailee (or the Trustee) takes remedial action, or otherwise obtains proceeds from, the Indenture Collateral, any Indenture Collateral (or proceeds thereof) which remains after the satisfaction in full of all Obligations of, and claims of, the holders of the Senior Secured Notes (and of the Trustee and any Bailee) will be delivered to CSFB. (c) By their execution and delivery of a copy of this Agreement, each of the U.S. Borrower and each of its Subsidiaries party hereto hereby authorizes and directs the Bailee to deliver Indenture Collateral to CSFB in accordance with the provisions of preceding clauses (a) and (b). 4. MISCELLANEOUS 4.1 Successors and Assigns. (a) This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of each of Creditors (and the Secured Creditors) and their respective successors, participants and assigns. (b) In connection with any assignment or transfer of any or all of the obligations owed to either Creditor or any or all rights of either of the Creditors in the Indenture Collateral (other than pursuant to a participation), the Bailee, the U.S Borrower and each of the Creditors agrees to execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any such assignee or transferee and, in addition, upon CSFB's request, will execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any third person who succeeds to or replaces a material portion of the financing pursuant to the CSFB Agreements, whether such successor financing or replacement occurs by transfer, assignment, "takeout" or any other means or vehicle. 4.2 Notices. All notices, requests and demands to or upon the respec- tive parties hereto shall be in writing and shall be deemed duly given, made or received: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if mailed by certified mail, return receipt requested, five (5) days after mailing to the parties at their addresses set forth 264 EXHIBIT G Page 8 below (or to such other addresses as the parties may designate in accordance with the provisions of this Section): To CSFB: Credit Suisse First Boston Eleven Madison Avenue New York, New York 10010 Attention: Ed Barr Telephone No.: (212) 325-9151 Telecopier No.: (212) 325-8309 To the Bailee: United States Trust Company of New York 114 West 47th Street New York, New York 10036-153 Attention: Corporate Trust and Agency Division Telephone No.: (212) 852-1000 Telecopier No.: (212) 852-1626 To the U.S. Borrower: Alliance Gaming Corporation 6601 South Bermuda Road Las Vegas, Nevada 89119 Telephone No.: (702) 896-7700 Telecopier No.: (702) 263-5636 Attention: Scott Schweinfurth Any Creditor may change the address(es) to which all notices, requests and other communications are to be sent by giving written notice of such address change to the other Creditor in conformity with this Section 6.2, but such change shall not be effective until notice of such change has been received by the other Creditor. 265 EXHIBIT G Page 9 4.3 Counterparts. This Bailee Agreement may be executed in any number of counterparts, each of which shall be an original with the same force and effect as if the signatures thereto and hereto were upon the same instrument. 4.4 Governing Law. The validity, construction and effect to this Agreement shall be governed by the laws of the State of New York (without regard to principles of conflict of laws). 4.5 Compensation. The Bailee shall not be entitled to any independent compensation for its actions as Bailee hereunder; provided that the U.S. Borrower agrees to promptly reimburse the Bailee for any fees and expenses incurred by it hereunder (including, without limitation, reasonable fees and expenses of legal counsel). Furthermore, the U.S. Borrower shall indemnify the Bailee, to the same extent as it is obligated to indemnify the Trustee pursuant to Section 8.7 of the Indenture, for any actions taken by it as Bailee pursuant to this Bailee Agreement, which indemnification obligations shall be fully secured by the Indenture Collateral. 4.6 No Third Parties Benefitted. Except as expressly provided in Section 6.1, this Agreement is solely for the benefit of Bailee, the Creditors (and the Secured Creditors) and the U.S. Borrower, its Subsidiaries party hereto and their respective successors, participants and assigns, and no other person shall have any right, benefit, priority or interest under, or because of the existence of, this Bailee Agreement. 4.7 Applicable Gaming Laws. The parties hereto agree that the provisions of this Agreement are subject to all Applicable Gaming Regulations (as defined in the Credit Agreement) and all Gaming Regulations (as defined in the Indenture). Furthermore, to the extent that at any time any Indenture Collateral is not pledged to secure the Obligations owing pursuant to the Credit Agreement (in the circumstances contemplated by Section 13.18 of the Credit Agreement or otherwise), then this Bailee Agreement shall not create or be deemed to create a security interest in such Indenture Collateral. 4.8 Term. This Bailee Agreement is a continuing agreement and shall remain in full force and effect until the satisfaction in full of all Obligations owing to the holders of the Senior Secured Notes and the Trustee, if any, and the transfer by the Bailee of all Indenture Collateral then held by it to CSFB in accordance with the requirements of this Bailee Agreement. 266 IN WITNESS WHEREOF, the parties have caused this Bailee Agreement to be duly executed as of the day and year first above written. UNITED STATES TRUST COMPANY OF NEW YORK By:/s/ John Guiliano ------------------------------- Title: Vice President CREDIT SUISSE FIRST BOSTON, as Administrative Agent and as Collateral Agent By:/s/ Sean S. Bernard ------------------------------- Title: Assistant Vice President By:/s/ Edward Barr ------------------------------- Title: Associate 267 Each of the undersigned hereby acknowledges and agrees to the foregoing terms and provisions. By its signature below, each of the undersigned agrees that it will, together with its successors and assigns, be bound by the provisions of the foregoing Bailee Agreement. Each of the undersigned acknowledges and agrees that it will execute and deliver such additional documents and take such additional action as may be reasonably requested by either of Creditors to effectuate the provisions and purposes of the foregoing Bailee Agreement. ALLIANCE GAMING CORPORATION By: /s/ Scott Schweinfurth -------------------------- Title: Senior Vice President, CFO and Treasurer ALLIANCE HOLDING COMPANY, By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer APT GAMES, INC., By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer 268 UNITED COIN MACHINE CO. By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer PLANTATION INVESTMENTS, INC. By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer FOREIGN GAMING VENTURES, INC. By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer LOUISIANA VENTURES, INC. By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer 269 UNITED GAMING RAINBOW By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer NATIVE AMERICAN INVESTMENT, INC. By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer BALLY GAMING INTERNATIONAL, INC. By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer BALLY GAMING, INC. By: /s/ Scott Schweinfurth -------------------------- Title: Treasurer 270 EXHIBIT H-1 271 EXHIBIT H-1 [CONFORMED AS EXECUTED] U.S. SUBSIDIARIES GUARANTY GUARANTY, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, this "Guaranty"), made by each of the undersigned (each a "Guarantor", and together with any other entity that becomes a party hereto pursuant to Section 25 hereof, the "Guarantors"). Except as otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH (each a "Borrower, and collectively, the "Borrowers"), various lenders from time to time party thereto (the "Lenders"), and Credit Suisse First Boston, as Administrative Agent (together with any successor agent, the "Administrative Agent", and together with the Lenders and the Collateral Agent are herein called the "Lender Creditors"), have entered into a Credit Agreement, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans and the issuance of, and participation in, Letters of Credit, as contemplated therein; WHEREAS, each Borrower and/or one or more of its Subsidiaries may at any time and from time to time enter into one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or any affiliate thereof (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, if any, collectively, the "Other Creditors," and together with the Lender Creditors, are herein called the "Creditors"); WHEREAS, each Guarantor is a direct or indirect Subsidiary of the U.S. Borrower; 272 EXHIBIT H-1 Page 2 WHEREAS, it is a condition precedent to the making of Loans and the issuance of Letters of Credit under the Credit Agreement that each Guarantor shall have executed and delivered this Guaranty; and WHEREAS, each Guarantor will obtain benefits from the incurrence of Loans and the issuance of Letters of Credit under the Credit Agreement and the entering into of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, desires to execute this Guaranty in order to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Guarantor, the receipt and sufficiency of which are hereby acknowledged, each Guarantor hereby makes the following representations and warranties to the Creditors and hereby covenants and agrees with each Creditor as follows: 1. Each Guarantor, jointly and severally, unconditionally and irrevocably guarantees: (i) to the Lender Creditors the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of (x) the principal of and interest on the Notes issued by, and the Loans made to, each Borrower under the Credit Agreement, and all reimbursement obligations and Unpaid Drawings with respect to Letters of Credit issued under the Credit Agreement and (y) all other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing by any Borrower to the Lender Creditors under the Credit Agreement or any other Credit Document to which such Borrower is a party (including, without limitation, indemnities, Fees and interest thereon), whether now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement or any such other Credit Document and the due performance and compliance with all of the terms, conditions and agreements contained in such Credit Documents by any Borrower (all such principal, interest, liabilities and obligations being herein collectively called the "Credit Document Obligations"); and (ii) to each Other Creditor the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing by the U.S. Borrower or any Subsidiary of the U.S. Borrower (each such Subsidiary, together with the U.S. Borrower, are herein called the "Credit Parties") under any Interest Rate Protection Agreement or Other Hedging Agreement, whether now in existence or hereafter arising, and the due performance and compliance by each Credit Party with all of the terms, conditions and agreements contained in the Interest Rate Protection Agreements or Other Hedging Agreements (all such obligations and liabilities being herein collectively called the "Other Obligations," and together with the Credit Document Obligations are herein collectively called the 273 EXHIBIT H-1 Page 3 "Guaranteed Obligations"). Each Guarantor understands, agrees and confirms that the Creditors may enforce this Guaranty up to the full amount of the Guaranteed Obligations against each Guarantor without proceeding against any other Guarantor, any other Credit Party, against any security for the Guaranteed Obligations, or under any other guaranty covering all or a portion of the Guaranteed Obligations. For purposes of this Section 1, the term "Guarantor" as applied to any Guarantor shall refer to such Guarantor as a guarantor of indebtedness incurred by others, as opposed to indebtedness directly incurred by it. 2. Additionally, each Guarantor, jointly and severally, unconditionally and irrevocably, guarantees the payment of any and all Guaranteed Obligations of any Credit Party to the Creditors whether or not due or payable by the Credit Parties upon the occurrence in respect of such Credit Party of any of the events specified in Section 10.05 of the Credit Agreement, and unconditionally and irrevocably, jointly and severally, promises to pay such Guaranteed Obligations to the Creditors, or order, on demand. 3. Each Guarantor agrees that all payments made by it with respect to any Guaranteed Obligations pursuant to this Guaranty shall be made in the respective currency in which the underlying Guaranteed Obligations are denominated or payable, as the case may be. This Guaranty shall constitute a guaranty of payment, and not of collection. 4. The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the indebtedness of any Credit Party whether executed by such Guarantor, any other Guarantor, any other guarantor or by any other party, and the liability of each Guarantor hereunder shall not be affected or impaired by any circumstance or occurrence whatsoever, including, without limitation: (a) any direction as to application of payment by any Credit Party or by any other party, (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the indebtedness of any Credit Party, (c) any payment on or in reduction of any such other guaranty or undertaking, (d) any dissolution, termination or increase, decrease or change in personnel by any Credit Party, (e) any payment made to any Creditor on the indebtedness which any Creditor repays to any Credit Party pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding, (f) any action or inaction by the Creditors as contemplated in Section 7 hereof, or (g) any invalidity, irregularity or unenforceability of all or part of the Guaranteed Obligations or of any security therefor. 5. The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor, any other guarantor or any Credit Party, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not 274 EXHIBIT H-1 Page 4 action is brought against any other Guarantor, any other guarantor of any Credit Party or any Credit Party and whether or not any other Guarantor, any other guarantor of any Credit Party or any Credit Party be joined in any such action or actions. Each Guarantor waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by any Credit Party or other circumstance which operates to toll any statute of limitations as to such Credit Party shall operate to toll the statute of limitations as to each Guarantor. 6. Each Guarantor hereby waives notice of acceptance of this Guaranty and notice of any liability to which it may apply, and waives promptness, diligence, presentment, demand of payment, protest, notice of dishonor or nonpayment of any such liabilities, suit or taking of other action by the Administrative Agent or any other Creditor against, and any other notice to, any party liable thereon (including such Guarantor, any other guarantor of any Credit Party or any Credit Party). 7. Any Creditor may at any time and from time to time without the consent of, or notice to, any Guarantor, without incurring responsibility to such Guarantor, without impairing or releasing the obligations of such Guarantor hereunder, upon or without any terms or conditions and in whole or in part: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew or alter, any of the Guaranteed Obligations, any security therefor, or any liability incurred directly or indirectly in respect thereof, and the guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; (b) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; (c) exercise or refrain from exercising any rights against any Credit Party or others or otherwise act or refrain from acting; (d) release or substitute any one or more endorsers, guarantors, any Credit Party or other obligors; (e) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all 275 EXHIBIT H-1 Page 5 or any part thereof to the payment of any liability (whether due or not) of any Credit Party to creditors of such Credit Party other than the Creditors; (f) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of any Credit Party to the Creditors regardless of what liabilities of such Credit Party remain unpaid; (g) consent to or waive any breach of, or any act, omission or default under, any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Credit Documents or any of the instruments or agreements referred to therein, or otherwise amend, modify or supplement any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Credit Documents or any of such other instruments or agreements; and/or (h) act or fail to act in any manner referred to in this Guaranty which may deprive such Guarantor of its right to subrogation against any Credit Party to recover full indemnity for any payments made pursuant to this Guaranty. 8. No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations or of any security therefor shall affect, impair or be a defense to this Guaranty, and this Guaranty shall be primary, absolute and unconditional notwithstanding the occurrence of any event or the existence of any other circumstances which might constitute a legal or equitable discharge of a surety or guarantor except payment in full of the Guaranteed Obligations. 9. This Guaranty is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. No failure or delay on the part of any Creditor in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly specified are cumulative and not exclusive of any rights or remedies which any Creditor would otherwise have. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Creditor to any other or further action in any circumstances without notice or demand. It is not necessary for any Creditor to inquire into the capacity or powers of any Credit Party or the officers, directors, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 276 EXHIBIT H-1 Page 6 10. Any indebtedness of any Credit Party now or hereafter held by any Guarantor is hereby subordinated to the indebtedness of such Credit Party to the Creditors; and such indebtedness of such Credit Party to any Guarantor, if the Administrative Agent, after an Event of Default has occurred and is continuing, so requests, shall be collected, enforced and received by such Guarantor as trustee for the Creditors and be paid over to the Creditors on account of the indebtedness of such Credit Party to the Creditors, but without affecting or impairing in any manner the liability of such Guarantor under the other provisions of this Guaranty. Prior to the transfer by any Guarantor of any note or negotiable instrument evidencing any indebtedness of any Credit Party to such Guarantor, such Guarantor shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. Without limiting the generality of the foregoing, each guarantor hereby agrees with the Creditors that it will not exercise any right of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed Obligations have been irrevocably paid in full. 11. (a) Each Guarantor waives any right (except as shall be required by applicable statute and cannot be waived) to require the Creditors to: (i) proceed against any Credit Party, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party; (ii) proceed against or exhaust any security held from any Credit Party, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party; or (iii) pursue any other remedy in the Creditors' power whatsoever. Each Guarantor waives any defense based on or arising out of any defense of any Credit Party, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party other than payment in full of the Guaranteed Obligations, including, without limitation, any defense based on or arising out of the disability of such Credit Party, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party, or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of such Credit Party other than payment in full of the Guaranteed Obligations. The Creditors may, at their election, foreclose on any security held by the Administrative Agent, the Collateral Agent or the other Creditors by one or more judicial or nonjudicial sales (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Creditors may have against any Credit Party or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Guaranteed Obligations have been paid in full. Each Guarantor waives any defense arising out of any such election by the Creditors, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against any Credit Party or any other party or any security. 277 EXHIBIT H-1 Page 7 (b) Each Guarantor waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. Each Guarantor assumes all responsibility for being and keeping itself informed of each Credit Party's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that the Creditors shall have no duty to advise any Guarantor of information known to them regarding such circumstances or risks. 12. In order to induce the Lenders to make Loans and issue Letters of Credit pursuant to the Credit Agreement, and in order to induce the Other Creditors to execute, deliver and perform the Interest Rate Protection Agreements or Other Hedging Agreements, each Guarantor represents, warrants and covenants that: (a) Such Guarantor (i) is a duly organized and validly existing corporation partnership, or limited liability company in good standing under the laws of the jurisdiction of its organization, (ii) has the requisite corporate, partnership, or limited liability company power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified, except where the failure to be so qualified could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the U.S. Borrower and its Subsidiaries taken as a whole. (b) Such Guarantor has the requisite corporate, partnership, or limited liability company power and authority to execute, deliver and carry out the terms and provisions of this Guaranty and each other Credit Document to which it is a party and has taken all necessary corporate, partnership, or limited liability company action to authorize the execution, delivery and performance by it of each such Credit Document. Such Guarantor has duly executed and delivered this Guaranty and each other Credit Document to which it is a party and each such Credit Document constitutes the legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except to the extent that the enforceability hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law). 278 EXHIBIT H-1 Page 8 (c) Neither the execution, delivery or performance by such Guarantor of this Guaranty or any other Credit Document to which it is a party, nor compliance by it with the terms and provisions hereof and thereof (i) will contravene any applicable provision of any law, statute, rule or regulation, or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under or (other than pursuant to the Security Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such Guarantor or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, credit agreement or other material agreement or other instrument to which such Guarantor is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the certificate of incorporation or by-laws (or equivalent organizational documents) of such Guarantor. (d) Except as specifically described in Schedule X to the Credit Agreement, no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of this Guaranty or any other Credit Document to which such Guarantor is a party or (ii) the legality, validity, binding effect or enforceability of this Guaranty or any other Credit Document to which such Guarantor is a party. (e) There are no actions, suits or proceedings pending or threatened (i) with respect to this Guaranty or (ii) with respect to such Guarantor that could reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the U.S. Borrower and its Subsidiaries taken as a whole. 13. Each Guarantor covenants and agrees that on and after the date hereof and until the termination of the Total Commitments and all Interest Rate Protection Agreements or Other Hedging Agreements and when no Note or Letter of Credit remains outstanding and all Guaranteed Obligations have been paid in full, such Guarantor shall take, or will refrain from taking, as the case may be, all actions that are necessary to be taken or not taken so that no violation of any provision, covenant or agreement contained in Section 8 or 9 of the Credit Agreement, and so that no Default or Event of Default, is caused by the actions of such Guarantor or any of its Subsidiaries. 279 EXHIBIT H-1 Page 9 14. The Guarantors hereby jointly and severally agree to pay all reasonable out-of-pocket costs and expenses of each Creditor in connection with the enforcement of this Guaranty and any amendment, waiver or consent relating hereto (including, without limitation, the reasonable fees and disbursements of counsel (including in-house counsel) employed by any of the Creditors). 15. This Guaranty shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the Creditors and their successors and assigns. 16. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated except with the written consent of each Guarantor directly affected thereby and with the written consent of either (x) the Required Lenders (or to the extent required by Section 13.12 of the Credit Agreement, with the written consent of each Lender) at all times prior to the time at which the Total Commitments have terminated and all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time at which the Total Commitments have terminated and all Credit Document Obligations have been paid in full; provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Creditors (and not all Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class of Creditors (it being understood that the addition or release of any Guarantor hereunder shall not constitute a change, waiver, discharge or termination affecting any Guarantor other than the Guarantor so added or released). For the purpose of this Guaranty the term "Class" shall mean each class of Creditors, i.e., whether (x) the Lender Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Guaranty, the term "Requisite Creditors" of any Class shall mean (x) with respect to the Credit Document Obligations, the Required Lenders and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 17. Each Guarantor acknowledges that an executed (or conformed) copy of each of the Credit Documents, as same exist on the Initial Borrowing Date, have been made available to its principal executive officers and such officers are familiar with the contents thereof. 18. In addition to any rights now or hereafter granted under applicable law (including, without limitation, Section 151 of the New York Debtor and Creditor Law) and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (such term to mean and include any "Event of Default" as defined in the Credit Agreement or any payment default under any Interest Rate Protection Agree- 280 EXHIBIT H-1 Page 10 ment or Other Hedging Agreement continuing after any applicable grace period), each Creditor is hereby authorized at any time or from time to time, without notice to any Guarantor or to any other Person, any such notice being expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Creditor to or for the credit or the account of such Guarantor, against and on account of the obligations and liabilities of such Guarantor to such Creditor under this Guaranty, irrespective of whether or not such Creditor shall have made any demand hereunder and although said obligations, liabilities, deposits or claims, or any of them, shall be contingent or unmatured. 19. All notices, requests, demands or other communications pursuant hereto shall be deemed to have been duly given or made when delivered to the Person to which such notice, request, demand or other communication is required or permitted to be given or made under this Guaranty, addressed to such party at (i) in the case of any Lender Creditor, as provided in the Credit Agreement, (ii) in the case of any Guarantor, at 6601 South Bermuda Road, Las Vegas, Nevada 89119, Attention: Scott Schweinfurth, Telephone No.: (702) 896-7700, Telecopier No.: (702) 263-5636 and (iii) in the case of any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Guarantors; or in any case at such other address as any of the Persons listed above may hereafter notify the others in writing. 20. If claim is ever made upon any Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including any Credit Party), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon such Guarantor, notwithstanding any revocation hereof or other instrument evidencing any liability of any Credit Party, and such Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. 21. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). Any legal action or proceeding with respect to this Guaranty or any other Credit Document to which such Guarantor is a party may be brought in the courts of the State of New York or of the United States of America for the Southern District of New 281 EXHIBIT H-1 Page 11 York, and, by execution and delivery of this Guaranty, each Guarantor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby further irrevocably waives any claim that any such courts lack jurisdiction over such Guarantor, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or any other Credit Document brought in any of the aforesaid courts, that any such court lacks jurisdiction over such Guarantor. Each Guarantor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Guarantor at its address set forth opposite its signature below, such service to become effective 30 days after such mailing. Each Guarantor hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other Credit Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of any of the Creditors to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against each Guarantor in any other jurisdiction. (B) Each Guarantor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Guaranty or any other Credit Document to which such Guarantor is a party brought in the courts referred to in clause (A) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that such action or proceeding brought in any such court has been brought in an inconvenient forum. (C) EACH GUARANTOR AND EACH CREDITOR (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS GUARANTY) HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE OTHER CREDIT DOCUMENTS TO WHICH SUCH GUARANTOR IS A PARTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 22. In the event that all of the capital stock of one or more Guarantors is sold or otherwise disposed of (but not to the U.S. Borrower or a Subsidiary thereof) or liquidated in compliance with the requirements of Section 9.02 of the Credit Agreement (or such sale or other disposition has been approved in writing by the Required Lenders (or all Lenders if required by Section 13.12 of the Credit Agreement)) and the proceeds of such sale, disposition or liquidation are applied in accordance with the provisions of the Credit Agreement, to the extent applicable, such Guarantor shall (so long as such Guarantor is contemporaneously released from any guaranty by it of the New Senior Subordinated Notes) 282 EXHIBIT H-1 Page 12 be released from this Guaranty and this Guaranty shall, as to each such Guarantor or Guarantors, terminate, and have no further force or effect (it being understood and agreed that the sale of one or more Persons (but not to the U.S. Borrower or a Subsidiary thereof) that own, directly or indirectly, all of the capital stock or partnership or limited liability company interests of any Guarantor shall be deemed to be a sale of such Guarantor for the purposes of this Section 22). 23. This Guaranty may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Guarantors and the Administrative Agent. 24. All payments made by any Guarantor hereunder will be made without setoff, counterclaim or other defense and on the same basis as payments made by the Borrowers pursuant to Sections 4.03 and 4.04 of the Credit Agreement. 25. It is understood and agreed that any Subsidiary of the U.S. Borrower that is required to execute a counterpart of this Guaranty pursuant to the Credit Agreement shall automatically become a Guarantor hereunder by executing a counterpart hereof and delivering the same to the Administrative Agent. 26. At any time a payment in respect of the Guaranteed Obligations is made under this Guaranty, the right of contribution of each Guarantor against each other Guarantor shall be determined as provided in the immediately following sentence, with the right of contribution of each Guarantor to be revised and restated as of each date on which a payment (a "Relevant Payment") is made on the Guaranteed Obligations under this Guaranty. At any time that a Relevant Payment is made by a Guarantor that results in the aggregate payments made by such Guarantor in respect of the Guaranteed Obligations to and including the date of the Relevant Payment exceeding such Guarantor's Contribution Percentage (as defined below) of the aggregate payments made by all Guarantors in respect of the Guaranteed Obligations to and including the date of the Relevant Payment (such excess, the "Aggregate Excess Amount"), each such Guarantor shall have a right of contribution against each other Guarantor who has made payments in respect of the Guaranteed Obligations to and including the date of the Relevant Payment in an aggregate amount less than such other Guarantor's Contribution Percentage of the aggregate payments made to and including the date of the Relevant Payment by all Guarantors in respect of the Guaranteed Obligations (the aggregate amount of such deficit, the "Aggregate Deficit Amount") in an amount equal to (x) a fraction the numerator of which is the Aggregate Excess Amount of such Guarantor and the denominator of which is the Aggregate Excess Amount of all Guarantors multiplied by (y) the Aggregate Deficit Amount of such other 283 EXHIBIT H-1 Page 13 Guarantor. A Guarantor's right of contribution pursuant to the preceding sentences shall arise at the time of each computation, subject to adjustment to the time of any subsequent computation; provided, that no Guarantor may take any action to enforce such right until the Guaranteed Obligations have been paid in full and the Total Commitment and all Letters of Credit have been terminated, it being expressly recognized and agreed by all parties hereto that any Guarantor's right of contribution arising pursuant to this Section 26 against any other Guarantor shall be expressly junior and subordinate to such other Guarantor's obligations and liabilities in respect of the Guaranteed Obligations and any other obligations owing under this Guaranty. As used in this Section 26: (i) each Guarantor's "Contribution Percentage" shall mean the percentage obtained by dividing (x) the Adjusted Net Worth (as defined below) of such Guarantor by (y) the aggregate Adjusted Net Worth of all Guarantors; (ii) the "Adjusted Net Worth" of each Guarantor shall mean the greater of (x) the Net Worth (as defined below) of such Guarantor and (y) zero; and (iii) the "Net Worth" of each Guarantor shall mean the amount by which the fair salable value of such Guarantor's assets on the date of any Relevant Payment exceeds its existing debts and other liabilities (including contingent liabilities, but without giving effect to any Guaranteed Obligations arising under this Guaranty) on such date. All parties hereto recognize and agree that, except for any right of contribution arising pursuant to this Section 26, each Guarantor who makes any payment in respect of the Guaranteed Obligations shall have no right of contribution or subrogation against any other Guarantor in respect of such payment. Each of the Guarantors recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution. In this connection, each Guarantor has the right to waive its contribution right against any Guarantor to the extent that after giving effect to such waiver such Guarantor would remain solvent, in the determination of the Required Lenders. 27. Each Creditor and each Guarantor hereby confirms that it is its intention that this Guaranty not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or any similar Federal or state law. To effectuate the foregoing intention, each Creditor and each Guarantor hereby irrevocably agrees that the Guaranteed Obligations guaranteed by each Guarantor shall be limited to such amount as will, after giving effect to such maximum amount and all of such Guarantor's other (contingent or otherwise) liabilities that are relevant under such laws, and after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among the Guarantors (including pursuant to Section 26 hereof), result in the Guaranteed Obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance. 28. (a) The Guarantors' obligations hereunder to make payments in the Applicable Currency (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency 284 EXHIBIT H-1 Page 14 other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the respective Creditor of the full amount of the Obligation Currency expressed to be payable to such Creditor under this Guaranty. If for the purpose of obtaining or enforcing judgment against any Guarantor in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made, at the Deutsche Mark Equivalent or the Dollar Equivalent thereof, as the case may be, and, in the case of other currencies the rate of exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as on the day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Guarantors covenant and agree to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment of judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. (c) For purposes of determining the Deutsche Mark Equivalent or the Dollar Equivalent or any other rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency. 29. Notwithstanding anything to the contrary contained elsewhere in this Guaranty, the parties hereto hereby agree that if at any time RCVP is a Guarantor (whether as an initial signatory hereto or as a result of its execution of a counterpart hereof as contemplated by Section 25 after the Initial Borrowing Date), then, and for so long as RCVP is not a Wholly-Owned Subsidiary of the U.S. Borrower, the obligations of RCVP pursuant to this Guaranty (including without limitation pursuant to Sections 1 and 2) shall be limited from time to time the maximum amount permitted to be guaranteed by it in accordance with the terms of the Second Amended and Restated Agreement of Limited Partnership, dated as of March 29, 1995 (the "RCVP Partnership Agreement") entered into by United Gaming Rainbow, as general partner, and The Rainbow Casino Corporation, as limited partner, as same is in effect from time to time; provided that the relevant restrictions which would apply to amounts guaranteed by RCVP shall not be made more restrictive (from the point of view of Creditors) than those as in effect on the Initial Borrowing Date. 285 IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed and delivered as of the date first above written. ALLIANCE HOLDING COMPANY, as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer APT GAMES, INC., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer UNITED COIN MACHINE CO., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer PLANTATION INVESTMENTS, INC., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer FOREIGN GAMING VENTURES, INC., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer 286 LOUISIANA VENTURES, INC., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer UNITED GAMING RAINBOW, as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer NATIVE AMERICAN INVESTMENT, INC., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer BALLY GAMING INTERNATIONAL, INC., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer BALLY GAMING, INC., as a Guarantor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer 287 Accepted and Agreed to: CREDIT SUISSE FIRST BOSTON, as Administrative Agent By /s/ Sean S. Bernard --------------------------------- Title: Assistant Vice President By /s/ Edward E. Barr --------------------------------- Title: Associate 288 EXHIBIT H-2 289 EXHIBIT H-2 [CONFORMED AS EXECUTED] GERMAN SUBSIDIARIES GUARANTY GUARANTY, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, the "Guaranty"), made by each of the undersigned (each a "Guarantor" and collectively, the "Guarantors"). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. WHEREAS, (i) Alliance Gaming Corporation, Las Vegas, USA (the "US-Borrower"), (ii) Bally Wulff Vertriebs GmbH, Hannover, Germany (hereinafter the "Bally Wulff Vertrieb"), (iii) Bally Wulff Automaten GmbH, Berlin, Germany (hereinafter the "Bally Wulff Automaten") (Bally Wulff Vertrieb and Bally Wulff Automaten the "German Borrowers", the plural form including the singular; the US-Borrower and the German Borrowers together the "Borrowers"), the financial institutions from time to time party thereto (the "Lenders") and Credit Suisse First Boston, as Administrative Agent (the "Agent," and together with the Lenders, the "Lender Creditors"), have entered into a credit agreement, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, the "Credit Agreement"); WHEREAS, in the Credit Agreement the Lender Creditors, among others, severally agreed to grant to the German Borrowers Revolving Loans of up to the amount of $55,000,000 (taking the Deutsche Mark Equivalent thereof) (the "Loans"); WHEREAS, the German Borrowers may enter into Interest Rate Protection Agreements and/or Hedging Agreements with one or all of the Lender Creditors or any affiliate thereof (hereinafter the "Other Creditors" and together with the Lender Creditors the "Creditors") (hereinafter the "Additional Agreements"). WHEREAS, it is a condition precedent to the making of the Loans and the issuance of, and participation in, German Letters of Credit under the Credit Agreement that each German Subsidiary Guarantor shall have executed and delivered this Guaranty in order to secure the obligations of the German Borrowers under the Credit Agreement and the Additional Agreements. 290 EXHIBIT H-2 Page 2 WHEREAS, each Guarantor will obtain benefits from the incurrence of the Loans by, and the issuance of German Letters of Credit to, the German Borrowers under the Credit Agreement and from the entering into Additional Agreements and, accordingly, desires to execute this Guaranty in order to satisfy the conditions described in the preceding paragraph and to induce the Lenders to make Loans to, and to issue and participate in German Letters of Credit for the account of the German Borrowers; NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Guarantor, the receipt and sufficiency of which are hereby acknowledged, each Guarantor hereby makes the following representations and warranties to the Creditors and hereby covenants and agrees with each Creditor as follows: Section 1 Guaranty 1. Each Guarantor, jointly and severally, irrevocably and unconditionally guarantees (i) to the Lender Creditors the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of (x) the principal of and interest on the Loans made to the German Borrowers under the Credit Agreement and all reimbursement obligations and Unpaid Drawings with respect to German Letters of Credit issued under the Credit Agreement, and (y) all other obligations and liabilities owing by any German Borrowers to the Lender Creditors under the Credit Agreement or an other Credit Document to which any German Borrower is a party (including, without limitation, indemnities, Fees and interest thereon) whether now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement or any other Credit Document and the due performance and compliance with all of the terms, conditions and agreements contained in such Credit Documents by any German Borrower (all such principal, interest, liabilities and obligations being herein collectively called the "Credit Document Obligations") and (ii) to each Other Creditor the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities owing by any German Borrower under any Additional Agreement, whether now in existence or hereafter arising and the due performance and compliance by any German Subsidiary with all of the terms, conditions and agreements contained in the Additional Agreements (all such obligations and liabilities being herein collectively called the "Other Obligations"). 291 EXHIBIT H-2 Page 3 2. In case the Credit Agreement should be void, each Guarantor, jointly and severally, irrevocably and unconditionally guarantees any obligation of the German Borrowers created by applicable law, including, but without limitation the repayment of Loans already paid out to the German Borrowers (those obligations together with the Credit Document Obligations and the Other Obligations the "Guaranteed Obligations"). 3. Each Guarantor, jointly and severally, unconditionally and irrevocably, guarantees any and all Guaranteed Obligations of the German Borrowers to the Creditors whether or not due or payable by the German Borrowers upon the occurrence in respect of the German Borrowers of any of the events specified in Section 10 of the Credit Agreement, and unconditionally and irrevocably, jointly and severally, promises to pay such Guaranteed Obligations to the Creditors, on demand, in lawful money of the Federal Republic of Germany. 4. Each Guarantor understands, agrees and confirms that the guaranties created hereunder are payable on demand and that the Creditors may enforce this Guaranty up to the full amount of the Guaranteed Obligations against each Guarantor without proceeding against any other Guarantor, one of the German Borrowers, against any security for the Guaranteed Obligations, or under any other guaranty covering all or a portion of the Guaranteed Obligations. All payments by each Guarantor under this Guaranty shall be made on the same basis as payments by the German Borrowers under Section 4 of the Credit Agreement. 5. The total amount collectable by the Creditors hereunder from those Guarantors which are subsidiaries of each German Subsidiary, (i) shall not exceed the total amount of free reserves plus profits carried forward of this company, and (ii) will meet the restrictions of SectionSection 30, 31 of the German Act on Limited Liability Companies. Section 2 Severability 1. The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the indebtedness of the German Borrowers whether executed by such Guarantor, any other Guarantor, any other guarantor of the German Borrowers or by any other party, and the liability of each 292 EXHIBIT H-2 Page 4 Guarantor hereunder shall not be affected or impaired by (a) any direction as to application of payment by the German Borrowers or by any other party, (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the indebtedness of the German Borrowers, (c) any payment on or in reduction of any such other guaranty or undertaking, (d) any dissolution, termination or increase, decrease or change in personnel by the German Borrowers or (e) any payment made to any Creditor on the indebtedness which any Creditor repays to the German Borrowers pursuant to a court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding and each Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. 2. The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor, any other guarantor of the German Borrowers or the German Borrowers, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor, any other guarantor of the German Borrowers or the German Borrowers and whether or not any other Guarantor, any other guarantor of the German Borrowers or the German Borrowers be joined in any such action or actions. Section 3 Waiver Each Guarantor hereby waives notice of acceptance of this Guaranty and notice of any liability to which it may apply, and waives promptness, diligence, presentment, demand of payment, protest, notice of dishonor or nonpayment of any such liabilities, suit or taking of other action by the Agent or any other Creditor against, and any other notice to, any party liable thereon (including such Guarantor or any other guarantor of the German Borrowers). Section 4 Amendments to Guaranteed Obligations; Independence of Guaranteed Obligations 293 EXHIBIT H-2 Page 5 1. Any Creditor may at any time and from time to time without the consent of, or notice to, any Guarantor, without incurring responsibility to such Guarantor, without impairing or releasing the obligations of such Guarantor hereunder, upon or without any terms or conditions and in whole or in part: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew or alter, any of the Guaranteed Obligations, any security therefor, or any liability incurred directly or indirectly in respect thereof, and the guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; (b) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; (c) exercise or refrain from exercising any rights against the German Borrowers, or others or otherwise act or refrain from acting; (d) release or substitute any one or more endorsers, guarantors, any German Borrower or other obligors; (e) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the German Subsidiaries to creditors of the German Subsidiaries; (f) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the German Subsidiaries to the Creditors regardless of what liabilities of the German Subsidiaries remain unpaid; (g) consent to or waive any breach of, or any act, omission or default under, any of the Additional Agreements, the Credit Documents or any of the instruments or agreements referred to therein, or otherwise amend, modify or supplement any of the Additional Agreements, Credit Documents or any of such other instruments or agreements; and/or 294 EXHIBIT H-2 Page 6 (h) act or fail to act in any manner referred to in this Guaranty which may deprive such Guarantor of its right to subrogation against any German Subsidiary to recover full indemnity for any payments made pursuant to this Guaranty. 2. No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations or of any security therefor shall affect, impair or be a defense to this Guaranty, and this Guaranty shall be primary, absolute and unconditional notwithstanding the occurrence of any event or the existence of any other circumstances which might constitute a discharge of a surety or guarantor of the German Borrowers except payment in full of the Guaranteed Obligations. 3. This Guaranty is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. No failure or delay on the part of any Creditor in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly specified are cumulative and not exclusive of any rights or remedies which any Creditor would otherwise have. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Creditor to any other or further action in any circumstances without notice or demand. It is not necessary for any Creditor to inquire into the capacity or powers of the German Borrowers or any of their respective Subsidiaries or the officers, directors, partners or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. Section 5 Subordination of Rank; Guaranty on Demand 1. Any indebtedness of any German Subsidiary now or hereafter held by any Guarantor is hereby subordinated to the indebtedness of such German Subsidiary to the Creditors; and such indebtedness of such German Subsidiary to any Guarantor, if the Agent, after an Event of Default has occurred, so requests, shall be collected, enforced and received by such Guarantor as trustee for the Creditors and be paid over 295 EXHIBIT H-2 Page 7 to the Creditors on account of the indebtedness of such German Subsidiary to the Creditors, but without affecting or impairing in any manner the liability of such Guarantor under the other provisions of this Guaranty. Prior to the transfer by any Guarantor of any note or negotiable instrument evidencing any indebtedness of any German Subsidiary to such Guarantor, such Guarantor shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. 2. Each Guarantor waives any right (except as shall be required by applicable statute and cannot be waived) to require the Creditors to: (i) proceed against the German Borrowers, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party; (ii) proceed against or exhaust any security held from any German Subsidiary, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party; or (iii) pursue any other remedy in the Creditors' power whatsoever. Each Guarantor waives, to the extent permitted by applicable law, any defense based on or arising out of any defense of the German Subsidiaries, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party other than payment in full of the Guaranteed Obligations, including, without limitation, any defense based on or arising out of the disability of the German Subsidiaries, any other Guarantor, any other guarantor of the Guaranteed Obligations or any other party, or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the German Subsidiaries other than payment in full of the Guaranteed Obligations. The Creditors may, at their election, foreclose on any security held by the Agent, the Collateral Agent or the other Creditors by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Creditors may have against the German Subsidiaries or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Guaranteed Obligations have been paid in full. 3. Each Guarantor waives, to the extent permitted by applicable law, all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. Each Guarantor assumes all responsibility for being and keeping itself informed of each German Subsidiary's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which such Guarantor assumes 296 EXHIBIT H-2 Page 8 and incurs hereunder and agrees that the Creditors shall have no duty to advise any Guarantor of information known to them regarding such circumstances or risks. 4. Until such time as the Guaranteed Obligations have been paid in full in cash or Cash Equivalents, each Guarantor hereby waives all rights of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under applicable law, or otherwise) to the claims of the Creditors against the German Subsidiaries, any other Guarantor or any other guarantor of the Guaranteed Obligations and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from the German Subsidiaries or any other Guarantor which it may at any time otherwise have as a result of this Guaranty. Section 6 Warranties In order to induce the Bank Creditors to make Loans and issue German Letter of Credit pursuant to the Credit Agreement, and in order to induce the Other Creditors to execute, deliver and perform the Additional Agreements, each Guarantor represents, warrants and covenants that: 1. Such Guarantor (i) is a duly organized and validly existing limited partnership or limited liability company in good standing under the laws of Germany, (ii) has the requisite power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified, except where the failure to be so qualified could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the German Borrowers and the other German Subsidiaries taken as a whole. 2. Such Guarantor has the requisite power and authority to execute, deliver and carry out the terms and provisions of the Guaranty and each other Credit Documents to which it is a party and has taken all necessary action to authorize the execution, delivery and performance by it of each such Credit Document. Such Guarantor has duly executed and delivered this Guaranty and each other Credit Document to which it is party and each such Credit Document constitutes the legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, 297 EXHIBIT H-2 Page 9 except to the extent that the enforceability hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar law affecting creditors' rights generally. 3. Neither the execution, delivery or performance of such Guarantor of this Guaranty or any other Credit Document to which it is a party, nor compliance by it with the terms and provisions hereof and thereof (i) will contravene any applicable provision of any law, statute, rule or regulation, or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under or (other than pursuant to the Security Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such Guarantor or any of its Subsidiaries pursuant to the terms of an indenture, mortgage, loan agreement, credit agreement or other material agreement or other instrument to which such Guarantor is a party or by which it or any property or assets is bound or to which it may be subject or (iii) will violate any provisions of the by-laws of such Guarantor. 4. No order, consent, approval, license, authorization or validation of, or filing recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of this Guaranty, or any other Credit Document to which such Guarantor is a party or (ii) the legality, validity, binding effect or enforceability of this Guaranty or any other Credit Document to which such Guarantor is a party. 5. There are no actions, suits or proceedings pending or threatened (i) with respect to this Guaranty or (ii) with respect to such Guarantor that could reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the German Borrowers and the other German Subsidiaries taken as a whole. Section 7 Payments 1. If and to the extent that any Guarantor makes any payment to any Creditor or to any other Person pursuant to or in respect of this Guaranty, any claim 298 EXHIBIT H-2 Page 10 which such Guarantor may have against any German Subsidiary by reason thereof shall be subject and subordinate to the prior payment in full of the Guaranteed Obligations to each Creditor. Prior to the transfer by any Guarantor of any note or negotiable instrument evidencing any indebtedness of the German Borrowers to such Guarantor, such Guarantor shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. 2. Each Guarantor covenants and agrees that on and after the date hereof and until the termination of the Total Deutsche Mark Revolving Loan Commitment and when no Deutsche Mark Revolving Notes or German Letters of Credit remain outstanding and all Guaranteed Obligations have been paid in full, such Guarantor shall take, or will refrain from taking, as the case may be, all actions that are necessary to be taken or not taken so that no violation of any provision, covenant or agreement contained in Section 7, 8 or 9 of the Credit Agreement, and so that no Event of Default, is caused by the actions of such Guarantor or any of its Subsidiaries. 3. The Guarantors hereby jointly and severally agree to pay, to the extent not paid pursuant to Section 13.01 of the Credit Agreement, all reasonable out-of-pocket costs and expenses of each Lender Creditor in connection with the enforcement of this Guaranty and any amendment, waiver or consent relating hereto (including, without limitation, the reasonable fees and disbursements of counsel employed by any of the Lender Creditors). Section 8 Miscellaneous 1. This Guaranty shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the Creditors and their successors and assigns. 2. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated except with the written consent of each Guarantor directly affected thereby and with the written consent of either (x) the Required Lenders (or to the extent required by Section 13.12 of the Credit Agreement, with the written consent of each Lender) at all times prior to the time at which the Total Revolving Loan Commitment has terminated and all Credit Document Obligations has been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at 299 EXHIBIT H-2 Page 11 all times after the time at which the Total Revolving Loan Commitment has terminated and all Credit Document Obligations has been paid in full; provided that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Creditors (and not all Creditors in a like or similar manner, shall require the written consent of the Requisite Creditors (as defined below) of such Class of Creditors) (it being understood that the addition or release of any Guarantor hereunder shall not constitute a change, waiver, discharge or termination affecting any Guarantor other than the Guarantor so added or released). For the purpose of this Guaranty the term "Class" shall mean each class of Creditors, i.e., whether (x) the Lender Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For purposes of this Guaranty, the term "Requisite Creditors" of any Class shall mean (x) with respect to the Credit Document Obligations, the Required Lenders and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Additional Agreements. 3. Each Guarantor acknowledges that an executed (or conformed) copy of each of the Credit Documents and the Additional Agreements has been made available to its principal executive officers and such officers are familiar with the contents thereof. 4. In addition to any rights now or hereafter granted under applicable law (including, without limitation, Section 151 of the New York Debtor and Bank Creditor Law) and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (such term to mean and include any "Event of Default" as defined in the Credit Agreement or any payment default under any Additional Agreement continuing after any applicable grace period), each Creditor is hereby authorized at any time or from time to time, without notice to any Guarantor or to any other Person, any such notice being expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Creditor to or for the credit or the account of such Guarantor, against and on account of the obligations and liabilities of such Guarantor to such Creditor under this Guaranty, irrespective of whether or not such Creditor shall have made any demand hereunder and although said obligations, liabilities, deposits or claims, or any of them, shall be contingent or unmatured. Each Creditor agrees to promptly notify the relevant Guarantor after any such set off and application, provided, however, that the failure to give such notice shall not affect the validity of such set off and application. 300 EXHIBIT H-2 Page 12 5. All notices, requests, demands or other communications pursuant hereto shall be deemed to have been duly given or made when delivered to the Person to which such notice, request, demand or other communication is required or permitted to be given or made under this Guaranty, addressed to such party at (i) in the case of any Lender Creditor, as provided in the Credit Agreement, (ii) in the case of any Guarantor, at its address set forth in Annex A attached hereto and (iii) in the case of any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Guarantor; or in any case at such other address as any of the Persons listed above may hereafter notify the others in writing. 6. If claim is ever made upon any Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including the German Borrowers), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon such Guarantor, notwithstanding any revocation hereof or other instrument evidencing any liability of any German Subsidiary, and such Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. 7. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Guaranty may be brought in the courts of (x) the State of New York or of the United States of America for the Southern District of New York, or (y) the courts in and for Berlin, Germany, in the Federal Republic of Germany and, by execution and delivery of this Guaranty, each Guarantor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby irrevocably designates, appoints and empowers CT Corporation with offices on the date hereof at 1633 Broadway, New York, New York 10019 as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding, if for any reason such designee, appointee and agent shall cease to be available to act as such, each Guarantor agrees to designate a new designee, appointee and agent in New York City 301 EXHIBIT H-2 Page 13 on the terms and for the purposes of this provision satisfactory to the Agent under this Agreement. Each Guarantor irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Guarantor, at its address for notices pursuant to this Section 8, paragraph 7, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of any of the Creditors to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against each Guarantor in any other jurisdiction. 8. Each Guarantor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Guaranty or any other Credit Document brought in the courts referred to in clause (7) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that such action or proceeding brought in any such court has been brought in an inconvenient forum. 9. Each Guarantor hereby irrevocably waives all rights to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Guaranty, the other Credit Documents or the transactions contemplated hereby or thereby. 10. In the event that all of the capital stock of one or more Guarantors is sold or otherwise disposed of or liquidated in compliance with the requirements of Section 9.02 of the Credit Agreement (or such sale or other disposition has been approved in writing by the Required Lenders (or all the Lenders if required by Section 13.12 of the Credit Agreement), in each case so long as the respective sale is to a Person other than the U.S. Borrower or any of its Subsidiaries and the proceeds of such sale, disposition or liquidation are applied, to the extent applicable, in accordance with the provisions of the Credit Agreement, such Guarantor shall be released from this Guaranty and this Guaranty shall, as to each such Guarantor or Guarantors, terminate, and have no further force or effect (it being understood and agreed that the sale of one or more Persons (but not to the U.S. Borrower or any of its Subsidiaries) that own, directly or indirectly, all of the capital stock or partnership interests of any Guarantor shall be deemed to be a sale of such Guarantor for the purposes of this paragraph 10). The foregoing provisions of this paragraph 10 shall not be construed to limit the ability of a Guarantor to merge with another Person to the extent permitted by the Credit Agreement. 302 EXHIBIT H-2 Page 14 11. Each Guarantor, in addition to the subrogation rights it shall have against the German Subsidiaries under applicable law as a result of any payment it makes hereunder, shall also have a right of contribution against all other Guarantors in respect of any such payment pro rata among same based on their respective net fair value as enterprises, provided any such right of contribution shall be subject and subordinate to the prior payment in full of the Guaranteed Obligations (and such Guarantor's obligations in respect thereof). It is the desire and intent of each Guarantor and the Creditors that this Guaranty shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If and to the extent that the obligations of any Guarantor under this Guaranty would, in the absence of this sentence, be adjudicated to be invalid or unenforceable because of any applicable state or federal law relating to fraudulent conveyances or transfers, then the amount of such Guarantor's liability hereunder in respect of the Guaranteed Obligations shall be deemed to be reduced ab initio to that maximum amount which would be permitted without causing such Guarantor's obligations hereunder to be so invalidated. 12. The Creditors agree that this Guaranty may be enforced only by the action of the Agent, in each case acting upon the instructions of the Required Lenders and that no Creditor shall have any right individually to seek to enforce or to enforce this Guaranty or to realize upon the security to be granted by the Security Documents, it being understood and agreed that such rights and remedies may be exercised by the Agent for the benefit of the Creditors upon the terms of this Guaranty and the Security Documents. The Creditors further agree that this Guaranty may not be enforced against any director, officer or employee of any Guarantor. 13. All payments made by any Guarantor hereunder will be made without setoff, counterclaim or other defense and on the same basis as payments made by the German Borrowers pursuant to Section 4.03 and 4.04 of the Credit Agreement. 14. This Guaranty may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Guarantors and the Agent. 303 August 8, 1997 New York, NY /s/ Scott Schweinfurth - ------------------------------ ------------------------------------ (time, place) (Alliance Automaten Verwaltungs GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth - ------------------------------ ------------------------------------ (time, place) (Alliance Automaten GmbH&Co. KG) August 8, 1997 New York, NY /s/ Scott Schweinfurth - ------------------------------ ------------------------------------ (time, place) (Geda AutomatenGrosshandel GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth - ------------------------------ ------------------------------------ (time, place) (Erkens Vertriebs GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth - ------------------------------ ------------------------------------ (time, place) (Westav Westdeutscher Automaten Vertrieb GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth - ------------------------------ ------------------------------------ (time, place) (Bally Gaming International GmbH) Acknowledged and Agreed to by: August 8, 1997 New York, NY /s/ Sean S. Bernard - ------------------------------ ------------------------------------ (time, place) (Credit Suisse First Boston) August 8, 1997 New York, NY /s/ Edward E. Barr - ------------------------------ ------------------------------------ (time, place) (Credit Suisse First Boston) 304 EXHIBIT I 305 EXHIBIT I [CONFORMED AS EXECUTED] U.S. PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, this "Agreement"), made by each of the undersigned (each a "Pledgor", and together with any entity that becomes a party hereto pursuant to Section 23 hereof, the "Pledgors"), in favor of CREDIT SUISSE FIRST BOSTON, as Collateral Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH (each a "Borrower" and collectively, the "Borrowers"), various lenders from time to time party thereto (the "Lenders"), and Credit Suisse First Boston, as Administrative Agent (together with any successor agent, the "Administrative Agent," and together with the Pledgee and the Lenders, the "Lender Creditors"), have entered into a Credit Agreement, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to each Borrower and the issuance of, and participation in, Letters of Credit for the account of each Revolving Loan Borrower, all as contemplated therein; WHEREAS, Borrower may from time to time be party to (or guaranty the obligations of one or more of their Subsidiaries under) one or more (i) interest rate agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements or arrangements, (ii) foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values and/or (iii) other types of hedging agreements from time to time (each such agreement or arrangement with an Other Creditor (as hereinafter defined), an "Interest Rate Protection Agreement or Other Hedging Agreement"), with a Lender or an affiliate of a Lender (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, collectively, the "Other Creditors," and together with Lender Creditors, the "Secured Creditors"); 306 EXHIBIT I Page 2 WHEREAS, pursuant to the Parent Guaranty, the Parent Guarantor has guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of each Guaranteed Party under or with respect to (x) the Credit Documents and (y) each Interest Rate Protection Agreement or Other Hedging Agreement with one or more Other Creditors; WHEREAS, pursuant to the U.S. Subsidiaries Guaranty, each U.S. Subsidiary Guarantor has jointly and severally guaranteed to the Secured Creditors the payment when due of all the Guaranteed Obligations as described therein; WHEREAS, it is a condition precedent to the extensions of credit under the Credit Agreement that each Pledgor shall have executed and delivered to the Pledgee this Agreement; and WHEREAS, each Pledgor will obtain benefits from the incurrence of Loans and the issuance of Letters of Credit under the Credit Agreement and the entering into of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, each Pledgor desires to execute this Agreement to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes the following representations and warranties to the Pledgee and hereby covenants and agrees with the Pledgee as follows: 1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor for the benefit of the Secured Creditors to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities (including, without limitation, indemnities, Fees and interest thereon) of such Pledgor, now existing or hereafter incurred under, arising out of or in connection with any Credit Document to which it is a party (including, without limitation, all such obligations and liabilities under the Guaranty to which such Pledgor is a party) and the due performance and compliance by such Pledgor with the terms of each such Credit Document (all such obligations and liabilities under this clause (i), except to the extent consisting of Other Obligations (as defined below), being herein collectively called the "Credit Document Obligations"); 307 EXHIBIT I Page 3 (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities of such Pledgor, now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement (including, without limitation, all such obligations and liabilities under the Guaranty to which such Pledgor is a party) and the due performance and compliance by such Pledgor with the terms of each such Interest Rate Protection Agreement or Other Hedging Agreement (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral (as hereinafter defined); (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i), (ii) and (iii) above, after an Event of Default (such term, as used in this Agreement, shall mean any Event of Default under, and as defined in, the Credit Agreement, or any payment default by any Borrower under any Interest Rate Protection Agreement or Other Hedging Agreement and shall in any event include, without limitation, any payment default (after the expiration of any applicable grace period) on any of the Obligations (as hereinafter defined)) shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 12 of this Agreement; all such obligations, liabilities, sums and expenses set forth in clauses (i) through (v) of this Section 1 being herein collectively called the "Obligations," it being acknowledged and agreed that the "Obligations" shall include extensions of credit of the type described above, whether outstanding on the date of this Agreement or extended from time to time after the date of this Agreement. 2. DEFINITION OF STOCK, NOTES, LIMITED LIABILITY COMPANY INTERESTS, PARTNERSHIP INTERESTS, SECURITIES, ETC. As used herein: (i) the term "Stock" shall mean (x) with respect to corporations incorporated under the laws of the United States or any State or territory thereof (each a "Domestic Corporation"), all of the issued and outstanding shares of capital stock at any time owned by any Pledgor of any Domestic Corporation and (y) with respect to corporations that are not Domestic 308 EXHIBIT I Page 4 Corporations (each a "Foreign Corporation"), all of the issued and outstanding shares of capital stock at any time owned by any Pledgor of any Foreign Corporation, provided that, (A) except as provided in the last sentence of this Section 2, to the extent capital stock entitled to vote for directors of any Exempted Foreign Corporation (herein called "Voting Stock") is pledged hereunder which represents more than 65% of the total combined voting power of all classes of Voting Stock of the respective any Exempted Foreign Corporation (with all Voting Stock of the respective Foreign Corporation in excess of said 65% limit being herein called "Excess Foreign Corporation Voting Stock"), such Excess Foreign Corporation Voting Stock shall secure Obligations of the respective Pledgor only as a guarantor of Obligations of the German Borrowers, and shall not secure any direct obligations of Alliance Gaming Corporation as a Borrower (or guarantees of such Obligations by the respective Pledgor) and (B) the Pledgor shall be required to pledge hereunder 100% of the issued and outstanding shares of all capital stock which is not Voting Stock (herein called "Non-Voting Stock") at any time owned by the Pledgor of any Foreign Corporation, which Non-Voting Stock shall not be subject to the limitations described in preceding clause (A); (ii) the term "Notes" shall mean all promissory notes from time to time issued to, or held by, each Pledgor; (iii) the term "Limited Liability Company Interest" shall mean the entire limited liability company interest at any time owned by each Pledgor in any limited liability company; (iv) the term "Partnership Interest" shall mean the entire partnership interests (whether general and/or limited partnership interests) at any time owned by each Pledgor in any Person (it being understood that the entire limited partnership interest of Alliance Automaten GmbH & Co. KG shall be pledged by Alliance Holding Company pursuant to this clause (iv)); (v) the term "Securities" shall mean all of the Stock, Notes, Limited Liability Company Interests and Partnership Interests; and (vi) the term "Exempted Foreign Corporation" shall mean any Foreign Corporation that is treated as a corporation or an association taxable as a corporation for U.S. Federal income tax purposes. Each Pledgor represents and warrants that on the date hereof (i) the Stock held by such Pledgor consists of the number and type of shares of the stock of the corporations as described in Annex A hereto; (ii) such Stock constitutes that percentage of the issued and outstanding capital stock of the issuing corporation as is set forth in Annex A hereto; (iii) the Notes held by such Pledgor consist of the promissory notes described in Annex B hereto; (iv) the Limited Liability Interests held by such Pledgor consists of the number and type of interest of the Persons as described in Annex C hereto; (v) such Limited Liability Company Interests constitute that percentage of the issued and outstanding equity interests of the issuing Person as set forth in Annex C thereto; (vi) the Partnership Interests held by such Pledgor constitutes that percentage of the entire Partnership Interest of the respective Pledged Partnership as is set forth in Annex D hereto for such Pledgor; and (vii) on the date hereof, such Pledgor owns no other Securities. In the circumstances and to the extent provided in Section 8.12 of the Credit Agreement, the limitation set forth in part (A) of the proviso to clause (i)(y) of this Section 2 and in Section 3.2 hereof shall 309 EXHIBIT I Page 5 no longer be applicable and such Pledgor shall duly pledge and deliver to the Pledgee such of the Securities not theretofore required to be pledged hereunder. 3. PLEDGE OF SECURITIES, ETC. 3.1. Pledge. (a) To secure all Obligations (subject to part (A) of the proviso to clause (i)(y) of Section 2(a) of the case of Voting Stock of Foreign Corporations pledged hereunder) of such Pledgor and for the purposes set forth in Section 1 hereof, each Pledgor hereby: (i) grants to the Pledgee a security interest in all of the Collateral (as defined in Section 3.4 hereof) owned by such Pledgor; (ii) pledges and deposits as security with the Pledgee the Securities owned by such Pledgor on the date hereof, and delivers to the Pledgee certificates or instruments therefor, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank by such Pledgor in the case of Stock, or such other instruments of transfer as are reasonably acceptable to the Pledgee; (iii) assigns, transfers, hypothecates, mortgages, charges and sets over to the Pledgee all of such Pledgor's right, title and interest in and to such Securities (and in and to all certificates or instruments evidencing such Securities), to be held by the Pledgee, upon the terms and conditions set forth in this Agreement; and (iv) transfers and assigns to the Pledgee all of such Pledgor's Limited Liability Company Interests and all of such Pledgor's right, title and interest in each limited liability company to which such interests relate, whether now existing or hereafter acquired, including, without limitation: (A) all the capital thereof and its interest in all profits, losses, Limited Liability Company Assets (as defined below) and other distributions to which such Pledgor shall at any time be entitled in respect of such Limited Liability Company Interests; (B) all other payments due or to become due to such Pledgor in respect of Limited Liability Company Interests, whether under any limited liability company agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (C) all of its claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under any limited liability company agreement or operating agreement, or at law or otherwise in respect of such Limited Liability Company Interests; (D) all present and future claims, if any, of any of such Pledgor against any such limited liability company for moneys loaned or advanced, for services rendered or otherwise; 310 EXHIBIT I Page 6 (E) all of such Pledgor's rights under any limited liability company agreement or operating agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of any of such Pledgor relating to such Limited Liability Company Interests, including any power to terminate, cancel or modify any limited liability company agreement or operating agreement, to execute any instruments and to take any and all other action on behalf of and in the name of any of such Pledgor in respect of such Limited Liability Company Interest and any such limited liability company, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or for any Limited Liability Company Asset, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; (F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (G) to the extent not otherwise included, all proceeds of any or all of the foregoing; and (vi) transfers and assigns to the Pledgee such Pledgor's Partnership Interests (and delivers any certificates or instruments evidencing such partnership interests, duly endorsed in blank) and all of such Pledgor's right, title and interest in each Pledged Partnership including, without limitation: (A) all of the capital thereof and its interest in all profits, losses, Partnership Assets (as defined below) and other distributions to which such Pledgor shall at any time be entitled in respect of any such Collateral; (B) all other payments due or to become due to such Pledgor in respect of any such Collateral, whether under any partnership agreement or otherwise, whether as contractual obligations, damages, insurance proceeds or otherwise; (C) all of its claims, rights, powers, privileges, authority, options, security interest, liens and remedies, if any, under any partnership or other agreement or at law or otherwise in respect of any such Collateral; 311 EXHIBIT I Page 7 (D) all present and future claims, if any, of such Pledgor against any Pledged Partnership for moneys loaned or advanced, for services rendered or otherwise; (E) all of such Pledgor's rights under any partnership agreement or at law to exercise and enforce every right, power, remedy, authority, option and privilege of such Pledgor relating to any Partnership Interest, including any power, if any, to terminate, cancel or modify any general or limited partnership agreement, to execute any instruments and to take any and all other action on behalf of and in the name of such Pledgor in respect of such Partnership Interest and any Pledged Partnership, to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval, together with full power and authority to demand, receive, enforce, collect, or receipt for any of the foregoing or for any Partnership Asset, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action in connection with any of the foregoing; (F) all other property hereafter delivered in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (G) to the extent not otherwise included, all proceeds of any or all of the foregoing. (b) As used herein, the term "Limited Liability Company Assets" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all limited liability company capital and interests in other limited liability companies), at any time owned or represented by any Limited Liability Company Interest. (c) As used herein, the term "Partnership Assets" shall mean all assets, whether tangible or intangible and whether real, personal or mixed (including, without limitation, all partnership capital and interests in other partnerships), at any time owned by any Pledged Partnership or represented by any Partnership Interest. 3.2. Subsequently Acquired Securities. If any Pledgor shall acquire (by purchase, stock dividend or otherwise) any additional Securities at any time or from time to time after the date hereof, such Pledgor will forthwith pledge and deposit such Securities (or certificates or instruments representing such Securities) as security with the Pledgee and 312 EXHIBIT I Page 8 deliver to the Pledgee certificates therefor or instruments thereof, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank in the case of Stock, Limited Liability Company Interests or Partnership Interests or such other instruments of transfer as are reasonably acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a certificate executed by any Authorized Officer of such Pledgor describing such Securities and certifying that the same have been duly pledged with the Pledgee hereunder. Subject to the last sentence of Section 2 hereof, any pledge of Voting Stock of any Foreign Corporation shall be subject to the provisions of part (A) of the proviso to clause (i)(y) of Section 2 hereof. 3.3. Uncertificated Securities. If any Securities (whether now owned or hereafter acquired) are uncertificated securities, the respective Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all actions required to perfect the security interest of the Pledgee under applicable law (including, in any event, under Sections 8-313 and 8-321 of the New York UCC, if applicable). Each Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing and to permit the Pledgee to exercise any of its rights and remedies hereunder, and agrees to provide an opinion of counsel reasonably satisfactory to the Pledgee with respect to any such pledge of uncertificated Securities promptly upon request of the Pledgee. 3.4. Definition of Pledged Stock, Pledged Notes, Pledged Limited Liability Company Interests, Pledged Partnership Interests, Pledged Securities and Collateral. All Stock at any time pledged or required to be pledged hereunder is hereinafter called the "Pledged Stock," all Notes at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Notes," all Limited Liability Company Interests at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Limited Liability Company Interests," all Partnership Interests at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Partnership Interests," all of the Pledged Stock, Pledged Notes, Pledged Limited Liability Interest and Pledged Partnership Interest together are hereinafter called the "Pledged Securities," which together with all proceeds thereof, including any securities and moneys received and at the time held by the Pledgee hereunder are hereinafter called the "Collateral". 4. CERTAIN OVERRIDE PROVISIONS. 4.1. Existing Senior Secured Notes; Delivery of Security Requirements. Notwithstanding anything to the contrary contained in this Agreement, to the extent at any time while this Agreement is in effect any Existing Senior Secured Notes remain outstanding, and to the extent that any Securities or other Collateral is pledged to secure the Existing Senior 313 EXHIBIT I Page 9 Secured Notes in accordance with the terms of the Existing Senior Secured Notes Documents, then the pledge of such Collateral pursuant to this Agreement shall be subject to the prior security interests created pursuant to the Existing Senior Secured Notes Collateral Documents in such Collateral (although the existence of such prior security interests shall in no way limit or preclude the Pledgee or Secured Creditors from taking enforcement actions with respect to the Collateral). Furthermore, at any time when any Existing Senior Secured Notes remain outstanding, to the extent that any Collateral has been physically delivered to the trustee pursuant to the Existing Senior Secured Notes Indenture (the "Trustee") or any other agent, sub-agent, collateral agent, custodian or bailee for the benefit of the holders of the Existing Senior Secured Notes or as directed by the Trustee (with each such person or entity, together with the Trustee, being herein called a "Bailee"), then (and for so long as such Collateral is so held), such Collateral shall not be required to be delivered to the Pledgee pursuant to this Agreement, in each case (subject to the provisions of Section 13.23(c) of the Credit Agreement) so long as the respective such Bailee is a party to a Bailee Agreement, in the form required by the Credit Agreement. 4.2. Pledged Securities Requisite Gaming Approvals; Etc. Notwithstanding anything to the contrary contained above or elsewhere in this Agreement, unless and until the Pledged Securities Requisite Gaming Approvals are obtained, the Notes, stock or other equity interests of the entities listed in Section 13.18(c) of the Credit Agreement shall not be pledged hereunder. Furthermore, equity interests shall not be pledged hereunder to the extent the pledge is not permitted as contemplated by Section 13(b) of the Credit Agreement, and items which would otherwise constitute Collateral hereunder shall not be pledged to the extent specifically provided in Sections 13.26 and 13.27 of the Credit Agreement. As and when, and to the extent, pledges of assets described above are permitted in accordance with Applicable Gaming Regulations and the provisions of Sections 13.18 and 13.26, as applicable, of the Credit Agreement, all such assets which would otherwise constitute Collateral hereunder shall be pledged, and delivered for pledge, hereunder. 5. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. (a) The Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Pledged Securities, which may be held (in the discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the relevant Pledgor after the appointment of any sub-agent; provided, however, that the failure to give such notice shall not affect the validity of such appointment. (b) In the case of any Pledgor's grant to the Pledgee of Securities of any corporation, partnership or limited liability company incorporated or organized in the state 314 EXHIBIT I Page 10 of Nevada, such Securities shall be held by a sub-agent of the Pledgee residing in the state of Nevada. 6. VOTING, ETC., WHILE NO SPECIFIED DEFAULT. Unless and until a Default under Section 10.01 or 10.05 of the Credit Agreement, any other payment default in respect of the Obligations, or any Event of Default under the Credit Agreement (with each such Default or Event of Default being herein called a "Specified Default") shall have occurred and be continuing, each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Securities and to give all consents, waivers or ratifications in respect thereof; provided, that no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with any of the terms of this Agreement, any other Credit Document or any Interest Rate Protection Agreement or Other Hedging Agreement (collectively, the "Secured Debt Agreements"), or which would have the effect of impairing the rights, priorities or remedies of the Pledgee or any other Secured Creditor under this Agreement or any other Secured Debt Agreement. All such rights of such Pledgor to vote and to give consents, waivers and ratifications shall cease in case a Specified Default shall occur and be continuing, and Section 8 hereof shall become applicable. 7. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless a specified Default shall have occurred and be continuing, all cash dividends payable in respect of the Pledged Stock, Pledged Limited Liability Company Interests and Pledged Partnership Interests and all payments in respect of the Pledged Notes shall be paid to the respective Pledgor. The Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional stock or other securities or property (other than cash) paid or distributed by way of dividend or otherwise in respect of the Pledged Stock, Pledged Limited Liability Company Interests and Pledged Partnership Interests; (ii) all other or additional stock or other securities or property (including cash) paid or distributed in respect of the Pledged Stock, Pledged Limited Liability Company Interests or Pledged Partnership Interests by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (iii) all other or additional stock or other securities or property (including cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate reorganization. 315 EXHIBIT I Page 11 Nothing contained in this Section 7 shall limit or restrict in any way the Pledgee's right to receive proceeds of the Collateral in any form in accordance with Section 3 of this Agreement. All dividends, distributions or other payments which are received by the Pledgor contrary to the provisions of this Section 7 and Section 8 below shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of the Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the same form as so received (with any necessary endorsement). 8. REMEDIES IN CASE OF SPECIFIED DEFAULTS. In case a Specified Default shall have occurred and be continuing, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement or by any other Secured Debt Agreement or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall, subject to compliance with the Applicable Gaming Regulations, be entitled to exercise all the rights and remedies of a secured party under the Uniform Commercial Code and also shall, subject to compliance with the Applicable Gaming Regulations, be entitled, without limitation, to exercise the following rights, which each Pledgor hereby agrees to be commercially reasonable: (i) to receive all amounts payable in respect of the Collateral payable to such Pledgor under Section 7 hereof; (ii) to transfer all or any part of the Pledged Securities into the Pledgee's name or the name of its nominee or nominees (the Pledgee agrees to promptly notify the relevant Pledgor after such transfer; provided, however, that the failure to give such notice shall not affect the validity of such transfer); (iii) to accelerate any Pledged Note which may be accelerated in accordance with its terms, and take any other action to collect upon any Pledged Note (including, without limitation, to make any demand for payment thereon); (iv) to vote all or any part of the Pledged Stock, Pledged Limited Liability Company Interests or Pledged Partnership Interests (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so); and (v) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of 316 EXHIBIT I Page 12 intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by each Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine; provided, that at least 10 Business Days' notice of the time and place of any such sale shall be given to such Pledgor. Each Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any Secured Creditor shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. 9. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the Pledgee provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or remedies provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agent or the Pledgee, in each case acting upon the instructions of the Required Lenders (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least a majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Pledgee or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 10. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee upon any sale or other disposition of the Collateral pursuant to the terms of this 317 EXHIBIT I Page 13 Agreement, together with all other moneys received by the Pledgee hereunder, shall be applied in the manner provided in the U.S. Security Agreement. (b) It is understood and agreed that the Pledgors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral hereunder and the aggregate amount of the Obligations. 11. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. 12. INDEMNITY. Each Pledgor jointly and severally agrees (i) to indemnify and hold harmless the Pledgee in such capacity and each other Secured Creditor from and against any and all claims, demands, losses, judgments and liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee and each other Secured Creditor for all reasonable costs and expenses, including reasonable attorneys' fees, in each case to the extent growing out of or resulting from the exercise by the Pledgee of any right or remedy granted to it hereunder or under any other Secured Debt Agreement except, with respect to clauses (i) and (ii) above, for those arising from the Pledgee's or such other Secured Creditor's gross negligence or willful misconduct. In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Pledgors under this Section 12 are unenforceable for any reason, each Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 13. FURTHER ASSURANCES. (a) Each Pledgor agrees that it will join with the Pledgee in executing and, at such Pledgor's own expense, file and refile under the applicable UCC or such other law such financing statements, continuation statements and other documents in such offices as the Pledgee may reasonably deem necessary or appropriate and wherever required or permitted by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of such Pledgor where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably deem 318 EXHIBIT I Page 14 necessary or advisable to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder. (b) Each Pledgor agrees to assist the Pledgee in obtaining all approvals of any Gaming Authority or other governmental authority that are required by law in connection with any action or transaction contemplated by this Agreement, including, without limitation, the Pledged Stock Requisite Gaming Approvals, and, at the Pledgee's request after and during the continuance of an Event of Default, to prepare, sign and file with the appropriate Gaming Authority the respective Pledgor's portion of any application or applications for consent to the transfer of the equity interest of such Pledgor necessary or appropriate under the Applicable Gaming Regulations for approval by the respective Gaming Authority of any sale or transfer of such equity interest, pursuant to the exercise of any Secured Creditor's remedies hereunder and under the Documents. 14. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Pledgee shall act hereunder on the terms and conditions set forth herein and in Section 12 of the Credit Agreement. 15. TRANSFER BY PLEDGORS. No Pledgor will sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except in accordance with the terms of this Agreement and as permitted by the terms of the Credit Agreement). 16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each Pledgor represents, warrants and covenants that (i) it is the legal, record and beneficial owner of, and has good title to, all Pledged Securities, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever, except the liens and security interests created by this Agreement and liens permitted under Section 9.01 of the Credit Agreement (including those referenced in Section 4.10 hereof); (ii) it has requisite power, authority and legal right to pledge all the Pledged Securities; (iii) this Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes a legal, valid and binding obligation of such Pledgor enforceable in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) no consent of any other party (including, without limitation, any stockholder or creditor of such Pledgor or any of its Subsidiaries) 319 EXHIBIT I Page 15 and, except for any approval of the Gaming Authorities that may be required as contemplated by Section 13.18(b) of the Credit Agreement or in connection with the exercise of any remedies hereunder, no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing (except any filings required under the Uniform Commercial Code, which filings have been made) or declaration with, any governmental authority is required to be obtained by such Pledgor in connection with the execution, delivery or performance of this Agreement, or in connection with the exercise of its rights and remedies pursuant to this Agreement, except those which have been obtained or made or as may be required by laws affecting the offer and sale of securities generally in connection with the exercise by the Pledgee of certain of its remedies hereunder; (v) the execution, delivery and performance of this Agreement by such Pledgor does not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the certificate of incorporation or by-laws (or analogous organizational documents) of such Pledgor or of any securities issued by such Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which such Pledgor or any of its Subsidiaries is a party or which purports to be binding upon such Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition of any lien or encumbrance on any of the assets of such Pledgor or any of its Subsidiaries except as contemplated by this Agreement; (vi) all the shares of Stock and all Pledged Limited Liability Company Interests have been duly and validly issued, are fully paid and nonassessable and subject to no options to purchase or similar rights; (vii) to the best knowledge of the respective Pledgor, each of the Pledged Notes, when executed by the obligor thereof, will be the legal, valid and binding obligation of such obligor, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); and (viii) subject to Section 4.2 hereof, the pledge, assignment and delivery to the Pledgee of the Pledged Securities creates a valid and perfected first security interest in such Securities, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgor which would include the Securities. Each Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever; and such Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the other Secured Creditors. 320 EXHIBIT I Page 16 17. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument or this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee; (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Pledgor or any Subsidiary of such Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not such Pledgor shall have notice or knowledge of any of the foregoing. 18. REGISTRATION, ETC. (a) If an Event of Default shall have occurred and be continuing and any Pledgor shall have received from the Pledgee a written request or requests that such Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Pledged Stock or Pledged Limited Liability Company Interests, such Pledgor as soon as practicable and at its expense will, subject to compliance with the Applicable Gaming Regulations, use its reasonable efforts to cause such registration to be effected (and be kept effective) and will use its reasonable efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Pledged Stock or Pledged Limited Liability Company Interests, including, without limitation, registration under the Securities Act of 1933 as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements; provided, that the Pledgee shall furnish to such Pledgor such information regarding the Pledgee as such Pledgor may request in writing and as shall be required in connection with any such registration, qualification or compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of the Pledged Stock or Pledged Limited Liability Company Interests against 321 EXHIBIT I Page 17 all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to such Pledgor by the Pledgee or such other Secured Creditor expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to Section 7 hereof, such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as then in effect, the Pledgee may, in its sole and absolute discretion, other than as restricted by Applicable Gaming Regulations, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Pledgee may deem necessary or advisable in order that such sale may legally be effected without such registration; provided, that at least 10 Business Days' notice of the time and place of any such sale shall be given to such Pledgor. Without limiting the generality of the foregoing, in any such event the Pledgee, in its sole and absolute discretion, other than as restricted by Applicable Gaming Regulations: (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under such Securities Act; (ii) may approach and negotiate with a single possible purchaser to effect such sale; and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Securities or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Pledgee, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. 19. TERMINATION, RELEASE. (a) After the Termination Date (as defined below), this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 12 hereof shall survive any such termination) and the Pledgee, at the request and expense of the respective Pledgor, will promptly execute and deliver to such Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Pledgee and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used 322 EXHIBIT I Page 18 in this Agreement, "Termination Date" shall mean the date upon which the Total Commitments and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no Note (as defined in the Credit Agreement) or Letter of Credit is outstanding and all other Obligations then due and payable have been indefeasibly paid in full. (b) In the event that any part of the Collateral is sold (but not to the U.S. Borrower or a Subsidiary thereof) in connection with a sale permitted by Section 9.02 of the Credit Agreement or is otherwise released at the direction of the Required Lenders (or all the Lenders if required by Section 13.12 of the Credit Agreement), the Pledgee, at the request and expense of such Pledgor will duly assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in possession of the Pledgee and has not theretofore been released pursuant to this Agreement. (c) At any time that a Pledgor desires that Collateral be released as provided in the foregoing Section 19(a) or (b), it shall deliver to the Pledgee a certificate signed by an Authorized Officer of such Pledgor stating that the release of the respective Collateral is permitted pursuant to Section 19(a) or (b), and the Pledgee shall be entitled (but not required) to conclusively rely thereof. 20. NOTICES, ETC. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed as follows: (a) if to any Pledgor, at: 6601 South Bermuda Las Vegas, Nevada Attention: Scott Schweinfurth Telephone No.: (702) 899-7700 Facsimile No.: (702) 263-5636 (b) if to the Pledgee, at: Credit Suisse First Boston Eleven Madison Avenue New York, New York 10010 Attention: Ed Barr 323 EXHIBIT I Page 19 Telephone No.: (212) 325-9151 Telecopier No.: (212) 325-8309 (c) if to any Lender (other than the Pledgee), at such address as such Lender shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Pledgor and the Pledgee; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 21. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Pledgor directly affected thereby (it being understood that additional Pledgors may be added as parties hereto from time to time in accordance with Section 23, and that no consent of any other Pledgor or of the Required Lenders shall be required in connection therewith) and the Pledgee (with the written consent of either (x) the Required Lenders (or all the Lenders if required by Section 13.12 of the Credit Agreement) at all times prior to the time on which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full; provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (i) the Lender Creditors as holders of the Credit Document Obligations or (ii) the Other Creditors as holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (i) with respect to the Credit Document Obligations, the Required Lenders and (ii) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 22. RELEASE OF GUARANTORS. In the event any Pledgor which is a Subsidiary of the U.S. Borrower party to the U.S. Subsidiaries Guaranty is released from its Guaranty under the U.S. Subsidiaries Guaranty, such Pledgor shall be released from this Agreement and this Agreement shall, as to such Pledgor only, have no further force or effect. 324 EXHIBIT I Page 20 23. MISCELLANEOUS. This Agreement shall be binding upon the successors and assigns of each Pledgor and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. 24. ADDITIONAL PLEDGORS. It is understood and agreed that any Domestic Subsidiary of the U.S. Borrower that is required to execute a counterpart of this Agreement after the date hereof pursuant to the Credit Agreement shall automatically become a Pledgor hereunder by executing a counterpart hereof and delivering the same to the Pledgee. 25. RECOURSE. This Agreement is made with full recourse to the Pledgors and pursuant to and upon all representations, warranties, covenants and agreements on the part of the Pledgors contained herein and in the other Secured Debt Agreements and otherwise in writing in connection herewith or therewith. 26. LIMITATION BY LAW; SEVERABILITY. All rights, remedies and powers in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of the Applicable Gaming Regulations, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of the Applicable Gaming Regulations which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid or unenforceable, in whole or in part. 27. GAMING REGULATORY MATTERS. The Pledgee, on behalf of the Secured Creditors, acknowledges and agrees that: (a) In the event that a Secured Creditor exercises one or more of the remedies set forth in this Agreement or any other Secured Debt Agreement with respect to any Pledged Stock that is subject to the Pledged Stock Requisite Gaming Approvals, such exercise of remedies would be deemed a separate transfer of such Pledged Stock and would require the separate and prior approval of the applicable Gaming Authority pursuant to Applicable Gaming Regulations. (b) The approval by the applicable Gaming Authority of this Agreement shall not be, and shall not be construed as, the approval, either express or implied, for the 325 EXHIBIT I Page 21 Secured Creditors to take any actions or steps provided for in this Agreement for which approval by the Gaming Authorities is required, without first obtaining such prior and separate approval of such Gaming Authority, to the extent required by the Applicable Gaming Regulations. (c) The Pledgee and each sub-agent of the Pledgee shall comply with the conditions, if any, imposed by any Gaming Authority in connection with the approvals of the security interests granted hereunder by Pledgors, including, without limitation, any conditions requiring the Pledgee or sub-agent of the Pledgee to maintain the certificates representing certain Pledged Securities at a location within the applicable jurisdiction designated to the applicable Gaming Authority and to permit representatives of the Gaming Authorities to inspect such Pledged Securities and certificates thereof. Neither the Pledgee nor any sub-agent of the Pledgee shall surrender possession of any Pledged Securities to any Person other than the respective Pledgor without the prior approval of the applicable Gaming Authority or as otherwise permitted by Applicable Gaming Regulations. (d) In connection with the foregoing provisions of this Section 27, it is acknowledged and agreed that neither the Pledgee, nor any Secured Creditor, shall have any liability to any Pledgee for any non-compliance or failure to meet obligations as otherwise provided above in this Section 27, except to the extent of the gross negligence or willful misconduct of the Pledgee or the respective Secured Creditor. Furthermore, the Pledgee and Secured Creditors shall be entitled to conclusively rely on the advise of counsel selected by it or them in connection with the foregoing matters. 326 IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. ALLIANCE GAMING CORPORATION, as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Senior Vice President, CFO and Treasurer ALLIANCE HOLDING COMPANY, as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer UNITED COIN MACHINE CO., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer PLANTATION INVESTMENTS, INC., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer APT GAMES, INC., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer 327 FOREIGN GAMING VENTURES, INC., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer LOUISIANA VENTURES, INC., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer UNITED GAMING RAINBOW, as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer NATIVE AMERICAN INVESTMENT, INC., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer BALLY GAMING INTERNATIONAL, INC., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer BALLY GAMING, INC., as a Pledgor By /s/ Scott Schweinfurth ----------------------------------- Title: Treasurer 328 Accepted and Agreed to: CREDIT SUISSE FIRST BOSTON, as Pledgee By /s/ Sean S. Bernard ------------------------------ Title: Assistant Vice President By /s/ Edward E. Barr ------------------------------- Title: Associate 329 EXHIBIT J 330 EXHIBIT J [CONFORMED AS EXECUTED] U.S. SECURITY AGREEMENT among ALLIANCE GAMING CORPORATION, CERTAIN OF ITS SUBSIDIARIES and CREDIT SUISSE FIRST BOSTON, as Collateral Agent Dated as of August 8, 1997 331 TABLE OF CONTENTS
Page ---- ARTICLE I SECURITY INTERESTS......................................... 2 1.1. Grant of Security Interests.................................... 2 1.2. Power of Attorney.............................................. 3 ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS.................................................. 3 2.1. Necessary Filings.............................................. 3 2.2. No Liens....................................................... 4 2.3. Other Financing Statements..................................... 4 2.4. Chief Executive Office; Records................................ 4 2.5. Location of Inventory and Equipment............................ 5 2.6. Recourse....................................................... 5 2.7. Trade Names; Change of Name.................................... 5 ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS............................... 6 3.1. Additional Representations and Warranties...................... 6 3.2. Maintenance of Records......................................... 6 3.3. Direction to Account Debtors; Contracting Parties; etc......... 7 3.4. Modification of Terms; etc..................................... 7 3.5. Collection..................................................... 8 3.6. Instruments.................................................... 8 3.7. Assignors Remain Liable Under Receivables...................... 8 3.8. Assignors Remain Liable Under Contracts........................ 9 3.9. Further Actions................................................ 9 ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS................... 9 4.1. Additional Representations and Warranties...................... 9 4.2. Infringements.................................................. 10 4.3. Preservation of Marks.......................................... 10 4.4. Maintenance of Registration.................................... 10 4.5. Future Registered Marks........................................ 11 4.6. Remedies....................................................... 11 4.7. Override Provisions Relating to Bally Trademark License Agreement...................................................... 11 ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS.......................................... 12 5.1. Additional Representations and Warranties...................... 12
(i) 332
Page ---- 5.2. Infringements.................................................. 13 5.3. Maintenance of Patents......................................... 13 5.4. Prosecution of Patent Application.............................. 13 5.5. Other Patents and Copyrights................................... 13 5.6. Remedies....................................................... 14 ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL....................... 14 6.1. Protection of Collateral Agent's Security...................... 14 6.2. Further Actions................................................ 15 6.3. Financing Statements........................................... 15 6.4. Assistance with Gaming Approvals............................... 15 ARTICLE VII REMEDIES UPON OCCURRENCE OF SPECIFIED DEFAULT............. 16 7.1. Remedies; Obtaining the Collateral Upon Default................ 16 7.2. Remedies; Disposition of the Collateral........................ 17 7.3. Waiver of Claims............................................... 18 7.4. Application of Proceeds........................................ 19 7.5. Remedies Cumulative............................................ 22 7.6. Discontinuance of Proceedings.................................. 22 ARTICLE VIII INDEMNITY.................................................. 23 8.1. Indemnity...................................................... 23 8.2. Indemnity Obligations Secured by Collateral; Survival.......... 24 ARTICLE IX DEFINITIONS................................................ 24 ARTICLE X MISCELLANEOUS.............................................. 30 10.1. Notices....................................................... 30 10.2. Waiver; Amendment............................................. 31 10.3. Obligations Absolute.......................................... 32 10.4. Successors and Assigns........................................ 32 10.5. Headings Descriptive.......................................... 32 10.6. Governing Law................................................. 32 10.7. Assignor's Duties............................................. 32 10.8. Termination; Release.......................................... 32 10.9. Counterparts.................................................. 33 10.10. Limitation by Law; Severability............................... 33 10.11. The Collateral Agent.......................................... 34 10.12. Additional Assignors.......................................... 34
ANNEX A Schedule of Chief Executive Offices/Record Locations ANNEX B Schedule of Inventory and Equipment Locations ANNEX C Schedule of Trade and Fictitious Names (ii) 333 ANNEX D List of Marks ANNEX E List of Patents and Applications ANNEX F List ofCopyrights and Applications ANNEX G Assignment of Security Interest in United States Trademarks and Patents ANNEX H Assignment of Security Interest in United States Copyrights (iii) 334 EXHIBIT J U.S. SECURITY AGREEMENT SECURITY AGREEMENT, dated as of August 8, 1997, among each of the undersigned (each an "Assignor", and together with any other entity that becomes a party hereto pursuant to Section 10.12 hereof, the "Assignors") and Credit Suisse First Boston, as Collateral Agent (the "Collateral Agent") for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement referred to below shall be used herein as so defined. W I T N E S S E T H : WHEREAS, Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH (collectively, the "Borrowers" and each, a "Borrower"), various lenders from time to time party thereto (the "Lenders"), and Credit Suisse First Boston, as Administrative Agent (together with any successor agent, the "Administrative Agent," and together with the Collateral Agent and the Lenders, the "Lender Creditors"), have entered into a Credit Agreement, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to each Borrower and the issuance of, and participation in, Letters of Credit for the account of each Revolving Loan Borrower, all as contemplated therein; WHEREAS, each Borrower may from time to time be party to (or guaranty the obligations of one or more of its Subsidiaries under) one or more (i) interest rate protection agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements or arrangements, (ii) foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values and/or (iii) other types of hedging agreements from time to time with an Other Creditor (as hereinafter defined) (collectively, the "Interest Rate Protection Agreements or Other Hedging Agreements"), with a Lender or an affiliate of a Lender (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, collectively, the "Other Creditors," and together with the Lender Creditors, the "Secured Creditors"). 335 EXHIBIT J Page 2 WHEREAS, pursuant to the Parent Guaranty, the Parent Guarantor has guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of each Guaranteed Party under or with respect to (x) the Credit Documents and (y) each Interest Rate Protection Agreement or Other Hedging Agreement with one or more Other Creditors; WHEREAS, pursuant to the U.S. Subsidiaries Guaranty, each U.S. Subsidiary Guarantor has jointly and severally guaranteed to the Secured Creditors the payment when due of all the Guaranteed Obligations as described therein; WHEREAS, it is a condition precedent to the extensions of credit under the Credit Agreement that each Assignor shall have executed and delivered to the Collateral Agent this Agreement; and WHEREAS, each Assignor will obtain benefits from the incurrence of Loans and the Issuance of Letters of Credit under the Credit Agreement and the entering into of Interest Rate Protection Agreements and Other Hedging Agreements and, accordingly, each Assignor desires to execute this Agreement to satisfy the condition described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Assignor, the receipt and sufficiency of which are hereby acknowledged, each Assignor hereby makes the following representations and warranties to the Collateral Agent for the benefit of the Secured Creditors and hereby covenants and agrees with the Collateral Agent for the benefit of the Secured Creditors as follows: ARTICLE I SECURITY INTERESTS 1.1. Grant of Security Interests. (a) As security for the prompt and complete payment and performance when due of all of the Obligations of such Assignor, each Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent for the benefit of the Secured Creditors, a continuing security interest of first priority in, all of the right, title and interest of such Assignor in, to and under all of the following, whether now existing or hereafter from time to time acquired: (i) each and every Receivable, (ii) all Contracts, together with all Contract Rights arising thereunder, (iii) all Inventory, (iv) all Equipment, (v) all Marks, together with the registrations and right to all renewals thereof, and the goodwill of the 336 EXHIBIT J Page 3 business of such Assignor symbolized by the Marks, (vi) all Patents, (vii) all Copyrights, (viii) all computer programs of such Assignor and all intellectual property rights therein and all Proprietary Information and Trade Secrets of such Assignor, (ix) all other Goods, General Intangibles, Chattel Paper, Documents and Instruments, (x) the Cash Collateral Account and all monies, securities and instruments deposited or required to be deposited in such Cash Collateral Account and (xi) all Proceeds and products of any and all of the foregoing (all of the above, collectively, the "Collateral"). (b) The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kind which is the subject of this Agreement which any Assignor may acquire at any time during the continuation of this Agreement. 1.2. Power of Attorney. Each Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of a Specified Default (as hereinafter defined) (in the name of such Assignor or otherwise) to act, require, demand, receive, compound and give acquittance for any and all monies and claims for monies due or to become due to such Assignor under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be necessary or advisable to protect the interests of the Secured Creditors, which appointment as attorney is coupled with an interest. ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: 2.1. Necessary Filings. All filings, registrations and recordings necessary or appropriate to create, preserve and perfect the security interest granted by such Assignor to the Collateral Agent hereby in respect of the Collateral have been (or within 10 days after the Initial Borrowing Date will be) accomplished and the security interest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral constitutes a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens (other than Permitted Liens) and is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction to perfected security interests, in each case to the extent that the 337 EXHIBIT J Page 4 Collateral consists of the type of property in which a security interest may be perfected by filing a financial statement under the Uniform Commercial Code as enacted in the relevant jurisdiction or in the United States Patent and Trademark Office or United States Copyright Office. 2.2. No Liens. Such Assignor is, and as to Collateral acquired by it from time to time after the date hereof such Assignor will be, the owner of all Collateral pledged by it hereunder free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Liens), and such Assignor shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein (other than in connection with Permitted Liens) adverse to the Collateral Agent. 2.3. Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (other than financing statements filed in respect of Permitted Liens), and so long as the Termination Date has not occurred, such Assignor will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except financing statements filed or to be filed in respect of and covering the security interests granted hereby by such Assignor or in connection with Permitted Liens. 2.4. Chief Executive Office; Records. As of the date hereof, the chief executive office of such Assignor is located at the address indicated on Annex A hereto for such Assignor. Such Assignor will not move its chief executive office except to such new location as such Assignor may establish in accordance with the last sentence of this Section 2.4. A complete set of books of account and records of such Assignor relating to the Receivables and the Contract Rights are, and will continue to be, kept at such chief executive office, at one or more of the other record locations set forth on Annex A hereto for such Assignor or at such new locations as such Assignor may establish in accordance with the last sentence of this Section 2.4. All Receivables and Contract Rights of such Assignor are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, the office locations described above or such new location established in accordance with the last sentence of this Section 2.4. No Assignor shall establish new locations for such offices until (i) it shall have given to the Collateral Agent not less than 15 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new location, it shall have taken all action, reasonably satisfactory to the Collateral Agent, to maintain 338 EXHIBIT J Page 5 the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.5. Location of Inventory and Equipment. All Inventory and Equipment held on the date hereof by each Assignor is located at one of the locations shown on Annex B hereto for such Assignor. Each Assignor agrees that all Inventory and Equipment now held or subsequently acquired by it shall be kept at (or shall be in transport to) any one of the locations shown on Annex B hereto, or such new location as such Assignor may establish in accordance with the next sentence of this Section 2.5. Any Assignor may establish a new location for Inventory and Equipment only if (i) it shall have given to the Collateral Agent not less than 15 days' prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new location, it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. Notwithstanding anything to the contrary contained in this Section 2.5, it is understood and agreed that (i) the Assignors may hold Inventory and Equipment at locations other than those shown on Annex B hereto so long as the aggregate fair market value of all such Inventory and Equipment does not exceed $1,000,000 at any time and (ii) any Assignor may hold Inventory and Equipment at a location other than those identified on Annex B hereto so long as an effective UCC-1 financing statement (or equivalent thereof) has been filed with the Secretary of State of the State wherein such Inventory or Equipment is located (and, if necessary to create a perfected security interest in such Inventory or Equipment, with the county clerk of the county in which such Inventory or Equipment is located). Each Assignor agrees from time to time upon the request of the Collateral Agent to provide an updated Annex B which shall list the location of all Inventory and Equipment held by each Assignor on the date such updated Annex B is prepared by each Assignor. 2.6. Recourse. This Agreement is made with full recourse to each Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of such Assignor contained herein, in the other Secured Debt Agreements and otherwise in writing in connection herewith or therewith. 2.7. Trade Names; Change of Name. As of the date hereof, no Assignor has or operates in any jurisdiction under, or in the preceding 12 months has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name and such other trade or fictitious names as are listed on Annex C hereto for such Assignor. No Assignor shall change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name except those names listed on Annex C hereto for such Assignor and new names established in accordance with the last sentence 339 EXHIBIT J Page 6 of this Section 2.7. No Assignor shall assume or operate in any jurisdiction under any new trade, fictitious or other name until (i) it shall have given to the Collateral Agent not less than 15 days' prior written notice of its intention so to do, clearly describing such new name and the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new name, it shall have taken all action reasonably requested by the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS 3.1. Additional Representations and Warranties. As of the time when each of its Receivables arises, each Assignor shall be deemed to have represented and warranted that such Receivable, and all records, papers and documents relating thereto (if any) are what they purport to be and that all papers and documents (if any) relating thereto (i) will, to the best knowledge of the respective Assignor, represent the genuine, legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by the respective account debtor arising out of the performance of labor or services or the sale or lease and delivery of the merchandise listed therein, or both, (ii) will be the only original writings evidencing and embodying such obligation of the account debtor named therein (other than copies created for general accounting purposes), (iii) will, to the best knowledge of the respective Assignor, evidence true and valid obligations of the account debtor, enforceable in accordance with their respective terms and (iv) will be in compliance and will conform in all material respects with all applicable federal, state and local laws and applicable laws of any relevant foreign jurisdiction, except where the failure to so comply and confirm could not reasonably be expected to have a material adverse effect on the validity or enforceability of any such Receivables. 3.2. Maintenance of Records. Each Assignor will keep and maintain at its own cost and expense, records of its Receivables and Contracts and such Assignor will make the same available on such Assignor's premises to the Collateral Agent for inspection, at such Assignor's own cost and expense, at any and all reasonable times upon reasonable prior notice to such Assignor. Upon the occurrence and during the continuance of an Event of Default and at the reasonable request of the Collateral Agent, such Assignor shall, at its own cost and expense, deliver all tangible evidence of its Receivables and Contract Rights (including, without limitation, all documents evidencing the Receivables and all Contracts) and such books and records to the Collateral Agent or to its representatives (copies of 340 EXHIBIT J Page 7 which evidence and books and records may be retained by such Assignor). If the Collateral Agent so directs, upon the occurrence and during the continuance of an Event of Default, such Assignor shall legend, in form and manner reasonably satisfactory to the Collateral Agent, the Receivables and the Contracts, as well as books, records and documents of such Assignor evidencing or pertaining to such Receivables and Contracts with an appropriate reference to the fact that such Receivables and Contracts have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein. 3.3. Direction to Account Debtors; Contracting Parties; etc. Upon the occurrence and during the continuance of a Default under Section 10.01 or 10.05 of the Credit Agreement, any other payment default in respect of the Obligations, or any Event of Default under the Credit Agreement (with each such Default or Event of Default being herein called a "Specified Default"), and if the Collateral Agent so directs any Assignor, such Assignor agrees (x) to cause all payments on account of the Receivables and Contracts to be made directly to the Cash Collateral Account, (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Receivables and/or under any Contracts to make payments with respect thereto as provided in preceding clause (x) and (z) that the Collateral Agent may enforce collection of any such Receivables and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as such Assignor. Without notice to or assent by any Assignor, the Collateral Agent may apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account which application shall be effected in the manner provided in Section 7.4 of this Agreement. The reasonable costs and expenses (including reasonable attorneys' fees) of collection, whether incurred by the relevant Assignor or the Collateral Agent, shall be borne by the relevant Assignor. The Collateral Agent shall deliver a copy of each notice referred to in the preceding clause (y) to the relevant Assignor; provided, that the failure by the Collateral Agent to so notify such Assignor shall not affect the effectiveness of such notice or the other rights of the Collateral Agent created by this Section 3.3. 3.4. Modification of Terms; etc. No Assignor shall rescind or cancel any indebtedness evidenced by any Receivable or under any Contract, or modify any term thereof or make any adjustment with respect thereto, or extend or renew the same, or compromise or settle any material dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable or Contract, or interest therein, without the prior written consent of the Collateral Agent, other than at times when no direction has been given by the Collateral Agent which is then in effect pursuant to preceding Section 3.3. Each Assignor will duly fulfill all obligations on its part to be fulfilled under or in connection with the Receivables and Contracts and will do nothing to impair the rights of the Collateral Agent in the Receivables or Contracts. 341 EXHIBIT J Page 8 3.5. Collection. Each Assignor shall endeavor in accordance with reasonable business practices to cause to be collected from the account debtor named in each of its Receivables or obligor under any Contract, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Receivable or Contract (as adjusted or modified from time to time), and apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Receivable or under such Contract, except that, at all times other than at times when the Collateral Agent has given any direction which is then in effect pursuant to preceding Section 3.3, any Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Receivables and Contracts (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which such Assignor finds appropriate in accordance with reasonable business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services or for other reasons which such Assignor finds appropriate in accordance with reasonable business judgment. The reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) of collection, whether incurred by an Assignor or the Collateral Agent, shall be borne by the relevant Assignor. 3.6. Instruments. If any Assignor owns or acquires any Instrument constituting Collateral, such Assignor will promptly deliver such Instrument to the Collateral Agent appropriately endorsed to the order of the Collateral Agent as further security hereunder. 3.7. Assignors Remain Liable Under Receivables. Anything herein to the contrary notwithstanding, the Assignors shall remain liable under each of the Receivables to observe and perform all of the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to such Receivables. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such Receivable pursuant hereto, nor shall the Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of any Assignor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by them or as to the sufficiency of any performance by any party under any Receivable (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times. 342 EXHIBIT J Page 9 3.8. Assignors Remain Liable Under Contracts. Anything herein to the contrary notwithstanding, the Assignors shall remain liable under each of the Contracts to observe and perform all of the conditions and obligations to be observed and performed by them thereunder, all in accordance with and pursuant to the terms and provisions of each Contract. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such contract pursuant hereto, nor shall the Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of any Assignor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times. 3.9. Further Actions. Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, power of attorney, certificates, reports and other assurances or instruments and take such further steps relating to its Receivables, Contracts, Instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require. ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS 4.1. Additional Representations and Warranties. Each Assignor represents and warrants that, as of the date hereof, it is the true and lawful owner of all right, title and interest to, or otherwise has the right to use the registered Marks listed in Annex D hereto for such Assignor and that said listed Marks constitute all the marks and applications for marks registered in the United States Patent and Trademark Office that such Assignor presently owns or uses in connection with its business. Each Assignor represents and warrants that it owns, is licensed to use or otherwise has the right to use all material Marks that it uses. Each Assignor further warrants that it has no actual knowledge of any third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any trademark, service mark or trade name. Each Assignor represents and warrants that it is the beneficial and record owner of all trademark registrations and applications listed in Annex D hereto for such Assignor and that said registrations are valid and subsisting, and that such Assignor is not aware of any third-party 343 EXHIBIT J Page 10 claim that any of said registrations in respect of any Mark is invalid or unenforceable. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of a Specified Default, any document which may be required by the United States Patent and Trademark Office in order to effect an absolute assignment of all right, title and interest in each Mark, and record the same. 4.2. Infringements. Each Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who such Assignor believes is infringing or diluting or otherwise violating in any material respect any of such Assignor's rights in and to any Mark, or with respect to any party, which Assignor has actual knowledge, claiming that such Assignor's use of any Mark violates in any material respect any property right of that party. Each Assignor further agrees, unless otherwise agreed by the Collateral Agent, to prosecute any Person infringing any Mark in accordance with reasonable business practices. 4.3. Preservation of Marks. Each Assignor agrees to use its Marks in interstate commerce during the time in which this Agreement is in effect, sufficiently to preserve such Marks as trademarks or service marks under the laws of the United States and any other applicable law; provided, that no Assignor shall be obligated to preserve any Mark in the event such Assignor determines, in its reasonable business judgment, that the preservation of such Mark is no longer desirable in the conduct of its business. 4.4. Maintenance of Registration. Each Assignor shall, at its own expense, diligently process all documents required by the Trademark Act of 1946, 15 U.S.C. SectionSection 1051 et seq. to maintain trademark registrations, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office for all of its registered Marks pursuant to 15 U.S.C. SectionSection 1058(a), 1059 and 1065, and shall pay all fees and disbursements in connection therewith and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent; provided, that no Assignor shall be obligated to maintain any Mark in the event that such Assignor determines, in its reasonable business judgment, that the maintenance of such Mark is no longer necessary or desirable in the conduct of its business. 4.5. Future Registered Marks. If any Mark registration issues hereafter to any Assignor as a result of any application now or hereafter pending before the United States Patent and Trademark Office, within 60 Business Days of receipt of such certificate, such Assignor shall deliver to the Collateral Agent a copy of such certificate, and an assignment for security in such Mark, to the Collateral Agent and at the expense of such Assignor, confirming the assignment for security in such Mark to the Collateral Agent 344 EXHIBIT J Page 11 hereunder, the form of such security to be substantially the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 4.6. Remedies. If a Specified Default shall occur and be continuing, the Collateral Agent may take any or all of the following actions: (i) declare the entire right, title and interest of such Assignor in and to each of the Marks, together with all trademark rights and rights of protection to the same, vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such rights, title and interest shall immediately vest, in the Collateral Agent for the benefit of the Secured Creditors, and the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 4.1 hereof to execute, cause to be acknowledged and notarized and record said absolute assignment with the applicable agency; (ii) take and use or sell the Marks and the goodwill of such Assignor's business symbolized by the Marks and the right to carry on the business and use the assets of such Assignor in connection with which the Marks have been used; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from using the Marks in any manner whatsoever, directly or indirectly, and, if requested by the Collateral Agent, change such Assignor's corporate name to eliminate therefrom any use of any Mark and execute such other and further documents that the Collateral Agent may request to further confirm this and to transfer ownership of the Marks and registrations and any pending trademark application in the United States Patent and Trademark Office to the Collateral Agent. 4.7. Override Provisions Relating to Bally Trademark License Agreement. For purposes of Section 6(b) of the Third Amendment to Trademark License Agreement and Settlement Agreement dated as of May 10, 1996, by and among Bally Entertainment Corporation ("Bally"), the U.S. Borrower and BGII Acquisition Corp. (the "Third Amendment"), a true, correct and complete copy of which has been delivered to the Collateral Agent, the Collateral Agent acknowledges and agrees (and each Secured Creditor, by accepting the benefits of this Agreement, also acknowledges and agrees) that (a) any transfer (whether by foreclosure or otherwise) of "Inventory" (as such term is defined in such Third Amendment) effected by the Collateral Agent shall be subject to the royalty and rebate provisions of the Bally Trademark License Agreement (as defined below) so that the Collateral Agent (or the Secured Creditors) shall have paid or caused to be paid to Bally, simultaneously with any such transfer, the royalty per machine due to Bally by reason of such transfer, (b) any transfer (whether by foreclosure or otherwise) of rights under the Bally Trademark License Agreement effected by the Collateral Agent (or the Secured Creditors) shall be subject to the condition precedent that the prospective transferee shall have agreed in writing to be bound by the provisions of the Bally Trademark License Agreement; and (c) any foreclosure by the Collateral Agent (or the Secured Creditors) (whether involving stock or assets of the U.S. Borrower or any of its affiliates) that would result in any transfer or change in ownership or control, direct or indirect, of Bally Gaming 345 EXHIBIT J Page 12 International, Inc. ("BGI") or BGI's rights under the Bally Trademark License Agreement shall comply with all of the provisions of the Bally Trademark License Agreement applicable thereto (including, without limitation, the provisions of Section 9 of the Amended and Restated Trademark License Agreement referred to below and Section 6 of the Third Amendment). For purposes hereof, the term "Bally Trademark License Agreement" shall mean, collectively, the Amended and Restated Trademark License Agreement, dated as of July 8, 1992, between Bally and BGI, the Second Amendment to Trademark License Agreement and Settlement Agreement, dated as of March 31, 1995, between Bally, BGI and Bally Gaming, Inc. and the Third Amendment. ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS 5.1. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of all rights in (i) all Trade Secrets and Proprietary Information necessary to operate the business of such Assignor, (ii) the Patents listed in Annex E hereto for such Assignor and that said Patents constitute all the patents and applications for patents that such Assignor owns and (iii) the Copyrights listed in Annex F hereto for such Assignor and that said Copyrights constitute all registrations of copyrights and applications for copyright registrations that such Assignor owns. Each Assignor further warrants that it has no actual knowledge of any third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any patent or any copyright or such Assignor has misappropriated any Trade Secret or Proprietary Information. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of a Specified Default, any document which may be required by the United States Patent and Trademark Office or the United States Copyright Office in order to effect an absolute assignment of all right, title and interest in each Patent and Copyright, and to record the same. 5.2. Infringements. Each Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to such Assignor with respect to any infringement, contributing infringement or active inducement to infringe in any respect any material Patent or material Copyright or to any claim that the practice of any material Patent or the use of any material Copyright violates in any material respect any property right of a third party, or with respect to any misappropriation of any Trade Secret or any claim that practice of any Trade Secret violates in any material respect any property right of a third party. Each Assignor further agrees, to the extent consistent 346 EXHIBIT J Page 13 with reasonable business practices, to prosecute any Person infringing any Patent or Copyright or any Person misappropriating any Trade Secret. 5.3. Maintenance of Patents. At its own expense, each Assignor shall make timely payment of all post-issuance fees required pursuant to 35 U.S.C. Section 41 to maintain in force rights under each Patent, absent prior written consent of the Collateral Agent; provided, that no Assignor shall be obligated to maintain any Patent in the event such Assignor determines, in its reasonable business judgment, that the maintenance of such Patent is no longer necessary or desirable in the conduct of its business. 5.4. Prosecution of Patent Application. At its own expense, each Assignor shall diligently prosecute all applications for Patents for such Assignor and shall not abandon any such application prior to exhaustion of all administrative and judicial remedies, absent written consent of the Collateral Agent; provided, that no Assignor shall be obligated to prosecute any application in the event such Assignor determines, in its reasonable business judgment, that the prosecuting of such application is no longer necessary or desirable in the conduct of its business. 5.5. Other Patents and Copyrights. Within 30 Business Days of the acquisition or issuance of a Patent, registration of a Copyright, or acquisition of a registered copyright, the relevant Assignor shall deliver to the Collateral Agent a copy of said Copyright or certificate or registration of said patents, as the case may be, with an assignment for security as to such Patent or Copyright, as the case may be, to the Collateral Agent and at the expense of such Assignor, confirming the assignment for security, the form of such assignment for security to be substantially the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 5.6. Remedies. If a Specified Default shall occur and be continuing, the Collateral Agent may take any or all of the following actions: (i) declare the entire right, title, and interest of such Assignor in each of the Patents and Copyrights vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such right, title, and interest shall immediately vest in the Collateral Agent for the benefit of the Secured Creditors, in which case the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 5.1 hereof to execute, cause to be acknowledged and notarized and to record said absolute assignment with the applicable agency; (ii) take and practice or sell the Patents and Copyrights; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from practicing the Patents and using the Copyrights directly or indirectly, and such Assignor shall execute such other and further documents as the Collateral Agent may request further to confirm this and to transfer ownership of the Patents and Copyrights to the Collateral Agent for the benefit of the Secured Creditors. 347 EXHIBIT J Page 14 ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL 6.1. Protection of Collateral Agent's Security. Each Assignor will at all times keep its Inventory and Equipment insured in favor of the Collateral Agent, at such Assignor's own expense to the extent and in the manner provided in the Secured Debt Agreements; all policies or certificates with respect to such insurance (and any other insurance maintained by such Assignor) (i) shall be endorsed to the Collateral Agent's reasonable satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as additional insured and loss payee) and (ii) shall state that such insurance policies shall not be cancelled without 30 days' prior written notice thereof by the insurer to the Collateral Agent; and certified copies of such policies or certificates with respect thereto shall be deposited with the Collateral Agent. If any Assignor shall fail to insure its Inventory and Equipment in accordance with the preceding sentence, or if any Assignor shall fail to so endorse and deposit all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no obligation), upon prior written notice to such Assignor, to procure such insurance and such Assignor agrees to promptly reimburse the Collateral Agent for all reasonable costs and expenses of procuring such insurance. The Collateral Agent shall, at the time any proceeds of such insurance are distributed to the Secured Creditors, apply such proceeds in accordance with Section 7.4 hereof. Each Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of such Assignor to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to such Assignor. 6.2. Further Actions. Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Collateral. 6.3. Financing Statements. Each Assignor agrees to execute and deliver to the Collateral Agent such financing statements, in form reasonably acceptable to the Collateral Agent, as the Collateral Agent may from time to time reasonably request or as are necessary or desirable in the reasonable opinion of the Collateral Agent to establish and 348 EXHIBIT J Page 15 maintain a valid, enforceable, first priority perfected security interest in the Collateral as provided herein and the other rights and security contemplated hereby all in accordance with the UCC as enacted in any and all relevant jurisdictions or any other relevant law. Each Assignor will pay any applicable filing fees, recordation taxes and related expenses relating to its Collateral. Each Assignor hereby authorizes the Collateral Agent to file any such financing statements without the signature of such Assignor where permitted by law. 6.4. Assistance with Gaming Approvals. Each Assignor agrees to assist the Collateral Agent in obtaining all approvals of any Gaming Authority or other governmental authority that are required by law, including, without limitation, the Applicable Gaming Regulations, in connection with any action or transaction contemplated by this Agreement and, at the request of the Collateral Agent after and during an Event of Default, to prepare, sign and file with the appropriate Gaming Authority such Assignor's portion of any application for consent to the transfer of any Collateral necessary or appropriate under Applicable Gaming Regulations for approval by such Gaming Authority of any sale or transfer of such Collateral pursuant to the exercise of the Collateral Agent's (or Secured Creditors') remedies hereunder and under the Credit Documents. ARTICLE VII REMEDIES UPON OCCURRENCE OF SPECIFIED DEFAULT 7.1. Remedies; Obtaining the Collateral Upon Default. Each Assignor agrees that, if a Specified Default shall have occurred and be continuing, then and in every such case, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law, shall have all rights as a secured creditor under the UCC in all relevant jurisdictions and may: (i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from such Assignor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon such Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of such Assignor; (ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables and the Contracts) constituting the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent; 349 EXHIBIT J Page 16 (iii) withdraw all monies, securities and instruments in the Cash Collateral Account and/or in any other cash collateral account for application to the Obligations in accordance with Section 7.4 hereof; (iv) sell, assign or otherwise liquidate any or all of the Collateral or any part thereof in accordance with Section 7.2 hereof, or direct the relevant Assignor to sell, assign or otherwise liquidate any or all of the Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation; (v) take possession of the Collateral or any part thereof, by directing the relevant Assignor in writing to deliver the same to the Collateral Agent at any place or places designated by the Collateral Agent, in which event such Assignor shall at its own expense: (x) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent; (y) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7.2 hereof; and (z) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; and (vi) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Patents or Copyrights included in the Collateral for such term and on such conditions and in such manner as the Collateral Agent shall in its sole judgment determine; it being understood that each Assignor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance by such Assignor of said obligation. The Secured Creditors agree that this Agreement may be enforced only by the action of the Collateral Agent acting upon the instructions of the Required Lenders (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least the majority of the Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Collateral 350 EXHIBIT J Page 17 Agent or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 7.2. Remedies; Disposition of the Collateral. Any Collateral repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair at the expense of the relevant Assignor which the Collateral Agent shall determine to be commercially reasonable, provided that the Collateral Agent shall first apply for and receive all required approvals of any applicable Gaming Authority for the sale of disposition of slot machines and other gaming devices. Any such disposition which shall be pursuant to a private sale or other private proceedings permitted by such requirements shall be made upon not less than 10 Business Days' written notice to the relevant Assignor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 Business Days after the giving of such notice, to the right of the relevant Assignor or any nominee of such Assignor to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Collateral Agent's option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in the City of New York. The Collateral Agent may also request, in connection therewith, that the Nevada Gaming Commission petition a District Court of the State of Nevada for the appointment of a supervisor to conduct the normal gaming activities on the premises of any non-restricted licensed location following appointment of a receiver. To the extent permitted by any such requirement of law, the Collateral Agent may bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the relevant Assignor. If, under mandatory requirements of applicable law, the Collateral Agent shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the relevant Assignor as hereinabove specified, the Collateral Agent need give such Assignor only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. 351 EXHIBIT J Page 18 7.3. Waiver of Claims. Except as otherwise provided in this Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and each Assignor hereby further waives, to the extent permitted by law: (i) all damages occasioned by such taking of possession except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and each Assignor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the relevant Assignor therein and thereto, and shall be a perpetual bar both at law and in equity against such Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under such Assignor. 7.4. Application of Proceeds. (a) All moneys collected by the Collateral Agent (or, to the extent the U.S. Pledge Agreement or any Mortgage or any other Security Document requires proceeds of collateral under such Security Documents to be applied in accordance with the provisions of this Agreement, the Pledgee, Mortgagee or Collateral Agent under such other Security Document) upon any sale or other disposition of the Collateral, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: 352 EXHIBIT J Page 19 (i) first, to the payment of all Obligations owing the Collateral Agent of the type provided in clauses (iii) and (iv) of the definition of Obligations; (ii) second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Primary Obligations shall be paid to the Secured Creditors as provided in Section 7.4(e) hereof, with each Secured Creditor receiving an amount equal to such outstanding Primary Obligations or, if the proceeds are insufficient to pay in full all such Primary Obligations, its Pro Rata Share of the amount remaining to be distributed; and (iii) third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii), an amount equal to the outstanding Secondary Obligations shall be paid to the Secured Creditors as provided in Section 7.4(e) hereof, with each Secured Creditor receiving an amount equal to its outstanding Secondary Obligations or, if the proceeds are insufficient to pay in full all such Secondary Obligations, its Pro Rata Share of the amount remaining to be distributed; and (iv) fourth, to the extent proceeds remain after the application pursuant to the preceding clauses (i) through (iii), inclusive, and following the termination of this Agreement pursuant to Section 10.8(a) hereof, to the relevant Assignor or to whomever may be lawfully entitled to receive such surplus. (b) For purposes of this Agreement (x) "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Primary Obligations or Secondary Obligations, as the case may be, and the denominator of which is the then outstanding amount of all Primary Obligations or Secondary Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in the case of the Credit Document Obligations, all obligations and liabilities of each Assignor arising out of or in connection with the principal of, and interest on, all Loans, all Unpaid Drawings theretofore made (together with all interest accrued thereon), and the aggregate Stated Amounts of all Letters of Credit issued under the Credit Agreement, and all Fees and (ii) in the case of the Other Obligations, all amounts due under the Interest Rate Protection Agreements or Other Hedging Agreements, (other than indemnities, fees (including, without limitation, attorneys' fees) and similar obligations and liabilities) and (z) "Secondary Obligations" shall mean all Obligations other than Primary Obligations. (c) When payments to Secured Creditors are based upon their respective Pro Rata Shares, the amounts received by such Secured Creditors hereunder shall be applied (for purposes of making determinations under this Section 7.4 only) (i) first, to their 353 EXHIBIT J Page 20 Primary Obligations and (ii) second, to their Secondary Obligations. If any payment to any Secured Creditor of its Pro Rata Share of any distribution would result in overpayment to such Secured Creditor, such excess amount shall instead be distributed in respect of the unpaid Primary Obligations or Secondary Obligations, as the case may be, of the other Secured Creditors, with each Secured Creditor whose Primary Obligations or Secondary Obligations, as the case may be, have not been paid in full to receive an amount equal to such excess amount multiplied by a fraction the numerator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of such Secured Creditor and the denominator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of all Secured Creditors entitled to such distribution. (d) Each of the Secured Creditors agrees and acknowledges that if the Lender Creditors are to receive a distribution on account of undrawn amounts with respect to Letters of Credit issued under the Credit Agreement (which shall only occur after all outstanding Loans and Unpaid Drawings with respect to such Letters of Credit have been paid in full), such amounts shall be paid to the Administrative Agent under the Credit Agreement and held by it, for the equal and ratable benefit of the Lender Creditors, as cash security for the repayment of Obligations owing to the Lender Creditors as such. If any amounts are held as cash security pursuant to the immediately preceding sentence, then upon the termination of all outstanding Letters of Credit, and after the application of all such cash security to the repayment of all Obligations owing to the Lender Creditors after giving effect to the termination of all such Letters of Credit, if there remains any excess cash, such excess cash shall be returned by the Administrative Agent to the Collateral Agent for distribution in accordance with Section 7.4(a) hereof. (e) Except as set forth in Section 7.4(d) hereof, all payments required to be made hereunder shall be made (x) if to the Lender Creditors, to the Administrative Agent under the Credit Agreement for the account of the Lender Creditors, and (y) if to the Other Creditors, to the trustee, paying agent or other similar representative (each a "Representative") for the Other Creditors or, in the absence of such a Representative, directly to the Other Creditors. (f) For purposes of applying payments received in accordance with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the Administrative Agent under the Credit Agreement and (ii) the Representative for the Other Creditors or, in the absence of such a Representative, upon the Other Creditors for a determination (which the Administrative Agent, each Representative for any Other Creditors and the Secured Creditors agree (or shall agree) to provide upon request of the Collateral Agent) of the outstanding Primary Obligations and Secondary Obligations owed to the Lender Creditors or the Other Creditors, as the case may be. Unless it has actual knowledge (including by way of written notice from a Lender Creditor or an Other Creditor) to the contrary, the 354 EXHIBIT J Page 21 Administrative Agent and each Representative, in furnishing information pursuant to the preceding sentence, and the Collateral Agent, in acting hereunder, shall be entitled to assume that no Secondary Obligations are outstanding. Unless it has actual knowledge (including by way of written notice from a Representative for an Other Creditor or directly from an Other Creditor) to the contrary, the Collateral Agent, in acting hereunder, shall be entitled to assume that no Interest Rate Protection Agreements or Other Hedging Agreements are in existence. (g) It is understood and agreed that the Assignors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral hereunder and the aggregate amount of the Obligations. 7.5. Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given under this Agreement, the other Secured Debt Agreements or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. No notice to or demand on any Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover reasonable expenses, including reasonable attorneys' fees, and the amounts thereof shall be included in such judgment. 7.6. Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the relevant Assignor, the Collateral Agent and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. 355 EXHIBIT J Page 22 ARTICLE VIII INDEMNITY 8.1. Indemnity. (a) Each Assignor jointly and severally agrees to indemnify, reimburse and hold the Collateral Agent, each other Secured Creditor and their respective successors, permitted assigns, employees, agents and servants (hereinafter in this Section 8.1 referred to individually as "Indemnitee," and collectively as "Indemnitees") harmless from any and all losses, liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all reasonable costs, expenses or disbursements (including reasonable attorneys' fees and expenses and/or costs and expenses associated with obtaining required approvals of any Gaming Authority) (for the purposes of this Section 8.1 the foregoing are collectively called "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Agreement, any other Secured Debt Agreement or any other document executed in connection herewith or therewith or in any other way connected with the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent caused by the gross negligence or willful misconduct of such Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, damage, injury, penalty, claim, demand, action, suit or judgment, the relevant Assignor shall assume full responsibility for the defense thereof. Each Indemnitee agrees to use its best efforts to promptly notify the relevant Assignor of any such assertion of which such Indemnitee has knowledge. (b) Without limiting the application of Section 8.1(a) hereof, each Assignor agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any and all reasonable fees, costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with 356 EXHIBIT J Page 23 respect to the Collateral and all other reasonable fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (c) If and to the extent that the obligations of any Assignor under this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 8.2. Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of each Assignor contained in this Article VIII shall continue in full force and effect notwithstanding the full payment of all of the other Obligations and notwithstanding the discharge thereof. ARTICLE IX DEFINITIONS The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Administrative Agent" shall have the meaning provided in the recitals of this Agreement. "Agreement" shall mean this Security Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Assignor" shall have the meaning provided in the first paragraph of this Agreement. "Borrowers" shall have the meaning provided in the recitals to this Agreement. "Cash Collateral Account" shall mean a non-interest bearing cash collateral account maintained with, and in the sole dominion and control of, the Collateral Agent for the benefit of the Secured Creditors. 357 EXHIBIT J Page 24 "Chattel Paper" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Class" shall have the meaning provided in Section 10.2 of this Agreement. "Collateral" shall have the meaning provided in Section 1.1(a) of this Agreement. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Contract Rights" shall mean all rights of any Assignor (including, without limitation, all rights to payment) under each Contract. "Contracts" shall mean all contracts between any Assignor and one or more additional parties (including, without limitation, any Interest Rate Protection Agreements or Other Hedging Agreements), but excluding any contract to the extent that the terms thereof prohibit the assignment of, or granting a security interest in, such contract (it being understood and agreed, however, that notwithstanding the foregoing, all rights to payment for money due or to become due pursuant to any such excluded Contract shall be subject to the security interests created pursuant to this Agreement). "Copyrights" shall mean any United States or foreign copyright owned (or subject to the rights of ownership) by any Assignor, including any registrations of any copyright, in the United States Copyright Office or the equivalent thereof in any foreign country, as well as any application for a copyright registration now or hereafter made with the United States Copyright Office or the equivalent thereof in any foreign country by any Assignor. "Credit Agreement" shall have the meaning provided in the recitals of this Agreement. "Credit Document Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Default" shall mean any event which, with notice or lapse of time, or both, would constitute an Event of Default. "Documents" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. 358 EXHIBIT J Page 25 "Equipment" shall mean any "equipment," as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings, movable trade fixtures and vehicles now or hereafter owned by any Assignor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Event of Default" shall mean any Event of Default under, and as defined in, the Credit Agreement and shall in any event, without limitation, include any payment default on any of the Obligations after the expiration of any applicable grace period. "General Intangibles" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Goods" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Indemnitee" shall have the meaning provided in Section 8.1 of this Agreement. "Instrument" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Interest Rate Protection Agreements or Other Hedging Agreements" shall have the meaning provided in the recitals of this Agreement. "Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods, supplies, incidentals, packaging materials, labels, materials and any other items used or usable in manufacturing, processing, packaging or shipping same, in all stages of production -- from raw materials through work-in-process to finished goods -- and all products and proceeds of whatever sort and wherever located and any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from any Assignor's customers, and shall specifically include all "inventory" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor. "Lender Creditors" shall have the meaning provided in the recitals of this Agreement. 359 EXHIBIT J Page 26 "Lenders" shall have the meaning provided in the recitals of this Agreement. "Liens" shall mean any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on any Assignor's property. "Marks" shall mean any United States or foreign trademarks, service marks and trade names now owned, subject to a right of ownership or hereafter acquired by any Assignor, including any registration of, or application for, any trademarks and service marks in the United States Patent and Trademark Office or the equivalent thereof in any foreign country, and any trade dress including logos and/or designs used by any Assignor in the United States or any foreign country. "Obligations" shall mean (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor now existing or hereafter incurred under, arising out of or in connection with any Credit Document to which such Assignor is a party and the due performance and compliance by each Assignor with the terms of each such Credit Document (all such obligations and liabilities under this clause (i), except to the extent consisting of Other Obligations, being herein collectively called the "Credit Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement (including, without limitation, all obligations and liabilities of such Assignor under the U.S. Subsidiaries Guaranty in respect of Interest Rate Protection Agreements or Other Hedging Agreements) and the due performance and compliance by such Assignor with the terms contained in each such Interest Rate Protection Agreement or Other Hedging Agreement (all such obligations and indebtedness under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve its security interest in the Collateral; (iv) in the event of any proceeding for the collection or enforcement of any obligations or liabilities referred to in clauses (i), (ii) and (iii) above, after an Event of Default shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 8.1 of this Agreement. 360 EXHIBIT J Page 27 "Other Creditors" shall have the meaning provided in the recitals of this Agreement. "Other Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Patents" shall mean any United States or foreign patent owned, subject to a right of ownership by or hereafter acquired by any Assignor and any divisions, continuations, reissues, reexaminations, extensions or renewals thereof, as well as any application for a United States or foreign patent now or hereafter made by any Assignor or subject to a right of ownership in such Assignor. "Primary Obligations" shall have the meaning provided in Section 7.4(b) of this Agreement. "Proceeds" shall have the meaning provided in the Uniform Commercial Code as in effect in the State of New York on the date hereof or under other relevant law and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or any Assignor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Pro Rata Share" shall have the meaning provided in Section 7.4(b) of this Agreement. "Proprietary Information" means all information and know-how worldwide, including, without limitation, technical data, manufacturing data, research and development data, manufacturing data, research and development data, data relating to compositions, processes and formulations, manufacturing and production know-how and experience, management know-how, training programs, manufacturing, engineering and other drawings, specifications, performance criteria, operating instructions, maintenance manuals, technology, technical information, software, engineering and computer data and databases, design and engineering specifications, catalogs, promotional literature and financial, business and marketing plans, inventions and invention disclosures. "Receivables" shall mean any "account" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now 361 EXHIBIT J Page 28 or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all of such Assignor's rights to payment for goods sold or leased or services performed by such Assignor, whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper or other evidence of indebtedness or security, together with (a) all security pledged, assigned, hypothecated or granted to or held by such Assignor to secure the foregoing, (b) all of any Assignor's right, title and interest in and to any goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (e) all books, records, ledger cards and invoices relating thereto, (f) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers, (g) all credit information, reports and memoranda relating thereto and (h) all other writings related in any way to the foregoing. "Representative" shall have the meaning provided in Section 7.4(e) of this Agreement. "Requisite Creditors" shall have the meaning provided in Section 10.2 of this Agreement. "Secondary Obligations" shall have the meaning provided in Section 7.4(b) of this Agreement. "Secured Creditors" shall have the meaning provided in the recitals of this Agreement. "Secured Debt Agreements" shall mean and include this Agreement, the other Credit Documents and the Interest Rate Protection Agreements or Other Hedging Agreements. "Specified Default" shall have the meaning provided in Section 3.3 of this Agreement. "Termination Date" shall have the meaning provided in Section 10.8(a) of this Agreement. "Trade Secrets" means any secretly held existing engineering and other data, information, production procedures and other know-how relating to the design, manu- 362 EXHIBIT J Page 29 facture, assembly, installation, use, operation, marketing, sale and servicing of any products or business of the Assignor worldwide whether written or not written. ARTICLE X MISCELLANEOUS 10.1. Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been duly given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed as follows: (a) if to any Assignor: 6601 South Bermuda Las Vegas, Nevada 89119 Attention: Scott Schweinfurth Telephone No.: (702) 896-7700 Facsimile No.: (702) 263-5636 (b) if to the Collateral Agent: Credit Suisse First Boston Eleven Madison Avenue New York, New York 10010 Attention: Ed Barr Telephone No.: (212) 325-9151 Facsimile No.: (212) 325-8309 (c) if to any Lender Creditor, at such address as such Lender Creditor shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Assignor and the Collateral Agent; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 363 EXHIBIT J Page 30 10.2. Waiver; Amendment. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Assignor directly affected thereby (it being understood that additional Assignors may be added as parties hereto from time to time in accordance with Section 10.11, and that no consent of any other Assignor or of the Required Lenders shall be required in connection therewith) and the Collateral Agent (with the consent of (x) either the Required Lenders (or, to the extent required by Section 13.12 of the Credit Agreement, all of the Lenders) at all times prior to the time at which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors of such Class of Secured Creditors. For the purpose of this Agreement the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Lender Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Credit Document Obligations, the Required Lenders and (y) with respect to the Interest Rate Protection Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 10.3. Obligations Absolute. The obligations of each Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of such Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement or any other Secured Debt Agreement; or (c) any amendment to or modification of any Secured Debt Agreement or any security for any of the Obligations; whether or not any Assignor shall have notice or knowledge of any of the foregoing. 10.4. Successors and Assigns. This Agreement shall be binding upon each Assignor and its successors and assigns and shall inure to the benefit of the Collateral Agent and the Secured Creditors and their respective successors and assigns. All agreements, statements, representations and warranties made by each Assignor herein or in any certificate or other instrument delivered by such Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Secured Creditors and shall survive the execution and delivery of this Agreement and the other Secured Debt Agreements regardless of any investigation made by the Secured Creditors or on their behalf. 364 EXHIBIT J Page 31 10.5. Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK AND APPLICABLE GAMING REGULATIONS (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). 10.7. Assignor's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that each Assignor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of each Assignor under or with respect to any Collateral. 10.8. Termination; Release. (a) After the Termination Date, this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 8.1 hereof shall survive such termination) and the Collateral Agent, at the request and expense of the respective Assignor, will promptly execute and deliver to such Assignor a proper instrument or instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Total Commitments, and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no Note is outstanding (and all Loans have been repaid in full), all Letters of Credit have been terminated and all other Obligations then due and payable have been indefeasibly paid in full. (b) In the event that any part of the Collateral is sold (but not to the U.S. Borrower or a Subsidiary thereof) in connection with a sale permitted by Section 9.02 of the Credit Agreement or is otherwise released at the direction of the Required Lenders (or all the Lenders if required by Section 13.12 of the Credit Agreement), the Collateral Agent, at the request and expense of such Assignor, will duly assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in the possession 365 EXHIBIT J Page 32 of the Collateral Agent and has not been theretofore been released pursuant to this Agreement. (c) At any time that the respective Assignor desires that the Collateral be released as provided in the foregoing Section 10.8(a) or (b), it shall deliver to the Collateral Agent a certificate signed by an Authorized Officer of such Assignor stating that the release of the respective Collateral is permitted pursuant to Section 10.8(a) or (b) hereof. (d) In the event an Assignor which is a Subsidiary of the U.S. Borrower party to the U.S. Subsidiaries Guaranty is released from its Guaranty under the U.S. Subsidiaries Guaranty, such Assignor shall be released from this Agreement and this Agreement shall, as to such Assignor only, have no further force or effect. 10.9. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the U.S. Borrower and the Collateral Agent. 10.10. Limitation by Law; Severability. All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of Applicable Gaming Regulations, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of the Applicable Gaming Regulations which may be controlling and to be limited to extent necessary so that they will not render this Agreement invalid or unenforceable, in whole or in part. 10.11. The Collateral Agent. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Collateral Agent shall act hereunder on the terms and conditions set forth in this Agreement and in Section 12 of the Credit Agreement. 10.12. Additional Assignors. It is understood and agreed to that any Subsidiary of the U.S. Borrower that is required to execute a counterpart of this Agreement after the date hereof pursuant to the Credit Agreement shall automatically become an Assignor hereunder by executing a counterpart hereof and delivering the same to the Collateral Agent. 366 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. ALLIANCE GAMING CORPORATION, as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Senior Vice President, CFO and Treasurer ALLIANCE HOLDING COMPANY, as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer UNITED COIN MACHINE CO., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer PLANTATION INVESTMENTS, INC., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer APT GAMES, INC., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer 367 FOREIGN GAMING VENTURES, INC., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer louisiana VENTURES, INC., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer UNITED GAMING RAINBOW, as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer NATIVE AMERICAN INVESTMENT, INC., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer BALLY GAMING INTERNATIONAL, INC., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer 368 BALLY GAMING, INC., as an Assignor By /s/ Scott Schweinfurth ------------------------------ Title: Treasurer Accepted and Agreed to: CREDIT SUISSE FIRST BOSTON, as Administrative Agent By /s/ Sean S. Bernard --------------------------------- Title: Assistant Vice President By /s/ Edward E. Barr --------------------------------- Title: Associate 369 ANNEX G to SECURITY AGREEMENT ASSIGNMENT OF SECURITY INTEREST IN UNITED STATES TRADEMARKS AND PATENTS FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby acknowledged, [Name of Assignor], a __________ [corporation] [partnership] ("the Assignor") with principal offices at ____________________________, hereby assigns and grants to Credit Suisse First Boston, as Collateral Agent, with principal offices at Eleven Madison Avenue, New York, New York 10010 (the "Assignee"), a security interest in (i) all of the Assignor's right, title and interest in and to the United States trademarks, trademark registrations and trademark applications (the "Marks") set forth on Schedule A attached hereto, (ii) all of the Assignor's rights, title and interest in and to the United States patents and patent applications (the "Patents") set forth on Schedule B attached, in each case together with (iii) all Proceeds (as such term is defined in the Security Agreement referred to below) and products of the Marks and Patents, (iv) the goodwill of the businesses with which the Marks are associated and (v) all causes of action arising prior to or after the date hereof for infringement of any of the Marks and Patents or unfair competition regarding the same. THIS ASSIGNMENT is made to secure the satisfactory performance and payment of all the Obligations of the Assignor, as such term is defined in the Security Agreement among the Assignor, the other assignors from time to time party thereto and the Assignee, dated as of August 8, 1997 (as amended from time to time, the "Security Agreement"). Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Assignee shall, upon such satisfaction and upon the request and at the expense of the Assignor, promptly execute, acknowledge, and deliver to the Assignor an instrument in writing releasing the security interest in the Marks and Patents acquired under this Assignment. 370 ANNEX G Page 2 This Assignment has been granted in conjunction with the security interest granted to the Assignee under the Security Agreement. The rights and remedies of the Assignee with respect to the security interest granted herein are without prejudice to, and are in addition to those set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Assignment are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. 371 ANNEX G Page 3 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the ____ day of _________, ___. [NAME OF ASSIGNOR], Assignor By ------------------------------------ Name: Title: CREDIT SUISSE FIRST BOSTON, as Collateral Agent, Assignee By ------------------------------------ Name: Title: By ------------------------------------ Name: Title: 372 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ____ day of _________, ___, before me personally came ________ _________________ who, being by me duly sworn, did state as follows: that [s]he is _______________ of [Name of Assignor], that [s]he is authorized to execute the foregoing Assignment on behalf of said [corporation] [partnership] and that [s]he did so by authority of the Board of Directors of said [corporation] [partnership]. ----------------------------------------- Notary Public 373 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ____ day of _________, ____, before me personally came ________ _____________________ who, being by me duly sworn, did state as follows: that [s]he is __________________ of Credit Suisse First Boston, that [s]he is authorized to execute the foregoing Assignment on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ----------------------------------------- Notary Public 374 ANNEX H to SECURITY AGREEMENT ASSIGNMENT OF SECURITY INTEREST IN UNITED STATES COPYRIGHTS WHEREAS, [Name of Assignor], a _______________ [corporation] [partnership] (the "Assignor"), having its chief executive office at __________________________________, ____________________________, is the owner of all right, title and interest in and to the United States copyrights and associated United States copyright registrations and applications for registration set forth in Schedule A attached hereto; WHEREAS, CREDIT SUISSE FIRST BOSTON, as Collateral Agent, having its principal offices at Eleven Madison Avenue, New York, New York 10010 (the "Assignee"), desires to acquire a security interest in said copyrights and copyright registrations and applications therefor; and WHEREAS, the Assignor is willing to assign to the Assignee, and to grant to the Assignee a security interest in and lien upon the copyrights and copyright registrations and applications therefor described above. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and subject to the terms and conditions of the Security Agreement, dated as of August 8, 1997, made by the Assignor, the other assignors from time to time party thereto and the Assignee (as amended from time to time, the "Security Agreement"), the Assignor hereby assigns to the Assignee, and grants to the Assignee a security interest in the copyrights and copyright registrations and applications therefor set forth in Schedule A attached hereto. This Assignment is made to secure the satisfactory performance and payment of all the Obligations (as defined in the Security Agreement) of the Assignor. Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Assignee shall, upon such satisfaction and upon the request and at the expense of the Assignor, promptly execute, acknowledge and deliver to the Assignor an instrument in writing releasing the security interest in the Copyrights acquired under this Assignment. This Assignment has been granted in conjunction with the security interest granted to the Assignee under the Security Agreement. The rights and remedies of the Assignee with respect to the security interest granted herein are without prejudice to, and are in addition to those set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Assignment are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. 375 ANNEX H Page 2 Executed at New York, New York, the __ day of _________, ____. [NAME OF ASSIGNOR] By ------------------------------------ Name: Title: CREDIT SUISSE FIRST BOSTON By ------------------------------------ Name: Title: By ------------------------------------ Name: Title: 376 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this __ day of _________, ____, before me personally came ___________ _______________, who being duly sworn, did depose and say that [s]he is ___________________ of [Name of Assignor], that [s]he is authorized to execute the foregoing Assignment on behalf of said [corporation] [partnership] and that [s]he did so by authority of the Board of Directors of said corporation. ----------------------------------------- Notary Public 377 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ____ day of _________, ____, before me personally came ________ _____________________ who, being by me duly sworn, did state as follows: that [s]he is __________________ of Credit Suisse First Boston, that [s]he is authorized to execute the foregoing Assignment on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ----------------------------------------- Notary Public 378 EXHIBIT K 379 EXHIBIT K GERMAN SECURITY AGREEMENT By and among (1) Alliance Automaten Verwaltungs GmbH, a limited liability company established under the laws of Germany, registered with the commercial register of the Amtsgericht Charlottenburg No. HR B B 58120, Maybachufer 48-51, 12045 Berlin, Germany, (2) Alliance Automaten GmbH & Co KG, a company established under the laws of Germany, registered with the commercial register of the Amtsgericht Charlottenburg under No. HR A 27571, Maybachufer 48-51, 12045 Berlin, Germany, (3) Bally Wulff Vertriebs GmbH, a limited liability company established under the laws of Germany, registered with the commercial register of the Amtsgericht Hannover under HR B 6421, Sokelantstr. 35, 30165 Hannover, Germany, (4) Geda Automatengro#handel Gesellschaft mit beschrankter Haftung, a limited liability company established under the laws of Germany, registered with the commercial register of the Amtsgericht Bruchsal under HR B 0535, An der B 35, 76646 Bruchsal, Germany, (5) Erkens Vertriebs GmbH, a limited liability company established under the laws of Germany, registered with the commercial register of the Amtsgericht Mettmann under HR B 2844, Heinrich-Hertz-Str. 36, 40699 Erkrath, Germany, (6) WESTAV Westdeutscher Automatenvertrieb GmbH, a limited liability company established under the laws of Germany, registered with the commercial register of the Amtsgericht Hannover under HR B 2000, (7) Bally Gaming International GmbH, a limited liability company established under the laws of Germany, registered with the commercial register of the Amtsgericht Hannover under HR B 50491, 380 EXHIBIT K Page 2 represented by the undersigned - hereinafter collectively the "Assignors", individually the "Assignor" - and Credit Suisse First Boston, a company established under the laws of Switzerland and certified as a bank, acting through its New York Branch and as collateral agent for the Lender Creditors (as defined below), represented by the undersigned - hereinafter "Collateral Agent" - Except as otherwise defined herein, terms used and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. WHEREAS, (i) Alliance Gaming Corporation, Las Vegas, USA (the "US Borrower"), (ii) Bally Wulff Vertriebs GmbH, Hannover, Germany (hereinafter the "Bally Wulff Vertrieb"), (iii) Bally Wulff Automaten GmbH, Berlin, Germany (hereinafter the "Bally Wulff Automaten") (Bally Wulff Vertrieb and Bally Wulff Automaten the "German Borrowers", the plural form including the singular; the US Borrower and the German Borrowers together the "Borrowers"), the financial institutions from time to time party thereto (the "Lenders") and the Collateral Agent as Administrative Agent (together with the Lenders, the "Lender Creditors"), have entered into a credit agreement, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, the "Credit Agreement"); WHEREAS, in the Credit Agreement the Lender Creditors, among others, severally agreed to grant to the German Borrowers Revolving Loans up to the amount of $55,000,000 (taking the Deutsche equivalent thereof) (the "Loans"), including the issuance of Letters of Credit (the "German Letters of Credit"); WHEREAS, the German Borrowers may enter into Interest Rate Protection Agreements and/or Hedging Agreements with one or all of the Lender Creditors or any affiliate thereof (hereinafter the "Other Creditors", and together with the Lender Creditors the "Creditors") (hereinafter the "Additional Agreements"); 381 EXHIBIT K Page 3 WHEREAS, pursuant to the German Subsidiaries Guaranty, dated as of August 8, 1997 (as amended, modified or supplemented from time to time, the "German Subsidiaries Guaranty"), each Assignor (other than the German Borrowers) has jointly and severally guaranteed to the Creditors the payment when due of the Guaranteed Obligations (as defined in the German Subsidiaries Guaranty) (in such capacity the "Guarantors"); WHEREAS, it is a condition precedent to the making of Loans and the issuance of, and participation in, German Letters of Credit under the Credit Agreement and the entering into of Additional Agreements that each Assignor shall have executed and delivered to the Collateral Agent this Agreement in order to secure the obligations of the German Borrowers under the Credit Agreement and the Additional Agreements and of the Guarantors under the German Subsidiaries Guaranty; WHEREAS, each Assignor will obtain benefits from the incurrence of the Loans by, and the issuance of German Letters of Credit to, the German Borrowers under the Credit Agreement and from the entering into of Additional Agreements and, accordingly, desires to execute this Security Agreement in order to satisfy the conditions described in the preceding paragraph and to induce the Lenders to make Loans to, and to issue and participate in Letters of Credit for the account of the German Borrowers and to enter into Additional Agreements; NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Assignor, the receipt and sufficiency of which are hereby acknowledged, each Assignor hereby makes the following representations and warranties and hereby covenants and agrees with the Collateral Agent as follows: Section 1 SECURITY INTERESTS (1) As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration, at the occurrence of an Event of Default or otherwise) of: (a) in the case of either German Borrower: (i) the principal of and interest on the Loans made to the German Borrowers under the Credit Agreement and all reimbursemen obligations and Unpaid Drawings with respect to German Letters of Credit issued under the Credit Agreement, 382 EXHIBIT K Page 4 (ii) all other obligations and liabilities owing by the German Borrowers to the Lender Creditors under the Credit Agreement (including, without limitation, indemnities, Fees and interest thereon) now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement or any other Credit Document and the due performance and compliance with the terms of the Credit Documents by the German Borrowers (all such principal, interest, liabilities and obligations hereinafter the "Credit Document Obligations"), (iii) all obligations and liabilities of the German Borrowers now existing or hereafter incurred under, arising out of or in connection with any Additional Agreement and the due performance and compliance by the German Borrowers with the terms contained in each Additional Agreement (all such obligations and indebtedness under this clause (iii) being herein collectively called the "Other Obligations"); (b) in the case of any Assignor other than the German Borrowers all the obligations and liabilities of the Guarantor under the German Subsidiaries Guaranty (all such obligations hereinafter the "Guaranty Obligations"); (c) in the case of Bally Gaming International GmbH, all of the obligations of Bally Gaming International GmbH pursuant to the Bally Gaming International Senior Secured Loans; (d) in the case of each Assignor: (i) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve the security interests in the Collateral, (ii) in an Event of Default the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs, and (iii) all amounts paid by any Indemnitee (as defined in Section 10(1)) of this Agreement as to which such Indemnitee has the right to reimbursement under Section 10 of this Agreement; the respective Assignor does hereby 383 EXHIBIT K Page 5 1. assign and transfer unto the Collateral Agent, and does hereby grant to the Collateral Agent for the benefit of the Creditors a continuing security interest of first priority in, all of the right, title and interest (including any expectancy right) ("Anwartschaftsrecht") of such Assignor in, to and under all of the Collateral, and 2. pledge to the Lender Creditors all Intellectual Property Rights of which the assignment and/or the transfer is excluded by mandatory provisions of the applicable law. (2) In addition, Bally Wulff Vertriebs and/or Bally Wulff Automaten hereby assigns all claims arising from any future intercompany loans to Bally Gaming International GmbH, including, but not limited to, all rights or title to any note evidencing these claims. Each of Bally Wulff Vertriebs and Bally Wulff Automaten hereby warrant that such loan shall not have an equity substituting character (eigenkapitalesetzendes Darlehen). Bally Wulff Vertriebs and/or Bally Wulff Automaten further undertake(s) to assign, transfer or pledge, as the case may be, to the Collateral Agent any collateral or security granted by Bally Gaming International to Bally Wulff Vertriebs. (3) In case the Credit Agreement should be void, the Collateral shall secure any obligation of the German Borrowers to the Creditors created by applicable law, including, but without limitation, the repayment of Loans already paid out to the German Borrowers (those obligations together with the obligations as described in the foregoing paragraph (1) under (a) to (d) the "Secured Obligations"). (4) The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kind which is the subject of this Agreement which any Assignor may acquire at any time during the continuation of this Agreement. (5) If at any time the aggregate amount of the realizable value of the Collateral and of any other rights and assets that constitute collateral for the Secured Obligations exceeds 120% (the "Coverage Amount") of the Secured Obligations and that not only on a temporary basis, the Collateral Agent shall, upon the written request of the Assignors and at the expense of the Assignors, but without undue delay, (i) reassign or retransfer such Collateral or collateral or such right 384 EXHIBIT K Page 6 or asset (to be selected by the Collateral Agent and the Lenders at their discretion) to the respective Assignor, as necessary to reduce such aggregate amount to the Coverage Amount, and (ii) if such aggregate amount thereafter still exceeds the Coverage Amount, reassign or retransfer, as the case may be, to the respective Assignor such part of the Collateral, collateral or of such right or asset (to be selected by the Collateral Agent and the Creditors in their discretion), together with all related rights and assets, as is necessary to reduce such aggregate amount to the Coverage Amount. (6) If and to the extent the value of the Collateral exceeds 80% of the value of the total assets (in the meaning of Section 419 German Civil Code) of one or several of the Assignors, the Collateral Agent shall release to the respective Assignor an amount equal to such excess. The Assignors undertake to keep the Collateral Agent informed of the value of the Collateral and the value of each Assignor's total assets. If at any time after signing this Agreement Collateral might come into existence which would be assigned or transferred to the Collateral Agent under this Agreement and which would make the Collateral Agent acquire in the aggregate more than 80% of the assets of one or several of the Assignors (taking into account also any other securities the respective Assignor granted to the Creditors in the Credit Documents, to the extent this is necessary to avoid the applicability of Section 419 BGB), the respective Assignor shall inform the Collateral Agent in writing prior to the respective Collateral coming into existence and in such written communication specifically identify such Collateral and such Collateral shall not be assigned or transferred to the Collateral Agent and the Creditors under this Agreement. (7) The Collateral Agent shall have no liability whatsoever to any Creditor as the result of any release of Collateral by it as permitted by the foregoing paragraphs (4) and (5). Upon any release of Collateral pursuant to the foregoing paragraphs (4) and (5), none of the Creditors shall have any continuing right or interest in such Collateral or the proceeds thereof. (8) If, after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof, shall have any effect on the validity or enforceability of this Agreement or of the Security Interests created hereunder (including, without limitation, with respect to its priority rank), the Assignors shall, to the extent permitted by then applicable law, at their expense, execute, acknowledge and deliver all such further instruments and documents (including, without limitation, pledge agreements, security agreements, legal opinions and related documents), and take all such action as the Collateral Agent may from time to time request in order to provide the Collateral Agent with a legal position at least equal to the position it enjoyed under this Agreement before such adoption or change. (9) The total amount collectable by the Creditors hereunder from those Assignors which are subsidiaries of Alliance Automaten GmbH & Co. KG, Berlin, (i) shall 385 EXHIBIT K Page 7 not exceed the total amount of free reserves plus profits carried forward of this company, and (ii) will meet the restrictions of Section Section 30, 31 of the German Act on Limited Liability Companies. Section 2 POWER OF ATTORNEY Each Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of an Event of Default (in the name of such Assignor or otherwise) to act, require, demand, receive, compound and give acquittance for any and all monies and claims for monies due or to become due to the Assignor under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be necessary or advisable in the premises, which appointment as attorney is coupled with an interest. Section 3 GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: (1) All filings, registrations and recordings necessary to create, preserve, protect and perfect the security interest granted by such Assignor to the Collateral Agent hereby in respect of the Collateral have been accomplished and the security interest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral constitutes a perfected security interest therein superior and prior to the rights of all other Persons therein and subject to no other Liens (other than Liens permitted by Section 9.01 of the Credit Agreement) and is entitled to all the rights, priorities and benefits afforded by applicable law as enacted in any relevant jurisdiction to perfected security interests. (2) Each Assignor is, and as to Collateral acquired by it from time to time after the date hereof such Assignor will be, the owner of all Collateral free from any Lien, security interest encumbrance or other right, title or interest of any Person (other than statutory liens and retentions of title incurred in the ordinary course of business), and such Assignor shall defend the Collateral against all claims and 386 EXHIBIT K Page 8 demands of all Persons at any time claiming the same or any interest therein adverse to the Collateral Agent. (3) The chief executive office of each Assignor is located at the address indicated on ANNEX A hereto. No Assignor will move its chief executive office except to such new location as such Assignor may establish in accordance with the last sentence of this Section 3, paragraph 3. The originals of all documents evidencing all Receivables of such Assignor and the only original books of account and records of such Assignor relating thereto are, and will continue to be, kept at such chief executive office, or at such new locations as such Assignor may establish in accordance with the last sentence of this Section 3, paragraph 3. All Receivables of such Assignor are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, the office locations described above, or such new locations as such Assignor may establish in accordance with the last sentence of this Section 3, paragraph 3. No Assignor shall establish new locations for such offices until (i) it shall have given to the Collateral Agent not less than 30 days' prior written notice (or such lesser notice as shall be acceptable to the Collateral Agent in the case of a new record location to be established in connection with newly acquired Contracts) of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request, and (ii) with respect to such new location, it shall have taken all action, satisfactory to the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. The Assignors shall not change their corporate seat or chief executive office into a jurisdiction other than the Federal Republic of Germany without the expressly given prior written consent of the Collateral Agent. (4) All Inventory and Equipment held on the date hereof by each Assignor is located at one of the locations shown on ANNEX B attached hereto. Each Assignor agrees that all Inventory and Equipment now held or subsequently acquired by it shall be kept at (or shall be in transport to or from) any one of the locations shown on ANNEX B hereto, or such new location as such Assignor may establish in accordance with the last sentence of this Section 3, paragraph 4. An Assignor may establish a new location for Inventory and Equipment only if (i) it shall have given to the Collateral Agent prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request, and (ii) with respect to such new location, it shall have taken all action 387 EXHIBIT K Page 9 reasonably satisfactory to the Collateral Agent to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. (5) No Assignor does have or operate in any jurisdiction under, or in the preceding five years has had or has operated in any jurisdiction under, any trade names, fictitious names or other names (including, without limitation, any names of divisions or operations) except its legal name. No Assignor shall change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name except in accordance with the last sentence of paragraph 5. No Assignor shall assume or operate in any jurisdiction under any new trade, fictitious or other name or operate under any existing name in any additional jurisdiction until (i) it shall have given to the Collateral Agent not less than 30 days' prior written notice of its intention so to do, clearly describing such new name and/or jurisdiction and, in the case of a new name, the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Collateral Agent may reasonably request, and (ii) with respect to such new name and/or new jurisdiction, it shall have taken all action to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. (6) This Agreement is made with full recourse to the relevant Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of such Assignor contained herein and otherwise in writing in connection herewith or therewith. Section 4 SPECIAL PROVISIONS CONCERNING RECEIVABLES (1) The assignment of the Receivables existent at the present time shall become effective upon the conclusion of this Agreement, whereas the assignment of all claims arising in the future shall become effective at the time of their accrual. Each such assignment takes effect without further action on the part of the parties or any other person. (2) The realizable value of the Receivables corresponds to the nominal value of the Receivables, less such claims (i) for which the assignment is excluded or is dependent upon the assent of the third party debtor which assent is not available, (ii) which are subject to a customarily extended retention of title, (iii) which are 388 EXHIBIT K Page 10 confronted with claims which can be set off, (iv) for which there is no legal validity of the assignment in due of the seat of the third party debtor being abroad or due to the application of a foreign law, or (v) which do not exist because the deliveries and performances which form the basis of the claim were not performed or not to the full extent. The realizable value of these claims is their book value according to German GAAP. In cases of doubt regarding the realizable value the Collateral Agent is entitled to reassign the relevant Receivables back to the respective Assignor. (3) If and to the extent that the Assignors may now or hereafter demand from a third party (i) reassignment of Receivables, assigned to such third party under an "extended retention of title" arrangement ("verlangerter Eigentumsvorbehalt"), (ii) or surrender of any proceeds obtained therefrom, the Assignors hereby assign such rights (including all ancillary rights) to the Collateral Agent. The same applies to any claim of the Assignors for the reassignment ("Anwartschaftsrecht") of a Receivable that has been assigned subject to the condition subsequent ("auflosende Bedingung") of the automatic reversal of the assignment in certain specified circumstances. The Collateral Agent is entitled to terminate the "extended retention of title" arrangement with respect to a Receivable at any time by satisfying the third party. (4) If any amount payable under or in connection with any of the Receivables is or becomes evidenced by any promissory note or other instrument (such as a check or a bill of exchange) or is or will be paid by letter of credit, title to, and all rights with respect to, such note or instrument or rights under a bill of exchange or letter of credit or other note or instrument are hereby transferred and assigned to the Collateral Agent, and possession of such note or instrument is from the beginning held by the Assignors on behalf of the Collateral Agent ("Besitzkonstitut") without compensation. Such note or instrument shall be delivered to the Collateral Agent without undue delay, duly endorsed in a manner satisfactory to the Collateral Agent. If the Assignors do not obtain possession, they hereby assign their rights for possession against third parties to the Collateral Agent which accepts such assignment. (5) The assignment does not extend to Receivables, for which the assignment is excluded, unless and to the extent permitted under Section 354a HGB (German Commercial Code). (6) If, by virtue of this agreement, a Receivable relating to goods sold to the Assignors by third parties under "extended retention of title" arrangements ("verlangerter Eigentumsvorbehalt") is assigned to the Collateral Agent, such 389 EXHIBIT K Page 11 assignment shall become effective only upon termination of the "extended retention of title" arrangement. If the third party's claim covers only a part of the Receivable, only such part of the Receivable as is not covered by the third party's claim is initially assigned to the Collateral Agent; the assignment of the remainder of the Receivable to the Collateral Agent shall become effective only upon termination of the "extended retention of title" arrangement. The Collateral Agent is entitled to terminate the "extended retention of title" arrangement with respect to a Receivable at any time by satisfying the third party. (7) As of the time when each of its Receivables arises, each Assignor shall be deemed to have represented and warranted that such Receivable, and all records, papers and documents relating thereto (if any) are, to the best knowledge of the Assignor after due inquiry, genuine and in all respects what they purport to be, and that all papers and documents (if any) relating thereto, to the best knowledge of the Assignor after due inquiry (i) will represent the genuine, legally valid and binding obligation of the account debtor, subject to adjustments customary in the business of such Assignor, and evidencing indebtedness unpaid and owed by the respective account debtor arising out of the performance of labor or services or the sale or lease and delivery of the merchandise listed therein, or both, (ii) will be the only original writings evidencing and embodying such obligation of the account debtor named therein (other than copies created for general accounting purposes), (iii) will evidence true and valid obligations, enforceable in accordance with their respective terms, subject to adjustments customary in the business of such Assignor, and (iv) will be in compliance and will conform in all material respects with all applicable laws of any relevant jurisdiction. (8) Each Assignor will keep and maintain at its own cost and expense satisfactory and complete records of its Receivables, including, but not limited to, the originals of all documentation (including each contract) with respect thereto, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and such Assignor will make the same available to the Collateral Agent for inspection, at such Assignor's own cost and expense, at any and all reasonable times upon demand and upon reasonable advance notice. Each Assignor shall, at its own cost and expense, deliver all tangible evidence of its Receivables (including, without limitation, copies of all documents evidencing the Receivables, such copies, if requested by the Collateral Agent while an Event of Default is in existence, to be certified as true and complete by an appropriate officer of such Assignor) and such books and records to the Collateral Agent or to its representatives (copies of which 390 EXHIBIT K Page 12 evidence and books and records may be retained by such Assignor) at any time upon its demand. If the Collateral Agent so directs while an Event of Default is in existence, each Assignor shall legend in form and manner reasonably satisfactory to the Collateral Agent, the Receivables, as well as books, records and documents of such Assignor evidencing or pertaining to the Receivables with an appropriate reference to the fact that the Receivables have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein. (9) No Assignor shall rescind or cancel any indebtedness evidenced by any Receivable, or modify any term thereof or make any adjustment with respect thereto, or extend or renew the same, or compromise or settle any material dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable, or interest therein, without the prior written consent of the Collateral Agent, except as permitted by paragraph 9 hereof, and so long as no Event of Default is then in existence in respect of which the Collateral Agent has given notice that this exception is no longer applicable, the Assignor may rescind, cancel, modify, make adjustments with respect to, extend or renew any indebtedness evidenced by any Receivable, or compromise or settle any such dispute, claim, suit, or legal proceeding, or sell any Receivable or interest therein, in the ordinary course of business. Each Assignor will duly fulfill all obligations on its part to be fulfilled under or in connection with the Receivables and will do nothing to materially impair the rights of the Collateral Agent in the Receivables. (10) Each Assignor shall endeavor to collect from the account debtor, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Receivable, and apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Receivable, except that, so long as no Event of Default is then in existence in respect of which the Collateral Agent has given notice that this exception is no longer applicable, such Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Receivables (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which such Assignor finds appropriate in accordance with sound business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services. The reasonable out-of- pocket costs and expenses (including, without limitation, attorneys' fees) of collection, whether incurred by such Assignor or the Collateral Agent, shall be borne by such Assignor. 391 EXHIBIT K Page 13 (11) Upon the occurrence and during the continuance of an Event of Default, and if the Collateral Agent so directs the relevant Assignor, to the extent permitted by applicable law, such Assignor agrees (x) to cause all payments on account of the Receivables to be made directly to a special designated account of the Collateral Agent (hereinafter the "Cash Collateral Account"), (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Receivables to make payments with respect thereto as provided in preceding clause (x) and (z) that the Collateral Agent may enforce collection of any such Receivables and may adjust, settle or compromise the amount of payment thereof. The Collateral Agent may apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account in the manner provided in Section 9(5) of this Agreement. The reasonable out-of-pocket costs and expenses (including attorneys' fees) of collection, whether incurred by such Assignor or the Collateral Agent, shall be borne by such Assignor. (12) If any Assignor owns or acquires any instrument in connection with the Collateral, such Assignor will within 10 days notify the Collateral Agent thereof, and upon request by the Collateral Agent promptly deliver such instrument to the Collateral Agent appropriately endorsed to the order of the Collateral Agent as further security hereunder. (13) Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such receipts, invoices, schedules, confirmatory assignments, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to its Receivables, instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require to give effect to the purposes of this Agreement. Section 5 SPECIAL PROVISIONS CONCERNING INVENTORY AND EQUIPMENT (1) The transfer of all right, title and interest (including expectancy rights ("Anwartschaftsrechte") with respect to Inventory and Equipment located at any of the locations shown in ANNEX B hereto at the time of the signature of this Agreement, shall become effective upon the conclusion of this Agreement, whereas the transfer of all future Inventory and Equipment shall be effective at the time of the arrival of such Collateral at such location without any further action on the part of the parties or any other person. Insofar as expectancy 392 EXHIBIT K Page 14 rights under retention of title arrangements ("Eigentumsvorbehalt") are transferred to the Collateral Agent, the proprietary right will be acquired by the Collateral Agent directly from the third person at the time the retention of title arrangement terminates. (2) Each Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, that he has title, right or interest (including expectancy rights) to all present and future Inventory and Equipment located at the locations shown on ANNEX B hereto and that the respective Assignor is entitled to dispose of these rights. (3) The transfer of the present and future Collateral shall be replaced by the obligation of each Assignor, to store the Collateral for the benefit of the Collateral Agent with due diligence and care ("Besitzkonstitut"). (4) The Collateral Agent is entitled to repay obligations of each Assignor vis-a-vis third persons with respect to the Collateral. (5) Each Assignor will keep and maintain at its own cost and expense satisfactory and complete records of any Inventory and Equipment, including, but not limited to, the originals of all documentation (including each contract) with respect thereto, and such Assignor will make the same available to the Collateral Agent for inspection, at such Assignor's own cost and expense, at any and all reasonable times upon demand and upon reasonable advance notice. (6) Each Assignor shall be entitled to dispose of the Collateral in the ordinary course of business, provided, that no Event of Default has occurred and provided further, that the security interest of the Collateral Agent with respect to the Collateral shall not be materially impaired or affected. (7) The security interests in Equipment created by this Agreement shall be subject to any Lien on Equipment permitted by Section 9.01 of the Credit Agreement until such time as such Lien no longer attaches to such Equipment. Section 6 SPECIAL PROVISIONS CONCERNING MARKS (1) Each Assignor represents and warrants, to the best of its knowledge after due inquiry, that it is the true and lawful owner of the registered and unregistered Marks listed in ANNEX E attached hereto and that ANNEX E lists all the Marks 393 EXHIBIT K Page 15 registered in the Trademark Register of the German Patent Office or the equivalent thereof in any foreign country and, to the best of its knowledge, all unregistered Marks that such Assignor now owns or uses for products developed by such Assignor in connection with its business. Each Assignor represents and warrants that except with respect to those licensed Marks set forth in ANNEX E, to the best of its knowledge after due inquiry, it owns all trademarks that it uses. Each Assignor further warrants that it is aware of no third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any trademark in a manner which could have a material effect on the financial condition, business or property of such Assignor. Notwithstanding the foregoing, the representations contained in this Section 6(1) will only be deemed to be breached by matters that have, or would reasonably be expected to have, a Material Adverse Effect. (2) Each Assignor hereby agrees not to divest itself of any right under a Significant Mark, other than in the ordinary course of business, absent prior written approval of the Collateral Agent. (3) Each Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who may be infringing or otherwise violating any of such Assignor's right in and to any Mark that has a material effect on the financial condition, business or property of such Assignor taken as a whole (each such Mark, a "Significant Mark"), or with respect to any party claiming that such Assignor's use of any Significant Mark violates any property right of that party, to the extent that such infringement or violations could have a material effect on the financial condition, business or property of such Assignor. Each Assignor further agrees, unless otherwise directed by the Collateral Agent, diligently to prosecute any person infringing any Significant Mark in a manner consistent with its past practice and in the ordinary course of business. (4) Each Assignor agrees to use or license the use of its Significant Marks in commerce during the time in which this Agreement is in effect, sufficiently to preserve such Significant Marks as trademarks registered under the laws of the Federal Republic of Germany or the relevant foreign jurisdiction. (5) Each Assignor shall at its own expense, diligently process all documents required by Section 47 of the German Trademark Act and any foreign equivalent thereof to maintain trademark registration, the failure of which would reasonably be expected to have a Material Adverse Effect, including, but not limited to, 394 EXHIBIT K Page 16 affidavits of use and applications for renewals of registration in the German Patent Office or equivalent governmental agency in any foreign jurisdiction for all its Marks (excluding unregistered Marks), and shall pay all fees an disbursements in connection therewith, and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent, which consent shall not be unreasonably withheld, unless such Assignor shall determine that the pursuit or maintenance thereof is no longer desirable in the conduct of the business of such Assignor and that the loss thereof is not disadvantageous in any material respect to such Assignor. (6) If any mark registration issued hereafter to an Assignor as a result of any application now or hereafter before the German Patent Office or equivalent governmental agency in any foreign jurisdiction within thirty (30) days of receipt of such certificate, such Assignor shall deliver a copy of such certificate, and a confirmatory grant of security in such mark to the Collateral Agent, the form of such confirmatory grant reasonably acceptable to the Collateral Agent. (7) If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the right of such Assignor in and to each of the Marks together with all trademark rights and rights of protection to the same, vested; (ii) take and use or sell the Marks and the goodwill of such Assignor's business symbolized by the Marks and the right to carry on the business and use the assets of the Assignor in connection with which the Marks have been used; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from using the Marks in any manner whatsoever, directly or indirectly, and, if requested by the Collateral Agent, change such Assignor's corporate name to eliminate therefrom any use of any Mark and execute such other and further documents that the Collateral Agent may request to further confirm this. Each Assignor gives all necessary declarations of ownership of the Marks by signing this Agreement. Section 7 SPECIAL PROVISIONS CONCERNING PATENTS, INDUSTRIAL DESIGNS AND COPYRIGHTS (1) Each Assignor represents and warrants that, to the best of its knowledge after due inquiry, it is the true and lawful owner or licensee of all rights in the Patents listed in 395 EXHIBIT K Page 17 ANNEX C attached hereto and the Industrial Designs listed in ANNEX C attached hereto, that said Patents constitute all the Patents, applications for Patents and intended applications for Patents that such Assignor now owns and that said Industrial Designs constitute all the Industrial Designs, applications for Industrial Designs and intended applications for Industrial Designs that such Assignor now owns. Each Assignor represents and warrants that, to the best of its knowledge, it owns or is licensed to practice under all Patents, Industrial Designs and Copyrights that is now owns, uses or practices under. Each Assignor further warrants that it is aware of no third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any Patent, Industrial Design or any Copyright in a manner which could have material effect on the financial condition, business or property of such Assignor. (2) Except as otherwise permitted by Section 9.02 of the Credit Agreement, each Assignor hereby agrees not to divest itself or any right under any Patent that has a material effect on the financial condition, business or property of such Assignor taken as a whole (each such patent, a "Significant Patent"), under any Industrial Design that has a material effect on the financial condition, business or property of such Assignor taken as a whole (each such Industrial Design, a "Significant Industrial Design") or any Copyright that has a material effect on the financial condition, business or property of such Assignor taken as a whole (each such copyright, a "Significant Copyright"), other than in the ordinary course of business absent prior written approval of the Collateral Agent, which such approval shall not be unreasonably withheld. (3) At its own expense, each Assignor shall make timely payment of all post-issuance fees required pursuant to Section 17 German Patent Act, Section Section 4(4), 23(2) German Utility Model Act and Section Section 8 c, 9(3) German Design Act and any other national or foreign equivalent or additional fee to maintain in force rights under each Significant Patent, Significant Industrial Design or Significant Copyright. (4) Each Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to such Assignor with respect to any infringement or other violation of such Assignor's rights in any Significant Patent, Significant Industrial Design or Significant Copyright, or with respect to any claim that practice of any Significant Patent, Significant Industrial Design or Significant Copyright violates any property right of that party to the extent that such infringement or violation could have a material effect on the financial condition, business or property of such Assignor. Each Assignor further agrees, absent direction of the Collateral Agent to the contrary, diligently to prosecute any person infringing any Significant Patent, Significat 396 EXHIBIT K Page 18 Industrial Design or Significant Copyright, about which it has knowledge, in a manner consistent with its past practice and in the ordinary course of business. (5) At its own expense, each Assignor shall diligently prosecute all actual and future applications for Patents, Industrial Designs and Copyrights, of which the intended applications are listed in ANNEX C, and shall not abandon any such application, except in favor of continuation application based on such application, prior to exhaustion of all administrative and judicial remedies, absent written consent of the Collateral Agent, which such consent shall not be unreasonably withheld, unless such Assignor shall determine that the pursuit of maintenance thereof is no longer desirable in the conduct or the business of such Assignor in that the loss thereof is not disadvantageous in any material respect to such Assignor. (6) Within 30 days of an Assignor's receipt of both the Patent application serial number for a Patent application and the associated inventor assignments to the Assignor, or 30 days of its filing an application of registration for an Industrial Design, as the case may be, the relevant Assignor shall deliver to the Collateral Agent a confirmatory grant of security of such Patent or Industrial Design, as applicable, the form of such confirmatory grant to be reasonably acceptable to the Collateral Agent. Within 30 days of an Assignor's receipt of an Industrial Design registration certificate or the printed copy of an issued Patent, as the case may be, the Assignor shall deliver a copy of the same to the Collateral Agent. (7) If an Event of Default shall occur and be continuing, the Collateral Agent may by written notice to the relevant Assignor take any or all of the following actions (i) declare the entire right, title and interest of such Assignor in each of the Patents, Industrial Designs and Copyrights vested; (ii) take and practice or sell the Patents, Industrial Designs and Copyrights; (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from practicing the Patents, Industrial Designs and Copyrights directly or indirectly, and such Assignor gives all necessary declarations relating to the transfer of ownership of the Patents, Industrial Designs and Copyrights by signing this Agreement and shall execute such other and further documents as the Collateral Agent may request further to confirm this. Section 8 PROVISIONS CONCERNING ALL COLLATERAL 397 EXHIBIT K Page 19 (1) Each Assignor will do nothing to impair the rights of the Collateral Agent in the Collateral. Each Assignor will at all times keep its Inventory and Equipment insured in favor of the Collateral Agent, at its own expense, to the extent required by the Credit Agreement against fire, theft and all other risks to which such Collateral may be subject; all policies or certificates with respect to such insurance shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as an additional insured and loss payee) and copies thereof shall be delivered upon request to the Collateral Agent. If an Assignor shall fail to insure such Inventory and/or Equipment to the extent required by the Credit Agreement, or if such Assignor shall fail to so endorse all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance and such Assignor agrees to reimburse the Collateral Agent for all costs and expenses of procuring such insurance. The Collateral Agent may apply any proceeds of such insurance in accordance with Section 9(5), it being understood and agreed that the Assignor shall be permitted to first use any such proceeds to repair and/or replace the relevant Collateral. Each Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of such Assignor to pay its Secured Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to such Assignor. (2) Each Assignor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its Inventory, such warehouse receipt or receipt in the nature thereof shall not be negotiable (in the sense of Section 424 German Commercial Code). (3) Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent reasonably deems appropriate or advisable to perfect, preserve or protect its security interest in the Collateral. (4) The Assignors agree to prepare and deliver to the Collateral Agent no later than on the eighth day of each month a duly certified schedule or schedules in the 398 EXHIBIT K Page 20 form of a computer printout, showing (i) as to Receivables, the identity, amount and maturity date of any and all Receivables existing as of the last day of the previous month, as well as the names and addresses of all account debtors, (ii) as to Inventory and Equipment, each object being Collateral, their number and the rights of the Assignors to it, each such schedule accompanied by each Assignor's representation that as of the date of such schedule it has not generally ceased to make payments when due, that no application for the institution of bankruptcy proceedings has been filed against it and that it does not expect any such events to arise within the foreseeable future. The failure of one or several Assignors to include a Receivable or Inventory or Equipment in any such schedule or schedules does not affect the validity of the assignment of such Receivable or transfer of the rights with respect to Inventory or Equipment to the Collateral Agent hereunder. (5) The Collateral Agent and such representatives or agents as the Collateral Agent may reasonably designate shall have the right, at reasonable time and as often as reasonably requested, to inspect all records relating to the Collateral and to make extracts and copies from such records and to inspect all locations where Collateral is stored. They have therefore the right to enter and inspect the Assignor's premises, to discuss the Assignor's affairs with the officers of the Assignors and their independent accountants and to verify under reasonable procedures all matters relating to the Collateral, i.e., validity, amount, quality, quantity, value and condition, including contacting account debtors or any third person for the purpose of making such a verification. The Collateral Agent may only contact account debtors or third persons if the Collateral Agent, in good faith, considers that the existence, value, effectiveness or priority of the security interests is or may be prejudiced by an action, omission, event or circumstance whatsoever and only after prior notice to the Assignors. No such notice is required if the Collateral Agent considers, in good faith, that the imminence or severity of a prejudice to the existence, value, effectiveness or priority of the security interest in respect of the Collateral is such that the delay caused by the giving of such notice is or might be likely to induce or increase such a prejudice. The statutory rights of the Assignors' shareholder/s and managing director/s shall not be affected or reduced thereby. Section 9 REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT (1) Each Assignor agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, subject to any mandatory requirements 399 EXHIBIT K Page 21 of applicable law then in effect, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law, may: personally, or by agents or attorneys, immediately, without the necessity to obtain a prior court order, (i) retake possession of the Collateral or any part thereof, from such Assignor or any other Person who then has possession of any part thereof with or without notice of process of law, and for that purpose may enter upon such Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of such Assignor; (ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables) constituting the Collateral to make any payment required by the terms of such instrument or agreement directly to the Collateral Agent; (iii) sell, assign or otherwise liquidate, or direct such Assignor to sell, assign or otherwise liquidate, any or all of the Collateral or any part thereof, and take possession of the proceeds of any such sale or liquidation; (iv) withdraw any or all monies, securities and/or instruments in the Cash Collateral Account for application to the Secured Obligations in accordance with paragraph (5) hereof; (v) take possession of the Collateral or any part thereof, by directing such Assignor in writing to deliver the same to the Collateral Agent at any place or places designated by the Collateral Agent, in which event such Assignor shall at its own expense: (A) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent, (B) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7, paragraph 2, and 400 EXHIBIT K Page 22 (C) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; (2) Upon the occurrence and continuance of an Event of Default, any Collateral repossessed by the Collateral Agent under or pursuant to Section 9(1) and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair which the Collateral Agent shall determine to be commercially reasonable. (3) Any such disposition which shall be a private sale or other private proceedings permitted by such requirements shall be made upon not less than ten (10) days' written notice to such Assignor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the ten (10) days after the giving of such notice, to the right of the relevant Assignor or any nominee of the relevant Assignor to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than ten (10) days' written notice to the relevant Assignor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Collateral Agent's option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in the city where such Collateral is located. To the extent permitted by any such requirement of law, the Collateral Agent on behalf of the Creditors (or certain of them) may bid for and become the purchaser (by bidding in Secured Obligations or otherwise) of the Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the relevant Assignor (except to the extent of surplus money received as provided in Section 7, paragraph (5). If, under mandatory requirements of applicable law, the Collateral Agent shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the Assignor as hereinabove specified, the Collateral Agent need give the relevant Assignor only such notice of 401 EXHIBIT K Page 23 disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. (4) Except as otherwise provided in this Agreement, each Assignor hereby further waives, to the extent permitted by law: (i) all damages occasioned by such taking of possession except any damages which are the direct result of the Collateral Agent's gross negligence or wilful misconduct; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and each Assignor, for itself and all who may claim under it insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand of the relevant Assignor therein and thereto, and shall be a perpetual bar against the relevant Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under the relevant Assignor. (5) (a) The proceeds of any Collateral obtained pursuant to Section 9, paragraph (1) or disposed of pursuant to Section 9, paragraph (2) shall be applied as follows: (i) first, to the payment of all Primary Obligations of the type described in clauses (iv) and (v) of Section 1(1) to the Collateral Agent; (ii) second, to the extent proceeds remain after the application pursuant to preceding clause (i), an amount equal to the outstanding Primary Obligations to the Creditors shall be paid to the Creditors as provided in this Section 9, paragraph (5)(a) hereof with each Creditor receiving an amount equal to its outstanding Primary Obligations or, if the proceeds are insufficient to pay in full all such Secured Obligations, its Pro 402 EXHIBIT K Page 24 Rata Share (as defined below) of the amount remaining to be distributed; and (iii) third, to the extent remaining after the application pursuant to the preceding clauses (i) and (ii) an amount equal to the outstanding Secondary Obligations shall be paid to the Creditors as provided in paragraph (5) (c) hereof, with each Creditor receiving an amount equal to its outstanding Secondary Obligations or, if the proceeds are insufficient to pay in full all such Secondary Obligations, its Pro Rata Share of the amount remaining to be distributed; and (iv) fourth, to the extent proceeds remain after the application pursuant to the preceding clauses (i) through (iii) inclusive, and following the termination of this Agreement pursuant to Section 12 paragraph 9 hereof, to the relevant Assignor or to whomever may be lawfully entitled to receive such surplus, if any. (b) For purposes of this Agreement, (x) "Pro Rata Share" shall mean, when calculating a Creditor's portion of any distribution or amount, the amount (expressed as a percentage) equal to a fraction the numerator of which is the then outstanding amount of the relevant Secured Obligations owed to such Creditor and the denominator of which is the then outstanding amount of all Secured Obligations, (y) "Primary Obligations" shall mean (i) in the case of the Credit Document Obligations, all obligations and liabilities of the German Borrowers arising out of or in connection with the principal of, and interest on, all Deutsche Mark Loans, all Unpaid Drawings (related to Deutsche Mark Letters of Credit) theretofore made (together with all interest accrued thereon), and the aggregate stated amounts of all German Letters of Credit issued under the Credit Agreement, together with all fees, (ii) in the case of the Other Obligations, all amounts due under the Additional Agreements, (other than indemnities, fees (including, without limitation, attorney's fees) and similar obligations and liabilities) and (iii) in the case of Bally Gaming International GmbH Senior Secured Loans, all obligations of Bally Gaming International GmbH thereunder and (z) "Secondary Obligations" shall mean all Secured Obligations other than Primary Obligations. (c) All payments required to be made to the Creditors hereunder shall be made to the Collateral Agent for the account of the respective Creditors in accordance with Section 7.4 (c) through (f) of the U.S. Security Agreement (Exhibit J to the Credit Agreement), a copy of which is attached hereto as ANNEX G applies. 403 EXHIBIT K Page 25 (d) It is understood that the Assignors shall remain jointly and severally liable to the extent of any deficiency between (x) the amount of the proceeds of the Collateral and (y) the aggregate outstanding amount of the Secured Obligations. (6) Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given under this Agreement, the other Credit Documents or the Additional Agreements or now or hereafter existing, or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of exercise of one shall not be deemed a waiver of the right to exercise of any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Secured Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover reasonable expenses, including attorneys' fees, and the amounts thereof shall be included in such judgment. (7) In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the relevant Assignor, the Collateral Agent and each holder of any of the Secured Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. Section 10 INDEMNITY (1) The Assignors jointly and severally agree to indemnify, reimburse and hold the Collateral Agent, each Creditor and its respective successors, assigns, employees, agents and servants (hereinafter in this Section 10(1) referred to individually as "Indemnitee" and collectively as "Indemnitees") harmless from 404 EXHIBIT K Page 26 any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, suits, judgments and any and all reasonable out-of-pocket costs and expenses (including reasonable attorneys' fees and expenses) (for the purposes of this Section 10(1) the foregoing are collectively called "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Agreement, any other Credit Document, the Additional Agreements or the documents executed in connection herewith and therewith or in any other way connected with the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 10(1) for losses, damages or liabilities to the extent caused by the gross negligence or wilful misconduct of such Person to be indemnified or of any other Indemnitee who is such Person or an affiliate of such Person. If any claim is asserted against any Indemnitee, such Indemnitee shall promptly notify the Assignor and each Indemnitee may, and if requested by the Assignor shall, in good faith, contest the validity, applicability and amount of such claim with counsel (reasonably acceptable to such Assignor) selected by such Indemnitee, and shall permit the Assignor to participate in such contest. In addition, in connection with any claim covered by this Section 10(1) against more than one Indemnitee, all such Indemnitees shall be represented by the same legal counsel selected by such Indemnitees; provided, however, that if such legal counsel determines in good faith that representing all such Indemnitees would or could result in a conflict of interest under the laws or ethical principles applicable to such legal counsel or that a defense or counterclaim is available to an Indemnitee that is not available to all such Indemnitees, then to the extent reasonably necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense or counterclaim, each Indemnitee shall be entitled to separate representation by a legal counsel selected by that Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, loss, damage, penalty, claim, demand, action, judgment or suit, such Assignor shall assume full responsibility for the defense thereof. Each Indemnitee agrees to use its 405 EXHIBIT K Page 27 best efforts to promptly notify the relevant Assignor of any such assertion of which such Indemnitee has knowledge. (2) Without limiting the application of Section 10(1), the Assignors jointly and severally agree to pay, or reimburse the Collateral Agent for (if the Collateral Agent shall have incurred fees, costs or expenses because an Assignor shall have failed to comply with its obligations under this Agreement or any Credit Document), any and all out-of-pocket costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (3) Without limiting the application of Section 10(1) or 10(2), the Assignors jointly and severally agree to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any material misrepresentation by an Assignor in this Agreement, or in any statement or writing contemplated by or made or delivered pursuant to or in connection with this Agreement. (4) If and to the extent that the obligations of any Assignor under Sections 10(1) to 10(3) are unenforceable for any reason, each Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. (5) Any amounts paid by any Indemnitee prior to the termination of this Agreement as to which such Indemnitee has the right to reimbursement shall constitute Secured Obligations secured by the Collateral. The indemnity obligations of the Assignors contained in this Section 10 shall continue in full force and effect notwithstanding the full payment of all other Secured Obligations and notwithstanding the discharge thereof. 406 EXHIBIT K Page 28 Section 11 DEFINITIONS The following terms shall have the meanings herein specified unless the context otherwise requires. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Agreement" shall mean this Security Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Collateral" shall mean (i) each and every Receivable against Third Persons (it being understood, however, that in the case of Bally Gaming International GmbH Senior Secured Loans, the Receivables of Bally Gaming International shall be considered "Collateral"), (ii) any and all Equipment or Inventory which at the time of the execution hereof is, or in the future, will be located on any of the premises currently occupied by any Assignor that are listed in Annex B attached hereto, (iii) each and every Intellectual Property Right, and (iv) all Proceeds and products of any and all of the items referred to in clauses (i) through (iii) above. "Copyrights" shall mean any German or foreign copyright owned by any Assignor nor or hereafter, including any registration of any copyrights or the equivalent thereof, as well as any application for copyright registration now or hereafter in any jurisdiction by any Assignor. "Equipment" shall mean any equipment and, in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings, fixtures and vehicles and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, pans, equipment and accessories installed thereon or affixed thereto. "Industrial Designs" shall mean any German, European, or foreign registrable utility model or any other registrable design protected under any national or international law to which any Assignor now or thereafter has title and any divisions or continuations thereof, including any application for a German or any other foreign Industrial Design now or thereafter made by Assignor, as well as any Industrial Design made in future by any Assignor in any area of any Assignor's business activities. "Intellectual Property Rights" shall mean Marks, Patents, Industrial Designs, Copyrights and Proprietary Assets as defined in Section 11. 407 EXHIBIT K Page 29 "Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods, supplies, incidentals, packaging materials, labels, materials and any other items used or usable in manufacturing, processing, packaging or shipping same; in all stages of production from raw materials through work-in-process to finished goods -- and all products and proceeds of whatever sort and wherever located and any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from an Assignor's customers. "Marks" shall mean all rights in any trademark or parts of it protected by the German Trademark Act, International trademark law or any foreign trademark law or equivalent thereof now held or in the future acquired by any Assignor, including any application for registration of any trademarks in the register of the German Patent Office or the equivalent thereof in any foreign country. "Patents" shall mean any German, European or any other foreign patent to which any Assignor now or thereafter has title and any divisions or continuations thereof, including any application for a German, European or any other foreign patent now or thereafter made by any Assignor, also covering any rights and entitlements to a Patent due to these inventions. "Proceeds" shall be (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or an Assignor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to an Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority), (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral, and (iv) any other similar benefit arising from or in connection with the Collateral. "Proprietary Assets" shall mean all information and know-how of any Assignor, including, without limitation, technical data; manufacturing data; research and development data; data relating to compositions, processes and formulations, manufacturing and production know-how and experience; management know-how; training programs manufacturing, engineering and other drawings; specifications; performance criteria; operation instructions; maintenance manuals; technology; technical information, software and computer programs; engineering and computer data and databases; catalogues; financial, 408 EXHIBIT K Page 30 business and marketing plans; unpatentable inventions; trade secrets, as well as trade dresses including logos, designs, company names, business name, fictitious business names and other business identifiers. "Receivables" shall mean (i) all the existing and future accounts receivable (including the accounts receivable owed by foreign Customers) from the delivery of goods and services against all debtors of the Assignors as well as any respective expectancy rights ("Anwartschaften"), (ii) all existing and future claims and respective expectancy rights ("Anwartschaften") under any and all letters of credit issued in favor of the Assignors and (iii) all present and future current account balances ("Kontokorrentverhaltnis") with account debtors along with the right to terminate any current account arrangement and the right to determine the balance of a current account. "Third Persons" shall mean (i) any company which is not a direct or indirect subsidiary or direct or indirect parent company of the Borrowers and (ii) any natural person. Section 12 MISCELLANEOUS (1) Notices. All notices and other communications hereunder shall be in writing and shall be delivered or mailed by first class mail, postage prepaid, addressed: (i) if to the Assignor, at its address contained in the Credit Agreement (for the German Borrowers) or the German Subsidiary Guaranty (for the other Assignors); (ii) if to the Collateral Agent, at: Credit Suisse First Boston Eleven Madison Avenue New York, New York 10010 Attention: Ed Barr Telephone No.: (212) 325-9151 Facsimile No.: (212) 325-8309 (iii) if to any Lender Creditor (other than the Collateral Agent), at such address as such Lender Creditor shall have specified in the Credit Agreement or the Additional Agreements; 409 EXHIBIT K Page 31 or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. (2) Waiver; Amendment. (a) None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Assignor directly affected thereby (it being understood that additional Assignors may be added as parties hereto from time to time in accordance with Section 12 paragraph 13 and that no consent of any other Assignor or of the Required Lenders shall be required in connection therewith) and the Collateral Agent (with the consent of the Required Lenders or, to the extent required by Section 13.12 of (x) the Credit Agreement, all of the Lenders at all times prior to the time of which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time at which all Credit Document Obligations have been paid in full), provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Creditors (and not all Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors of such Class of Creditors. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Lender Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Credit Document Obligations, the Required Lenders and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Additional Agreements. (b) No delay on the part of the Collateral Agent in exercising any of its rights, remedies, powers and privileges hereunder or partial or single exercise thereof, shall constitute a waiver thereof. No notice to or demand on any Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. (3) Obligations Absolute. The obligations of each Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of any Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, any other Credit Document or any Additional Agreement or (c) any amendment to or modification of other Credit Documents or Additional Agreements or any security for any of the Secured Obligations; whether or not any Assignor shall have notice or knowledge of any of the foregoing. The rights and remedies of the Collateral Agent 410 EXHIBIT K Page 32 herein provided are cumulative and not exclusive of any rights or remedies which the Collateral Agent would otherwise have. (4) Successors and Assigns. This Agreement shall be binding upon each Assignor and its successors and assigns and shall inure to the benefit of the Collateral Agent and its permitted successors and assigns. All agreements, statements, representations and warranties made by each Assignor herein or in any certificate or other instrument delivered by such Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Lender Creditors and shall survive the execution and delivery of this Agreement and the other Credit Documents regardless of any investigation made by the Lender Creditors on their behalf. (5) Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. (6) Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (7) GOVERNING LAW; JURISDICTION. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE FEDERAL REPUBLIC OF GERMANY. Exclusive place of jurisdiction for any dispute arising out of or in connection with this Agreement shall be at Berlin; provided that nothing in this Agreement shall be deemed or operate to preclude the Collateral Agent from bringing suit or taking other legal action against the Assignors before any other court of competent jurisdiction with respect to any such claims or disputes. (8) Assignors' Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that each Assignor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of an Assignor under or with respect to any Collateral. 411 EXHIBIT K Page 33 (9) Termination; Release. When no Deutsche Mark Revolving Note or German Letter of Credit is outstanding and when all Loans and other Secured Obligations (other than indemnity obligations, except those referred to in the first sentence of Section 10(1) have been paid in full, this Agreement shall terminate, and the Collateral Agent, at the request and expense of the Assignor, will execute and deliver to the relevant Assignor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to the relevant Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. (10) Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with each German Borrower and the Collateral Agent. (11) Collateral Agent. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Collateral Agent shall act hereunder on the terms and conditions set forth in this Agreement and in Section 13 of the Credit Agreement. (12) Validity. Should any provision of this Agreement be or become void or not enforceable in whole or in part, the other provisions of this Agreement shall remain in force. The void or unenforceable provision shall be substituted by a valid provision which accomplishes as far as legally possible the economic purpose of the void or unenforceable provision. The validity of this Agreement shall not be affected by the invalidity of the Credit Agreement. (13) Additional Assignors. It is understood and agreed to that any German Subsidiary that is required to execute a counterpart of this Agreement after the date hereof pursuant to the Credit Agreement shall automatically become an Assignor hereunder by executing a counterpart hereof and delivering the same to the Collateral Agent. (14) Credit Agreement. This Agreement is made in fulfillment of the Credit Agreement. To the extent that there is an inconsistency between the terms of this Agreement and the Credit Agreement except where provisions of German law have to be observed in order to effectuate the security interests under German law, any party 412 EXHIBIT K Page 34 hereto shall be entitled to request the adjustment of this Agreement to the terms of the Credit Agreement, unless this would violate mandatory German law. * * * 413 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. the Assignors: August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Alliance Automaten Verwaltungs GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Alliance Automaten GmbH&Co. KG) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Bally Wulff Vertriebs GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Bally Wulff Automaten GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Geda AutomatenGrosshandel GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Erkens Automated GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Westav Westdeutscher Automaten GmbH) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Bally Gaming International GmbH) Acknowledged and Agreed to by August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Credit Suisse First Boston) August 8, 1997 New York, NY /s/ Scott Schweinfurth --------------------------- ------------------------------- (time, place) (Credit Suisse First Boston) 414 EXHIBIT M 415 EXHIBIT M [CONFORMED AS EXECUTED] OFFICER'S SOLVENCY CERTIFICATE I, the undersigned, the chief financial officer of Alliance Gaming Corporation, a corporation organized and existing under the laws of the State of Nevada (the "Company"), do hereby certify that: 1. This Certificate is furnished pursuant to Section 5A.19 of the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, a Nevada corporation, Bally Wulff Vertriebs GmbH, a company with limited liability formed under the laws of the Federal Republic of Germany, Bally Wulff Automaten GmbH, a company with limited liability formed under the laws of the Federal Republic of Germany (the "Borrowers" and each a "Borrower"), the lenders from time to time party thereto (the "Lenders") and Credit Suisse First Boston, as Administrative Agent (such Credit Agreement, as in effect on the date of this Certificate, being herein called the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this Certificate shall have the meanings set forth in the Credit Agreement. 2. For purposes of this Certificate, the terms below shall have the following definitions: (a) "Fair Value" The amount at which the assets, in their entirety, of each of the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (each on a stand-alone basis), in each case would change hands between a willing buyer and a willing seller, within a commercially reasonable period of time, each having reasonable knowledge of the relevant facts, with neither being under any compulsion to act. (b) "Present Fair Salable Value" The amount that could be obtained by an independent willing seller from an independent willing buyer if the assets of the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (each on a stand-alone basis) are sold with reasonable promptness under normal selling conditions in a current market. 416 EXHIBIT M Page 2 (c) "New Financing" The indebtedness incurred or to be incurred by the Company and its Subsidiaries under the Credit Documents (assuming the full utilization by each Borrower of the Commitments under the Credit Agreement), the New Senior Subordinated Notes Documents and all other financing contemplated by the Documents, in each case after giving effect to the Transaction and the incurrence of all financings contemplated therewith. (d) "Stated Liabilities" The recorded liabilities (including Contingent Liabilities that would be recorded in accordance with generally accepted accounting principles ("GAAP"), consistently applied of each of the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (each on a stand-alone basis), in each case as of the date hereof after giving effect to the Transaction and, without duplication, the amount of all New Financing. (e) "Contingent Liabilities" The maximum estimated amount of liability reasonably likely to result from pending litigation, asserted claims and assessments, guaranties, uninsured risks and other contingent liabilities of each other of the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (each on a stand-alone basis), (exclusive of such Contingent Liabilities to the extent reflected in Stated Liabilities), in each case, estimated by such parties based on presently known facts and circumstances. (f) "Will be able to pay its Stated Liabilities, including Contingent Liabilities, as they mature." For the period from the date hereof through the stated maturity of all New Financing, each of the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (each on a stand-alone basis), in each case will have sufficient assets, cash flow and other sources of funds to pay its Stated Liabilities and Contingent Liabilities as those liabilities mature or otherwise become due. (g) "Does not have Unreasonably Small Capital" 417 EXHIBIT M Page 3 For the period from the date hereof through the stated maturity of all New Financing, each of the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (each on a stand-alone basis), in each case after consummation of the Transaction and all Indebtedness (including the Loans, the Letters of Credit and the New Senior Subordinated Notes) being incurred or assumed and Liens created in connection therewith, is a going concern and has sufficient capital to ensure that it will continue to be a going concern for such period and to remain a going concern despite moderately negative deviations from the Projections discussed below. 3. For purposes of this Certificate, I, or officers of the Company under my direction and supervision, have performed the following procedures as of and for the periods set forth below. (a) I have reviewed the financial statements referred to in Section 7.05(a) and 7.05(b) of the Credit Agreement. (b) I have reviewed the unaudited pro forma consolidated financial statements of the Company and their Subsidiaries referred to in Section 5A.17 of the Credit Agreement and verified the mathematical accuracy of the application of the pro forma adjustments to the amounts in the audited consolidated financial statements. (c) I have made inquiries of certain other officials of the Company who have responsibility for financial and accounting matters regarding: 1. whether the unaudited pro forma consolidated financial statements referred to in paragraph (b) above are in conformity with GAAP applied on a basis substantially consistent with that of the unaudited financial statements as at March 31, 1997 and 2. whether, at June 30, 1997, there were any decreases as compared with March 31, 1997, in the consolidated net assets or the excess of consolidated current assets over consolidated current liabilities of the Company and its Subsidiaries. (d) I have read: 1. the Credit Documents and the respective Schedules and Exhibits thereto. 418 EXHIBIT M Page 4 (e) With respect to Contingent Liabilities, I: 1. inquired of certain officials of the Company who have responsibility for legal, financial and accounting matters as to the existence and estimated liability with respect to all Contingent Liabilities known to them; 2. confirmed with senior officers of the Company that, to the best of such officers' knowledge, (i) all appropriate items were included in Stated Liabilities or Contingent Liabilities made known to me in the course of my inquiry and that (ii) the amounts relating thereto were the maximum estimated amount of liability reasonably likely to result therefrom as of the date hereof; 3. hereby certify that, to the best of my knowledge, all material Contingent Liabilities that are reasonably likely to arise from any pending litigation, asserted claims and assessments, guarantees, uninsured risks and other Contingent Liabilities of the Company and its Subsidiaries (exclusive of such Contingent Liabilities to the extent reflected in Stated Liabilities) have been considered in making the certification set forth in paragraph 4 below, and with respect to each such Contingent Liability the estimable maximum estimated amount of liability with respect thereto was used in making such certification. (f) I have had the Projections, which have been previously delivered to the Lenders, prepared under my direction and have re- examined the Projections on the date hereof and considered the effect thereon of any material changes since the date of the preparation thereof on the results projected therein. After such review, I hereby certify that in my opinion the Projections are reasonable and attainable. Furthermore, the Projections support the conclusions contained in the last paragraph of this Certificate. In connection with the statements made herein, please be advised that the Projections are based upon a number of assumptions and are subject to significant economic and competitive uncertainties and contingencies. There can be no assurance that the Projections will be realized and the actual results may be higher or lower than those projected. (g) I have made inquiries of certain officers of the Company who have responsibility for financial reporting and accounting matters regarding whether they were aware of any events or conditions that, as of the date 419 EXHIBIT M Page 5 hereof, would cause the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (on a stand-alone basis), in each case after giving effect to the consummation of the Transaction and the related financing transactions (including the incurrence of the New Financing and the New Senior Subordinated Notes), to (i) have assets with a Fair Value or Present Fair Salable Value that are less than the sum of Stated Liabilities and Contingent Liabilities; (ii) have Unreasonably Small Capital; or (iii) not be able to pay its Stated Liabilities and Contingent Liabilities as they mature or otherwise become due. 4. Based on and subject to the foregoing, I hereby certify on behalf of the Company that, after giving effect to the Transaction and the related financing transactions (including the New Financing and the New Senior Subordinated Notes), to the best of my knowledge, as of the date hereof (i) the Fair Value and Present Fair Salable Value of the assets of the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (on a stand-alone basis), in each case exceed its Stated Liabilities and Contingent Liabilities; (ii) the Company (on a stand-alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (on a stand-alone basis), in each case will not have Unreasonably Small Capital; and (iii) the Company (on a stand- alone basis), the Company and its Subsidiaries (on a consolidated basis) and each other Borrower (on a stand-alone basis), in each case will be able to pay its Stated Liabilities and Contingent Liabilities as they mature or otherwise become due. 420 EXHIBIT M Page 6 IN WITNESS WHEREOF, the undersigned has caused its duly authorized chief financial officer to execute and deliver this Certificate this 8th day of August. ALLIANCE GAMING CORPORATION By /s/ Scott Schweinfurth ------------------------------------ Title: Senior Vice President, CFO and Treasurer 421 EXHIBIT N-1 422 EXHIBIT N-1 ----------- U.S. BORROWING BASE CERTIFICATE AS OF [DATE] To: The Lenders party to the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation (the "U.S. Borrower") Bally Wulff Vertriebs GmbH, Bally Wulff Automten GmbH, the Lenders party thereto from time to time, and Credit Suisse First Boston, as Administrative Agent1 Amount in 1. Accounts Receivable U.S. Dollars ------------------- ------------ Gross book value of the receivables of the U.S. $______ Borrower and the Wholly-Owned Subsidiary Guarantors arising from the sale or lease of inventory or services by the U.S. Borrower or the Wholly-Owned Subsidiary Guarantors in the ordinary course of business which conform to the representations and warranties contained in the U.S. Security Agreement and the other applicable U.S. Security Documents (including, without limitation, that the Collateral Agent shall have and maintain a first priority perfected security interest in all such receivables) Less: Returns, discounts and claims, of any nature ($______) (whether issued, owing, granted or outstanding) Bill and hold (deferred shipment) and ($______) consignment transactions Contracts or sales to any Affiliate ($______) - ---------- (1/) All capitalized terms used herein shall have the meaning provided therefor in such Credit Agreement. 423 EXCHIBIT N-1 Page 2 Without duplication, all installment or lease ($______) receivables where the respective account debtor has two or more installments which are past due All receivables from any party subject to any ($______) bankruptcy, receivership, insolvency or like proceedings by the account debtor One-third of the amount of all receivables to ($______) account debtors outside the United States of America which would otherwise have been included as U.S. Eligible Receivables Book reserves in respect of receivables of the ($______) U.S. Borrower and the Wholly-Owned Subsidiary Guarantors to the extent in excess of 20% of the gross book value of the receivables of such Persons 2. Eligible Receivables $______ (Net Amount of No. 1) 3. 75% of Eligible Receivables $______ 4. Inventory Book value of the inventory of the U.S. Borrower $______ and the Wholly-Owned Subsidiary Guarantors, which conforms to the representations and warranties contained in the U.S. Security Agreement (and in which a Lien has been granted pursuant to the U.S. Security Agreement), which inventory is located in the United States Less: Supplies (other than raw materials), goods returned ($______) or rejected (except to the extent that such returned or rejected goods continue to conform to the representations and warranties 424 EXHIBIT N-1 Page 3 contained in the U.S.Security Agreement) by customers and goods to be returned to suppliers Used inventory ($______) Any advance payments made by customers with ($______) respect to inventory of the U.S. Borrower and the Wholly-Owned Subsidiary Guarantors Inventory subject to any Lien other than the ($______) Liens created under the U.S. Security Agreement and the other applicable U.S. Security Documents 5. Eligible Inventory $______ (Net Amount of No. 4) 6. 40% of Eligible Inventory $______ 7. U.S. Borrowing Base $______ (Sum of Nos. 3 and No. 6) 8. Total outstanding Swingline Loans, Dollar $______ Revolving Loans and U.S. Letter of Credit Outstandings 9. U.S. Borrowing Base Surplus (Deficiency) (No. $______ 7 minus No. 8) The undersigned hereby certifies that all of the information provided above is true and correct as of the date first above written. 425 EXHIBIT N-1 Page 4 IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this _______ day of _____________, ____. ALLIANCE GAMING CORPORATION By_________________________ Name: Title: 426 EXHIBIT N-2 427 EXHIBIT N-2 GERMAN BORROWING BASE CERTIFICATE AS OF [DATE] To: The Lenders party to the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH ("Bally Wulff Vertriebs"), Bally Wulff Automaten GmbH ("Bally Wulff Automaten"), the Lenders party thereto from time to time, and Credit Suisse First Boston, as Administrative Agent1/
Amount in 1. German Borrower Accounts Receivable Deutsche Marks ----------------------------------- -------------- Gross book value of all receivables of the German Borrowers arising from the sale or lease of inventory or services by the German Borrowers in the ordinary course of business which conform to the representations and warranties contained in the German Security Agreement and the other applicable German Security Documents (including, without limitation, that the Collateral Agent or the Lenders shall have and maintain a first priority perfected security interest in all such receivables) DM______ Less: Returns, discounts and claims of any nature (whether issued, owing, granted or outstanding) (DM______) Bill and hold (deferred shipment) and consignment transactions (DM______) Contracts or sales to any Affiliate (DM______)
____________________ 1/ All capitalized terms used herein shall have the meaning provided therefor in such Credit Agreement. 428 EXHIBIT N-2 Page 2 Without duplication, all installment or lease receivables where the respective account debtor has two or more installments which are past due (DM______) All receivables from any party subject to any bankruptcy, receivership, insolvency or like proceedings by the account debtor (DM______) One-third of the amount of all receivables to account debtors outside the Federal Republic of German which would otherwise have been included as German Eligible Receivables (DM______) Book reserves in respect of receivables of the German Borrowers to the extent in excess of 20% of the gross book value of the receivables of such Persons (DM______) 2. German Borrower Eligible Receivables (Net Amount of No. 1) DM______ 3. 75% of German Borrower Eligible Receivables DM______ 4. German Borrower Inventory Book value of the inventory of the German Borrowers which conforms to the representations and warranties contained in the German Security Agreement and the other applicable German Security Documents (and in which a Lien has been granted pursuant to the German Security Agreement), which inventory is located in the Federal Republic of Germany. DM______ Less: Supplies (other than raw materials), goods returned or rejected (except to the extent that such returned or rejected goods continue to conform to the representations and warranties contained in the German Security Agreement) by customers and goods to be returned to suppliers (DM______)
429 EXHIBIT N-2 Page 3 Used inventory (DM______) Any advance payments made by customers with respect to inventory of the German Borrowers (DM______) Inventory subject to any Lien other than the Liens created under the German Security Agreement and the other applicable German Security Documents (DM______) 5. German Borrower Eligible Inventory (Net Amount of No. 4) DM______ 6. 40% of German Borrower Eligible Inventory DM______ 7. Bally Wulff International GmbH ("BWI") Accounts Receivable Gross book value of all receivables of BWI arising from the sale or lease of inventory or services by BWI in the ordinary course of business which conform to the representations and warranties contained in the German Security Agreement and the other applicable German Security Documents (including, without limitation, that outstanding Bally Gaming International GmbH Senior Secured Loans, pledged pursuant to the German Security Documents, shall be secured by a first priority perfected security interest in all such receivables) DM______ Less: Returns, discounts and claims of any nature (whether issued, owing, granted or outstanding) (DM______) Bill and hold (deferred shipment) and consignment transactions (DM______) Contracts or sales to any Affiliate (DM______)
430 EXHIBIT N-2 Page 4 Without duplication, all installment or lease receivables (DM______) where the respective account debtor has two or more installments which are past due All receivables from any party subject to any bankruptcy, receivership, insolvency or like proceedings by the account debtor (DM______) One-third of the amount of all receivables to account debtors outside the Federal Republic of German which would otherwise have been included as German Eligible Receivables (DM______) Book reserves in respect of receivables of the BWI to the extent in excess of 20% of the gross book value of the receivables of BWI (DM______) 8. BWI Elgible Receivables (Net Amount of No. 7) DM______ 9. 75% of BWI Elgible Receivables DM______ 10. BWI Inventory Book value of the inventory of BWI which conforms to the representations and warranties contained in the German Security Agreement and the other applicable German Security Documents (and which secure outstanding Bally Gaming International GmbH Senior Secured Loans, pledged pursuant to the German Security Documents), which inventory is located in the Federal Republic of Germany DM______ Less:
431 EXHIBIT N-2 Page 5 Supplies (other than raw materials), goods returned or rejected (except to the extent that such returned or rejected goods continue to conform to the representations and warranties contained in the German Security Agreement) by customers and goods to be returned to suppliers (DM______) Used Inventory DM______ Any advance payments made by customers with respect to inventory of BWI (DM______) Inventory subject to any Lien other than the Liens created under the German Security Agreement and the other applicable German Security Documents (DM______) 11. BWI Eligible Inventory (Net Amount of No. 10) DM______ 12. 40% of BWI Eligible Inventory DM______ 13. Outstanding principal amount of Bally Gaming International GmbH Senior Secured Loans DM______ 14. Deutsche Mark Equivalent of U.S. $10 million DM______ 15. Insert least of (x) the sum of Nos. 9 and 12 above, (y) No. 13 above or (z) 14 above 16. German Borrowing Base (Sum of Nos. 3, 6 and 15) DM______ 17. Total Deutsche Mark Revolving Loans and German Letter of Credit Outstandings DM______ 18. German Borrowing Base Surplus (Deficiency) (No. 16 minus No. 17) DM______
432 EXHIBIT N-2 Page 6 The undersigned hereby certifies that all of the information provided above is true and correct as of the date first above written. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this ______ day of ___________, ____. BALLY WULFF VERTRIEBS GMBH By ------------------------------------- Name: Title: BALLY WULFF AUTOMATEN GMBH By ------------------------------------- Name: Title: 433 EXHIBIT O 434 EXHIBIT O FORM OF SUBORDINATION PROVISIONS EACH PROMISSORY NOTE EVIDENCING AN INTERCOMPANY LOAN INCURRED BY ALLIANCE GAMING CORPORATION (THE "U.S. BORROWER") FROM ANY SUBSIDIARY OF THE U.S. BORROWER PURSUANT TO SECTION 9.05 (viii)(h) OF THE CREDIT AGREEMENT SHALL HAVE INCLUDED ON ITS FACE THE FOLLOWING PROVISION AND SHALL HAVE "ANNEX A TO NOTE" ATTACHED THERETO AND MADE A PART THEREOF. "THIS NOTE, AND THE OBLIGATIONS OF ALLIANCE GAMING CORPORATION (THE "PAYOR") HEREUNDER, SHALL BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN SECTION 1.07 OF ANNEX A HERETO) ON THE TERMS AND CONDITIONS SET FORTH IN ANNEX A HERETO, WHICH ANNEX A IS HEREIN INCORPORATED BY REFERENCE AND MADE A PART HEREOF AS IF SET FORTH HEREIN IN ITS ENTIRETY." 435 ANNEX A Section 1.01. Subordination of Liabilities. Alliance Gaming Corporation (the "Payor"), for itself, its successors and assigns, covenants and agrees, and each holder of the Note to which this Annex A is attached (the "Note") by its acceptance thereof likewise covenants and agrees, that the payment of the principal of, interest on, and all other amounts owing in respect of, the Note (the "Subordinated Indebtedness") is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, to the prior payment in full in cash of all Senior Indebtedness (as defined in Section 1.07 of this Annex A). The provisions of this Annex A shall constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees hereunder the same as if their names were written herein as such, and they and/or each of them may proceed to enforce such provisions. Section 1.02. Payor not to Make Payments with Respect to Subordinated Indebtedness in Certain Circumstances. (a) Upon the maturity of any Senior Indebtedness (including interest thereon or fees or any other amounts owing in respect thereof), whether at stated maturity, by acceleration or otherwise, all Obligations (as defined in Section 1.07 of this Annex A) owing in respect thereof, in each case to the extent due and owing, shall first be paid in full in cash, before any payment of any kind or character, whether in cash, property, securities or otherwise, is made on account of the Subordinated Indebtedness. (b) In addition to the provisions set forth above, the Payor may not, directly or indirectly, make any payment of any Subordinated Indebtedness and may not acquire any Subordinated Indebtedness for cash or property until all Senior Indebtedness has been paid in full in cash if (x) any default or event of default under Section 10.01 or 10.05 of the Credit Agreement (as defined in Section 1.07 of this Annex A) is then in existence or would result therefrom or (y) if any other event of default under the Credit Agreement is then in existence or would result therefrom; provided that in the case of this clause (y) (but not in the case of preceding clause (x)) payment shall only be prohibited if the Administrative Agent or the Required Lenders under the Credit Agreement have specifically notified the U.S. Borrower in writing that payments under loans made pursuant to Section 9.05(viii)(h) of the Credit Agreement shall be prohibited during the continuance of one or more of such events of defaults under the Credit Agreement. Each holder of the Note hereby agrees that, so long as any such default or event of default in respect of the Credit Agreement exists, such holder will not sue for, or otherwise take any action to enforce the Payor's obligations to pay, amounts owing in respect of the Note. Each holder of the Note understands and agrees that to the extent that the payment of interest and/or principal which would otherwise be payable under the Note may not be made by virtue of the provisions of this clause (b), such unpaid amount shall not constitute a payment default 436 ANNEX A Page 2 under the Note and the holder of the Note may not sue for, or otherwise take action to enforce the Payor's obligation to pay such amount, provided that such unpaid principal or interest shall remain an obligation of the Payor to the holder of the Note pursuant to the terms of the Note. (c) In the event that notwithstanding the provisions of the preceding subsections (a) and (b) of this Section 1.02, the Payor, or any Person on behalf of the Payor, shall make any payment on account of the Subordinated Indebtedness at a time when payment is not permitted by said subsection (a) or (b), such payment shall be held by the holder of the Note, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness or their representative or the trustee under the indenture or other agreement pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application pro rata to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash in accordance with the terms of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. Without in any way modifying the provisions of this Annex A or affecting the subordination effected hereby if the hereafter referenced notice is not given, the Payor shall give the holder of the Note prompt written notice of any event which would prevent payments under Section 1.02(a) or (b) hereof. Section 1.03. Subordination to Prior Payment of all Senior Indebtedness on Dissolution, Liquidation or Reorganization of the Payor. Upon any distribution of assets of the Payor, upon dissolution, winding up, liquidation or reorganization of the Payor (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): (a) the holders of all Senior Indebtedness shall first be entitled to receive payment in full in cash of all Senior Indebtedness (including, without limitation, post-petition interest at the rate provided in the documentation with respect to such Senior Indebtedness, whether or not such post-petition interest is an allowed claim against the debtor in any bankruptcy or similar proceeding) before the holder of the Note is entitled to receive any payment of any kind or character on account of the Subordinated Indebtedness; (b) any payment or distributions of assets of the Payor of any kind or character, whether in cash, property or securities to which the holder of the Note would be entitled except for the provisions of this Annex A, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, 437 ANNEX A Page 3 whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture under which any instruments evidencing any such Senior Indebtedness may have been issued, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing provisions of this Section 1.03, any payment or distribution of assets of the Payor of any kind or character, whether in cash, property or securities, shall be received by the holder of the Note on account of Subordinated Indebtedness before all Senior Indebtedness is paid in full in cash, such payment or distribution shall be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their representative or representatives, or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, for application to the payment of such Senior Indebtedness until all such Senior Indebtedness shall have been paid in full in cash, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. Without in any way modifying the provisions of this Annex A or affecting the subordination effected hereby if the hereafter referenced notice is not given, the Payor shall give prompt written notice to the holder of the Note of any dissolution, winding up, liquidation or reorganization of the Payor (whether in bankruptcy, insolvency or receivership proceedings or upon assignment for the benefit of creditors or otherwise). Section 1.04. Subrogation. Subject to the prior payment in full in cash of all Senior Indebtedness, the holder of the Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Payor applicable to the Senior Indebtedness until all amounts owing on the Note shall be paid in full, and for the purpose of such subrogation no payments or distributions to the holders of the Senior Indebtedness by or on behalf of the Payor or by or on behalf of the holder of the Note by virtue of this Annex A which otherwise would have been made to the holder of the Note shall, as between the Payor, its creditors other than the holders of Senior Indebtedness, and the holder of the Note, be deemed to be payment by the Payor to or on account of the Senior Indebtedness, it being understood that the provisions of this Annex A are and are intended solely or the purpose of defining the relative rights of the holder of the Note, on the one hand, and the holders of the Senior Indebtedness, on the other hand. 438 ANNEX A Page 4 Section 1.05. Obligation of the Payor Unconditional. Nothing contained in this Annex A or in the Note is intended to or shall impair, as between the Payor and the holder of the Note, the obligation of the Payor, which is absolute and unconditional, to pay to the holder of the Note the principal of and interest on the Note as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holder of the Note and creditors of the Payor other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the holder of the Note from exercising all remedies otherwise permitted by applicable law upon an event of default under the Note, subject to the rights, if any, under this Annex A of the holders of Senior Indebtedness in respect of cash, property, or securities of the Payor received upon the exercise of any such remedy. Upon any distribution of assets of the Payor referred to in this Annex A, the holder of the Note shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the holder of the Note, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Payor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Annex A. Section 1.06. Subordination Rights not Impaired by Acts or Omissions of Payor or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Payor or by any act or failure to act by any such holder, or by any noncompliance by the Payor with the terms and provisions of the Note, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of the Senior Indebtedness may, without in any way affecting the obligations of the holder of the Note with respect hereto, at any time or from time to time and in their absolute discretion, change the manner, place or terms of payment of, change or extend the time of payment of, or renew or alter, any Senior Indebtedness or amend, modify or supplement any agreement or instrument governing or evidencing such Senior Indebtedness or any other document referred to therein, or exercise or refrain from exercising any other of their rights under the Senior Indebtedness including, without limitation, the waiver of default thereunder and the release of any collateral securing such Senior Indebtedness, all without notice to or assent from the holder of the Note. Section 1.07. Definitions. As used in this Annex, the terms set forth below shall have the respective meanings provided below: 439 ANNEX A Page 5 "Borrower" shall have the meaning provided in the Credit Agreement. "Credit Agreement" shall mean the Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the Lenders party thereto from time to time, and Credit Suisse First Boston, as Administrative Agent, as the same may be amended, modified, extended, renewed, restated, supplemented, restructured or refinanced from time to time, and including any agreement extending the maturity of, refinancing or restructuring all or any portion of, the indebtedness under such agreement or any successor agreements; provided that with respect to any agreement providing for the refinancing of indebtedness under the Credit Agreement, such agreement shall only be treated as, or as part of, the Credit Agreement hereunder if (i) either (A) all obligations under the Credit Agreement being refinanced shall be paid in full at the time of such refinancing, and all commitments and letters of credit issued pursuant to the refinanced Credit Agreement shall have terminated in accordance with their terms or (B) the Required Lenders shall have consented in writing to the refinancing indebtedness being treated, along with their indebtedness, as indebtedness pursuant to the Credit Agreement, (ii) the refinancing indebtedness shall be permitted to be incurred under the Credit Agreement being refinanced (if such Credit Agreement is to remain outstanding) and (iii) a notice to the effect that the refinancing indebtedness shall be treated as issued under the Credit Agreement shall be delivered by the U.S. Borrower to the Administrative Agent. "Credit Documents" shall have the meaning provided in the Credit Agreement. "Interest Rate Protection Agreement" shall have the meaning provided in the Credit Agreement. "Lenders" shall have the meaning provided in the Credit Agreement. "Obligation" shall mean any principal, interest, premium, penalties, fees, indemnities and other liabilities and obligations payable under the documentation governing any Senior Indebtedness (including, without limitation, all interest after the commencement of any bankruptcy, insolvency, receivership or similar proceeding at the rate provided in the governing documentation, whether or not such interest is an allowed claim in such proceeding). "Other Creditors" shall mean the Lenders party from time to time to the Credit Agreement, and their affiliates and their respective subsequent assigns, if any, and 440 ANNEX A Page 6 any other institution which participates with such Lenders or affiliates in the extension of Interest Rate Protection Agreement or Other Hedging Agreements and their subsequent assigns, if any, in all such cases in their capacity as creditors with respect to Interest Rate Protection Agreements or Other Hedging Agreements. "Other Hedging Agreement" shall have the meaning provided in the Credit Agreement. "Required Lenders" shall have the meaning provided in the Credit Agreement. "Senior Indebtedness" shall mean all Obligations of (i) each Borrower under the Credit Agreement and the other Credit Documents and any renewal, extension, restatement, refinancing or refunding thereof; and (ii) each Borrower in respect of all Interest Rate Protection Agreements and Other Hedging Agreements with Other Creditors. "Subsidiaries" shall have the meaning provided in the Credit Agreement. "U.S. Borrower" shall have the meaning provided in the Credit Agreement. Section 1.08. Miscellaneous. If, at any time, all or part of any payment with respect to Senior Indebtedness theretofore made by the Payor or any other Person is rescinded or must otherwise be returned by the holders of Senior Indebtedness for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Payor or such other Persons), the subordination provisions set forth herein shall continue to be effective or be reinstated, as the case may be, all as though such payment had not been made. 441 EXHIBIT P 442 EXHIBIT P FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT Date __________, 19__ Reference is made to the Credit Agreement described in Item 2 of Annex I hereto (as such Credit Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Unless defined in Annex I hereto, terms defined in the Credit Agreement are used herein as therein defined. ___________ (the "Assignor") and __________ (the "Assignee") hereby agree as follows: 1. The Assignor hereby sells and assigns to the Assignee without recourse and without representation or warranty (other than as expressly provided herein), and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified in Item 4 of Annex I hereto (the "Assigned Share") of all of the outstanding rights and obligations under the Credit Agreement relating to the facilities listed in Item 4 of Annex I hereto, including, without limitation, [(p) in the case of any assignment of all or any portion of the Assignor's U.S. Borrower Tranche A Loan Commitment, all rights and obligations with respect to the Assigned Share of such U.S. Borrower Tranche A Term Loan Commitment] [(q) in the case of any assignment of all or any portion of the Assignor's German Borrower Tranche A Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such German Borrower Tranche A Term Loan Commitment] [(r) in the case of any assignment of all or any portion of the Assignor's Delayed Draw Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Delayed Draw Term Loan Commitment] [(s) in the case of any assignment of all or any portion of the Assignor's Tranche B Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Tranche B Term Loan Commitment] [(t) in the case of any assignment of all or any portion of the Assignor's Tranche C Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Tranche C Term Loan Commitment](1) (u) in the case of any assignment of all or any portion of the Assignor's outstanding U.S. Borrower Tranche A Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding U.S. Borrower Tranche A Term Loans, (v) in the case of any assignment of ____________________ (1) Insert appropriate bracketed language prior to the U.S. Borrower Tranche A Term Loan Commitment Termination Date, German Borrower Tranche A Term Loan Termination Commitment Date, Delayed Draw Term Loan Commitment Termination Date, Tranche B Term Loan Commitment Termination Date or the Tranche C Term Loan Commitment Termination Date, as the case may be. 443 EXHIBIT P Page 2 all or any portion of the Assignor's outstanding German Borrower Tranche A Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding German Borrower Tranche A Term Loans, (w) in the case of any assignment of all or any portion of the Assignor's outstanding Delayed Draw Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding Delayed Draw Term Loans, (x) in the case of any assignment of all or any portion of the Assignor's outstanding Tranche B Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding Tranche B Term Loans, (y) in the case of any assignment of all or any portion of the Assignor's outstanding Tranche C Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding Tranche C Term Loans, (z) in the case of any assignment of all or any portion of the Assignor's outstanding Total Revolving Loan Commitment, all rights and obligations with respect to (i) the Assigned Share of such outstanding Total Revolving Loan Commitment, (ii) the Assigned Share or Shares, as the case may be, of the related German Revolving Loan Sub-Commitment and/or Non-German Revolving Loan Sub-Commitment (it being understood that the aggregate amount of the assigned portions of the German Revolving Loan Sub-Commitment and/or Non-German Revolving Loan Sub-Commitment must equal the amount of the assigned Revolving Loan Commitment) and (iii) any outstanding Revolving Loans and Letters of Credit, in each case, based on the RL Percentage and German RL Percentage of the respective Assignee after giving effect to such assignments and as determined in accordance with the Credit Agreement. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the other Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the U.S. Borrower or any of its Subsidiaries or the performance or observance by the U.S. Borrower or any of its Subsidiaries of any of their respective obligations under the Credit Agreement or the other Credit Documents to which they are a party or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement and the other Credit Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption 444 EXHIBIT P Page 3 Agreement; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Transferee under Section 13.04(b) of the Credit Agreement; (iv) appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to the Administrative Agent and the Collateral Agent, by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Credit Documents are required to be performed by it as a Lender; and (vi) to the extent legally entitled to do so, attaches the forms described in Section 13.04(b) of the Credit Agreement](2). 4. Following the execution of this Assignment and Assumption Agreement by the Assignor and the Assignee, an executed original hereof (together with all attachments) will be delivered to the Administrative Agent. The effective date of this Assignment and Assumption Agreement shall be the date of execution hereof by the Assignor and the Assignee, the receipt of the consent of the Administrative Agent and the U.S. Borrower to the extent required by Section 13.04(b) of the Credit Agreement, the receipt by the Administrative Agent of the administrative fee referred to in such Section 13.04(b) and the recordation of the assignment effected hereby on the Register by the Administrative Agent as provided in Section 13.15 of the Credit Agreement, or such later date, if any, which may be specified in Item 5 of Annex I hereto (the "Settlement Date"). 5. Upon the delivery of a fully executed original hereof to the Administrative Agent, as of the Settlement Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Assumption Agreement, have the rights and obligations of a Bank thereunder and under the other Credit Documents and (ii) the Assignor shall, to the extent provided in this Assignment and Assumption Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and the other Credit Documents. 6. It is agreed that the Assignee shall be entitled to (w) all interest on the Assigned Share of the Loans at the rates specified in Item 6 of Annex I; (x) all Term Loan Commitment Commission (if applicable) on the Assigned Share of the Total Term Loan Commitment at the rate specified in Item 7 of Annex I hereto; (y) all Revolving Loan ____________________ (2) Include if the Assignee is organized under the laws of a jurisdiction outside of the United States. 445 EXHIBIT P Page 4 Commitment Commission (if applicable) at the rate specified in Item 8 of Annex I hereto; and (z) all Letter of Credit Fees (if applicable) on the Assignee's participation in all Letters of Credit at the rate specified in Item 9 of Annex I hereto, which, in each case, accrue on and after the Settlement Date, such interest and, if applicable, Term Loan Commitment Commission, Revolving Loan Commitment Commission and Letter of Credit Fees, to be paid by the Administrative Agent directly to the Assignee. It is further agreed that all payments of principal made on the Assigned Share of the Loans which occur on and after the Settlement Date will be paid directly by the Administrative Agent to the Assignee. Upon the Settlement Date, the Assignee shall pay to the Assignor an amount specified by the Assignor in writing which represents the Assigned Share of the principal amount of the respective Loans made by the Assignor pursuant to the Credit Agreement which are outstanding on the Settlement Date. The Assignor and the Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Settlement Date directly between themselves. 7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 446 EXHIBIT P Page 5 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Assignment and Assumption Agreement, as of the date first above written, such execution also being made on Annex I hereto. Accepted this _____ day [NAME OF ASSIGNOR] of ____________, 19__ as Assignor By_____________________________ Title: [NAME OF ASSIGNEE] as Assignee By_____________________________ Title: [Acknowledged and Agreed as of _________ ___, 19__. CREDIT SUISSE FIRST BOSTON, as Administrative Agent By__________________________ Title: By__________________________ Title: ](3) [ALLIANCE GAMING CORPORATION By__________________________ Title: ](4) ____________________ (3) The consent of the Administrative Agent is required for assignments pursuant to Section 13.04(b)(y) of the Credit Agreement. (4) At any time when no Event of Default is in existence, and when no Default exists pursuant to Section 10.01 or 10.05 of the Credit Agreement, the approval of the U.S. Borrower is required with respect to all assignments, except with respect to assignments of Loans, but not of Commitments, pursuant to Section 13.04(b)(x) of the Credit Agreement. 447 ANNEX I ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT 1. Borrowers: Alliance Gaming Corporation Bally Wulff Vertriebs GmbH Bally Wulff Automaten GmbH 2. Name and Date of Credit Agreement: Credit Agreement, dated as of August 8, 1997, among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH, the Lenders from time to time party thereto, and Credit Suisse First Boston, as Administrative Agent, as amended, modified or supplemented to the date hereof. 3. Date of Assignment Agreement: 4. Amounts (as of date of item #3 above):
Outstanding Outstanding Principal of Outstanding Outstanding Outstanding Principal of U.S. German Borrower Principal of Principal Principal of Borrower Tranche A Tranche A Term Delayed Draw of Tranche B Tranche C Term Term Loans Loans Term Loans Term Loans Loans a. Aggregate Amount $__________ DM__________ $__________ $__________ $___________ for Banks b. Assigned Share __________% __________% __________% __________% __________% c. Amount of Assigned $__________ DM__________ $__________ $__________ $___________ Share
Non-German German Revolving Revolving Loan Revolving Loan Loan Sub- Commitment Sub-Commitment Commitment a. Aggregate Amount for Banks $__________ DM__________ $__________ b. Assigned Share __________% __________% __________% c. Amount of Assigned Share $__________ DM__________ $__________
[U.S. Borrower Tranche A Term German Borrower Tranche B Tranche C Loan Tranche A Term Term Loan Term Loan Commitment Loan Commitment Commitment Commitment a. Aggregate Amount for Banks $__________ DM__________ $__________ $__________ b. Assigned Share(1) __________% __________% __________% __________% c. Amount of Assigned Share $__________ DM__________ $__________ $__________
Delayed Draw Term Loan Commitment] (2) a. Aggregate Amount for $__________ Banks b. Assigned Share __________% c. Amount of Assigned Share $__________]
__________________________________ (1) Percentage taken to 12 decimal places. (2) Include to the extent such commitments have not terminated. 448 Annex I Page 2 5. Settlement Date: 6. Rate of Interest As set forth in Section 1.08 to the Assignee: of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee)(3) 7. Term Loan As set forth in Section 3.01(a) of the Commitment: Credit Agreement (unless otherwise Commission: agreed to by the Assignor and the Assignee)(4) 8. Revolving Loan As set forth in Section 3.01(b) of Commitment the Credit Agreement (unless otherwise Commission: agreed to by the Assignor and the Assignee)(5) 9. Letter of Credit As set forth in Section 3.01(c) of the Fees to the Credit Agreement (unless otherwise Assignee: agreed to by the Assignor and the Assignee)(6) __________________________________ (3) The Borrowers and the Administrative Agent shall direct the entire amount of the interest to the Assignee at the rate set forth in Section 1.08 of the Credit Agreement, with the Assignor and Assignee effecting the agreed upon sharing of the interest through payments by the Assignee to the Assignor. (4) Insert "Not Applicable" in lieu of text if no portion of the Total Term Loan Commitment is being assigned. Otherwise, the U.S. Borrower and the Administrative Agent shall direct the entire amount of the Term Loan Commitment Commission to the Assignee at the rate set forth in Section 3.01(a) of the Credit Agreement, with the Assignor and the Assignee effecting the agreed upon sharing of Term Loan Commitment Commission through payment by the Assignee to the Assignor. (5) Insert "Not Applicable" in lieu of text if no portion of the Total Revolving Loan Commitment is being assigned. Otherwise, the Borrowers and the Administrative Agent shall direct the entire amount of the Revolving Loan Commitment Commission to the Assignee at the rate set forth in Section 3.01(b) of the Credit Agreement, with the Assignor and the Assignee effecting the agreed upon sharing of the Revolving Loan Commitment Commission through payment by the Assignee to the Assignor. (6) Insert "Not Applicable" in lieu of text if no portion of the Total Revolving Loan Commitment is being assigned. Otherwise, the Borrowers and the Administrative Agent shall direct the entire amount of the Letter of Credit Fees to the Assignee at the rate set forth in Section 3.01(c) of the Credit Agreement, with the Assignor and the Assignee effecting the agreed upon sharing of Letter of Credit Fees through payment by the Assignee to the Assignor. 449 Annex I Page 3 10. Notice: ASSIGNOR: _________________________ _________________________ _________________________ _________________________ Attention: Telephone: Telecopier: Reference: ASSIGNEE: _________________________ _________________________ _________________________ _________________________ Attention: Telephone: Telecopier: Reference: Payment Instructions: ASSIGNOR: _________________________ _________________________ _________________________ _________________________ Attention: Reference: ASSIGNEE: _________________________ _________________________ _________________________ _________________________ Attention: Reference: 450 Annex I Page 4 Accepted and Agreed: [NAME OF ASSIGNEE] [NAME OF ASSIGNOR] By_____________________ By_______________________________ _____________________ _______________________________ (Print Name and Title) (Print Name and Title) EX-10.70 4 EXHIBIT 10.70 1 EXHIBIT 10.70 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT is made and entered into as of this 5th day of November, 1996, by and between STEVE GREATHOUSE, residing at 7140 Darby Avenue, Las Vegas, Nevada 89117 (the "Executive"), and ALLIANCE GAMING CORPORATION, a Nevada corporation, having its principal offices at 6601 South Bermuda Road, Las Vegas, Nevada 89119 (the "Corporation"). W I T N E S S T H: WHEREAS, the Executive has been employed by the Corporation as its President and Chief Executive Officer and in other capacities; and WHEREAS, the Executive and the Corporation desire to settle fully and finally all matters between them to date, including without limitation, any issues that might arise out of the Executive's employment or the termination of his employment; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. EMPLOYMENT STATUS. The Executive and the Corporation agree that on the earlier to occur of (a) December 31, 1996, (b) the date on which a successor chief executive officer is named by the Corporation, or (c) a date otherwise determined by the Board of Directors of the Corporation in its discretion (in each case, the "Termination Date"), the Executive shall cease to be the President and Chief Executive Officer of the Corporation, and shall cease all other officer and employee positions with the Corporation and its subsidiaries and affiliates. The Executive also hereby agrees to resign, effective on the Termination Date, his membership on the Board of Directors (and all Board of Director committees) of the Corporation and its subsidiaries and affiliates. 2. SEVERANCE BENEFITS. (a) CASH REMUNERATION. The Corporation shall (i) continue to pay to the Executive his base salary in the amount of $400,000 per annum up to and including the Termination Date, (ii) pay the Executive, within five days after the Termination Date, an additional amount equal to $500,000 less the aggregate amount paid to the Executive under clause (i) above for the period commencing on the date of this Agreement and ending on the Termination Date, and (iii) pay any expense reimbursement amounts accrued through 1 2 the Termination Date, in the case of clauses (i) and (iii) above, at the time such payments would otherwise have been due and payable under the Employment Agreement, dated as of August 15, 1994 with the Corporation (the "Employment Agreement"). (b) The Corporation also shall provide to Executive the following additional severance benefits, the costs of which are not deducted from or offset against any amounts otherwise payable to Executive as severance benefits hereunder. (i) HEALTH INSURANCE COVERAGE. The Corporation at its cost shall provide Executive and his family with the health insurance benefits and coverage (including medical, dental and vision) that Executive and his family enjoyed as of the Termination Date, until August 14, 1997, at which time Executive and his family shall be entitled to elect COBRA if they are eligible under COBRA. (ii) VACATION. Executive is entitled to and may take before December 31, 1996 six weeks of accumulated paid vacation. If Executive elects not to take six weeks of accumulated paid vacation before December 15, 1996, the Corporation shall pay him for his accumulated vacation in cash on December 31, 1996. (iii) LIFE INSURANCE. The Corporation shall continue the payment of the premiums on the life insurance policy covering Executive's life as it has during his employment, until August 14, 1997, and thereafter fully cooperate with Executive if Executive elects to transfer ownership of the policy to him or his designee. (iv) STOCK OPTIONS. Notwithstanding any contrary provision in the August 15, 1994 Employment Agreement or in any other stock option plan of the Corporation, including the 1991 Incentive Stock Option Plan, all Executive's unvested Employment Options (as defined in the Employment Agreement) shall vest and become exercisable as of the Termination Date. In addition, such Employment Options shall remain exercisable until August 29, 2001. (v) INCENTIVE WARRANTS. Executive remains entitled to the Incentive Warrants under Section 4(c) of the Employment Agreement and nothing in this Agreement is intended to limit or reduce Executive's rights thereto. (vi) EXECUTIVE SECRETARY SEPARATION ALLOWANCE. If the employment of Executive's secretary terminates between December 31, 1996 and June 15, 1997, the Corporation at its cost will pay and/or provide as severance 2 3 benefits to Executive's secretary: continuation of her current salary and health care coverage for 15 weeks after her termination, after which she will be entitled to COBRA if eligible. (c) Neither party shall have any further liability or obligation to the other, except as provided in this Agreement or letter agreement, of even date herewith, between the Executive and the Corporation. The Executive and the Corporation each agree that the covenants in Section 10 of the Employment Agreement shall be of no further force and effect following the Termination Date. 3. COOPERATION/CONSULTING. The Executive agrees to make himself available during the first week of work performed by any succeeding chief executive officer to answer questions, introduce staff and provide a general overview of the gaming industry. The Corporation shall retain the Executive as a consultant for one year after the Termination Date and shall pay the Executive a consulting fee equal to $225,000 (payable within five days after the Termination Date and in addition to any Severance Benefits under Section 2 hereof). The Executive or the Corporation shall have the right to terminate the consulting arrangement at any time for any reason. 4. CONFIDENTIAL INFORMATION AND NON-DISPARAGEMENT. (a) In accordance with NRS 600A.010 et seq. (the so-called Uniform Trade Secrets Act), the Executive shall hold in a fiduciary capacity for the benefit of the Corporation and its stockholders all secret, confidential or proprietary information, knowledge or data relating to the Corporation (and any of its subsidiaries or affiliates), which shall have been obtained by the Executive during or by reason of his employment by the Corporation. During and after the Executive's employment with the Corporation, the Executive shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to any person or entity other than the Corporation (or such applicable subsidiaries or affiliates) and those designated by them which would result in any misappropriation under and as defined in such Act, except that, while employed by the Corporation or acting as a consultant to it, in furtherance of the business and for the benefit of the Corporation, the Executive may provide confidential information as appropriate to attorneys, accountants, financial institutions or other persons or entities engaged in business with the Corporation from time to time. (b) Each of the parties hereto agrees that from and after the date of this Agreement, neither shall, publicly or privately, disparage or make any statements (written or oral) that would impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other and/or the directors, officers, employees, shareholders 3 4 and/or affiliates of the other, except, in each case, to the extent (but solely to the extent) necessary (i) in any judicial or arbitral action to enforce the provisions of this Agreement, or (ii) in connection with any judicial, regulatory or administrative proceeding to the extent required by applicable law. For purposes of this Section 4(b), parties include officers and directors of the Corporation as of the date of this Agreement and thereafter. 5. INDEMNIFICATION. To the fullest extent provided by applicable law, the Corporation shall indemnify and hold the Executive harmless against any and all expenses, liabilities and losses, including without limitation, reasonable attorneys' fees and costs, incurred or suffered by him in connection with his service as officer, director, employee or consultant of the Corporation. This indemnification and hold harmless by the Corporation, to the fullest extent provided by applicable law, covers all acts or omissions of Executive to and including the Termination Date and, thereafter, Executive's acts and omissions as consultant under Section 3 hereof, except in any case to the extent of the Executive's willful misconduct. 6. ANNOUNCEMENT. The parties agree that neither will make any public announcement or issue any press release concerning Executive's termination from the Corporation, except the announcement attached hereto as Exhibit A which has been reviewed and approved by the parties, and except as otherwise required by law or compelled by any governmental or regulatory body having jurisdiction. 7. AGREEMENT CONFIDENTIAL. The Executive represents and agrees that, unless required by any gaming regulatory authority, legal process, or in order to comply with applicable legal requirements, or as is reasonably necessary in connection with any adversarial process between the Corporation and the Executive, he will keep the terms of this Agreement completely confidential, and that he will not hereafter disclose any information concerning this Agreement to anyone except his financial, legal or tax advisor(s), his accountants, and his immediate family; provided that these individuals agree to keep said information confidential and not disclose it to others; provided, further, the fact that the parties have entered into a separation agreement is not deemed confidential, nor is the disclosure that the parties have entered into a separation agreement a breach of this Section 7. The Corporation represents and agrees that, unless required by any gaming regulatory authority, legal process or in order to comply with applicable legal requirements, or as is reasonably necessary in connection with any adversarial process between the Corporation and the Executive, it will keep the terms of this Agreement completely confidential, and that it will not hereafter disclose any information concerning this Agreement to anyone except its financial, legal or tax advisor(s), its accountants, its directors, and those employees of the Corporation who have a need to know about its terms; provided that these individuals agree to keep said information confidential and not 4 5 disclose it to others and the fact that the parties have entered into a separation agreement is not deemed confidential, nor is the disclosure that the parties have entered into a separation agreement a breach of this Section 7; and provided further that the Executive shall have the opportunity to review any proposed public disclosure pursuant to applicable legal requirements with respect to any of the terms of this Agreement. 8. STANDSTILL RESTRICTIONS. For a period of one year from the Termination Date (Restricted Period), except as specifically requested in writing by the Corporation, the Executive, singly or with any other person or directly or indirectly, shall not propose, enter into, or agree to enter into, or encourage any other person to propose, enter into, or agree to enter into (i) any form of business combination, acquisition or other transaction relating to the Corporation or (ii) any form of restructuring, recapitalization or similar transaction with respect to the Corporation. Furthermore, during the Restricted Period, except as specifically requested in writing by the Corporation, the Executive shall not, singly or with any other person or directly or indirectly, (1) acquire, or offer, propose or agree to acquire, by tender offer, purchase or otherwise, any voting securities of the Corporation except through the exercise of stock options or incentive warrants held or acquired during his employment, (2) make, or in any way participate in, any solicitation of proxies or written consents with respect to voting securities of the Corporation (it being understood that the mere execution of a proxy or written shareholder consent relating to the shares owned by the Executive shall not be treated as constituting participation in such a solicitation), (3) become a participant in any election contest with respect to the Corporation, (4) seek to influence any person with respect to the voting or disposition of any voting securities of the Corporation, (5) demand a copy of the Corporation's list of stockholders or its other books and records, (6) participate in or encourage the formation of any partnership, syndicate or other group that owns or seeks or offers to acquire beneficial ownership of any voting securities of the Corporation or that seeks to affect control of the Corporation or for the purpose of circumventing any provision of this Agreement, (7) propose or support any director or slate of directors for nomination, appointment or election to the Board of Directors of the Corporation (it being understood that the mere execution of a proxy or written shareholder consent relating to the shares owned by the Executive shall not be treated as constituting such support), or (8) otherwise act to seek or to offer to control or influence, in any manner, the management, Board of Directors or policies of the Corporation. Furthermore, during the Restricted Period, the Executive shall not directly or indirectly (i) solicit for employment any of the current directors, officers or managers of the Corporation or (ii) induce any such directors, officers or managers to terminate his or her employment with the Corporation, except that immediately preceding clauses (i) and (ii) do not apply to Executive's secretary or to the Senior Vice President/General Counsel of the Corporation. 5 6 9. RELEASES. (a) In consideration of the payments and benefits to the Executive under this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Executive, the Executive knowingly, voluntarily and unconditionally hereby forever waives, releases and discharges, and covenants never to sue on, any and all claims, liabilities, causes of actions, judgments, orders, assessments, penalties, fines, expenses and costs (including without limitation attorneys' fees) and/or suits of any kind arising out of any actions, events or circumstances before the date of execution of this Agreement ("Claims") which the Executive has, ever had or may have, or which the Executive's heirs, executors, administrators and assigns, or any of them hereafter can, shall or may have, including, without limitation, any Claims arising in whole or in part from the Executive's employment or the termination of the Executive's employment with the Corporation or the manner of said termination; provided, however, that this Section 9 shall not apply to any of the obligations of the Corporation (including the parties under Section 4(b) hereof), specifically provided for in this Agreement. This Agreement is intended as a full and final settlement and compromise of each, every and all Claims of every kind and nature, whether known or unknown, which have been or could be asserted against the Corporation and/or any of its parent corporations, subsidiaries, shareholders, officers, directors, agents, affiliates, and employees, past or present, and their respective heirs, successors and assigns (collectively, the "Releasees"), including, without limitation -- (1) any Claims arising out of any employment agreement or other contract (including, without limitation, the Employment Agreement), side-letter, resolution, promise or understanding of any kind, whether written or oral or express or implied; and (2) any Claims arising under any federal, state, or local civil rights, human rights, anti-discrimination, labor, employment, contract or tort law, rule, regulation, order or decision, including, without limitation, the Family and Medical Leave Act, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act of 1990, 42 U.S.C. Sections 12101 et seq., and Title VII of the Civil Rights Act of 1964, 42 U.S.C. Sections 2000 et seq., and as each of these laws have been or will be amended, except that to the extent that any governmental authority or other third party, i.e., other than one of the Releasees, files a charge or institutes an investigation, lawsuit or any proceeding against the Executive based on any event, occurrence or omission during the period of the Executive's employment or consulting relationship with the Corporation, in 6 7 which case the Executive will be permitted to implead or bring a court action against the Corporation and/or any of the Releasees for indemnification as provided under this Agreement, to the extent provided by applicable law. (b) In consideration of the obligations of the Executive under this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Corporation, the Corporation knowingly, voluntarily and unconditionally hereby forever waives, releases and discharges, and covenants never to sue on, any and all Claims which the Corporation has, ever had or may have, including, without limitation, any Claims arising in whole or in part from the Executive's employment or the termination of the Executive's employment with the Corporation or the manner of said termination; provided, however, that this Section 9 shall not apply to any of the obligations of the Executive specifically provided for in this Agreement. This Agreement is intended as a full and final settlement and compromise of each, every and all Claims of every kind and nature, whether known or unknown, which have been or could be asserted against the Executive and his respective heirs, successors and assigns. (c) Notwithstanding anything to the contrary in this Section 9, the Executive does not release any claim he may have under any employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended, in which he was a participant during his employment with the Corporation for the payment of a benefit thereunder to which he would be entitled upon his termination of employment on the Termination Date in accordance with the terms of such plan. (d) The Executive understands that this Agreement affects significant rights and represents and agrees that he has carefully read and fully understands all of the provisions of this Agreement, that he is voluntarily entering into this Agreement, and that he has been advised to consult with and has in fact consulted with legal counsel before entering into this Agreement. (e) This Agreement does not constitute any admission of wrongdoing, or evidence thereof, on the part of any of the parties hereto or the Releasees. Except as required by court order, any gaming regulatory authority, or to enforce the terms of this Agreement, this Agreement may not be used in any court or administrative proceeding. 10. LEGAL FEES. The Executive shall be reimbursed for all reasonable legal fees incurred by the Executive in connection with his representation relating hereto and the review and preparation hereof, in all cases, up to and including the date of this Agreement. 7 8 11. SCOPE OF AGREEMENT; ENFORCEABILITY. This Agreement constitutes the entire understanding and agreement between the Corporation and the Executive with regard to all matters herein and supersedes all prior oral and written agreements and understandings of the parties with respect to such matters, whether express or implied, including the Employment Agreement. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the Executive's heirs, beneficiaries and/or legal representatives. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the Corporation and its respective successors and assigns. If any term or provision of this Agreement, or the application thereof to any person or circumstances, will to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such terms to persons or circumstances other than those as to which it is invalid or unenforceable, will not be affected thereby, and each term of this Agreement will be valid and enforceable to the fullest extent permitted by law. 12. MATERIAL INDUCEMENTS. (a) The provisions of Sections 4(a), 4(b), 6, 7 and 8 above are material inducements to the Corporation entering into and performing this Agreement. The Executive acknowledges and agrees that the Corporation will have no adequate remedy at law, and would be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of Sections 4(a), 4(b), 6, 7 and/or 8 of this Agreement. The Executive further agrees that the Corporation shall be entitled to injunctive relief to prevent any breach or threatened breach of Sections 4(a), 4(b), 6, 7 and/or 8 of this Agreement, and to specific performance of each of the terms of such sections in addition to any other legal or equitable remedies that the Corporation may have. The Executive also agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of Sections 4(a), 4(b), 6, 7 and/or 8 of this Agreement, raise the defense that the Corporation has an adequate remedy at law. (b) The provisions of Sections 4(b) and 6 above are material inducements to the Executive entering into and performing this Agreement. The Corporation acknowledges and agrees that the Executive will have no adequate remedy at law, and would be irreparably harmed, if the Corporation breaches or threatens to breach any of the provisions of Sections 4(b) or 6 of this Agreement. The Corporation further agrees that the Executive shall be entitled to injunctive relief to prevent any breach or threatened breach of Sections 4(b) or 6 of this Agreement, and to specific performance of each of the terms of such sections in addition to any other legal or equitable remedies that the Executive may have. The Corporation also agrees that it shall not, in any equity proceeding relating to the enforcement of the terms of Sections 4(b) or 6 of this Agreement, raise the defense that the Executive has an adequate remedy at law. 8 9 (c) The parties acknowledge and agree that the provisions of Paragraph 13(b) of the Employment Agreement, entitled Material Inducements, are of no further force and effect and are replaced by this Section 12. 13. AMENDMENTS/WAIVER. This Agreement may not be amended, waived, or modified otherwise than by a written agreement executed by the parties to this Agreement or their respective successors and legal representatives. No waiver by any party to this Agreement of any breach of any term, provision or condition of this Agreement by the other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, or any prior or subsequent time. 14. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given when received by hand-delivery to the other party, by facsimile transmission, by overnight courier, or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. Steve Greathouse 7140 Darby Avenue Las Vegas, Nevada 89117 with a copy to: Andrew S. Brignone, Esq. Morris, Brignone & Pickering 300 S. Fourth Street, #1203 Las Vegas, Nevada 89101 If to the Corporation: Alliance Gaming Corporation 6601 South Bermuda Road Las Vegas, Nevada 89119 Attn: General Counsel with a copy to: Michael L. Hirschfeld, Esq. Milbank, Tweed, Hadley & McCloy 1 Chase Manhattan Plaza New York, New York 10005 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. 9 10 15. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement (other than one seeking injunctive or other equitable relief under Sections 4(a), 4(b), 6, 7 and/or 8 of this Agreement) shall be settled exclusively by arbitration, conducted in Las Vegas, Nevada in accordance with the rules of the American Arbitration Association. The prevailing party is also entitled to an award of reasonable attorneys fees and costs. Judgment may be entered thereon. As to disputes or controversies for which injunctive or other equitable relief is sought under Sections 4(a), 4(b), 6, 7 or 8 of this Agreement, the action shall be commenced and conducted exclusively in a court of competent jurisdiction in Las Vegas, Nevada. 16. NEUTRAL CONSTRUCTION. Each party to this Agreement and their attorneys have reviewed and participated in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation of this Agreement. 17. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Nevada without reference to its choice of law provisions and shall be binding upon the parties and their respective heirs, executors, successors and assigns. 18. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Corporation and the Executive have caused this Agreement to be executed as of the date first above written. ALLIANCE GAMING CORPORATION By: -------------------------------------------- Name: ------------------------------------- Title: ------------------------------------- -------------------------------------------------- STEVE GREATHOUSE 10 EX-10.75 5 EXHIBIT 10.75 1 EXHIBIT 10.75 AGREEMENT AGREEMENT dated June 17, 1997 by and between ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Company"), and MORRIS GOLDSTEIN, an individual (the "Executive"). R E C I T A L S : A. The Company considers it important and in its best interest and the best interest of its stockholders to foster the retention and engagement of key senior personnel, and the Company desires to retain the services of the Executive as Chief Executive Officer, on the terms and subject to the conditions provided in this Agreement. B. The Executive desires to accept such engagement by the Company and to render services to the Company, on the terms and subject to the conditions provided in this Agreement. A G R E E M E N T : The parties hereto agree as follows: 1. Employment. The Company hereby agrees to retain the services of the Executive, and the Executive agrees to be retained by the Company, to render services to the Company for the period, at the rate of compensation and upon the other terms and conditions set forth in this Agreement. 2. Term. The term of the Executive's employment under this Agreement (the "Term") shall commence on June 18, 1997 (the "Commencement Date"; which shall be the date on which the Executive commences full-time employment with the Company) and shall continue through and including June 30, 2000, unless earlier terminated specifically as provided in this Agreement (the date of any termination of this Agreement or the expiration of the Term, as provided herein, the "Termination Date"). From and after December 31, 1999, the parties shall commence and, to the extent appropriate, thereafter continue, a dialogue, in good faith, as to whether the Executive's employment with the Company shall be continued after the Termination Date; it being understood, however, that neither party shall have any obligation with respect to the continuation of such employment. 3. Position and Duties. (a) Position. The Executive shall serve as Chief Executive Officer of the Company. During his employment hereunder, the Executive shall report directly to the Company's Board of Directors (the "Board"). The Executive shall devote all or substantially all of his business time to the fulfillment of his duties hereunder. 2 (b) The Company shall, subject to the Board's fiduciary duty, cause the Executive to be nominated for election to the Board at the next regularly-scheduled annual stockholders meeting after the date hereof. The Company shall include the Executive in the slate of directors recommended by management at such meeting. The Executive shall, if so elected by the stockholders of the Company serve on the Board from time to time, for successive periods of such election(s), subject, in each case, to (x) the Board's fiduciary duty (both with respect to the nomination of the Executive to the Board or election by the Board to refrain from such nomination) and (y) the continued election thereto by the Company's stockholders; it being understood that the failure of the Board to nominate the Executive to the Board, as set forth in clause (x) above, or the failure of the stockholders of the Company to elect the Executive to the Board, as set forth in clause (y) above, shall not give rise to any right on the part of the Executive to terminate this Agreement or give the Executive any other rights hereunder. (b) Duties. During the Term, the Executive shall, subject to supervision by the Board, have the authority and power to perform such duties as are consistent with those of Chief Executive Officer of the Company. During the Term, the Executive shall perform the duties contemplated by such title and such other duties, consistent with his experience and abilities, as may be properly assigned to the Executive by the Board. The Executive shall use his best efforts to further the interests of the Company. The Executive shall (x) re-locate on a full-time basis to Las Vegas, Nevada no later than September 1, 1997 and (y) render services to the Company from the Company's principal offices in Las Vegas, Nevada; the parties further acknowledge and agree that the Executive may be required to travel extensively during the Term in fulfilling his duties hereunder (including numerous trips to New York City, internationally and to other locations). 4. Compensation and Reimbursement of Expenses. (a) Compensation. For purposes of this Agreement, each consecutive 12-month period during the Term ending on each June 30th during the Term shall be referred to as an "Employment Year"; it being understood, however, that the first Employment Year shall include the period from the Commencement Date through June 30, 1997, during which period the Executive shall receive a Base Salary (as defined below) at the rate set forth in the following sentence. For services rendered by the Executive under this Agreement, the Company shall pay to the Executive as compensation during each Employment Year during the Term, a base amount of compensation (the "Base Salary") at an annual rate of $450,000 per year (prorated for any partial Employment Year, including the period from the Commencement Date through June 30, 1997). The Base Salary shall be payable in equal bi-weekly installments (or otherwise as shall be customary for the Company from time to time), commencing with the end of the pay period which next follows the Commencement Date, and shall be subject to customary payroll deductions (i.e., for social security, federal, state and local taxes and other amounts customarily withheld from the compensation of members of the Board and/or employees of the Company). 2 3 (b) Bonus. The Executive shall be eligible to receive from the Company, within 120 days of the end of each Employment Year, a cash bonus in respect of such Employment Year (the "Annual Bonus"), which shall be based upon all relevant criteria, including without limitation, (i) the performance of the Company and/or the operations of the Company during such Employment Year, based upon customary financial and other criteria, such as, but not limited to, return on the Company's consolidated stockholders' equity and total capital (i.e., stockholders' equity and total debt), performance of the Company's Common Stock, par value $.10 per share (the "Common Stock"), and the Company's absolute and relative amounts of consolidated cash flow, earnings and earnings per share, operating income and net income, and the comparison of such results with the Company's budgets and projections therefor and (ii) the performance of the Executive in rendering services to the Company (such criteria in clauses (i) and (ii), the "Targets"). The Targets for each Employment Year during the Term shall be determined by the Board, after receiving meaningful and good faith input from the Executive, not less than 15 days prior to the beginning of such Employment Year; provided, that the Targets for the first Employment Year hereunder shall be determined, as described above, on or prior to September 30, 1997. The Targets shall be set at levels that are aggressive but achievable. It is contemplated that 100% of the Annual Bonus for achievement of 100% of the Targets shall be $250,000 (the "Target Bonus"); in the event that between 80% and 120% of the Targets for any Employment Year during the Term are achieved (as determined by the Board, in good faith, in its sole discretion), the amount of the Annual Bonus for such Employment Year shall be a percentage of the Target Bonus for such Employment Year that is the same as the percentage of achievement of the Targets. In the event that more than 120% of the Targets for any Employment Year is achieved (as determined by the Board, in good faith, in its sole discretion), the amount of the Annual Bonus shall not exceed 120% of the Target Bonus; it being understood that the Company shall not be obligated to pay to the Executive any Annual Bonus in the event that less than 80% of the Targets are achieved (as determined by the Board, in good faith, in its sole discretion). The Annual Bonus shall be subject to customary payroll deductions (i.e., for social security, federal, state and local taxes and other amounts customarily withheld from the compensation of members of the Board and/or employees of the Company). (c) Options. As an additional inducement to the Executive to accept employment with the Company, the Company shall grant to the Executive options to acquire an aggregate of 500,000 shares of Common Stock (the "Employment Options"), as follows: (x) 250,000 of such Employment Options (the "Basic Employment Options") shall become vested and exercisable in four equal tranches as follows, subject to the provisions of Section 8 below: (1) 62,500 Employment Options on the Commencement Date; (2) 62,500 Employment Options on June 30, 1998; (3) 62,500 Employment Options on June 30, 1999; and (4) 62,500 Employment Options on June 30, 2000; and 3 4 (y) an additional 250,000 of such Employment Options (the "Additional Vesting Options") shall become vested and exercisable in four equal tranches as follows, subject to the provisions of Section 8 below: (1) 62,500 Employment Options on the Commencement Date; (2) 62,500 Employment Options on June 30, 1998; (3) 62,500 Employment Options on June 30, 1999; and (4) 62,500 Employment Options on June 30, 2000; provided, that in the case of this clause (y), an additional condition (the "Additional Vesting Conditions") to the vesting and exercisability of any or all of such Additional Vesting Options shall be that: (I) as to one-third of the aggregate amount of such Additional Vesting Options, allocated equally in four equal tranches of 20,834, 20,834, 20,833 and 20,833 each, as to each of the tranches of Additional Vesting Options provided to become vested in clauses (1) through (4) above, the price of a share of Common Stock on the Nasdaq Stock Market (or other principal exchange or listing agency on which the Common Stock is then traded or listed) shall have equaled or exceeded $11.00 for any 20 out of 30 consecutive trading days on or prior to June 30, 2000; (II) as to one-third of the aggregate amount of such Additional Vesting Options, allocated equally in four equal tranches of 20,833, 20,833, 20,834 and 20,833 each, as to each of the tranches of Additional Vesting Options provided to become vested in clauses (1) through (4) above, the price of a share of Common Stock on the Nasdaq Stock Market (or other principal exchange or listing agency on which the Common Stock is then traded or listed) shall have equaled or exceeded $13.00 for any 20 out of 30 consecutive trading days on or prior to June 30, 2000; and (III) as to one-third of the aggregate amount of such Additional Vesting Options, allocated equally in four equal tranches of 20,833, 20,833, 20,833 and 20,834 each, as to each of the tranches of Additional Vesting Options provided to become vested in clauses (1) through (4) above, the price of a share of Common Stock on the Nasdaq Stock Market (or other principal exchange or listing agency on which the Common Stock is then traded or listed) shall have equaled or exceeded $15.00 for any 20 out of 30 consecutive trading days on or prior to June 30, 2000; in each case, irrespective of whether or not the applicable Additional Vesting Condition(s) shall have occurred prior or subsequent to the vesting dates otherwise provided for above in this clause (y). As to each tranche of Basic Employment Options set forth in clauses (1) through (4) of Section 4(c)(x), 25,800 Basic Employment Options shall be granted under the 4 5 Company's 1996 Long-Term Incentive Plan (the "1996 Plan") and shall, to the extent permitted by applicable law, be treated as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "IRS Code"). The remainder of the Employment Options shall not be granted under any of the Company's stock option plans, including the 1996 Plan, but such remainder of the Employment Options shall be subject to the provisions of Sections 2, 3, 5, 7, 8, 9, 10, and 12 through 23 of the 1996 Plan. In addition, all of the Employment Options shall (I) have a term of five years from the Commencement Date hereof, subject to earlier termination as provided in the 1996 Plan, and (II) have an exercise price of $3.875 per share, subject to adjustment as provided in the 1996 Plan. The Company shall use commercially reasonable efforts to cause to be filed after the date which is one year after the Commencement Date a registration statement on Form S-3 or S-8 (or such other form that the Company shall deem appropriate) or take other appropriate steps to cause the shares of Common Stock issuable upon exercise of all or any of the Employment Options (other than the Basic Employment Options issued under the 1996 Plan, as described above, which are otherwise covered under the Company's existing registration statement(s) on Form S-8) to be freely-tradeable under the Securities Act of 1933, as amended, upon issuance thereof. None of the Employment Options except those described in the first sentence of this paragraph, to the extent permitted by applicable law, shall be incentive stock options under Section 422 of the IRS Code. (d) Reimbursement of Expenses. Consistent with established policies of the Company as in effect from time to time, the Company shall pay to or reimburse the Executive for all reasonable and actual out-of-pocket expenses, including without limitation, travel, hotel and similar expenses and the reasonable and actual out-of-pocket expenses incurred by the Executive in applying for and obtaining applicable gaming licenses, incurred by the Executive from time to time in performing his obligations under this Agreement. 5. Benefits. (a) Benefit Plans. The payments provided in Section 4 above are in addition to any benefits to which the Executive may be, or may become, entitled under any of the Company's benefit plans or programs for which senior executive officers of the Company are or shall become eligible. In addition, the Executive shall be eligible to receive during the Term benefits and emoluments which are consistent with the benefits and emoluments provided to all members of the Board or senior executive officers of the Company. (b) Vacation. The Executive shall be entitled to three weeks annual paid vacation time during each Employment Year. Any unused vacation time may be accrued and carried forward to the succeeding Employment Year consistent with the Company's policy for senior executive officers as in effect from time to time. The Executive shall also be entitled to reasonable periods of sick leave consistent with the Company's policy for senior executive officers as in effect from time to time. (c) Other Items. The Company shall pay for the initiation fees and cost of membership during the Term in a country club located in Las Vegas, Nevada to be mutually 5 6 agreed to by the Company and the Executive for the Executive and his family; provided, that if there is a recoupable or similar bond associated therewith, upon termination of the Executive's membership, such bond (or the portion thereof payable to the Executive) shall be returned to the Company. The Company shall pay $90,000 to the Executive as full reimbursement for the Executive to relocate his residence to Las Vegas, Nevada. In addition, the Company shall reimburse the Executive for his reasonable and actual out-of-pocket costs and expenses for interim or temporary housing in Las Vegas, Nevada between the Commencement Date and the earlier of (x) the date that the Executive procures permanent housing in Las Vegas, Nevada and (y) September 1, 1997. (d) No Reduction. There shall be no material reduction or diminution of the benefits provided in this Section 5 during the Term unless (i) the Executive shall have provided his consent to such reduction or diminution, (ii) an equitable arrangement (embodied in an ongoing substitute or alternative benefit or plan) has been made with respect to such benefit or plan or (iii) such reduction is part of a program of across-the-board benefit reductions similarly affecting the senior executive officers of the Company. 6. Benefits Payable Upon Disability. (a) Disability Benefits. During any period of Disability (as defined below) occurring during the Term, the Company shall continue to pay to the Executive the Base Salary as provided herein and continue to extend to him the benefits described in Sections 4 and 5 hereof; it being understood that if disability benefits are provided under any disability insurance or similar policy maintained by the Company (or maintained by the Executive, the cost of which is reimbursed or paid by the Company), payments under such policy shall be deemed to be payments by the Company and shall offset any Base Salary payable to the Executive under this Agreement. As used in this Agreement, "Disability" shall mean the inability (as determined by a majority of the remaining members of the Board (other than the Executive) voting for such determination) of the Executive to render services to the Company, as provided herein, as a result of physical or mental infirmity or disability. (b) Services During Disability. During the Term, notwithstanding any Disability, the Executive shall, to the extent that he is physically and mentally able to do so, furnish information, assistance and services to the Company, and from time to time he shall make himself available to the Company to undertake reasonable assignments and fulfill his duties hereunder, consistent with his current position with the Company and his physical and mental health. 7. Termination. This Agreement shall expire or be terminated, as applicable, in accordance with the provisions of this Section 7, in which case the provisions of Section 8 below shall be applicable. (a) Upon Expiration of the Term. This Agreement shall terminate in accordance with Section 2 above. 6 7 (b) By the Company. In addition to the provisions of Section 7(a) above, this Agreement is subject to earlier termination by the Company, as follows: (i) Death of Executive. If the Executive dies, this Agreement shall terminate, the Termination Date being the date of the Executive's death. (ii) Disability. If the Executive has been absent from service to the Company, as required in this Agreement, for a period of 60 days or more as a result of Disability during any consecutive 120-day period during the Term, the Company shall have the right to terminate this Agreement (as determined by a majority of the remaining members of the Board (other than the Executive) voting for such determination), the Termination Date being 15 days after written notice thereof is provided to the Executive. (iii) Termination by the Company for Cause. The Company shall have the right to terminate the Executive's employment under this Agreement for Cause (as defined below), the Termination Date to be immediately upon written notice thereof from the Company to the Executive. For purposes of this Agreement, "Cause" shall mean the Executive's (A) conviction of any misdemeanor involving moral turpitude or any felony, (B) misappropriation or embezzlement from the Company, (C) denial, revocation or rejection of any applicable gaming license or permit, or commission of any act which could reasonably be expected to result in such denial, revocation or rejection, (D) any material breach of the provisions hereof, or (E) the refusal by the Executive to undertake the Executive's duties or obligations hereunder. (iv) Termination by the Company Without Cause. The Company shall have the right to terminate the Executive's employment hereunder for any reason not specifically set forth in clauses (i), (ii) or (iii) of this Section 7(b), the Termination Date being 15 days after written notice thereof by the Company to the Executive. (c) By The Executive. In addition to the provisions of Section 7(a) above, this Agreement is subject to earlier termination by the Executive, as follows: (i) Termination by the Executive for Just Cause. The Executive shall have the right to terminate his employment under this Agreement upon the occurrence of a material breach of this Agreement by the Company, which the parties agree shall be limited to (A) a reduction by the Company in the Base Salary below the minimum Base Salary specified in Section 4(a) above or the failure of the Company to pay to the Executive any portion of the Base Salary within 30 days of the time that any such amount is due and payable hereunder, (B) the assignment to the Executive of duties and responsibilities that are materially inconsistent with those of a senior executive officer of the Company, (C) a significant reduction in the Executive's position, title, organization level, duties or responsibilities within the Company or (D) the failure of the 7 8 Company to obtain the assumption of this Agreement by any successors as required by Section 13(a) below, in each case, which has not been cured by the Company after 30 days' written notice from the Executive to the Company. In the event that the Executive elects to terminate this Agreement under this Section 7(c)(i), the Executive shall exercise such right by giving written notice thereof to the Company within 10 days after the lapsing of the 30-day period referred to above in this clause (i) (assuming that the Company shall have failed to cure such material breach within such period); thereafter, such right to terminate shall no longer be exercisable. The Termination Date shall be 15 days after the date of the applicable written notice giving rise to a termination by the Executive to the Company. (ii) Termination by the Executive Without Just Cause. The Executive shall have the right to terminate the Executive's employment under this Agreement for any reason not specifically set forth in clause (i) of this Section 7(c), the Termination Date being 15 days after written notice thereof from the Executive to the Company. 8. Effect of Termination. The following provisions shall be applicable in the event of the termination of this Agreement as provided in Section 7 above. (a) Expiration of Term. Upon termination of this Agreement as provided in Section 7(a) above, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 10, 11, 12 and 13(b) below, which shall survive the Termination Date, to the extent provided therein, and no additional payments, liabilities or obligations shall be due and owing from either party to the other; provided, that the provisions of Section 10(a) shall survive such termination for the duration of the Restricted Period (as defined in Section 10 below) or for such shorter period that the Company elects, to the extent, in each case, that the Company so elects and provides written notice thereof to the Executive (which notice shall be given within 15 days prior to the Termination Date); and thereafter pays to the Executive the Base Salary otherwise payable hereunder (payable in accordance with the Company's regular pay schedule), during the Restricted Period or such shorter period (with the Base Salary prorated for such shorter period), as applicable. (b) Death or Disability. Upon the termination of this Agreement as provided in Section 7(b)(i) or 7(b)(ii) above, the Company shall pay to the Executive or the Executive's estate, as applicable, (i)(A) a lump-sum amount equal to the Base Salary otherwise payable to the Executive hereunder for the 12-month period following the Termination Date, payable in accordance with the Company's pay schedule, and (B) any Annual Bonus for the Employment Year in which the Termination Date occurs that the Board determines in good faith would otherwise have been payable had the Executive not died or become disabled, which Annual Bonus shall be reduced by prorating it through the Termination Date, payable, in the case of this clause (B), at the time such payment would otherwise be due and payable hereunder, and (ii) expense reimburse- 8 9 ment amounts accrued through the Termination Date, at the time such payment would otherwise be due and payable thereunder, and neither party shall have any further liability or obligation to the other, except that the provisions of Sections 10, 11, 12 and 13(b) below shall survive the Termination Date, to the extent provided therein. Notwithstanding the provisions of clause (i) above, the Company shall have the right to provide for either or both of the payments descried therein by purchasing life insurance on the Executive's life itself or reimbursing to the Executive the cost of the premiums in respect of such life insurance which shall be purchased directly by the Executive; in the event that either or both of such insurance coverage is obtained, such payments shall constitute the Executive's estate's or heirs' sole remedy in respect of such payments. An amount equal to 50% of any unvested Employment Options as of the Termination Date shall vest and become exercisable by virtue of any termination under Section 7(b)(i) or 7(b)(ii) and, notwithstanding any of the specific provisions of the 1996 Plan that may be applicable to the Employment Options, as provided herein, the Executive's estate shall have a period of two years from the Termination Date to exercise such options; it being understood, however, that in the event of a termination under Section 7(b)(i) or 7(b)(ii), in order for any of the Additional Vesting Options to vest or become exercisable, the Additional Vesting Conditions applicable thereto shall have been achieved prior to the earlier of (x) the applicable periods originally provided in Section 3(c)(y) and (y) the Termination Date provided in Section 7(b)(i) or 7(b)(ii), as applicable. (c) Termination by the Company For Cause or the Executive Without Just Cause. Upon termination of this Agreement as provided in Sections 7(b)(iii) or 7(c)(ii) above, the Company shall pay to the Executive (i) the accrued and unpaid Base Salary, if any, through the Termination Date and (ii) expense reimbursement amounts accrued through the Termination Date, at the time such payments are otherwise due and payable thereunder, and neither party shall have any further liability or obligation to the other, except that the provisions of Sections 10, 11, 12 and 13(b) below shall survive the Termination Date, to the extent provided therein. No unvested Employment Options shall vest or become exercisable by virtue of any termination under Section 7(b)(iii) or 7(c)(ii), and any and all rights thereto then possessed by the Executive shall be terminated and of no further force and effect; it being understood that in the event of a termination under Section 7(b)(iii) or 7(c)(ii), in order for any of the Additional Vesting Options to vest or become exercisable, the Additional Vesting Conditions applicable thereto shall have been achieved prior to the earlier of (x) the applicable periods originally provided in Section 3(c)(y) and (y) the Termination Date provided in Section 7(b)(iii) or 7(c)(ii), as applicable. (d) Termination by the Company Without Cause or the Executive for Just Cause. Upon termination of this Agreement as provided in Sections 7(b)(iv) or 7(c)(i) 9 10 above, the Company shall pay to the Executive (i) the Base Salary that would otherwise be payable hereunder during the Restricted Period; provided, that the Executive continues to comply with the covenants in Sections 10 and 11 below, as provided therein, and (ii) expense reimbursement amounts accrued through the Termination Date, in each case, in the case of clause (i) and (ii) above, at the time such payments are otherwise due and payable thereunder, and neither party shall have any further liability or obligation to the other, except that the provisions of Sections 10, 11, 12 and 13(b) below shall survive the Termination Date, to the extent provided therein. All unvested Employment Options that are otherwise provided to be vested during the 12- month period following the applicable Termination Date, shall vest and become exercisable (in accordance with the applicable provisions of the 1996 Plan) by virtue of any termination under Section 7(b)(iv) or 7(c)(i); it being understood, however, that in the event of a termination under Section 7(b)(vi) or 7(c)(i), in order for any of the Additional Vesting Options to vest or become exercisable, the Additional Vesting Conditions applicable thereto shall have been achieved prior to the earlier of (x) the applicable periods originally provided in Section 3(c)(y) and (y) the Termination Date provided in Section 7(b)(iv) or 7(c)(i), as applicable. 9. Federal Income Tax and Other Withholdings. The Company shall withhold from any amount or benefits payable pursuant to this Agreement such federal, state, city or other taxes and other amounts as may be required to be withheld pursuant to any applicable law or governmental regulations or ruling and shall timely pay over to the appropriate governmental or other authorities the amount withheld, together with any additional amounts required to be paid by the Company in respect thereof. 10. Non-Competition; Non-Solicitation and Standstill. (a) The Executive covenants and agrees that he will not at any time during the Term and for a period of 12 months following any Termination Date (the 12-month period following any Termination Date hereunder, the "Restricted Period"), directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, equityholder (except as the beneficial owner of not more than 5% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any person or entity, (1) establish, engage in or be connected with, in any manner, any person or entity which is at the time engaged in a business which is on the Commencement Date or on any applicable Termination Date in competition (other than competition in any immaterial respect or competition that is in a business that is immaterial or insignificant to the Company) with (a) the Company or any of its subsidiaries or affiliates, (b) any product, service or other business of any of the Company or such subsidiaries or affiliates that is in production, distribution or development as of the Termination Date, including without limitation, rendering advice or other services to any casino and/or any in-room, in-flight, Internet or network games or gaming (whether or not involving gambling) or casino or 10 11 hotel management data collection systems or (2) otherwise compete in any way with the Company or its subsidiaries or affiliates (other than competition in any immaterial respect or competition that is in a business that is immaterial or insignificant to the Company). (b) The Executive shall not, directly or indirectly, at any time during the Term or Restricted Period (1) take any action to solicit or divert any joint venture partners, business partners, business (or potential business) or clients or customers away from the Company or any of its subsidiaries or affiliates, (2) induce customers, clients, joint venture partners, business partners, suppliers, agents or other persons under contract or otherwise associated or doing business with the Company or any of its subsidiaries or affiliates to terminate, reduce or alter any such association or business with or from the Company or such subsidiaries or affiliates and/or (3) induce any person in the employment of the Company or any of its subsidiaries or affiliates or any consultant to the Company or such subsidiaries or affiliates to (A) terminate such employment or consulting arrangements, (B) accept employment or enter into consulting arrangements with any person or entity other than the Company and/or (C) interfere with the customers, suppliers or clients of the Company or any of its subsidiaries or affiliates in any manner or the business of the Company or any of its subsidiaries or affiliates in any manner. For purposes of this Section 10(b), "potential business" means any current or reasonably foreseeable commercial activity or any current or reasonably foreseeable commercial opportunities associated in any way with the Company's activities (other than ancillary or immaterial activities). (c) The Executive shall not, at any time during the Term or Restricted Period, except as specifically requested in writing by the Company, singly or with any other person, directly or indirectly, propose, enter into or agree to enter into, or encourage any other person to propose, enter into or agree to enter into (a) any form of business combination, acquisition or other transaction relating to the Company or (b) any form of restructuring, recapitalization or similar transaction with respect to the Company. In addition, during the Restricted Period, except as specifically requested by the Company in writing, the Executive shall not, singly or with any other person, directly or indirectly, (1) acquire, or offer, propose or agree to acquire, by tender offer, purchase or otherwise, any voting securities of the Company except through the exercise of Employment Options, (2) make, or in any way participate in, any solicitation of proxies or written consents with respect to voting securities of the Company (it being understood that the mere execution of a proxy or written consent for his own securities beneficially owned shall not be treated as constituting participation in such a solicitation), (3) become a participant in any election contest with respect to the Company or a nominee to the Board or a member of the Board, (4) seek to influence any person with respect to the voting or disposition of any voting securities of the Company, (5) demand a copy of the Company's list of stockholders or its other books and records, (6) participate in or encourage the formation of any partnership, syndicate or other group that owns or seeks or offer to acquire beneficial ownership of any voting securities of the Company or that seeks to affect control of the Company or for the purpose of circumventing any provision of this Agreement, (7) propose or support any director or slate of directors for nomination, appointment or election to the Board 11 12 (it being understood that the mere execution of a proxy or written shareholder consent for his own securities beneficially owned shall not be treated as constituting such support), (8) otherwise act to seek or to offer to control or influence, in any manner, the Board or policies of the Company or (9) seek to amend or change this Section 10(c). 11. Confidential Information and Non-Disparagement. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company and its stockholders all secret, confidential or proprietary information, knowledge or data relating to the Company (and any of its subsidiaries or affiliates), which shall have been obtained by the Executive during or by reason of his employment by the Company, in accordance with the principles of NRS 600A.010 et seq. (the so-called Uniform Trade Secrets Act). During and after the end of the Term, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to any person or entity other than the Company (or such applicable subsidiaries or affiliates) and those designated by them which would result in any misappropriation under and as defined in such Act, except that, during his employment hereunder, in furtherance of the business and for the benefit of the Company, the Executive shall be permitted to provide confidential information as appropriate to attorneys, accountants, financial institutions or other persons or entities engaged in business with the Company from time to time. (b) Each of the Executive and the Company agrees that during the Term and for a period of three years following any applicable Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other, except, in each case, to the extent (but solely to the extent) (I) necessary in any judicial or arbitral action to enforce the provisions of this Agreement or (II) in connection with any judicial, regulatory or administrative proceeding to the extent required by applicable laws. For purposes of this Section 11(b), references to the Company includes its officers, directors, employees, consultants and shareholders (which are reasonably known as such to the Executive) on the date hereof and hereafter. 12. Indemnification and Liability Insurance. (a) Indemnification. The Company shall indemnify and hold the Executive harmless, to the fullest extent legally permitted by Section 78.751 of the Nevada Corporation Code (as amended and in effect from time to time) against any and all expenses, liabilities and losses (including without limitation, reasonable attorneys' fees and disbursements of counsel reasonably satisfactory to the Company), incurred or suffered by him in connection with his service as an officer and as a member of the Board during the Term, in each case, except to the extent of the Executive's negligence or willful misconduct. (b) Insurance. The Company shall maintain, for the benefit of the Executive, a directors' and officers' liability insurance policy insuring the Executive's services as a 12 13 member of the Board during the Term in accordance with its customary practices as in effect from time to time during the Term. The parties acknowledge and agree that such policy may cover other directors and officers of the Company in addition to the Executive. 13. General Provision. (a) Assignment. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive or the Company without the prior written consent of the other; provided, that (i) in the event of the Executive's death during the Term, the Executive's estate and his heirs, executors, administrators, legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (ii) nothing contained in this Agreement shall limit or restrict the Compan s ability to merge or consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity; provided, that such surviving entity shall continue to be bound by the provisions hereof binding upon the Company. (b) Material Inducements. The provisions of Sections 10 and 11 above are material inducements to the Company entering into and performing this Agreement; accordingly, in the event of any breach of such provisions by the Executive, in addition to all other remedies at law or in equity possessed by the Company, (x) the Company shall have the right to terminate and not pay any amounts payable to the Executive hereunder and the Executive shall be required to account for and return to the Company any and all profits derived from the ownership or exercise of the Employment Options and any unvested Employment Options shall be immediately forfeited and returned to the Company and (y) the Company shall be permitted to obtain injunctive and other equitable relief (in respect of any such breach or threatened breach), without the requirement of posting a bond or other security. (c) Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Executive and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. (d) Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (e) Severability. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, but each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. (f) Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto respecting the Executive's employment by the 13 14 Company, and supersedes any prior agreement between the Company and the Executive relating to the retention of the Executive as an employee of the Company. (g) Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent, if to the Executive, to care of Stephen G. Driggers, Esq., Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304-1050; and if to the Company, to Alliance Gaming Corporation, 6601 South Bermuda Road, Las Vegas, Nevada 89119, directed to the attention of the Board with copies to the Chairman and the Secretary of the Company; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (h) Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. (i) Arbitration. In the event of a dispute or controversy arising under or in connection with this Agreement (except, at the option of the Company, Sections 10 and 11 above, and as provided in Section 13(b) above), the Executive shall give the Company or the Company shall give the Executive, as applicable, a written demand for relief. If the dispute or controversy is not resolved, it shall be settled exclusively by arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association (or if such association does not then conduct business in such city, another arbitral panel reasonably satisfactory to each party) then in effect. Judgment shall be entered on the arbitrator's award in any court having jurisdiction over the parties hereto. (j) Indulgences, Etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. (k) Headings. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 14 15 (l) Governing Law. This Agreement has been executed and delivered in the State of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such State, without regard to principles of conflicts of laws. (m) Employment Options. This Agreement shall be the only agreement necessary to grant to the Executive the Employment Options. The parties agree that the specific provisions of the 1996 Plan set forth in Section 4(c) above shall be incorporated herein, mutatis mutandis, as if fully set forth herein, and shall be binding upon the Executive and the Company. (n) Regulatory Approval. The obligations of the Company herein are subject to applicable regulatory approvals, including without limitation, the approval of applicable gaming-related regulators. The Executive represents that he is not aware of any reason that such approval shall not be obtained in the ordinary course of business. 15 16 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has signed this Agreement, all as of the date first set forth above. Alliance Gaming Corporation By: [SIG] ---------------------------------- Name: Scott D. Schweinfurth Title: Treasurer, CFO, SR. VP ------------------------------------ Morris Goldstein 16 EX-10.76 6 EXHIBIT 10.76 1 EXHIBIT 10.76 EMPLOYMENT AGREEMENT AGREEMENT dated as of July 1, 1997 (the "Agreement") by and between ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Company"), and JOEL KIRSCHBAUM, an individual (the "Employee"). R E C I T A L S: A. The Company considers it important and in its best interest and the best interest of its stockholders to secure the long-term engagement of key senior personnel who have substantial experience and knowledge in both the financial markets and the gaming industry, and the Company desires to retain the services of the Employee, on the terms and subject to the conditions provided in this Agreement. B. The Employee desires to accept such engagement by the Company and to render services to the Company, on the terms and subject to the conditions provided in this Agreement. A G R E E M E N T: 1. EMPLOYMENT. The Company hereby agrees to retain the services of the Employee, and the Employee agrees to be retained by the Company as an employee to render services to the Company upon the terms and conditions set forth in this Agreement. 2. TERM. The term of the Employee's employment under this Agreement shall be five (5) years commencing as of July 1, 1997 (the "Term"), unless earlier terminated as provided in this Agreement; provided, however, that the Term shall automatically be extended on June 30, 2002 and each subsequent June 30 for an additional one (1) year period unless, not later than six (6) months prior to any such date, either party to this Agreement shall have given written notice to the other party that he or it does not wish to extend, or further extend, the Term. 3. DUTIES AND LOCATION. (a) DUTIES. The Employee will be available, at the reasonable request of the Board of Directors of the Company (the "Board") and/or the chief executive officer of the Company, to work on major strategic transactions involving the Company and/or one or more of its affiliates, including, without limitation, mergers, acquisitions, divestitures, joint 2 - 2 - ventures, the negotiation of strategic alliances or relationships and financing and refinancing transactions of all types. The Employee will report directly and only to the Board and/or the chief executive officer of the Company, as appropriate. The Employee's role in such matters, and in all activities to be undertaken by the Employee under this Agreement, is to be consistent with that of a senior financial advisor retained directly by the Board and/or the chief executive officer of the Company, and the Employee is not expected to be involved in matters relating to the day-to-day operation of the Company or any of its affiliates. The Employee will devote to the Company a portion of his business time sufficient for him reasonably to fulfill his duties hereunder. However, the Company explicitly acknowledges and agrees that the Employee is expected to devote only a portion of his business time to the Company and/or its affiliates, and that the Employee will pursue during the Term substantial business interests other than the Employee's obligations under this Agreement. (b) LOCATION. It is contemplated that the Employee will provide services to the Company under this Agreement from an office in the New York area. However, the Employee acknowledges and agrees that he may be required to travel frequently from time to time during the Term in order to perform his duties hereunder (including, without limitation, trips to Las Vegas, Nevada). 4. COMPENSATION. (a) BASE SALARY. For purposes of this Agreement, each consecutive 12- month period ending on each June 30 during the Term shall be referred to as an "Employment Year". For services rendered by the Employee under this Agreement (and for the Employee agreeing to be available to provide such services), the Company shall pay the Employee as compensation during each Employment Year during the Term a Base Salary of $150,000 per year (prorated for any partial Employment Years); provided, however, that such Base Salary shall be increased as of July 1 of each year during the Term at a rate equal to the percentage increase in the consumer price index for the New York - Northern New Jersey - Long Island, NY-NJ-CT metropolitan area as reported by the U.S. Department of Labor for the immediately preceding 12-month period, and such increased amount shall thereupon become the "Base Salary" for all purposes under this Agreement. The Base Salary shall be payable in equal bi-weekly installments, commencing with the end of the regular pay period of the Company that next follows the commencement of the Term. (b) BONUSES. The Employee is entitled to, and the Company hereby agrees to pay to the Employee, performance bonuses (the "Bonuses") during the Term pursuant to the arrangements described in this Section 4(b). Prior to the commencement of each Employment Year during the Term, the Board and the Employee shall agree upon 3 - 3 - appropriate performance goals for the Company for such Employment Year (which goals will generally relate, without limitation, to mergers, acquisitions, divestitures, joint ventures, strategic alliances, financings, refinancings and/or similar transactions) involving the Company (and/or one or more of its affiliates) and the target amount (and/or appropriate minimum amount) of Bonuses to be paid to the Employee if the various performance goals are met. More than one Bonus may be paid during or with respect to each Employment Year, and each Bonus payable to the Employee hereunder shall, unless an alternative arrangement has been established pursuant to Section 4(d) below, be paid to the Employee by the Company in cash as soon as practicable after the performance goal to which such Bonus relates has been met, but no later than ten (10) business days after such performance goal has been met. Performance goals that relate to a transaction shall be deemed to have been met upon the closing of such transaction. For the Employment Year beginning July 1, 1997, the performance goals are: (i) the closing by the Company and/or one or more of its affiliates during the Employment Year of the Refinancing as set forth in the Offer to Purchase and Consent Solicitation Statement dated July 3, 1997 or a substantially similar transaction, as determined by the Board in its reasonable and good faith judgment; (ii) the closing by the Company and/or one or more of its affiliates during the Employment Year of at least one "significant merger" (a "significant merger" is defined as a merger, acquisition, divestiture, joint venture, strategic alliance or similar transaction (or a series of related transactions) with a value equal to or greater than $60 million); and/or (iii) the closing by the Company and/or one or more of its affiliates during the Employment Year of at least one "significant financing" (a "significant financing" is defined as a financing, refinancing or similar transaction (or a series of related transactions) with a value equal to or greater than $50 million); provided, however, that if for the Employment Year beginning July 1, 1997 and/or any subsequent Employment Year a significant financing is directly related to a significant merger and closes within ten (10) business days before or after the closing of such significant merger, and each such transaction would cause a performance goal to be met during or with respect to such Employment Year, only one of such performance goals - the one that results in the highest Bonus amount - shall be deemed to have been met with respect to such related transactions during or with respect to that Employment Year for purposes of this Section 4(b). For this purpose, the "value" of a transaction shall be (x) with respect to a merger, acquisition, joint venture, strategic alliance or similar transaction, the aggregate value of the consideration paid, exchanged, committed, invested or received by the Company (and/or any of its subsidiaries or other entities controlled by the Company) with respect to the transaction plus the aggregate principal amount of all debt incurred or assumed by the Company (and/or any of its subsidiaries or other entities controlled by the Company) in connection with the transaction, and (y) with respect to a divestiture, financing, refinancing or similar transaction, the gross proceeds (prior to reduction for any fees and expenses) paid to, made available to, received by or to be invested in the Company (and/or any of its subsidiaries or 4 - 4 - other entities controlled by the Company), whether or not disbursed, plus the aggregate principal amount of any debt for which the Company (and/or any of its subsidiaries or other entities controlled by the Company) is no longer liable. Upon the achievement of the performance goal set forth in clause (i) of the preceding paragraph, the Company shall pay the Employee a Bonus of $950,000. Upon the achievement of the performance goal set forth in clause (ii) of the preceding paragraph, the Company shall pay the Employee a minimum Bonus of $200,000 for each significant merger. Upon the achievement of the performance goal set forth in clause (iii) of the preceding paragraph, the Company shall pay the Employee a minimum Bonus of $125,000 for each significant financing. The Company shall pay each such Bonus in cash as soon as practicable after the closing of the transaction that causes the related performance goal to be met, but no later than ten (10) business days after such performance goal has been met. If a performance goal is only partially achieved within an Employment Year, the Board shall determine, in its reasonable and good faith judgment, what amount of reduced Bonus, if any, shall be paid to the Employee with respect to such performance goal during or with respect to such Employment Year. The Board and the Employee agree that similar annual performance goals and appropriate minimum and/or target Bonuses will be agreed to with respect to each subsequent Employment Year during the Term. If, after reasonable and good faith negotiation, the Board and the Employee cannot agree upon reasonable annual performance goals and minimum and/or target Bonuses with respect to such goals for any subsequent Employment Year, the Company and the Employee agree that the performance goals set forth in clauses (ii) and (iii) of the second preceding paragraph and the corresponding minimum Bonuses applicable thereto in the immediately preceding paragraph shall be the performance goals and minimum Bonuses for such subsequent Employment Year. The Employee, upon 30 days notice to the Company, may elect to amend or restructure his relationship with the Company to that of a financial consultant or independent advisor, with compensation and other arrangements reflecting the nature of such relationship and the services to be provided (including, without limitation, choice of law provisions and provisions relating to other permitted activities) in amounts reasonably consistent with the compensation and Bonuses (including Special Bonuses pursuant to Section 4(c)) contemplated herein, in the reasonable and good faith judgment of the Board, but calculated and payable in a manner customary for financial consultant or independent advisor arrangements. Upon receipt of such notice, the Company and the Employee will negotiate reasonably and in good faith to establish before the end of the 30-day notice period a restructured agreement with respect to the services contemplated to be provided hereunder. 5 - 5 - The Company expressly acknowledges and agrees that the Employee will be entitled to the Bonuses described above with respect to the attainment by the Company and/or one or more of its affiliates of the established performance goals, and each such Bonus will be paid by the Company to the Employee regardless of whether the Employee is involved with the transaction or transactions that resulted in the attainment of the performance goal, so long as the Employee otherwise fulfills, in all material respects, his obligations to the Company under Section 3(a). Further, if the Company and/or one or more of its affiliates has taken material steps, as determined by the Board, in its reasonable and good faith judgment, prior to the end of the Term towards a significant merger and/or a significant financing and a performance goal to which any such significant merger and/or significant financing relates is met within nine (9) months after the end of the Term (or within twenty-one (21) months of the end of the Term in the case of a transaction that does not close within such nine (9) month period primarily because required regulatory approval(s) has not been obtained), the Company shall pay to the Employee as provided above the Bonuses that would have been payable to the Employee pursuant to this Section 4(b) upon the closing of such transaction(s). (c) SPECIAL BONUSES. In addition to the Base Salary and Bonuses described above, the Board, in its sole discretion, may from time to time determine to pay the Employee additional direct compensation in the nature of a special bonus award (a "Special Bonus"), if it determines that the Employee has provided services of special or exceptional value to the Company. The Employee shall also be eligible to receive from time to time, in the sole discretion of the Board or a committee of the Board, stock options and/or other awards with respect to the stock of the Company. (d) DEFERRAL OPPORTUNITIES. The Company agrees, subject to any approvals required by applicable laws and/or regulations, that the Employee may irrevocably elect, at any time prior to January 1, 1999, to forgo all or any portion of any Bonuses to which the Employee may thereafter become entitled and in lieu thereof to amend certain warrants beneficially owned by the Employee and/or one or more of his affiliates that otherwise would expire on September 21, 1999 to extend their expiration date (and all applicable conditions with respect to the exercise thereof) to June 18, 2002, and the Company will take all necessary action to maintain the exempt status of any such extended warrants under Section 16 of the Securities Exchange Act of 1934. The rate at which such extension shall occur shall be such number of warrants (not more than three (3)) for each dollar of Bonuses foregone as the Board, in its reasonable and good faith judgment, shall determine within ninety (90) days of the date of this Agreement and after considering, among other things, the recommendation of an investment banking, accounting or valuation firm with a national reputation. (The Board shall retain such firm as soon as practicable after the date of this Agreement, and the costs of obtaining such recommendation shall be borne by the Company.) 6 - 6 - At the election of the Employee (and/or one or more of his affiliates that may then own any of such warrants), all or a portion of this option to extend the expiration date of such warrants (and all applicable conditions with respect to the exercise thereof) may also be effected by a direct cash payment by the Employee (and/or any such affiliate) to the Company on or prior to September 21, 1999 at the rate set forth in the prior paragraph, rather than by the application of future Bonuses as set forth in this Section 4(d). (e) BENEFITS. The Company will give the Employee the right to participate in all of the benefit plans and programs maintained by the Company for its senior executive officers and/or their dependents to the fullest extent possible as if the Employee were employed by the Company on a full-time basis. To the extent the Employee is not able to participate in any such benefit plan or program, the Company will provide alternative arrangements to the Employee (and/or his dependents, if applicable) so that, on an after-tax basis, the Employee shall be in the same position as if the Employee had been a direct and full participant in such plan or program; provided, however, that the maximum amount required to be paid to the Employee pursuant to this sentence for or with respect to an Employment Year shall not exceed $20,000, on an after-tax basis. There shall be no material reduction or diminution of the benefits provided in this Section 4(e) during the Term, unless (i) the Employee consents to such reduction or diminution, (ii) an equitable arrangement (embodied in an ongoing substitute or alternative benefit plan or program) has been made with respect to the affected benefit plan or program or (iii) such reduction is part of a program of across-the-board benefit reductions similarly affecting the senior executive officers of the Company. (f) ABSENCE AND SICK LEAVE. The Employee shall be entitled to such reasonable periods of unavailability to provide services under this Agreement because of vacation or illness comparable to those he would otherwise be entitled to if he were a senior executive officer of the Company. (g) FEDERAL INCOME TAX AND OTHER WITHHOLDINGS. The Company shall withhold from any amount or benefits payable pursuant to this Agreement such federal, state, city or other taxes and other amounts as may be required to be withheld pursuant to any applicable law or governmental regulations or ruling and shall timely pay over to the appropriate governmental authorities the amounts withheld, together with any additional amounts required to be paid by the Company (and/or any of its affiliates) in respect thereof. 5. REIMBURSEMENT OF EXPENSES. Consistent with established policies of the Company as in effect from time to time for its senior executive officers, the Company shall pay to or reimburse the Employee for all reasonable and actual out-of-pocket expenses, including without limitation, travel, hotel and similar expenses, incurred by the Employee 7 - 7 - from time to time in performing his obligations under this Agreement; provided, however, that any single expense item in excess of $5,000 must be approved by the chief executive officer or the chief financial officer of the Company, which approval shall not be unreasonably withheld or delayed. 6. PAYMENTS UPON DISABILITY OR DEATH. (a) DISABILITY. During any period of Disability (as defined below) occurring during the Term, the Company will continue to pay to the Employee the full amount of the Base Salary, Bonuses and other compensation provided herein and will continue to extend to the Employee the benefits described in Section 4 through the remainder of the Term, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b); provided, however, that if disability benefits are provided under any disability insurance or similar policy maintained by the Company (or maintained by the Employee, with the cost thereof being reimbursed or paid by the Company), payments under such policy shall be considered as payments by the Company and shall offset any Base Salary payable to the Employee under this Agreement. As used in this Agreement, "Disability" shall mean the Employee's inability (as determined by a majority of the members of the Board other than the Employee in their reasonable and good faith judgment) to render services to the Company as contemplated by this Agreement as a result of physical or mental infirmity on the basis of a written medical opinion of an independent medical physician mutually acceptable to the Company and the Employee. (If the Company and the Employee cannot agree on an independent medical physician, each shall appoint one medical physician and those two physicians shall appoint a third physician who shall render such opinion. Each of the Company and the Employee shall appoint such medical physician within five (5) business days of receiving written notice from the other party requesting such appointment, and if such requested appointment is not made within such five (5) business day period, the party failing to appoint a medical physician shall be deemed to have accepted the medical physician appointed by the other party.) In no event shall the Employee be considered Disabled for purposes of this Agreement unless he is determined to be disabled under the Company's regular long-term disability plan. If the Employee is determined by the Board to be Disabled and such Disability then continues for a period of an aggregate of five (5) months during any eight (8) consecutive month period after such determination, the Board shall have the right to terminate the Employee's employment under this Agreement upon fifteen (15) days notice to the Employee if it determines, in its reasonable and good faith judgment on the basis of a second written medical opinion of an independent medical physician (selected as described above), that the Employee will not be able to resume providing the services contemplated by this Agreement within a reasonable period of time after the date of such proposed termination. 8 - 8 - Upon the termination of the Employee's employment on account of Disability pursuant to the preceding paragraph, the Employee's employment shall terminate as of the effective date of the Board's final determination; provided, however, that the Employee's employment shall be deemed to have terminated as of the end of the fifteenth (15) month following the month in which such termination decision by the Board is effective for purposes of all payments, Base Salary, Bonuses, compensation, benefits, elections and other rights and entitlements of the Employee under this Agreement, which shall continue to be paid, provided or made available to the Employee during the fifteen (15) month period as they would otherwise become due and/or payable as if the Employee's employment under this Agreement had not terminated. After the completion of this fifteen (15) month period, the Company will pay or provide to the Employee, to the extent not otherwise paid or provided to the Employee in the normal course during the fifteen (15) month period, (i) any accrued but unpaid Base Salary, Bonuses and other compensation and benefits under this Agreement through the date of deemed termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of deemed termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee (or his representative) any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. Notwithstanding any such Disability, during the remainder of the Term, the Employee shall, to the extent that the Employee is physically and mentally reasonably able to do so, furnish information, assistance and services to the Company, and, upon the reasonable request in writing on behalf of the Board (as determined by a majority of the members of the Board other than the Employee) from time to time, the Employee shall make himself reasonably available to perform a portion of the Employee's duties hereunder that is reasonably consistent with the Employee's physical and mental health. (b) DEATH. In the event of the Employee's death during the Term, the Employee's employment shall terminate as of the date of death; provided, however, that for purposes of all payments, Base Salary, Bonuses, compensation, benefits, elections and other rights and entitlements of the Employee under this Agreement, the Employee's employment shall be deemed to have terminated as of the end of the fifteenth (15) month following the month in which the Employee's death occurs, and, after the completion of this fifteen (15) month period, the Company will pay or provide to the beneficiary(ies) designated by the 9 - 9 - Employee from time to time in a written notice to the Company (or, in the absence of an effective designation of beneficiary(ies) on the date of the Employee's death, to the Employee's estate), to the extent not otherwise paid or provided in the normal course during the fifteen (15) month period, (i) any accrued but unpaid Base Salary, Bonuses and other compensation and benefits under this Agreement through the date of deemed termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of deemed termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to such beneficiaries any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7 and 12 shall continue in effect after the date of termination to the extent provided in such Sections for the benefit of the Employee's designated beneficiary(ies) and the Employee's estate. All payments, Base Salary, Bonuses, compensation, benefits, elections and other rights and entitlements that the Company is or may become obligated to pay or provide to or with respect to the Employee during the fifteen (15) month period described in the first sentence of this Section 6(b) shall be paid to or provided to the Employee's designated beneficiary(ies) or estate, as appropriate. 7. INDEMNIFICATION AND LIABILITY INSURANCE. (a) INDEMNIFICATION. During the Term and thereafter, the Company shall indemnify and hold the Employee harmless, to the fullest extent legally permitted by Section 78.751 of the Nevada Revised Statutes (as amended and in effect from time to time and including judicial interpretations thereof) against any and all expenses, liabilities and losses (including, without limitation, reasonable attorneys' fees and disbursements of counsel reasonably satisfactory to the Company), incurred or suffered by the Employee in connection with his service as an employee of the Company during the Term, in each case, except to the extent of the Employee's negligence or willful misconduct. (b) INSURANCE. The Company shall maintain, for the benefit of the Employee, a director's and officer's or similar liability insurance policy, insuring the Employee's service hereunder in accordance with its customary practices for its senior executive officers in effect from time to time during the Term and for at least six years thereafter with respect to actions and/or failures to act during the Employee's employment under this Agreement. 10 - 10 - 8. CONFIDENTIALITY; NON-COMPETITION. (a) CONFIDENTIALITY. During the Term and thereafter, the Employee agrees not to disclose to others all secret, confidential or proprietary information, knowledge or data relating to the Company (and/or any of its affiliates) which shall have been obtained by the Employee during or by reason of the Employee's employment by the Company, in accordance with the principles of NRS 600A.010 et seq. (the so-called Uniform Trade Secrets Act, as amended and in effect from time to time and including judicial interpretations thereof); provided, however, that the foregoing shall not apply to any such information, knowledge or data that becomes publicly available other than as a result of a breach of the Employee's undertakings hereunder or that is required by law or regulation to be disclosed by the Employee or that is necessary to disclose in connection with any judicial, regulatory or administrative proceeding or that is disclosed by the Employee in good faith in the course of the performance of his duties hereunder. During the Term, the Employee shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to any person or entity other than the Company (and/or its applicable affiliates) and those designated by any of them that would result in any misappropriation under and as defined in such Act, except that, during the Employee's employment hereunder, in furtherance of the business and for the benefit of the Company, the Employee may provide confidential information as appropriate to attorneys, accountants, financial institutions or other persons or entities engaged in business with the Company from time to time. (b) NON-COMPETITION. Subject to Section 10 hereof, the Employee agrees that he will not at any time during the Term and for a period of twelve (12) months following the end of such Term, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, equityholder (except as the beneficial owner of not more than 5% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the counter market securities and, in each case, in which the Employee does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any person or entity, establish, engage in or be connected with, in any manner, any person or entity with respect to a business conducted by that person or entity that is, on the applicable date, in direct competition (other than competition in any immaterial respect and/or competition that is in a business that is immaterial or insignificant to the Company and its affiliates, taken as a whole) with the Company or any of its primary affiliates in the gaming machine route, electronic gaming machine and/or casino businesses; provided, however, that these restrictions shall not apply after the end of the Term if the Employee's employment hereunder is terminated by the Company other than for "Cause" or by the Employee for "Good Reason", each as defined in Section 11. 11 - 11 - 9. NON-DISPARAGEMENT. Each of the Employee and the Company agrees that during the Term and for a period of three (3) years following the end of such Term, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other, except, in each case, to the extent (but solely to the extent) necessary in any judicial or other action to enforce the provisions of this Agreement or in connection with any judicial, regulatory or administrative proceeding to the extent required by applicable laws and regulations. For purposes of this Section 9, references to the Company include its subsidiaries and other entities controlled by it and the directors and executive officers of the Company on the date hereof and from time to time hereafter. 10. PERMITTED ACTIVITIES. The Company expressly acknowledges and agrees that, during the Term and thereafter, the Employee may be engaged in other business activities that are not in direct competition (other than competition in any immaterial respect and/or competition that is in a business that is immaterial or insignificant to the Company and its affiliates, taken as a whole) with the Company and/or any of its primary affiliates in the gaming machine route, electronic gaming machine and/or casino businesses. 11. TERMINATION. (a) BY THE COMPANY. The Company shall have the right to terminate the Employee's employment under this Agreement for Cause (as defined herein)or without Cause. For purposes of this Agreement, "Cause" shall mean the Employee's (i) conviction of any misdemeanor involving moral turpitude or any felony, (ii) denial (or revocation) of any required gaming license or permit issued by the State of Nevada (or any applicable agency or political subdivision thereof) or any other jurisdiction in which the denial (or revocation) of the Employee's required gaming license or permit would materially adversely affect the business of the Company and its affiliates (taken as a whole), or (iii) the persistent and willful refusal by the Employee, in each case after written notice from the Board or the chief executive officer of the Company (after consultation with the Board) which sets forth in reasonable detail the basis for such notice, to undertake the Employee's duties and obligations under this Agreement. A termination for Cause under this Section 11(a) shall be effected only by a written notice of the Board to the Employee that sets forth in reasonable detail the basis for such termination; provided, however, that any such notice shall not become effective if, within twenty-one (21) days after the receipt thereof, the Employee shall correct, to the reasonable satisfaction a majority of the Board (excluding the Employee), such act or failure to act that is the basis for the termination of the Employee's employment for Cause. 12 - 12 - Upon a termination of the Employee's employment for Cause becoming effective, the Company shall pay or provide to the Employee (i) any accrued and unpaid Base Salary, Bonuses and other compensation and benefits through the date of termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b) to the extent that any Bonus pursuant to such last sentence is not prohibited by any applicable laws, regulations and/or decisions of applicable regulatory agencies, (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (but excluding the warrant extension election provided in Section 4(d)) to the extent that any such payment or election pursuant to this clause (iii) is not prohibited by any applicable laws, regulations and/or decisions of applicable regulatory agencies, in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. However, if the Employee's employment is terminated by the Company for Cause because of the Employee's conviction of a misdemeanor or felony or the denial (or revocation) of a required permit or license, as provided above, and thereafter the Employee's conviction or denial (or revocation) is reversed, the Company shall pay to the Employee the Base Salary, Bonuses and other compensation and benefits that the Employee would have received as if the Employee's employment under this Agreement had not terminated to the extent such payments are not prohibited by any applicable laws, regulations and/or decisions of applicable regulatory agencies. A termination of the Employee's employment hereunder without Cause may be effected by the Company upon written notice to the Employee from the Board. Notwithstanding such termination of employment, the Company will continue to pay or provide to Employee (i) the Base Salary, Bonuses and other compensation and benefits that would otherwise be payable to the Employee or provided to or with respect to the Employee hereunder for the remainder of the Term as if the Employee's employment under this Agreement had not terminated, except that the Bonuses to be paid to the Employee under Section 4(b) for such Employment Years (and portions thereof) after the date of such termination of employment without Cause shall be an amount equal to the product of (x) the highest aggregate Bonuses received by the Employee during and/or with respect to any previous Employment Year (determined on an annualized basis for any partial Employment Year) multiplied by (y) the number of Employment Years (and portions thereof) remaining in the Term as if the Employee's employment under this Agreement had not terminated, (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company 13 - 13 - and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections; provided, however, that the Bonuses determined in clause (i) of this paragraph as the product of clauses (x) and (y) shall be paid to the Employee by the Company in equal monthly installments (commencing as of the first day of the month following the date of termination) over the remaining Term as if the Employee's employment under this Agreement had not terminated. (b) BY THE EMPLOYEE. The Employee shall have the right to terminate his employment under this Agreement for "Good Reason" (as defined herein) or without Good Reason. For purposes of this Agreement, "Good Reason" shall mean (i) the failure of the Company to pay to the Employee any portion of the Employee's Base Salary or any Bonus or other compensation or benefits within ten (10) business days of the time that any such amount is due and payable hereunder, (ii) the assignment to the Employee of duties that are materially inconsistent with those of a senior financial advisor to the Company, as set forth in Section 3(a), or (iii) the failure of the Company to cause a successor entity (or entities), as described in Section 12(a), specifically to adopt and agree to be bound by this Agreement, which in each such case has not been cured by the Company within twenty-one (21) days after receipt of written notice from the Employee describing the basis for the Employee's determination of Good Reason. Upon the Employee's termination of this Agreement for Good Reason, the Company will continue to pay or provide to the Employee (i) the Base Salary, Bonuses and other compensation and benefits that would otherwise be payable to the Employee or provided to or with respect to the Employee hereunder for the remainder of the Term as if the Employee's employment under this Agreement had not terminated, except that the Bonuses to be paid to the Employee under Section 4(b) for such Employment Years (and portions thereof) after the date of such termination of employment for Good Reason shall be an amount equal to the product of (x) the highest aggregate Bonuses received by the Employee during and/or with respect to any previous Employment Year (determined on an annualized basis for any partial Employment Year) multiplied by (y) the number of Employment Years (and portions thereof) remaining in the Term as if the Employee's employment under this Agreement had not terminated, (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to 14 - 14 - be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections; provided, however, that the Bonuses determined in clause (i) of this paragraph as the product of clauses (x) and (y) shall be paid to the Employee by the Company in equal monthly installments (commencing as of the first day of the month following the date of termination) over the remaining Term as if the Employee's employment under this Agreement had not terminated. The Employee may terminate his employment under this Agreement without Good Reason on 30 days written notice to the Company. Upon the Employee's termination of this Agreement without Good Reason, the Company shall pay or provide to the Employee (i) any accrued and unpaid Base Salary, Bonuses and other compensation and benefits through the date of termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. (c) EXPIRATION OF TERM. Upon the expiration of the Term without further renewals, the Company will pay or provide to the Employee (i) any accrued and unpaid Base Salary, Bonuses and other compensation and benefits under this Agreement through the date of termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. 15 - 15 - 12. GENERAL PROVISIONS. (a) ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or the Company without the prior written consent of the other, and this Agreement shall be binding upon the successors and permitted assigns of each party hereto; provided, however, that (i) in the event of the Employee's death during the Term, the Employee's estate and the Employee's heirs, executors, administrators, legatees and distributees shall have the rights set forth herein, as provided herein, and (ii) nothing contained in this Agreement shall limit or restrict the ability of the Company (and/or one or more of its affiliates) to merge or consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity; provided, further, that any such surviving entity shall succeed to, and shall continue to be bound by the provisions hereof binding upon the Company as if such entity were deemed to be the Company under this Agreement. For purposes of this Section 12(a), any entity (or related entities) that as a result of a transaction and/or a series of transactions directly or indirectly acquires substantially all of the assets (or the economic equivalent thereof) of the Company and/or its affiliates shall be deemed to be a "surviving entity" with respect to the Company. (b) AMENDMENT; SEVERABILITY. This Agreement may not be modified or amended except by an instrument in writing signed by the Employee and the Company. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. (c) EFFECT OF PRIOR AGREEMENTS. This Agreement contains the entire understanding between the Employee and the Company respecting the Employee's employment by the Company relating to time periods after June 30, 1997 and supersedes any prior agreement between the Employee and the Company relating to the Employee's providing advice or other services to the Company for such time periods (except as otherwise provided in this Section). The Employee's prior agreement with the Company dated as of March 20, 1995 shall be deemed to have expired in accordance with its terms on June 30, 1997. Nothing contained in this Agreement shall affect in any manner whatsoever any other agreements or instruments executed on or prior to the date hereof between or among the Employee or any of his affiliates on the one hand (including, without limitation, Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment Corporation, Gaming Systems Advisors, L.P., or GSA, Inc.), and the Company or any other party, on the other hand, including, without limitation, the Employment Agreement Supplement dated as of August 29, 1996 between the Employee and the Company, any options or warrants with respect to the stock of the Company and any agreements relating to the operation of any such options or 16 - 16 - warrants, except as expressly permitted or provided in this Agreement, including, without limitation, in Section 4(d) and in Section 11. (d) NOTICES. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent, if to the Employee to 25 Grace Court, Brooklyn, New York 11201; telecopy no. (718) 596-3038; and if to the Company, to Alliance Gaming Corporation, 6601 South Bermuda Road, Las Vegas, Nevada 89119, telecopy no. (702) 270-7699, directed to the attention of the chief executive officer with copies to the Chairman of the Board and the Secretary of the Company; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (e) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. (f) DISPUTES. In the event that a claim or claims by the Employee (or with respect to the Employee) for payment, benefits and/or elections under this Agreement is disputed, the Company shall pay all reasonable attorney fees and expenses incurred by the Employee in pursuing such claim or claims, provided that the Employee is successful as to at least a material part of the disputed claim or claims by reason of litigation, arbitration or settlement; and the Company shall bear the burden of proving that the Employee is not entitled to such reimbursement. In addition, the Company shall pay or reimburse the Employee for all legal fees and expenses incurred by the Employee in connection with the preparation and negotiation of this Agreement. (g) WAIVERS, ETC. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 17 - 17 - (h) HEADINGS. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. (i) GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Nevada, without regard to principles of conflicts of law. (j) REGULATORY MATTERS. The obligations of the Company herein are subject to applicable regulatory approvals, including, without limitation, applicable gaming-related regulators. (k) SURVIVAL. This Section 12 shall continue in effect after the date of the termination of the Employee's employment under this Agreement. If the foregoing terms meet with your approval, please indicate your acceptance by signing and returning the enclosed copy of this letter to the Company, whereupon it will become a binding agreement between you and the Company. Very truly yours, Alliance Gaming Corporation By ---------------------------------- Title: ACCEPTED AND AGREED: Date: ---------------------------------- - ---------------------------------------- Date:----------------------------------- EX-10.77 7 EXHIBIT 10.77 1 EXHIBIT 10.77 EMPLOYMENT AGREEMENT AGREEMENT dated as of July 1, 1997 (the "Agreement") by and between ALLIANCE GAMING CORPORATION, a Nevada corporation (the "Company"), and ANTHONY L. DICESARE, an individual (the "Employee"). R E C I T A L S: A. The Company considers it important and in its best interest and the best interest of its stockholders to secure the long-term engagement of key senior personnel who have substantial experience and knowledge in both the financial markets and the gaming industry, and the Company desires to retain the services of the Employee, on the terms and subject to the conditions provided in this Agreement. B. The Employee desires to accept such engagement by the Company and to render services to the Company, on the terms and subject to the conditions provided in this Agreement. A G R E E M E N T: 1. EMPLOYMENT. The Company hereby agrees to retain the services of the Employee, and the Employee agrees to be retained by the Company as an employee to render services to the Company upon the terms and conditions set forth in this Agreement. 2. TERM. The term of the Employee's employment under this Agreement shall be five (5) years commencing as of July 1, 1997 (the "Term"), unless earlier terminated as provided in this Agreement; provided, however, that the Term shall automatically be extended on June 30, 2002 and each subsequent June 30 for an additional one (1) year period unless, not later than six (6) months prior to any such date, either party to this Agreement shall have given written notice to the other party that he or it does not wish to extend, or further extend, the Term. 3. DUTIES AND LOCATION. (a) DUTIES. The Employee will be available, at the reasonable request of the Board of Directors of the Company (the "Board") and/or the chief executive officer of the Company, to work on major strategic transactions involving the Company and/or one or more of its affiliates, including, without limitation, mergers, acquisitions, divestitures, joint 2 - 2 - ventures, the negotiation of strategic alliances or relationships and financing and refinancing transactions of all types. The Employee will report directly and only to the Board and/or the chief executive officer of the Company, as appropriate. The Employee's role in such matters, and in all activities to be undertaken by the Employee under this Agreement, is to be consistent with that of a senior financial advisor retained directly by the Board and/or the chief executive officer of the Company, and the Employee is not expected to be involved in matters relating to the day-to-day operation of the Company or any of its affiliates. The Employee will devote to the Company a portion of his business time sufficient for him reasonably to fulfill his duties hereunder. However, the Company explicitly acknowledges and agrees that the Employee is expected to devote only a portion of his business time to the Company and/or its affiliates, and that the Employee will pursue during the Term substantial business interests other than the Employee's obligations under this Agreement. (b) LOCATION. It is contemplated that the Employee will provide services to the Company under this Agreement from an office in the New York area. However, the Employee acknowledges and agrees that he may be required to travel frequently from time to time during the Term in order to perform his duties hereunder (including, without limitation, trips to Las Vegas, Nevada). 4. COMPENSATION. (a) BASE SALARY. For purposes of this Agreement, each consecutive 12-month period ending on each June 30 during the Term shall be referred to as an "Employment Year". For services rendered by the Employee under this Agreement (and for the Employee agreeing to be available to provide such services), the Company shall pay the Employee as compensation during each Employment Year during the Term a Base Salary of $150,000 per year (prorated for any partial Employment Years); provided, however, that such Base Salary shall be increased as of July 1 of each year during the Term at a rate equal to the percentage increase in the consumer price index for the New York - Northern New Jersey - Long Island, NY-NJ-CT metropolitan area as reported by the U.S. Department of Labor for the immediately preceding 12-month period, and such increased amount shall thereupon become the "Base Salary" for all purposes under this Agreement. The Base Salary shall be payable in equal bi-weekly installments, commencing with the end of the regular pay period of the Company that next follows the commencement of the Term. (b) BONUSES. The Employee is entitled to, and the Company hereby agrees to pay to the Employee, performance bonuses (the "Bonuses") during the Term pursuant to the arrangements described in this Section 4(b). Prior to the commencement of each Employment Year during the Term, the Board and the Employee shall agree upon 3 - 3 - appropriate performance goals for the Company for such Employment Year (which goals will generally relate, without limitation, to mergers, acquisitions, divestitures, joint ventures, strategic alliances, financings, refinancings and/or similar transactions) involving the Company (and/or one or more of its affiliates) and the target amount (and/or appropriate minimum amount) of Bonuses to be paid to the Employee if the various performance goals are met. More than one Bonus may be paid during or with respect to each Employment Year, and each Bonus payable to the Employee hereunder shall, unless an alternative arrangement has been established pursuant to Section 4(d) below, be paid to the Employee by the Company in cash as soon as practicable after the performance goal to which such Bonus relates has been met, but no later than ten (10) business days after such performance goal has been met. Performance goals that relate to a transaction shall be deemed to have been met upon the closing of such transaction. For the Employment Year beginning July 1, 1997, the performance goals are: (i) the closing by the Company and/or one or more of its affiliates during the Employment Year of the Refinancing as set forth in the Offer to Purchase and Consent Solicitation Statement dated July 3, 1997 or a substantially similar transaction, as determined by the Board in its reasonable and good faith judgment; (ii) the closing by the Company and/or one or more of its affiliates during the Employment Year of at least one "significant merger" (a "significant merger" is defined as a merger, acquisition, divestiture, joint venture, strategic alliance or similar transaction (or a series of related transactions) with a value equal to or greater than $60 million); and/or (iii) the closing by the Company and/or one or more of its affiliates during the Employment Year of at least one "significant financing" (a "significant financing" is defined as a financing, refinancing or similar transaction (or a series of related transactions) with a value equal to or greater than $50 million); provided, however, that if for the Employment Year beginning July 1, 1997 and/or any subsequent Employment Year a significant financing is directly related to a significant merger and closes within ten (10) business days before or after the closing of such significant merger, and each such transaction would cause a performance goal to be met during or with respect to such Employment Year, only one of such performance goals - the one that results in the highest Bonus amount - shall be deemed to have been met with respect to such related transactions during or with respect to that Employment Year for purposes of this Section 4(b). For this purpose, the "value" of a transaction shall be (x) with respect to a merger, acquisition, joint venture, strategic alliance or similar transaction, the aggregate value of the consideration paid, exchanged, committed, invested or received by the Company (and/or any of its subsidiaries or other entities controlled by the Company) with respect to the transaction plus the aggregate principal amount of all debt incurred or assumed by the Company (and/or any of its subsidiaries or other entities controlled by the Company) in connection with the transaction, and (y) with respect to a divestiture, financing, refinancing or similar transaction, the gross proceeds (prior to reduction for any fees and expenses) paid to, made available to, received by or to be invested in the Company (and/or any of its subsidiaries or 4 - 4 - other entities controlled by the Company), whether or not disbursed, plus the aggregate principal amount of any debt for which the Company (and/or any of its subsidiaries or other entities controlled by the Company) is no longer liable. Upon the achievement of the performance goal set forth in clause (i) of the preceding paragraph, the Company shall pay the Employee a Bonus of $950,000. Upon the achievement of the performance goal set forth in clause (ii) of the preceding paragraph, the Company shall pay the Employee a minimum Bonus of $200,000 for each significant merger. Upon the achievement of the performance goal set forth in clause (iii) of the preceding paragraph, the Company shall pay the Employee a minimum Bonus of $125,000 for each significant financing. The Company shall pay each such Bonus in cash as soon as practicable after the closing of the transaction that causes the related performance goal to be met, but no later than ten (10) business days after such performance goal has been met. If a performance goal is only partially achieved within an Employment Year, the Board shall determine, in its reasonable and good faith judgment, what amount of reduced Bonus, if any, shall be paid to the Employee with respect to such performance goal during or with respect to such Employment Year. The Board and the Employee agree that similar annual performance goals and appropriate minimum and/or target Bonuses will be agreed to with respect to each subsequent Employment Year during the Term. If, after reasonable and good faith negotiation, the Board and the Employee cannot agree upon reasonable annual performance goals and minimum and/or target Bonuses with respect to such goals for any subsequent Employment Year, the Company and the Employee agree that the performance goals set forth in clauses (ii) and (iii) of the second preceding paragraph and the corresponding minimum Bonuses applicable thereto in the immediately preceding paragraph shall be the performance goals and minimum Bonuses for such subsequent Employment Year. The Employee, upon 30 days notice to the Company, may elect to amend or restructure his relationship with the Company to that of a financial consultant or independent advisor, with compensation and other arrangements reflecting the nature of such relationship and the services to be provided (including, without limitation, choice of law provisions and provisions relating to other permitted activities) in amounts reasonably consistent with the compensation and Bonuses (including Special Bonuses pursuant to Section 4(c)) contemplated herein, in the reasonable and good faith judgment of the Board, but calculated and payable in a manner customary for financial consultant or independent advisor arrangements. Upon receipt of such notice, the Company and the Employee will negotiate reasonably and in good faith to establish before the end of the 30-day notice period a restructured agreement with respect to the services contemplated to be provided hereunder. 5 - 5 - The Company expressly acknowledges and agrees that the Employee will be entitled to the Bonuses described above with respect to the attainment by the Company and/or one or more of its affiliates of the established performance goals, and each such Bonus will be paid by the Company to the Employee regardless of whether the Employee is involved with the transaction or transactions that resulted in the attainment of the performance goal, so long as the Employee otherwise fulfills, in all material respects, his obligations to the Company under Section 3(a). Further, if the Company and/or one or more of its affiliates has taken material steps, as determined by the Board, in its reasonable and good faith judgment, prior to the end of the Term towards a significant merger and/or a significant financing and a performance goal to which any such significant merger and/or significant financing relates is met within nine (9) months after the end of the Term (or within twenty-one (21) months of the end of the Term in the case of a transaction that does not close within such nine (9) month period primarily because required regulatory approval(s) has not been obtained), the Company shall pay to the Employee as provided above the Bonuses that would have been payable to the Employee pursuant to this Section 4(b) upon the closing of such transaction(s). (c) SPECIAL BONUSES. In addition to the Base Salary and Bonuses described above, the Board, in its sole discretion, may from time to time determine to pay the Employee additional direct compensation in the nature of a special bonus award (a "Special Bonus"), if it determines that the Employee has provided services of special or exceptional value to the Company. The Employee shall also be eligible to receive from time to time, in the sole discretion of the Board or a committee of the Board, stock options and/or other awards with respect to the stock of the Company. (d) DEFERRAL OPPORTUNITIES. The Company agrees, subject to any approvals required by applicable laws and/or regulations, that the Employee may irrevocably elect, at any time prior to January 1, 1999, to forgo all or any portion of any Bonuses to which the Employee may thereafter become entitled and in lieu thereof to amend certain warrants beneficially owned by the Employee and/or one or more of his affiliates that otherwise would expire on September 21, 1999 to extend their expiration date (and all applicable conditions with respect to the exercise thereof) to June 18, 2002, and the Company will take all necessary action to maintain the exempt status of any such extended warrants under Section 16 of the Securities Exchange Act of 1934. The rate at which such extension shall occur shall be such number of warrants (not more than three (3)) for each dollar of Bonuses foregone as the Board, in its reasonable and good faith judgment, shall determine within ninety (90) days of the date of this Agreement and after considering, among other things, the recommendation of an investment banking, accounting or valuation firm with a national reputation. (The Board shall retain such firm as soon as practicable after the date of this Agreement, and the costs of obtaining such recommendation shall be borne by the Company.) 6 - 6 - At the election of the Employee (and/or one or more of his affiliates that may then own any of such warrants), all or a portion of this option to extend the expiration date of such warrants (and all applicable conditions with respect to the exercise thereof) may also be effected by a direct cash payment by the Employee (and/or any such affiliate) to the Company on or prior to September 21, 1999 at the rate set forth in the prior paragraph, rather than by the application of future Bonuses as set forth in this Section 4(d). (e) BENEFITS. The Company will give the Employee the right to participate in all of the benefit plans and programs maintained by the Company for its senior executive officers and/or their dependents to the fullest extent possible as if the Employee were employed by the Company on a full-time basis. To the extent the Employee is not able to participate in any such benefit plan or program, the Company will provide alternative arrangements to the Employee (and/or his dependents, if applicable) so that, on an after-tax basis, the Employee shall be in the same position as if the Employee had been a direct and full participant in such plan or program; provided, however, that the maximum amount required to be paid to the Employee pursuant to this sentence for or with respect to an Employment Year shall not exceed $20,000, on an after-tax basis. There shall be no material reduction or diminution of the benefits provided in this Section 4(e) during the Term, unless (i) the Employee consents to such reduction or diminution, (ii) an equitable arrangement (embodied in an ongoing substitute or alternative benefit plan or program) has been made with respect to the affected benefit plan or program or (iii) such reduction is part of a program of across-the-board benefit reductions similarly affecting the senior executive officers of the Company. (f) ABSENCE AND SICK LEAVE. The Employee shall be entitled to such reasonable periods of unavailability to provide services under this Agreement because of vacation or illness comparable to those he would otherwise be entitled to if he were a senior executive officer of the Company. (g) FEDERAL INCOME TAX AND OTHER WITHHOLDINGS. The Company shall withhold from any amount or benefits payable pursuant to this Agreement such federal, state, city or other taxes and other amounts as may be required to be withheld pursuant to any applicable law or governmental regulations or ruling and shall timely pay over to the appropriate governmental authorities the amounts withheld, together with any additional amounts required to be paid by the Company (and/or any of its affiliates) in respect thereof. 5. REIMBURSEMENT OF EXPENSES. Consistent with established policies of the Company as in effect from time to time for its senior executive officers, the Company shall pay to or reimburse the Employee for all reasonable and actual out-of-pocket expenses, including without limitation, travel, hotel and similar expenses, incurred by the Employee 7 - 7 - from time to time in performing his obligations under this Agreement; provided, however, that any single expense item in excess of $5,000 must be approved by the chief executive officer or the chief financial officer of the Company, which approval shall not be unreasonably withheld or delayed. 6. PAYMENTS UPON DISABILITY OR DEATH. (a) DISABILITY. During any period of Disability (as defined below) occurring during the Term, the Company will continue to pay to the Employee the full amount of the Base Salary, Bonuses and other compensation provided herein and will continue to extend to the Employee the benefits described in Section 4 through the remainder of the Term, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b); provided, however, that if disability benefits are provided under any disability insurance or similar policy maintained by the Company (or maintained by the Employee, with the cost thereof being reimbursed or paid by the Company), payments under such policy shall be considered as payments by the Company and shall offset any Base Salary payable to the Employee under this Agreement. As used in this Agreement, "Disability" shall mean the Employee's inability (as determined by a majority of the members of the Board other than the Employee in their reasonable and good faith judgment) to render services to the Company as contemplated by this Agreement as a result of physical or mental infirmity on the basis of a written medical opinion of an independent medical physician mutually acceptable to the Company and the Employee. (If the Company and the Employee cannot agree on an independent medical physician, each shall appoint one medical physician and those two physicians shall appoint a third physician who shall render such opinion. Each of the Company and the Employee shall appoint such medical physician within five (5) business days of receiving written notice from the other party requesting such appointment, and if such requested appointment is not made within such five (5) business day period, the party failing to appoint a medical physician shall be deemed to have accepted the medical physician appointed by the other party.) In no event shall the Employee be considered Disabled for purposes of this Agreement unless he is determined to be disabled under the Company's regular long-term disability plan. If the Employee is determined by the Board to be Disabled and such Disability then continues for a period of an aggregate of five (5) months during any eight (8) consecutive month period after such determination, the Board shall have the right to terminate the Employee's employment under this Agreement upon fifteen (15) days notice to the Employee if it determines, in its reasonable and good faith judgment on the basis of a second written medical opinion of an independent medical physician (selected as described above), that the Employee will not be able to resume providing the services contemplated by this Agreement within a reasonable period of time after the date of such proposed termination. 8 - 8 - Upon the termination of the Employee's employment on account of Disability pursuant to the preceding paragraph, the Employee's employment shall terminate as of the effective date of the Board's final determination; provided, however, that the Employee's employment shall be deemed to have terminated as of the end of the fifteenth (15) month following the month in which such termination decision by the Board is effective for purposes of all payments, Base Salary, Bonuses, compensation, benefits, elections and other rights and entitlements of the Employee under this Agreement, which shall continue to be paid, provided or made available to the Employee during the fifteen (15) month period as they would otherwise become due and/or payable as if the Employee's employment under this Agreement had not terminated. After the completion of this fifteen (15) month period, the Company will pay or provide to the Employee, to the extent not otherwise paid or provided to the Employee in the normal course during the fifteen (15) month period, (i) any accrued but unpaid Base Salary, Bonuses and other compensation and benefits under this Agreement through the date of deemed termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of deemed termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee (or his representative) any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. Notwithstanding any such Disability, during the remainder of the Term, the Employee shall, to the extent that the Employee is physically and mentally reasonably able to do so, furnish information, assistance and services to the Company, and, upon the reasonable request in writing on behalf of the Board (as determined by a majority of the members of the Board other than the Employee) from time to time, the Employee shall make himself reasonably available to perform a portion of the Employee's duties hereunder that is reasonably consistent with the Employee's physical and mental health. (b) DEATH. In the event of the Employee's death during the Term, the Employee's employment shall terminate as of the date of death; provided, however, that for purposes of all payments, Base Salary, Bonuses, compensation, benefits, elections and other rights and entitlements of the Employee under this Agreement, the Employee's employment shall be deemed to have terminated as of the end of the fifteenth (15) month following the month in which the Employee's death occurs, and, after the completion of this fifteen (15) month period, the Company will pay or provide to the beneficiary(ies) designated by the 9 - 9 - Employee from time to time in a written notice to the Company (or, in the absence of an effective designation of beneficiary(ies) on the date of the Employee's death, to the Employee's estate), to the extent not otherwise paid or provided in the normal course during the fifteen (15) month period, (i) any accrued but unpaid Base Salary, Bonuses and other compensation and benefits under this Agreement through the date of deemed termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of deemed termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to such beneficiaries any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7 and 12 shall continue in effect after the date of termination to the extent provided in such Sections for the benefit of the Employee's designated beneficiary(ies) and the Employee's estate. All payments, Base Salary, Bonuses, compensation, benefits, elections and other rights and entitlements that the Company is or may become obligated to pay or provide to or with respect to the Employee during the fifteen (15) month period described in the first sentence of this Section 6(b) shall be paid to or provided to the Employee's designated beneficiary(ies) or estate, as appropriate. 7. INDEMNIFICATION AND LIABILITY INSURANCE. (a) INDEMNIFICATION. During the Term and thereafter, the Company shall indemnify and hold the Employee harmless, to the fullest extent legally permitted by Section 78.751 of the Nevada Revised Statutes (as amended and in effect from time to time and including judicial interpretations thereof) against any and all expenses, liabilities and losses (including, without limitation, reasonable attorneys' fees and disbursements of counsel reasonably satisfactory to the Company), incurred or suffered by the Employee in connection with his service as an employee of the Company during the Term, in each case, except to the extent of the Employee's negligence or willful misconduct. (b) INSURANCE. The Company shall maintain, for the benefit of the Employee, a director's and officer's or similar liability insurance policy, insuring the Employee's service hereunder in accordance with its customary practices for its senior executive officers in effect from time to time during the Term and for at least six years thereafter with respect to actions and/or failures to act during the Employee's employment under this Agreement. 10 - 10 - 8. CONFIDENTIALITY; NON-COMPETITION. (a) CONFIDENTIALITY. During the Term and thereafter, the Employee agrees not to disclose to others all secret, confidential or proprietary information, knowledge or data relating to the Company (and/or any of its affiliates) which shall have been obtained by the Employee during or by reason of the Employee's employment by the Company, in accordance with the principles of NRS 600A.010 et seq. (the so-called Uniform Trade Secrets Act, as amended and in effect from time to time and including judicial interpretations thereof); provided, however, that the foregoing shall not apply to any such information, knowledge or data that becomes publicly available other than as a result of a breach of the Employee's undertakings hereunder or that is required by law or regulation to be disclosed by the Employee or that is necessary to disclose in connection with any judicial, regulatory or administrative proceeding or that is disclosed by the Employee in good faith in the course of the performance of his duties hereunder. During the Term, the Employee shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to any person or entity other than the Company (and/or its applicable affiliates) and those designated by any of them that would result in any misappropriation under and as defined in such Act, except that, during the Employee's employment hereunder, in furtherance of the business and for the benefit of the Company, the Employee may provide confidential information as appropriate to attorneys, accountants, financial institutions or other persons or entities engaged in business with the Company from time to time. (b) NON-COMPETITION. Subject to Section 10 hereof, the Employee agrees that he will not at any time during the Term and for a period of twelve (12) months following the end of such Term, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, equityholder (except as the beneficial owner of not more than 5% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the counter market securities and, in each case, in which the Employee does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any person or entity, establish, engage in or be connected with, in any manner, any person or entity with respect to a business conducted by that person or entity that is, on the applicable date, in direct competition (other than competition in any immaterial respect and/or competition that is in a business that is immaterial or insignificant to the Company and its affiliates, taken as a whole) with the Company or any of its primary affiliates in the gaming machine route, electronic gaming machine and/or casino businesses; provided, however, that these restrictions shall not apply after the end of the Term if the Employee's employment hereunder is terminated by the Company other than for "Cause" or by the Employee for "Good Reason", each as defined in Section 11. 11 - 11 - 9. NON-DISPARAGEMENT. Each of the Employee and the Company agrees that during the Term and for a period of three (3) years following the end of such Term, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other, except, in each case, to the extent (but solely to the extent) necessary in any judicial or other action to enforce the provisions of this Agreement or in connection with any judicial, regulatory or administrative proceeding to the extent required by applicable laws and regulations. For purposes of this Section 9, references to the Company include its subsidiaries and other entities controlled by it and the directors and executive officers of the Company on the date hereof and from time to time hereafter. 10. PERMITTED ACTIVITIES. The Company expressly acknowledges and agrees that, during the Term and thereafter, the Employee may be engaged in other business activities that are not in direct competition (other than competition in any immaterial respect and/or competition that is in a business that is immaterial or insignificant to the Company and its affiliates, taken as a whole) with the Company and/or any of its primary affiliates in the gaming machine route, electronic gaming machine and/or casino businesses. 11. TERMINATION. (a) BY THE COMPANY. The Company shall have the right to terminate the Employee's employment under this Agreement for Cause (as defined herein)or without Cause. For purposes of this Agreement, "Cause" shall mean the Employee's (i) conviction of any misdemeanor involving moral turpitude or any felony, (ii) denial (or revocation) of any required gaming license or permit issued by the State of Nevada (or any applicable agency or political subdivision thereof) or any other jurisdiction in which the denial (or revocation) of the Employee's required gaming license or permit would materially adversely affect the business of the Company and its affiliates (taken as a whole), or (iii) the persistent and willful refusal by the Employee, in each case after written notice from the Board or the chief executive officer of the Company (after consultation with the Board) which sets forth in reasonable detail the basis for such notice, to undertake the Employee's duties and obligations under this Agreement. A termination for Cause under this Section 11(a) shall be effected only by a written notice of the Board to the Employee that sets forth in reasonable detail the basis for such termination; provided, however, that any such notice shall not become effective if, within twenty-one (21) days after the receipt thereof, the Employee shall correct, to the reasonable satisfaction a majority of the Board (excluding the Employee), such act or failure to act that is the basis for the termination of the Employee's employment for Cause. 12 - 12 - Upon a termination of the Employee's employment for Cause becoming effective, the Company shall pay or provide to the Employee (i) any accrued and unpaid Base Salary, Bonuses and other compensation and benefits through the date of termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b) to the extent that any Bonus pursuant to such last sentence is not prohibited by any applicable laws, regulations and/or decisions of applicable regulatory agencies, (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (but excluding the warrant extension election provided in Section 4(d)) to the extent that any such payment or election pursuant to this clause (iii) is not prohibited by any applicable laws, regulations and/or decisions of applicable regulatory agencies, in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. However, if the Employee's employment is terminated by the Company for Cause because of the Employee's conviction of a misdemeanor or felony or the denial (or revocation) of a required permit or license, as provided above, and thereafter the Employee's conviction or denial (or revocation) is reversed, the Company shall pay to the Employee the Base Salary, Bonuses and other compensation and benefits that the Employee would have received as if the Employee's employment under this Agreement had not terminated to the extent such payments are not prohibited by any applicable laws, regulations and/or decisions of applicable regulatory agencies. A termination of the Employee's employment hereunder without Cause may be effected by the Company upon written notice to the Employee from the Board. Notwithstanding such termination of employment, the Company will continue to pay or provide to Employee (i) the Base Salary, Bonuses and other compensation and benefits that would otherwise be payable to the Employee or provided to or with respect to the Employee hereunder for the remainder of the Term as if the Employee's employment under this Agreement had not terminated, except that the Bonuses to be paid to the Employee under Section 4(b) for such Employment Years (and portions thereof) after the date of such termination of employment without Cause shall be an amount equal to the product of (x) the highest aggregate Bonuses received by the Employee during and/or with respect to any previous Employment Year (determined on an annualized basis for any partial Employment Year) multiplied by (y) the number of Employment Years (and portions thereof) remaining in the Term as if the Employee's employment under this Agreement had not terminated, (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company 13 - 13 - and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections; provided, however, that the Bonuses determined in clause (i) of this paragraph as the product of clauses (x) and (y) shall be paid to the Employee by the Company in equal monthly installments (commencing as of the first day of the month following the date of termination) over the remaining Term as if the Employee's employment under this Agreement had not terminated. (b) BY THE EMPLOYEE. The Employee shall have the right to terminate his employment under this Agreement for "Good Reason" (as defined herein) or without Good Reason. For purposes of this Agreement, "Good Reason" shall mean (i) the failure of the Company to pay to the Employee any portion of the Employee's Base Salary or any Bonus or other compensation or benefits within ten (10) business days of the time that any such amount is due and payable hereunder, (ii) the assignment to the Employee of duties that are materially inconsistent with those of a senior financial advisor to the Company, as set forth in Section 3(a), or (iii) the failure of the Company to cause a successor entity (or entities), as described in Section 12(a), specifically to adopt and agree to be bound by this Agreement, which in each such case has not been cured by the Company within twenty-one (21) days after receipt of written notice from the Employee describing the basis for the Employee's determination of Good Reason. Upon the Employee's termination of this Agreement for Good Reason, the Company will continue to pay or provide to the Employee (i) the Base Salary, Bonuses and other compensation and benefits that would otherwise be payable to the Employee or provided to or with respect to the Employee hereunder for the remainder of the Term as if the Employee's employment under this Agreement had not terminated, except that the Bonuses to be paid to the Employee under Section 4(b) for such Employment Years (and portions thereof) after the date of such termination of employment for Good Reason shall be an amount equal to the product of (x) the highest aggregate Bonuses received by the Employee during and/or with respect to any previous Employment Year (determined on an annualized basis for any partial Employment Year) multiplied by (y) the number of Employment Years (and portions thereof) remaining in the Term as if the Employee's employment under this Agreement had not terminated, (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to 14 - 14 - be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections; provided, however, that the Bonuses determined in clause (i) of this paragraph as the product of clauses (x) and (y) shall be paid to the Employee by the Company in equal monthly installments (commencing as of the first day of the month following the date of termination) over the remaining Term as if the Employee's employment under this Agreement had not terminated. The Employee may terminate his employment under this Agreement without Good Reason on 30 days written notice to the Company. Upon the Employee's termination of this Agreement without Good Reason, the Company shall pay or provide to the Employee (i) any accrued and unpaid Base Salary, Bonuses and other compensation and benefits through the date of termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. (c) EXPIRATION OF TERM. Upon the expiration of the Term without further renewals, the Company will pay or provide to the Employee (i) any accrued and unpaid Base Salary, Bonuses and other compensation and benefits under this Agreement through the date of termination, including, without limitation, Bonuses that may yet become payable pursuant to the last sentence of Section 4(b), (ii) expense reimbursement amounts accrued through the date of termination, and (iii) any amounts owed to the Employee under any deferral arrangements established under Section 4(d) and/or any other plans or arrangements between the Employee and the Company and/or any of its affiliates (including, without limitation, providing to the Employee any warrant extension election made or able to be made by the Employee as provided in Section 4(d)), in each case, at the time such payments, benefits and elections are otherwise due and/or payable, and neither the Employee nor the Company shall have any further liability or obligation to the other, except that the provisions of Sections 7, 8, 9, 10 and 12 shall continue in effect after the date of termination to the extent provided in such Sections. 15 - 15 - 12. GENERAL PROVISIONS. (a) ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or the Company without the prior written consent of the other, and this Agreement shall be binding upon the successors and permitted assigns of each party hereto; provided, however, that (i) in the event of the Employee's death during the Term, the Employee's estate and the Employee's heirs, executors, administrators, legatees and distributees shall have the rights set forth herein, as provided herein, and (ii) nothing contained in this Agreement shall limit or restrict the ability of the Company (and/or one or more of its affiliates) to merge or consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity; provided, further, that any such surviving entity shall succeed to, and shall continue to be bound by the provisions hereof binding upon the Company as if such entity were deemed to be the Company under this Agreement. For purposes of this Section 12(a), any entity (or related entities) that as a result of a transaction and/or a series of transactions directly or indirectly acquires substantially all of the assets (or the economic equivalent thereof) of the Company and/or its affiliates shall be deemed to be a "surviving entity" with respect to the Company. (b) AMENDMENT; SEVERABILITY. This Agreement may not be modified or amended except by an instrument in writing signed by the Employee and the Company. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. (c) EFFECT OF PRIOR AGREEMENTS. This Agreement contains the entire understanding between the Employee and the Company respecting the Employee's employment by the Company relating to time periods after June 30, 1997 and supersedes any prior agreement between the Employee and the Company relating to the Employee's providing advice or other services to the Company for such time periods (except as otherwise provided in this Section). The Employee's prior agreement with the Company dated as of March 31, 1995 shall be deemed to have expired in accordance with its terms on June 30, 1997. Nothing contained in this Agreement shall affect in any manner whatsoever any other agreements or instruments executed on or prior to the date hereof between or among the Employee or any of his affiliates on the one hand (including, without limitation, Kirkland-Ft. Worth Investment Partners, L.P., Kirkland Investment Corporation, Gaming Systems Advisors, L.P., or GSA, Inc.), and the Company or any other party, on the other hand, including, without limitation, the Employment Agreement Supplement dated as of August 29, 1996 between the Employee and the Company, any options or warrants with respect to the stock of the Company and any agreements relating to the operation of any such options or 16 - 16 - warrants, except as expressly permitted or provided in this Agreement, including, without limitation, in Section 4(d) and in Section 11. (d) NOTICES. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent, if to the Employee to 129 West 69th Street, #5, New York, New York 10023; telecopy no. (212) 769-0869 (phone/fax) (with a copy to 1336 St. Joseph Circle, Las Vegas, Nevada 89104); and if to the Company, to Alliance Gaming Corporation, 6601 South Bermuda Road, Las Vegas, Nevada 89119, telecopy no. (702) 270-7699, directed to the attention of the chief executive officer with copies to the Chairman of the Board and the Secretary of the Company; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (e) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. (f) DISPUTES. In the event that a claim or claims by the Employee (or with respect to the Employee) for payment, benefits and/or elections under this Agreement is disputed, the Company shall pay all reasonable attorney fees and expenses incurred by the Employee in pursuing such claim or claims, provided that the Employee is successful as to at least a material part of the disputed claim or claims by reason of litigation, arbitration or settlement; and the Company shall bear the burden of proving that the Employee is not entitled to such reimbursement. In addition, the Company shall pay or reimburse the Employee for all legal fees and expenses incurred by the Employee in connection with the preparation and negotiation of this Agreement. (g) WAIVERS, ETC. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 17 - 17 - (h) HEADINGS. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. (i) GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Nevada, without regard to principles of conflicts of law. (j) REGULATORY MATTERS. The obligations of the Company herein are subject to applicable regulatory approvals, including, without limitation, applicable gaming-related regulators. (k) SURVIVAL. This Section 12 shall continue in effect after the date of the termination of the Employee's employment under this Agreement. If the foregoing terms meet with your approval, please indicate your acceptance by signing and returning the enclosed copy of this letter to the Company, whereupon it will become a binding agreement between you and the Company. Very truly yours, Alliance Gaming Corporation By ---------------------------------- Title: ACCEPTED AND AGREED: Date: ---------------------------------- - ---------------------------------------- Date: ----------------------------------- EX-10.78 8 EXHIBIT 10.78 1 EXHIBIT 10.78 [ALLIANCE GAMING LETTERHEAD] July 1, 1997 Kirkland Investment Corporation 535 Madison Avenue 33rd Floor New York, NY 10022 Ladies and Gentlemen: This letter sets forth the agreement (the "Agreement") dated as of July 1, 1997 of Alliance Gaming Corporation (the "Company") to pay the payments set forth below to Kirkland Investment Corporation or its designee ("Kirkland") for the five (5) year period commencing as of July 1, 1997; provided, however, that the term of this Agreement shall automatically be extended on June 30, 2002 and each subsequent June 30 for an additional one (1) year period unless, not later than six (6) months prior to any such date, either party to this Agreement shall have given written notice to the other party that it does not wish to extend, or further extend, such term. The Company will pay to Kirkland $950,000 annually (in four (4) quarterly installments payable in advance), beginning on July 1, 1997 and continuing through June 30, 2002 or any extension of that date, plus the cost to Kirkland of providing reasonable and customary employee benefits to its secretarial and analyst support staff in its New York area office. The amount of this annual payment shall be increased as of July 1 of each calendar year at a rate equal to the percentage increase in the consumer price index for the New York - Northern New Jersey - Long Island, NY-NJ-CT metropolitan area as reported by the U.S. Department of Labor for the immediately preceding 12-month period. In addition, the Company will reimburse Kirkland for reasonable out-of-pocket expenses incurred by Kirkland and its officers and employees, so long as such expenses relate directly to the business or potential business of the Company; provided, however, that any single expense item in excess of $5,000 must be approved by the chief executive officer or the chief financial officer of the Company, which approval shall not be unreasonably withheld or delayed. The Company shall have the right to request from time to time that Kirkland provide appropriate supporting documentation in respect of such reimbursements. 2 - 2 - The Company shall make payment to Kirkland for such expenses within thirty (30) days of demand to the Company by Kirkland. The Company explicitly acknowledges and agrees that Kirkland and its officers and employees will also be engaged in a variety of other substantial business activities that do not relate to the business of the Company. Kirkland agrees that upon the effective date of the termination of the employment of Joel Kirschbaum with the Company either (i) pursuant to Section 6 of the Employment Agreement dated as of July 1, 1997 between Joel Kirschbaum and the Company (the "Employment Agreement"), (ii) by the Company for "cause" pursuant to Section 11(a) of the Employment Agreement, or (iii) by Joel Kirschbaum without "good reason" pursuant to Section 11(b) of the Employment Agreement, the Company shall have the right, upon 12 months prior notice to Kirkland, to terminate this Agreement, and, within thirty (30) days after the effective date of such termination of this Agreement, the Company shall pay to Kirkland all payments that the Company is obligated to pay to or for the benefit of Kirkland through such termination date, including, without limitation, expense reimbursement amounts accrued through such termination date. This Agreement contains the entire understanding between Kirkland and the Company respecting the payments and expense reimbursements described herein; provided, however, that nothing contained in this Agreement shall affect any of the agreements or instruments executed on or prior to the date hereof among Kirkland or any of its affiliates on the one hand (including without limitation, Kirkland-Ft. Worth Investment Partners, L.P., Gaming Systems Advisors, L.P., or GSA, Inc.), and the Company or any other party, on the other hand, including, without limitation, any options or warrants with respect to stock of the Company and any agreements relating to the operation of any such options or warrants. In the event that a claim or claims by Kirkland (or with respect to Kirkland) for payment or benefits under this Agreement is disputed, the Company shall pay all reasonable attorney fees and expenses incurred by Kirkland in pursuing such claim or claims, provided that Kirkland is successful as to at least a material part of the disputed claim or claims by reason of litigation, arbitration or settlement; and the Company shall bear the burden of proving that Kirkland is not entitled to such reimbursement. In addition, the Company shall pay or reimburse Kirkland for all legal fees and expenses incurred by Kirkland in connection with the preparation and negotiation of this Agreement. Neither this Agreement nor any right or interest hereunder shall be assignable by Kirkland or the Company without the prior written consent of the other, and this agreement shall be binding upon the successors and permitted assigns of each party hereto; however, Kirkland may assign its rights and interests hereunder to any affiliate without such written consent from the Company. Nothing contained in this Agreement shall limit or restrict the ability of the Company (and/or one or more of its affiliates)to merge or 3 - 3 - consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity; provided, however, that any such surviving entity shall succeed to, and shall continue to be bound by the provisions hereof binding upon the Company as if such entity were deemed to be the Company under this Agreement. For purposes of this paragraph, any entity (or related entities) that as the result of a transaction and/or a series of transactions directly or indirectly acquires substantially all of the assets of the Company and/or its affiliates (or the economic equivalent thereof) shall be deemed to be a "surviving entity" with respect to the Company. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, however, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent, if to Kirkland to the address set forth above; and if to the Company to Alliance Gaming Corporation, 6601 South Bermuda Road, Las Vegas, Nevada 89119, telecopy no. (702) 270-7699, directed to the attention of the chief executive officer with copies to the Chairman of the Board and the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. This Agreement may not be modified or amended except by an instrument in writing signed by Kirkland and the Company. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. This Agreement has been executed and delivered in the State of New York, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such State, without regard to principles of conflicts of law. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 4 - 4 - If the foregoing terms meet with your approval, please indicate your acceptance by signing and returning the enclosed copy of this letter to the Company, whereupon it will become a binding agreement between Kirkland and the Company. Very truly yours, Alliance Gaming Corporation By ---------------------------------- Title: ACCEPTED AND AGREED: Date: ---------------------------------- Kirkland Investment Corporation By /s/ JOEL KIRSCHBAUM ------------------------------------- Title: PRESIDENT Date: 7/31/97 ---------------------------------- 5 - 4 - If the foregoing terms meet with your approval, please indicate your acceptance by signing and returning the enclosed copy of this letter to the Company, whereupon it will become a binding agreement between Kirkland and the Company. Very truly yours, Alliance Gaming Corporation By /s/ DAVID JOHNSON ---------------------------------- Title: Secretary, Senior Vice President and General Counsel ACCEPTED AND AGREED: Date: 7/31/97 ---------------------------------- Kirkland Investment Corporation By /s/ JOEL KIRSCHBAUM ------------------------------------- Title: PRESIDENT Date: 7/31/97 ---------------------------------- EX-10.79 9 EXHIBIT 10.79 1 EXHIBIT 10.79 KIRKLAND INVESTMENT CORPORATION July 1, 1997 Alliance Gaming Corporation 6601 South Bermuda Road Las Vegas, Nevada 89119 Re: Amendment to Agreement dated as of July 1, 1997 Ladies and Gentlemen: Reference is made to the agreement dated as of July 1, 1997 (the "Agreement") between Alliance Gaming Corporation (the "Company") and Kirkland Investment Corporation or its designee ("Kirkland"). We have reviewed the operation of the Agreement and wish to amend the Agreement to provide that the Company will (i) pay directly, effective as of the date hereof, the rent and utilities associated with the Kirkland New York area office, as well as the salaries, bonuses and employee benefits of the secretarial and analyst support staff in that office, and (ii) upon written notice from Kirkland, pay directly those additional overhead expenses that Kirkland identifies to the Company, beginning within 10 business days after the date of such notice. Under this revised arrangement, all such costs and expenses as designated pursuant to the preceding paragraph that are paid directly by the Company shall be credited against, and shall reduce dollar for dollar, the Company's obligation to make the $950,000 payment (as increased from time to time under the Agreement), other than the cost of reasonable and customary employee benefits for the Kirkland secretarial and analyst support staff, which benefits costs shall not be so credited. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 2 - 2 - If the foregoing terms meet with your approval, please indicate your acceptance by signing and returning the enclosed copy of this letter to Kirkland, whereupon it will become a binding amendment to the Agreement between Kirkland and the Company. All of the other provisions of the Agreement shall remain in full force and effect. Very truly yours, Kirkland Investment Corporation By /s/ JOEL KIRSCHBAUM ---------------------------------- Title: PRESIDENT ACCEPTED AND AGREED: Date: 7/31/97 ---------------------------------- Alliance Gaming Corporation By ------------------------------------- Title: Date: ----------------------------------- 3 - 2 - If the foregoing terms meet with your approval, please indicate your acceptance by signing and returning the enclosed copy of this letter to Kirkland, whereupon it will become a binding amendment to the Agreement between Kirkland and the Company. All of the other provisions of the Agreement shall remain in full force and effect. Very truly yours, Kirkland Investment Corporation By /s/ JOEL KIRSCHBAUM ---------------------------------- Title: PRESIDENT ACCEPTED AND AGREED: Date: 7/31/97 ---------------------------------- Alliance Gaming Corporation By /s/ DAVID JOHNSON ------------------------------------- Title: Secretary, Senior Vice President and General Counsel Date: 7-31-97 ----------------------------------- EX-21 10 EXHIBIT 21 1 EXHIBIT 21 Subsidiaries All subsidiaries are wholly owned except as indicated. Alliance Gaming Corporation Alliance Holding Company Bally Gaming International, Inc. Bally Gaming, Inc. Bally Gaming de Puerto Rico BGI Australia Pty. Limited Alliance Automaten GmbH & Co. KG (99%) APT Games, Inc. Plantation Investments, Inc. United Coin Machine Co. Bally Gaming Missouri, Inc. Casino Electronics, Inc. Foreign Gaming Ventures, Inc. Alpine Willow Investments, Inc. Kansas Alliance Corporation Kansas Gaming Ventures, Inc. Kansas Financial Partners, LLC (50%) Kansas Gaming Partners, LLC (50%) Louisiana Ventures, Inc. Southern Video Services, Inc. (49%) Video Distributing Services, Inc. (49%) Video Services, Inc. (49%) Mississippi Ventures, Inc. United Gaming Rainbow Rainbow Casino-Vicksburg Partnership, LP (a) United Native American, Inc. Native American Investment, Inc. Alliance Automaten Verwaltungs GmbH Alliance Automaten GmbH & Co. KG (1%) Bally Wulff Automaten GmbH Bally Wulff Vertriebs GmbH Bally Gaming Int'l GmbH Bally Wulff Beteiligungs GmbH Bally Wulff Billiards GmbH Bally Wulff Security GmbH Erkens Vertriebs GmbH Geda Automaten GmbH Grosshandel Kupper GmbH Westav Automaten GmbH (a) There is a limited minority interest holder, for further information see Item 1 "Business - Casino Operations". EX-23.1 11 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Alliance Gaming Corporation We consent to incorporation by reference in registration statements (Nos. 33-45811, 33-45810, 333-25515, 333-20685, 333-10011 and 333-34077) on Forms S-3 and S-8 of Alliance Gaming Corporation of our report dated September 3, 1997, relating to the consolidated balance sheets of Alliance Gaming Corporation and Subsidiaries as of June 30, 1996 and 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1997, which report appears in the June 30, 1997 annual report on Form 10-K of Alliance Gaming Corporation. KPMG Peat Marwick LLP Las Vegas, Nevada September 25, 1997 EX-27 12 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXCERPTED FROM FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997 1,000 12-MOS JUN-30-1997 JUN-30-1997 28,294 0 109,630 21,929 37,329 163,581 125,621 43,072 352,016 52,786 0 0 12,368 3,185 38,002 352,016 266,668 445,146 152,922 270,907 123,721 9,059 26,626 13,778 7,993 (6,198) 0 0 0 (6,198) (0.19) (0.19)
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