-----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, C5ig6uzstnrKEJ5KtTJwKoj8WuAw3PM95dG/oL4vJrjwK6OLnwIEfabU2juRmwJB xz5BGjZLIIzd20M0HzFRFg== /in/edgar/work/20000914/0001005477-00-006542/0001005477-00-006542.txt : 20000922 0001005477-00-006542.hdr.sgml : 20000922 ACCESSION NUMBER: 0001005477-00-006542 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20000914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOTOTE CORP CENTRAL INDEX KEY: 0000750004 STANDARD INDUSTRIAL CLASSIFICATION: [3578 ] IRS NUMBER: 810422894 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11693 FILM NUMBER: 723241 BUSINESS ADDRESS: STREET 1: 750 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 3027374300 MAIL ADDRESS: STREET 1: 750 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TOTE INC DATE OF NAME CHANGE: 19920317 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q {Mark One} |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly and nine month periods ended: July 31, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition from _____________________ to ______________________ Commission File number: 0-13063 AUTOTOTE CORPORATION (Exact name of registrant as specified in its charter) Delaware 81-0422894 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 750 Lexington Avenue, New York, New York 10022 ---------------------------------------------- (Address of principal executive offices) (Zip Code) (212)-754-2233 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of September 11, 2000: Class A Common Stock: 36,909,292 Class B Common Stock: None Page 1 of 25 AUTOTOTE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION QUARTER ENDED JULY 31, 2000 Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets as of October 31, 1999 and July 31, 2000 3 Statements of Operations for the Three Months Ended July 31, 1999 and 2000 4 Statements of Operations for the Nine Months Ended July 31, 1999 and 2000 5 Statements of Cash Flows for the Nine Months Ended July 31, 1999 and 2000 6 Notes to Consolidated Financial Statements 7-17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18-22 PART II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Changes in Securities 23 Item 6. Exhibits and Reports on Form 8-K 24 2 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
October 31, July 31, 1999 2000 ----------- --------- ASSETS (Unaudited) Current assets: Cash and cash equivalents ................................................ $ 5,067 3,181 Restricted cash .......................................................... 771 795 Accounts receivable, net ................................................. 25,755 23,645 Inventories .............................................................. 14,636 8,452 Prepaid expenses, deposits and other current assets ...................... 2,319 3,138 --------- --------- Total current assets ................................................ 48,548 39,211 --------- --------- Property and equipment, at cost ............................................... 199,767 223,791 Less accumulated depreciation ............................................ 123,039 132,424 --------- --------- Net property and equipment .......................................... 76,728 91,367 --------- --------- Goodwill, net of amortization ................................................. 5,237 3,992 Operating right, net of amortization .......................................... 13,848 13,098 Other assets and investments .................................................. 21,198 27,036 --------- --------- $ 165,559 174,704 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt ................................... $ 4,253 877 Accounts payable ......................................................... 20,102 13,456 Accrued liabilities ...................................................... 28,015 20,770 Interest payable ......................................................... 3,898 7,588 --------- --------- Total current liabilities ........................................... 56,268 42,691 --------- --------- Deferred income taxes ......................................................... 1,656 1,642 Other long-term liabilities ................................................... 2,963 3,702 Long-term debt, excluding current installments ................................ 117,891 134,882 Long-term debt, convertible subordinated debentures ........................... 35,000 35,000 --------- --------- Total liabilities ................................................... 213,778 217,917 --------- --------- Stockholders' equity (deficit): Preferred stock, par value $1.00 per share, 2,000 shares authorized, none outstanding .......................................... -- -- Class A common stock, par value $0.01 per share, 99,300 shares authorized, 36,268 and 36,909 shares outstanding at October 31, 1999 and July 31, 2000 , respectively ...................................... 364 370 Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding .......................................... -- -- Additional paid-in capital ............................................... 149,622 151,289 Accumulated losses ....................................................... (196,852) (192,421) Accumulated other comprehensive loss ..................................... (1,251) (2,349) Treasury stock, at cost .................................................. (102) (102) --------- --------- Total stockholders' equity (deficit) ................................ (48,219) (43,213) --------- --------- $ 165,559 174,704 ========= =========
See accompanying notes to consolidated financial statements. 3 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended July 31, 1999 and 2000 (Unaudited, in thousands, except per share amounts)
1999 2000 -------- -------- Operating revenues: Services .............................................................. $ 38,883 40,840 Sales ................................................................. 14,287 9,139 -------- -------- 53,170 49,979 -------- -------- Operating expenses (exclusive of depreciation and amortization shown below): Services .............................................................. 25,908 26,164 Sales ................................................................. 9,631 5,563 -------- -------- 35,539 31,727 -------- -------- Total gross profit ............................................... 17,631 18,252 Selling, general and administrative expenses ............................... 6,641 6,662 Depreciation and amortization .............................................. 5,352 5,308 -------- -------- Operating income ................................................. 5,638 6,282 -------- -------- Other deductions: Interest expense ...................................................... 4,011 4,413 Other income .......................................................... (163) (67) -------- -------- 3,848 4,346 -------- -------- Income before income tax expense (benefit) ................................. 1,790 1,936 Income tax expense (benefit) ............................................... (105) 275 -------- -------- Net income ....................................................... $ 1,895 1,661 ======== ======== Net income per basic share ....................................... $ 0.05 0.05 ======== ======== Net income per diluted share ..................................... $ 0.05 0.04 ======== ======== Weighted average number of shares used in per share calculation: Basic shares ..................................................... 36,169 36,886 ======== ======== Diluted shares ................................................... 38,699 41,430 ======== ========
See accompanying notes to consolidated financial statements. 4 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Nine Months Ended July 31, 1999 and 2000 (Unaudited, in thousands, except per share amounts)
1999 2000 -------- -------- Operating revenues: Services .............................................................. $109,608 115,458 Sales ................................................................. 42,293 35,147 -------- -------- 151,901 150,605 -------- -------- Operating expenses (exclusive of depreciation and amortization shown below): Services .............................................................. 72,801 75,091 Sales ................................................................. 30,505 21,916 -------- -------- 103,306 97,007 -------- -------- Total gross profit ............................................... 48,595 53,598 Selling, general and administrative expenses ............................... 19,854 19,909 Depreciation and amortization .............................................. 16,363 15,960 -------- -------- Operating income ................................................. 12,378 17,729 -------- -------- Other deductions: Interest expense ...................................................... 12,181 12,850 Other (income) expense ................................................ 77 (138) -------- -------- 12,258 12,712 -------- -------- Income before income tax expense ........................................... 120 5,017 Income tax expense ......................................................... 87 586 -------- -------- Net income ....................................................... $ 33 4,431 ======== ======== Net income per basic share ....................................... $ -- 0.12 ======== ======== Net income per diluted share ..................................... $ -- 0.11 ======== ======== Weighted average number of shares used in per share calculation: Basic shares ..................................................... 36,075 36,632 ======== ======== Diluted shares ................................................... 38,004 41,250 ======== ========
See accompanying notes to consolidated financial statements. 5 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended July 31, 1999 and 2000 (Unaudited, in thousands)
1999 2000 -------- -------- Cash flows from operating activities: Net income ...................................................... $ 33 4,431 -------- -------- Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization .............................. 16,363 15,960 Changes in operating assets and liabilities ................ 8,797 (2,564) Other ...................................................... 946 1,170 -------- -------- Total adjustments ..................................... 26,106 14,566 -------- -------- Net cash provided by operating activities ............................ 26,139 18,997 -------- -------- Cash flows from investing activities: Capital expenditures ............................................ (1,306) (3,225) Wagering systems expenditures ................................... (9,971) (24,490) Increase in other assets and investments ........................ (5,034) (8,176) -------- -------- Net cash used in investing activities ................................ (16,311) (35,891) -------- -------- Cash flows from financing activities: Net borrowings under revolving credit facility .................. -- 6,420 Proceeds from the issuance of long-term debt .................... 60 11,021 Payments on long-term debt ...................................... (2,356) (3,575) Net proceeds from issuance of common stock ...................... 146 1,450 -------- -------- Net cash provided (used) by financing activities ..................... (2,150) 15,316 -------- -------- Effect of exchange rate changes on cash .............................. (22) (308) -------- -------- Increase (decrease) in cash and cash equivalents ..................... 7,656 (1,886) Cash and cash equivalents, beginning of period ....................... 6,809 5,067 -------- -------- Cash and cash equivalents, end of period ............................. $ 14,465 3,181 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ........................................................ $ 7,843 8,500 ======== ======== Income taxes .................................................... $ 579 586 ======== ========
See accompanying notes to consolidated financial statements. 6 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands, except per share amounts) 1) Consolidated Financial Statements Basis of Presentation The consolidated balance sheet as of July 31, 2000 and the consolidated statements of operations for the three and nine months ended July 31, 1999 and 2000, and the consolidated statements of cash flows for the nine months then ended, have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position of the Company at July 31, 2000 and the results of its operations for the three and nine months ended July 31, 1999 and 2000 and its cash flows for the nine months ended July 31, 1999 and 2000 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 1999. The results of operations for the nine months ended July 31, 2000 are not necessarily indicative of the operating results for the full year. Certain items in the prior year's financial statements have been reclassified to conform with the current year presentation. Basic Net Income Per Share and Diluted Net Income Per Share The following represents a reconciliation of the numerator and denominator used in computing basic and diluted net income per share for the three and nine month periods ended July 31, 1999 and 2000:
Three Months Ended Nine Months Ended July 31, July 31, ------------------ ------------------ 1999 2000 1999 2000 ------- ------- ------- ------- Income (numerator) Net income .............................................. $ 1,895 1,661 33 4,431 ======= ======= ======= ======= Shares (denominator) Basic weighted average common shares outstanding ........ 36,169 36,886 36,075 36,632 Effect of diluted securities-stock options, warrants, and deferred shares .................................... 2,530 4,544 1,929 4,618 ------- ------- ------- ------- Diluted weighted average common shares outstanding ...... 38,699 41,430 38,004 41,250 ======= ======= ======= ======= Per Share Amount Basic net income per share .............................. $ 0.05 0.05 -- 0.12 ======= ======= ======= ======= Diluted net income per share ............................ $ 0.05 0.04 -- 0.11 ======= ======= ======= =======
At July 31, 2000, the Company had outstanding stock options, warrants, convertible subordinated debentures and deferred shares which could potentially dilute basic earnings per share in the future. (See Notes 12 and 13 to the Consolidated Financial Statements for the year ended October 31, 1999 in the Company's 1999 Annual Report on Form 10-K.) 7 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited, in thousands, except per share amounts) 2) Acquisition of Datasport Assets and Interest in Datek On September 1, 1999, the Company completed the purchase of selected assets and the assumption of certain liabilities from Datasport Toto Dienstleistung GmbH & Co KG ("Datasport"). As a result of this purchase, the Company is the sole provider of totalisator and simulcasting services to the 14 thoroughbred racetracks in Germany. The transaction also increased the Company's ownership and control of Datek GmbH ("Datek"), the primary provider of pari-mutuel wagering to off-track betting establishments ("OTBs") and bookmakers in Germany. The purchase, which included a cash payment of approximately $2,333 and the assumption of certain liabilities, was recorded using the purchase method of accounting, and the acquired assets and liabilities have been recorded at their estimated fair value at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was approximately $3.2 million and has been recorded as goodwill which is being amortized over 15 years. The operating results of the Datasport and Datek businesses have been included in the consolidated statements of operations since the date of acquisition. Had the operating results of the Datasport and Datek businesses been included as if the transaction had been consummated on November 1, 1998, the pro forma operating results of the Company for the three and nine month periods ended July 31, 1999 would not have been materially different. 3) Business Segments The following tables represent revenues and profits by business segments for the three and nine month periods ended July 31, 1999 and 2000. Corporate expenses are allocated among business segments. Interest expense and other (income) deductions are not allocated to business segments.
Three Months Ended Nine Months Ended July 31, July 31, -------------------- -------------------- 1999 2000 1999 2000 -------- -------- -------- -------- Service revenue and product sales: Pari-mutuel operations ...... $ 27,597 22,185 69,082 73,525 Venue management operations . 16,277 16,139 46,023 46,208 Lottery operations .......... 9,282 11,655 36,196 30,545 SJC Video operations ........ 14 -- 600 327 -------- -------- -------- -------- $ 53,170 49,979 151,901 150,605 ======== ======== ======== ======== Gross profit: Pari-mutuel operations ...... $ 10,928 10,050 27,761 31,579 Venue management operations . 4,163 4,525 11,500 12,840 Lottery operations .......... 2,679 3,677 9,268 9,179 SJC Video operations ........ (139) -- 66 -- -------- -------- -------- -------- Total gross profit ..... $ 17,631 18,252 48,595 53,598 ======== ======== ======== ======== Operating income (loss): Pari-mutuel operations ...... $ 2,825 1,945 2,909 6,639 Venue management operations . 1,784 2,204 4,498 6,048 Lottery operations .......... 1,459 2,133 5,843 5,042 SJC Video operations ........ (430) -- (872) -- -------- -------- -------- -------- 5,638 6,282 12,378 17,729 Other deductions: Interest expense ............ 4,011 4,413 12,181 12,850 Other (income) expense ...... (163) (67) 77 (138) -------- -------- -------- -------- Income before income tax expense . $ 1,790 1,936 120 5,017 ======== ======== ======== ========
8 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited, in thousands, except per share amounts) 3) Business Segments--(Continued) October 31, July 31, 1999 2000 ----------- -------- Assets Pari-mutuel operations ............. $110,598 111,293 Venue management operations ........ 34,613 34,832 Lottery operations ................. 20,348 28,579 SJC Video operations ............... -- -- -------- -------- $165,559 174,704 ======== ======== Nine Months Ended July 31, -------------------------- 1999 2000 -------- -------- Capital and wagering systems expenditures Pari-mutuel operations ............. $ 7,749 16,981 Venue management operations ........ 1,016 1,479 Lottery operations ................. 2,428 9,255 SJC Video operations ............... 84 -- -------- -------- $ 11,277 27,715 ======== ======== 4) Comprehensive Income (Loss) The following presents a reconciliation of net income to comprehensive income (loss) for the three and nine months ended July 31, 1999 and 2000:
Three months ended Nine months ended July 31, July 31, ------------------ ------------------- 1999 2000 1999 2000 ------ ------ ------ ------ Net income ....................... $1,895 1,661 33 4,431 Other comprehensive income (loss): Foreign currency translation 50 78 (287) (1,098) ------ ------ ------ ------ Comprehensive income (loss) ...... $1,945 1,739 (254) 3,333 ====== ====== ====== ======
5) Inventories Inventories consist of the following: October 31, July 31, 1999 2000 ---------- -------- Parts and work-in-process .......... $13,735 7,429 Finished goods ..................... 344 189 Ticket paper ....................... 557 834 ------- ------- $14,636 8,452 ======= ======= Work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific wagering system service contracts not yet placed in service are classified as construction in progress in property and equipment. 9 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands, except per share amounts) 6) Other Assets and Investments Other assets at July 31, 2000 includes $750 loaned by the Company to Atlantic City Racing Association ("ACRA"). The loan is secured by a mortgage on certain real estate owned by ACRA. In consideration for this loan, the Company had the right to acquire ACRA for an additional $6,250 subject to certain other adjustments. The Company had extended its option to acquire the ACRA until August 31, 2000. The extension period expired without the Company exercising its option. The Company is currently evaluating its ability to extend the option and determining what portion, if any, of the loan will be recovered. If the Company decides in the fourth quarter of fiscal 2000 not to pursue the acquisition of ACRA, the Company will charge to expense deferred acquisition costs of approximately $350, and may charge $750 to expense if the Company decides that the loan is not recoverable. 7) Debt On June 19, 2000, the Company entered into a $10,000 term loan (the "2000 Term Loan") which matures on February 15, 2001. The 2000 Term Loan bears interest at a rate of prime plus 2.50% per annum or LIBOR plus 3.50% per annum, and such interest is paid quarterly. Loan repayments of $100 were due August 15 and November 15, 2000, with a final principal payment of $9,800 due at maturity. At July 31, 2000, the Company had approximately $17,806 available for borrowing under the Company's then existing revolving credit facility (the "Old Facility"). There were $6,420 in borrowings outstanding under the Old Facility at July 31, 2000, approximately $774 in letters of credit were issued under the Old Facility, and $110,000 was outstanding under the 10 7/8%, Series B Senior Notes due 2004 (the "10 7/8% Notes"). All borrowings outstanding under the Old Facility, the 2000 Term Loan, the 1998 Term Loan, the 10 7/8% Notes and $35,000 of convertible subordinated debentures were repaid on September 6, 2000 at the time of the Scientific Games acquisition and approximately $450 in letters of credit were collateralized by funds deposited into escrow. (See below.) 8) Acquisition of Scientific Games Holdings Corp. and New Debt and Equity Financing On September 6, 2000, the Company completed the acquisition of Scientific Games Holdings Corp. ("Scientific Games"), a world leading supplier of lottery products, integrated lottery systems and support services, and pre-paid telephone cards. The acquisition was completed through a merger in which Scientific Games became a wholly-owned subsidiary of the Company, at a cost of approximately $308,000 in aggregate merger consideration to Scientific Games stockholders, plus related fees and expenses. The acquisition will be recorded using the purchase method of accounting, the acquired assets and liabilities will be recorded at their estimated fair value at the date of acquisition and the operating results of Scientific Games' businesses will be included in the consolidated statements of operations from the date of the acquisition. The Scientific Games acquisition and the refinancing of substantially all existing debt of both the Company (see Note 7) and Scientific Games, along with the payment of certain related fees and expenses, was completed with funds provided by: (1) proceeds from the issuance of $150,000 principal amount of the Company's 12 1/2% Senior Subordinated Notes due August 15, 2010 (the "Notes"); (2) $280,000 of term loan borrowings under the terms of a new senior credit facility (the "New Facility"); (3) $2,987 of borrowings under the revolving credit facility of the New Facility; (4) $4,805 of cash on hand; and (5) $110,000 of gross proceeds from the sale of new convertible preferred stock, principally to an affiliated entity of Olivetti S.p.A. (collectively, the "Transactions"). The Notes were originally issued on August 14, 2000, in anticipation of the completion of the pending Scientific Games acquisition, with the proceeds of the Note issuance being held in escrow for the redemption of the Notes if the consummation of the Scientific Games acquisition and other Transactions did not occur. The process was completed and the escrow released on September 6, 2000. The Notes bear interest at the rate of 12 1/2% per annum payable semi-annually on each February 15 and August 15, commencing February 15, 2001. The Notes are senior subordinated, unsecured obligations of the Company, ranking junior to all existing and future senior debt including obligations under the New Facility. The Notes are fully and unconditionally guaranteed on a senior subordinated basis by all of the Company's wholly-owned U.S. subsidiaries. 10 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands, except per share amounts) 8) Acquisition of Scientific Games Holdings Corp. and New Debt and Equity Financing--(Continued) The Notes will be redeemable, at the option of the Company, at any time on or after August 15, 2005, in whole or in part. In addition, on or before August 15, 2003, the Company may, at its option, redeem up to 35% of the Notes at 112% of the principal amount thereof, plus accrued and unpaid interest, with the net proceeds of equity offerings, provided at least 65% of the original aggregate principal amount of the Company's new Notes remains outstanding immediately after such redemption. In addition to the issuance of the Notes, the Company also entered into a New Facility with certain lenders, providing for borrowings of up to $345,000. The New Facility, consists of: (a) a $65,000 revolving credit facility (the "Revolver") which matures in September 2006 with interest at the Base Rate (as defined) plus a margin of 2.25% per annum, or at the rate of LIBOR plus a margin of 3.50% per annum, plus a commitment fee on the unused portion of 0.05% per annum for the first six months and thereafter as determined by reference to a leverage-based pricing grid; (b) a $60,000 term loan (the "Term A Loan") which matures in September 2006 with interest at the Base Rate plus a margin of 2.25% per annum, or at the rate of LIBOR plus 3.50% per annum for the first six months and thereafter as determined by reference to a leverage-based pricing grid; and (c) a $220,000 term loan (the "Term B Loan") which matures in September 2007 with interest at the Base Rate plus a margin of 3.00% per annum or at the rate of LIBOR plus 4.25% per annum. The New Facility is secured by a first-priority, perfected lien on: (i) substantially all the property and assets (real and personal, tangible and intangible) of the Company and its domestic subsidiaries, (ii) 100% of the capital stock of all of the direct and indirect domestic subsidiaries and 65% of the capital stock of the foreign subsidiaries of the Company and (iii) all inter-company indebtedness owing to the Company and its material subsidiaries. The New Facility will also be supported by guarantees provided by all of the Company's direct and indirect, wholly-owned domestic subsidiaries. The New Facility will be subject to the following mandatory prepayments with certain customary exceptions, to the extent of: (i) 100% of the net cash proceeds from the sale or issuance of debt securities; (ii) 100% of the net proceeds from the sale of assets and casualty insurance proceeds; (iii) 50% of the Company's excess cash flow (as defined), or if the leverage ratio is less than 3.00 to 1.00, 25% of the Company's excess cash flow; and (iv) 50% of the net cash proceeds from the sale or issuance of equity (except for the issuance of the Company's new convertible preferred stock). The indenture governing the Notes and the agreement governing the New Facility contain certain covenants that, among other things, limit the Company's ability and the ability of certain of the Company's restricted subsidiaries, to incur additional indebtedness, pay dividends or distributions or make certain other restricted payments, purchase or redeem capital stock, make investments or extend credit, engage in certain transactions with affiliates, engage in sale-leaseback transactions, consummate certain asset sales, effect a consolidation or merger or sell, transfer, lease or otherwise dispose of all or substantially all assets, and create certain liens and other encumbrances on new assets. Additionally, the agreement governing the New Facility contains the following financial covenants which will be computed quarterly on a rolling four-quarter basis as applicable: (i) minimum Interest Coverage ratio, (ii) minimum Fixed Charge Coverage ratio; (iii) maximum Leverage ratio; and (iv) minimum Net Worth. On September 6, 2000, the Company issued, for gross proceeds of $110,000, 1.1 million shares of new Series A Convertible Preferred Stock (the "Preferred Stock"), including $100,000 to Cirmatica Gaming, S.A., an affiliate of Lottomatica S.p.A. (the state concessionaire for the Italian Lotto game and an affiliate of Olivetti S.p.A. and Telecom Italia S.p.A.), and $10,000 to other investors through Ramius Securities, LLC ("Ramius"), which acted as placement agent. The Preferred Stock is convertible into Company common stock at a price of $6.00 per share (subject to potential reset to no less than $5.00 per share based on possible future market price minimums), will mature and become mandatorily convertible into common stock after five years and will pay dividends at the rate of 6% per annum (payable in kind in additional shares or, at the Company's option beginning with the ninth quarterly dividend date, in cash). The holders of Preferred Stock also have the right to participate on an as-converted basis in any dividends with respect to the common stock. The holders of Preferred Stock have the right to vote along with the holders of common stock on all matters on which the holders of common stock are entitled to vote, are entitled to vote separately as a class with respect to certain matters, and are also entitled to certain rights of first refusal with respect to future financings. The Preferred Stock is also subject to certain customary anti-dilution provisions. In addition, the holders of Preferred Stock have the right to designate, initially, four members of the Company's Board of Directors (and to elect three additional Directors in the event of certain defaults by the Company). The Preferred Stock has preference over common stock with regard to the distribution of assets upon a liquidation, dissolution or other winding up of the Company. 11 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited, in thousands, except per share amounts) 8) Acquisition of Scientific Games Holdings Corp. and New Debt and Equity Financing--(Continued) In connection with the Transactions, the Company also issued 27.5 shares of Preferred Stock to Ramius, which acted as placement agent in connection with the sale of the Preferred Stock, and issued warrants to purchase at a nominal price 2,900 shares of the Company's common stock to Donaldson, Lufkin & Jenrette Securities Corporation and LBI Group, Inc. (an affiliate of Lehman Brothers), the Company's financial advisors in connection with their services to the Company in obtaining certain financing commitments. In the fourth quarter of fiscal 2000, the Company expects to take charges in connection with the refinancing which could aggregate approximately $23 million for the write-off of deferred financing fees related to the Old Facility, to record the premium paid to repurchase the 10 7/8% Notes and expenses associated with certain bridge loans. Further information regarding aspects of the Scientific Games acquisition and financing can be found in the Current Reports on Form 8-K filed by the Company on May 19, 2000 and May 26, 2000 and certain Exhibits to this Quarterly Report on Form 10-Q. 9) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries The Company conducts substantially all of its business through its domestic and foreign subsidiaries. In July 1997, the Company issued $110,000 aggregate principal amount of 10 7/8% Notes. On May 22, 1998, the Company and Autotote Lottery Corporation entered into a $12,000 three-year term loan arrangement that bears interest at a fixed annual rate of 8.87% (the "1998 Term Loan"). On June 19, 2000, the Company entered into a $10,000 term loan (the "2000 Term Loan") which bears interest at a rate of prime plus 2.50% per annum or LIBOR plus 3.50% per annum and matures on February 15, 2001. The 1998 Term Loan and the 2000 Term Loan were extended in conjunction with the Old Facility and are subject to certain restrictive and financial covenants contained in the Old Facility. Obligations under the Old Facility and the 10 7/8% Notes are jointly and severally guaranteed by substantially all of the Company's wholly-owned domestic subsidiaries (the "Guarantor Subsidiaries"). (See Note 8 to the Consolidated Financial Statements for the year ended October 31, 1999 in the Company's 1999 Annual Report on Form 10-K.) On August 14, 2000, in connection with the Transactions, the Company issued $150,000 aggregate principal amount of its new Notes, with the proceeds being held in escrow, and on September 6, 2000 the escrow was released and the Company entered into its New Facility with certain lenders for borrowings of up to $345,000. Obligations under the New Facility and the Notes are fully and unconditionally guaranteed by all of the Company's Guarantor Subsidiaries. (See Note 8). Presented below is condensed consolidating financial information for (i) Autotote Corporation (the "Parent Company") which includes the activities of Autotote Management Corporation, (ii) the Guarantor Subsidiaries and (iii) the wholly-owned foreign subsidiaries and the non-wholly owned domestic and foreign subsidiaries (the "Non-Guarantor Subsidiaries") as of October 31, 1999 (audited) and July 31, 2000 (unaudited) and for the three and nine month periods ended July 31, 1999 and 2000 (unaudited). The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries assuming the guarantee structure of the Notes and the New Facility were in effect at the beginning of the periods presented. Separate financial statements for Guarantor Subsidiaries are not presented based on management's determination that they would not provide additional information that is material to investors. The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. In addition, corporate interest and administrative expenses have not been allocated to the subsidiaries. 12 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET October 31, 1999 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ ASSETS Cash and cash equivalents .............................. $ 1,598 506 2,963 -- 5,067 Accounts receivable, net ............................... -- 21,083 4,672 -- 25,755 Other current assets ................................... 30 14,143 4,017 (464) 17,726 Property and equipment, net ............................ 298 66,973 9,708 (251) 76,728 Investment in subsidiaries ............................. 58,214 -- -- (58,214) -- Goodwill ............................................... 198 353 4,686 -- 5,237 Other assets ........................................... 6,199 30,385 659 (2,197) 35,046 --------- --------- --------- --------- --------- Total assets ........................................ $ 66,537 133,443 26,705 (61,126) 165,559 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current installments of long-term debt ................. $ 1,250 2,429 574 -- 4,253 Current liabilities .................................... 12,219 29,546 10,922 (672) 52,015 Long-term debt, excluding current installments ......... 145,000 6,627 1,264 -- 152,891 Other non-current liabilities .......................... 2,193 1,233 1,766 (573) 4,619 Intercompany balances .................................. (45,906) 43,214 1,942 750 -- Stockholders' equity (deficit) ......................... (48,219) 50,394 10,237 (60,631) (48,219) --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit) $ 66,537 133,443 26,705 (61,126) 165,559 ========= ========= ========= ========= =========
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET July 31, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ ASSETS Cash and cash equivalents .............................. $ 35 1,147 1,998 1 3,181 Accounts receivable, net ............................... -- 18,473 5,172 -- 23,645 Other current assets ................................... 17 8,933 3,686 (251) 12,385 Property and equipment, net ............................ 272 80,343 11,019 (267) 91,367 Investment in subsidiaries ............................. 81,938 -- -- (81,938) -- Goodwill ............................................... 193 -- 3,799 -- 3,992 Other assets ........................................... 9,440 31,669 1,387 (2,362) 40,134 --------- --------- --------- --------- --------- Total assets ........................................ $ 91,895 140,565 27,061 (84,817) 174,704 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current installments of long-term debt ................. $ 100 7 770 -- 877 Current liabilities .................................... 14,427 20,058 7,631 (302) 41,814 Long-term debt, excluding current installments ......... 161,320 7,222 1,340 -- 169,882 Other non-current liabilities .......................... 3,086 648 2,183 (573) 5,344 Intercompany balances .................................. (43,825) 39,657 3,783 385 -- Stockholders' equity (deficit) ......................... (43,213) 72,973 11,354 (84,327) (43,213) --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit) $ 91,895 140,565 27,061 (84,817) 174,704 ========= ========= ========= ========= =========
13 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Three Months Ended July 31, 1999 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Operating revenues ........................................... $ -- 46,250 13,351 (6,431) 53,170 Operating expenses ........................................... -- 29,284 12,682 (6,427) 35,539 ------- ------- ------- ------- ------- Gross profit .............................................. -- 16,966 669 (4) 17,631 Selling, general and administrative expenses ................. 2,387 3,286 972 (4) 6,641 Depreciation and amortization ................................ 46 4,578 753 (25) 5,352 ------- ------- ------- ------- ------- Operating income (loss) ................................... (2,433) 9,102 (1,056) 25 5,638 Interest expense ............................................. 3,679 221 111 -- 4,011 Other (income) expense ....................................... (50) (28) (85) -- (163) ------- ------- ------- ------- ------- Income (loss) before equity in income of subsidiaries, and income taxes .......................................... (6,062) 8,909 (1,082) 25 1,790 Equity in income of subsidiaries ............................. 8,008 -- -- (8,008) -- Income tax expense (benefit) ................................. 51 57 (213) -- (105) ------- ------- ------- ------- ------- Net income (loss) ............................................ $ 1,895 8,852 (869) (7,983) 1,895 ======= ======= ======= ======= =======
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Three Months Ended July 31, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Operating revenues ........................................... $ -- 40,384 13,539 (3,944) 49,979 Operating expenses ........................................... -- 25,893 9,745 (3,911) 31,727 ------- ------- ------- ------- ------- Gross profit .............................................. -- 14,491 3,794 (33) 18,252 Selling, general and administrative expenses ................. 2,735 3,017 913 (3) 6,662 Depreciation and amortization ................................ 69 4,489 775 (25) 5,308 ------- ------- ------- ------- ------- Operating income (loss) ................................... (2,804) 6,985 2,106 (5) 6,282 Interest expense ............................................. 4,199 141 267 (194) 4,413 Other (income) expense ....................................... (146) (9) (106) 194 (67) ------- ------- ------- ------- ------- Income (loss) before equity in income of subsidiaries, and income taxes .......................................... (6,857) 6,853 1,945 (5) 1,936 Equity in income of subsidiaries ............................. 8,539 -- -- (8,539) -- Income tax expense ........................................... 21 69 185 -- 275 ------- ------- ------- ------- ------- Net income ................................................... $ 1,661 6,784 1,760 (8,544) 1,661 ======= ======= ======= ======= =======
14 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Nine Months Ended July 31, 1999 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Operating revenues ........................................... $ -- 131,715 34,239 (14,053) 151,901 Operating expenses ........................................... -- 86,694 30,654 (14,042) 103,306 -------- -------- -------- -------- -------- Gross profit .............................................. -- 45,021 3,585 (11) 48,595 Selling, general and administrative expenses ................. 6,852 9,859 3,159 (16) 19,854 Depreciation and amortization ................................ 136 14,105 2,199 (77) 16,363 -------- -------- -------- -------- -------- Operating income (loss) ................................... (6,988) 21,057 (1,773) 82 12,378 Interest expense ............................................. 11,232 727 222 -- 12,181 Other (income) expense ....................................... (1,825) 52 2 1,848 77 -------- -------- -------- -------- -------- Income (loss) before equity in income of subsidiaries, and income taxes .......................................... (16,395) 20,278 (1,997) (1,766) 120 Equity in income of subsidiaries ............................ 16,597 -- -- (16,597) -- Income tax expense (benefit) ................................. 169 102 (184) -- 87 -------- -------- -------- -------- -------- Net income (loss) ............................................ $ 33 20,176 (1,813) (18,363) 33 ======== ======== ======== ======== ========
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Nine Months Ended July 31, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Operating revenues ........................................... $ -- 125,464 37,904 (12,763) 150,605 Operating expenses ........................................... -- 79,074 30,658 (12,725) 97,007 -------- -------- -------- -------- -------- Gross profit .............................................. -- 46,390 7,246 (38) 53,598 Selling, general and administrative expenses ................. 7,297 9,481 3,139 (8) 19,909 Depreciation and amortization ................................ 213 13,336 2,488 (77) 15,960 -------- -------- -------- -------- -------- Operating income (loss) ................................... (7,510) 23,573 1,619 47 17,729 Interest expense ............................................. 12,106 580 578 (414) 12,850 Other (income) expense ....................................... (369) (168) (15) 414 (138) -------- -------- -------- -------- -------- Income (loss) before equity in income of subsidiaries, and income taxes .......................................... (19,247) 23,161 1,056 47 5,017 Equity in income of subsidiaries ............................ 23,785 -- -- (23,785) -- Income tax expense ........................................... 107 384 95 -- 586 -------- -------- -------- -------- -------- Net income ................................................... $ 4,431 22,777 961 (23,738) 4,431 ======== ======== ======== ======== ========
15 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Nine Months Ended July 31, 1999 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Net income (loss) ............................................ $ 33 20,176 (1,813) (18,363) 33 Depreciation and amortization ............................. 136 14,105 2,199 (77) 16,363 Equity in income of subsidiaries .......................... (16,597) -- -- 16,597 -- Other non-cash adjustments ................................ 930 15 1 -- 946 Changes in working capital ................................ 2,557 8,343 (1,944) (159) 8,797 -------- -------- -------- -------- -------- Net cash provided by (used in) operating activities .......... (12,941) 42,639 (1,557) (2,002) 26,139 -------- -------- -------- -------- -------- Cash flows from investing activities: Capital and wagering systems expenditures ................. (26) (9,467) (1,780) (4) (11,277) Other assets and investments .............................. (504) (5,447) (275) 1,192 (5,034) -------- -------- -------- -------- -------- Net cash provided by (used in) investing activities .......... (530) (14,914) (2,055) 1,188 (16,311) -------- -------- -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt .................. -- 60 -- -- 60 Payments on long-term debt ................................ -- (2,066) (290) -- (2,356) Net proceeds from stock issue ............................. 146 -- -- -- 146 Other, principally intercompany balances .................. 23,081 (25,316) 1,621 614 -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities .......... 23,227 (27,322) 1,331 614 (2,150) -------- -------- -------- -------- -------- Effect of exchange rate changes on cash ...................... 45 -- (267) 200 (22) -------- -------- -------- -------- -------- Increase/(decrease) in cash and cash equivalents ............. 9,801 403 (2,548) -- 7,656 Cash and cash equivalents, beginning of period ............... 2,054 193 4,562 -- 6,809 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period ..................... $ 11,855 596 2,014 -- 14,465 ======== ======== ======== ======== ========
16 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Nine Months Ended July 31, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Net income (loss) ............................................ $ 4,431 22,777 961 (23,738) 4,431 Depreciation and amortization ............................. 213 13,336 2,488 (77) 15,960 Equity in income of subsidiaries .......................... (23,785) -- -- 23,785 -- Other non-cash adjustments ................................ 915 369 (114) -- 1,170 Changes in working capital ................................ 2,260 (1,550) (3,274) -- (2,564) -------- -------- -------- -------- -------- Net cash provided by (used in ) operating activities ......... (15,966) 34,932 61 (30) 18,997 -------- -------- -------- -------- -------- Cash flows from investing activities: Capital and wagering systems expenditures ................. (68) (23,735) (3,942) 30 (27,715) Other assets and investments .............................. (3,188) (5,040) (453) 505 (8,176) -------- -------- -------- -------- -------- Net cash provided by (used in) investing activities .......... (3,256) (28,775) (4,395) 535 (35,891) -------- -------- -------- -------- -------- Cash flows from financing activities: Net proceeds from issuance of long-term debt .............. 16,420 -- 1,021 -- 17,441 Payments on long-term debt ................................ (1,250) (1,827) (498) -- (3,575) Net Proceeds from stock issue ............................. 1,450 -- -- -- 1,450 Other, principally intercompany balances .................. 1,039 (3,923) 3,389 (505) -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities .......... 17,659 (5,750) 3,912 (505) 15,316 -------- -------- -------- -------- -------- Effect of exchange rate changes on cash ...................... -- 235 (543) -- (308) -------- -------- -------- -------- -------- Increase/(decrease) in cash and cash equivalents ............. (1,563) 642 (965) -- (1,886) Cash and cash equivalents, beginning of period ............... 1,598 506 2,963 -- 5,067 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period ..................... $ 35 1,148 1,998 -- 3,181 ======== ======== ======== ======== ========
17 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion addresses the financial condition of the Company as of July 31, 2000 and the results of its operations for the three and nine month periods ended July 31, 2000, compared to the same periods last year. This discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 31, 1999 included in the Company's 1999 Annual Report on Form 10-K. The Company operates primarily in three business segments, Pari-mutuel Operations, Venue Management and Lottery Operations. Pari-mutuel Operations include all aspects of the Company's pari-mutuel service business, which encompass North American and international on-track, off-track and inter-track pari-mutuel services, simulcasting and communications services, video gaming, and sales of pari-mutuel systems and equipment. Venue Management includes the Connecticut off-track betting ("OTB") operations and the Netherlands on-track and off-track betting operations. Lottery Operations include both domestic and international lottery service, as well as sales of lottery systems and equipment. In the second quarter of fiscal 2000, the Company completed the sale of its SJC Video business. Historically, the Company's revenues have been derived from two principal sources: service revenues and sales revenues. Service revenues are earned pursuant to multi-year contracts to provide wagering systems and other services, which are typically based on a percentage of Handle and/or daily or monthly fees; or are derived from wagering by customers at facilities owned or leased by the Company. Sales revenues are derived from sales contracts for wagering equipment, services and software. The first quarter and a portion of the second quarter of the Company's fiscal year traditionally comprise the weakest season for pari-mutuel wagering service revenue. Wagering equipment sales revenues usually reflect a limited number of large transactions which do not recur on an annual basis, but which historically have given rise to additional terminal and systems software sales to existing customers. Consequently, revenues and operating results can vary substantially from period to period as a result of the timing of revenue recognition for major equipment sales.
Three Months ended Nine Months ended Results of Operations: July 31, July 31, ------------------- ------------------- 1999 2000 1999 2000 ------- ------- ------- ------- (in thousands) Pari-mutuel Operations Operating Revenues: Service revenue ...................................... $19,663 21,137 55,548 59,539 Sales revenue ........................................ 7,934 1,048 13,534 13,986 ------- ------- ------- ------- Total Revenue ................................... $27,597 22,185 69,082 73,525 ======= ======= ======= ======= Gross Profit (excluding depreciation and amortization) ... $10,928 10,050 27,761 31,579 ======= ======= ======= ======= Venue Management Operations Operating Revenues: Service revenue ...................................... $16,277 16,139 46,023 46,208 ======= ======= ======= ======= Gross Profit (excluding depreciation and amortization) ... $ 4,163 4,525 11,500 12,840 ======= ======= ======= =======
18 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
Three Months ended Nine Months ended July 31, July 31, ------------------- ------------------- 1999 2000 1999 2000 ------- ------- ------- ------- Results of Operations: (in thousands) Lottery Operations Operating Revenues: Service revenue ...................................... $ 2,929 3,564 7,437 9,384 Sales revenue ........................................ 6,353 8,091 28,759 21,161 ------- ------- ------- ------- Total Revenue ................................... $ 9,282 11,655 36,196 30,545 ======= ======= ======= ======= Gross Profit (excluding depreciation and amortization) ... $ 2,679 3,677 9,268 9,179 ======= ======= ======= ======= SJC Video Operations Operating Revenues: Service revenue ...................................... $ 14 -- 600 327 ======= ======= ======= ======= Gross Profit (Loss)(excluding depreciation and amortization) ........................................ $ (139) -- 66 -- ======= ======= ======= ======= Company Total Operating Revenues: Service revenue ...................................... $38,883 40,840 109,608 115,458 Sales revenue ........................................ 14,287 9,139 42,293 35,147 ------- ------- ------- ------- Total Revenue ................................... $53,170 49,979 151,901 150,605 ======= ======= ======= ======= Gross Profit (excluding depreciation and amortization) ... $17,631 18,252 48,595 53,598 ======= ======= ======= =======
Three Months Ended July 31, 2000 Compared to Three Months Ended July 31, 1999 Pari-mutuel Operations service revenues of $21.1 million for the third quarter of fiscal 2000 improved $1.5 million or 7% from the third quarter of the prior year. This improvement reflects primarily $1.5 million in revenues from the German operations that were acquired in the fourth quarter of fiscal 1999 and improved revenues in the Company's NASRIN(TM) operations. These increases were partially offset by lower service revenues in the North American simulcasting operations. Pari-mutuel Operations sales revenues decreased by $6.9 million to $1.0 million in the third quarter of fiscal 2000 due primarily to the prior year period sales of systems and terminals to the Company's customers in the UK, Ireland, Korea and Finland. Pari-mutuel Operations gross profit of $10.1 million or 45% of total revenues, decreased from gross profit of $10.9 million or 40% of total revenues in the same period last year. Lower gross profit on international equipment sales and lower revenues in the North American simulcasting operations, were partially offset by an increase in gross profit on improved NASRIN(TM) service revenues and improved Handle in the German pari-mutuel operations. Venue Management Operations service revenues of $16.1 million for the third quarter of fiscal 2000 decreased 1% from the service revenues in the third quarter of the prior year. Handle-related revenue increases of 4% in the Connecticut OTB operations were offset by a decrease in the Netherlands operations, due primarily to the impact of foreign exchange on reported revenues. Gross profit was $4.5 million or 28% of service revenue in the third quarter of fiscal 2000, increased over the gross profit of $4.2 million or 26% of service revenue in the third quarter of fiscal 1999. This improvement primarily reflects higher Handle-related revenues and cost savings in the Connecticut OTB operations. Lottery Operations service revenues in the third quarter of fiscal 2000 of $3.6 million improved $0.6 million from the third quarter of the prior year due to the July 2000 launch of the Vermont and New Hampshire lotteries. The $1.7 million increase in sales revenues to $8.1 million in the third quarter of fiscal 2000 is primarily attributable to sales of lottery equipment to the Vermont and New Hampshire lotteries and increased sales of Extrema(TM) terminals to the Company's customer in Italy. Lottery Operations gross profit of $3.7 million or 32% of total revenues, increased from gross profit of $2.7 million or 29% of total revenues in the same period last year. Higher gross profit was earned on improved service revenues due to the two new lottery service contracts and higher margins on domestic equipment sales. 19 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Expense Analysis Selling, general and administrative expenses including software development costs increased less than $0.1 million or less than 1% to $6.7 million in the third quarter of fiscal 2000. Higher expenses due to increased operating levels in the North American and German pari-mutuel operations, and the Vermont and New Hampshire lotteries which began in July 2000, were partially offset by cost reductions in NASRIN(TM) and France, and the absence of the SJC Video business. Depreciation and amortization expenses decreased $0.1 million to $5.3 million in the third quarter of fiscal 2000. Depreciation increased $0.1 million, primarily due to the installation of wagering system equipment at new North American pari-mutuel customers, partly offset by the absence of the SJC Video business depreciation. Amortization expense decreased $0.2 million as a result of the full amortization of intangible assets associated with the North American simulcasting operations. Interest expense increased $0.4 million to $4.4 million in the third quarter of fiscal 2000 as a result of an increase in average outstanding borrowings during the period. Income Taxes Income tax expense was $0.3 million in the third quarter of fiscal 2000 as compared to a tax benefit $0.1 million in the third quarter of fiscal 1999. Income tax expense principally reflects federal alternative minimum tax, foreign and state income taxes. Nine Months Ended July 31, 2000 Compared to Nine Months Ended July 31, 1999 Pari-mutuel Operations service revenues of $59.5 million for the first nine months of fiscal 2000 improved $4.0 million or 7% from the first nine months of the prior year. This improvement primarily reflects $4.1 million in revenues from the German operations that were acquired in the fourth quarter of fiscal 1999 and improved revenues in the Company's North American pari-mutuel operations, NASRIN(TM) service operations and Ireland pari-mutuel services. These increases were partially offset by lower service revenues in the French operations and lower service revenues in North American simulcasting operations. Pari-mutuel Operations sales revenues increased by $0.5 million to $14.0 million in the first nine months of fiscal 2000 due to the sales of terminals to the Company's international customers, primarily in Italy and Chile. Pari-mutuel Operations gross profit of $31.6 million or 43% of total revenues, increased from gross profit of $27.8 million or 40% in the same period last year. Higher gross profit on improved Handle, primarily in the German and North American pari-mutuel operations, higher NASRIN(TM) service revenues and increased equipment sales, were partially offset by a decrease in gross profit due to lower Handle in the French pari-mutuel operations, lower satellite time sales, and higher satellite service fees due to a credit received in fiscal 1999 from our satellite provider as a result of a service interruption. Venue Management Operations service revenues of $46.2 million for the first nine months of fiscal 2000 increased $0.2 million over the service revenues of the first nine months of the prior year. Handle-related revenue increases of 3% in the Connecticut OTB operations, were partly offset by the impact of foreign exchange on the reported Netherlands operations revenues. Gross profit was $12.8 million or 28% of service revenue in the first nine months of fiscal 2000, an increase over the gross profit of $11.5 million or 25% of service revenue in the first nine months of fiscal 1999. This improvement primarily reflects higher Handle-related revenues and cost savings in the Connecticut OTB operations. Lottery Operations service revenues in the first nine months of fiscal 2000 of $9.4 million improved $1.9 million from the first nine months of the prior year due to the April 1999 launch of the Montana lottery and the July 2000 launches of the Vermont and New Hampshire lotteries. The $7.6 million decrease in equipment sales to $21.2 million in the first nine months of fiscal 2000 is primarily attributable to the April 1999 Montana lottery equipment sale and fewer terminal sales as compared to the fiscal 1999 period, primarily for use in Italy. Lottery Operations gross profit of $9.2 million or 30% of total revenues, decreased from gross profit of $9.3 million or 26% of total revenues in the same period last year. Higher gross profit on improved service revenue due to the three new lottery service contracts and improved equipment sales gross margins due to the mix of products sold, were more than offset by a decrease in gross profit due to the lower volume of domestic and international equipment sales. 20 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Expense Analysis Selling, general and administrative expenses including software development costs were comparable at $19.9 million for the first nine months of fiscal 2000 and fiscal 1999. Higher expenses due to increased operating levels in the North American and German pari-mutuel operations and the Montana lottery which began in April 1999, and the Vermont and New Hampshire lotteries which began in July 2000, were offset by cost reductions in NASRIN(TM) and France, and the absence of the SJC Video business. Depreciation and amortization expenses decreased $0.4 million or 2% to $16.0 million in the first nine months of fiscal 2000. Depreciation expense decreased $0.1 million, primarily due to the full depreciation of certain assets in prior periods and the absence of the SJC Video business. Amortization expense decreased $0.3 million as a result of the full amortization of intangible assets associated with the North American simulcasting operations. Interest expense increased $0.7 million to $12.9 million in the first nine months of fiscal 2000 as a result of an increase in average outstanding borrowings during the period. Income Taxes Income tax expense was $0.6 million in the first nine months of fiscal 2000, as compared to $0.1 million in the first nine months of fiscal 1999. Income tax expense principally reflects federal alternative minimum tax, foreign and state income taxes. Liquidity, Capital Resources and Working Capital Deficiency At July 31, 2000, the Company's available cash and borrowing capacity totaled $21.0 million compared to $29.0 million at October 31, 1999. Net cash provided by operating activities decreased by $7.1 million to $19.0 million for the nine months ended July 31, 2000 from $26.1 million in the nine months ended July 31, 1999. A $4.4 million increase in net income was offset by a $11.4 million decrease in changes in operating assets and liabilities, primarily decreases in accounts payable and other current liabilities and increases in accounts receivable and inventory. In the first nine months of fiscal 2000, the Company utilized $19.0 million of cash provided by operating activities, $17.4 million of long-term borrowings, $1.5 million in proceeds from stock sales, and $1.9 million of available cash, to invest $27.7 million principally in capital and contract expenditures in connection with the January 2000 start-up of the Monmouth/Meadowlands service contract and the July 2000 start-ups of the Vermont and New Hampshire state lotteries. The Company also invested $8.2 million in software systems development and other assets, and used $3.6 million to reduce other long-term loans. At July 31, 2000, the Company's current liabilities exceeded current assets by $3.5 million, an improvement of $4.2 million from October 31, 1999. The improvement results principally from a $9.3 million reduction in current assets, offset by a $13.6 million reduction in current liabilities, which included the classification of substantially all debt as long term. The classification of debt as long-term is the result of the debt refinancing which was done in connection with the September 6, 2000 acquisition of Scientific Games Holdings Corp (see below). As described above in Note 7 to the Consolidated Financial Statements, the Company had $17.8 million of borrowing availability under its Old Facility at July 31, 2000. At September 6, 2000 following consummation of the Transactions (see below), the Company had $62.0 million of borrowing availability under its New Facility. The Company believes that its cash resources, anticipated cash flows from operations and borrowing availability under the New Facility will provide sufficient liquidity to meet scheduled interest payments and anticipated capital expenditures during the next twelve months. 21 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Acquisition of Scientific Games Holdings Corp and New Debt and Equity Financing On September 6, 2000 the Company completed the acquisition of Scientific Games, a world leading supplier of lottery products, integrated lottery systems and support services, and pre-paid telephone cards. The acquisition was completed through a merger in which Scientific Games became a wholly-owned subsidiary of the Company at a cost of approximately $308,000 in aggregate merger consideration to Scientific Games stockholders, plus related fees and expenses. The acquisition will be recorded using the purchase method of accounting, and the acquired assets and liabilities will be recorded at their estimated fair value at the date of acquisition and the operating results of Scientific Games businesses will be included in the consolidated statements of operations from the date of the acquisition. The Scientific Games acquisition and the refinancing of substantially all existing debt of both the Company (see Note 8) and Scientific Games, along with the payment of related fees and expenses, was completed with funds provided by: (1) proceeds from the issuance of $150,000 of the new Notes; (2) $280,000 of term loan borrowings under the New Facility; (3) $2,987 of borrowings under the revolving credit facility of the New Facility; (4) $4,805 of cash on hand, and (5) $110,000 of gross proceeds from the sale of new Preferred Stock. Further information regarding the acquisition and financing can be found in current reports on Form 8-K filed by the Company on May 19, 2000 and May 26, 2000 and certain Exhibits to this Quarterly Report on Form 10-Q. Recent Accounting Pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS 133, as amended, standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial position at fair value. SFAS 133, as amended, is effective beginning in the first quarter of our fiscal year ending October 31, 2001. The Company has not determined the impact that SFAS 133 will have on its financial statements and believes that such determination will not be meaningful until closer to the date of initial adoption. Forward-Looking Statements This quarterly report on Form 10-Q contains certain statements and projections (including statements concerning plans and objectives of management for the future operations and services, statements concerning revenue expectations and statements concerning mergers and re-financing) other than those covering historical information, that should be considered forward-looking and subject to certain risks and uncertainties. Such forward-looking statements are based on management's belief as well as assumptions made by, and information currently available to, management pursuant to "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from the plans envisioned in, or results projected by, those statements if the Company's assumptions prove to be incorrect or for a variety of other reasons, including those relating to factors identified in the Company's Annual Report on Form 10-K for the year ended October 31, 1999 as part of a Cautionary Statement for purposes of such safe harbor. The Company cautions that such factors are not exclusive. The Company does not undertake to update any forward-looking statement that may be made from time to time by, or on behalf of, the Company. 22 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended July 31, 2000 PART II. Other Information Item 1. Legal Proceedings No significant changes have occurred with respect to legal proceedings disclosed in Part 1, Item 3, of the Company's Annual Report on Form 10-K for the year ended October 31, 1999. Item 2. Changes in Securities There were no changes in securities subject to this item during the third quarter of 2000. On September 6, 2000, as part of the Transactions, the Company issued, for gross proceeds of $110 million, 1.1 million shares of new Series A Convertible Preferred Stock, including $100 million to Cirmatica Gaming, S.A., an affiliate of Lottomatica S.p.A. (the state concessionaire for the Italian Lotto game and an affiliate of Olivetti S.p.A. and Telecom Italia S.p.A.), and $10 million to other investors through Ramius Securities, LLC, which acted as placement agent. The Company also issued 27,500 shares of Preferred Stock to Ramius in connection with such services. The Preferred Stock is convertible into Company common stock at a price of $6.00 per share (subject to potential reset to no less than $5.00 per share based on possible future market price minimums), will mature and become mandatorily convertible into common stock after five years and will pay dividends at the rate of 6% per annum (payable in kind in additional shares or, at the Company's option beginning with the ninth quarterly dividend date, in cash). The holders of Preferred Stock also have the right to participate on an as-converted basis in any dividends with respect to the common stock. The holders of Preferred Stock have the right to vote along with the holders of common stock on all matters on which the holders of common stock are entitled to vote, are entitled to vote separately as a class with respect to certain matters, and are also entitled to certain rights of first refusal with respect to future financings. The Preferred Stock is also subject to certain customary anti-dilution provisions. In addition, the holders of Preferred Stock have the right to designate, initially, four members of the Company's Board of Directors (and to elect three additional Directors in the event of certain defaults by the Company). The Preferred Stock has preference over common stock with regard to the distribution of assets upon a liquidation, dissolution or other winding up of the Company. On September 6, 2000, the Company also issued Warrants (the "Warrants") to purchase up to 2.9 million shares of the Company's common stock to its financial advisors, Donaldson, Lufkin & Jenrette Securities Corporation and LBI Group, Inc. (an affiliate of Lehman Brothers) (which received 80% and 20%, respectively, of such Warrants), in connection with their services to the Company in obtaining certain financing commitments. The Warrants are exercisable until September 6, 2007 at a nominal exercise price determined by a formula set forth in the Warrant. Based upon representations of the acquirers of the Preferred Stock and the Warrants, the Preferred Stock and the Warrants were issued in private transactions in reliance upon exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended. Holders of both the Preferred Stock and the Warrants are entitled to the benefits of certain registration rights. The foregoing is only a summary of certain terms of the Preferred Stock, the Warrants, and related agreements and is qualified by reference to Exhibits 3.3, 10.38, 10.41 and 99.11 hereto, which are incorporated herein by reference. 23 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended July 31, 2000 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description - ------ ----------- 3.3 Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series A Convertible Preferred Stock, filed with the Secretary of State of Delaware on September 6, 2000. 3.4 Amendment to Bylaws of the Company.(1) 4.5 First Supplemental Indenture, dated as August 5, 2000, among the Company, the Guarantors and The Bank of New York (successor to IBJ Schroder Bank & Trust Company), as trustee, supplementing the Indenture, dated as of July 28, 1997, among the Company, the subsidiaries of the Company named therein as guarantors and IBJ Schroder Bank & Trust Company, as trustee, relating to the Company's 10 7/8% Senior Notes due 2004. 4.6 Indenture, dated as of August 14, 2000, among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee. 4.7 Form of Series A 12 1/2% Senior Subordinated Note due 2010.(2) 4.8 First Supplemental Indenture, dated as of September 6, 2000, among the Company, the Guarantors, the Additional Guarantors and The Bank of New York, as trustee, supplementing the Indenture, dated as of August 14, 2000, among the Company, the Guarantors and the Trustee, relating to the Company's 12 1/2% Senior Subordinated Notes due 2010. 4.9 Registration Rights Agreement by and among the Company, the Guarantors and Donaldson, Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc., dated as of August 14, 2000. 10.38 Form of Stockholders' Agreement by and among Cirmatica Gaming, S.A., The Oak Fund, Peconic Fund Ltd., Ramius Securities, LLC, Olivetti International S.A. and the Company, dated September 6, 2000, relating to the Preferred Stock. 10.39 Credit Agreement among the Company, DLJ Capital Funding, Inc., Lehman Commercial Paper Inc., DLJ Capital Funding, Inc., as Administrative Agent, Syndication Agent, Lead Arranger and Sole Book Running Manager, Lehman Commercial Paper Inc., as Documentation Agent, and Lehman Brothers Inc., as Co-Arranger, dated as of September 6, 2000. 10.40 Security Agreement among the Company, the Subsidiary Guarantors and the Administrative Agent, dated as of September 6, 2000. 10.41 Form of Warrant Registration Rights Agreement among the Company, Donaldson, Lufkin & Jenrette Securities Corporation and LBI Group Inc. dated as of September 6, 2000. 10.42 Form of Employment and Severance Benefit Agreement, entered into between Scientific Games Holdings Corp. and certain employees effective September 6, 2000. 10.43 Form of Consulting Agreement by and between the Company and William G. Malloy, dated May 18, 2000 and effective September 6, 2000. 99.11 Form of Warrant issued to Donaldson, Lufkin & Jenrette Securities Corporation and LBI Group Inc. (1) The amendment to the Company's Bylaws is filed herewith. The Company's Bylaws are incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Registration No. 33-46594) which became effective March 20, 1992. (2) Filed herewith as Exhibit A to Exhibit 4.2. 27 Financial Data Schedule. Current reports on Form 8-K were filed on May 19, 2000 and May 26, 2000, regarding the proposed acquisition by the Company of Scientific Games Holdings Corp. and certain related matters. 24 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended July 31, 2000 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTOTOTE CORPORATION -------------------- (Registrant) By: /s/ DeWayne E. Laird -------------------- Name: DeWayne E. Laird Title: Vice President & Chief Financial Officer Dated: September 14, 2000 25 EX-3.3 2 0002.txt CERTIFICATE OF DESIGNATION CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF OF SERIES A CONVERTIBLE PREFERRED STOCK OF AUTOTOTE CORPORATION ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- Autotote Corporation, a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in its Certificate of Incorporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation by resolution duly adopted the following resolution which resolution remains in full force and effect on the date hereof: RESOLVED, that there is hereby established a series of authorized preferred stock having a par value of $1.00 per share, which series shall be designated as "Series A Convertible Preferred Stock" (the "Senior Preferred Stock"), shall consist of 1,600,000 shares and shall have the following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, as follows: 1 Certain Definitions. Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Adjusted Lowest Price" shall mean, if one or more adjustments to the Conversion Price have been made pursuant to Section 5(g), an amount equal to the Lowest Price adjusted in a manner identical to the manner in which the Conversion Price has been adjusted pursuant to Section 5(g) (so that, for example, if there is a stock split and the Conversion Price is divided in half, the Lowest Price shall be divided in half to determine the amount of the Adjusted Lowest Price). "Adjusted Low Trading Price" shall mean, if one or more adjustments to the Conversion Price have been made pursuant to Section 5(g), an amount equal to the Low Trading Price adjusted in a manner identical to the manner in which the Conversion Price has been adjusted pursuant to Section 5(g) (so that, for example, if there is a stock split and the Conversion Price is divided in half, the Low Trading Price shall be divided in half to determine the amount of the Adjusted Low Trading Price). "Adjusted Target Trading Price" shall mean, if one or more adjustments to the Conversion Price have been made pursuant to Section 5(g), an amount equal to the High Trading Price adjusted in a manner identical to the manner in which the Conversion Price has been adjusted pursuant to Section 5(g) (so that, for example, if there is a stock split and the Conversion Price is divided in half, the Target Trading Price shall be divided in half to determine the amount of the Adjusted Target Trading Price). "Affiliate" shall mean, with respect to any specified Person, 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. "Assets" means all of the Corporation's and its Subsidiaries' right, title and interest in and to all properties, assets and rights of any kind, whether tangible or intangible, real or personal, owned by the Corporation or any of its Subsidiaries or in which the Corporation or its Subsidiaries has any interest whatsoever. "Business Day" shall mean a day other than a Saturday or Sunday or a bank holiday in New York. "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting and/or nonvoting) of such Person's capital stock, whether outstanding on the Initial Issue Date or issued after the Initial Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock. "Common Equity" shall mean all shares now or hereafter authorized of any class of common stock of the Corporation, including the Common Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. 2 "Common Stock" shall mean the Class A Common Stock, par value $0.01 per share, of the Corporation. "Conversion Date" shall have the meaning set forth in Section 5(c). "Conversion Price" shall mean $6.00 and shall be subject to adjustment pursuant to Section 5(g) and the following provisions of this definition: If the Conversion Price has not been adjusted pursuant to Section 5(g) on or prior to the Conversion Date and the Current Market Price per share of the Common Stock on the Conversion Date is lower than the Target Trading Price, the Conversion Price shall equal the lesser of the Current Market Price per share on the Conversion Date and the Low Trading Price; provided, however, that in the event such Current Market Price per share on the Conversion Date is lower than the Lowest Price, the Conversion Price shall equal the Lowest Price; If the Conversion Price has been adjusted pursuant to Section 5(g) on or prior to the Conversion Date and the Current Market Price per share of the Common Stock on the Conversion Date is lower than the Adjusted Target Trading Price, the Conversion Price shall equal the lesser of the Current Market Price per share on the Conversion Date and the Adjusted Low Trading Price; provided, however, that in the event such Current Market Price per share on the Conversion Date is lower than the Adjusted Lowest Price, the Conversion Price shall equal the Adjusted Lowest Price. "Conversion Rate" shall mean, as of any date, the number of shares of Common Stock issuable upon conversion of one share of Senior Preferred Stock, determined by dividing (a) the sum of the Liquidation Preference of such share of Senior Preferred Stock plus accrued and unpaid dividends thereon by (b) the Conversion Price then in effect. "Current Market Price" shall mean, with respect to any particular security on any date of determination, the average over the 30 Trading Days ending on the date immediately preceding the date of such determination of the last reported sale price, or, if no such sale takes place on any such day, the closing bid price, in either case as reported for consolidated transactions on the principal national securities exchange (including the American Stock Exchange) or national quotation system on which such security is listed or admitted for trading. If the Common Stock is not listed or traded in a manner that the quotations referred to above are available for the period required hereunder, the Current Market Price per share of a share of Common Stock shall be deemed to be the fair value per share of the Common Stock as determined in good faith by the Board of Directors of the Corporation. "Director" shall mean a member of the Corporation's Board of Directors. "Dividend Payment Date" shall have the meaning set forth in Section 2(c). "Dividend Period" shall mean the period from, and including, the Initial Issue Date to, but not including, the first Dividend Payment Date and thereafter, each quarterly period from, and including, the Dividend Payment Date to, but not including, the next Dividend Payment Date. 3 "Dividend Rate" shall mean six percent (6%) of the Liquidation Preference per annum. "Holder" shall mean the record holder of one or more shares of Senior Preferred Stock, as shown on the books and records of the Corporation. "Initial Issue Date" shall mean the date that shares of Senior Preferred Stock are first issued by the Corporation. "Junior Stock" shall mean, for purposes of Sections 2 and 3 below, the Common Stock (or other Capital Stock of the Corporation) and any other series of preferred stock established by the Board of Directors of the Corporation that by its terms is junior to the Preferred Stock, either as to payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding up, or both. "Liquidation Preference" shall mean $100.00 per share of Senior Preferred Stock. "Lowest Price" shall mean $5.00. "Low Trading Price" shall mean $5.50. "Person" shall mean an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "PIK Dividends" shall have the meaning as set forth in Section 2(b). "Record Date" shall mean, with respect to any dividend, the date designated by the Board of Directors of the Corporation at the time such dividend is declared; provided, however, that such Record Date shall not be more than thirty (30) days nor less than ten (10) days prior to the respective Dividend Payment Date or such other date designated by the Board of Directors for the payment of dividends. "Redemption Price" shall mean a price equal to 105% of the Liquidation Preference plus accrued and unpaid dividends to the date of redemption. "Stockholders' Agreement" shall mean the Stockholders' Agreement, dated as of September 6, 2000, by and among the Corporation, Cermatica Gaming, S.A., Olivetti International S.A., The Oak Fund, Peconic Fund Ltd. and Ramius Securities, LLC. "Subsidiary" means, with respect to any Person, any other Person, whether or not incorporated, of which at least a majority of the securities or interests having, by their terms, ordinary voting power to elect members of the board of directors, or other persons performing similar functions with respect to such other Person, are held, directly or indirectly, by such first Person. "Target Trading Price" shall mean $9.65. 4 "Trading Day" with respect to the Common Stock, shall mean any day on which any market (including, without limitation, any formal or informal over the counter market) in which the Common Stock is then traded and in which a quoted price may be ascertained is open for business. 2 Dividends. (a) The Holders of Senior Preferred Stock shall be entitled to receive dividends, when and as declared by the Board of Directors of the Corporation, out of funds legally available for payment of dividends. Such dividends shall be payable by the Corporation in an amount per share determined by multiplying the Dividend Rate (as adjusted pursuant to Section 2(c) if applicable) times a fraction the numerator of which is the number of days in such Dividend Period and the denominator of which is three hundred sixty-five (365). (b) Dividends on the Senior Preferred Stock shall be paid in additional fully paid and nonassessable shares of Senior Preferred Stock legally available for such purpose (such dividends paid in kind being herein called "PIK Dividends"). The Corporation may, at the option of the Board of Directors of the Corporation, beginning on the ninth Dividend Payment Date, pay dividends on Senior Preferred Stock (including, without limitation, on Senior Preferred Stock issued as PIK Dividends) in cash, in substitute in whole or in part for additional shares of Senior Preferred Stock. In the event the Corporation elects to pay all or any portion of a dividend in cash pursuant to the second sentence of this Section 2(b), the Corporation shall provide written notice of such cash dividend election to all Holders of the Senior Preferred Stock no less than 45 days prior to the Dividend Payment Date with respect to such dividend. In no event shall the election by the Corporation to pay dividends, in whole or in part, in cash or in additional shares of Senior Preferred Stock preclude the Corporation from making a different election with respect to all or a portion of the dividends to be paid on the Senior Preferred Stock on any subsequent Dividend Payment Date. PIK Dividends shall be paid by delivering to the Holders of Senior Preferred Stock a number of shares of Senior Preferred Stock determined by dividing the total amount of the dividend (rounded to the nearest whole cent) such Holders are entitled to receive on the Dividend Payment Date, calculated pursuant to Section 2(a), by the Liquidation Preference. The issuance of any such PIK Dividend in such amount shall constitute full payment of such dividend. The Corporation shall not issue fractional shares of Senior Preferred Stock to which Holders may become entitled pursuant to this Section 2(b), but in lieu thereof, the Corporation shall deliver a check in an amount in cash equal to the applicable fraction of the Liquidation Preference. Any additional shares or Senior Preferred Stock issued pursuant to this Section 2(b) shall be governed by this resolution and shall be subject in all respects, except as to the date of issuance and date from which dividends accrue and cumulate as set forth below, to the same terms as the shares of Senior Preferred Stock originally issued hereunder. All dividends (whether payable in cash or in whole or in part in additional shares of Senior Preferred Stock) paid pursuant to this Section 2(b) shall be paid in equal pro rata proportions of such cash and/or shares of Senior Preferred Stock to the Holders entitled thereto, except with respect to cash payable in lieu of fractional shares which would otherwise be paid as PIK Dividends. (c) Dividends on shares of Senior Preferred Stock shall accrue and be cumulative from the date of issuance of such shares. Dividends shall be payable quarterly in arrears when and 5 as declared by the Board of Directors of the Corporation on March 31, June 30, September 30 and December 31 of each year (a "Dividend Payment Date"), commencing on September 30, 2000 and for shares paid as PIK Dividends, commencing on the first Dividend Payment Date after such shares are issued. If any Dividend Payment Date occurs on a day that is not a Business Day, any accrued dividends otherwise payable on such Dividend Payment Date shall be paid on the next succeeding Business Day. Dividends shall be paid to the Holders of record of the Senior Preferred Stock as their names shall appear on the share register of the Corporation on the Record Date for such dividend. Dividends payable in any Dividend Period which is less than a full Dividend Period in length will be computed on the basis of a ninety (90) day quarterly period and actual days elapsed in such Dividend Period. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time to Holders of record on the Record Date therefor. For any Dividend Period in which dividends are not paid in full on the Dividend Payment Date first succeeding the end of such Dividend Period, then on such Dividend Payment Date such accrued and unpaid dividends (including PIK Dividends) shall be added (solely for the purpose of calculating dividends payable on the Senior Preferred Stock) to the Liquidation Preference of the Senior Preferred Stock effective at the beginning of the Dividend Period succeeding the Dividend Period as to which such dividends were not paid and shall thereafter accrue additional dividends in respect thereof at the Dividend Rate until such accrued and unpaid dividends have been paid in full. (d) So long as any shares of Senior Preferred Stock shall be outstanding, the Corporation shall not declare, pay or set apart for payment on any Junior Stock any dividends whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Junior Stock, or rights to acquire such stock, together with cash in lieu of fractional shares), nor shall the Corporation make any distribution on any Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power (other than a purchase, redemption or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan of the Corporation, including, without limitation, the acquisition upon exercise of stock options, warrants or rights to acquire capital stock if the security acquired represents a portion of the exercise price thereof and acquisitions from employees under any such employee incentive or benefit plan), nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Junior Stock, unless all dividends to which the Holders of Senior Preferred Stock shall have been entitled for all previous Dividend Periods shall have been paid or declared and a sum of money or PIK Dividends sufficient for the payment thereto has been set apart. (e) In the event that full dividends are not paid or made available to the Holders of all outstanding shares of Senior Preferred Stock and funds available for payment of dividends shall be insufficient to permit payment in full to Holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of dividends shall be distributed ratably among all such Holders of Senior Preferred Stock in proportion to the full amount to which they would otherwise be respectively entitled. For purposes of this Section 6 2(e), the amount of legally available PIK Dividends shall be deemed funds available for payment of dividends. (f) Subject to Section 2(d), in the event that the Corporation declares or pays or sets apart for payment on any Common Stock any cash dividends, the Corporation shall also declare and pay to the Holders of the Senior Preferred Stock at the same time that it declares and pays or sets apart for payment to the holders of Common Stock, the cash dividends which would have been declared and paid or set apart for payment with respect to the shares of Common Stock issuable upon conversion of the Senior Preferred Stock had all of the outstanding shares of Senior Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as to which the record holders of the Junior Stock entitled to such dividends are to be determined. (g) The Corporation and each Holder acknowledge and agree that it is intended that the Senior Preferred Stock not constitute "preferred stock" within the meaning of Section 305 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder, and neither the Corporation nor the Holders shall treat the Senior Preferred Stock as such. Accordingly, payment of any and all PIK Dividends to be made hereunder or under any other transaction document by the Corporation to or for the benefit of any Holder is intended to be made free and clear of, and without deduction for, U.S. federal income and withholding taxes ("U.S. Taxes"). If the Corporation shall be required by law to deduct any such U.S. Taxes from or in respect of any PIK Dividends to be paid hereunder by the Corporation to or for the benefit of any Holder, then (a) the Holder shall pay to the Corporation the amount of such U.S. Taxes not to exceed ten percent (10%) of the fair market value of such PIK Dividend on the date such PIK Dividend is distributed in accordance with this Certificate of Designations (the "Fair Market Value"), and (b) upon payment by the applicable Holder the Corporation shall pay to or for the benefit of the applicable Holder, in addition to such PIK Dividend, an additional amount (the "Tax Gross-Up Amount"), in cash, as necessary so that after making all required deductions on account of U.S. Taxes (including deductions applicable to additional sums required to be paid or deposited under this Section 2(g)) the amount received by such Holder (disregarding the payment made by such Holder to the Corporation pursuant to this sentence) shall be equal to the sum that would have been so received had no such deductions been made. If a Holder is required to pay any U.S. Taxes (other than U.S. Taxes determined on a net income basis) with respect to any PIK Dividends (as a result of the Corporation's failure to withhold such U.S. Taxes or otherwise) in excess of ten percent (10%) of the Fair Market Value of such PIK Dividends, the Corporation shall indemnify and hold harmless such Holder from any such U.S. Taxes in an amount equal to the Tax Gross-Up Amount, and if the Corporation is required to pay any such U.S. Taxes with respect to any PIK Dividends, the Holder shall indemnify and hold harmless the Corporation from any such U.S. Taxes in an amount up to ten percent (10%) of the Fair Market Value of such PIK Dividends. (h) The amount to be paid by the Corporation under Section 2(g) shall be reduced by the amount of any credit, against any other tax due in any other jurisdiction, available to the Holder or its affiliates by reason of the payment of U.S. Taxes pursuant to Section 2(g). In no event shall the Corporation be liable for any U.S. Taxes required to be deducted from or in 7 respect of any PIK Dividends by reason of any change in applicable law after the Initial Issue Date (which shall be the responsibility of the Holder), or be obligated to make any payment under Section 2(g) if, at the time of such payment, such payment (a "Blocked Payment") would violate, or result in a default or event of default under, the Indenture relating to the Corporation's 12 1/2% Senior Subordinated Notes due 2010 or the Corporation's Senior Credit Agreement dated as of September 6, 2000 (in each case including any amendments, modifications, extensions, refinancings or replacements thereof) (collectively, the "Financing Documents"). Notwithstanding the foregoing, in the event the Corporation does not make a payment as required by Section 2(g) because such payment would be deemed a Blocked Payment, (A) the Holder shall have no obligation to make the payment as described in clause (a) of Section 2(g), but shall pay the amount otherwise required to be deducted directly to the U.S. taxing authority, and (B) the Corporation shall be obligated to pay to the applicable Holders an amount equal to any such Blocked Payments plus interest at an annual rate of 6% starting from the date any such Blocked Payment otherwise would have been made promptly following the date in which any such previously Blocked Payments would no longer violate, or result in a default or event of default under, the Financing Documents. Each Holder shall, if requested in writing by the Corporation, promptly provide the Corporation with a properly completed Form W-8 BEN or Form W-8 IMY (or successor forms), as applicable, including, if applicable, the eligibility of such Holder for a reduced rate of withholding pursuant to an applicable treaty. 3 Distributions Upon Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation, before any payment or distribution shall be made to the holders of Junior Stock, the Holders of Senior Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash or property at its fair market value as determined by the Board of Directors of the Corporation the Liquidation Preference per share plus an amount equal to all dividends accrued and unpaid thereon to the date of such liquidation or dissolution or such other winding up. Except as provided in this Section 3(a), Holders of Senior Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Corporation. (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Liquidation Preference per share plus an amount equal to all dividends accrued and unpaid on the Senior Preferred Stock, then the assets of the Corporation shall be ratably distributed among the Holders of Senior Preferred Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all amounts thereon were paid in full. Neither the consolidation or merger of the Corporation into or with another corporation or corporations, nor the sale, lease, transfer or conveyance of all or substantially all of the assets of the Corporation to another corporation or any other entity shall be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 3. 4 Redemption by the Corporation. 8 (a) The Corporation may, in the manner hereinafter provided, redeem from and after the date that is three years after the Initial Issue Date all, but not less than all, of the outstanding shares of Senior Preferred Stock on payment of the Redemption Price for each share of Senior Preferred Stock to be redeemed so long as (i) a registration statement with respect to the Common Stock underlying the Senior Preferred Stock has been filed with the Securities and Exchange Commission, and such registration statement has been declared effective by the Securities and Exchange Commission and has been effective for at least 180 days, and (ii) the Current Market Price per share of Common Stock is higher than $10.00 on the date the written notice of redemption referred to in Section 4(b) is sent during the 180-day period set forth in clause (i). (b) Before redeeming any shares of Senior Preferred Stock, the Corporation shall mail by overnight courier and fax to each person who, at the date of such mailing and fax, shall be a registered Holder of shares of Senior Preferred Stock to be redeemed, notice of the intention of the Corporation to redeem such shares held by such registered Holder. Such notice shall be mailed and faxed to the last address of such Holder as it appears on the records of the Corporation, or in the event of the address of any such Holder not appearing on the records of the Corporation, then to the last address of such Holder known to the Corporation, at least forty-five (45) days before the date specified for redemption. Such notice shall set out the Redemption Price and the date on which the redemption is to take place. On or after the date so specified for redemption, the Corporation shall pay or cause to be paid the Redemption Price to the registered Holders of the shares of Senior Preferred Stock on presentation and surrender of the certificates for the shares of Senior Preferred Stock so called for redemption at the registered office of the Corporation or at such other place or places as may be specified in such notice, and the certificates for such shares of Senior Preferred Stock shall thereupon be cancelled, and the shares of Senior Preferred Stock represented thereby shall thereupon be redeemed. From and after the date specified for redemption in such notice, the Holders of the shares of Senior Preferred Stock called for redemption shall cease to be entitled to dividends in respect of such shares and shall not be entitled to exercise any of the rights of the Holders thereof, except the right to receive the Redemption Price, unless payment of the Redemption Price shall not be made by the Corporation in accordance with the foregoing provisions, in which case the rights of the Holders of such shares shall remain unaffected. (c) No Senior Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. (d) All shares of Senior Preferred Stock redeemed pursuant to this Section 4 shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock. 5 Conversion. (a) Each Holder shall have the right, at such Holder's option, to convert all or any portion of its shares of Senior Preferred Stock into shares of Common Stock at any time, at the Conversion Rate calculated as of the close of business on the Conversion Date. 9 (b) On the date five (5) years after the Initial Issue Date each share of Senior Preferred Stock will automatically convert into shares of Common Stock at the Conversion Rate calculated as of the close of business on the date five (5) years after the Initial Issue Date. On such date, each Holder's shares of Senior Preferred Stock shall represent the number of shares of Common Stock into which the Senior Preferred Stock was converted. On and after such date, each Holder will be entitled to deliver its Senior Preferred Stock certificates to the Corporation in exchange for Common Stock certificates in accordance with the terms of Section 5(c) as if such date of mandatory conversion was a Conversion Date. (c) The right of conversion attaching to any share of Senior Preferred Stock may be exercised by the Holder thereof by delivering the certificate representing such share of Senior Preferred Stock to be converted to the Corporation, at its principal office or at the office or agency maintained by the Corporation for that purpose, accompanied by a duly signed and completed notice of conversion in form reasonably satisfactory to the Corporation. The "Conversion Date" will be the date on which the duly signed and completed notice of conversion are so delivered. As promptly as practicable on or after the Conversion Date (provided the certificate representing the share of Senior Preferred Stock is delivered to the Corporation), but in no event later than three days from the Conversion Date, the Corporation shall issue and deliver to the Holder (i) at the Holder's request, either a certificate or certificates or electronic shares through "DWAC" for the number of full shares of Common Stock issuable upon conversion, together with payment in cash, determined as provided below, in lieu of any fraction of a share and (ii) if less than the full number of shares of Senior Preferred Stock evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such certificate or certificates shall be delivered by the Corporation to the appropriate Holder by mailing certificates evidencing the additional shares to the Holders at their respective addresses set forth in the register of Holders maintained by the Corporation. All shares of Common Stock issuable upon conversion of the Senior Preferred Stock shall be fully paid and nonassessable and shall rank pari passu with the other shares of Common Stock outstanding from time to time. (d) The Corporation shall not issue a fractional share of Common Stock upon conversion of Senior Preferred Stock. Instead the Corporation shall deliver a check for an amount equal to the applicable fraction of a share multiplied by the Current Market Price calculated as of the close of business on the Conversion Date, rounded to the nearest cent. (e) A Holder delivering Senior Preferred Stock for conversion will not be required to pay any taxes or duties in respect of the issue or delivery of Common Stock on conversion but will be required to pay any tax or duty that may be payable in respect of any transfer involved in the issue or delivery of the shares of Common Stock in a name other than that of the Holder of the Senior Preferred Stock. Certificates representing shares of Common Stock will not be issued or delivered unless all taxes and duties, if any, payable by the Holder have been paid. (f) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of all outstanding shares of Senior Preferred Stock in full as of the 10 next succeeding Dividend Payment Date assuming that such conversion took place at the Conversion Price then in effect (provided that such reservation may be proportionally reduced as shares of Senior Preferred Stock are repurchased, converted, exchanged or retired) and such shares shall be fully paid and nonassessable and free of preemptive or similar rights. The Corporation shall take all commercially reasonable steps to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Senior Preferred Stock, provided, however, that the Corporation shall not be required to file a registration statement with respect to such securities, except as provided in the Stockholders' Agreement. (g) The Conversion Price shall be subject to adjustment as follows: (i) In case the Corporation shall (A) pay a dividend (or make a distribution) on any class of its Capital Stock in shares of its Common Stock, (B) issue shares of Common Stock to DLJ Capital Funding, Inc. and those financial institutions that will be lenders of the Corporation as contemplated by Commitment Letter dated as of May 18, 2000 by and among DLJ Capital Funding, Inc., DLJ Bridge Finance, Inc. and the Corporation either upon the exercise of rights or warrants granted to such parties or otherwise, (C) subdivide its outstanding shares of Common Stock into a greater number of shares or (D) combine its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted (as provided below) so that Holders of shares of Senior Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which such Holder would have owned or have been entitled to receive immediately following such action had such shares of Senior Preferred Stock been converted immediately prior to such time. The Conversion Price as adjusted shall be determined by multiplying the Conversion Price at which the shares of Senior Preferred Stock were theretofore convertible by a fraction of which the denominator shall be the number of shares of Common Stock outstanding immediately following such action and of which the numerator shall be the number of shares of Common Stock outstanding immediately prior thereto. Such adjustment shall be made whenever any event listed above shall occur and shall become effective retroactively immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision or combination. (ii) In case the Corporation shall pay a dividend to all holders of its Common Stock (including any dividend paid in connection with a consolidation or merger in which the Corporation is the continuing corporation) of any shares of Capital Stock of the Corporation or its Subsidiaries (other than Common Stock) or evidences of its indebtedness or assets or property (other than cash and excluding dividends or distributions in connection with the liquidation, dissolution or winding up of the Corporation) or rights or warrants to subscribe for or purchase any of its Capital Stock or those of its Subsidiaries or Capital Stock convertible or exchangeable for Common Stock, then in each such case adequate provision shall be made so that each Holder shall have the right to receive the amount and kind of 11 assets, evidences of indebtedness, property or securities such holder would have received had such Holder converted each such share of Senior Preferred Stock immediately prior to the record date for such dividend. Such adjustment shall be made whenever any such payment is made, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive the payment. (iii) No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments that by reason of this Section 5(g)(iii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5(g) shall be made to the nearest cent. (iv) Whenever the Conversion Price is adjusted, as herein provided, the Corporation shall promptly send to each Holder of record by first class mail, postage pre-paid, a certificate of an officer of the Corporation setting forth the Conversion Price after the adjustment and setting forth a brief statement of the facts requiring such adjustment and a computation thereof. The certificate shall be conclusive evidence of the correctness of the adjustment. The Corporation shall promptly cause a notice of the adjusted Conversion Price to be mailed to each registered Holder. (v) In case of any reclassification of the Common Stock, any consolidation of the Corporation with, or merger of the Corporation into, any other entity, any merger of another entity into the Corporation (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), any sale or transfer of all or substantially all of the assets of the Corporation or any compulsory share exchange pursuant to which share exchange the Common Stock is converted into other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby each Holder shall have the right thereafter, during the period such shares of Senior Preferred Stock shall be convertible, to convert its shares of Senior Preferred Stock only into the kind and amount of securities, cash and other property receivable upon the reclassification, consolidation, merger, sale, transfer or share exchange of the number of shares of Common Stock of the Corporation into which such Holder's shares of Senior Preferred Stock would have been convertible immediately prior to the reclassification, consolidation, merger, sale, transfer or share exchange. The Corporation, the Person formed by the consolidation or resulting from the merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such rights and such rights shall be clearly provided for in the definitive transaction documents relating to such transaction. The certificate or articles of incorporation or other constituent document shall 12 provide for adjustments, which, for events subsequent to the effective date of the certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5. The provisions of this Section 5(g)(v) shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. (h) All shares of Senior Preferred Stock converted pursuant to this Section 5 shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock other than Senior Preferred Stock. 6 Voting Rights. (a) The Holders shall not be entitled to any voting rights except as hereinafter provided in this Section 6 or as otherwise provided by law. (b) The Holders shall be entitled to vote along with the holders of Common Stock on all matters on which holders of Common Stock are entitled to vote. The Holders shall participate in such votes as if the shares of Senior Preferred Stock were converted into shares of Common Stock in accordance with Section 5 hereof as of the record date for the determination of holders of Common Stock entitled to vote. (c) In addition to any vote or consent of shareholders required by law, the affirmative consent of the Holders that own more than fifty percent (50%) of the then outstanding shares of Senior Preferred Stock (voting as a single class), given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for authorizing, effecting or validating: (i) any amendment, alteration or repeal of any of the provisions of the Certificate of Designations of the Corporation; (ii) any amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation of the Corporation that would adversely affect the preferences, rights or powers of the Senior Preferred Stock; (iii) any authorization, issuance or creation of (by reclassification or otherwise) any class or series (or any security of any class or series) of Capital Stock of the Corporation; (iv) any increase in the size of the Board of Directors of the Corporation (except as required pursuant to the terms of this Certificate of Designations or the Stockholders' Agreement); (v) any change in the state of incorporation of the Corporation; (vi) any delisting of the Common Stock from the American Stock Exchange or listing of Common Stock on a different exchange or national quotation system; and 13 (vii) any decision, or the entering into of any agreement, commitment or arrangement, to effect any of the foregoing. (d) Except as provided in Section 6(e), the Board of Directors of the Corporation shall consist of ten (10) Directors, and the Holders of shares of Senior Preferred Stock, voting separately as a class, shall be entitled to elect: (i) four (4) of such Directors for so long as the Holders own in the aggregate shares of Senior Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds twenty five percent (25%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Corporation convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Senior Preferred Stock) may be converted, exercised or exchanged; (ii) three (3) of such Directors for so long as the Holders of own in the aggregate shares of Senior Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds twenty percent (20%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Corporation convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Senior Preferred Stock) may be converted, exercised or exchanged; (iii) two (2) of such Directors for so long as the Holders own in the aggregate shares of Senior Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds ten percent (10%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Corporation convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Senior Preferred Stock) may be converted, exercised or exchanged; or (iv) one (1) of such Directors for so long as the Holders own in the aggregate shares of Senior Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds five percent (5%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Corporation convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Senior Preferred Stock) may be converted, exercised or exchanged. (e) If the Corporation shall have failed to pay any dividends on any Dividend Payment Date as provided in Section 2(a), (b) and (c) (and without regard to (i) Section 2(e) or (ii) whether the payment of such dividend is legally or otherwise permissible) or if the Corporation shall have failed to comply with any provision of Section 6(d) hereof, then for as long as such failure continues, the number of Directors of the Corporation shall be increased to a number that is equal to three (3) more than the then current number of Directors and the Holders, voting separately as a class, shall have a right to designate and have appointed immediately by the Board 14 of Directors of the Corporation by resolution, or elect (if specified by the Holders) at the next annual meeting of the stockholders or at any special meeting, three additional Directors to the Corporation's Board of Directors, regardless of the number of shares of Preferred Stock then owned by the Holders. (f) Whenever such voting right pursuant to Section 6(e) shall have vested, such right may be exercised by written consent of the Holders of a majority of the outstanding shares of Senior Preferred Stock or at a special meeting of the Holders, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing Directors. Such right of the Holders to elect Directors may be exercised until the Corporation has paid all theretofore accrued and unpaid dividends as provided in Section 2(a), (b) and (c) and/or, as applicable, cured any failure, at which time the right of the Holders to elect such number of Directors shall cease, the term of such Directors previously elected pursuant to Section 6(e) shall thereupon terminate, and the authorized number of Directors shall thereupon return to the number of authorized Directors otherwise in effect, but subject always to the same provisions for the renewal and divestment of such special voting rights as provided in Section 6(e). (g) At any time when such voting right shall have vested in the Holders pursuant to Section 6(e) and if such right shall not already have been initially exercised by written consent or otherwise, a proper officer of the Corporation shall, upon the written request of any Holder then outstanding, addressed to the Secretary of the Corporation, call a special meeting of Holders. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or if none at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within thirty (30) days after the personal service of such written request upon the Secretary of the Corporation, or within thirty (30) days after mailing the same, within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the Holders of record of ten percent (10%) of the shares of Senior Preferred Stock then outstanding may designate in writing a Holder to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meeting of stockholders and shall be held at the place for holding annual meetings of the Corporation or, if none, at a place designated by such Holder. Any Holder of Senior Preferred Stock that would be entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this Section 6(g). Notwithstanding the provisions of this Section 6(g), however, no such special meeting shall be called if any such request is received less than 90 days before the date fixed for the next ensuing annual or special meeting of stockholders. (h) If a Director so elected by the Holders of Senior Preferred Stock shall cease to serve as a Director for any reason before his or her term expires, the Holders may, by written consent or at a special meeting of the Holders called as provided above, elect a successor to hold office for the unexpired term of the Director whose place shall be vacant; provided that any such 15 prospective successor Director who is to replace Peter Cohen shall be reasonably satisfactory to the Board of Directors as a whole. (i) For so long as any Director has been elected by the Holders, at least one of the Directors so elected by the Holders shall serve on all committees of the Board of Directors of the Corporation. 7 Ranking. With regard to rights to receive dividends, redemption payments and distributions upon liquidation, dissolution or winding up of the Corporation, the Senior Preferred Stock shall rank senior to the Common Stock and any other equity securities or other securities convertible into or exercisable or exchangeable for Common Stock or other equity securities that are issued by the Corporation after the date of this Certificate of Designation. The Senior Preferred Stock shall not be subject to the creation of any Capital Stock senior with respect to the right to receive dividends, redemption payments and distributions upon liquidation, dissolution or winding up of the Corporation. 8 Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Senior Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this resolution and in the Certificate of Incorporation. 9 Headings of Subdivisions. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 10 Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Senior Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Senior Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Senior Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Senior Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Senior Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. 16 11 Record Holders. The Corporation and the transfer agent for the Senior Preferred Stock may deem and treat the Holder of any shares of Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the transfer agent shall be affected by any notice to the contrary. 12 Notice. Except as may otherwise be provided for herein, all notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt of such notice or three Business Days after the mailing of such notice if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate) with postage prepaid, addressed: if to the Corporation, to its offices at 750 Lexington Avenue, 25th Floor, New York, NY 10022, Attention: Secretary and General Counsel or to an agent of the Corporation designated as permitted by this Certificate, or, if to any Holder of the Senior Preferred Stock, to such Holder at the address of such Holder of the Senior Preferred Stock as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Senior Preferred Stock); or to such other address as the Corporation or Holder, as the case may be, shall have designated by notice similarly given. 17 IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly executed by DeWayne Laird, its Vice President, and attested by Martin Schloss, its Secretary, this 6th day of September, 2000. AUTOTOTE CORPORATION By: /s/ DeWayne Laird ---------------------------- Name: DeWayne Laird Title: Vice President ATTEST: By: /s/ Martin Schloss --------------------------- Name: Martin Schloss Title: Secretary 18 EX-3.4 3 0003.txt AMENDMENT TO BY-LAWS AMENDMENT TO BY-LAWS OF AUTOTOTE CORPORATION By resolution of the Board of Directors of Autotote Corporation (the "Company"), the Company's By-laws are hereby amended as follows: To insert after the phrase "the number of directors" and before the phrase "shall be established" in the first sentence of Section 3.02 of such By-laws, the additional phrase ", except to the extent, if any, otherwise provided in the Certificate of Incorporation,". EX-4.5 4 0004.txt INDENTURE AUTOTOTE CORPORATION $110,000,000 10 7/8% Series B Senior Notes due 2004 FIRST SUPPLEMENTAL INDENTURE Dated as of August 5, 2000 to INDENTURE Dated as of July 28, 1997 ---------------------- The Bank of New York, Trustee FIRST SUPPLEMENTAL INDENTURE, dated as of August 5, 2000, among Autotote Corporation, a Delaware corporation (the "Company"), Autotote Enterprises Inc., Marvin H. Sugarman Productions, Inc., Autotote Keno Corp., Autotote Systems Inc., Autotote International Inc., Autotote Management Corp. and Autotote Lottery Corp. (collectively, the "Guarantors") and The Bank of New York, a New York banking corporation, as Trustee (the "Trustee"). WHEREAS, the Company, the Guarantors and IBJ Schroder Bank & Trust Company, as trustee, executed an Indenture, dated as of July 28, 1997 (the "Indenture"), in respect of $110,000,000 aggregate principal amount of 10 7/8% Senior Notes due 2004; WHEREAS, the Trustee is the successor to IBJ Schroder Bank & Trust Company, as trustee, under the Indenture; WHEREAS, for all purposes of this First Supplemental Indenture, except as otherwise defined or unless the context otherwise requires, terms used in capitalized form in this First Supplemental Indenture and defined in the Indenture have the meanings specified in the Indenture; WHEREAS, for all purposes of this First Supplemental Indenture, the terms "Statement," "Tender Offer" and "Requisite Consents" shall have the meanings ascribed to such terms in the amendments to the Indenture provided for in Section 1.1 of this First Supplemental Indenture. WHEREAS, Section 9.02 of the Indenture permits the Company and the Trustee, with the written consent of the Holders of at least 75% of the outstanding aggregate principal amount of Securities, to amend or supplement the Indenture or the Securities as hereinafter provided; WHEREAS, all conditions and requirements necessary to make this First Supplemental Indenture a valid, binding and legal instrument in accordance with its terms have been performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized. NOW, THEREFORE, in consideration of the above premises, each party agrees, for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Securities, as follows: ARTICLE I AMENDMENTS Section 1.1 Interim Amendments. The Indenture is hereby amended as follows: (a) The following definitions are hereby added to Section 1.01 of the Indenture: "New Indebtedness" means Indebtedness of the Company and/or its Restricted Subsidiaries in an aggregate principal amount not to exceed, without duplication, $200,000,000 (or the economic equivalent of $200,000,000 if such Indebtedness is in a currency other than United States Dollars) at any one time outstanding (and any guarantees of (or other credit support in respect of) such Indebtedness by the Company or any of its Subsidiaries), provided that (i) an amount not less than the net proceeds to the Company and its Restricted Subsidiaries of such Indebtedness is, upon the incurrence of such Indebtedness, placed into an escrow account (the "Escrow Account") pursuant to an escrow agreement (the "Escrow Agreement") with an escrow agent (the "Escrow Agent") that is a commercial bank or trust company which shall have (or, in the case of a commercial bank or trust company included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition and shall be subject to supervision or examination by federal or state authorities, (ii) the Escrow Agreement provides, inter alia, that the amounts held in escrow (A) may be invested in cash and Cash Equivalents, (B) must, in the event that the Tender Offer is terminated or withdrawn prior to acceptance for payment of Securities, the tender of which represents the Requisite Consents, be used (within no later than 45 days after such termination or withdrawal), together with any other necessary funds to be supplied by the Company and/or its Subsidiaries, to redeem or repay such Indebtedness at a redemption or repayment price not in excess of 101% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption or repayment and (C) so long as any of such Indebtedness is outstanding, may not be used for any purpose other than the redemption or repayment of such Indebtedness (as contemplated by the preceding clause (B)) unless and until an Officers' Certificate has been delivered to the Escrow Agent stating that Securities, the tender of which represents the Requisite Consents, have been accepted for payment pursuant to the Tender Offer. "Requisite Consents" shall have the meaning ascribed to such term in the Statement. "Statement" means the Company's Offer to Purchase and Consent Solicitation Statement dated July 24, 2000 (as it may be supplemented and amended from time to time). "Tender Offer" means the Company's offer to purchase for cash, upon the terms and subject to the conditions set forth in the Statement and in the accompanying Consent and Letter of Transmittal (as it may be supplemented and amended form time to time), all of the outstanding Securities. (b) Article Four of the Indenture is hereby amended by adding thereto a new Section 4.20 reading in its entirety as follows: SECTION 4.20 New Indebtedness. Anything in this Indenture to the contrary notwithstanding, (i) the Company and/or its Subsidiaries may incur the New Indebtedness at any time prior to the termination or withdrawal of the Tender Offer, (ii) neither the New Indebtedness nor any guarantee thereof need be subordinate to the Securities or any Guarantee even if the New Indebtedness and/or any guarantee thereof is subordinated to any other Indebtedness of the Company or any Guarantor, and (iii) any Liens on the Escrow Account or the -2- securities or funds therein securing the New Indebtedness shall be deemed to be Permitted Liens. The Company covenants and agrees that, in the event that the Tender Offer is terminated or withdrawn prior to acceptance for payment of Securities, the tender of which represents the Requisite Consents, the New Indebtedness will be redeemed or repaid no later than 45 days after such termination or withdrawal at a redemption or repayment price not in excess of 101% of the principal amount thereof plus accrued and unpaid interest thereon to the date of redemption or repayment. Section 1.2 Other Amendments. The Indenture is hereby further amended as follows: (a) Sections 4.03 through 4.19 of the Indenture and Section 10.17 of the Indenture are hereby deleted. (b) Section 5.01 of the Indenture is hereby amended to read in its entirety as follows: SECTION 5.01. Merger, Consolidation and Sale of Assets. (a) The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's assets whether as an entirety or substantially as an entirety to any Person unless: (i) the Person (if other than the Company or a Restricted Subsidiary of the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Company's assets (the "Surviving Entity") shall expressly assume, by supplemental indenture (in form satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Securities and the performance of every covenant of the Securities, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; and (ii) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to the execution of such supplemental indenture have been satisfied. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Securities with the same effect as if such surviving entity had been named as such and the Company shall be relieved of all of its Obligations and duties under this Indenture and the Securities. -3- Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture) will not, and the Company will not cause or permit any Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture) to, consolidate with or merge into any Person other than the Company or any other Guarantor unless: the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made assumes by supplemental indenture all of the Obligations of the Guarantor on the Guarantee. Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need not comply with this Section 5.01. (c) Section 6.01 of the Indenture is hereby amended to read in its entirety as follows: SECTION 6.01. Events of Default. An "Event of Default" means any of the following events: (a) the failure to pay interest on any Securities when the same becomes due and payable and the default continues for a period of 30 days; (b) the failure to pay the principal on any Securities, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Securities tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (c) [Intentionally deleted] (d) [Intentionally deleted] (e) [Intentionally deleted] (f) the Company (i) admits in writing its inability to pay its debts generally as they become due, (ii) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (iii) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (iv) consents to the appointment of a Custodian of it or for substantially all of its property, (v) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (vi) makes a general assignment for the benefit of its creditors or (vii) takes any partnership or corporate action, as the case may be, to authorize or effect any of the foregoing; or (g) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company in an involuntary case or proceeding under any Bankruptcy Law, which shall (i) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the -4- Company, (ii) appoint a Custodian of the Company or for substantially all of its property or (iii) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (h) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or any of the Guarantees is found to be invalid by a final judgment or order that is not appealable or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of this Indenture); and (i) the termination of any Guarantee for any reason not permitted by this Indenture or the denial of any Person acting on behalf of any Guarantor of its Obligations under any such Guarantee. (d) Section 10.04 of the Indenture is hereby amended to read in its entirety as follows: SECTION 10.04. Release of a Guarantor. (a) Upon the sale or disposition of all of the Capital Stock of a Guarantor by the Company or a Subsidiary of the Company, as the case may be, or upon the consolidation or merger of a Guarantor with or into any Person (in each case, other than to the Company or an Affiliate of the Company), or if any Guarantor is dissolved or liquidated in accordance with this Indenture, such Guarantor's Guarantee shall be released, and such Guarantor and each Subsidiary of such Guarantor that is also a Guarantor shall be deemed released from all Obligations under this Article Ten without any further action required on the part of the Trustee or any Holder. Any Guarantor not so released or the entity surviving such Guarantor, as applicable, shall remain or be liable under its Guarantee as provided in this Article Ten. Concurrently with the defeasance of the Securities under Article Eight hereof, the Guarantors shall be released from all of their obligations under their Guarantees and this Article Ten. (b) The Trustee shall deliver an appropriate instrument evidencing the release of a Guarantor upon receipt of a request by the Company or such Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel certifying as to the compliance with this Section 10.04; provided the legal counsel delivering such Opinion of Counsel may rely as to matters of fact on one or more Officers' Certificates of the Company. The Trustee shall execute any documents reasonably requested by the Company or a Guarantor in order to evidence the release of such Guarantor from its Obligations under its Guarantee endorsed on the Securities and under this Article Ten. Except as set forth in Articles Four and Five and this Section 10.04, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or -5- merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. (e) The amendments to the Indenture effected by Section 1.1 of this First Supplemental Indenture are hereby deleted. (f) All references in the Indenture to the Sections of the Indenture deleted pursuant to Section 1.2(a) of this First Supplemental Indenture are hereby deleted. (g) The definitions of the following terms are hereby deleted from Section 1.01 of the Indenture: Acquired Indebtedness Affiliate Transaction Asset Acquisition Attributable Debt Consolidated EBITDA Consolidated Fixed Charge Coverage Ratio Consolidated Fixed Charges Consolidated Interest Expense Consolidated Net Worth Consolidated Non-cash Charges MISCELLANEOUS PROVISIONS Section 2.1. Indenture. Except as amended hereby, the Indenture and the Securities are in all respects ratified and confirmed and all their terms shall remain in full force and effect. Section 2.2. Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. Section 2.3. Successors. All agreements of the Company or a Guarantor in this First Supplemental Indenture shall bind its successors. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors. Section 2.4. Multiple Counterparts. This First Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 2.5. Effectiveness and Operativeness. The provisions of this First Supplemental Indenture shall become effective, and the amendments provided for in Section 1.1 of this First Supplemental Indenture shall be operative, immediately upon the execution and delivery by the Trustee of this First Supplemental Indenture. However, the amendments -6- provided for in Section 1.2 of this First Supplemental Indenture shall only become operative when Securities, the tender of which pursuant to the Tender Offer represents the Requisite Consents, are accepted for payment on the Acceptance Date (as such term is defined in the Statement). Section 2.6. Trustee's Disclaimer. Except for the second recital contained herein, the recitals contained herein shall be taken as the statements of the Company and the Guarantors and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) -7- SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, all as of the date first written above. The Company: AUTOTOTE CORPORATION By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President The Guarantors: AUTOTOTE ENTERPRISES INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President MARVIN H. SUGARMAN PRODUCTIONS, INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE KENO CORP. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President -8- AUTOTOTE SYSTEMS INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE INTERNATIONAL INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE MANAGEMENT CORP. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE LOTTERY CORP. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President The Trustee: THE BANK OF NEW YORK By: /s/ Julie Salovitch-Miller ------------------------------------- Name: Julie Salovitch-Miller Title: Vice President -9- EX-4.6 5 0005.txt INDENTURE ================================================================================ AUTOTOTE CORPORATION as Issuer each of the entities named herein as Guarantors and THE BANK OF NEW YORK as Trustee INDENTURE Dated as of August 14, 2000 $150,000,000 12 1/2% Senior Subordinated Notes due 2010, Series A and 12 1/2% Senior Subordinated Notes due 2010, Series B ================================================================================ CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- --------- 310 (a)(1).......................................... 7.10 (a)(2).......................................... 7.10 (a)(3).......................................... N.A. (a)(4).......................................... N.A. (a)(5).......................................... 7.08; 7.10 (b)............................................. 7.08; 7.10; 14.02 (c)............................................. N.A. 311 (a)............................................. 7.11 (b)............................................. 7.11 (c)............................................. N.A. 312 (a)............................................. 2.05 (b)............................................. 14.03 (c)............................................. 14.03 313 (a)............................................. 7.06 (b)(1).......................................... N.A. (b)(2).......................................... 7.06 (c)............................................. 7.06; 14.02 (d)............................................. 7.06 314 (a)............................................. 4.08; 4.10; 14.02 (b)............................................. N.A. (c)(1).......................................... 7.02; 14.04 (c)(2).......................................... 7.02; 14.04 (c)(3).......................................... N.A. (d)............................................. N.A. (e)............................................. 14.05 (f)............................................. N.A. 315 (a)............................................. 7.01(b) (b)............................................. 7.05; 14.02 (c)............................................. 7.01(a) (d)............................................. 7.01(c) (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)............................................. 9.04 317 (a)(1).......................................... 6.08 (a)(2).......................................... 6.09 (b)............................................. 2.04 318 (a)............................................. 14.01 (c)............................................. 14.01 - ---------------------- N.A. means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture TABLE OF CONTENTS Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions................................................ 1 SECTION 1.02. Incorporation by Reference of TIA.......................... 27 SECTION 1.03. Rules of Construction...................................... 28 ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating............................................ 28 SECTION 2.02. Execution and Authentication............................... 29 SECTION 2.03. Registrar and Paying Agent................................. 30 SECTION 2.04. Paying Agent To Hold Assets in Trust....................... 31 SECTION 2.05. Securityholder Lists....................................... 31 SECTION 2.06. Transfer and Exchange...................................... 31 SECTION 2.07. Replacement Securities..................................... 36 SECTION 2.08. Outstanding Securities..................................... 36 SECTION 2.09. Treasury Securities........................................ 37 SECTION 2.10. Temporary Securities....................................... 37 SECTION 2.11. Cancellation............................................... 37 SECTION 2.12. Defaulted Interest......................................... 37 SECTION 2.13. CUSIP Number............................................... 38 SECTION 2.14. Deposit of Moneys.......................................... 38 SECTION 2.15. Liquidated Damages Under Registration Agreement............ 38 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee......................................... 39 SECTION 3.02. Selection of Securities To Be Redeemed..................... 39 SECTION 3.03. Notice of Optional Redemption.............................. 39 SECTION 3.04. Effect of Notice of Redemption............................. 40 SECTION 3.05. Deposit of Redemption Price................................ 41 SECTION 3.06. Securities Redeemed in Part................................ 41 SECTION 3.07. Special Mandatory Redemption............................... 41 -i- Page ---- ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities...................................... 42 SECTION 4.02. Maintenance of Office or Agency............................ 43 SECTION 4.03. Limitation on Restricted Payments.......................... 43 SECTION 4.04. Limitation on Incurrence of Additional Indebtedness........ 46 SECTION 4.05. Corporate Existence........................................ 47 SECTION 4.06. Payment of Taxes and Other Claims.......................... 47 SECTION 4.07. Maintenance of Properties and Insurance.................... 47 SECTION 4.08. Compliance Certificate; Notice of Default.................. 48 SECTION 4.09. Compliance with Laws....................................... 48 SECTION 4.10. Commission Reports......................................... 49 SECTION 4.11. Waiver of Stay, Extension or Usury Laws.................... 49 SECTION 4.12. Limitations on Transactions with Affiliates................ 50 SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.................................. 51 SECTION 4.14. Limitation on Liens........................................ 53 SECTION 4.15. Change of Control.......................................... 53 SECTION 4.16. Limitation on Asset Sales.................................. 55 SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries... 58 SECTION 4.18. Limitation on Sale and Leaseback Transactions.............. 59 SECTION 4.19. Limitation of Guarantees by Restricted Subsidiaries........ 59 SECTION 4.20. Escrow of Proceeds of Securities on Issue Date............. 60 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets................... 50 SECTION 5.02. Successor Corporation Substituted.......................... 62 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default.......................................... 63 SECTION 6.02. Acceleration............................................... 64 SECTION 6.03. Other Remedies............................................. 65 SECTION 6.04. Waiver of Past Defaults.................................... 65 SECTION 6.05. Control by Majority........................................ 66 -ii- Page ---- SECTION 6.06. Limitation on Suits........................................ 66 SECTION 6.07. Rights of Holders To Receive Payment....................... 66 SECTION 6.08. Collection Suit by Trustee................................. 67 SECTION 6.09. Trustee May File Proofs of Claim........................... 67 SECTION 6.10. Priorities................................................. 67 SECTION 6.11. Undertaking for Costs...................................... 68 SECTION 6.12. Restoration of Rights and Remedies......................... 68 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee.......................................... 68 SECTION 7.02. Rights of Trustee.......................................... 70 SECTION 7.03. Individual Rights of Trustee............................... 71 SECTION 7.04. Trustee's Disclaimer....................................... 71 SECTION 7.05. Notice of Default.......................................... 71 SECTION 7.06. Reports by Trustee to Holders.............................. 72 SECTION 7.07. Compensation and Indemnity................................. 72 SECTION 7.08. Replacement of Trustee..................................... 73 SECTION 7.09. Successor Trustee by Merger, Etc........................... 74 SECTION 7.10. Eligibility; Disqualification.............................. 74 SECTION 7.11. Preferential Collection of Claims Against Company.......... 74 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of the Company's Obligations................... 75 SECTION 8.02. Legal Defeasance and Covenant Defeasance................... 75 SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance...... 76 SECTION 8.04. Application of Trust Money................................. 78 SECTION 8.05. Repayment to the Company................................... 78 SECTION 8.06. Reinstatement.............................................. 79 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders................................. 79 SECTION 9.02. With Consent of Holders.................................... 80 SECTION 9.03. Compliance with TIA........................................ 81 -iii- Page ---- SECTION 9.04. Revocation and Effect of Consents.......................... 81 SECTION 9.05. Notation on or Exchange of Securities...................... 82 SECTION 9.06. Trustee To Sign Amendments, Etc............................ 82 ARTICLE TEN SUBORDINATION OF SECURITIES SECTION 10.01. Securities Subordinated to Senior Debt..................... 82 SECTION 10.02. No Payment on Securities in Certain Circumstances.......... 83 SECTION 10.03. Payment Over of Proceeds upon Dissolution, etc............. 84 SECTION 10.04. Subrogation................................................ 85 SECTION 10.05. Obligations of Company Unconditional....................... 85 SECTION 10.06. Notice to Trustee.......................................... 86 SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating Agent....................................... 86 SECTION 10.08. Trustee's Relation to Senior Debt.......................... 87 SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt................... 87 SECTION 10.10. Securityholders Authorize Trustee to Effectuate Subordination of Securities............................. 87 SECTION 10.11. This Article Not to Prevent Events of Default.............. 88 SECTION 10.12. Trustee's Compensation Not Prejudiced...................... 88 SECTION 10.13. No Waiver of Subordination Provisions...................... 88 SECTION 10.14. Subordination Provisions Not Applicable to Collateral Held in Trust for Securityholders; Payments May Be Paid Prior to Dissolution.................................... 88 SECTION 10.15. Acceleration of Securities................................. 89 ARTICLE ELEVEN GUARANTEE OF SECURITIES SECTION 11.01. Unconditional Guarantee.................................... 89 SECTION 11.02. Limitations on Guarantees.................................. 90 SECTION 11.03. Execution and Delivery of Guarantee........................ 90 SECTION 11.04. Release of a Guarantor..................................... 91 SECTION 11.05. Waiver of Subrogation...................................... 92 SECTION 11.06. Obligations Continuing..................................... 92 SECTION 11.07. Obligations Reinstated..................................... 92 SECTION 11.08. Waiver..................................................... 93 SECTION 11.09. No Obligation To Take Action Against the Company........... 93 SECTION 11.10. Default and Enforcement.................................... 93 -iv- Page ---- SECTION 11.11. Amendment, Etc............................................... 93 SECTION 11.12. Acknowledgment............................................... 93 SECTION 11.13. Costs and Expenses........................................... 93 SECTION 11.14. No Waiver; Cumulative Remedies............................... 94 SECTION 11.15. Successors and Assigns....................................... 94 SECTION 11.16. Contribution................................................. 94 SECTION 11.17. Future Guarantors............................................ 94 ARTICLE TWELVE SUBORDINATION OF GUARANTEE SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Debt..................................................... 95 SECTION 12.02. No Payment on Guarantee in Certain Circumstances............. 95 SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc............... 96 SECTION 12.04. Subrogation.................................................. 97 SECTION 12.05. Obligations of Guarantor Unconditional....................... 98 SECTION 12.06. Notice to Trustee............................................ 98 SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent..................................................... 99 SECTION 12.08. Trustee's Relation to Guarantor Senior Debt.................. 99 SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of the Guarantors or Holders of Guarantor Senior Debt........ 100 SECTION 12.10. Securityholders Authorize Trustee to Effectuate Subordination of Guarantees............................... 100 SECTION 12.11. This Article Not to Prevent Events of Default................ 100 SECTION 12.12. Trustee's Compensation Not Prejudiced........................ 100 SECTION 12.13. No Waiver of Guarantee Subordination Provisions.............. 101 SECTION 12.14. Payments May Be Paid Prior to Dissolution.................... 101 ARTICLE THIRTEEN SECURITY SECTION 13.01. Security..................................................... 101 ARTICLE FOURTEEN MISCELLANEOUS SECTION 14.01. TIA Controls................................................. 102 SECTION 14.02. Notices...................................................... 102 SECTION 14.03. Communications by Holders with Other Holders................. 104 -v- Page ---- SECTION 14.04. Certificate and Opinion as to Conditions Precedent............104 SECTION 14.05. Statements Required in Certificate or Opinion.................104 SECTION 14.06. Rules by Trustee, Paying Agent, Registrar.....................105 SECTION 14.07. Legal Holidays................................................105 SECTION 14.08. Governing Law.................................................105 SECTION 14.09. No Adverse Interpretation of Other Agreements.................105 SECTION 14.10. No Recourse Against Others....................................105 SECTION 14.11. Successors....................................................105 SECTION 14.12. Duplicate Originals...........................................106 SECTION 14.13. Severability..................................................106 SIGNATURES...................................................................107 Exhibit A - Form of Series A Security.....................................A-1 Exhibit B - Form of Series B Security.....................................B-1 Exhibit C - Form of Legend for Global Securities..........................C-1 Exhibit D - Form of Certificate to Be Delivered in Connection with Transfers to Institutional Accredited Investors................D-1 Exhibit E - Form of Certification for Transfer or Exchange of Restricted Global Security to Regulation S Global Security................E-1 Exhibit F - Form of Certification for Transfer or Exchange of Regulation S Global Security to Restricted Global Security................F-1 Exhibit G-1 - Form of Certification for Transfer or Exchange of Non-global Restricted Security to Restricted Global Security............G-1-1 Exhibit G-2 - Form of Certification for Transfer or Exchange of Non-global Restricted Security to Regulation S Global Security..........G-2-1 Exhibit H - Form of Guarantee............................................. H-1 Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -vi- INDENTURE, dated as of August 14, 2000, among Autotote Corporation, a Delaware corporation (the "Company"), Autotote Management Corporation, Autotote Systems, Inc., Autotote International, Inc., Autotote Enterprises, Inc., Autotote Keno Corporation, Autotote Lottery Corporation, ACRA Acquisition Corp., Marvin H. Sugarman Productions, Inc., Autotote Gaming, Inc. and Autotote Dominicana Inc. (each a "Guarantor") and The Bank of New York, a New York banking corporation, as Trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 12 1/2% Senior Subordinated Notes due 2010 (the "Series A Securities") and Series B 12 1/2% Senior Subordinated Notes due 2010 (the "Series B Securities," and together with the Series A Securities, the "Securities") and, to provide therefor, the Company and the Guarantors have duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid Obligations (as defined below) of the Company and the Guarantors, and to make this Indenture a valid and binding agreement of the Company and the Guarantors, have been done. Each party hereto agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Securities. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acquired Indebtedness" means Indebtedness of a Person or any of its Restricted Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or is assumed in connection with the acquisition of assets from such Person and not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Acquisition Closing Date" means the date upon which the consummation of the Scientific Games Acquisition occurs. "Additional Capital Stock" means (1) the Olivetti Preferred Stock issued on or about the Acquisition Closing Date and (2) any other Qualified Capital Stock (including Olivetti Preferred Stock) having terms not materially less favorable to the Company than the Olivetti Preferred Stock as determined by the Board of Directors of the Company in good faith. An "Affiliate" of a Person means a Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; pro- -2- vided, however, that with respect to the Company the term Affiliate shall not include the Company or any Subsidiary of the Company so long as no Affiliate of the Company has any direct or indirect interest therein, except through the Company or its Subsidiaries. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Affiliate Transaction" has the meaning set forth in Section 4.12. "Agent" means the Registrar or any Paying Agent. "Agent Member" means any member of, or participant in, the Depository. "Applicable Procedures" means the rules and procedures of the Depository, Euroclear and Clearstream, in each case to the extent applicable and as in effect from time to time. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person which constitute all or substantially all of the assets of such Person, any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries, including any Sale and Leaseback Transaction that does not give rise to a Capitalized Lease Obligation, to any Person other than the Company or a Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any other property or assets, other than cash or Cash Equivalents, of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (1) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration, exclusive of indemnities, of less than $1 million, -3- (2) the sale of accounts receivable, (3) the sale, lease, conveyance, disposition or other transfer of assets in the ordinary course of business, (4) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company and its Restricted Subsidiaries or any Guarantor as permitted under Section 5.01, (5) sales, transfers or other dispositions of assets resulting from the creation, incurrence or assumption of (but not any foreclosure with respect to) any Lien not prohibited by Section 4.14, (6) sales, transfers or other dispositions of assets in a transaction constituting a Permitted Investment or a Restricted Payment permitted by Section 4.03, and (7) the grant of licenses to third parties in respect of intellectual property in the ordinary course of business of the Company or any of its Restricted Subsidiaries. "Attributable Debt" in respect of a sale and leaseback transaction consummated subsequent to the Issue Date means, at the time of determination, the present value, discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP, of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Book-Entry Security" means a Security represented by a Global Security and registered in the name of the nominee of the Depository. "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in The City of New York are required or authorized by law or other governmental action to be closed. -4- "Capital Stock" means (1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents, however designated, of corporate stock, including each class of common stock and preferred stock of such Person and (2) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such other Person. "Capitalized Lease Obligations" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means (1) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (2) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's; (3) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (4) certificates of deposit or bankers' acceptances (or, with respect to foreign banks, similar instruments) maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250 million; (5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; and (6) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (1) through (5) above. -5- "Certificated Securities" means physical, certificated Securities in registered form. "Change of Control" means the occurrence of one or more of the following events: (1) any sale, lease, exchange or other transfer, in one transaction or a series of related transactions, of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in compliance with the provisions of this Indenture), other than a Permitted Holder or Holders; (2) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (3) any Person or Group, other than a Permitted Holder or Holders, shall become the owner, directly or indirectly, beneficially, of shares representing more than 50% of the aggregate voting power represented by the issued and outstanding Capital Stock of the Company entitled under ordinary circumstances to elect a majority of the directors of the Company; or (4) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors then still in office who either were members of the Board of Directors at the beginning of such period or whose election as a member of the Board of Directors was previously so approved. "Change of Control Offer" has the meaning set forth in Section 4.15. "Change of Control Payment Date" has the meaning set forth in Section 4.15. "Clearstream" means Clearstream Banking, Societe Anonyme, Luxembourg (or any successor securities clearing agency). "Collateral" has the meaning set forth in Section 13.01. "Commission" or "SEC" means the Securities and Exchange Commission, or any successor agency thereto with respect to the regulation or registration of securities. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President, a -6- Vice President or its Treasurer, and by an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (1) Consolidated Net Income, (2) to the extent Consolidated Net Income has been reduced thereby, all losses (x) from Asset Sales or abandonments or reserves relating thereto, all items classified as extraordinary losses and all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary gains or losses) and (y) resulting from plant closure costs arising out of the closure of Scientific Games' printing facility in Gilroy, California, (3) Consolidated Interest Expense and (4) Consolidated Non-cash Charges. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment or retirement of other Indebtedness (and the application of the proceeds thereof) at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date (other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities), as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the -7- last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness or Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio", (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (1) Consolidated Interest Expense, plus (2) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state and local tax rate of such Person expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication, -8- (1) the aggregate of all cash and non-cash interest expense with respect to all outstanding Indebtedness of such Person and its Restricted Subsidiaries, including the net costs associated with Interest Swap Obligations, capitalized interest, and imputed interest with respect to Attributable Debt (but excluding (a) the write-off of deferred financing costs associated with the Transactions and (b) the amortization of deferred financing charges associated with the issuance of the Securities and the New Credit Agreement or other Indebtedness outstanding on the Issue Date or refinanced in connection with the Transactions), for such period determined on a consolidated basis in conformity with GAAP; and (2) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided, however, that there shall be excluded therefrom (a) after tax gains but not losses from Asset Sales (without regard to the $1 million threshold in clause (1) of the definition of Asset Sales) or abandonments or reserves relating thereto, (b) items classified as extraordinary gains but not losses, and the related tax effects according to GAAP, (c) the net income (or loss) of any Person acquired in a pooling of interests transaction accrued prior to the date it becomes a Subsidiary of such first Person or is merged or consolidated with it or any Subsidiary, (d) the net income of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is restricted by contract, operation of law or otherwise, (e) the net loss of any Person, other than a Restricted Subsidiary of the Company, (f) the net income of any Person, other than a Restricted Subsidiary, in which such Person has an interest, except to the extent of cash dividends or distributions paid to such Person or a Restricted Subsidiary of such Person, (g) gains from retirement of debt, and (h) amounts attributable to dividends paid in respect of Qualified Capital Stock to the extent such dividends are paid in shares of Qualified Capital Stock. -9- "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP less (to the extent otherwise included in accordance with GAAP) amounts attributable to Disqualified Capital Stock. "Consolidated Non-cash Charges" means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "Corporate Trust Office" means the principal office of the Trustee where it conducts its corporate trust administrative functions, which office is currently located at 101 Barclay Street, Floor 21W, New York, New York 10286, Attention: Corporate Trust Administration, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company. "Covenant Defeasance" has the meaning set forth in Section 8.02. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Deadline Date" means September 30, 2000. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Depository" means, with respect to the Securities issued in the form of one or more Global Securities, The Depository Trust Company ("DTC") or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act. "Designated Guarantor Senior Debt" means, with respect to any Guarantor, (1) any Indebtedness outstanding under the New Credit Agreement to the extent guaranteed by such Guarantor and (2) any other Guarantor Senior Debt permitted under this Indenture the principal amount of which is $25 million or more and that has been designated by the Company or such Guarantor as Designated Guarantor Senior Debt in the instrument creating such Indebtedness. "Designated Non-cash Consideration" means the fair market value of non-cash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers' Certificate exe- -10- cuted by the principal executive officer and the principal financial officer of the Company or such Restricted Subsidiary. "Designated Senior Debt" means (1) any Indebtedness outstanding under the New Credit Agreement and (2) any other Senior Debt permitted under this Indenture the principal amount of which is $25 million or more and that has been designated by the Company as Designated Senior Debt in the instrument creating such Indebtedness. "Disqualified Capital Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than an event which would constitute a Change of Control), matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control), in whole or in part, on or prior to the final maturity date of the Securities. "Equity Offering" means any private or public offering of Qualified Capital Stock of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agreement" means the Escrow and Pledge Agreement dated as of the Issue Date among the Company, the Trustee and the Securities Intermediary, as the same may be amended from time to time in accordance with the provisions of Article Nine of this Indenture. "Escrow Account" means the escrow account created pursuant to the Escrow Agreement. "Euroclear" means the Euroclear Clearance System (or any successor securities clearing agency). "Event of Default" has the meaning set forth in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "Existing Notes" means the Company's 10 7/8% Series B Senior Notes due 2004. "fair market value" or "fair value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution delivered to the Trustee. -11- "Final Maturity Date" means August 15, 2010. "GAAP" is defined to mean generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. "Global Security" means a security evidencing all or a portion of the Securities issued to the Depository or its nominee in accordance with Section 2.01 and bearing the legend set forth in Exhibit C. "Guarantee" has the meaning set forth in Section 11.01. "Guarantor" means (i) each of Autotote Management Corporation, Autotote Systems, Inc., Autotote International, Inc., Autotote Enterprises, Inc., Autotote Keno Corporation, Autotote Lottery Corporation, ACRA Acquisition Corp., Marvin H. Sugarman Productions, Inc., Autotote Gaming, Inc. and Autotote Dominicana Inc., (ii) upon consummation of the Scientific Games Acquisition, each of Scientific Games Holdings Corp., Scientific Games Finance Corporation, Scientific Games (Greece), Inc., Scientific Games Acquisition Inc., SciGames France Inc., Scientific Games Inc. and Scientific Games Royalty Corporation and (iii) each of the Company's Restricted Subsidiaries organized in the United States that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of this Indenture. "Guarantor Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of any Guarantor of the Securities, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of the Securities. Without limiting the generality of the foregoing, "Guarantor Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, all monetary obligations (including guarantees thereof) of every nature of any Guarantor of the Securities under the New Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities. "Guarantor Senior Debt" shall not include (1) Indebtedness evidenced by a Guarantee of the Securities; -12- (2) any Indebtedness of such Guarantor of the Securities owing to the Company or to a Subsidiary of the Company; (3) Indebtedness to, or guaranteed on behalf of, any director, officer or employee of the Company or any Subsidiary of the Company or Affiliate of the Company (including, without limitation, amounts owed for compensation); (4) trade payables and other current liabilities arising in the ordinary course of business in connection with obtaining goods, materials or services; (5) Indebtedness represented by Disqualified Stock; (6) any liability for federal, state, local or other taxes owed or owing by such Guarantor of the Securities; (7) that portion of any Indebtedness incurred in violation of this Indenture; (8) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor of the Securities; and (9) any Indebtedness which, when incurred and without respect to any other election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor of the Securities. "Holder" means the Person in whose name a Security is registered on the Registrar's books. "incur" means, with respect to any Indebtedness, to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise with respect to, or otherwise become responsible for payment of such Indebtedness. "Indebtedness" means with respect to any Person, without duplication, (1) the principal amount of all obligations of such Person for borrowed money, (2) the principal amount of all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (3) all Capitalized Lease Obligations of such Person, (4) all obligations of such Person to pay the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding accounts payable and other current liabilities arising in the ordinary course of business), -13- (5) all obligations of such Person for the reimbursement of any obligor on any letter of credit or banker's acceptance, (6) guarantees and other contingent obligations of such Person in respect of Indebtedness referred to in clauses (1) through (5) above and clause (8) below, (7) all Indebtedness of any other Person of the type referred to in clauses (1) through (6) above which are secured by any Lien on any property or asset of such Person, the amount of such obligation being deemed to be the lesser of the fair market value at such date of any asset subject to any Lien securing the Indebtedness of others and the amount of the Indebtedness secured, (8) all obligations under currency agreements relating to currency swap agreements and interest swap agreements of such Person, and (9) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, (1) the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock, and (2) accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of Section 4.04. The amount of Indebtedness of any Person at any date shall be the amount of all unconditional obligations described above, as such amount would be reflected on a balance sheet prepared in accordance with GAAP, and the maximum liability at such date of such Person for any contingent obligations described above. "Indirect Participant" means a Person who holds a beneficial interest in a Global Security through a participant of DTC, Euroclear or Clearstream. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc. -14- "Interest Payment Date" means the stated due date of an installment of interest on the Securities. "Interest Swap Obligations" means the obligations of any Person, pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Company and its Subsidiaries on commercially reasonable terms. For the purposes of Section 4.03, (1) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and (2) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions (including tax sharing payments) in connection with such Investment or any other amounts received in respect of such Investment. If the Company or any Restricted Subsidiary sells or otherwise disposes of any Capital Stock of any Restricted Subsidiary such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary, 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 Capital Stock of such Subsidiary not sold or disposed. "Issue Date" means the original date of issuance of the Securities. "Joint Venture" means any Person (other than a Subsidiary of the Company) engaged in a Related Business with respect to which at least 35% of such Person's outstanding Capital Stock is owned directly or indirectly by the Company. "Legal Defeasance" has the meaning set forth in Section 8.02. -15- "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Liquidated Damages" means the liquidated damages required to be paid by the Company under certain circumstances as set forth in Section 5 of the Registration Rights Agreement. "Mandatory Redemption" has the meaning set forth in Section 3.07. "Mandatory Redemption Date" means the earliest of (a) November 1, 2000, if the funds in the Escrow Account have not been released to the Company in accordance with the requirements of Section 3(a) of the Escrow Agreement by 11:59 p.m. New York time on the Deadline Date, (b) the 45th day following the termination of the Merger Agreement for any reason or (c) the 45th day following the termination or withdrawal of the Tender Offer prior to acceptance for payment of the Existing Notes, the tender of which represents the Requisite Consents (as defined in the Statement). "Mandatory Redemption Event" has the meaning set forth in Section 3.07. "Mandatory Redemption Notice" has the meaning set forth in Section 3.07. "Mandatory Redemption Price" means 101% of the principal amount of the Securities. "Merger Agreement" has the meaning set forth in the definition of "Transactions." "Moody's" means Moody's Investor Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) all out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) the amounts of (x) any repayments of debt secured, directly or indirectly, by Liens on the assets which are the subject of such Asset Sale and (y) any repayments of debt associated with such assets which is due by reason of such Asset Sale (i.e., such disposition is permitted by the terms of the instruments evidencing or applicable to such debt, or by the terms of a consent granted there- -16- under, on the condition the proceeds (or portion thereof) of such disposition be applied to such debt), and other fees, expenses and other expenditures, in each case, reasonably incurred as a consequence of such repayment of debt (whether or not such fees, expenses or expenditures are then due and payable or made, as the case may be); (d) any portion of cash proceeds which the Company determines in good faith should be reserved for post-closing adjustments, it being understood and agreed that on the day that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Asset Sale exceeds the actual post-closing adjustments payable by the Company or any of its Restricted Subsidiaries shall constitute Net Cash Proceeds on such date; (e) all amounts deemed appropriate by the Company (as evidenced by a signed certificate of the Chief Financial Officer of the Company delivered to the Trustee) to be provided as a reserve, in accordance with GAAP ("GAAP Reserves"), against any liabilities associated with such assets which are the subject of such Asset Sale; (f) all foreign, federal, state and local taxes payable (including taxes reasonably estimated to the payable) in connection with or as a result of such Asset Sale; and (g) with respect to Asset Sales by Restricted Subsidiaries of the Company, the portion of such cash payments attributable to Persons holding a minority interest in such Restricted Subsidiary. Notwithstanding the foregoing, Net Cash Proceeds shall not include proceeds received in a foreign jurisdiction from an Asset Sale of an asset located outside the United States to the extent (1) such proceeds cannot under applicable law be transferred to the United States or (2) such transfer would result (in the good faith determination of the Board of Directors of the Company set forth in a Board Resolution) in a foreign tax liability that would be materially greater than if such Asset Sale occurred in the United States; provided that if, as, and to the extent that any of such proceeds may lawfully be in the case of clause (1) or are in the case of clause (2) transferred to the United States, such proceeds shall be deemed to be cash payments that are subject to the terms of this definition of Net Cash Proceeds. "Net Proceeds Offer" has the meaning set forth in Section 4.16. "Net Proceeds Offer Amount" has the meaning set forth in Section 4.16. "Net Proceeds Offer Payment Date" has the meaning set forth in Section 4.16. "Net Proceeds Offer Trigger Date" has the meaning set forth in Section 4.16. -17- "New Credit Agreement" means the Credit Agreement to be dated on or about the Acquisition Closing Date between the Company and the lenders thereto including all related notes, collateral documents and guarantees in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, increasing the total commitment under, refinancing, replacing or otherwise restructuring (including adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Obligations" means, with respect to any Indebtedness, all principal, interest, premiums, penalties, fees, indemnities, expenses (including legal fees and expenses), reimbursement obligations and other liabilities payable to the holder of such Indebtedness under the documentation governing such Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, the Treasurer, the Secretary or any Assistant Vice President or Assistant Secretary of such Person. "Officers' Certificate" means a certificate signed by two Officers of the Company. "Olivetti Letter Agreement" means the Letter Agreement, dated as of May 18, 2000, between Olivetti S.p.A. and the Company. "Olivetti Preferred Stock" means up to $115.5 million aggregate liquidation preference of the Company's Series A Convertible Preferred Stock or any other Qualified Capital Stock issued pursuant to or in satisfaction of (1) the commitments under the Olivetti Letter Agreement and the Letter Agreement, dated as of May 18, 2000, between Tote Holdings, L.P. and the Company, and (2) fees and expenses payable to Ramius Capital Group, LLC in connection with the issuance of Olivetti Preferred Stock contemplated by the agreements set forth in the foregoing clause (1). "Opinion of Counsel" means a written opinion from legal counsel which opinion is reasonably acceptable to the Trustee and which counsel may be counsel to or an employee of the Company or counsel to the Trustee. "Pari Passu Indebtedness" means any Indebtedness of the Company or a Guarantor of the Securities ranking pari passu with the Securities or a Guarantee of the Securities, as the case may be, that the obligor thereon is required to offer to repurchase or repay on a permanent basis in connection with an Asset Sale. "Paying Agent" has the meaning set forth in Section 2.03. "Permitted Holders" means Olivetti S.p.A. and its Affiliates. -18- "Permitted Indebtedness" means, without duplication, (1) the Securities and the Guarantees thereof, (2) Indebtedness incurred pursuant to the New Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $345 million reduced by any required permanent repayments (which are accompanied by a corresponding permanent commitment reduction) thereunder (excluding any such required permanent repayment and corresponding permanent commitment reduction to the extent refinanced at the time of payment under a replaced New Credit Agreement) and less the amount of any prepayment made with the proceeds of an Asset Sale in accordance with Section 4.16, (3) other Indebtedness of the Company and its Subsidiaries outstanding on the Acquisition Closing Date, (4) Interest Swap Obligations of the Company or any of its Subsidiaries covering Indebtedness of the Company or any of its Subsidiaries; provided, however, that any Indebtedness to which any such Interest Swap Obligations correspond is otherwise permitted to be incurred under this Indenture; provided, further, that such Interest Swap Obligations are entered into, in the judgment of the Company, to protect the Company or any of its Subsidiaries from fluctuation in interest rates on their respective outstanding Indebtedness, (5) Indebtedness under Currency Agreements, (6) intercompany Indebtedness owed by the Company to any Wholly Owned Restricted Subsidiary of the Company or by any Restricted Subsidiary of the Company to the Company or any Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company in each case subject to no Lien held by a Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company; provided, however, that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness under this clause (6), (7) Acquired Indebtedness to the extent the Company could have incurred such Indebtedness in accordance with Section 4.04 on the date such Indebtedness became Acquired Indebtedness, (8) (A) guarantees by Restricted Subsidiaries pursuant to Section 4.19 or guarantees by Restricted Subsidiaries of Indebtedness of other Restricted Subsidiaries to the extent that such Indebtedness is otherwise permitted under this Indenture and (B) guarantees by the Company of its Wholly Owned Restricted Subsidiaries' Indebtedness; provided that such Indebtedness is permitted to be incurred under this Indenture, -19- (9) Indebtedness incurred by the Company or any Restricted Subsidiary in connection with the purchase or improvement of property (real or Personal) or equipment or other capital expenditures in the ordinary course of business, in aggregate not to exceed $15 million in any fiscal year of the Company, (10) Indebtedness of the Company or any Restricted Subsidiary evidenced by Capitalized Lease Obligations not to exceed $15 million principal amount at any one time outstanding, (11) guarantees, letters of credit and indemnity agreements relating to performance and surety bonds incurred in the ordinary course of business, (12) any refinancing, modification, replacement, renewal, restatement, refunding, deferral, extension, substitution, supplement, reissuance or resale of existing or future Indebtedness incurred in accordance with Section 4.04 (other than pursuant to clause (2), (6), (9), (10), (11), (13), (14) or (15) of this definition), including any additional Indebtedness incurred to pay premiums required by the instruments governing such existing or future Indebtedness as in effect at the time of issuance thereof ("Required Premiums") and fees in connection therewith; provided, however, that any such event shall not (1) result in an increase in the aggregate principal amount of Permitted Indebtedness (except to the extent such increase is a result of a simultaneous incurrence of additional Indebtedness (A) to pay Required Premiums and related fees or (B) otherwise permitted to be incurred under this Indenture) of the Company and its Subsidiaries and (2) create Indebtedness with a Weighted Average Life to Maturity at the time such Indebtedness is incurred that is less than the Weighted Average Life to Maturity at such time of the Indebtedness being refinanced, modified, replaced, renewed, restated, refunded, deferred, extended, substituted, supplemented, reissued or resold, (13) additional Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount not to exceed $20 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the New Credit Agreement), (14) Indebtedness of the Company or any Restricted Subsidiary in respect of the contingent deferred purchase price of any acquired property (including Capital Stock) not to exceed $15 million in aggregate principal amount at any one time outstanding, (15) the guarantee of Indebtedness of Joint Ventures to the extent permitted by clause (12) of the definition of Permitted Investments, and (16) after the Acquisition Closing Date, Indebtedness of a Restricted Subsidiary, not to exceed $20 million in aggregate principal amount incurred to finance the costs associated with construction of a printing facility in the United Kingdom, the acquisition of assets related to such facility, and fees and expenses relating to such financing; provided that the Company applies, or causes a Restricted Subsidiary to apply, an amount equal to the net cash proceeds from the Indebtedness incurred under this clause (16) to the permanent reduction of Indebted- -20- ness (including, in the case of any Indebtedness outstanding under a revolving credit facility, the permanent reduction of amounts that may be reborrowed thereunder by an equivalent amount). "Permitted Investments" means (1) Investments by the Company or any Restricted Subsidiary of the Company in, or for the benefit of, any Restricted Subsidiary of the Company (whether existing on the Issue Date or created thereafter and including Investments in any Person, if after giving effect to such Investment, such Person would be a Restricted Subsidiary of the Company or such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company) and Investments in, or for the benefit of, the Company by any Restricted Subsidiary of the Company; (2) cash and Cash Equivalents; (3) Investments existing on the Issue Date; (4) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers or in settlement of or other resolution of claims or disputes, and in each case, extensions, modifications and remands thereof; (5) so long as no Default or Event of Default has occurred and is continuing, loans and advances in the ordinary course of business by the Company and its Restricted Subsidiaries to their respective employees not to exceed $2.5 million at any one time outstanding; (6) so long as no Default or Event of Default has occurred and is continuing, additional Investments in a Person or Persons principally engaged in a Related Business not to exceed $30 million at any one time outstanding; (7) Investments received by the Company or its Restricted Subsidiaries as consideration for asset sales, including Asset Sales; provided, however, in the case of an Asset Sale, such Asset Sale is effected in compliance with Section 4.16; (8) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' business and otherwise in compliance with this Indenture; (9) guarantees by the Company or any of its Restricted Subsidiaries of Indebtedness or other obligations otherwise permitted to be incurred by the Company or any of its Restricted Subsidiaries under this Indenture; -21- (10) so long as no Default or Event of Default has occurred and is continuing, Investments in Joint Ventures not to exceed $10 million at any one time outstanding; (11) any Investments received in exchange for the issuance of Qualified Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any such Qualified Capital Stock; (12) so long as no Default or Event of Default has occurred and is continuing, the guarantee by the Company of Indebtedness of Joint Ventures not to exceed $10 million in aggregate principal amount at any one time outstanding; and (13) so long as no Default or Event of Default has occurred and is continuing, loans to William G. Malloy required to be made by the Company pursuant to the Consulting Agreement made as of May 18, 2000 between the Company and William G. Malloy. "Permitted Junior Securities" means (1) Qualified Capital Stock of the Company or any Guarantor; or (2) debt securities that are subordinated to (a) all Senior Debt or Guarantor Senior Debt and (b) any debt securities issued in exchange for Senior Debt or Guarantor Senior Debt to substantially the same extent as, or to a greater extent than, the Securities and the Guarantees of the Securities are subordinated to Senior Debt and Guarantor Senior Debt, respectively, under this Indenture. "Permitted Liens" means (1) Liens securing Indebtedness consisting of Capitalized Lease Obligations; (2) Liens securing any Senior Debt or Guarantor Senior Debt, including liens securing the New Credit Agreement; (3) Liens on property existing at the time of acquisition thereof by the Company or a Restricted Subsidiary; provided that such Liens were in existence prior to the contemplation of such acquisition; (4) Liens at any time outstanding with respect to assets of the Company and its Restricted Subsidiaries, the fair market value of which at the time the Lien was imposed does not exceed $1 million; (5) Liens securing Indebtedness incurred pursuant to clauses (9), (11), (13) or (14) of the definition of Permitted Indebtedness; (6) Liens securing Indebtedness incurred pursuant to clause (16) of the definition of Permitted Indebtedness; and -22- (7) Liens created to replace Liens described in clause (3) or (6) above to the extent that such Liens do not extend beyond the originally encumbered property (other than improvements thereto or thereon, attachments and other modifications reasonably required to maintain such property) and are not otherwise materially less favorable to the Company and its Restricted Subsidiaries than the Liens being replaced, as determined by the Board of Directors of the Company in good faith. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Physical Securities" has the meaning set forth in Section 2.01. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "principal" of any Indebtedness (including the Securities) means the principal amount of such Indebtedness plus the premium, if any, on such Indebtedness. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article II of Regulation S-X under the Securities Act. "Pro Rata Share" has the meaning set forth in Section 4.16. "Productive Assets" means assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries as conducted on the date of the relevant Asset Sale or in a Related Business (including Capital Stock in any such business or Related Business and licenses or similar rights to operate); provided, however, that accounts receivable acquired as part of an acquisition of assets of a kind used or usable in such business shall be deemed to be Productive Assets. "Purchase Agreement" means the purchase agreement dated as of August 3, 2000 by and among the Company, the Guarantors and the Initial Purchasers. "Qualified Capital Stock" means any stock that is not Disqualified Capital Stock. "Qualified Institutional Buyer" or "QIB" means a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act. "Record Date" means the applicable Record Date (whether or not a Business Day) specified in the Securities. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Securities. -23- "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption, payable in immediately available funds, pursuant to this Indenture and the Securities. "Registered Exchange Offer" means the offer to exchange the Series B Securities for all of the outstanding Series A Securities in accordance with the Registration Rights Agreement. "Registrar" has the meaning set forth in Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the Issue Date among the Company, the Guarantors and the Initial Purchasers. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Security" has the meaning set forth in Section 2.01. "Related Business" means the businesses of the Company and its Restricted Subsidiaries as conducted on the Issue Date and similar, complementary or related businesses or reasonable extensions, developments or expansions thereof. "Responsible Officer" means, when used with respect to the Trustee, any officer in the Corporate Trust Administration department at the Corporate Trust Office of the Trustee including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer, assistant trust officer, or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payment" has the meaning set forth in Section 4.03. "Restricted Period" means 40 days after the later of commencement of the offering of the Securities and the Issue Date. "Restricted Global Security" has the meaning set forth in Section 2.01. "Restricted Security" has the meaning set forth in Rule 144(a)(3) under the Securities Act; provided that the Trustee shall be entitled to request and conclusively rely upon an Opinion of Counsel with respect to whether any Security is a Restricted Security. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. -24- "S&P" means Standard & Poor's, A division of the McGraw-Hill Companies, and its successors. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property; provided, however, that a Sale and Leaseback Transaction shall not include a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration (exclusive of indemnities) of less than $1,000,000 (a "De Minimis Transaction") so long as the aggregate consideration (exclusive of indemnities) received by the Company or its Restricted Subsidiaries from all De Minimis Transactions does not exceed an aggregate of $10,000,000. "Scientific Games" means Scientific Games Holdings Corp. "Scientific Games Acquisition" has the meaning set forth in the definition of "Transactions." "Securities Act" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto. "Securities Intermediary" means The Bank of New York, or any successor securities intermediary under the Escrow Agreement. "Securityholder" or "Holder" means the Person in whose name a Security is registered on the Registrar's books. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, all monetary obligations (including guarantees thereof) of every nature of the Company under the New Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities. "Senior Debt" shall not include -25- (1) Indebtedness evidenced by the Securities; (2) any Indebtedness of the Company to a Subsidiary of the Company; (3) Indebtedness to, or guaranteed on behalf of, any director, officer or employee of the Company or any Subsidiary of the Company or Affiliate of the Company (including, without limitation, amounts owed for compensation); (4) trade payables and other current liabilities arising in the ordinary course of business in connection with obtaining goods, materials or services; (5) Indebtedness represented by Disqualified Stock; (6) any liability for federal, state, local or other taxes owed or owing by the Company; (7) that portion of any Indebtedness incurred in violation of this Indenture; (8) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company; and (9) any Indebtedness which, when incurred and without respect to any other election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company. "Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Statement" has the meaning set forth in the definition of "Tender Offer." "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person, or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Surviving Entity" has the meaning set forth in Section 5.01. "Tender Offer" means the Company's offer to purchase for cash, upon the terms and subject to the conditions set forth in the Company's Offer to Purchase and Consent Solicitation Statement dated July 24, 2000 (as it may be supplemented and amended from time to time, the "Statement") and in the related Consent and Letter of Transmittal (as it may be supplemented and amended from time to time), all of the outstanding Existing Notes. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as amended, as in effect on the date of the execution of this Indenture until such time as this Indenture is -26- qualified under the TIA, and thereafter as in effect on the date on which this Indenture is qualified under the TIA, or as the TIA may otherwise be amended from time to time. "Transactions" means (1) the acquisition of Scientific Games pursuant to the Agreement and Plan of Merger, dated as of May 18, 2000 (as the same may hereafter be amended, the "Merger Agreement"), by and among the Company Corporation, ATX Enterprises Inc. and Scientific Games Holdings Corp. (the "Scientific Games Acquisition"), (2) the execution and delivery of the New Credit Agreement and the anticipated borrowing of approximately $280 million thereunder in connection with the consummation of the Scientific Games Acquisition, (3) the issuance of Olivetti Preferred Stock for aggregate net cash proceeds of approximately $110 million, (4) the issuance of Olivetti Preferred Stock to Affiliates of Ramius Capital Group, LLC in satisfaction of up to $5.5 million of fees and expenses payable in connection with the issuance and sale of the Olivetti Preferred Stock, and (5) the application of approximately $213 million to the repayment of existing Indebtedness of the Company and Scientific Games. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" of any Person means (1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that (x) the Company certifies to the Trustee that such designation complies with Section 4.03 and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries except to the extent permitted by Section 4.03 and Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if -27- (x) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.04 and (y) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations of and obligations guaranteed by the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (1) 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 (2) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than directors' qualifying shares) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such 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 Securities. "indenture security holder" means a Holder or a Securityholder. -28- "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and, in each case, not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (2) "or" is not exclusive; (3) words in the singular include the plural, and words in the plural include the singular; (4) provisions apply to successive events and transactions; and (5) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating. The Series A Securities and the Trustee's certificate of authentication thereof shall be substantially in the form of Exhibit A hereto. The Series B Securities and the Trustee's certificate of authentication thereof shall be substantially in the form of Exhibit B hereto. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication and shall show the date of its issuance. Each Security shall have an executed Guarantee from each of the Guarantors endorsed thereon substantially in the form of Exhibit H hereto. -29- The terms and provisions contained in the Securities, annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Securities offered and sold in their initial distribution to Qualified Institutional Buyers in reliance on Rule 144A or in offshore transactions in reliance on Regulation S shall be initially issued in the form of Global Securities in fully registered form without interest coupons, substantially in the form of Exhibit A, with such applicable legends as are provided for in Exhibit A and Exhibit C. Securities offered and sold in their initial distribution to Qualified Institutional Buyers in reliance on Rule 144A shall be issued in the form of one or more Global Securities (collectively, and together with their successor securities, the "Restricted Global Security") which shall be registered in the name of the Depository or its nominee and deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided, for credit by the Depository to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct). The aggregate principal amount of the Restricted Global Security may be increased or decreased from time to time by adjustments made on the records of the Trustee, as custodian for the Depository, in connection with a corresponding decrease or increase in the aggregate principal amount of the Regulation S Global Security, as hereinafter provided in Section 2.06. Securities offered and sold in offshore transactions in reliance on Regulation S shall initially be in the form of one or more temporary registered, global book-entry Global Securities (collectively, and together with their successor securities, the "Regulation S Global Security") which shall be registered in the name of the Depository or its nominee and deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided, for credit by the Depository to the respective accounts of the beneficial owners of the Securities represented thereby (or such other accounts as they may direct), provided that upon such deposit all such Securities shall be credited to or through accounts maintained at the Depository by or on behalf of Euroclear or Clearstream. The aggregate principal amount of the Regulation S Global Security may be increased or decreased from time to time by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. As used herein, the term "Restricted Period" means the period of 40 days commencing on the day after the later of (a) the offering date and (b) the date of this Indenture; provided that promptly after the occurrence of the date described in clause (a), the Company shall give written notice thereof to the Trustee, identifying therein the day on which the Restricted Period expires. SECTION 2.02. Execution and Authentication. Two Officers shall sign, or one Officer shall sign and one Officer shall attest to, the Securities for the Company by manual or facsimile signature. -30- If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate (i) Series A Securities for original issue on the Issue Date in the aggregate principal amount not to exceed $150,000,000, and (ii) Series B Securities from time to time only in exchange for a like principal amount of Series A Securities, in each case upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated, the series of Securities and the date on which the Securities are to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $150,000,000, except as provided in Section 2.07. Upon receipt of a written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution for Securities originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities 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 and Affiliates of the Company. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company, upon notice to the Trustee, may have one or more additional Paying Agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such. -31- The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of demands and notices in connection with the Securities, until such time as the Trustee has resigned or a successor has been appointed. The Paying Agent or Registrar may resign upon 45 days notice to the Company. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any Default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or an Affiliate of the Company acts as Paying Agent, it shall segregate the money and hold it in a separate trust. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Securityholder 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 Holders and otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee by each Record Date and at such other times as the Trustee may reasonably request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of Holders, which list (subject to Section 7.01 hereof) may be conclusively relied upon by the Trustee. SECTION 2.06. Transfer and Exchange. (a) An entire Global Security may be exchanged for Certificated Securities if (i) the Company delivers to the Trustee notice from DTC that (x) it is unwilling or unable to continue as Depositary for the Global Securities and the Company thereupon fails to appoint a successor Depositary within 90 days or (y) that DTC has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Certificated Securities or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Securities. In addition, beneficial interests in a Global Security may, subject to the restrictions on the transferability of the Securities set forth herein and upon delivery of a certificate in the form of Exhibit D, be exchanged for Certificated Securities upon request but only upon at least 20 days' prior written notice given to the Trustee by or on behalf of the Depository (in accordance with the Depository's customary procedures) and will bear the applicable legends set forth in Exhibit A. The -32- Company shall duly execute and deliver to the Trustee upon request Certificated Securities for such purpose. (b) If any Global Security is to be exchanged for other Securities or cancelled in whole, it shall be surrendered by or on behalf of the Depository or its nominee to the Trustee, as Registrar, for exchange or cancellation as provided in this Article Two. If any Global Security is to be exchanged for other Securities or cancelled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, such Global Security shall be so surrendered for exchange or cancellation as provided in this Article Two or, if the Trustee is acting as custodian for the Depository or its nominee (or is party to a similar arrangement) with respect to such Global Security, the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or cancelled, or the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, in each case by means of an appropriate adjustment made on the records of the Trustee, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depository or its authorized representatives to make a corresponding adjustment to its records (including by crediting or debiting any Agent Member's account as necessary to reflect any transfer or exchange of a beneficial interest). Upon any such surrender or adjustment of a Global Security, the Company shall execute and the Trustee shall, subject to this Article Two, authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depository or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph or in paragraph (n) below, the Company shall promptly make available to the Trustee a reasonable supply of Securities that are not in the form of Global Securities. The Trustee shall be entitled to conclusively rely upon any order, direction or request of the Depository or its authorized representative which is given or made pursuant to this Article Two if such order, direction or request is given or made in accordance with the Applicable Procedures. (c) Subject to the provisions in the legends required by this Indenture, the registered Holder may grant proxies and otherwise authorize any Person, including Agent Members and Persons who may hold interests in Agent Members, to take any action that such Holder is entitled to take under this Indenture. (d) Neither Agent Members nor any other Person on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Security held on their behalf by the Depository or under the Global Security, 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 Security for all purposes whatsoever. Nothing herein shall prevent the Company, the Trustee or any agent of the Company or 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 governing the exercise of the rights of a Holder of any Security. With respect to any Global Security deposited with the Trustee as custodian for the Depository for credit to their respective accounts (or to such other accounts as they may direct) at Euroclear or Clearstream, the provisions of the "Operating Procedures of the Euroclear System" and the "Terms and Con- -33- ditions Governing Use of Euroclear," and the "Management Regulations" and "Instructions to Participants" of Clearstream, respectively, shall be applicable to such Global Security. (e) Upon presentation for transfer or exchange of any Security at the office of the Trustee, as Registrar, located in The City of New York, accompanied by a written instrument of transfer or exchange in the form approved by the Company (it being understood that, until notice to the contrary is given to holders of Securities, the Company shall be deemed to have approved the form of instrument of transfer or exchange, if any, printed on any Security), executed by the registered Holder, in person or by such Holder's attorney thereunto duly authorized in writing, and upon compliance with this Section 2.06, such Security shall be transferred upon the Register, and a new Security shall be authenticated and issued in the name of the transferee. Notwithstanding any provision to the contrary herein or in the Securities, transfers of a Global Security, in whole or in part, and transfers of interests therein of the kind described in this Section 2.06, shall only be made in accordance with this Section 2.06. Transfers and exchanges subject to this Section 2.06 shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 2.06. (f) General. A Global Security may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC, or its nominee in certain limited circumstances as described below, and no such transfer to any such other Person may be registered; provided, however, that this paragraph (f) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security to any Person shall be effective under this Indenture or the Securities unless and until such Security has been registered in the name of such Person. Nothing in this paragraph (f) shall prohibit or render ineffective any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 2.06. (g) Restricted Global Security to Regulation S Global Security. If the holder of a beneficial interest in the Restricted Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Regulation S Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this paragraph (g). Upon receipt by the Trustee, as Registrar, of (A) written instructions given by or on behalf of the Depository in accordance with the Applicable Procedures directing the Trustee to credit or cause to be credited to a specified Agent Member's account a beneficial interest in the Regulation S Global Security in a specified principal amount and to cause to be debited from another specified Agent Member's account a beneficial interest in the Restricted Global Security in an equal principal amount and (B) a certificate in substantially the form set forth in Exhibit E signed by or on behalf of the holder of such beneficial interest in the Restricted Global Security, the Trustee, as Registrar, shall reduce the principal amount of a Restricted Global Security and increase the principal amount of the Regulation S Global Security by such specified principal amount. (h) Regulation S Global Security to Restricted Global Security. If the holder of a beneficial interest in the Regulation S Global Security at any time wishes after the expiration of the Restricted Period to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Restricted Global Security, such transfer may be effected, subject to the Appli- -34- cable Procedures, only in accordance with this paragraph (h). Upon receipt by the Trustee, as Registrar, of (A) written instructions given by or on behalf of the Depository in accordance with the Applicable Procedures directing the Trustee to credit or cause to be credited to a specified Agent Member's account a beneficial interest in the Restricted Global Security in a specified principal amount and to cause to be debited from another specified Agent Member's account a beneficial interest in the Regulation S Global Security in an equal principal amount and (B) a certificate in substantially the form set forth in Exhibit F signed by or on behalf of the holder of such beneficial interest in the Regulation S Global Security, the Trustee, as Registrar, shall reduce the principal amount of such Regulation S Global Security and increase the principal amount of the Restricted Global Security by such specified principal amount. (i) Non-Global Restricted Security to Global Security. If the Holder of a Restricted Security (other than a Global Security) wishes at any time to transfer all or any portion of such Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Restricted Global Security or the Regulation S Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this paragraph (i). Upon receipt by the Trustee, as Registrar, of (A) such Restricted Security and written instructions given by or on behalf of such Holder directing the Trustee to credit or cause to be credited to a specified Agent Member's account a beneficial interest in the Restricted Global Security or the Regulation S Global Security, as the case may be, in a specified principal amount equal to the principal amount of the Restricted Security (or portion thereof) to be so transferred, and (B) an appropriately completed certificate substantially in the form set forth in Exhibit G-1 hereto, if the specified account is to be credited with a beneficial interest in the Restricted Global Security, or Exhibit G-2 hereto, if the specified account is to be credited with a beneficial interest in the Regulation S Global Security, signed by or on behalf of such Holder, then the Trustee, as Registrar, shall, subject to paragraph (j) below, cancel such Restricted Security (and issue a new Restricted Security in respect of any untransferred portion thereof) as provided in this Section 2.06 and increase the principal amount of the Restricted Global Security or Regulation S Global Security, as the case may be, by the specified principal amount. (j) Other Exchanges. Securities that are not Global Securities may be exchanged (on transfer or otherwise) for Securities that are not Global Securities or for beneficial interests in a Global Security (if any is then outstanding) only in accordance with such procedures, which shall be substantially consistent with the provisions of paragraphs (f) through (i) above (including the certification requirements intended to insure that transfers of beneficial interests in a Global Security comply with Rule 144A under the Securities Act, Rule 144 under the Securities Act or Regulation S, as the case may be) and any Applicable Procedures, as may be from time to time adopted by the Company and the Trustee. The Trustee shall be entitled to request in writing and receive, from time to time, instructions as to such procedures adopted or approved by the Company. (k) When Certificated Securities are presented to the Registrar with a request to register the transfer of such Certificated Securities or to exchange such Certificated Securities for an equal principal amount of Certificated Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Securities surrendered for transfer or exchange shall be duly endorsed or ac- -35- companied by a written instrument of transfer in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Certificated Securities at the Registrar's written request. No service charge shall be made 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 exchanges or transfers pursuant to Sections 2.10, 3.06, 4.15, 4.16 or 9.05). The Registrar shall not be required to register the transfer of or exchange of any Security (i) during a period between (a) the date the Trustee receives notice of a redemption from the Company and the date the Securities to be redeemed are selected by the Trustee or (b) a record date and the next succeeding Interest Payment Date or (ii) selected for redemption in whole or in part pursuant to Article Three hereof, except the unredeemed portion of any Security being redeemed in part. The Company is not required to transfer or exchange: (i) any Security selected for redemption or tendered, or (ii) any Security during the period between (a) the date of mailing by the Company of a notice of a redemption and the date the Securities to be redeemed are selected by the Trustee or (b) a record date and the next succeeding Interest Payment Date. (l) If a Series A Security is a Restricted Security and a Certificated Security, then as provided in this Indenture and subject to the limitations herein set forth, the Holder, provided it is a Qualified Institutional Buyer, may exchange such Security for a Book-Entry Security by instructing the Trustee (by completing the transferee certificate in the form of Exhibit G-1 or G-2 hereto, as applicable) to arrange for such Series A Security to be represented by a beneficial interest in a Global Security in accordance with the customary procedures of the Depository. (m) Upon any exchange provided for in Section 2.06(a), the Company shall execute and the Trustee shall authenticate and deliver to the Person specified by the Depository a new Certificated Security registered in such names and in such authorized denominations as the Depository, pursuant to the instructions of the beneficial owner of the Securities requesting the exchange, shall instruct the Trustee. Thereupon, the beneficial ownership of such Global Security shown on the records maintained by the Depository or its nominee shall be reduced by the amounts so exchanged and an appropriate endorsement shall be made by or on behalf of the Trustee on the Global Security. Any such exchange shall be effected through the Depository in accordance with the procedures of the Depository therefor. (n) Notwithstanding the foregoing, no Global Security shall be registered for transfer or exchange, or authenticated and delivered in the name of a Person other than the Depository for such Global Security or its nominee until (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time the Depository ceases to be a clearing agency registered under the Exchange Act, and a successor depository is not appointed by the Company within 30 days, (ii) the Company executes and delivers to the Trustee a Company Order that all such Global Securities shall be exchangeable or (iii) there shall have occurred and be continuing an Event of Default. Upon the occurrence in respect of any Global Security representing the Series A Securities of any one or more of the conditions specified in clause (i), (ii) or (iii) of the preceding sentence, such Global Security may be registered for transfer or exchange for Series A Securities registered in the -36- names of, authenticated and delivered to, such Persons as the Trustee or the Depository, as the case may be, shall direct. (o) Except as provided above, any Security authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, any Global Security shall also be a Global Security and bear the legend specified in Exhibit C. (p) Neither the Trustee, the Registrar, any Paying Agent, the Company nor any Guarantor shall have any responsibility or liability for the accuracy of the books and records of, or for any actions or omissions of, the Depository, Euroclear, Clearstream or any Agent Member. (q) Notwithstanding anything contained herein to the contrary, neither the Trustee nor the Registrar shall be responsible for ascertaining whether any transfer complies with the registration provisions of or exemptions from the Securities Act, applicable state securities laws, ERISA, the Internal Revenue Code of 1986 or the Investment Company Act of 1940; provided, however, that if a certificate is specifically required by the express terms of this Section 2.06 to be delivered to a Trustee by a purchaser or transferee of a Security, the Trustee shall be under a duty to receive and examine the same to determine whether it conforms on its face to the requirements of this Indenture and shall promptly notify the party delivering the same if such certificate does not conform. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's and Company's requirements are met. If required by the Trustee or the Company, such Holder shall provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Guarantors, the Trustee and any Agent from any loss which any of them may suffer if a Security is replaced. The Company may charge such Holder for its reasonable out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security shall constitute an additional obligation of the Company and every replacement Guarantee shall constitute an additional obligation of the Guarantors. SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to Section 2.09, a Security does not cease to be outstanding because the Company or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.07. -37- If on a Redemption Date or the Final Maturity Date the Paying Agent holds U.S. Legal Tender sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or any of its Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee has received notice are so owned shall be disregarded. The Trustee may require an Officers' Certificate listing Securities owned by the Company or its Affiliates. SECTION 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Securities to be authenticated and the date on which the temporary Securities are to be authenticated. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02 definitive Securities in exchange for temporary Securities. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and dispose of all Securities surrendered for transfer, exchange, payment or cancellation, in accordance with its customary practices. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. The Company will pay interest on overdue principal from time to time on demand at the rate of interest then borne by the Securities. The Company shall, to the extent lawful, pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate of interest then borne by the Securities. Interest will be computed on the basis of a -38- 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, with a copy to the Trustee (or cause the Trustee to mail) a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the 30-day period set forth in Section 6.01(a) shall be paid to Holders as of the regular Record Date for the Interest Payment Date for which interest has not been paid. Notwithstanding the foregoing, the Company may make payment of defaulted interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the securities may be listed. SECTION 2.13. CUSIP Number. The Company in issuing the Securities may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation is hereby deemed to be made as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. SECTION 2.14. Deposit of Moneys. Prior to 10:00 a.m. New York City time on each Interest Payment Date and the Final Maturity Date, the Company shall have deposited with the Paying Agent in immediately available funds U.S. Legal Tender sufficient to make cash payments, if any, due on such Interest Payment Date or Final Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date or Final Maturity Date, as the case may be. SECTION 2.15. Liquidated Damages Under Registration Agreement. Under certain circumstances, the Company shall be obligated to pay Liquidated Damages to the Holders, all as set forth in Section 5 of the Registration Rights Agreement. The terms thereof are hereby incorporated herein by reference. References in this Indenture to payments of interest shall be deemed to include payments of Liquidated Damages. -39- ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to the optional redemption provisions of Paragraph 5 or Paragraph 6 of the Securities, it shall notify the Trustee in writing of the Redemption Date, the Redemption Price and the principal amount of Securities to be redeemed. The Company shall give notice of redemption to the Paying Agent and Trustee at least 45 days but not more than 60 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), together with an Officers' Certificate stating that such redemption will comply with the conditions contained herein. Any such notice may be cancelled at any time 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 Securities To Be Redeemed. In the event that less than all of the Securities are to be redeemed at any time pursuant to the optional redemption provisions of Paragraph 5 or Paragraph 6 of the Securities, selection of such Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate and in such manner as complies with applicable law; provided, however, that no Securities of a principal amount of $1,000 or less shall be redeemed in part; and provided, further, that if a redemption is made with the proceeds of an Equity Offering pursuant to Paragraph 6 of the Securities, selection of the Securities or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the procedures of the Depository), unless such method is otherwise prohibited. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. Notice of Optional Redemption. In the case of an optional redemption pursuant to the provisions of Paragraph 5 or Paragraph 6 of the Securities, at least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail, postage prepaid, to each Holder whose Securities are to be redeemed at its registered address. At the Company's request, the Trustee shall give -40- the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed (including the CUSIP number(s), if any) and shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest, if any, to be paid; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; (5) that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption; and (8) the paragraph of the Securities pursuant to which the Securities are to be redeemed. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 or Section 3.07, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price (which shall include accrued interest thereon to the Redemption Date), but installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant Record Dates. -41- SECTION 3.05. Deposit of Redemption Price. On or before 10:00 a.m. New York Time on the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation). The Paying Agent or Trustee shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment when due of such Redemption Price plus accrued interest, if any, interest on the Securities to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. SECTION 3.06. Securities Redeemed in Part. Upon surrender and cancellation of a Security that is to be redeemed in part only, the Trustee shall authenticate for the Holder a new Security or Securities in a principal amount equal to the unredeemed portion of the Security surrendered. SECTION 3.07. Special Mandatory Redemption. In the event that (x) the funds in the Escrow Account have not been released to the Company (or its designee) in accordance with the requirements of Section 3(a) of the Escrow Agreement by 11:59 p.m. New York Time on the Deadline Date, (y) the Merger Agreement has been terminated on or before the Deadline Date or (z) the Tender Offer is terminated or withdrawn prior to acceptance for payment of Existing Notes, the tender of which represents the Requisite Consents (each of the events referred to in the preceding clauses (x), (y) and (z) being herein sometimes referred to as a "Mandatory Redemption Event"): (i) The Company shall notify the Trustee and the Securities Intermediary in writing on the next succeeding Business Day after a Mandatory Redemption Event that the Company will redeem the Securities on a specified Redemption Date no later than the Mandatory Redemption Date at the Mandatory Redemption Price plus accrued and unpaid interest to the Redemption Date (the "Mandatory Redemption"). (ii) Within two Business Days after a Mandatory Redemption Event, the Company shall mail a notice (the "Mandatory Redemption Notice") by first class mail, postage prepaid, to each Holder at its registered address. The Mandatory Redemption Notice shall be mailed at least 10 days (or 30 days if legally required by DTC) but not more than 45 days before the Redemption Date. At the Company's request, the Trustee shall give the Mandatory Redemption Notice in the Company's name and at the Company's expense. The Mandatory Redemption Notice shall identify the Securities to be redeemed (including the CUSIP number(s), if any) and shall state: -42- (1) the Redemption Date; (2) the Mandatory Redemption Price and the amount of accrued interest to be paid; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; (5) that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; and (6) the Securities are to be redeemed pursuant to this Section 3.07. (iii) On or before 10:00 a.m. New York Time on the Redemption Date for a Mandatory Redemption, the Company shall deposit with the Paying Agent an amount of funds such that on the Redemption Date the Paying Agent shall have sufficient immediately available funds (including funds made available under the Escrow Agreement) to pay the Mandatory Redemption Price plus accrued and unpaid interest to the Redemption Date for all outstanding Securities. The Paying Agent or Trustee shall promptly return to the Company any amount so deposited which is not required for that purpose. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities. The Company will pay the principal of and interest on the Securities in the manner provided in the Securities and in this Indenture. An installment of principal of or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. Interest including defaulted interest and Liquidated Damages, if any, will be computed on the basis of a 360-day year comprised of twelve 30-day months and in the case of a partial month, the actual number of days elapsed. -43- Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal, premium or interest payments hereunder. SECTION 4.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.03. 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 address of the Trustee set forth in Section 14.02. The Company hereby initially designates the office of the Trustee at 101 Barclay Street, Floor 21W, New York, New York 10286 as its office or agency in the Borough of Manhattan, The City of New York where presentations and surrenders may be made and notices or demands may be served on the Company. SECTION 4.03. Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company or in warrants, rights or options (other than debt securities or Disqualified Capital Stock) to acquire Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options (other than debt securities or Disqualified Capital Stock) to purchase or acquire shares of any class of such Capital Stock, other than the exchange of such Capital Stock, warrants, rights or options for Qualified Capital Stock and/or for warrants, rights or options (other than debt securities or Disqualified Capital Stock) to acquire Qualified Capital Stock, or (c) make any Restricted Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (1) a Default or an Event of Default shall have occurred and be continuing, (2) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.04, or -44- (3) the aggregate amount of Restricted Payments made subsequent to the Issue Date (without duplication and excluding Restricted Payments permitted by clauses (2)(a), (4) and (5) of the following paragraph) shall exceed the sum of (x) 50% of the cumulative Consolidated Net Income, or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss, of the Company earned subsequent to November 1, 2000 and on or prior to the last day of the most recent fiscal quarter for which financial statements are available and have been delivered to the Trustee as provided under Section 4.10, treating such period as a single accounting period, plus (y) 100% of the aggregate net cash proceeds in excess of $35 million received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Acquisition Closing Date and on or prior to the date the Restricted Payment occurs of Qualified Capital Stock, or in respect of warrants, rights or options (other than debt securities or Disqualified Capital Stock) to acquire Qualified Capital Stock, including Qualified Capital Stock issued upon the conversion of convertible Indebtedness; provided that for the purposes of this clause (y), the retirement and cancellation of the Company's 5.5% Convertible Subordinated Debentures due 2001 in exchange for the issuance of Additional Capital Stock shall be deemed to constitute net cash proceeds from the issuance and sale of Qualified Capital Stock to the extent of the aggregate principal amount of the Company's 5.5% Convertible Subordinated Debentures due 2001 so retired and canceled, plus (z) with respect to Restricted Investments made after the Issue Date, the net reduction of such Restricted Investments as a result of (without duplication with respect to any item below as among such items or any item listed in clause (3) of the next paragraph) (a) any disposition of any such Restricted Investments sold or otherwise liquidated or repaid, to the extent of the net cash proceeds received by the Company or a Restricted Subsidiary, (b) cash dividends or repayments of loans or advances in cash to the Company or any Restricted Subsidiary or, to the extent that a guarantee issued by the Company or a Restricted Subsidiary constitutes a Restricted Investment, the release of such guarantee, or (c) a Person becoming a Restricted Subsidiary, to the extent of the Company's portion (proportionate to the Company's equity interest in such Person) of the fair market value of the net assets of such Person; provided, that in no event shall the net reduction in Restricted Investments attributable to any particular Restricted Investment exceed the amount of such Restricted Investment on the date originally made; -45- provided, further, that any net reduction in Restricted Investments pursuant to this clause (z) shall only be included in the calculation required by clause (3) above to the extent that such net reduction in Restricted Investments is not included in the Company's Consolidated Net Income. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph shall not prohibit (1) the payment of any dividend or distribution or the redemption of any securities within 60 days after the date of declaration of such dividend or distribution or the giving of formal notice by the Company of such redemption, if the dividend or distribution would have been permitted on the date of declaration or the redemption would have been permitted on the date of the giving of the formal notice thereof; (2) so long as no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company or the making of a Restricted Investment, either (a) in exchange for shares of Qualified Capital Stock and/or warrants, rights or options (other than debt securities or Disqualified Capital Stock) to acquire Qualified Capital Stock, or (b) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock and/or warrants, rights or options (other than debt securities or Disqualified Capital Stock) to acquire Qualified Capital Stock; (3) so long as no Default or Event of Default shall have occurred and be continuing, any other Restricted Payment by the Company; provided, however, that the aggregate amount of cash expended by the Company pursuant to this clause (3) does not exceed $5 million plus, to the extent that any Restricted Payment made pursuant to this clause (3) is in the form of a Restricted Investment, the net reduction of such Restricted Investments as a result of (without duplication with respect to any item below as among such items or any item listed in clause (3)(z) of the previous paragraph) (a) any disposition of any such Restricted Investments sold or otherwise liquidated or repaid, to the extent of the net cash proceeds received by the Company or a Restricted Subsidiary, (b) cash dividends or repayments of loans or advances in cash to the Company or any Restricted Subsidiary or, to the extent that a guarantee issued by the Company or a Restricted Subsidiary constitutes a Restricted Investment, the release of such guarantee, or -46- (c) a Person becoming a Restricted Subsidiary, to the extent of the Company's portion (proportionate to the Company's equity interest in such Person) of the fair market value of the net assets of such Person; provided, that in no event shall the net reduction in Restricted Investments attributable to any particular Restricted Investment exceed the amount of such Restricted Investment on the date originally made; provided, further, that any net reduction in Restricted Investments pursuant to this clause (3) shall only be included in the calculation required by this clause (3) to the extent that such net reduction in Restricted Investments is not included in the Company's Consolidated Net Income; (4) the repurchase of any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any such Capital Stock deemed to occur upon the exercise of stock options to acquire Qualified Capital Stock or other similar arrangements to acquire Qualified Capital Stock if such repurchased Capital Stock or warrants, rights or options to acquire shares of any such Capital Stock represent a portion of the exercise price thereof; and (5) the acquisition of Restricted Investments of Scientific Games outstanding on the Acquisition Closing Date upon consummation of the Scientific Games Acquisition in connection therewith. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (3) of the immediately preceding paragraph, amounts expended (to the extent such expenditure is in the form of cash) pursuant to clauses (1), (2)(b) and (3) of this paragraph shall be included in such calculation. SECTION 4.04. Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, incur any Indebtedness, other than Permitted Indebtedness; provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of any such Indebtedness, the Company or any Guarantor may incur Indebtedness if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is equal to or greater than 2.0 to 1.0 prior to August 15, 2002 and 2.25 to 1.0 thereafter. Neither the Company nor any Guarantor will, directly or indirectly, in any event incur any Indebtedness which, by its terms or by the terms of any agreement governing such Indebtedness, is both subordinated pursuant to its terms in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be, and senior in right of payment to the Securities or any such Guarantor's Guarantee, as the case may be. -47- SECTION 4.05. Corporate Existence. Except as otherwise permitted by Article Five, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each of the Subsidiaries in accordance with the respective organizational documents of the Company or the Subsidiary, as the case may be, and the rights (charter and statutory) and material franchises of the Company and each of the Subsidiaries; provided, however, that the Company shall not be required to preserve any such right or franchise, or the corporate existence of any Subsidiary, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and each of the Subsidiaries, taken as a whole. SECTION 4.06. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon it or any of the Subsidiaries or upon the income, profits or property of it or any of the Subsidiaries and (b) all lawful claims for labor, materials and supplies which, in each case, if unpaid, might by law become a material liability or Lien upon the property of it or any of the Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made or for which adequate reserves, to the extent required under GAAP, have been taken or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders. SECTION 4.07. Maintenance of Properties and Insurance. (a) The Company shall cause all material properties owned by or leased by it or any of its Subsidiaries used or useful to the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in normal condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals and replacements thereof, all as in its judgment may be reasonably necessary, so that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section 4.07 shall prevent the Company or any of the Subsidiaries from discontinuing the use, operation or maintenance of any of such properties, or disposing of any of them, if such properties are, in the reasonable and good faith judgment of the Board of Directors of the Company or such Subsidiary, as the case may be, no longer reasonably necessary in the conduct of their respective businesses or such disposition is otherwise permitted by this Indenture. (b) The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith judgment of the Board of Directors of the Company, are adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumen- -48- tality thereof, in such amounts, with such deductibles and by such methods as shall be customary, in the good faith judgment of the Board of Directors of the Company, for companies similarly situated in the industry. SECTION 4.08. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 90 days after the end of each of the Company's fiscal years, an Officers' Certificate (signed by the principal executive officer, principal financial officer and principal accounting officer) stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether it 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 knowledge the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such Obligation and no Default or Event of Default has occurred during such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status in reasonable detail. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) The annual financial statements delivered to the Trustee pursuant to Section 4.10 shall be accompanied by a written report of the Company's independent accountants that in conducting their audit of the financial statements which are a part of such annual report or such annual financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four, Five or Six insofar as they relate to accounting matters 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) So long as any of the Securities are outstanding, if any Default or Event of Default has occurred and is continuing, the Company shall promptly deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officers' Certificate specifying such event, notice or other action within 30 Business Days of its becoming aware of such occurrence. SECTION 4.09. Compliance with Laws. The Company will comply, and will cause each of the Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. -49- SECTION 4.10. Commission Reports. (a) The Company promptly will deliver to the Trustee, but in any event no later than 15 days after it files with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission all information, documents and reports required to be filed with the Commission to the extent permitted, and provide the Trustee and the Holders with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company shall also comply with the other provisions of TIA ss. 314(a). (b) Regardless of whether the Company is required to furnish such reports to its stockholders pursuant to the Exchange Act, the Company (at its own expense) shall cause its consolidated financial statements, comparable to those which would have been required to appear in annual or quarterly reports, to be delivered to the Trustee and the Holders. (c) For so long as any of the Securities remain outstanding, the Company will make available to any prospective purchaser of the Securities or beneficial owner of the Securities in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act during any period when the Company is not subject to Section 13 or 15(d) under the Exchange Act. (d) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.11. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture, and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. -50- SECTION 4.12. Limitations on Transactions with Affiliates. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions with any of its Affiliates (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the next paragraph and (y) Affiliate Transactions on terms that are no less favorable to the Company or such Restricted Subsidiary than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate; provided, however, that for a transaction or series of related transactions with an aggregate value of $2 million or more (1) such determination shall be made in good faith by a majority of the disinterested members of the Board of the Directors of the Company or (2) the Board of Directors of the Company shall have received an opinion from an independent nationally recognized investment banking firm selected by the Company, that such transaction or series of related transactions is on terms which are fair, from a financial point of view, to the Company or such Restricted Subsidiary; and provided, further, that for a transaction or series of related transactions with an aggregate value of $10 million or more, (1) such determination shall be made in good faith by a majority of the disinterested members of the Board of Directors of the Company and (2) the Board of Directors of the Company shall have received an opinion from an independent nationally recognized investment banking firm selected by the Company, that such transaction or series of related transactions is on terms which are fair, from a financial point of view, to the Company or such Restricted Subsidiary. The foregoing restrictions shall not apply to (1) reasonable fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary as determined in good faith by the Company's Board of Directors or senior management; (2) transactions between or among the Company and any of its Restricted Subsidiaries so long as no portion of the minority interest in such Restricted Subsidiary is owned by an Affiliate of the Company (other than a Wholly Owned Subsidiary of the Company or directors or officers of such Subsidiary that hold stock of such Subsidiary to the extent that local law re- -51- quires a resident of such jurisdiction to own stock of such company) or between or among such Restricted Subsidiaries; provided such transactions are not otherwise prohibited by this Indenture; (3) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) or in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (4) Permitted Investments and Restricted Payments permitted by this Indenture; (5) commercially reasonable transactions between the Company or a Restricted Subsidiary and any Joint Venture in the ordinary course of business that have been determined by the Board of Directors of the Company to comply with clause (y) of the first paragraph above; and (6) any agreement of Scientific Games or its Subsidiaries as in effect on the Acquisition Closing Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) or in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Acquisition Closing Date. SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances to or pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law and agreements with governmental authorities with respect to assets located in their jurisdiction, (2) the Securities, this Indenture or any Guarantee, -52- (3) (A) customary provisions restricting (1) the subletting or assignment of any lease or (2) the transfer of copyrighted or patented materials, (B) provisions in agreements that restrict the assignment of such agreements or rights thereunder or (C) provisions of a customary nature contained in the terms of Capital Stock restricting the payment of dividends and the making of distributions on Capital Stock, (4) any agreement or instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than (a) the Person or the properties or assets of the Person so acquired (including the Capital Stock of such Person), or (b) any Restricted Subsidiary having no assets other than (i) the Person or the properties or assets of the Person so acquired (including the Capital Stock of such Person) and (ii) other assets having a fair market value not in excess of $50,000, and, in each case, the monetary proceeds thereof, (5) any agreement or instrument governing Senior Debt or Guarantor Senior Debt, including the New Credit Agreement, (6) any agreement or instrument governing Indebtedness incurred pursuant to clause (9), (13) or (16) of the definition of Permitted Indebtedness, (7) restrictions on the transfer of assets subject to any Lien permitted under this Indenture, (8) restrictions imposed by any agreement to sell assets not in violation of this Indenture to any Person pending the closing of such sale, (9) customary rights of first refusal with respect to the Company's and its Restricted Subsidiaries' interests in their respective Restricted Subsidiaries and joint ventures, (10) Indebtedness of a Person that was a Restricted Subsidiary at the time of incurrence and the incurrence of which Indebtedness is permitted by Section 4.04; provided that such encumbrances and restrictions apply only to such Restricted Subsidiary and its assets; and provided, further, that the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the Holders of the Securities, (11) the subordination of any Indebtedness owed by the Company or any of its Restricted Subsidiaries to the Company or any other Restricted Subsidiary to any other Indebtedness of the Company or any of its Restricted Subsidiaries; provided (A) such other Indebtedness is permitted under this Indenture and (B) the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the Holders of the Securities, or -53- (12) an agreement effecting a refinancing, replacement or substitution of Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clauses (2), (4) and (5) above or any other agreement evidencing Indebtedness permitted under this Indenture; provided, however, that the provisions relating to such encumbrance or restriction contained in any such refinancing, replacement or substitution agreement or any such other agreement are not less favorable to the Company in any material respect as determined by the Board of Directors of the Company than the provisions of the Indebtedness being refinanced. SECTION 4.14. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness (other than Permitted Liens) upon any property or asset now owned or hereafter acquired by them, or any income or profits therefrom, or assign or convey any right to receive income therefrom; provided, however, that in addition to creating Permitted Liens on their properties or assets, the Company and any of its Restricted Subsidiaries may create any Lien securing Indebtedness upon any of their properties and assets (including, but not limited to, any Capital Stock of its Subsidiaries) if the Securities are equally and ratably secured. SECTION 4.15. Change of Control. (a) Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company repurchase all or a portion of such Holder's Securities, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. (b) Prior to the mailing of the notice described in paragraph (c) below, but in any event within 30 days following any Change of Control, the Company covenants to (1) repay in full and terminate all commitments under Indebtedness under the New Credit Agreement and all other Senior Debt, the terms of which require repayment upon a Change of Control or offer to repay in full, and terminate all commitments under all Indebtedness under the New Credit Agreement and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer, or (2) obtain the requisite consents under the New Credit Agreement and all such other Senior Debt to permit the purchase of the Securities as provided below. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Securities pursuant to the provisions described below. The Company's failure to comply with this Section 4.15 shall constitute an Event of Default described in clause (c) and not in clause (b) of Section 6.01. -54- (c) Within 30 days following the date upon which a Change of Control occurred, the Company shall send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control offer to purchase (the "Change of Control Offer"). The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Securities tendered and not withdrawn will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date, which shall be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Security 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 a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to 5:00 p.m. New York City time on the third Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m. New York time on the second Business Day prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are purchased only in part will be issued new Securities in a principal amount equal to the unpurchased portion of the Securities surrendered; and (8) the circumstances and relevant facts regarding such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered (in integral multiples of $1,000) pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price plus accrued and unpaid interest, if any, thereon to -55- the Change of Control Payment Date and the Trustee shall promptly authenticate and mail to such Holders new Securities equal in principal amount to any unpurchased portion of the Securities surrendered. Any Securities not so accepted shall be promptly mailed by the Company to the Holder thereof. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Securities pursuant to a Change of Control Offer promptly shall be returned by the Trustee to the Company. 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 Securities pursuant to a Change of Control Offer. To the extent the provisions of any securities laws or regulations conflict with the provisions under this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue thereof. SECTION 4.16. Limitation on Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (1) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of, as determined in good faith by the Company's Board of Directors, (2) at least 75% of the consideration received by the Company or such Restricted Subsidiary exclusive of indemnities, as the case may be, from such Asset Sale shall be cash or Cash Equivalents and is received at the time of such disposition; provided that the amount of (a) any liabilities of the Company or any such Restricted Subsidiary, as shown on the Company's or such Restricted Subsidiary's most recent balance sheet, that are assumed by the transferee of any such assets, (b) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents within 60 days of the time of such disposition, to the extent of the cash or Cash Equivalents received and (c) any Designated Non-cash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (c), not to exceed $5 million, with the fair market value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value, shall be deemed to be cash for the purposes of this clause (2) and (3) upon the consummation of an Asset Sale, the Company shall apply directly or through a Restricted Subsidiary, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof either (A) to repay Sen- -56- ior Debt (and in the case of any Indebtedness outstanding under a revolving credit facility, to permanently reduce the amounts that may be reborrowed thereunder by an equivalent amount), with the Net Cash Proceeds received in respect thereof, (B) to reinvest in Productive Assets, or (C) a combination of prepayment, reduction and investment permitted by the foregoing clauses (3)(A) and (3)(B); provided that the 75% limitation referred to above shall not apply to any sale, transfer or other disposition of assets in which the cash portion of the consideration received therefor is equal to or greater than what the after-tax net proceeds would have been had such transaction complied with the aforementioned 75% limitation. On the 361st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(A), (3)(B) and (3)(C) of the preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been so applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(A), (3)(B) and (3)(C) of the preceding sentence (each, a "Net Proceeds Offer Amount") shall be applied by the Company to make an offer to repurchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis that amount of Securities equal to the Net Proceeds Offer Amount multiplied by a fraction, the numerator of which is the aggregate principal amount of Securities then outstanding and the denominator of which is the sum of the aggregate principal amount of Securities and Pari Passu Indebtedness then outstanding (the "Pro Rata Share"), at a price equal to 100% of the principal amount of the Securities to be repurchased, plus accrued interest to the date of repurchase. Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than $10 million, the application of the Net Cash Proceeds constituting such Net Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating to such initial Net Proceeds Offer Amount from all Asset Sales by the Company and its Restricted Subsidiaries aggregates at least $10 million, at which time the Company shall apply all Net Cash Proceeds constituting all Net Proceeds Offer Amounts that have been so deferred to make a Net Proceeds Offer, the first date the aggregate of all such deferred Net Proceeds Offer Amounts is equal to $10 million or more being deemed to be a Net Proceeds Offer Trigger Date. To the extent that the aggregate purchase price of Securities tendered pursuant to any Net Proceeds Offer is less than the Pro Rata Share, the Company or any Guarantor may use such amount for general corporate purposes. Upon completion of any Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset to zero. Notwithstanding the first two paragraphs of this Section 4.16, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (1) at least 75% of the consideration for such Asset Sale constitutes Productive Assets -57- and (2) such Asset Sale is for fair market value, as determined in good faith by the Company's Board of Directors; provided that the fair market value of any consideration not constituting Productive Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the first two paragraphs of this Section 4.16. In the event of the transfer of substantially all, but not all, of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Section 5.01, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this Section 4.16, and shall comply with the provisions of this Section 4.16 with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this Section 4.16. Notice of a Net Proceeds Offer shall be mailed, by first-class mail, by the Company to Holders of Securities at their last registered address not less than 30 days nor more than 60 days before the Net Proceeds Offer Payment Date, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to this Section 4.16, that all Securities tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or multiples thereof shall be purchased) and that the Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law; (2) the purchase price (including the amount of accrued interest) and the Net Proceeds Offer Payment Date (which shall be not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date and which shall be at least five Business Days after the Trustee receives notice thereof from the Company); (3) that any Security not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Offer Payment Date; -58- (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Net Proceeds Offer Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the second Business Day prior to the Net Proceeds Offer Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities such Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; and (7) that Holders whose Securities are purchased only in part will be issued new Securities in a principal amount equal to the unpurchased portion of the Securities surrendered; provided, however, that each Security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof. On or before the Net Proceeds Offer Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (1) above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price plus accrued interest, if any. For purposes of this Section 4.16, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer promptly shall be returned by the Trustee to the Company. If an offer is made to repurchase the Securities pursuant to a Net Proceeds Offer, the Company will and will cause its Restricted Subsidiaries to comply with all tender offer rules under state and federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.16, the Company shall comply with the applicable securities laws and obligations and shall not be deemed to have breached its obligations hereunder by virtue thereof. SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries that are not Guarantors of the Securities to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company that is not a Guarantor of the Securities. -59- SECTION 4.18. Limitation on Sale and Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction; provided that the Company and any Guarantor may enter into a Sale and Leaseback Transaction if (1) the Company or such Guarantor could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction pursuant to Section 4.04 and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.14, (2) the gross cash proceeds of such Sale and Leaseback Transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of such Sale and Leaseback Transaction and (3) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Company or the applicable Guarantor applies the proceeds of such transaction with, Section 4.16. SECTION 4.19. Limitation of Guarantees by Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary that is not a Guarantor, directly or indirectly, by way of the pledge of any intercompany note or otherwise, to assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company, other than (A) Indebtedness incurred in reliance on clauses (12) (to the extent the Indebtedness being refinanced, modified, replaced, renewed, restated, refunded, deferred, extended, substituted, supplemented, reissued or resold was permitted to be guaranteed by Restricted Subsidiaries) and (13) of the definition of Permitted Indebtedness or under Currency Agreements in reliance on clause (5) of the definition of Permitted Indebtedness, or (B) Interest Swap Obligations incurred in reliance on clause (4) of the definition of Permitted Indebtedness, unless, in any such case (a) such Restricted Subsidiary has executed and delivered or executes and delivers a supplemental indenture to this Indenture, providing a guarantee of payment of the Securities by such Restricted Subsidiary in the form required by this Indenture and (b) if such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Indebtedness that is expressly subordinated to the Securities, the guaran- -60- tee or other instrument provided by such Restricted Subsidiary in respect of such subordinate Indebtedness shall be similarly subordinated to the Guarantee of the Securities. Any Guarantee of the Securities by a Restricted Subsidiary shall provide by its terms that it shall be automatically and unconditionally released and discharged, without any further action required on the part of the Trustee or any Holder, upon: (1) the unconditional release of such Restricted Subsidiary from its liability in respect of the Indebtedness in connection with which such Guarantee of the Securities was executed and delivered pursuant to the preceding paragraph; or (2) any sale or other disposition (by merger or otherwise) to any Person which is not a Restricted Subsidiary of the Company, of all of the Company's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary; provided, however, that (a) such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of this Indenture and (b) such assumption, guarantee or other liability of such Restricted Subsidiary has been released by the holders of the other Indebtedness so guaranteed. SECTION 4.20. Escrow of Proceeds of Securities on Issue Date. On the Issue Date the Company will enter into the Escrow Agreement and deposit (or cause to be deposited) into the Escrow Account $150,000,000 in cash and will provide to the Trustee a Letter of Credit (as such term is defined in the Escrow Agreement) in the face amount of $2,029,650. On or before the first day of each month that the funds in the Escrow Account have not been released to the Company in accordance with the requirements of Section 3(a) of the Escrow Agreement, the Company will (a) deposit cash into the Escrow Account, or (b) cause a Letter of Credit to be issued or cause the face amount of an existing Letter of Credit then held by the Trustee to be increased, in either case, in the amount and according to the procedures set forth in Section 2(b)(ii) of the Escrow Agreement. The Trustee is authorized and directed to execute and deliver the Escrow Agreement and to perform its duties and obligations thereunder. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or -61- cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (1) either (A) the Company or a Restricted Subsidiary of the Company shall be the surviving or continuing corporation or (B) the Person, if other than the Company or a Restricted Subsidiary of the Company, formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Company's assets determined on a consolidated basis for the Company and its Restricted Subsidiaries (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture, in form reasonably satisfactory to the Trustee, executed and delivered to the Trustee, the due and punctual payment of the principal of and premium, if any, and interest on all of the Securities and the performance of every covenant of the Securities, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction and the assumption contemplated by clause (1)(B)(y) above, including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction, the Company or such Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction and (2) shall be able to incur at least $1.00 of additional Indebtedness, other than Permitted Indebtedness, pursuant to Section 4.04; (3) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(B)(y) above, including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction, no Default or Event of Default shall have occurred and be continuing; and (4) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture shall comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to the execution of such supplemental indenture have been satisfied. For purposes of the foregoing, the transfer, by lease, assignment, sale or otherwise, in a single transaction or series of transactions, of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, other than to a Wholly Owned Subsidiary that is a Guarantor, the Capital Stock of which constitutes all or substantially all of the properties and assets of the -62- Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Securities with the same effect as if such surviving entity had been named as such and the Company shall be relieved of all of its obligations and duties under this Indenture and the Securities. Each Guarantor, other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture, will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (1) the entity formed by or surviving any such consolidation or merger, if other than the Guarantor, or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (2) such entity assumes by supplemental indenture all of the obligations of the Guarantor on the Guarantee; (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (4) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (2) of the first paragraph of this Section 5.01. Any merger or consolidation of a Guarantor with and into the Company, with the Company being the surviving entity, or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need not comply with this Section 5.01. SECTION 5.02. Successor Corporation Substituted. Upon any such consolidation, merger, conveyance, lease or transfer of all or substantially all of the assets of the Company in accordance with Section 5.01, in which the Company is not the surviving Person, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Securities with the same effect as if such successor had been named as the Company therein. When a successor corpo- -63- ration assumes all of the Obligations of the Company hereunder and under the Securities and agrees to be bound hereby and thereby, the predecessor shall be released from such Obligations. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" means any of the following events: (a) the failure to pay interest on any Securities when the same becomes due and payable and the default continues for a period of 30 days; (b) the failure to pay the principal on any Securities, when such principal becomes due and payable, at maturity, upon redemption or otherwise, including the failure to make a payment to purchase Securities tendered pursuant to a Change of Control Offer or a Net Proceeds Offer; (c) a default in the observance or performance of any other covenant or agreement contained in this Indenture, which default continues for a period of 45 days after the Company receives written notice specifying the default, and demanding that such default be remedied, from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Securities; (d) the failure to pay at final maturity, giving effect to any extensions thereof, the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company that is a Significant Subsidiary, other than intercompany Indebtedness, and such failure continues for a period of 20 days or more, or the acceleration of the final stated maturity of any such Indebtedness, which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration, if, in either case, the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, in each case with respect to which the 20-day period described above has passed, aggregates $10 million or more at any time; (e) one or more judgments in an aggregate amount in excess of $10 million shall have been rendered against the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; -64- (f) the Company or any of its Significant Restricted Subsidiaries (i) admits in writing its inability to pay its debts generally as they become due, (ii) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (iii) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (iv) consents to the appointment of a Custodian of it or for substantially all of its property, (v) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (vi) makes a general assignment for the benefit of its creditors or (vii) takes any partnership or corporate action, as the case may be, to authorize or effect any of the foregoing; (g) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any of its Significant Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law, which shall (i) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any of its Significant Subsidiaries, (ii) appoint a Custodian of the Company or any of its Significant Subsidiaries or for substantially all of any of their property or (iii) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (h) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is held in a judicial processing to be null and void and unenforceable or any of the Guarantees is found to be invalid by a final judgment or order that is not appealable or any of the Guarantors denies its liability under its Guarantee, other than by reason of release of a Guarantor in accordance with the terms of this Indenture; (i) following the consummation of the Scientific Games Acquisition and the Transactions to be consummated concurrently therewith, the Company fails to issue Additional Capital Stock for net cash proceeds of at least $35 million on or before August 15, 2001; provided that for the purposes of this clause (i), the retirement and cancellation of the Company's 5.5% Convertible Subordinated Debentures due 2001 in exchange for the issuance of Additional Capital Stock shall be deemed to constitute net cash proceeds from the issuance and sale of Additional Capital Stock to the extent of the aggregate principal amount of the Company's 5.5% Convertible Subordinated Debentures due 2001 so retired and canceled; or (j) the failure to (i) deposit cash into the Escrow Account or (ii) cause a Letter of Credit (as such term is defined in the Escrow Agreement) to be issued or cause the face amount of an existing Letter of Credit then held by the Trustee to be increased, in either case in the amount and at the time required pursuant to the terms of Section 2(b)(ii) of the Escrow Agreement, and the default continues for a period of 10 days. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(f) or (g)) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of -65- outstanding Securities may declare the principal of and accrued and unpaid interest on all the Securities to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration", and the same shall become immediately due and payable. If an Event of Default specified in Section 6.01(f) or (g) occurs and is continuing, then all unpaid principal of and premium, if any, and accrued and unpaid interest on all of the outstanding Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration with respect to the Securities as described in the preceding paragraph, the Holders of a majority in principal amount of the Securities may rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its reasonable expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in clause (f) or (g) of Section 6.01, the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities, this Indenture or the Guarantees. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder 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. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 2.09, 6.07 and 9.02, the Holders of not less than a majority in principal amount of the outstanding Securities by written notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (a) and (b) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases. -66- SECTION 6.05. Control by Majority. The Holders of not less than a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Securityholder, or that may, in the sole judgment of the Trustee, give rise to or subject the Trustee to personal liability; provided that the Trustee may take any other action deemed proper by the Trustee. In the event the Trustee takes any action or follows any direction pursuant to this Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against any loss or expense caused by taking such action or following such direction. SECTION 6.06. Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity or security satisfactory to the Trustee in its sole judgment, against any loss, liability or expense; (4) the Trustee does not comply with the request within 30 days after receipt of the request and the offer described in clause (3) above; and (5) during such 30-day period the Holder or Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a written direction which, in the opinion of the Trustee, is inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, 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 written consent of the Holder. -67- SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest and fees remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the actual, documented and reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may 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 Securityholders allowed in any judicial proceedings relating to the Company, the Subsidiaries, their creditors or their property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder 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 Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money or property in the following order: First: to the Trustee for amounts due under Section 7.07; Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their reasonable collection costs; Third: to Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Fourth: to the Company. -68- The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. Each party to this Indenture agrees and each Holder of any Security 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 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 and expenses, 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 6.11 does not apply to a suit instituted by the Company, any suit instituted by the Trustee, any suit instituted by a Holder pursuant to Section 6.07, or any suit instituted by a Holder or Holders of more than 10% in principal amount of the outstanding Securities. SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holders, then and in every such case, subject to any determination in such proceeding, the Company, the Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. (a) If a Default or 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 their exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are expressly and specifically set forth in this Indenture or the TIA and no covenants, duties or obligations whatsoever shall be implied under this Indenture that are adverse to the Trustee. -69- (2) 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 and such other documents delivered to it pursuant to Section 14.04 hereof 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) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) 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. (3) 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 6.02, 6.04 or 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or take any action at the request or direction of Holders if it shall reasonably believe that repayment of such funds is not assured to it or it does not receive an indemnity that is, in its sole discretion, adequate against such risk, liability, loss, fee or expense which might be incurred by it in compliance with such request or direction. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets of the Trustee except to the extent required by law. (g) In the absence of bad faith, negligence or willful misconduct on the part of the Trustee, the Trustee shall not be accountable for the use of any of the Securities delivered hereunder or the proceeds thereof. -70- SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely conclusively on 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 and an Opinion of Counsel, which shall conform to the provisions of Sections 14.04 and 14.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent (other than an agent who is an employee of the Trustee) appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (e) The Trustee may consult with counsel of its selection and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (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, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity satisfactory to the Trustee in its sole judgment against the costs, expenses and liabilities which may be incurred therein or thereby. (g) The Trustee shall not be deemed to have notice of any Event of Default unless a Responsible Officer of the Trustee has received written notice thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. (h) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate (including any Officers' Certificate), statement, instrument, opinion (including any Opinion of Counsel), 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 and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney. -71- (i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. (j) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any Person authorized to sign an Officers' Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. 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 Securities (other than the certificate of authentication of the Trustee), it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or any document issued in connection with the sale of Securities or any statement in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and the Trustee receives actual notice of such event, the Trustee shall mail to each Securityholder, as their names and addresses appear on the Securityholder list described in Section 2.05, notice of the uncured Default or Event of Default within 90 days after the Trustee receives such notice. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Security, including the failure to make payment on (i) the Change of Control Payment Date pursuant to a Change of Control Offer or (ii) the Net Proceeds Offer Payment Date pursuant to a Net Proceeds Offer, the Trustee shall not be deemed to have actual knowledge or actual notice of a Default or an Event of Default unless a Responsible Officer of the Trustee has received written notice of such Default or Event of Default. The Trustee may withhold the notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Trustee in good faith determines that withholding the notice is in the interest of the Securityholders. As used herein, the term "actual knowledge" means the actual fact or statement of knowing, without any duty to make any investigation with regard thereto. -72- SECTION 7.06. Reports by Trustee to Holders. Within 60 days after August 15 of each year, beginning with August 15, 2001, the Trustee shall, to the extent that any of the events described in TIA ss. 313(a) occurred within the previous twelve months, but not otherwise, mail to each Securityholder a brief report dated as of such May 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.ss. 313(b), 313(c) and 313(d). A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the Commission and each securities exchange, if any, on which the Securities are listed. The Company shall notify the Trustee if the Securities become listed on any securities exchange or of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services hereunder (which shall be agreed to from time to time in writing by the Company and the Trustee). 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 upon written request for all reasonable and documented disbursements, expenses and advances (including reasonable and documented fees and expenses of counsel) incurred or made by it in addition to the compensation for its services, except any such disbursements, expenses and advances as may be attributable to the Trustee's negligence or willful misconduct. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents, accountants, experts and counsel. The Company shall indemnify the Trustee or any predecessor Trustee and its agents, employees, officers, stockholders and directors for, and hold them harmless against, any loss, liability or expense, including taxes (other than taxes based upon, measured or determined by the income of the Trustee), incurred by them except for such actions to the extent caused by any negligence, bad faith or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this trust including the reasonable costs and expenses of defending themselves against or investigating any claim or liability in connection with the exercise or performance of any of the Trustee's rights, powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee or any of its agents, employees, officers, stockholders and directors for which it may seek indemnity. At the Trustee's reasonable discretion, the Company shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided that any settlement of a claim shall be approved in writing by the Trustee. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel; provided, however, that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee and its agents, employees, officers, stockholders and directors subject to the claim in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made -73- without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment Obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities against all money or property held or collected by the Trustee, in its capacity as Trustee. When the Trustee incurs expenses or renders services after an Event of Default specified in clause (f) or (g) of Section 6.01 occurs, the expenses and the compensation for the services shall be paid to the extent allowable under any Bankruptcy Law. The Company's Obligations under this Section 7.07 and any claim arising hereunder shall survive the resignation or removal of any Trustee, the discharge of the Company's Obligations pursuant to Article Eight and any rejection or termination under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company in writing at least 30 days in advance. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the Company and the Trustee in writing and may appoint a successor trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only with the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) 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 shall notify in writing each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities 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. Immediately after that, the retiring Trustee shall transfer, after payment of all sums then owing to the Trustee pursuant to Section 7.07, all property held by it as Trustee to the successor Trustee, subject to the Lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties -74- of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's Obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided, however, that such corporation shall be otherwise qualified and eligible under this Article Seven. SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA ss.ss. 310(a)(1), 310(a)(2), if applicable, and 310(a)(5). The Trustee shall be a commercial bank with trust powers or a trust company, which shall have (or, in the case of a financial institution, commercial bank with trust powers or a trust company included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition, and subject to supervision or examination by federal or state authorities, so long as any of the Securities are outstanding. The Trustee shall comply with TIA ss. 310(b); provided, however, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The provisions of TIA ss. 311 shall apply to the Company, and any other obligor of the Securities. -75- ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of the Company's Obligations. The Company may terminate all of its obligations under this Indenture (except as provided below) when (i) all outstanding Securities theretofore authenticated have been delivered to the Trustee for cancellation and the Company has paid or caused to be paid all sums payable under this Indenture by the Company or (ii) the Company has called for redemption pursuant to this Indenture all of the Securities under the arrangements and by depositing the amounts described in Section 8.03(a), the conditions in clauses (i) and (ii) of the proviso to Section 8.03(a) have been satisfied and the certificate and opinion described in Section 8.03(g) have been delivered. Notwithstanding the foregoing, the Opinion of Counsel required by clause (ii) above need not be delivered if all Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable on the maturity date within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. Notwithstanding the first paragraph of this Section 8.01, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 8.05 and 8.06 shall survive until the Securities are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Securities are no longer outstanding, the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. After such delivery or irrevocable deposit, the Trustee shall acknowledge in writing the discharge of the Company's and Guarantors' obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 8.02. Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, elect to have either paragraph (b) or (c) below be applied to all outstanding Securities upon compliance with the conditions set forth in Section 8.03. (b) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (b), the Company and each Guarantor shall, subject to the satisfaction of the conditions set forth in Section 8.03, be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "Legal -76- 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 Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.04 and the other Sections of this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Securities and any amounts deposited under Section 8.03 shall cease to be subject to any other obligations, except for the following provisions, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.04, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.05, 2.06, 2.07, 2.08 and 4.02, (iii) the rights, obligations and immunities of the Trustee under this Indenture and (iv) this Article Eight. Subject to compliance with this Section 8.02, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) hereof. (c) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), the Company shall, subject to the satisfaction of the conditions set forth in Section 8.03, be released from its Obligations under the covenants contained in Sections 4.03, 4.04 and 4.12 through 4.19 and Article Five with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities 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 (it being understood that such Securities shall not be deemed outstanding for accounting purposes) and Holders of the Securities and any amounts deposited under Section 8.03 shall cease to be subject to any other obligations. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, 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(c), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), subject to the satisfaction of the conditions set forth in Section 8.03, Sections 6.01(c), 6.01(d), 6.01(e), 6.01(h) and 6.01(i) shall not constitute Events of Default. SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02(b) or 8.02(c) to the outstanding Securities: (a) the Company irrevocably deposits, or causes to be deposited, with the Trustee, in trust for the benefit of the Holders pursuant to an irrevocable trust and security agreement in -77- form and substance reasonably satisfactory to the Trustee (i) U.S. Legal Tender, (ii) U.S. Government Obligations or (iii) a combination thereof, in an amount sufficient after payment of all Federal, state or local taxes or other charges or assessments in respect thereof payable by the Trustee, which through the payment of interest and principal will provide, not later than one day before the due date of payment in respect of the Securities, U.S. Legal Tender in an amount which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof (in form and substance reasonably satisfactory to the Trustee) delivered to the Trustee, is sufficient to pay the principal of, premium, if any, and interest on the Securities then outstanding on the dates on which any such payments are due and payable in accordance with the terms of this Indenture and of the Securities; provided, however, that (i) the trustee of the irrevocable trust shall have been irrevocably instructed to pay such money or the proceeds of such U.S. Government Obligations to the Trustee; and (ii) the Trustee shall have been irrevocably instructed to apply such U.S. Legal Tender or the proceeds of such U.S. Government Obligations to the payment of said principal and interest with respect to the Securities; (b) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel from independent counsel reasonably satisfactory to the Trustee or a tax ruling from the Internal Revenue Service to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and Legal Defeasance and will be subject to Federal income tax in the same amounts and in the same manner and at the same times as would have been the case if such deposit and Legal Defeasance had not occurred; (c) in the case of Covenant Defeasance, 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 will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to Federal income tax at the same amounts and in the same manner and at the same times as would have been the case if such deposit and 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 with respect to the Indenture resulting from the incurrence of Indebtedness all or a portion of which will be used to defease the Securities concurrently with such incurrence); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under this Indenture or any other material agreement or instrument to which the Company is a party or by which the Company is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, such money or the proceeds of such U.S. Government Obligations will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and -77- (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each in form and substance reasonably satisfactory to the Trustee, each stating that all conditions precedent relating to the satisfaction and discharge of this Indenture have been complied with or waived. Notwithstanding the foregoing, the Opinion of Counsel required by clauses (b), (c) and (f) above need not be delivered if all Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable on the maturity date within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. SECTION 8.04. Application of Trust Money. The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations deposited with it pursuant to this Article Eight, and shall apply the deposited U.S. Legal Tender and the U.S. Legal Tender from U.S. Government Obligations in accordance with this Indenture to the payment of principal of and interest on the Securities. The Trustee shall be under no obligation to invest said U.S. Legal Tender or U.S. Government Obligations except as it may agree with the Company. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or U.S. Government Obligations deposited pursuant to Section 8.03 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 Securities. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any U.S. Legal Tender or U.S. Government Obligations held by it as provided in Section 8.03 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, 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 8.05. Repayment to the Company. Subject to Section 8.01, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for one year; provided that the Trustee or such Paying Agent, before being required to make any payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein which shall be at least 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders -79- entitled to such money must look to the Company for payment as general creditors unless an applicable law abandoned property designates another Person. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Article Eight by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's Obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Article Eight until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Article Eight; provided that if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its Obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company and the Trustee, together, may amend or supplement this Indenture, the Securities or the Escrow Agreement without notice to or consent of any Securityholder: (1) to cure any ambiguity, defect or inconsistency so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any Holders in any material respect; (2) to evidence the succession in accordance with Article Five hereof of another Person to the Company and the assumption by any such successor of the covenants of the Company herein, in the Escrow Agreement and in the Securities; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; (4) to make any other change that does not, in the opinion of the Trustee, adversely affect in any material respect the rights of any Securityholders hereunder; (5) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; -80- (6) to make any change that would provide any additional benefit or rights to the Securityholders or that does not adversely affect the rights of any Securityholder in any material respect; or (7) to provide for issuance of the Series B Securities, which will have terms substantially identical in all material respects to the Series A Securities (except that the transfer restrictions contained in the Series A Securities will be modified or eliminated, as appropriate), and which will be treated together with any outstanding Series A Securities as a single issue of securities; provided that the Company has delivered to the Trustee an Opinion of Counsel and an Officers' Certificate, each stating that such amendment or supplement complies with the provisions of this Section 9.01. SECTION 9.02. With Consent of Holders. Subject to Section 6.07, the Company and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in aggregate principal amount unless a greater principal amount is specified herein of the outstanding Securities, may amend or supplement this Indenture, the Securities or the Escrow Agreement, without notice to any other Securityholders. Subject to Section 6.07, the Holder or Holders of a majority in aggregate principal amount unless a greater principal amount is specified herein of the outstanding Securities may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any other Securityholder. Without the consent of each Securityholder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may: (1) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Securities; (3) reduce the principal of or change or have the effect of changing the fixed maturity of any Securities, or change the date on which any Securities may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any Securities payable in money other than that stated in the Securities; (5) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Security on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of the Securities to waive Defaults or Events of Default (other than Defaults or Events of Default with respect to the payment of principal of or interest on the Securities); -81- (6) modify or change any provision of this Indenture or the related definitions that adversely affects the ranking of the Securities or the Guarantees; or (7) make any change to Section 3.07 or 4.20 hereof or Section 3(b) of the Escrow Agreement which would adversely affect the rights of any Holders. In addition, following the occurrence of a Change of Control or an Asset Sale (if the Company is obligated to make and consummate a Net Proceeds Offer as a result of such Asset Sale), as the case may be, without the consent of Holders of at least 75% of the outstanding aggregate principal amount of Securities, an amendment, supplement or waiver may not make any change to the Company's obligations to make and consummate the required Change of Control Offer or Net Proceeds Offer, as the case may be, or modify any of the provisions or definitions with respect thereto. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall or shall cause the Trustee to mail to the Holders 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 amendment, supplement, waiver or supplemental indenture. SECTION 9.03. Compliance with TIA. From the date on which this Indenture is qualified under the TIA, every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders af- -82- ter such record date. No such consent shall be valid or effective for more than 90 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Company may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture and constitutes the legal, valid and binding obligations of the Company enforceable in accordance with its terms (subject to customary exceptions). ARTICLE TEN SUBORDINATION OF SECURITIES SECTION 10.01. Securities Subordinated to Senior Debt. The Company covenants and agrees, and the Trustee and each Holder of the Securities by his acceptance thereof likewise covenant and agree, that all Securities shall be issued subject to the provisions of this Article Ten; and each person holding any Security, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that all payments of the principal of and interest and Liquidated Damages, if any, on the Securities by the Company shall, to the extent and in the manner set forth in this Article Ten, be subordinated and junior in right of payment to the prior payment in full in cash of all amounts payable under Senior Debt, whether outstanding on the Issue Date or thereafter incurred. -83- SECTION 10.02. No Payment on Securities in Certain Circumstances. (a) No direct or indirect payment by or on behalf of the Company of principal of or interest or Liquidated Damages, if any, on the Securities, whether pursuant to the terms of the Securities, upon acceleration, pursuant to an Asset Sale Offer or Change of Control Offer or otherwise, shall be made to the Holders of Securities (except that Holders of Securities may receive and retain (I) payments made from the defeasance trust described under Article Eight and (II) payments made from the Escrow Account or from the proceeds of any drawing under any letter of credit pursuant to the Escrow Agreement) if (i) a default in the payment of the principal of or premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a written notice of such other default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt (with a copy to the Company) until all Obligations with respect to such Designated Senior Debt are paid in full; payments on the Securities shall be resumed (x) in the case of a payment default, upon the date on which such default is cured or waived and (y) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received by the Trustee (such period being referred to herein as the "Payment Blockage Period"), unless the maturity of any Designated Senior Debt has been accelerated (and written notice of such acceleration has been received by the Trustee). Notwithstanding anything herein or in the Securities to the contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days from the date the Payment Blockage Notice in respect thereof was given and (y) not more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive days. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice (it being understood that any subsequent action, or any breach of any covenant for a period commencing after the date of receipt by the Trustee of such Payment Blockage Notice, that, in either case, would give rise to such a default pursuant to any provisions under which a default previously existed or was continuing shall constitute a new default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.02(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Designated Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Designated Senior Debt may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Trustee to the holders of Designated Senior Debt that such prohibited payment has been made, the holders of the Designated Senior Debt (or their representative or representatives or a trustee) notify the Trustee in writing of the amounts then due and owing on the Designated Senior Debt, if any, and only the amounts specified in such notice to the Trustee shall be paid to the holders of Designated Senior Debt. -84- SECTION 10.03. Payment Over of Proceeds upon Dissolution, etc. (a) Upon any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other similar proceedings, an assignment for the benefit of creditors or any marshaling of the Company's assets, the holders of Senior Debt shall be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest after the commencement of any proceeding at the rate specified in the applicable Senior Debt) before the Holders of the Securities or the Trustee on behalf of such Holders shall be entitled to receive any payment by the Company of the principal of or interest or Liquidated Damages, if any, on the Securities, or any payment by the Company to acquire any of the Securities for cash, property or securities, or any distribution with respect to the Securities of any cash, property or securities (except that the Holders may receive and retain (I) Permitted Junior Securities, (II) payments made from the defeasance trust described under Article Eight and (III) payments made from the Escrow Account or from the proceeds of any drawing under any letter of credit pursuant to the Escrow Agreement). Before any payment (other than Permitted Junior Securities or by virtue of the defeasance trust or a Mandatory Redemption described above) may be made by, or on behalf of, the Company of the principal of or interest or Liquidated Damages, if any, on the Securities upon any such dissolution or winding-up or liquidation or reorganization, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Securities or the Trustee on their behalf would be entitled, but for the subordination provisions of this Indenture, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their representatives or to the trustee or trustees or agent or agents under any agreement or indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Debt in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. (b) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or any Holder of Securities at a time when such payment or distribution is prohibited by Section 10.03(a) and before all obligations in respect of Senior Debt are paid in full in cash, or payment provided for, such payment or distribution shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their respective representatives, or to the trustee or trustees or agent or agents under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. -85- The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article Five shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 10.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Five. SECTION 10.04. Subrogation. Upon the payment in full in cash of all Senior Debt, or provision for payment, the Holders of the Securities shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company made on such Senior Debt until the principal of and interest and Liquidated Damages, if any, on the Securities shall be paid in full in cash; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee on their behalf would be entitled except for the provisions of this Article Ten, and no payment over pursuant to the provisions of this Article Ten to the holders of Senior Debt by Holders of the Securities or the Trustee on their behalf shall, as between the Company, its creditors other than holders of Senior Debt, and the Holders of the Securities, be deemed to be a payment by the Company to or on account of the Senior Debt. It is understood that the provisions of this Article Ten are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Debt, on the other hand. If any payment or distribution to which the Holders of the Securities would otherwise have been entitled but for the provisions of this Article Ten shall have been applied, pursuant to the provisions of this Article Ten, to the payment of all amounts payable under Senior Debt, then and in such case, the Holders of the Securities shall be entitled to receive from the holders of such Senior Debt any payments or distributions received by such holders of Senior Debt in excess of the amount required to make payment in full, or provision for payment, of such Senior Debt. SECTION 10.05. Obligations of Company Unconditional. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and interest and Liquidated Damages, if any, on the Securities 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 Holders of the Securities and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Holder of any Security or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Ten of the holders of the Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. -86- Without limiting the generality of the foregoing, nothing contained in this Article Ten shall restrict the right of the Trustee or the Holders of Securities to take any action to declare the Securities to be due and payable prior to their stated maturity pursuant to Article Six or to pursue any rights or remedies hereunder; provided, however, that all Senior Debt then due and payable shall first be paid in full before the Holders of the Securities or the Trustee are entitled to receive any direct or indirect payment from the Company of principal of or interest or Liquidated Damages, if any, on the Securities. SECTION 10.06. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Ten. The Trustee shall not be charged with knowledge of the existence of any event of default with respect to any Senior Debt or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of the Company, or by a holder of Senior Debt or trustee or agent therefor; and prior to the receipt of any such written notice, the Trustee shall, subject to Article Seven, be entitled to assume that no such facts exist; provided that if the Trustee shall not have received the notice provided for in this Section 10.06 at least two Business Days prior to the date upon which by the terms of this Indenture any moneys shall become payable for any purpose (including, without limitation, the payment of the principal of or interest or Liquidated Damages, if any, on any Security), then, regardless of anything herein to the contrary, the Trustee shall have full power and authority to receive any moneys from the Company and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Nothing contained in this Section 10.06 shall limit the right of the holders of Senior Debt to recover payments as contemplated by Section 10.03. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Debt (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Debt or a trustee or representative on behalf of any such holder. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets or securities referred to in this Article Ten, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree made by -87- any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities 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 Ten. SECTION 10.08. Trustee's Relation to Senior Debt. The Trustee and any Paying Agent shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee or any Paying Agent of any of its rights as such holder. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt (except as provided in Section 10.03(b)). The Trustee shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other person cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article Ten or otherwise. SECTION 10.09. Subordination Rights Not Impaired by Acts or 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 or 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. The provisions of this Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Debt. SECTION 10.10. Securityholders Authorize Trustee to Effectuate Subordination of Securities. Each Holder of Securities by his acceptance of such Securities authorizes and expressly directs the Trustee on its or his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Ten, and appoints the Trustee its or his attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the busi- -88- ness and assets of the Company, the filing of a claim for the unpaid balance of its or his Securities in the form required in those proceedings. SECTION 10.11. This Article Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium or interest or Liquidated Damages, if any, on the Securities by reason of any provision of this Article Ten shall not be construed as preventing the occurrence of an Event of Default specified in clause (a) or (b) of Section 6.01. SECTION 10.12. Trustee's Compensation Not Prejudiced. Nothing in this Article Ten shall apply to amounts due to the Trustee pursuant to other sections in this Indenture. SECTION 10.13. No Waiver of Subordination Provisions. Without in any way limiting the generality of Section 10.09, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Securities to the holders of Senior Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (c) release any Person liable in any manner for the collection of Senior Debt; and (d) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.14. Subordination Provisions Not Applicable to Collateral Held in Trust for Securityholders; Payments May Be Paid Prior to Dissolution. All (i) money and United States Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Article Eight, (ii) funds and securities held in the Escrow Account and (iii) funds that are the proceeds of any drawing under any letter of credit pursuant to the Escrow Agreement shall be for the sole benefit of the Holders and shall not be subject to this Article Ten. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Section 10.02, from making payments of principal of and interest and Liquidated Damages, if any, on the Securities, or from depositing with the Trustee any moneys for such payments or from effecting a termination of the Company's and the Guarantors' obligations under the Securities and this Indenture as provided in Article Eight, or (ii) the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of -89- and interest and Liquidated Damages, if any, on the Securities, to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment becomes due and payable, the Trustee shall have received the written notice provided for in Section 10.02(b) or in Section 10.06. The Company shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of the Company. SECTION 10.15. Acceleration of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of the Senior Debt of the acceleration. ARTICLE ELEVEN GUARANTEE OF SECURITIES SECTION 11.01. Unconditional Guarantee. Each of the Guarantors hereby, jointly and severally and unconditionally guarantees, on a senior subordinated basis (such guarantee to be referred to herein as a "Guarantee") to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns that: (a) the principal of, premium, if any, and interest on the Securities (and any Liquidated Damages payable thereon) shall be promptly paid in full when due (subject to any applicable grace periods) whether at maturity, upon redemption at the option of Holders pursuant to the provisions of the Securities relating thereto, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Securities and all other Obligations of the Company to the Holders or the Trustee hereunder or thereunder (including amounts due the Trustee under Section 7.07 hereof) and all other Obligations shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other Obligations, the same shall 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 maturity, by acceleration or otherwise subject, however, in the case of (i) and (ii) to the limitations set forth in Section 11.04. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders under this Indenture or under the Securities, for whatever reason, each Guarantor shall be obligated to pay, or to perform or cause the performance of, the same immediately. An Event of Default under this Indenture or the Securities shall constitute an event of default under this Guarantee, and shall entitle the Holders of Securities to accelerate the Obligations of the Guarantors hereunder in the same manner and to the same extent as the Obligations of the Company. Each of the Guarantors hereby agrees that its Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with re- -90- spect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against the Company, any action to enforce the same, whether or not a Guarantee is affixed to any particular Security, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each of the Guarantors hereby waives the benefit of 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 its Guarantee shall not be discharged except by complete performance of the Obligations contained in the Securities, this Indenture and this Guarantee. This Guarantee is a guarantee of payment and not of collection. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Guarantor, any amount paid by the Company or such Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between it, on the one hand, and the Holders of Securities and the Trustee, on the other hand, (a) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (b) in the event of any acceleration of such Obligations as provided in Article Six hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee. No stockholder, officer, director, employee or incorporator, past, present or future, or any Guarantor, as such, shall have any personal liability under this Guarantee by reason of his, her or its status as such stockholder, officer, director, employee or incorporator. Each Guarantor that makes a payment or distribution under its Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor, determined in accordance with GAAP. SECTION 11.02. Limitations on Guarantees. The Obligations of each Guarantor under its Guarantee are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the Obligations of such other Guarantor under its Guarantee or pursuant to its contribution Obligations under this Indenture, will result in the Obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under any laws of the United States, any state or territory of the United States or the District of Columbia. SECTION 11.03. Execution and Delivery of Guarantee. To evidence the Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Guarantee, substantially in the form of Exhibit H herein, shall be endorsed on each Security authenticated and delivered by the Trustee. Such Guarantee shall be executed on behalf of each Guarantor by either manual or facsimile signature of two Officers of each Guarantor, who, in -91- each case, shall have been duly authorized to so execute by all requisite corporate action. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Each of the Guarantors hereby agrees that its Guarantee set forth in Section 11.01 shall remain in full force and effect (unless released in accordance with Section 11.04) notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an Officer of a Guarantor whose signature is on this Indenture or a Guarantee no longer holds that office at the time the Trustee authenticates the Security on which such Guarantee is endorsed or at any time thereafter, such Guarantor's Guarantee of such Security shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of each Guarantor. SECTION 11.04. Release of a Guarantor. (a) Upon the sale or disposition of all of the Capital Stock of a Guarantor by the Company, as the case may be, in compliance with Section 4.16, or upon the consolidation or merger of a Guarantor with or into any Person in compliance with Article Five (in each case, other than to the Company or an Affiliate of the Company), or if any Guarantor is dissolved or liquidated in accordance with this Indenture, such Guarantor's Guarantee shall be released, and such Guarantor and each Subsidiary of such Guarantor that is also a Guarantor shall be deemed released from all Obligations under this Indenture and the Securities without any further action required on the part of the Trustee or any Holder. Any Guarantor not so released or the entity surviving such Guarantor, as applicable, shall remain or be liable under its Guarantee as provided in this Article Eleven. Concurrently with the defeasance of the Securities under Article Eight hereof, the Guarantors shall be released from all of their obligations under their Guarantees, this Indenture and the Securities. In addition, a Guarantor's Guarantee will also be released and such Guarantor will also be released from all Obligations under this Indenture and the Securities if such Guarantor (1) is released from any and all guarantees of Indebtedness of the Company and (2) has no other outstanding Indebtedness other than Indebtedness which could be incurred by a Restricted Subsidiary that is not a Guarantor of the Securities on the date of the proposed release of such Guarantor's Guarantee. (b) The Trustee shall deliver an appropriate instrument evidencing the release of a Guarantor upon receipt of a request by the Company or such Guarantor accompanied by an Officers' Certificate and, upon request, an Opinion of Counsel certifying as to the compliance with this Section 11.04; provided the legal counsel delivering such Opinion of Counsel may rely as to matters of fact on one or more Officers' Certificates of the Company. The Trustee shall execute any documents reasonably requested by the Company or a Guarantor in order to evidence the release of such Guarantor from its Obligations under its Guarantee endorsed on the Securities and under this Article Eleven. -92- Except as set forth in Articles Four and Five and this Section 11.04, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. SECTION 11.05. Waiver of Subrogation. Until this Indenture is discharged and all of the Securities are discharged and paid in full, each Guarantor hereby irrevocably waives and agrees not to exercise 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 the Company's Obligations under the Securities or this Indenture and such Guarantor's Obligations under this Guarantee and this Indenture, in any such instance including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, and any right to participate in any claim or remedy of the Holders 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 Issuer, 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 any amounts owing to the Trustee or the Holders of Securities under the Securities, this Indenture, or any other document or instrument delivered under or in connection with such agreements or instruments, 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 Trustee or the Holders and shall forthwith be paid to the Trustee for the benefit of itself or such Holders to be credited and applied to the Obligations in favor of the Trustee or the Holders, as the case may be, 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 contemplated by this Indenture and that the waiver set forth in this Section 11.05 is knowingly made in contemplation of such benefits. SECTION 11.06. Obligations Continuing. Subject to Section 11.04, the Obligations of each Guarantor hereunder shall be continuing and shall remain in full force and effect until all the Obligations have been paid and satisfied in full. SECTION 11.07. Obligations Reinstated. Subject to Section 11.04, the Obligations of each Guarantor hereunder shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced the Obligations of any Guarantor hereunder (whether such payment shall have been made by or on behalf of the Company or by or on behalf of a Guarantor) is rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy, liquidation or reorganization of the Company or any Guarantor or otherwise, all as though such payment had not been made. If demand for, or acceleration of the time for, payment by the Company is stayed upon the insolvency, bankruptcy, liquidation -93- or reorganization of the Company, all such Indebtedness otherwise subject to demand for payment or acceleration shall nonetheless be payable by each Guarantor as provided herein. SECTION 11.08. Waiver. Without in any way limiting the provisions of Section 11.01, each Guarantor hereby waives notice or proof of reliance by the Holders upon the Obligations of any Guarantor hereunder, and diligence, presentment, demand for payment on the Company, protest or notice of dishonor of any of the Obligations. SECTION 11.09. No Obligation To Take Action Against the Company. Neither the Trustee nor any other Person shall have any obligation to enforce or exhaust any rights or remedies or to take any other steps under any security for the Obligations or against the Company or any other Person or any property of the Company or any other Person before the Trustee is entitled to demand payment and performance by any or all Guarantors of their liabilities and Obligations under their Guarantees or under this Indenture. SECTION 11.10. Default and Enforcement. If any Guarantor fails to pay in accordance with Section 11.01, the Trustee may proceed in its name as trustee hereunder in the enforcement of the Guarantee of any such Guarantor and such Guarantor's Obligations thereunder and hereunder by any remedy provided by law, whether by legal proceedings or otherwise, and to recover from such Guarantor the Obligations under their Guarantees or under this Indenture. SECTION 11.11. Amendment, Etc. No amendment, modification or waiver of any provision of this Indenture relating to any Guarantor or consent to any departure by any Guarantor or any other Person from any such provision will in any event be effective unless it is signed by such Guarantor and the Trustee, other than a release pursuant to Section 11.04. SECTION 11.12. Acknowledgment. Each Guarantor hereby acknowledges communication of the terms of this Indenture and the Securities and consents to and approves of the same. SECTION 11.13. Costs and Expenses. Each Guarantor shall pay on demand by the Trustee any and all reasonable costs, fees and expenses (including, without limitation, reasonable legal fees and disbursements) incurred by the Trustee, its agents, advisors and counsel or any of the Holders in enforcing any of their rights under any Guarantee. -94- SECTION 11.14. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Trustee or the Holders, any right, remedy, power or privilege hereunder or under this Indenture or the Securities, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under this Indenture or the Securities preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges in the Guarantee and under this Indenture, the Securities and any other document or instrument between a Guarantor and/or the Company and the Trustee are cumulative and not exclusive of any rights, remedies, powers and privilege provided by law. SECTION 11.15. Successors and Assigns. Each Guarantee shall be binding upon and inure to the benefit of each Guarantor and the Trustee and the other Holders and their respective successors and permitted assigns, except that no Guarantor may assign any of its Obligations hereunder or thereunder. SECTION 11.16. 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 its Guarantee, such Funding Guarantor shall be entitled to contribution from all other Guarantors in a pro rata amount based on the net assets (determined in accordance with GAAP) 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 Securities or any other Guarantor's Obligations with respect to its Guarantee. SECTION 11.17. Future Guarantors. The Company shall cause (i) each of Scientific Games Holdings Corp., Scientific Games Finance Corporation, Scientific Games (Greece), Inc., Scientific Games Acquisition Inc., SciGames France Inc., Scientific Games Inc. and Scientific Games Royalty Corporation on the Acquisition Closing Date and (ii) each of the Company's Restricted Subsidiaries to the extent required by Section 4.19, in each case, to execute and deliver a Supplemental Indenture and thereby become a Guarantor bound by the Guarantee of the Securities in the form set forth in Article Eleven hereof (without such Guarantor being required to execute and deliver its Guarantee endorsed on the securities); provided that no Subsidiary organized outside the United States of America and no Unrestricted Subsidiary shall be required to become a Guarantor. -95- ARTICLE TWELVE SUBORDINATION OF GUARANTEE SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Debt. Each Guarantor covenants and agrees, and the Trustee and each Holder of the Securities by its or his acceptance thereof likewise covenant and agree, that all Guarantees shall be issued subject to the provisions of this Article Twelve; and each person holding any Guarantee, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that all payments of the principal of and premium, if any, interest and Liquidated Damages, if any, on the Securities pursuant to the Guarantee made by or on behalf of such Guarantor shall, to the extent and in the manner set forth in this Article Twelve, be subordinated and junior in right of payment to the prior payment in full in cash of all amounts payable under Guarantor Senior Debt of such Guarantor. SECTION 12.02. No Payment on Guarantee in Certain Circumstances. (a) No direct or indirect payment by or on behalf of any Guarantor of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Securities, whether pursuant to the terms of the Securities or the Guarantees, upon acceleration, pursuant to an Asset Sale Offer or Change of Control Offer or otherwise, shall be made to the Holders of Securities (except that holders of Securities may receive and retain (I) payments made from the defeasance trust described under Article Eight and (II) payments made from the Escrow Account or from the proceeds of any drawing under any letter of credit pursuant to the Escrow Agreement) if (i) a default in the payment of the principal of or premium, if any, or interest on Designated Guarantor Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Guarantor Senior Debt that permits holders of the Designated Guarantor Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a written notice of such other default (a "Guarantor Payment Blockage Notice") from the Company or a Guarantor or the holders of any Designated Guarantor Senior Debt (with a copy to the Company) until all Obligations with respect to such Designated Guarantor Senior Debt are paid in full; payments on the Securities shall be resumed (x) in the case of a payment default, upon the date on which such default is cured or waived and (y) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Guarantor Payment Blockage Notice is received by the Trustee (such period being referred to herein as the "Guarantor Payment Blockage Period"), unless the maturity of any Designated Guarantor Senior Debt has been accelerated (and written notice of such acceleration has been received by the Trustee). Notwithstanding anything herein or in the Securities to the contrary, (x) in no event shall a Guarantor Payment Blockage Period extend beyond 179 days from the date the Guarantor Payment Blockage Notice in respect thereof was given and (y) not more than one Guarantor Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive -96- days. No nonpayment default that existed or was continuing on the date of delivery of any Guarantor Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Guarantor Payment Blockage Notice (it being understood that any subsequent action, or any breach of any covenant for a period commencing after the date of receipt by the Trustee of such Guarantor Payment Blockage Notice, that, in either case, would give rise to such a default pursuant to any provisions under which a default previously existed or was continuing shall constitute a new default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 12.02(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Designated Guarantor Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Designated Guarantor Senior Debt may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Trustee to the holders of such Designated Guarantor Senior Debt that such prohibited payment has been made, the holders of such Designated Guarantor Senior Debt (or their representative or representatives or a trustee) notify the Trustee in writing of the amounts then due and owing on such Designated Guarantor Senior Debt, if any, and only the amounts specified in such notice to the Trustee shall be paid to the holders of such Designated Guarantor Senior Debt. SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc. (a) Upon any payment or distribution of assets or securities of any Guarantor of any kind or character, whether in cash, property or securities, upon any dissolution or winding-up or liquidation or reorganization of such Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other similar proceedings, the holders of Guarantor Senior Debt of such Guarantor shall be entitled to receive payment in full in cash of all Obligations due in respect of such Guarantor Senior Debt before the Holders of the Securities or the Trustee on behalf of such Holders shall be entitled to receive any payment by such Guarantor of the principal of or premium, if any, and interest or Liquidated Damages, if any, on the Securities pursuant to its Guarantee, or any payment to acquire any of the Securities for cash, property or securities, or any distribution with respect to the Securities of any cash, property or securities (except that Holders may receive and retain (I) Permitted Junior Securities, (II) payments made from the defeasance trust described under Article Eight and (III) payments made from the Escrow Account or from letters of credit issued to the Trustee to support the Company's potential obligation to make a Mandatory Redemption or otherwise pursuant to the Escrow Agreement). Before any payment (other than Permitted Junior Securities or by virtue of the defeasance trust or a Mandatory Redemption described above) may be made by, or on behalf of, any Guarantor of the principal of or premium, if any, and interest or Liquidated Damages, if any, on the Securities upon any such dissolution or winding-up or liquidation or reorganization, any payment or distribution of assets or securities of such Guarantor of any kind or character, whether in cash, property or securities, to which the Holders of the Securities or the Trustee on their behalf would be entitled, but for the subordination provisions of this Indenture, shall be made by such Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, directly to the holders of the Guarantor Senior Debt of such Guarantor (pro rata to such holders on the basis of the respective amounts of such Guarantor Senior Debt held by such holders) or their representatives or to the trustee -97- or trustees or agent or agents under any agreement or indenture pursuant to which any such Guarantor Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay all such Guarantor Senior Debt in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Guarantor Senior Debt. (b) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, any payment or distribution of assets or securities of a Guarantor of any kind or character, whether in cash, property or securities, shall be received by the Trustee or any Holder of Securities at a time when such payment or distribution is prohibited by Section 12.03(a) and before all Obligations in respect of the Guarantor Senior Debt of such Guarantor are paid in full in cash, or payment provided for, such payment or distribution shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Guarantor Senior Debt (pro rata to such holders on the basis of the respective amounts of Guarantor Senior Debt held by such holders) or their respective representatives, or to the trustee or trustees or agent or agents under any indenture pursuant to which any of such Guarantor Senior Debt may have been issued, as their respective interests may appear, for application to the payment of the Guarantor Senior Debt remaining unpaid until all Guarantor Senior Debt has been paid in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of any Guarantor Senior Debt; provided that the Trustee shall be entitled to receive from the holders of Guarantor Senior Debt written notice of the amounts owing on the Guarantor Senior Debt. The consolidation of a Guarantor with, or the merger of a Guarantor with or into, another corporation or the liquidation or dissolution of a Guarantor following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article Five shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 12.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Five. SECTION 12.04. Subrogation. Upon the payment in full in cash of all Guarantor Senior Debt of a Guarantor, or provision for payment, the Holders of the Securities shall be subrogated to the rights of the holders of Guarantor Senior Debt to receive payments or distributions of cash, property or securities of such Guarantor made on Guarantor Senior Debt of such Guarantor until the principal of and premium, if any, and interest and Liquidated Damages, if any, on the Securities shall be paid in full in cash; and, for the purposes of such subrogation, no payments or distributions to the holders of Guarantor Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee on their behalf would be entitled except for the provisions of this Article Twelve, and no payment over pursuant to the provisions of this Article Twelve to the holders of the Guarantor Senior Debt by Holders of the Securities or the Trustee on their behalf shall, as between such Guarantor, its creditors other than holders of such Guarantor Senior Debt of such Guarantor, and the Holders of the Securities, be deemed to be a payment by such Guarantor to or on account of the Guarantor Senior Debt of such Guarantor. It is understood that the provisions of this Article Twelve are and are intended solely for the purpose of defin- -98- ing the relative rights of the Holders of the Securities, on the one hand, and the holders of Guarantor Senior Debt, on the other hand. If any payment or distribution to which the Holders of the Securities would otherwise have been entitled but for the provisions of this Article Twelve shall have been applied, pursuant to the provisions of this Article Twelve, to the payment of all amounts payable under Guarantor Senior Debt, then and in such case, the Holders of the Securities shall be entitled to receive from the holders of such Guarantor Senior Debt any payments or distributions received by such holders of Guarantor Senior Debt in excess of the amount required to make payment in full, or provision for payment, of such Guarantor Senior Debt. SECTION 12.05. Obligations of Guarantor Unconditional. Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Securities or the Guarantees is intended to or shall impair, as between any Guarantor and the Holders of the Securities, the obligation of such Guarantor, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and premium, if any, or interest and Liquidated Damages, if any, on the Securities as and when the same shall become due and payable in accordance with the terms of its Guarantee, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Guarantors other than the holders of Guarantor Senior Debt, nor shall anything herein or therein prevent the Holder of any Security or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve of the holders of Guarantor Senior Debt in respect of cash, property or securities of the Guarantors received upon the exercise of any such remedy. Without limiting the generality of the foregoing, nothing contained in this Article Twelve shall restrict the right of the Trustee or the Holders of Securities to take any action to declare the Securities to be due and payable prior to their stated maturity pursuant to Section 6.01 or to pursue any rights or remedies hereunder; provided, however, that all Guarantor Senior Debt of any Guarantor then due and payable shall first be paid in full before the Holders of the Securities or the Trustee are entitled to receive any direct or indirect payment from such Guarantor of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Securities pursuant to such Guarantor's Guarantee. SECTION 12.06. Notice to Trustee. The Company and the Guarantors shall give prompt written notice to the Trustee of any fact known to the Company or the Guarantors which would prohibit the making of any payment to or by the Trustee in respect of the Guarantees pursuant to the provisions of this Article Twelve. The Trustee shall not be charged with knowledge of the existence of any event of default with respect to any Guarantor Senior Debt or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of the Company or a Guarantor, or by a holder of Guarantor Senior Debt or trustee or agent therefor; and prior to the receipt of any such written notice, the Trustee -99- shall, subject to Article Seven, be entitled to assume that no such facts exist; provided that if the Trustee shall not have received the notice provided for in this Section 12.06 at least two Business Days prior to the date upon which by the terms of this Indenture any moneys shall become payable for any purpose (including, without limitation, the payment of the principal of or premium, if any, or interest or Liquidated Damages, if any, on any Security), then, regardless of anything herein to the contrary, the Trustee shall have full power and authority to receive any moneys from the Guarantors and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Nothing contained in this Section 12.06 shall limit the right of the holders of Guarantor Senior Debt to recover payments as contemplated by Section 12.03. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Guarantor Senior Debt (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of Guarantor Senior Debt or a trustee or representative on behalf of any such holder. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Guarantor Senior Debt to participate in any payment or distribution pursuant to this Article Twelve, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Guarantor Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Twelve, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets or securities of any Guarantor referred to in this Article Twelve, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of Guarantor Senior Debt and other Indebtedness of such 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 Twelve. SECTION 12.08. Trustee's Relation to Guarantor Senior Debt. The Trustee and any Paying Agent shall be entitled to all the rights set forth in this Article Twelve with respect to any Guarantor Senior Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Guarantor Senior Debt, and nothing in this Indenture shall deprive the Trustee or any Paying Agent of any of its rights as such holder. -100- With respect to the holders of Guarantor Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the holders of Guarantor Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Debt (except as provided in Section 12.03(b)). The Trustee shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other person cash, property or securities to which any holders of Guarantor Senior Debt shall be entitled by virtue of this Article Twelve or otherwise. SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of the Guarantors or Holders of Guarantor Senior Debt. No right of any present or future holders of any Guarantor 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 any Guarantor or by any act or 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. The provisions of this Article Twelve are intended to be for the benefit of, and shall be enforceable directly by, the holders of Guarantor Senior Debt. SECTION 12.10. Securityholders Authorize Trustee to Effectuate Subordination of Guarantees. Each Holder of Securities by its or his acceptance of such Securities authorizes and expressly directs the Trustee on its or his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Twelve, and appoints the Trustee its or his attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of any Guarantor (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of such Guarantor, the filing of a claim for the unpaid balance of its or his Securities in the form required in those proceedings. SECTION 12.11. This Article Not to Prevent Events of Default. The failure to make a payment on account of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Securities by reason of any provision of this Article Twelve shall not be construed as preventing the occurrence of an Event of Default specified in clauses (a) or (b) of Section 6.01. SECTION 12.12. Trustee's Compensation Not Prejudiced. Nothing in this Article Twelve shall apply to amounts due to the Trustee pursuant to other sections in this Indenture. -101- SECTION 12.13. No Waiver of Guarantee Subordination Provisions. Without in any way limiting the generality of Section 12.09, the holders of Guarantor Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Securities to the holders of Guarantor Senior Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Guarantor Senior Debt or any instrument evidencing the same or any agreement under which Guarantor Senior Debt is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Debt; (c) release any Person liable in any manner for the collection of Guarantor Senior Debt; and (d) exercise or refrain from exercising any rights against the Guarantor and any other Person. SECTION 12.14. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Twelve or elsewhere in this Indenture shall prevent (i) the Guarantors, except under the conditions described in Section 12.02, from making payments of principal of and premium, if any, and interest and Liquidated Damages, if any, on the Securities, or from depositing with the Trustee any moneys for such payments or from effecting a termination of the Guarantors' obligations under the Securities, the Guarantees and this Indenture, as provided in Article Eight, or (ii) the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of and premium, if any, and interest and Liquidated Damages, if any, on the Securities, to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment becomes due and payable, the Trustee shall have received the written notice provided for in Section 12.02(b) or in Section 12.06. The Company shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of any Guarantor. ARTICLE THIRTEEN SECURITY SECTION 13.01. Security. (a) The Company will, pursuant to the Escrow Agreement, grant a first priority security interest in the Collateral (as such term is defined in the Escrow Agreement) to the Trustee for its benefit and the benefit of the Holders, in order to secure all monetary obligations of the Company under the Securities and any other monetary obligation, now or hereafter arising, of every kind and nature, owed by the Company under the Indenture to the Holders or to the Trustee for the benefit of the Holders. The Company shall comply with its obligations under the Escrow Agreement. -102- (b) Each Holder, by its acceptance of a Security, consents and agrees to the terms of the Escrow Agreement (including, without limitation, the provisions providing for foreclosure and release of the Collateral) as the same may be in effect or may be amended from time to time in accordance with its terms, and authorizes and directs the Trustee to enter into the Escrow Agreement and to perform its obligations and exercise its rights thereunder in accordance therewith. (c) The release of any Collateral pursuant to the Escrow Agreement shall not be deemed to impair the security under this Indenture in contravention of the provisions hereof. (d) The Trustee, in its sole discretion and without the consent of the Holders, may take all actions it deems necessary or appropriate in order to (i) enforce any of the terms of the Escrow Agreement and (ii) collect and receive any and all amounts payable in respect of the monetary obligations of the Company thereunder. The Trustee shall have power to institute and to maintain such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest under the Escrow Agreement or be prejudicial to the interest of the Holders or of the Trustee). ARTICLE FOURTEEN MISCELLANEOUS SECTION 14.01. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. SECTION 14.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telecopier, by reputable overnight delivery service, or registered mail, postage prepaid, return receipt requested, addressed as follows: -103- if to the Company or any Guarantor: Autotote Corporation 750 Lexington Avenue, 25th Floor New York, New York 10022 Attention: Martin E. Schloss, Esq. Facsimile: (212) 754-2372 with a copy to Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 Attention: Peter Smith, Esq. Facsimile: (212) 715-8000 if to the Trustee: The Bank of New York 101 Barclay Street Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Facsimile: (212) 815-5915 Each of the Company, the Guarantors and the Trustee by written notice to each other may designate additional or different addresses for notices to such Person. Any notice or communication to the Company and the Guarantors shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; one (1) business day after mailing by reputable overnight courier; and five (5) calendar days after mailing if sent by registered mail, postage prepaid (except that, notwithstanding the foregoing, a notice of change of address shall not be deemed to have been given until actually received by the addressee). Notice to the Trustee shall be deemed given when actually received by the Trustee. Any notice or communication mailed to a Securityholder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. -104- Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 14.03. Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA ss. 312(c). SECTION 14.04. 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 at the request of the Trustee: (1) an Officers' Certificate, in form and substance reasonably satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 14.05. 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 the Officers' Certificate required by Section 4.08(a), shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition and the definitions relating thereto; (2) 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; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. -105- SECTION 14.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 14.07. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 14.08. Governing Law. THIS INDENTURE, THE SECURITIES AND THE GUARANTEES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture or the Securities or the Guarantees. SECTION 14.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 14.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company or any Guarantor shall not have any liability for any Obligations of the Company or any Guarantor under the Securities, the Guarantees or this Indenture or for any claim based on, in respect of or by reason of such Obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. SECTION 14.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. -106- SECTION 14.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy or counterpart shall be an original, but all of them together shall represent the same agreement. SECTION 14.13. Severability. In case any one or more of the provisions in this Indenture, in the Securities or in the Guarantees shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SIGNATURE PAGES TO FOLLOW SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. THE COMPANY: AUTOTOTE CORPORATION By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President GUARANTORS: AUTOTOTE MANAGEMENT CORPORATION By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President AUTOTOTE SYSTEMS, INC. By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President AUTOTOTE INTERNATIONAL INC. By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President AUTOTOTE ENTERPRISES INC. By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President AUTOTOTE KENO CORPORATION By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President AUTOTOTE LOTTERY CORPORATION By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President ACRA ACQUISITION CORP. By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President MARVIN H. SUGARMAN PRODUCTIONS, INC. By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President AUTOTOTE GAMING, INC. By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President AUTOTOTE DOMINICANA INC. By: /s/ Martin E. Schloss ------------------------------------ Name: Martin E. Schloss Title: Vice President THE TRUSTEE: THE BANK OF NEW YORK, as Trustee By: /s/ Julie Salovitch-Miller ------------------------------------ Name: Julie Salovitch-Miller Title: Vice President EXHIBIT A [FORM OF SERIES A SECURITY] [LEGEND FOR RESTRICTED SECURITY] THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO AUTOTOTE CORPORATION OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO AUTOTOTE CORPORATION THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO AUTOTOTE CORPORATION) OR (G) 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 (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHICH THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING. A-1 [LEGEND FOR REGULATION S GLOBAL SECURITY] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) UNLESS REGISTERED UNDER THE SECURITIES ACT OR EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS NOTE MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD (AS DEFINED IN THE INDENTURE), AND NO TRANSFER OR EXCHANGE OF THIS NOTE MAY BE MADE FOR AN INTEREST IN THE RESTRICTED GLOBAL SECURITY UNTIL AFTER THE LATER OF THE DATE OF EXPIRATION OF THE RESTRICTED PERIOD AND THE DATE ON WHICH THE PROPER REQUIRED CERTIFICATION RELATING TO SUCH INTEREST HAS BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF THE INDENTURE, TO THE EFFECT THAT THE BENEFICIAL OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS. A-2 AUTOTOTE CORPORATION 12 1/2% Senior Subordinated Note due 2010, Series A CUSIP No.: No. [ ] $[ ] AUTOTOTE CORPORATION, a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to [ ] or registered assigns, the principal sum of $[ ] Dollars, on August 15, 2010. Interest Payment Dates: February 15 and August 15. Record Dates: February 1 and August 1. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. A-3 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. AUTOTOTE CORPORATION By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: This is one of the 12 1/2% Senior Subordinated Notes due 2010, Series A, described in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK as Trustee By: ------------------------------------ Authorized Signatory A-4 (REVERSE OF SECURITY) AUTOTOTE CORPORATION 12 1/2% Senior Subordinated Note due 2010, Series A 1. Interest. AUTOTOTE CORPORATION, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on February 15 and August 15 of each year (each an "Interest Payment Date"), commencing February 15, 2001. Interest on the Securities will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from August 14, 2000. Interest will be computed on the basis of a 360-day year of twelve 30-day months or in the case of a partial month, the actual number of days elapsed. The Company shall pay interest at the rate of interest then borne by the Securities on overdue installments of principal and on overdue installments of interest to the extent lawful as provided in the Indenture. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, The Bank of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may act as Registrar or Paying Agent. 4. Indenture. The Company issued the Securities under an Indenture, dated as of August 14, 2000 (the "Indenture"), by and among the Company, the Guarantors named therein and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on A-5 the date on which the Indenture is qualified under the TIA and as it may be amended from time to time. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general obligations of the Company limited in aggregate principal amount to $150,000,000. 5. Optional Redemption. The Securities will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after August 15, 2005, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption: Year Percentage - ---- ---------- 2005................................................. 106.250% 2006................................................. 104.167% 2007................................................. 102.083% 2008 and thereafter.................................. 100.000% 6. Optional Redemption upon Equity Offering. At any time, or from time to time, on or prior to August 15, 2003, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings (as defined below) to redeem up to 35% of the original principal amount of the Securities at a redemption price equal to 112.5% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption; provided, however, that at least 65% of the original principal amount of the Securities remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any private or public offering of Qualified Capital Stock of the Company. 7. Notice of Optional Redemption. Notice of redemption will be sent, by first class mail, postage prepaid, at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Securities called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Securities will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any to the Redemption Date. A-6 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, and upon the occurrence of a Change of Control (as defined in the Indenture) and after certain Asset Sales (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Securities in accordance with the procedures set forth in the Indenture. 9. Special Mandatory Redemption. Section 3.07 of the Indenture provides that if a Mandatory Redemption Event (as defined in the Indenture) occurs, the Company will redeem all of the Securities at 101% of the principal amount of the Securities plus accrued and unpaid interest to the date of redemption in accordance with the procedures set forth in Section 3.07. 10. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption, except the unredeemed portion of any Security being redeemed in part. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for one year, the Trustee and the Paying Agent will repay the funds to the Company at its request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 13. Legal Defeasance and Covenant Defeasance. The Company may be discharged from its Obligations under the Indenture and the Securities except for certain provisions thereof, and may be discharged from Obligations to comply with certain covenants contained in the Indenture and the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture and the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of A-7 the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the Commission in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder of a Security in any material respect. 15. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Subsidiaries to incur additional Indebtedness, create certain liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates and merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such covenants. 16. Subordination. The Indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinated in right of payment to the prior payment in full in cash of all Senior Debt, and this Security is issued subject to such provisions. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare the principal of and accrued interest on all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. A-8 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such Obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security by its manual signature. 21. Guarantees. This Security will be entitled to the benefits of certain Guarantees, if any, made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and Obligations thereunder of the Guarantors, the Trustee and the Holders. 22. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security 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). 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused a CUSIP number to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 24. Registration Rights. Pursuant to the Registration Rights Agreement, the Company and the Guarantors will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Security shall have the right to exchange this Series A Security for the Company's 12 1/2% Senior Subordinated Notes due 2010, Series B, which will have been registered under the Securities Act, in like principal amount and having terms identical in all material respects as the Series A Securities. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. A-9 The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture and the Registration Rights Agreement. Requests may be made to: Autotote Corporation, 750 Lexington Avenue, 25th Floor, New York, New York 10022, Attn: Chief Financial Officer. 25. Governing Laws. This Security and the Indenture shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflict of laws. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Security. A-10 ASSIGNMENT FORM I or we assign and transfer this Security to: _______________________________________________________________ _______________________________________________________________ (Print or type name, address and zip code of assignee or transferee) (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint _____________________________________, agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: __________________________ Signed: ________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:__________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) A-11 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 |_| Section 4.16 |_| If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount: $_____________ Date: _________________ Your Signature: ________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) A-12 EXHIBIT B [FORM OF SERIES B SECURITY] AUTOTOTE CORPORATION 12 1/2% Senior Subordinated Note due 2010, Series B CUSIP No.: No. [ ] $[ ] AUTOTOTE CORPORATION, a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to [ ] or registered assigns, the principal sum of $[ ] Dollars, on August 15, 2010. Interest Payment Dates: February 15 and August 15. Record Dates: February 1 and August 1 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. B-1 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. AUTOTOTE CORPORATION By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: This is one of the 12 1/2% Senior Subordinated Notes due 2010, Series B, described in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee By: ------------------------------------ Authorized Signatory B-2 (REVERSE OF SECURITY) AUTOTOTE CORPORATION 12 1/2% Senior Subordinated Note due 2010, Series B 1. Interest. AUTOTOTE CORPORATION, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on February 15 and August 15 of each year (each an "Interest Payment Date"), commencing February 15, 2001. Interest on the Securities will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from August 14, 2000. Interest will be computed on the basis of a 360-day year of twelve 30-day months or in the case of a partial month, the actual number of days elapsed. The Company shall pay interest at the rate of interest then borne by the Securities on overdue installments of principal and on overdue installments of interest and on overdue installments of interest to the extent lawful as provided in the Indenture. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, The Bank of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may, act as Registrar or Paying Agent. 4. Indenture. The Company issued the Securities under an Indenture, dated as of August 14, 2000 (the "Indenture"), by and among the Company, the Guarantors named therein and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on B-3 the date on which the Indenture is qualified under the TIA and as it may be amended from time to time. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general Obligations of the Company limited in aggregate principal amount to $150,000,000. 5. Optional Redemption. The Securities will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after August 15, 2005, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on August 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption: Year Percentage - ---- ---------- 2005................................................. 106.250% 2006................................................. 104.167% 2007................................................. 102.083% 2008 and thereafter.................................. 100.000% 6. Optional Redemption upon Equity Offering. At any time, or from time to time, on or prior to August 15, 2003, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings (as defined below) to redeem up to 35% of the original principal amount of the Securities at a redemption price equal to 112.5% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption; provided, however, that at least 65% of the original principal amount of the Securities remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any private or public offering of Qualified Capital Stock of the Company. 7. Notice of Optional Redemption. Notice of redemption will be sent, by first class mail, postage prepaid, at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Securities called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Securities will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any to the Redemption date. B-4 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, and upon the occurrence of a Change of Control (as defined in the Indenture) and after certain Asset Sales (as defined in the Indenture), subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Securities in accordance with the procedures set forth in the Indenture. 9. Special Mandatory Redemption. Section 3.07 of the Indenture provides that if a Mandatory Redemption Event (as defined in the Indenture) occurs, the Company will redeem all of the Securities at 101% of the principal amount of the Securities plus accrued and unpaid interest to the date of redemption in accordance with the procedures set forth in Section 3.07. 10. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption, except the unredeemed portion of any Security being redeemed in part. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for one year, the Trustee and the Paying Agent will repay the funds to the Company at its request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 13. Legal Defeasance and Covenant Defeasance. The Company may be discharged from their Obligations under the Indenture and the Securities except for certain provisions thereof, and may be discharged from their Obligations to comply with certain covenants contained in the Indenture and the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture and the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount B-5 of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the Commission in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder of a Security in any material respect. 15. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Subsidiaries to incur additional Indebtedness, create certain liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates and merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such covenants. 16. Subordination. The Indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinated in right of payment to the prior payment in full in cash of all Senior Debt, and this Security is issued subject to such provisions. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare the principal of and accrued interest on all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. B-6 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such Obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security by its manual signature. 21. Guarantees. This Security will be entitled to the benefits of certain Guarantees, if any, made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and Obligations thereunder of the Guarantors, the Trustee and the Holders. 22. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security 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). 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused a CUSIP number to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. 24. Governing Law. This Security and the Indenture shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflict of laws. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Security. B-7 ASSIGNMENT FORM I or we assign and transfer this Security to: ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee or transferee) ________________________________________________________________________________ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint ________________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: __________________________ Signed: ________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:____________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) B-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 |_| Section 4.16 |_| If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount: $_____________ Date: _______________________ Your Signature: ________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) B-9 EXHIBIT C FORM OF LEGEND FOR GLOBAL SECURITIES Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AUTOTOTE CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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. C-1 EXHIBIT D Form of Certificate To Be Delivered in Connection with Transfers to Institutional Accredited Investors _______________, ____ The Bank of New York 101 Barclay Street Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Autotote Corporation (the "Company") Indenture (the "Indenture") relating to 12 1/2% Senior Subordinated Notes due 2010 Ladies and Gentlemen: In connection with our proposed purchase of 12 1/2% Senior Subordinated Notes due 2010 (the "Securities") of Autotote Corporation (the "Company"), we confirm that: 1. We have received such information as we deem necessary in order to make our investment decision. 2. We understand that any subsequent transfer of the Securities is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Securities except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 3. We understand that the offer and sale of the Securities have not been registered under the Securities Act, and, unless so registered, may not be offered, sold or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons except as permitted in the following sentence. We agree, on our own behalf and on behalf of any investor account for which we are acting as hereinafter stated, that if we should sell any Securities, we will do so only (A) to the Company or any subsidiary thereof, (B) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 of Regulation D under the Securities Act that is acquiring the Securities for its own account or for the account of such an institutional "accredited investor", for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, (D) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (E) in accordance with another exemption from the registration requirements of the Secu- D-1 rities Act, or (F) pursuant to an effective registration statement under the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and to compliance with any applicable state securities laws. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (F) above, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Trustee under the Indenture pursuant to which the Securities were issued (the "Trustee") which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 of Regulation D under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. The Trustee and the Company reserve the right prior to any offer, sale or other transfer of the Securities pursuant to clause (B), (C), (D), or (E) above to require the delivery of a written opinion of counsel, certifications, and or other information satisfactory to the Company and the Trustee. 4. We understand that, on any proposed resale of Securities, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Securities purchased by us will bear a legend to the foregoing effect. 5. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (a)(2), (a)(3) or (a)(7) of Regulation D under the Securities Act) purchasing for our own account or for the account of such an institutional "accredited investor", and we are acquiring the Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment for an indefinite period. 6. We are acquiring the Securities purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By:_____________________________________ [Authorized Signatory] D-2 EXHIBIT E Form of Certification for Transfer or Exchange of Restricted Global Security to Regulation S Global Security The Bank of New York 101 Barclay Street Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Autotote Corporation 12 1/2% Senior Subordinated Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of August 14, 2000 (the "Indenture"), by and among Autotote Corporation, as Issuer, the guarantors named therein and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in this Indenture. This letter relates to U.S.$____________ aggregate principal amount of Securities which are held in the form of the Restricted Global Security (CUSIP No. ) with the Depository in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal aggregate principal amount of Securities evidenced by the Regulation S Global Security (CUSIP No. ). In connection with such request, and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Securities and, (1) with respect to transfers made in reliance on Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), the Transferor does hereby certify that: (A) the offer of the Securities was not made to a person in the United States; [(B) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any person acting on its behalf reasonably believed that the transferee was outside the United States;] E-1 [(B) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States;](1) (C) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S under the Securities Act, as applicable; and (D) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (2) with respect to transfers made in reliance on Rule 144 under the Securities Act, the Transferor does hereby certify that the Securities are being transferred in a transaction permitted by Rule 144 under the Securities Act. We understand that this certificate is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate to any interested party in such proceeding. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer, the Guarantors and the Initial Purchasers. [Insert Name of Transferor] By: ____________________________________ Name: Title: Dated: ________________________________ cc: Autotote Corporation - ---------- (1) Insert one of these two provisions, which come from the definition of "offshore transactions" in Regulation S under the Securities Act. E-2 EXHIBIT F Form of Certification for Transfer or Exchange of Regulation S Global Security to Restricted Global Security The Bank of New York 101 Barclay Street Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Autotote Corporation 12 1/2% Senior Subordinated Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of August 14, 2000 (the "Indenture"), by and among Autotote Corporation, as Issuer, the guarantors named therein and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in this Indenture. This letter relates to U.S.$_____ aggregate principal amount of Securities which are evidenced by a [Regulation S Global Security (CUSIP No. )] and held with the Depository through [Euroclear] [Clearstream] (Common Code ___) in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in Securities to a person that will take delivery thereof in the form of an equal principal amount of Securities evidenced by a Restricted Global Security of the same series and of like tenor as the Securities (CUSIP No. ). In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") and, accordingly, the Transferor does hereby further certify that the Securities are being transferred to a person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such person exercises sole investment discretion, and such person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act, in each case in a transaction meeting the requirements of Rule 144A under the Securities Act and in accordance with any applicable securities laws of any state of the United States. F-1 This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer, the Guarantors and the Initial Purchasers. [Insert Name of Transferor] By: _____________________________________ Name: Title: Dated: ________________________________ cc: Autotote Corporation F-2 EXHIBIT G-1 Form of Certification for Transfer or Exchange of Non-Global Restricted Security to Restricted Global Security The Bank of New York 101 Barclay Street Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Autotote Corporation 12 1/2% Senior Subordinated Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of August 14, 2000 (the "Indenture"), by and among Autotote Corporation, as Issuer, the guarantors named therein and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in this Indenture. This letter relates to $ principal amount of Restricted Securities held in definitive form (CUSIP No. ) by [insert name of transferor] (the "Transferor"). The Transferor has requested an exchange or transfer of such Securities. In connection with such request and in respect of such Securities, the Transferor does hereby certify that (i) such Securities are owned by the Transferor and are being exchanged without transfer or (ii) such transfer has been effected pursuant to and in accordance with Rule 144A or Rule 144 under the United States Securities Act of 1933, as amended (the "Securities Act") and accordingly the Transferor does hereby further certify that: (1) if the transfer has been effected pursuant to Rule 144A under the Securities Act: (A) the Securities are being transferred to a person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion; (B) such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act; and (C) the Securities have been transferred in a transaction meeting the requirements of Rule 144A under the Securities Act and in accordance with any applicable securities laws of any state of the United States; or G-1-1 (2) if the transfer has been effected pursuant to Rule 144 under the Securities Act: (A) more than two years has elapsed since the date of the closing of the initial placement of the Securities pursuant to the Purchase Agreement; and (B) the Securities have been transferred in a transaction permitted by Rule 144 and made in accordance with any applicable securities laws of any state of the United States. We understand that this certificate is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate to any interested party in such proceeding. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer, the Guarantors and the Initial Purchasers. Dated: _____________, ____ [Insert Name of Transferor] By: _____________________________________ Name: Title: cc: Autotote Corporation G-1-2 EXHIBIT G-2 Form of Certification for Transfer or Exchange of Non-Global Restricted Security to Regulation S Global Security The Bank of New York 101 Barclay Street Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: Autotote Corporation 12 1/2% Senior Subordinated Notes due 2010 (the "Securities") Reference is hereby made to the Indenture, dated as of August 14, 2000 (the "Indenture"), by and among Autotote Corporation, as Issuer, the guarantors named therein and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in this Indenture. This letter relates to $____ principal amount of Restricted Securities held in definitive form (CUSIP No. ) by [insert name of transferor] (the "Transferor"). The Transferor has requested an exchange or transfer of such Securities. In connection with such request and in respect of such Securities, the Transferor does hereby certify that (i) such Securities are owned by the Transferor and are being exchanged without transfer or (ii) such transfer has been effected pursuant to and in accordance with (a) Rule 903 or Rule 904 under the Securities Act of 1933, as amended (the "Securities Act"), or (b) Rule 144 under the Securities Act, and accordingly the Transferor does hereby further certify that: (1) if the transfer has been effected pursuant to Rule 903 or Rule 904 under the Securities Act: (A) the offer of the Securities was not made to a person in the United States; (B) either; (i) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any person acting on its behalf reasonably believed that the transferee was outside the United States, or G-2-1 (ii) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (C) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S under the Securities Act, as applicable; (D) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (E) if such transfer is to occur during the Restricted Period, upon completion of the transaction, the beneficial interest being transferred as described above was held with the Depository through [Euroclear] [Clearstream]; or (2) if the transfer has been effected pursuant to Rule 144 under the Securities Act: (A) more than two years has elapsed since the date of the closing of the initial placement of the Securities pursuant to the Purchase Agreement; and (B) the Securities have been transferred in a transaction permitted by Rule 144 and made in accordance with any applicable securities laws of any state of the United States. We understand that this certificate is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate to any interested party in such proceeding. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer, the Guarantors and the Initial Purchasers. Dated: _____________, ____ [Insert Name of Transferor] By: _____________________________________ Name: Title: cc: Autotote Corporation G-2-2 EXHIBIT H GUARANTEE For value received, the undersigned hereby unconditionally guarantees, as principal obligor and not only as a surety, to the Holder of this Security the cash payments in United States dollars of principal of, premium, if any, and interest on this Security (and including Liquidated Damages payable thereon) in the amounts and at the times when due and interest on the overdue principal, premium, if any, and interest, if any, of this Security, if lawful, and the payment or performance of all other Obligations of the Company under the Indenture (as defined below) or the Security, to the Holder of this Security and the Trustee, all in accordance with and subject to the terms and limitations of this Security, Article Eleven and Article Twelve of the Indenture and this Guarantee. This Guarantee will become effective in accordance with Article Eleven of the Indenture and its terms shall be evidenced therein. The validity and enforceability of this Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture dated as of August 14, 2000, among Autotote Corporation, a Delaware corporation, as issuer (the "Company"), each of the Guarantors named therein and The Bank of New York, as trustee (the "Trustee") (as amended or supplemented, the "Indenture"). The obligations of the undersigned to the Holders of Securities and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Articles Eleven and Twelve of the Indenture and are expressly subordinated in right of payment to the prior payment in full of all Guarantor Senior Debt of the Guarantor issuing this Guarantee, to the extent and in the manner provided in Article Twelve of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantee and all of the other provisions of the Indenture to which this Guarantee relates. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Guarantee. This Guarantee is subject to release upon the terms set forth in the Indenture. H-1 IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be duly executed. Date:____________________ [NAME OF GUARANTOR], as Guarantor By: _____________________________________ Name: Title: By: _____________________________________ Name: Title: H-2 EX-4.8 6 0006.txt INDENTURE AUTOTOTE CORPORATION $150,000,000 12 1/2% Series A Senior Subordinated Notes due 2010 FIRST SUPPLEMENTAL INDENTURE Dated as of September __, 2000 to INDENTURE Dated as of August 14, 2000 --------------------- The Bank of New York as Trustee FIRST SUPPLEMENTAL INDENTURE, dated as of September __, 2000, among Autotote Corporation, a Delaware corporation (the "Company"), Autotote Management Corporation, Autotote Systems, Inc., Autotote International, Inc., Autotote Enterprises, Inc., Autotote Keno Corporation, Autotote Lottery Corporation, ACRA Acquisition Corp., Marvin H. Sugarman Productions, Inc., Autotote Gaming, Inc. and Autotote Dominicana, Inc., (collectively, the "Guarantors"), and Scientific Games Holdings Corp. ("SG Holdings"), Scientific Games Finance Corporation ("SG Finance"), Scientific Games (Greece), Inc. ("SG Greece"), Scientific Games Acquisition, Inc. ("SG Acquisition"), SciGames France Inc. ("SG France"), Scientific Games Inc. ("SciGames"), Scientific Games Royalty Corporation ("SG Royalty") (collectively, the "Additional Guarantors") and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). WHEREAS, the Company, the Guarantors and the Trustee executed an Indenture, dated as of August 14, 2000 (the "Indenture"), in respect of $150,000,000 aggregate principal amount of 12 1/2% Senior Subordinated Notes due 2010; WHEREAS, Section 11.17 of the Indenture requires that each of the Additional Guarantors execute and deliver to the Trustee a Supplemental Indenture and thereby become a Guarantor under the Indenture; WHEREAS, all conditions and requirements necessary to make this First Supplemental Indenture a valid, binding and legal instrument in accordance with its terms have been performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; and WHEREAS, for all purposes of this First Supplemental Indenture, except as otherwise defined or unless the context otherwise requires, terms used in capitalized form in this First Supplemental Indenture and defined in the Indenture have the meanings specified in the Indenture. NOW, THEREFORE, in consideration of the above premises, each party agrees, for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Securities, as follows: ARTICLE ONE AMENDMENT Section 1.01. Amendment. The Company, the Guarantors and the Trustee hereby amend the Indenture and agree that each of SG Holdings, SG Finance, SG Greece, SG Acquisition, SG France, SciGames and SG Royalty shall be a "Guarantor" under the Indenture. ARTICLE TWO MISCELLANEOUS PROVISIONS Section 2.01. Indenture. Except as amended hereby, the Indenture and the Securities are in all respects ratified and confirmed and all their terms shall remain in full force and effect. Section 2.02. Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. Section 2.03. Successors. All agreements of the Company or of a Guarantor or Additional Guarantor in this First Supplemental Indenture shall bind its successors. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors. Section 2.04. Multiple Counterparts. This First Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 2.05. Effectiveness and Operativeness. The provisions of this First Supplemental Indenture shall become effective, and the amendments provided for in Section 1.01 of this First Supplemental Indenture shall be operative, immediately upon the execution and delivery by the Trustee of this First Supplemental Indenture. Section 2.06. Trustee's Disclaimer. The recitals contained herein shall be taken as the statements of the Company, the Guarantors and the Additional Guarantors and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) -2- SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, all as of the date first written above. The Company: AUTOTOTE CORPORATION By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President The Guarantors: AUTOTOTE MANAGEMENT CORPORATION By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE SYSTEMS, INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President -3- AUTOTOTE INTERNATIONAL, INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE ENTERPRISES, INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE KENO CORPORATION By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE LOTTERY CORPORATION By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President ACRA ACQUISITION CORP. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President -4- MARVIN H. SUGARMAN PRODUCTIONS, INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE GAMING, INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President AUTOTOTE DOMINICANA, INC. By: /s/ Martin E. Schloss ------------------------------------- Name: Martin E. Schloss Title: Vice President The Additional Guarantors: SCIENTIFIC GAMES HOLDINGS CORP. By: /s/ C. Gray Bethea ------------------------------------- Name: C. Gray Bethea Title: Secretary SCIENTIFIC GAMES FINANCE CORPORATION By: /s/ C. Gray Bethea ------------------------------------- Name: C. Gray Bethea Title: Secretary -5- SCIENTIFIC GAMES (GREECE), INC. By: /s/ C. Gray Bethea ------------------------------------- Name: C. Gray Bethea Title: Secretary SCIENTIFIC GAMES ACQUISITION, INC. By: /s/ C. Gray Bethea ------------------------------------- Name: C. Gray Bethea Title: Secretary SCIGAMES FRANCE INC. By: /s/ C. Gray Bethea ------------------------------------- Name: C. Gray Bethea Title: Secretary SCIENTIFIC GAMES INC. By: /s/ C. Gray Bethea ------------------------------------- Name: C. Gray Bethea Title: Secretary SCIENTIFIC GAMES ROYALTY CORPORATION By: /s/ C. Gray Bethea ------------------------------------- Name: C. Gray Bethea Title: Secretary -6- The Trustee: THE BANK OF NEW YORK By: /s/ Ming J. Shiang ------------------------------------- Name: Ming J. Shiang Title: Vice President -7- EX-4.9 7 0007.txt REGISTRATION RIGHTS AGREEMENT ================================================================================ A/B EXCHANGE REGISTRATION RIGHTS AGREEMENT Dated as of August 14, 2000 by and among Autotote Corporation The Guarantors Named Herein and Donaldson, Lufkin & Jenrette Securities Corporation Lehman Brothers Inc. ================================================================================ This Registration Rights Agreement (this "Agreement") is made and entered into as of August 14, 2000, by and among Autotote Corporation, a Delaware corporation (the "Company"), Autotote Management Corporation, Autotote Systems, Inc., Autotote International, Inc., Autotote Enterprises, Inc., Autotote Keno Corporation, Autotote Lottery Corporation, ACRA Acquisition Corp., Marvin H. Sugarman Productions, Inc., Autotote Gaming, Inc., and Autotote Dominicana Inc., (each a "Guarantor" and, collectively, the "Guarantors"), and Donaldson Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc. (each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed to purchase the Company's 12 1/2% Series A Senior Subordinated Notes due 2010 (the "Series A Notes") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated August 3, 2000, (the "Purchase Agreement"), by and among the Company, the Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Series A Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 3 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them the Indenture, dated August 14, 2000, among the Company, the Guarantors and The Bank of New York, as Trustee, relating to the Series A Notes and the Series B Notes (the "Indenture"). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. Affiliate: As defined in Rule 144 of the Act. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Certificated Securities: Certificated Securities, as defined in the Indenture. Closing Date: The date hereof. Commission: The Securities and Exchange Commission. 2 Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Series B Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar under the Indenture of Series B Notes in the same aggregate principal amount as the aggregate principal amount of Series A Notes tendered by Holders thereof pursuant to the Exchange Offer. Consummation Deadline: As defined in Section 3(b) hereof. Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Offer: The exchange and issuance by the Company of a principal amount of Series B Notes (which shall be registered under the Act pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Series A Notes that are tendered by such Holders in connection with such exchange and issuance. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchasers propose to sell the Series A Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act and pursuant to Regulation S under the Act. Filing Deadline: As defined in Sections 3(a) and 4(a) hereof. Holder: As defined in Section 2 hereof. Prospectus: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Recommencement Date: As defined in Section 6(d) hereof. Registration Default: As defined in Section 5 hereof. 3 Registration Statement: Any registration statement of the Company and the Guarantors relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Regulation S: Regulation S promulgated under the Act. Rule 144: Rule 144 promulgated under the Act. Series B Notes: The Company's 121/2% Series B Senior Subordinated Notes due 2010 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as contemplated by Section 4 hereof. Shelf Registration Statement: As defined in Section 4(a) hereof. Suspension Notice: As defined in Section 6(d) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. Transfer Restricted Securities: (i) Each Series A Note, until the earliest to occur of (a) the date on which such Series A Note is exchanged in the Exchange Offer for a Series B Note which is entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (b) the date on which such Series A Note has been disposed of in accordance with a Shelf Registration Statement (and the purchasers thereof have been issued Series B Notes), or (c) the date on which such Series A Note is distributed to the public pursuant to Rule 144 under the Act (and purchasers thereof have been issued Series B Notes), and (ii) each Series B Note, until the date on which such Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including the delivery of the Prospectus contained therein). SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. 4 SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company and the Guarantors shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 90 days after the Closing Date (such 90th day being the "Filing Deadline"), (ii) use their respective commercially reasonable efforts to cause such Exchange Offer Registration Statement to become effective on or prior to 150 days after the Closing Date (such 150th day being the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Series B Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer; provided, however, that neither the Company nor any Guarantor shall be obligated to register or qualify as a foreign corporation in any jurisdiction in which it is not so registered or qualified or to take any action which would subject it to general service of process or taxation in any jurisdiction where it is not so subject, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting (i) registration of the Series B Notes to be offered in exchange for the Series A Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. (b) The Company and the Guarantors shall use their respective commercially reasonable efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company and the Guarantors shall cause the Exchange Offer to comply in all material respects with all applicable federal and state securities laws. No securities other than the Series B Notes shall be included in the Exchange Offer Registration Statement. The Company and the Guarantors shall use their respective commercially reasonable efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 days thereafter (such 30th day being the "Consummation Deadline"). 5 (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. See the Shearman & Sterling no-action letter (available July 2, 1993). Because such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Series B Notes received by such Broker-Dealer in the Exchange Offer, the Company and Guarantors shall permit the use of the Prospectus contained in the Exchange Offer Registration Statement by such Broker-Dealer to satisfy such prospectus delivery requirement. To the extent necessary to ensure that the prospectus contained in the Exchange Offer Registration Statement is available for sales of Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use their respective commercially reasonable efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(a) and (c) hereof and in conformity in all material respects with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of one year from the Consummation Deadline or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company and the Guarantors shall provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers, promptly upon request, and in no event later than one day after such request, at any time during such period. SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Exchange Offer is not permitted by applicable law (after the Company and the Guarantors have complied with the procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company within 10 Business Days following the Consummation of the Exchange Offer that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the Series B Notes acquired by it in the Ex 6 change Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A Notes acquired directly from the Company or any of its Affiliates, then the Company and the Guarantors shall: (x) use their respective commercially reasonable efforts to cause to be filed, on or prior to 45 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a)(ii) above, (such earlier date, the "Filing Deadline"), but in no event earlier than 90 days after the Closing Date, a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "Shelf Registration Statement")), relating to all Transfer Restricted Securities, and (y) use their respective commercially reasonable efforts to cause such Shelf Registration Statement to become effective on or prior to 60 days after the Filing Deadline for the Shelf Registration Statement (such 60th day the "Effectiveness Deadline"), but in no event earlier than 150 days after the Closing Date. If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law (i.e., clause (a)(i) above), then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). To the extent necessary to ensure that the Shelf Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a) and the other securities required to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and the Guarantors shall use their respective commercially reasonable efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(b) and (c) hereof and in conformity in all material respects with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(d)) following the Closing Date, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant thereto. 7 (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Each selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have provided all information required by this Section 4(b). SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the Consummation Deadline or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within 2 days by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective within 5 days of filing such post-effective amendment to such Registration Statement (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the Company and the Guarantors hereby jointly and severally agree to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Company and the Guarantors shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional 8 Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall immediately cease to accrue. If, after the cure of all Registration Defaults then in effect, there is a subsequent Registration Default, the amount of liquidated damages for such subsequent Registration Default shall initially be equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities, regardless of the amount of liquidated damages in effect with respect to any prior Registration Default at the time of the cure of such prior Registration Default. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. The amount of liquidated damages will be determined by multiplying the applicable liquidated damages rate by the principal amount of the Transfer Restricted Securities, multiplied by a fraction, the numerator of which is the number of days such liquidated damages rate was applicable during such period, and the denominator of which is seven. Notwithstanding the fact that any securities for which liquidated damages are due cease to be Transfer Restricted Securities, all obligations of the Company and the Guarantors to pay liquidated damages with respect to such securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company and the Guarantors shall (x) comply in all material respects with all applicable provisions of Section 6(c) below, (y) use their respective commercially reasonable efforts to effect such exchange and to permit the resale of Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of its market-making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and (z) comply in all material respects with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company and the Guarantors hereby agree to seek a no-action letter or other favorable decision from the Commission allowing the Company and the Guarantors to Consummate an Ex- 9 change Offer for such Transfer Restricted Securities (unless, in the reasonable opinion of counsel to the Company, the filing of such no-action letter is not appropriate). The Company and the Guarantors hereby agree to pursue the issuance of such a decision to the Commission staff level, but shall not be required to take commercially unreasonable action in connection therewith. In connection with the foregoing, the Company and the Guarantors hereby agree to take all such other actions as may be reasonably requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company and the Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that such Holder (A) is not an Affiliate of the Company, (B) is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any Person to participate in, a distribution of the Series B Notes to be issued in the Exchange Offer and (C) is acquiring the Series B Notes in its ordinary course of business. As a condition to its participation in the Exchange Offer each Holder using the Exchange Offer to participate in a distribution of the Series B Notes shall acknowledge and agree that, if the resales are of Series B Notes obtained by such Holder in exchange for Series A Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall provide a supplemental letter to the Commission (A) stating that the Company and the Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Cor- 10 poration (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that neither the Company nor any Guarantor has entered into any arrangement or understanding with any Person to distribute the Series B Notes to be received in the Exchange Offer and that, to the best of the Company's and each Guarantor's information and belief, each Holder participating in the Exchange Offer is acquiring the Series B Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Series B Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Guarantors shall: (i) comply in all material respects with all the provisions of Section 6(c) below and use their respective commercially reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company and the Guarantors will prepare and cause to be filed with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof; and (ii) issue, upon the request of any Holder or purchaser of Series A Notes covered by any Shelf Registration Statement contemplated by this Agreement, Series B Notes having an aggregate principal amount equal to the aggregate principal amount of Series A Notes sold pursuant to the Shelf Registration Statement and surrendered to the Company for cancellation; the Company shall register Series B Notes on the Shelf Registration Statement for this purpose and issue the Series B Notes to the purchaser(s) of securities subject to the Shelf Registration Statement in the names as such purchaser(s) shall designate. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company and the Guarantors shall: (i) use their respective commercially reasonable efforts to keep such Registration Statement continuously effective and provide all requisite financial statements 11 for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company and the Guarantors shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use their respective commercially reasonable efforts to cause such amendment to be declared effective as soon as practicable thereafter; (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply in all material respects with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply in all material respects with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise each Holder promptly and, if requested by such Holder, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, and (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commis- 12 sion or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company and the Guarantors shall use their respective commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to each Holder in connection with such exchange or sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including, upon reasonable request, all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such Holders shall reasonably object in writing to the Company within five Business Days after the receipt thereof. (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to each Holder in connection with such exchange or sale, if any, make the Company's and the Guarantors' representatives available for discussion of such document and other customary due diligence matters upon reasonable notice, and, to the extent reasonably practicable, include such information in such document prior to the filing thereof as such Holders may reasonably request; (vii) make available, at reasonable times and upon reasonable notice, for inspection by each Holder and any attorney or accountant retained by such Holders, all financial and other records, pertinent corporate documents of the Company and the Guarantors and cause the Company's and the Guarantors' officers, directors and employees to supply all information reasonably requested by any such Holder, attorney or accountant in connection with such Registration Statement or any post-effective 13 amendment thereto subsequent to the filing thereof and prior to its effectiveness; provided, however, that any information that is reasonably and in good faith designated by the Company or a Guarantor in writing as confidential at the time of delivery of such information shall be kept confidential by such persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of such Registration Statement or the use of any Prospectus, except if the Company obtains "confidential treatment" for any document or information in accordance with the rules of the Commission), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such person or (iv) such information becomes available to such person from a source other than the Company and its subsidiaries and such source is not known, after due inquiry, by such person to be bound by a confidentiality agreement; (viii) if requested by any Holders in connection with such exchange or sale, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Holders may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities and the use of the Registration Statement or Prospectus for market-making activities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each Holder in connection with such exchange or sale without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including, upon the reasonable request of such Person, all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each Holder without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company and the Guarantors hereby consent to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each selling Holder in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) upon the reasonable request of any Holder, enter into such customary agreements (including underwriting agreements), make such customary representations 14 and warranties and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested in writing by any Holder in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection the Company and the Guarantors shall: (A) upon request of any Holder, furnish (or in the case of paragraphs (2) and (3) of this Section 6(c)(xi)(A), use its reasonable best efforts to cause to be furnished) to each Holder, upon Consummation of the Exchange Offer or upon the effectiveness of the Shelf Registration Statement, as the case may be: (1) a certificate, dated the date of Consummation of the Exchange Offer or the date of the effectiveness of the Shelf Registration Statement, as the case may be, signed on behalf of the Company and each Guarantor by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company and such Guarantor, confirming, as of the date thereof, the matters set forth in Sections 9(a), 9(b) and 9(c) of the Purchase Agreement and such other similar matters as such Holders may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company and the Guarantors covering matters similar to those set forth in paragraphs (e)-(g) of Section 9 of the Purchase Agreement and such other matters as such Holder may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and the Guarantors, representatives of the independent public accountants for the Company and the Guarantors and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Company and the Guarantors and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration 15 Statement, as of the date of Consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of Consummation of the Exchange Offer, or as of the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(i) of the Purchase Agreement; and (B) deliver such other documents and certificates as may be reasonably requested in writing by the Holders to evidence compliance with the matters covered in clause (A) above and with any customary conditions contained in any agreement entered into by the Company and the Guarantors pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that neither the Company nor any Guarantor shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other 16 than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xiv) use their respective commercially reasonable efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xv) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with The Depository Trust Company; (xvi) otherwise use their respective commercially reasonable efforts to comply in all material respects with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xvii) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use their respective commercially reasonable efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and 17 (xviii) provide promptly to each Holder, upon written request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act, unless already provided. (d) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "Recommencement Date"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's and the Guarantors' performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Series B Notes to be issued in the Exchange Offer and printing of Prospectuses whether for exchanges, sales, market-making or otherwise, messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, the Guarantors and, in accordance with Section 7(b), the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the Series B Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). Notwithstanding anything in this Section 7 to the contrary, the Company shall not 18 be required to pay any underwriting discounts, commissions or transfer taxes, if any, relating to the sale or disposition of any Holder's Transfer Restricted Securities. The Company will, in any event, bear its and the Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Guarantors. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company and the Guarantors will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Series A Notes in the Exchange Offer and/or selling or reselling Series A Notes or Series B Notes pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Cahill Gordon & Reindel, unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company and the Guarantors agree, jointly and severally, to indemnify and hold harmless each Holder, its directors, officers and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities, judgments, (including without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Series B Notes or registered Series A Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, and their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 19 of the Act or Section 20 of the Exchange Act) the Company, or the Guarantors to the same extent as the foregoing indemnity from the Company and the Guarantors set forth in Section 8(a) above, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying person") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company and Guarantors, in the case of parties indemnified pursuant to Section 8(b). The indemnifying 20 party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than 60 days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. Except as provided in the preceding sentence, no indemnifying party shall be liable for any settlement effected without its consent. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company and the Guarantors, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Guarantor, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantors and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the 21 immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder, its directors, its officers or any Person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. SECTION 9. RULE 144A and RULE 144 The Company and each Guarantor agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 10. MISCELLANEOUS (a) Remedies. The Company and the Guarantors acknowledge and agree that any failure by the Company and/or the Guarantors to comply with their respective obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the 22 Company's and the Guarantor's obligations under Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any Guarantor will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and the Guarantors' securities under any agreement to which the Company or any Guarantor is a party in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose Transfer Restricted Securities are being tendered pursuant to the Exchange Offer, and that does not affect directly or indirectly the rights of other Holders whose Transfer Restricted Securities are not being tendered pursuant to such Exchange Offer, may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company or the Guarantors: 23 Autotote Corporation 750 Lexington Avenue New York, NY 10022 Telecopier No.: (212) 754-2372 Attention: Martin E. Schloss, Esq. With a copy to: Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, NY 10022 Telecopier No.: (212) 715-8000 Attention: Peter Smith, Esq. All such notices and communications 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 receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. The address or Person to whose attention any notice or communication shall be given may be changed in accordance with the provisions of this Section 10(e). Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. 24 (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (l) Guarantors to Become Parties. The Company shall cause each Person that becomes a "Guarantor" under the Indenture to execute and deliver a joinder agreement substantially in the form of Exhibit A attached hereto. SIGNATURE PAGES TO FOLLOW IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. AUTOTOTE CORPORATION By:_____________________________________ Name: Title: AUTOTOTE MANAGEMENT CORPORATION AUTOTOTE SYSTEMS, INC. AUTOTOTE INTERNATIONAL, INC. AUTOTOTE ENTERPRISES, INC. AUTOTOTE KENO CORPORATION AUTOTOTE LOTTERY CORPORATION ACRA ACQUISITION CORP. MARVIN H. SUGARMAN PRODUCTIONS, INC. AUTOTOTE GAMING, INC. AUTOTOTE DOMINICANA INC. By:_____________________________________ Name: Title: DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION By:________________________________ Name: Title: LEHMAN BROTHERS INC. By:________________________________ Name: Title: EXHIBIT A FORM OF JOINDER AGREEMENT JOINDER AGREEMENT, dated as of , 2000, by each of the undersigned, pursuant to Section 10(l) of the Registration Rights Agreement, dated as of August 14, 2000, among Autotote Corporation, the guarantors party thereto and Donaldson Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc., as initial purchasers (as amended from time to time, the "Registration Rights Agreement"). Terms defined in the Registration Rights Agreement and used herein without definition have the meanings given to them in the Registration Rights Agreement. Each of the undersigned hereby acknowledges that it has received and reviewed a copy of the Registration Rights Agreement and acknowledges and agrees that, pursuant to this Joinder Agreement, it hereby becomes party to the Registration Rights Agreement as a Guarantor, bound by all the covenants, agreements, representations, warranties and acknowledgments applicable to a Guarantor in the Registration Rights Agreement. This Joinder Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of conflicts of laws thereof. 2 IN WITNESS WHEREOF, each of the undersigned has caused this Joinder Agreement to be duly executed and delivered by its proper and duly authorized officer as of the date set forth below. SCIENTIFIC GAMES HOLDINGS CORP. SCIENTIFIC GAMES FINANCE CORPORATION SCIENTIFIC GAMES (GREECE), INC. SCIENTIFIC GAMES ACQUISITION INC. SCIGAMES FRANCE INC. SCIENTIFIC GAMES INC. SCIENTIFIC GAMES ROYALTY CORPORATION By:_____________________________________ Name: Title: EX-10.38 8 0008.txt STOCKHOLDERS' AGREEMENT ================================================================================ STOCKHOLDERS' AGREEMENT by and among CIRMATICA GAMING, S.A. a Spanish corporation THE OAK FUND, a Cayman Islands exempted company PECONIC FUND LTD., a Cayman Islands exempted company RAMIUS SECURITIES, LLC, a Delaware limited liability company OLIVETTI INTERNATIONAL S.A., a Luxembourg corporation and AUTOTOTE CORPORATION, a Delaware corporation Dated: September 6, 2000 ================================================================================ STOCKHOLDERS' AGREEMENT This Stockholders' Agreement (this "Agreement") is entered into as of September 6, 2000 by and among Autotote Corporation, a Delaware corporation (the "Company"), Olivetti International S.A., a Luxembourg Company ("Olivetti"), Cirmatica Gaming, S.A., a Spanish corporation ("Cirmatica"), The Oak Fund, a Cayman Island exempted company ("Oak"), Peconic Fund Ltd., a Cayman Island exempted company ("Peconic") and Ramius Securities, LLC, a Delaware limited liability company ("Ramius"). RECITALS A. Each of the Stockholders (as defined below) will own shares of Preferred Stock (as defined below) upon the consummation of the transactions contemplated by that certain Preferred Stock Purchase Agreement, dated as of the date hereof, 2000, by and among the Company and the Stockholders. B. The Company and the Stockholders desire to enter into this Agreement to, among other things: (i) impose certain restrictions and obligations on the ownership, retention and disposition on the Preferred Stock, and (ii) provide the registration rights set forth herein. NOW, THEREFORE, in consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Certain Definitions. In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters: "Affiliate" means, with respect to any Person or entity (the "referent Person"), any Person or entity that controls the referent Person, any Person or entity that the referent Person controls, or any Person or entity that is under common control with the referent Person. For purposes of the preceding sentence, the term "control" means the power, direct or indirect, to direct or cause the direction of the management and policies of a Person or entity through voting securities, by contract or otherwise. "Agreement" means this Agreement, as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Assets" means all of the Company's and its Subsidiaries' right, title and interest in and to all properties, assets and rights of any kind, whether tangible or intangible, real or personal, owned by the Company or any of its Subsidiaries. "beneficially own" or "beneficial ownership" means, with respect to any securities, having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities beneficially owned by a Person shall include securities beneficially owned by all other Persons with whom such Person would constitute a "group" as described in Section 13(d)(3) of the Exchange Act. "Board" has the meaning set forth in Section 4(b) hereof. "Bona Fide Third Party" means a third party unrelated to the Stockholders, Olivetti S.p.A., Lottomatica S.A., Cirsa or their Affiliates. "Certificate of Designations" means the Certificate of Designations of the Company relating to the Preferred Stock. "Change of Control" means one or more of the following events: (i) less than a majority of the members of the Board (excluding any directors nominated or elected by the Stockholders) shall be persons who either (A) were serving as directors on the date hereof or (B) were nominated as directors and approved by the vote of the majority of the directors who are directors referred to in clause (A) above or this clause (B); (ii) the stockholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company; (iii) an announcement by any Bona Fide Third Party or group of Bona Fide Third Parties acting in concert, of a merger with the Company or an acquisition of the Company's securities or other transaction which will require the filing with the SEC of a Schedule 13D under the Exchange Act with respect to beneficial ownership of the Company (other than by a financial entity or other similar institutional investor holding securities of the Company for investment purposes that is eligible to file a Schedule 13G under the Exchange Act with respect to such merger or acquisition in accordance with Rule 13d-1(b)(1) of the Exchange Act) in which Item 4 thereof will indicate a plan or proposal under subsections (a)-(j) thereof with respect to either (x) the merger with a Bona Fide Third Party or acquisition of at least twenty percent (20%) of the Company's voting securities by a Bona Fide Third Party or (y) the merger or consolidation of the Company with a Bona Fide Third Party where the stockholders of the Company would not, immediately after the merger or consolidation, own at least fifty percent (50%) of the voting securities of the entity (unrelated to the Stockholders, Olivetti S.p.A., Lottomatica S.A., Cirsa and their respective Affiliates) issuing the cash or securities in the merger or consolidation, or the sale of substantially all of the assets of the Company; or (iv) the Company enters into negotiations that might reasonably be expected to cause any of the events specified in clauses (i), (ii) or (iii) above to occur. "Cirmatica" has the meaning set forth in the preamble to this Agreement. "Cirsa" means Cirsa Business Corporation S.A. "Common Stock" means the Class A common stock, par value $0.01 per share, of the Company. "Company" has the meaning set forth in the preamble to this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2 "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act. "Holders" means the Stockholders and any Person owning or having the right to acquire Registrable Securities. "Issuance Notice" has the meaning set forth in Section 3 hereof. "Issue Amount" means $110.0 million. "Issue Amount Per Share" means the Issue Amount divided by the number of shares of Common Stock issued and issuable upon conversion of the Preferred Stock. "Merger" has the meaning set forth in Section 4(a) hereof. "Oak" has the meaning set forth in the preamble to this Agreement. "Olivetti" has the meaning set forth in the preamble to this Agreement. "Peconic" has the meaning set forth in the preamble to this Agreement. "Person" means an individual, corporation, partnership, limited liability company, association, trust and any other entity or organization. "Preferred Stock" means the Series A Convertible Preferred Stock, par value $1.00 per share, of the Company. "Purchase Agreement" means that certain Preferred Stock Purchase Agreement, dated as of the date hereof, by and among the Company and the Stockholders, as the same may be amended, supplemented or modified in accordance with its terms. "Ramius" has the meaning set forth in the preamble to this Agreement. "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document. "Registrable Securities" means (i) the shares of Common Stock issuable or issued upon conversion of the Preferred Stock, and (ii) any other shares of capital stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares listed in (i); provided, however, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a Person in a transaction in which its rights under this Agreement are not assigned in accordance with this Agreement. Notwithstanding the foregoing, Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been sold (i) to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (ii) otherwise pursuant to an effective registration 3 statement under the Securities Act or an exemption from registration pursuant to Rule 144 (or any successor rules of the SEC under the Securities Act). "Registrable Securities then outstanding" means the number of shares of Common Stock outstanding and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, in each case, Registrable Securities. "Regulatory Approval" means all regulatory approvals and findings of suitability or qualification, including any approvals or findings by state governing commissions and gaming regulators, or temporary permits or authorizations, or, if applicable, the expiration of any notice periods with respect thereto, that are necessary for the Stockholders to own and continue to hold and vote the Preferred Stock or Registrable Securities and elect or designate for election at least four (or seven, if applicable) directors to the Board. "SEC" means the Securities and Exchange Commission. "Securities" has the meaning set forth in Section 3 hereof. "Securities Act" means the Securities Act of 1933, as amended. "Service Date" has the meaning set forth in Section 3 hereof. "Severance Agreement" means any agreement between a Person and such Person's officers, directors, employees, consultants or agents providing for any payment or benefit, whether contingent or otherwise, upon the occurrence of any event, development or transaction or any change in circumstances, relating to the parties to any such agreement. "Stockholders" means Olivetti, Cirmatica, Oak, Peconic, Ramius and any Person that becomes a party to this Agreement pursuant to Section 7 hereof. "Subsidiary" means, with respect to any Person, any other Person, whether or not incorporated, of which at least 50% of the securities or interests having, by their terms, ordinary voting power to elect members of the board of directors, or other persons performing similar functions with respect to such other Person, are held, directly or indirectly, by such first Person. "Termination Event" shall be deemed to have taken place (i) if the Company fails to (A) cause any of the directors designated or elected by the Stockholders in accordance with the terms of this Agreement or the Certificate of Designations to become members of the Board, (B) cause any vacancies created by the removal or resignation of directors designated or elected by the Stockholders to be filled by persons selected by the Stockholders in accordance with the terms of this Agreement or the Certificate of Designations, or (C) cause at least one director designated or elected by the Stockholders to serve on each committee of the Board (provided in each case that such director has received Regulatory Approval for such service), or (ii) in the event of a Change of Control of the Company. 2. Regulatory Approval. Each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and 4 cooperate with the other parties in doing, all things necessary, proper or advisable under applicable laws and regulations to obtain Regulatory Approvals in the most expeditious manner practicable, including, without limitation cooperating in promptly making any filings, in furnishing information required in connection therewith and in timely seeking to obtain any consents, approvals, permits or authorizations in respect of Regulatory Approvals. Notwithstanding the foregoing, the parties hereto acknowledge and agree that with respect to Regulatory Approvals, each party shall only be required to cause its officers, directors and key employees in their capacity as such and any of its Affiliates that it controls to provide all required information in connection with such Regulatory Approvals and to use its reasonable efforts to obtain the cooperation of its stockholders and any other third party in providing all required information in connection with such Regulatory Approvals. 3. Preemptive Rights. (a) Term and Timing of Notice. For a period commencing on the date of this Agreement and ending on the earliest to occur of (a) the fourth anniversary of the date of this Agreement, (b) the date on which all of the shares of Preferred Stock are redeemed by the Company pursuant to Section 4 of the Certificate of Designations and (c) the date on which all of the shares of Preferred Stock are automatically converted into shares of Common Stock pursuant to Section 5(b) of the Certificate of Designations, and prior to incurring any debt convertible or exchangeable into equity securities or issuing any equity securities (including capital stock, rights, options or other equity interests convertible into, exercisable into or exchangeable for capital stock), whether privately placed or publicly offered (other than equity securities (a) issued as consideration to sellers in connection with any merger or to equity holders of a party to a merger or similar transaction, (b) issued upon exercise of options granted to officers, directors and employees of the Company pursuant to an option plan approved by the Board, not to exceed 20% of the fully diluted equity of the Company on the date of this Agreement, (c) issued upon the conversion of shares of Preferred Stock into shares of Common Stock pursuant to the Certificate of Designations or as dividends or distributions in respect of Common Stock of the Company or (d) issued as contemplated by Section 5(g)(i)(B) of the Certificate of Designations), the Company shall promptly give written notice (the "Issuance Notice") to the Stockholders (the date on which the Issuance Notice is delivered or deemed delivered pursuant to Section 10 of this Agreement is referred to as the "Service Date") of any of the Company's proposals to incur any such debt or issue any such equity securities. (b) Issuance Notice. The Issuance Notice shall disclose in reasonable detail the number of shares of stock proposed to be issued or the amount of debt to be incurred (collectively, the "Securities") and the terms and conditions upon which the Company proposes to effect the issuance of the Securities and shall confirm that the offer by the Company to sell the portion of the Securities specified below, constituted by the service of the Issuance Notice, is irrevocable until all the Stockholders have either accepted or rejected (or been deemed to have rejected) the offer as provided below. The Stockholders shall, collectively, have the right to purchase, in whole or in part, a portion of such Securities proportionate to the percentage of the fully diluted equity of the Company represented by the shares of Common Stock issuable and issued upon conversion of the Preferred Stock then owned by the Stockholders. The Stockholders may elect to purchase such portion of the Securities, in whole or in part, upon the 5 same terms and conditions as those set forth in the Issuance Notice by delivering a written notice of such election to the Company within 15 days after the Service Date based on their respective pro rata ownership of the shares of Common Stock issuable and issued upon conversion of the Preferred Stock in proportion to the fully diluted equity of the Company. The failure by the Stockholders to serve notice in accordance with the foregoing provisions shall be deemed a rejection of the offer constituted by the service of the Issuance Notice. In addition, each Stockholder shall have a right of over-allotment such that if any Stockholder fails to exercise its rights hereunder to purchase its pro rata share of Securities, the other Stockholders may purchase the non-purchasing Stockholder's portion on a pro rata basis within 10 days from the date the Company provides written notice to such other Stockholders that such non-purchasing Stockholder failed to exercise its right hereunder to purchase its pro rata share of Securities. The Company shall promptly give written notice to all the other Stockholders of any Stockholder's failure to exercise its right hereunder to purchase Securities. The failure by any Stockholder to deliver written notice to the Company of such Stockholder's election to purchase additional Securities within the above-mentioned 10-day time period shall be deemed a rejection of the offer to purchase additional Securities pursuant to the over-allotment right. If the Stockholders elect to purchase any or all of the Securities, the closing of such purchase shall occur upon the later to occur of (x) the expiration of 120 days from the Service Date and (y) 5 days following the satisfaction of any anti-trust governmental authority consents, or other applicable governmental authority conditions, to the consummation of the issuance. If the Stockholders elect not to purchase all of the Securities, then the Company may issue any such Securities not purchased by the Stockholders at a price and on terms no more favourable to the transferee(s) thereof than specified in the Issuance Notice during the 120-day period immediately following the Service Date. Any Securities not issued within such 120-day period shall thereupon , if still proposed to be issued by the Company, be subject to the provisions of the preemptive rights set forth in this Section 3. 4. Standstill, Board of Directors and Voting Matters. (a) Standstill. Until the earlier of (i) the occurrence of a Termination Event or (ii) the date that the current Chief Executive Officer of the Company ceases to serve in that capacity, Olivetti, Cirsa, Cirmatica and, if applicable, their permitted assigns will not, directly or indirectly, without the prior written consent of the Company, (A) for four years from the closing of the merger of a wholly owned Subsidiary of the Company with and into Scientific Games Holdings Corp. (the "Merger"), acquire beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of any equity interest or any interest convertible or exchangeable into, or any right to acquire, any equity interest (including by becoming a member of a "group" as defined in Section 13(d)(3) of the Exchange Act) which, together with any equity interest and any such other interest beneficially owned by Olivetti, Cirsa, Cirmatica and, if applicable, their permitted assigns, would equal more than 45% of the then outstanding shares of Common Stock of the Company or securities convertible into Common Stock of the Company (including any paid-in-kind dividends on the Preferred Stock or any Common Stock into which such paid-in-kind dividends were converted) on a fully diluted basis or (B) for three years from the closing of the Merger, solicit proxies with respect to the Company. Notwithstanding the foregoing, no calculation of beneficial ownership for purposes of this Section 4(a) shall (i) include any equity securities owned by Oak, Peconic or Ramius or their permitted assigns or (ii) or be affected by any change in Olivetti's, 6 Cirmatica's and, if applicable, their permitted assigns, ownership by virtue of a stock repurchase, stock split, reclassification or similar transaction effected by the Company. (b) Composition of Board. (i) The Stockholders and the Company acknowledge that, pursuant to the Certificate of Designations, the Stockholders holding Preferred Stock shall be entitled, as a single class, to elect a number of directors of the Company upon substantially the same terms, and under the same circumstances, as set forth below. To preserve the rights of the Stockholders to have their representatives on the Board in the event that any or all of the shares of Preferred Stock are converted into Common Stock, the Stockholders and the Company agree to the following provisions relating to the Board and its committees. Subject to the Certificate of Designations and Section 4(b)(ii) hereof, the Board of Directors of the Company (the "Board") shall consist of ten (10) directors, and the Stockholders shall have the right to designate and have elected and appointed: (A) that number of directors equal to four (4) minus the number of directors the holders of Preferred Stock are entitled to elect as a single class pursuant to the Certificate of Designations; provided, that the Stockholders beneficially own in the aggregate shares of Common Stock plus shares of Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds twenty-five percent (25%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Company convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Preferred Stock) may be converted, exercised or exchanged; (B) that number of directors equal to three (3) minus the number of directors the holders of Preferred Stock are entitled to elect as a single class pursuant to the Certificate of Designations; provided, that the Stockholders beneficially own in the aggregate shares of Common Stock plus shares of Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds twenty percent (20%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Company convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Preferred Stock) may be converted, exercised or exchanged; (C) that number of directors equal to two (2) minus the number of directors the holders of Preferred Stock are entitled to elect as a single class pursuant to the Certificate of Designations; provided, that the Stockholders beneficially own in the aggregate shares of Common Stock plus shares of Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds ten percent (10%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Company convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Preferred Stock) may be converted, exercised or exchanged; and 7 (D) that number of directors equal to one (1) minus the number of directors the holders of Preferred Stock are entitled to elect as a single class pursuant to the Certificate of Designations; provided, that Stockholders beneficially own in the aggregate shares of Common Stock plus shares of Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds five percent (5%) of the sum of (i) the number of shares of Common Stock outstanding plus (ii) the number of shares of Common Stock into which or for which all outstanding securities of the Company convertible into or exercisable or exchangeable for Common Stock (including, without limitation, the Preferred Stock) may be converted, exercised or exchanged; provided, however, that if the Company shall have failed to comply with any provision of Section 3 or Section 4(b), (d) or (e) of the this Agreement, then for as long as such failure continues, the number of directors on the Board shall be increased to a number that is equal to three (3) more than the then current number of directors, and the Stockholders shall have a right to designate and have elected and appointed immediately by the Board by resolution or, if specified by the Stockholders, at the next annual meeting of the stockholders or at any special meeting, three (3) additional directors to the Board, regardless of the number of shares of Common Stock and Preferred Stock then held by the Stockholders. (ii) Whenever such voting rights with respect to three additional directors pursuant to Section 4(b) shall have vested, such rights may be exercised by written consent of the Stockholders then holding a majority of the outstanding shares of Common Stock and shares of Common Stock that would be issued upon the conversion of the Preferred Stock then held by the Stockholders or at a special meeting of the Stockholders, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors. Such right of the Stockholders to designate three additional directors may be exercised until the Company has cured any such failure, at which time the right of the Stockholders to elect such number of directors shall cease, the term of such three additional directors previously elected pursuant to Section 4(b) shall thereupon terminate, and the authorized number of directors shall thereupon return to the number of authorized directors otherwise in effect, but subject always to the same provisions for the renewal and divestment of such special voting rights as provided in Section 4(b). (iii) At any time when such voting rights with respect to the designation of 3 additional directors shall have vested in the Stockholders pursuant to Section 4(b) and if such right shall not already have been initially exercised by written consent or otherwise, a proper officer of the Company shall, upon the written request of any Stockholder, addressed to the Secretary of the Company, call a special meeting of Stockholders. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Company or if none at a place designated by the Secretary of the Company. If such meeting shall not be called by the proper officers of the Company within thirty (30) days after the personal service of such written request upon the Secretary of the Company, or within thirty (30) days after mailing the same, within the United States, by registered mail, addressed to the Secretary of the Company at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the 8 Stockholders of record of ten percent (10%) of the outstanding shares of Common Stock and shares of Common Stock that would be issued upon conversion of the Preferred Stock then held by all Stockholders may designate in writing a Stockholder to call such meeting at the expense of the Company, and such meeting may be called by such Person so designated upon the notice required for annual meeting of stockholders and shall be held at the place for holding annual meetings of the Company or, if none, at a place designated by such Stockholder. Any Stockholder that would be entitled to vote at such meeting shall have access to the stock books of the Company for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this Section 4(b). Notwithstanding the provisions of this Section 4(b), no such special meeting shall be called if any such request is received less than 90 days before the date fixed for the next ensuing annual or special meeting of stockholders. (iv) If a director so elected by the Stockholders shall cease to serve as a director for any reason before his or her term expires (other than in the event that the Stockholders are no longer entitled to designate such a director pursuant to the terms of this Agreement), or shall not receive or retain Regulatory Approval for service as a director, the Stockholders may by written consent or at a special meeting of the Stockholders called as provided above, elect a successor to hold office for the unexpired term of the director whose place shall be vacant, provided that any successor to Peter Cohen shall be reasonably satisfactory to the Board as a whole. (v) As soon as practicable after the date hereof, the Board shall adopt resolutions increasing the size of the Board to ten (10) members and appoint Luciano La Noce, Michael S. Immordino, Robert Sgambati and Peter Cohen as directors of the Company. In addition, the Company shall at all such times exercise all authority under applicable law and use its best efforts to cause the directors designated by the Stockholders for election to the Board to be nominated as Board members by the nominating committee of the Company as provided below or otherwise. The Company shall, if necessary to permit the Stockholders' designees to be elected to the Board, (i) cause the Stockholders' designees to be included in the slate of designees recommended by the Board to the Company's stockholders for election as directors at each annual meeting of the stockholders of the Company (or at any special meeting held for the election of directors) and (ii) use its best efforts to cause the election of the Stockholders' designees at such annual or special meeting, including soliciting proxies in favor of the election of such Persons. (c) Nominating Committee. Until the earlier of (i) three years from the closing of the Merger, (ii) a Termination Event, (iii) the date that the current Chief Executive Officer of the Company ceases to serve in that capacity or (iv) a Bona Fide Third Party commences a public solicitation of proxies pursuant to the Exchange Act seeking to replace a majority of the Board or otherwise seeks at a meeting of the stockholders to replace a majority of the Board, no member of the Board or candidate for the Board (except those designated or elected, as the case may be, by the Stockholders or holders of Preferred Stock in accordance with the terms of this Agreement or the Certificate of Designations) shall be proposed, nominated or elected except in accordance with the following procedures. There shall be a nominating committee of the Board composed of three directors, of whom (i) one member shall be the current Chief Executive Officer of the Company, (ii) one member shall be a person who either (A) was serving as a director on the date 9 of the Merger or (B) was nominated for such committee and approved by the vote of the majority of the directors who are directors referred to in clause (A) above or this clause (B), and (iii) one member shall be a person who was designated or elected, as the case may be, by the Stockholders in accordance with the terms of this Agreement or the Certificate of Designations. No member of the Board or candidate for the Board shall be proposed, nominated or elected (including filling any vacancy on the Board) (except those designated or elected, as the case may be, by the Stockholders or holders of Preferred Stock in accordance with the terms of this Agreement or the Certificate of Designations), unless first approved by a majority vote of such nominating committee (which vote, in the case of any person who is not a director at the time of the Merger, shall include the vote (not to be unreasonably withheld) of the member of such committee who is a director elected by the Stockholders in accordance with the terms of this Agreement and the Certificate of Designations) and thereafter approved by a majority vote of the entire Board. At the time of any such Board vote, at least two of the members of the Board (not including any members of the Board designated or elected, as the case may be, by the Stockholders or the holders of Preferred Stock in accordance with the terms of this Agreement or the Certificate of Designations) shall qualify as independent directors for purposes of the applicable rules of the principal securities exchange on which the Company's Common Stock is then listed. The Stockholders agree to vote, or cause to be voted, any voting securities of the Company beneficially owned by them for the election of all members of the Board of Directors or candidates for the Board of Directors nominated as provided in this Section 4, and not for any other person (except those designated by the Stockholders in accordance with the terms of this Agreement); provided that if the Stockholders are prohibited from agreeing to so vote by the applicable rules of the principal securities exchange on which the Company's Common Stock is then listed, then the Stockholders agree not to vote, or cause to be voted, any such securities against any members or candidates so nominated and if such agreement as so modified is also prohibited by such rules, then the Stockholders agree to be subject to such agreement with respect to the foregoing matters, to the extent not prohibited by the rules of such securities exchange, as shall most closely achieve the purposes and effects of this Section 4(c). For purposes of this Section 4(c), the equity interests of a Stockholder and its Affiliates shall be aggregated. Except as set forth in Section 4(c) with respect to the election of certain directors, the parties hereto acknowledge that each Stockholder is free to vote its shares of Preferred Stock or Common Stock into which such Preferred Stock is converted as it desires (subject to any agreements among the Stockholders). (d) Other Committees. For so long as any director has been designated or elected by the Stockholders or the holders of Preferred Stock in accordance with the Certificate of Designations, as the case may be, at least one of the directors so designated or elected by the Stockholders or the holders of the Preferred Stock in accordance with the Certificate of Designations, as the case may be, shall serve on all committees of the Board. (e) Voting Rights. For so long as the Stockholders and their Affiliates collectively have beneficial ownership of a number of shares of Common Stock plus shares of Preferred Stock having the right to convert into a number of shares of Common Stock that equals or exceeds 10% of the then outstanding shares of Common Stock, the affirmative consent of the Stockholders and their Affiliates that beneficially own more than fifty percent (50%) of the outstanding shares of Common Stock issuable and issued upon conversion of the Preferred Stock then owned by all the 10 Stockholders, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for that purpose, shall be necessary for authorizing, effecting or validating: (i) any amendment, alteration or repeal of any of the provisions of the Certificate of Designations of the Company; (ii) any amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation of the Company that would adversely affect the preferences, rights or powers of the Preferred Stock; (iii) any authorization, issuance or creation of (by reclassification or otherwise) any class or series (or any security of any class or series) of capital stock of the Company; (iv) any increase in the size of the Board (except as required pursuant to the terms of this Agreement or the Certificate of Designations); (v) any change in the state of incorporation of the Company; (vi) any delisting of the Common Stock from the American Stock Exchange or listing of Common Stock on a different exchange or national quotation system; and (vii) any decision, or the entering into of any agreement, commitment or arrangement, to effect any of the foregoing. (f) Reservation of Shares. For so long as any of the shares of Preferred Stock are outstanding, the Company shall keep reserved for issuance a sufficient number of shares of Common Stock to satisfy its conversion obligations under the Certificate of Designations. (g) Available Financial Information(i) . (i) The Company will deliver, or will cause to be delivered, the following to each director designated by the Stockholders: an annual budget, a business plan and financial forecasts for the Company for the next fiscal year of the Company, no later than thirty (30) days before the beginning of the Company's next fiscal year, in such manner and form as approved by the Board, which shall include at least a projection of income and a projected cash flow statement for each fiscal quarter in such fiscal year and projected balance sheet as of the end of each fiscal quarter in such fiscal year. Any material changes in such business plan shall be delivered to the directors designated by the Stockholders as promptly as practicable after the Board has approved such changes. (ii) Within 20 days after the end of each calendar month, the Company will provide each director designated by the Stockholders with the interim financial statements of the Company and its Subsidiaries relating to such calendar month. Such interim financial statements shall (a) be in accordance with the books and records of the Company and its Subsidiaries, (b) be prepared in accordance with U.S. generally accepted accounting principles consistently applied throughout the periods covered thereby (except for the absence of footnotes) and present fairly and accurately in accordance with U.S. generally accepted accounting principles, in all material respects, the Assets, liabilities (including, without limitation, reserves) and financial condition of 11 the Company and its Subsidiaries as of the respective dates thereof and the results of operations, stockholders' equity and cash flows for the periods covered thereby. (iii) The Company will promptly deliver to each director designated by the Stockholders when available one copy of each annual report on Form 10-K and quarterly report on Form 10-Q of the Company, as filed with the SEC. In the event an annual report on Form 10-K or quarterly report on Form 10-Q is unavailable, the Company may, in lieu of the requirements of the preceding sentence, deliver, or cause to be delivered, the following to each director designated by the Stockholders: (A) as soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its Subsidiaries for such year, prepared in accordance with U.S. generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and followed promptly thereafter by such financial statements accompanied by the opinion of independent public accountants of recognized national standing selected by the Company, and a Company-prepared comparison to the Company's business plan for such year as approved by the Board; and (B) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, a consolidated balance sheet of the Company and its Subsidiaries as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Company and its Subsidiaries for such period and for the current fiscal year to dated, prepared in accordance with U.S. generally accepted accounting principles and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year and to the Company's business plan then in effect and approved by the Board, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by U.S. generally accepted accounting principles. (h) Tax Matters. (i) The Company and each Stockholder acknowledge and agree that it is intended that the Preferred Stock not constitute "preferred stock" within the meaning of Section 305 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder, and neither the Company nor the Stockholders shall treat the Preferred Stock as such. Accordingly, payment of any and all PIK Dividends (as defined in the Certificate of Designations) to be made under the Certificate of Designations or under any other transaction document by the Company to or for the benefit of any Stockholder is intended to be made free and clear of, and without deduction for, U.S. federal income and withholding taxes ("U.S. Taxes"). If the Company shall be required by law to deduct any such U.S. Taxes from or in respect of any PIK Dividends to be paid under the Certificate of Designations by the Company to 12 or for the benefit of any Stockholder, then (a) the Stockholder shall pay to the Company the amount of such U.S. Taxes not to exceed ten percent (10%) of the fair market value of such PIK Dividend on the date such PIK Dividend is distributed in accordance with the Certificate of Designations (the "Fair Market Value"), and (b) upon payment by the applicable Stockholder, the Company shall pay to or for the benefit of the applicable Stockholder, in addition to such PIK Dividend, an additional amount (the "Tax Gross-Up Amount"), in cash, as necessary so that after making all required deductions on account of U.S. Taxes (including deductions applicable to additional sums required to be paid or deposited under this Section 4(h)) the amount received by such Stockholder (disregarding the payment made by such Stockholder to the Company pursuant to this sentence) shall be equal to the sum that would have been so received had no such deductions been made. If a Stockholder is required to pay any U.S. Taxes (other than U.S. Taxes determined on a net income basis) with respect to any PIK Dividends (as a result of the Company's failure to withhold such U.S. Taxes or otherwise) in excess of ten percent (10%) of the Fair Market Value of such PIK Dividends, the Company shall indemnify and hold harmless such Stockholder from any such U.S. Taxes in an amount equal to the Tax Gross-Up Amount, and if the Company is required to pay any such U.S. Taxes with respect to any PIK Dividends, the Stockholder shall indemnify and hold harmless the Company from any such U.S. Taxes in an amount up to ten percent (10%) of the Fair Market Value of such PIK Dividends. (ii) The amount to be paid by the Company under this Section 4(h) shall be reduced by the amount of any credit, against any other tax due in any other jurisdiction, available to the Stockholder or its Affiliates by reason of the payment of U.S. Taxes pursuant to this Section 4(h). In no event shall the Company be liable for any U.S. Taxes required to be deducted from or in respect of any PIK Dividends by reason of any change in applicable law after the Initial Issue Date (as defined in the Certificate of Designations) (which shall be the responsibility of the Stockholder), or be obligated to make any payment under this Section 4(h) if, at the time of such payment, such payment (a "Blocked Payment") would violate, or result in a default or event of default under, the Indenture relating to the Company's 12 1/2% Senior Subordinated Notes due 2010 or the Company's Senior Credit Agreement dated as of September 6, 2000 (in each case including any amendments, modifications, extensions, refinancings or replacements thereof) (collectively, the "Financing Documents"). Notwithstanding the foregoing, in the event the Company does not make a payment as required by this Section 4(h) because such payment would be deemed a Blocked Payment, (A) the Stockholder shall have no obligation to make the payment as described in clause (a) of Section 4(h)(i), but shall pay the amount otherwise required to be deducted directly to the U.S. taxing authority, and (B) the Company shall be obligated to pay an amount equal to any such Blocked Payments plus interest at an annual rate of 6% starting from the date any such Blocked Payment otherwise would have been made to the applicable Stockholders promptly following the date in which any such previously Blocked Payments would no longer violate, or result in a default or event of default under, the Financing Documents. Each Stockholder shall, if requested in writing by the Company, promptly provide the Company with a properly completed Form W-8 BEN or Form W-8 IMY (or successor forms), as applicable, including, if applicable, the eligibility of such Stockholder for a reduced rate of withholding pursuant to an applicable treaty. 13 5. Registration Rights. The Company and the Holders covenant and agree as follows: (a) Request for Registration. (i) If the Company shall receive at any time, a written request from any Holder of Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities then outstanding then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of Section 5(b), use its best efforts to effect as soon as practicable the registration under the Securities Act of all Registrable Securities which the Holders request to be registered within fifteen (15) days of the delivery or deemed delivery of such notice by the Company in accordance with Section 10. (ii) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 5(a) and the Company shall include such information in the written notice referred to in Subsection 5(a)(i). The underwriter will be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Subsection 5(d)(v)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 5(a), if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of Registrable Securities to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company requested to be included by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. (iii) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 5(a), a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 60 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. 14 (b) Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock or similar plan or a transaction covered by Rule 145 (or any successor rule) under the Securities Act), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after delivery or deemed delivery of such notice by the Company in accordance with Section 10, the Company shall, subject to the provisions of Section 5(g), cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. (c) Form S-3 Registration. In case the Company shall receive from any Holder or Holders of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 (or any comparable or successor form or forms) and any related reasonable qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (i) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration and all such reasonable qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 5(c): (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Company shall furnish to the Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 60 days after receipt of the request of the Holder or Holders under this Section 5(c); provided, however, that the Company shall not utilize this right more than once in any twelve-month period; or (iii) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (iii) Subject to the foregoing, the Company shall file a registration statement on Form S-3 (or successor form) covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. 15 (iv) Without limiting the rights of the Holders pursuant to this Section 5(c), the Company acknowledges and agrees that, if requested in writing by any Holder or Holders of Registrable Securities then outstanding, the Company shall effect the Form S-3 (or successor form) registration under the Securities Act pursuant to this Section 5(c) for an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor provision then in force) under the Securities Act (a "Shelf Registration") or maintain the effectiveness of a registration statement to effect a Shelf Registration at the request of the Holders or Holders pursuant to this Section 5(c). (d) Obligations of the Company. Whenever required under this Section 5 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (i) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days (except in the case of a registration statement pursuant to Section 5(c)(iv)) or until the Holders have completed the distribution relating thereto; provided, however, that such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter. (ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (iii) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (iv) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (vi) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such 16 registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vii) Cause all such Registrable Securities registered hereunder to be listed on each securities exchange on which securities of the same class issued by the Company are then listed. (viii) Provide a transfer agent and registrar for all Registrable Securities registered hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (ix) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 5, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 5, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. (e) Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 5 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (f) Expenses of Registration. (i) Registration. All expenses (other than underwriting discounts and commissions) incurred in connection with registrations, filings or qualifications pursuant to Section 5(a), including, without limitation, all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company. (g) Underwriting Requirements. In connection with any offering involving an underwriting, the Company shall not be required under Section 5(b) to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole 17 discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall the amount of securities of the selling Holders included in the offering be reduced unless all securities offered by Persons other than the Company are first entirely excluded from the underwriting. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a Holder and which is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. (h) Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 5. (i) Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 5: (i) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 5(i)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be 18 unreasonably withheld), nor shall the Company be liable to any Holder, underwriter or controlling Person for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling Person. (ii) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 5(i)(ii), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 5(i)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that in no event shall any indemnity under this Section 5(i)(ii) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (iii) Promptly after receipt by an indemnified party under this Section 5(i) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5(i), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel reasonably satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 5(i), but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 5(i). (iv) If the indemnification provided for in this Section 5(i) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, 19 claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a Holder under this Section 5(i)(iv) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (v) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (vi) The obligations of the Company and Holders under this Section 5(i) shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 5, and otherwise. (j) Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to use its best efforts to: (i) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times, so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act; (ii) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities,; (iii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iv) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as 20 may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. (k) Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 5(a) hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such Holder's securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 5(a). 6. Liquidated Damages. If any Holder requests that the Company file a registration statement pursuant to Section 5(a), and such registration statement is not declared effective by the SEC within 150 days after such Holder's request (the "Effectiveness Target Date") (such failure to have such registration statement declared effective, a "Registration Default"), then commencing on the day following the date on which such Registration Default occurs, the Company agrees to pay to each such Holder 2% of the Issue Amount Per Share ("Liquidated Damages"), in respect of the Registrable Securities requested to be included in such registration statement by such Holder, in cash or, if the Company is not able to pay cash, in shares of Preferred Stock, each month, or a pro rata amount for any portion thereof, until the registration statement relating to the Registrable Securities requested by the Holder(s) has been declared effective by the SEC. 7. Binding Effect; Successor and Assigns. The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, legal representatives, successors and, assigns. Each of the Stockholders may transfer or assign, in whole or in part, any of its rights and obligations hereunder to any Person; provided that such transferee executes and delivers a counterpart copy of this Agreement to the Company and each of the Stockholders thereby agreeing to be bound by the terms and provisions set forth herein. 8. Amendment. This Agreement may be amended only by a written instrument signed by the parties hereto. 21 9. Applicable Law. The laws of the State of New York shall govern the interpretation, validity and performance of the terms of this Agreement. 10. Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received, if personally delivered; when transmitted, if transmitted by telecopy, upon receipt of telephonic or electronic confirmation; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: (a) If to the Company, addressed to: Autotote Corporation 750 Lexington Avenue 25th Floor New York, NY 10022 Attn: Secretary and General Counsel Telecopy: (212) 754-2372 with a copy to: Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, NY 10022 Attn: Peter Smith, Esq. Telecopy: (212) 715-8000 (b) If to Cirmatica, addressed to: Cirmatica Gaming, S.A. Rambla De Catalunya 16, 4(degrees), 2a Barcelona, Spain Attention: Jaime Hernandez Guillem Telecopy: (01139) 02 621 3241 With a copy to: 22 Lottomatica S.p.A. via di Porta Latina, 8 00179 Rome, Italy Attention: Roberto Sgambati Telecopy: (01139) 0670453122 Latham & Watkins 99 Bishopsgate London EC2M 3XF Attention: Michael S. Immordino, Esq. Telecopy: (01144) 2073744460 Latham & Watkins 885 Third Avenue New York, NY 10022 Attention: Samuel A. Fishman, Esq. David S. Allinson, Esq. Telecopy: (212) 751-4864 (c) If to Olivetti, addressed to Olivetti International S.A. 125 Avenue du X Septembre Luxemborg Attention: Luciano La Noce With a copy to: Olivetti S.p.A. P.zza Einaudi 8 20121 Milan, Italy Attention: Lucian La Noce Telecopy: (01139) 026213241 Latham & Watkins 99 Bishopsgate London EC2M 3XF Attention: Michael S. Immordino, Esq. Telecopy: (01144) 2073744460 Latham & Watkins 885 Third Avenue New York, NY 10022 Attention: Samuel A. Fishman, Esq. David S. Allinson, Esq. Telecopy: (212) 751-4864 23 (d) If to Oak, addressed to The Oak Fund PO Box 31106 SMB, Corporate Center West Bay Road Grand Cayman, Cayman Islands Attention: Niels Heck Telecopy: (1345) 949-3877 (e) If to Peconic, addressed to Peconic Fund Ltd. c/o Ramius Capital Group, LLC 666 Third Avenue New York, New York 10017 Attention: Peter A. Cohen Telecopy: (212) 845-7999 (f) If to Ramius, addressed to Ramius Securities, LLC 666 Third Avenue New York, New York 10017 Attention: Peter A. Cohen Telecopy: (212) 845-7999 or at such other address as the party shall have specified by notice in writing to the other parties in accordance with this Section 9. 11. Headings. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof. 12. Entire Agreement. This Agreement, the Purchase Agreement and Certificate of Designations constitute the entire agreement among the parties with respect to the subject matter hereof and thereof. This Agreement, the Purchase Agreement and Certificate of Designations supersede all prior agreements and understandings, both oral and written, among the parties with respect to the subject matter hereof and thereof. This Agreement, the Purchase Agreement and Certificate of Designations is not intended to confer upon any Person other than the parties hereto and thereto and their respective permitted assigns any rights or remedies hereunder or thereunder, except as expressly provided herein and therein. 24 13. Severability. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction will not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder will be enforceable to the fullest extent permitted by law. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall an original, but all of which together shall constitute one and the same instrument. 15. Remedies. The parties hereby acknowledge and agree that money damages would not be adequate compensation for the damages that a party would suffer by reason of a breach of this Agreement or a failure of any other party to perform any of its obligations under this Agreement. Therefore, each party hereto agrees that in addition to and without limiting any other remedy or right it may have, the non-breaching part will have the right to an injunction, temporary restraining order or other equitable relief in any court of competent jurisdiction enjoining any such breach and enforcing specifically the terms and provisions hereof. [Signature Page Follows] 25 IN WITNESS WHEREOF, the parties have executed this Stockholders' Agreement as of the date first above written. AUTOTOTE CORPORATION OLIVETTI INTERNATIONAL S.A. By:___________________________________ By:___________________________________ Name: Name: Title: Title: CIRMATICA GAMING, S.A. By:___________________________________ Name: Title: THE OAK FUND By:___________________________________ Name: Title: PECONIC FUND LTD. By:___________________________________ Name: Title: RAMIUS SECURITIES, LLC By:___________________________________ Name: Title: 26 EX-10.39 9 0009.txt CREDIT AGREEMENT $345,000,000 CREDIT AGREEMENT DATED AS OF SEPTEMBER 6, 2000 AMONG AUTOTOTE CORPORATION, as Borrower, THE LENDERS LISTED HEREIN, as Lenders, DLJ CAPITAL FUNDING, INC., as Syndication Agent, LEHMAN COMMERCIAL PAPER INC., as Documentation Agent, and DLJ CAPITAL FUNDING, INC., as Administrative Agent LEAD ARRANGER and SOLE BOOK RUNNING MANAGER: DLJ CAPITAL FUNDING, INC. CO-ARRANGER: LEHMAN BROTHERS INC. EXECUTION $345,000,000 AUTOTOTE CORPORATION CREDIT AGREEMENT TABLE OF CONTENTS Page ---- Section 1. DEFINITIONS.......................................................2 1.1 Defined Terms.....................................................2 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement.....................................34 1.3 Other Definitional Provisions and Rules of Construction..........34 Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS.......................35 2.1 Commitments; Making of Loans; Notes..............................35 2.2 Interest on the Loans............................................44 2.3 Fees.............................................................48 2.4 Repayments, Prepayments and Reductions in Loan Commitments; General Provisions Regarding Payments............................49 2.5 Use of Proceeds..................................................59 2.6 Special Provisions Governing LIBO Rate Loans.....................60 2.7 Increased Costs; Taxes; Capital Adequacy.........................62 2.8 Obligation of Lenders and Issuing Lenders to Mitigate; Replacement of Lender............................................66 Section 3. LETTERS OF CREDIT................................................67 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein...........................................67 3.2 Letter of Credit Fees............................................71 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit ..........................................................71 3.4 Obligations Absolute.............................................74 3.5 Indemnification; Nature of Issuing Lenders' Duties...............75 3.6 Increased Costs and Taxes Relating to Letters of Credit..........76 Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT........................77 4.1 Conditions to Initial Loans......................................77 4.2 Conditions to All Loans..........................................88 4.3 Conditions to Letters of Credit..................................89 Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES.........................89 EXECUTION Page ---- 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries.................................................89 5.2 Authorization of Borrowing, etc..................................90 5.3 Financial Condition..............................................91 5.4 No Material Adverse Change; No Restricted Junior Payments........92 5.5 Title to Properties; Liens; Real Property........................92 5.6 Litigation; Adverse Facts........................................93 5.7 Payment of Taxes.................................................93 5.8 Performance of Agreements; Materially Adverse Agreements.........93 5.9 Governmental Regulation..........................................94 5.10 Securities Activities............................................94 5.11 Employee Benefit Plans...........................................94 5.12 Certain Fees.....................................................95 5.13 Environmental Protection.........................................95 5.14 Employee Matters.................................................96 5.15 Solvency.........................................................96 5.16 Matters Relating to Collateral...................................97 5.17 Related Agreements...............................................97 5.18 Disclosure.......................................................98 5.19 Certain Jurisdictions............................................98 Section 6. COMPANY'S AFFIRMATIVE COVENANTS..................................98 6.1 Financial Statements and Other Reports...........................98 6.2 Legal Existence, etc............................................104 6.3 Payment of Taxes and Claims; Tax Consolidation..................104 6.4 Maintenance of Properties; Insurance; Application of Net Insurance/Condemnation Proceeds.................................105 6.5 Inspection Rights; Lender Meeting...............................107 6.6 Compliance with Laws, etc.......................................108 6.7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws.......108 6.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents by Certain Subsidiaries and Future Subsidiaries; IP Collateral ....................................110 6.9 Leasehold Properties; Matters Relating to Additional Real Property Collateral; Certain Opinions; Removal of Liens ........112 ii EXECUTION Page ---- 6.10 Interest Rate Protection........................................116 6.11 Fiscal Year.....................................................116 6.12 Connecticut Lottery Corporation.................................116 6.13 Delisting.......................................................116 Section 7. COMPANY'S NEGATIVE COVENANTS....................................116 7.1 Indebtedness....................................................116 7.2 Liens and Related Matters.......................................118 7.3 Investments; Joint Ventures.....................................122 7.4 Contingent Obligations..........................................123 7.5 Restricted Junior Payments......................................125 7.6 Financial Covenants.............................................125 7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions ...................................................128 7.8 Consolidated Capital Expenditures...............................130 7.9 Sales and Lease-Backs...........................................131 7.10 Sale or Discount of Receivables.................................131 7.11 Transactions with Stockholders and Affiliates...................132 7.12 Disposal of Subsidiary Equity...................................132 7.13 Conduct of Business.............................................133 7.14 Amendments or Waivers of Related Agreements.....................133 7.15 Fiscal Year.....................................................134 7.16 Consolidated Capital Software Expenditures......................134 7.17 Margin Stock....................................................134 Section 8. EVENTS OF DEFAULT...............................................135 8.1 Failure to Make Payments When Due...............................135 8.2 Default in Other Agreements.....................................135 8.3 Breach of Certain Covenants.....................................135 8.4 Breach of Warranty..............................................135 8.5 Other Defaults Under Loan Documents.............................135 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc............136 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc..............136 8.8 Judgments and Attachments.......................................136 8.9 Dissolution.....................................................137 8.10 Employee Benefit Plans..........................................137 iii EXECUTION Page ---- 8.11 Change in Control...............................................137 8.12 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations ....................................................137 Section 9. THE AGENTS......................................................138 9.1 Appointment.....................................................138 9.2 Powers and Duties; General Immunity.............................139 9.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness...................................141 9.4 Right to Indemnity..............................................141 9.5 Successor Agents and Swing Line Lender..........................142 9.6 Collateral Documents and Guaranties.............................142 Section 10. MISCELLANEOUS .................................................143 10.1 Successors and Assigns..........................................143 10.2 Expenses........................................................145 10.3 Indemnity.......................................................146 10.4 Set-Off; Security Interest in Deposit Accounts..................147 10.5 Ratable Sharing.................................................147 10.6 Amendments and Waivers..........................................148 10.7 Independence of Covenants.......................................150 10.8 Notices.........................................................150 10.9 Survival of Representations, Warranties and Agreements..........150 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative...........150 10.11 Marshalling; Payments Set Aside.................................151 10.12 Severability....................................................151 10.13 Obligations Several; Independent Nature of Lenders' Rights......151 10.14 Headings........................................................151 10.15 Applicable Law..................................................151 10.17 Consent to Jurisdiction and Service of Process..................152 10.18 Waiver of Jury Trial............................................152 10.19 Confidentiality.................................................153 10.20 Counterparts; Effectiveness.....................................153 Signature pages.......................................................S-1 iv EXECUTION EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF REQUEST FOR ISSUANCE OF LETTER OF CREDIT IV-A FORM OF TRANCHE A TERM NOTE IV-B FORM OF TRANCHE B TERM NOTE IV-C FORM OF REVOLVING NOTE IV-D FORM OF SWING LINE NOTE V FORM OF COMPLIANCE CERTIFICATE VI FORM OF FINANCIAL CONDITION CERTIFICATE VII-A FORM OF CLOSING DATE OPINION OF KRAMER LEVIN NAFTALIS & FRANKEL L.L.P VII-B FORM OF CLOSING DATE OPINION OF SMITH, GAMBRELL & RUSSELL, LLP VII-C FORM OF CLOSING DATE OPINION OF SILLS, CUMMIS, RADIN, TISCHMAN, EPSTEIN & GROSS P.A. VII-D FORM OF CLOSING DATE OPINION OF TOBIN, CARBERRY, O'MALLEY, RILEY & SELINGER, P.C. VII-E FORM OF CLOSING DATE OPINION OF SHRECK MORRIS VII-F FORM OF CLOSING DATE OPINION OF MARTIN E. SCHLOSS, ESQ. VII-G FORM OF CLOSING DATE OPINION OF C. GRAY BETHEA, ESQ. VIII FORM OF OPINION OF O'MELVENY & MYERS LLP IX FORM OF ASSIGNMENT AGREEMENT X FORM OF CERTIFICATE RE NON-BANK STATUS XI INTENTIONALLY OMITTED XII FORM OF SECURITY AGREEMENT v EXECUTION XIII FORM OF SUBSIDIARY GUARANTY XIV FORM OF AGREEMENT OF JOINDER XV FORM OF COLLATERAL ACCESS AGREEMENT vi EXECUTION SCHEDULES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 5.1 SUBSIDIARIES OF COMPANY 5.5 REAL PROPERTY 5.6 LITIGATION 5.13 ENVIRONMENTAL MATTERS 7.1 CERTAIN EXISTING INDEBTEDNESS 7.2 CERTAIN EXISTING LIENS 7.2C(a) CERTAIN EXISTING AGREEMENTS WITH GOVERNMENTAL AUTHORITIES PROHIBITING THE ASSUMPTION OR CREATION OF LIENS 7.2C(e) EXISTING RIGHTS OF FIRST REFUSAL WITH RESPECT TO INTERESTS IN CERTAIN SUBSIDIARIES AND JOINT VENTURES 7.2C(g) CERTAIN AGREEMENTS PROHIBITING THE CREATION OR ASSUMPTION OF ANY LIEN ON ASSETS 7.2D(a) CERTAIN EXISTING AGREEMENTS WITH GOVERNMENTAL AUTHORITIES RESTRICTING THE ABILITY TO TRANSFER ASSETS 7.2D(c) CERTAIN AGREEMENTS RESTRICTING THE PAYMENT OF DIVIDENDS AND THE MAKING OF DISTRIBUTIONS ON EQUITY INTERESTS 7.3 CERTAIN EXISTING INVESTMENTS 7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.11(vi) TRANSACTIONS WITH AFFILIATES vii EXECUTION $345,000,000 AUTOTOTE CORPORATION CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of September 6, 2000, and entered into by and among AUTOTOTE CORPORATION, a Delaware corporation ("Company"), THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as administrative agent for Lenders (in such capacity, "Administrative Agent"), DLJ, as syndication agent for Lenders (in such capacity, "Syndication Agent"), Lead Arranger and Sole Book Running Manager, LEHMAN COMMERCIAL PAPER INC., ("LCPI"), as documentation agent for Lenders (in such capacity, "Documentation Agent"), and LEHMAN BROTHERS INC. ("Lehman") as Co-Arranger. Capitalized terms used herein without definition shall have the meanings set forth therefor in subsection 1.1 of this Agreement. R E C I T A L S WHEREAS, Company has formed Acquisition Co. for the purpose of acquiring all the outstanding shares of Scientific Games Common Stock; WHEREAS, Lenders have agreed to extend certain credit facilities to Company to be used for the purposes of providing funds for (i) the Acquisition Financing Requirements, (ii) working capital and other general purposes of Company and its Subsidiaries, and (iii) issuing Letters of Credit for the purposes set forth herein; WHEREAS, on the Closing Date, Company will secure all of the Obligations hereunder and under the other Loan Documents by granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on substantially all of its personal, real and mixed property, including a pledge of all of the capital stock of its existing Domestic Subsidiaries and a pledge of 65% of the capital stock of its existing direct Foreign Subsidiaries (other than Inactive Subsidiaries); WHEREAS, on the Closing Date, all of Company's existing wholly-owned Domestic Subsidiaries will guarantee the Obligations hereunder and under the other Loan Documents and each of such existing wholly-owned Domestic Subsidiaries will secure its guaranty by granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on substantially all of its respective personal, real and mixed property, including a pledge of all of the capital stock of each of its existing Domestic Subsidiaries and 65% of the capital stock of each of its existing direct Foreign Subsidiaries (other than Inactive Subsidiaries); 1 EXECUTION NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Company, Lenders and the Agents agree as follows: Section 1. DEFINITIONS .1 Defined Terms. The following terms used in this Agreement shall have the following meanings: "Acquired Business" has the meaning assigned to that term in the definition of "Permitted Acquisition" in this subsection 1.1. "Acquisition Co." means ATX Enterprises, Inc., a Delaware corporation and wholly-owned Subsidiary of Company. "Acquisition Financing Requirements" means the aggregate of all amounts necessary (i) to finance the purchase price for all of the outstanding shares of Scientific Games Common Stock (and the retirement of all outstanding stock options (including related withholding tax with respect to the exercise of such options)) pursuant to the Merger in an aggregate amount of approximately $307.7 million; (ii) to repay in full the Existing Company Bank Debt in an aggregate principal amount of approximately $36.0 million; (iii) to repay Existing Company Senior Notes in an aggregate principal amount of $110 million; (iv) to repay the Existing Company Convertible Debt in an aggregate principal amount of $35 million; (v) to pay the Tender Premiums in an amount not to exceed $9.5 million; (vi) to repay in full the Existing Scientific Games Bank Debt in an aggregate principal amount of approximately $25.0 million; (vii) to pay accrued interest on existing Indebtedness in the approximate amount of $1.8 million; (viii) to cash collateralize the Existing Letters of Credit in an aggregate amount not to exceed $1.4 million; and (ix) to pay Transaction Costs in an amount not to exceed $30.1 million. "Additional Mortgaged Property" has the meaning assigned to that term in subsection 6.9. "Additional Mortgages" has the meaning assigned to that term in subsection 6.9. "Adjusted Consolidated Net Income" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded therefrom (i) the income (or loss) of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (ii) except as otherwise expressly permitted under this Agreement, the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries and (iii) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary; provided that the foregoing clause (iii) shall 2 EXECUTION not apply with respect to the income of any Foreign Subsidiary of Company to the extent that the restriction on the declaration or payment of dividends or similar distributions by that Foreign Subsidiary of that income is permitted by subsection 7.2C(c) or 7.2D(d). "Adjusted LIBO Rate" means, for any Interest Rate Determination Date with respect to an Interest Period for a LIBO Rate Loan, the rate per annum obtained by dividing (i) the rate per annum (rounded upward to the nearest 1/16 of one percent) which appears on the British Bankers Association Telerate page 3750 (or such other comparable page as may, in the reasonable opinion of the Administrative Agent with the consent of Company (which consent shall not be unreasonably withheld or delayed), replace such page for the purpose of displaying such rate), at which Dollar deposits with a maturity comparable to such Interest Period as of approximately 11:00 a.m. (London time) on such Interest Rate Determination Date by (ii) a percentage equal to 100% minus the stated maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves) applicable on such Interest Rate Determination Date to any member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" as defined in Regulation D (or any successor category of liabilities under Regulation D). "Administrative Agent" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Administrative Agent appointed pursuant to subsection 9.5A. "Affected Class" has the meaning assigned to that term in subsection 10.6. "Affected Lender" has the meaning assigned to that term in subsection 2.6C. "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agents" means, collectively, the Syndication Agent, the Documentation Agent and the Administrative Agent and any Supplemental Collateral Agents (as defined in subsection 9.1B). "Agreement" means this Credit Agreement dated as of September 6, 2000 and all the exhibits and schedules hereto, as it may be amended, supplemented or otherwise modified from time to time. "Annualized" means (i) with respect to the Fiscal Quarter of Company ending September 30, 2000, (x) the applicable amount for the period from and including the Closing Date through and including September 30, 2000 multiplied by (y) (i) 360 divided by (ii) the number of days from and including the Closing Date through and including September 30, 2000, (ii) with respect to the Fiscal Quarter of Company ending December 31, 2000, (x) the applicable amount for the period from and including the Closing Date through and including December 31, 2000 multiplied by (y) (i) 360 divided by (ii) the number of days from and including the Closing Date through and including December 31, 2000, and (iii) with respect to the Fiscal Quarter of Company ending March 31, 2001, (x) the applicable amount for the period from and including the Closing Date through and 3 EXECUTION including March 31, 2001 multiplied by (y) (i) 360 divided by (ii) the number of days from and including the Closing Date through and including March 31, 2001. "Applicable Base Rate Margin" means, as at any date of determination, (i) with respect to Tranche B Term Loans, 3.00% per annum, and (ii) with respect to Tranche A Term Loans and Revolving Loans, a percentage per annum as set forth below opposite the applicable Consolidated Leverage Ratio calculated on a Pro Forma Basis: Consolidated Leverage Ratio Applicable Base Rate Margin --------------------------------------------------------------- greater than or equal to 5.00:1.00 2.50% less than 5.00:1.00 but greater than or equal to 4.50:1.00 2.25% less than 4.50:1.00 but greater than or equal to 4.00:1.00 2.00% less than 4.00:1.00 but greater than or equal to 3.50:1.00 1.75% less than 3.50:1.00 but greater than or equal to 3.00:1.00 1.50% less than 3.00:1.00 1.25% ; provided that until the delivery of the first Margin Determination Certificate by Company to Administrative Agent pursuant to subsection 6.1 (xviii) after the six-month anniversary of the Closing Date, the Applicable Base Rate Margin for Tranche A Term Loans and Revolving Loans that are Base Rate Loans shall be 2.25% per annum. "Applicable LIBO Rate Margin" means, as at any date of determination, (i) with respect to Tranche B Term Loans, 4.25% per annum, and (ii) with respect to Tranche A Term Loans and Revolving Loans, a percentage per annum as set forth below opposite the applicable Consolidated Leverage Ratio calculated on a Pro Forma Basis: Consolidated Leverage Ratio Applicable LIBO Rate Margin ------------------------------------------------------------- greater than or equal to 5.00:1.00 3.75% less than 5.00:1.00 but greater than or equal to 4.50:1.00 3.50% less than 4.50:1.00 but greater than or equal to 4.00:1.00 3.25% less than 4.00:1.00 but greater than or equal to 3.50:1.00 3.00% 4 EXECUTION Consolidated Leverage Ratio Applicable LIBO Rate Margin ------------------------------------------------------------- less than 3.50:1.00 but greater than or equal to 3.00:1.00 2.75% less than 3.00:1.00 2.50% ; provided that until the delivery of the first Margin Determination Certificate by Company to Administrative Agent pursuant to subsection 6.1 (xviii) after the six-month anniversary of the Closing Date, the Applicable LIBO Rate Margin for Tranche A Term Loans and Revolving Loans that are LIBO Rate Loans shall be 3.50% per annum. "Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. "Arranger" means DLJ Capital Funding, Inc. as Lead Arranger and Sole Book Running Manager. "Asset Sale" means the sale, lease, assignment or other transfer (whether voluntary or involuntary) for value (collectively, a "transfer") by Company or any of its Subsidiaries to any Person other than Company or any of its wholly-owned Subsidiaries of (i) any of the equity ownership of any of Company's Subsidiaries, (ii) substantially all of the assets of any division or line of business of Company or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of Company or any of its Subsidiaries (other than (a) inventory sold in the ordinary course of business, (b) other equipment transferred for not in excess of $2 million for any single transaction or related series of transactions and $4 million in the aggregate for each Fiscal Year, and (c) any such other assets to the extent that (x) the aggregate value of such assets transferred in any single transaction or related series of transactions is equal to $2 million or less and (y) the aggregate value of such assets transferred in any Fiscal Year is equal to $4 million or less). "Assignment Agreement" means an Assignment Agreement in substantially the form of Exhibit IX annexed hereto. "Authorized Representative" means any of the President, the Chief Financial Officer and the Treasurer (or any other senior executive officer designated in writing by the Company to the Administrative Agent and reasonably acceptable to the Administrative Agent). "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Base Rate" means, at any time, the higher of (x) the Prime Rate or (y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate. "Base Rate Loans" means Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. 5 EXECUTION "Business Day" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close, and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted LIBO Rate or any LIBO Rate Loans, any day that is a Business Day described in clause (i) above and that is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Cash" means money, currency or a credit balance in a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Cash Equivalents" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100 million; and (v) shares of any money market mutual fund that (a) invests solely in the types of investments referred to in clauses (i) through (iv) above or in substantially similar investments and (b) has a rating of no less than "AAA" from Moody's and an equivalent rating from S&P. "Cash Junior Payment" has the meaning assigned to that term in the definition of "Consolidated Fixed Charges" in this subsection 1.1. "Certificate of Designation" means the Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series A Convertible Preferred Stock of Autotote Corporation dated as of September 6, 2000. "Certificate re Non-Bank Status" means a certificate substantially in the form of Exhibit X annexed hereto delivered by a Lender to Administrative Agent pursuant to subsection 2.7B(iii). 6 EXECUTION "Change in Control" means: (i) a change shall occur in the Board of Directors of Company so that a majority of the Board of Directors of Company ceases to consist of the individuals who constituted the Board of Directors of Company on the Closing Date (or individuals whose election or nomination for election was approved by a vote of at least a majority of the directors then in office who either were directors on the Closing Date or whose election or nomination for election was previously so approved); or (ii) any Person or group (within the meaning of Rule 13d-3 of the Securities and Exchange Commission) (other than Olivetti or an affiliate of Olivetti or a group in which Olivetti or an affiliate of Olivetti is the largest beneficial owner of shares of the voting capital stock of Company) shall become or be the owner, directly or indirectly, beneficially or of record, of shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of Company on a fully diluted basis; or (iii) a "Change of Control" occurs as that term is defined in the Senior Subordinated Note Indenture or any other indenture or agreement pursuant to which Subordinated Indebtedness has been issued. "Class" means, as applied to Lenders, each of the following classes of Lenders: (i) Lenders having Tranche A Term Loan Exposure; (ii) Lenders having Tranche B Term Loan Exposure; (iii) Lenders having Revolving Loan Exposure; and (iv) Lenders having exposure in additional commitments made in accordance with clause (vi) of subsection 10.6. "Closing Date" means the date on or before September 30, 2000 on which the initial Loans are made. "Closing Date Mortgaged Property" has the meaning assigned to that term in subsection 4.1G. "Closing Date Mortgages" has the meaning assigned to that term in subsection 4.1G. "Collateral" means, collectively, all of the real, personal and mixed property (including capital stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations. "Collateral Access Agreement" means any landlord agreement and waiver, mortgagee agreement and waiver, bailee letter or any similar acknowledgement or agreement of any landlord or mortgagee in respect of any Real Property Asset where any Collateral is located or any warehouseman or other bailee in possession of any Collateral of any Loan Party, substantially in the form of Exhibit XV annexed hereto with such changes thereto as may be agreed to by Administrative Agent in the reasonable exercise of its discretion. "Collateral Documents" means the Security Agreement or any Mortgage executed by Company or any of Company's Subsidiaries and granting a Lien on any real, personal or mixed property of such Person to secure the Obligations and all other instruments or documents 7 EXECUTION delivered by any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to Administrative Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of that Loan Party as security for the Obligations. "Commercial Letter of Credit" means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services of Company or any of its Subsidiaries in the ordinary course of business of Company or such Subsidiary. "Commitment Fee Percentage" means, as at any date of determination, a percentage per annum as set forth below opposite the applicable Consolidated Leverage Ratio calculated on a Pro Forma Basis. Consolidated Leverage Ratio Commitment Fee Percentage --------------------------------------------------------------- greater than or equal to 3.50:1.00v 0.50% less than 3.50:1.00 0.375% ; provided that until the delivery of the first Margin Determination Certificate by Company to Administrative Agent pursuant to subsection 6.1(xviii) after the six-month anniversary of the Closing Date, the Commitment Fee Percentage shall be 0.50% per annum. "Commitments" means the commitments of Lenders to make Loans as set forth in subsection 2.1A. "Company" has the meaning assigned to that term in the introduction to this Agreement. "Company Employee Benefit Plan" means any Employee Benefit Plan which is maintained or contributed to by Company or any of its Subsidiaries. "Company Pension Plan" means any Pension Plan which is a Company Employee Benefit Plan. "Compliance Certificate" means a certificate substantially in the form of Exhibit V annexed hereto delivered to Administrative Agent and Lenders by Company pursuant to subsection 6.1(iv). "Computation Date" has the meaning assigned to that term in subsection 2.1F(i). "Conforming Leasehold Interest" means any Recorded Leasehold Interest as to which the lessor (and all other parties having a consent right) has agreed in writing for the benefit of Administrative Agent (which writing has been delivered to Administrative Agent), whether under the terms of the applicable lease, under the terms of a Landlord Consent and Estoppel, or otherwise, to the matters described in the definition of "Landlord Consent and Estoppel," which 8 EXECUTION interest, if a subleasehold or sub-subleasehold interest, is not subject to any contrary restrictions contained in a superior lease or sublease. "Consolidated Capital Expenditures" means, for any period, the sum of the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) by Company and its Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Company and its Subsidiaries; provided that Consolidated Capital Expenditures shall not include expenditures made in acquisitions constituting Permitted Acquisitions; provided, further that all calculations of Consolidated Capital Expenditures for any period that ends prior to the Closing Date or that includes the Closing Date shall be made on a Pro Forma Basis assuming the Merger was consummated on the first day of the Fiscal Quarter ending September 30, 2000 and the Merger was a Permitted Acquisition; provided, still further, that for purposes of calculating Consolidated Capital Expenditures (on a Pro Forma Basis) for the period ending (x) December 31, 2000, Consolidated Capital Expenditures for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $21.8 million and Consolidated Capital Expenditures for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $19.9 million and (y) March 31, 2001, Consolidated Capital Expenditures for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $19.9 million; provided, still further, that Consolidated Capital Expenditures shall not include Consolidated Capital Software Expenditures. "Consolidated Capital Software Expenditures" means, for any period, the sum of the aggregate of all expenditures by Company and its Subsidiaries during that period to purchase or develop computer software or systems (but only to the extent such expenditures are capitalized on the consolidated balance sheet of Company and its Subsidiaries in conformity with GAAP); provided that Consolidated Capital Software Expenditures shall not include expenditures made in acquisitions constituting Permitted Acquisitions; provided, further that all calculations of Consolidated Capital Software Expenditures for any period that ends prior to the Closing Date or that includes the Closing Date shall be made on a Pro Forma Basis assuming the Merger was consummated on the first day of the Fiscal Quarter ending September 30, 2000 and the Merger was a Permitted Acquisition; provided, still further, that for purposes of calculating Consolidated Capital Software Expenditures (on a Pro Forma Basis) for the period ending (x) December 31, 2000, Consolidated Capital Software Expenditures for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $1.2 million and Consolidated Capital Software Expenditures for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $1.5 million and (y) March 31, 2001, Consolidated Capital Software Expenditures for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $1.5 million. "Consolidated Cash Interest Expense" means, for any period, Consolidated Interest Expense for such period excluding, however, any interest expense not payable in Cash (including amortization of discount and amortization of debt issuance costs). "Consolidated Cash Taxes" means, for any period, federal, state, local and foreign income taxes of Company and its Subsidiaries paid in Cash during such period. 9 EXECUTION "Consolidated Current Assets" means, as at any date of determination, the total assets of Company and its Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP, but excluding Cash and Cash Equivalents. "Consolidated Current Liabilities" means, as at any date of determination, the total liabilities of Company and its Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, but excluding the Revolving Loans and the current portion of long term Indebtedness of Company (including the Term Loans). "Consolidated EBITDA" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense (including without limitation any amortization of amounts referred to in subsection 2.3 payable to Arranger, Agents and Lenders on or before the Closing Date), (vi) other non-cash items reducing Consolidated Net Income less other non-cash items increasing Consolidated Net Income, and (vii) in each case, to the extent (x) actually paid in Cash by Company on or before the Closing Date and (y) resulting in a reduction of Consolidated Net Income for the Fiscal Quarter ending September 30, 2000, (A) any fees paid by Company in connection with the placement of the Convertible Preferred Stock and (B) the Tender Premiums, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP; provided that all calculations of Consolidated EBITDA for any period that ends prior to the Closing Date or that includes the Closing Date shall be made on a Pro Forma Basis assuming the Merger was consummated on the first day of the Fiscal Quarter ending September 30, 2000 and the Merger was a Permitted Acquisition; provided, further that for purposes of calculating Consolidated EBITDA (on a Pro Forma Basis) and for purposes of each of the Consolidated Fixed Charge Coverage Ratio, the Consolidated Leverage Ratio and the Consolidated Interest Coverage Ratio, for the period ending (x) September 30, 2000, Consolidated EBITDA for the Fiscal Quarter deemed to have ended December 31, 1999 shall be deemed to be $24.1 million, Consolidated EBITDA for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $24.2 million and Consolidated EBITDA for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $24.8 million, (y) December 31, 2000, Consolidated EBITDA for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $24.2 million and Consolidated EBITDA for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $24.8 million, and (z) March 31, 2001, Consolidated EBITDA for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $24.8 million. "Consolidated Excess Cash Flow" means, for any period, an amount (if positive) equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated EBITDA and (b) the Consolidated Working Capital Adjustment minus (ii) the sum, without duplication, of the amounts for such period of (a) voluntary and scheduled repayments of Consolidated Total Debt (excluding repayments of Revolving Loans except to the extent the Revolving Loan Commitments are permanently reduced in connection with such repayments), (b) Consolidated Capital Expenditures (net of any proceeds of any related financings with respect to such expenditures), (c) Consolidated Capital Software Expenditures, (d) amounts expended on Permitted Acquisitions, (e) Consolidated Cash Interest Expense, (f) Consolidated Cash Taxes and (g) dividends paid in cash. 10 EXECUTION "Consolidated Fixed Charge Coverage Ratio" means, as of any date of determination, the ratio computed for the four Fiscal Quarter period most recently ended on or before such date of determination of (x) Consolidated EBITDA to (y) Consolidated Fixed Charges. "Consolidated Fixed Charges" means, for any period, the sum (without duplication) of the amounts for such period of (i) Consolidated Cash Interest Expense, (ii) Consolidated Cash Taxes, (iii) the aggregate amount of scheduled payments of principal on Indebtedness of Company and its Subsidiaries (including that portion attributable to Capital Leases in accordance with GAAP) ("Scheduled Principal Payments") for such period, and (iv) the amount of Restricted Junior Payments paid in cash during such period permitted under subsection 7.5 ("Cash Junior Payments"), all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP; provided that all calculations of Consolidated Fixed Charges for any period that ends prior to the Closing Date or that includes the Closing Date shall be made on a Pro Forma Basis assuming the Merger was consummated on the first day of the Fiscal Quarter ending September 30, 2000 and the Merger was a Permitted Acquisition; provided, further, that for purposes of calculating Consolidated Fixed Charges (on a Pro Forma Basis) for the period ending (x) September 30, 2000, Consolidated Cash Taxes for the Fiscal Quarter deemed to have ended December 31, 1999 shall be deemed to be $1.5 million, Consolidated Cash Taxes for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $1.5 million and Consolidated Cash Taxes for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $1.5 million, and Scheduled Principal Payments for the Fiscal Quarter deemed to have ended December 31, 1999 shall be deemed to be $0.3 million, Scheduled Principal Payments for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $0.3 million and Scheduled Principal Payments for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $0.3 million, (y) December 31, 2000 , Consolidated Cash Taxes for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $1.5 million and Consolidated Cash Taxes for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $1.5 million and Scheduled Principal Payments for the Fiscal Quarter deemed to have ended March 31, 2000 shall be deemed to be $0.3 million and Scheduled Principal Payments for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $0.3 million, and (z) March 31, 2001, Consolidated Cash Taxes for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $1.5 million and Scheduled Principal Payments for the Fiscal Quarter deemed to have ended June 30, 2000 shall be deemed to be $0.3 million; provided, still further, that notwithstanding anything to the contrary contained in the first proviso to this sentence, for purposes of the calculation of Consolidated Fixed Charges for the period ending on September 30, 2000, December 31, 2000 and March 31, 2001, Consolidated Cash Interest Expense and Cash Junior Payments for the Fiscal Quarter ending September 30, 2000, December 31, 2000 and March 31, 2001 shall not be determined on a Pro Forma Basis but shall be determined on an Annualized basis. "Consolidated Interest Coverage Ratio" means, as of any date of determination, the ratio computed for the four Fiscal Quarter period most recently ended on or before such date of determination of Consolidated EBITDA to Consolidated Cash Interest Expense; provided that Consolidated Cash Interest Expense for the Fiscal Quarters ending September 30, 2000, December 31, 2000 and March 31, 2001, shall be determined on an Annualized basis. 11 EXECUTION "Consolidated Interest Expense" means, for any period, the sum of total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, but excluding, however, the amortization of any amounts referred to in subsection 2.3 payable to Arranger, Agents and Lenders on or before the Closing Date. "Consolidated Leverage Ratio" means, as at any date of determination, the ratio of (a) Consolidated Total Debt as of the last day of the Fiscal Quarter for which such determination is being made to (b) Consolidated EBITDA for the consecutive four Fiscal Quarters ending on the last day of the Fiscal Quarter for which such determination is being made. "Consolidated Net Income" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded therefrom (i) the income (or loss) of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (ii) except as otherwise expressly permitted under this Agreement, the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary; provided that the foregoing clause (iii) shall not apply with respect to the income of any Foreign Subsidiary of Company to the extent that the restriction on the declaration or payment of dividends or similar distributions by that Foreign Subsidiary of that income is permitted by subsection 7.2C(c) or 7.2D(d), (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains. "Consolidated Net Worth" means, as of any date of determination, the sum of the capital stock (including, without limitation, Convertible Preferred Stock) and additional paid-in capital plus retained earnings (or minus accumulated deficits) of Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Total Debt" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Working Capital" means, as at any date of determination, the excess (or deficit) of Consolidated Current Assets over Consolidated Current Liabilities. 12 EXECUTION "Consolidated Working Capital Adjustment" means, for any period on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period. "Consulting Agreement" means that certain Consulting Agreement dated as of May 18, 2000 by and between Company and William G. Malloy, as such agreement may be amended from time to time to the extent permitted under subsection 7.14. "Contingent Obligation", as applied to any Person, means, without duplication, any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Hedge Agreements. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "Contractual Obligation", as applied to any Person, means any material provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Convertible Preferred Stock" means Company's Series A Convertible Preferred Stock. "Convertible Preferred Stock Purchase Agreement" means that certain Preferred Stock Purchase Agreement dated as of August 31, 2000 by and among Company, Olivetti and Tote Holdings, L.P., as Purchasers, providing for the aggregate purchase and sale of shares of Convertible Preferred Stock in an amount not to exceed $110 million, as such purchase agreement may be amended from time to time to the extent permitted under subsection 7.14. 13 EXECUTION "Currency Agreement" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "DLJ" means DLJ Capital Funding, Inc. "Documentation Agent" has the meaning assigned to that term in the introduction to this Agreement. "Dollar Equivalent" means, at any time, (x) as to any amount denominated in Dollars, the amount thereof at such time, and (y) as to any amount denominated in a currency other than Dollars, the equivalent amount in Dollars as determined by Administrative Agent at such time on the basis of the Exchange Rate for the purchase of Dollars with such currency on the most recent Computation Date provided for in subsection 2.1F(i) or such other time as may be reasonably specified by Administrative Agent. "Dollars" and the sign "$" mean the lawful money of the United States of America. "Domestic Subsidiary" means a direct or indirect Subsidiary of Company that is incorporated or organized under the laws of a state of the United States of America. "Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other person (other than a natural Person) approved by the Administrative Agent, in the case of any assignment of a Revolving Loan, the Issuing Lender, and, unless (X) such Person is taking delivery of an assignment in connection with physical settlement of a credit derivatives transaction or (Y) an Event of Default has occurred and is continuing, Company (each such approval not to be unreasonably withheld or delayed). If the consent of Company to an assignment or to an Eligible Assignee is required hereunder (including a consent to an assignment which does not meet the minimum assignment thresholds specified in subsection 10.1B(i)), Company shall be deemed to have given its consent five (5) Business Days after the date notice thereof has been delivered by the assigning Lender (through the Administrative Agent) unless such consent is expressly refused by Company prior to such fifth Business Day. "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is, or during the last six years was, maintained or contributed to by Company, any of its Subsidiaries or any of their respective ERISA Affiliates. Any such plan of a former ERISA Affiliate of Company or any of its Subsidiaries shall continue to be considered an Employee Benefit Plan within the meaning of this definition solely with respect to the period during which such former ERISA Affiliate was an ERISA Affiliate of Company or any of its Subsidiaries with respect to liabilities for which Company or any of its Subsidiaries could be liable under the Internal Revenue Code or ERISA. "Environmental Claim" means any investigation, written notice, written notice of violation, claim, action, suit, proceeding, written demand, abatement order or other order or directive (conditional or otherwise), by any governmental authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, (ii) in connection with any Hazardous Materials or any actual or alleged Hazardous Materials 14 EXECUTION Activity, or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Laws" means any and all federal, state, foreign or local statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, binding and enforceable guidance documents, or any other requirements of governmental authorities now or hereafter in effect relating to (i) environmental matters, including those relating to any Hazardous Materials Activity, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any Facility, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss.1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss.6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Clean Air Act (42 U.S.C. ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss.2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss.136 et seq.), the Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.), the Oil Pollution Act (33 U.S.C. ss.2701 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss.11001 et seq.), each as amended or supplemented, any analogous state or local statutes or laws, now or hereafter in effect, and any regulations promulgated pursuant to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA Affiliate" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Company or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Company or such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Company or such Subsidiary and with respect to liabilities for which Company or such Subsidiary could be liable under the Internal Revenue Code or ERISA. "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such 15 EXECUTION plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal, during any year for which it was a "substantial employer" (as defined in Section 4001(a) of ERISA), by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which would reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which would reasonably be expected to give rise to the imposition on Company or any of its Subsidiaries of material fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the occurrence of an act or omission which would reasonably be expected to give rise to the imposition on Company, any of its Subsidiaries or any of their respective ERISA Affiliates of material fines, penalties, taxes or related charges under Section 4071 of ERISA in respect of any Employee Benefit Plan; (x) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan, which could reasonably be expected to result in a liability to the Company, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $500,000; (xi) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xii) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Event of Default" means each of the events set forth in Section 8. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Exchange Rate" means, on any date when an amount expressed in a currency other than Dollars is to be determined with respect to any Letter of Credit, the nominal rate of exchange of the applicable Issuing Lender in the New York foreign exchange market for the purchase by such Issuing Lender (by cable transfer) of such currency in exchange for Dollars at 12:00 noon (New York time) one Business Day prior to such date, expressed as a number of units of such currency per one Dollar. 16 EXECUTION "Existing Company Bank Debt" means the Indebtedness under (x) the Credit Agreement dated as of July 28, 1997 by and among Company, the various financial institutions named therein, and Heller Financial, Inc., as agent, (y) the Term Loan Agreement dated as of May 28, 1998 by and among Company, the various financial institutions named therein, and Heller Financial, Inc., as agent, and (z) the Term Loan Agreement dated as of June 9, 2000 by and among Company, the various financial institutions named therein, and DLJ, as agent, each as amended, supplemented or otherwise modified through the date hereof. "Existing Company Convertible Debt" means Company's 5-1/2% Convertible Subordinated Debentures due 2001 in an aggregate principal amount of $35 million. "Existing Company Senior Notes" means Company's 10-7/8% Senior Notes due 2004 in an aggregate principal amount of $110 million. "Existing Letters of Credit" means the letters of credit identified as such in Schedule 7.4 annexed hereto (but not any refinancings, renewals or extensions thereof). "Existing Scientific Games Bank Debt" means the Indebtedness under (i) the Credit Agreement dated as of November 30, 1999 by and among Scientific Games and Scientific Games, Inc., a Delaware corporation, as co-borrowers, the lenders referred to therein and First Union National Bank, as administrative agent thereunder, and (ii) the 364-Day Credit Agreement dated as of November 30, 1999 by and among Scientific Games and Scientific Games, Inc., as borrowers, and First Union National Bank, as administrative agent, each as amended, supplemented or otherwise modified through the date hereof. "Facilities" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Company, Scientific Games or any of their respective Subsidiaries or any of their respective predecessors or Affiliates. "Federal Funds Effective Rate" means, 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 Administrative Agent from three Federal funds brokers of recognized standing selected by Administrative Agent. "Financial Condition Certificate" means a Financial Condition Certificate, substantially in the form of Exhibit VI annexed hereto, dated as of the Closing Date. "Financial Plan" has the meaning assigned to that term in subsection 4.1J(iv). "First Priority" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien has priority over any other Lien on such Collateral (other than Permitted Encumbrances which as a matter of statutory law have priority 17 EXECUTION over any other Lien irrespective of the prior perfection or filing of such other Lien) and (ii) such Lien is the only Lien (other than Permitted Encumbrances) to which such Collateral is subject. "Fiscal Quarter" means a fiscal quarter of Company or its Subsidiaries ending on January 31, April 30, July 31 and October 31 of each calendar year; provided that, until the date on which Company changes its Fiscal Year from a Fiscal Year ending on October 31 of each calendar year to a Fiscal Year ending on December 31 of each calendar year pursuant to subsection 6.11, "Fiscal Quarter" shall be deemed for all purposes hereunder to mean, unless the context otherwise requires, a fiscal quarter of Company and its Subsidiaries ending on March 31, June 30, September 30 and December 31 of each calendar year; provided, further that, from and after the date on which Company changes its fiscal year from a fiscal year ending on October 31 of each calendar year to a fiscal year ending on December 31 of each calendar year, "Fiscal Quarter" shall mean a fiscal quarter of Company and its Subsidiaries ending on March 31, June 30, September 30 and December 31 of each calendar year. "Fiscal Year" means the fiscal year, in the case of Company and its Subsidiaries (other than Scientific Games and its Subsidiaries), ending on October 31 of each calendar year, and in the case of Scientific Games and its Subsidiaries, ending on December 31 of each calendar year; provided that, until Company changes its fiscal year from a fiscal year ending on October 31 of each calendar year to a fiscal year ending on December 31 of each calendar year, "Fiscal Year" of Company and its Subsidiaries shall be deemed for all purposes hereunder to mean, unless context otherwise requires, a fiscal year of Company deemed for all purposes hereunder to end on December 31 of each calendar year provided further that, from and after the date on which Company changes its fiscal year from a fiscal year ending on October 31 of each calendar year to a fiscal year ending on December 31 of each calendar year, "Fiscal Year" shall mean a fiscal year of Company and its Subsidiaries ending on December 31 of each calendar year; provided, further that, from and after the date on which Company changes its fiscal year from a fiscal year ending on October 31 of each calendar year to a fiscal year ending on December 31 of each calendar year, "Fiscal Year" shall mean a fiscal year of Company and its Subsidiaries ending on December 31 each calendar year. "Flood Hazard Property" means a Mortgaged Property located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "Foreign Subsidiary" means a direct or indirect Subsidiary of Company which is incorporated or organized under the laws of any government or sovereignty other than any state of the United States of America or the District of Columbia. "Funding and Payment Office" means (i) the office of Administrative Agent and Swing Line Lender located at 277 Park Avenue, New York, NY 10172 or (ii) such other office of Administrative Agent and Swing Line Lender as may from time to time hereafter be designated as such in a written notice delivered by Administrative Agent and Swing Line Lender to Company and each Lender. "Fund" means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business. 18 EXECUTION "Funding Date" means the date of the funding of a Loan, which date shall be a Business Day. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination. "Governmental Authorization" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "Hazardous Materials" means (i) any chemical, material or substance at the applicable time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) any asbestos-containing materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls; (ix) pesticides; and (x) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. "Hazardous Materials Activity" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, presence, storage, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "Hedge Agreement" means an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively, and not entered into for speculative purposes. "Inactive Subsidiary" means any Subsidiary of Company that does not engage in any business activity, which Subsidiary, together with all other Inactive Subsidiaries, (a) does not own assets with an aggregate value for all such Inactive Subsidiaries of greater than $50,000, and (b) does not, together with all other Inactive Subsidiaries, generate aggregate revenues of greater 19 EXECUTION than $50,000 in any single Fiscal Year; and all Inactive Subsidiaries shall be designated as such on Schedule 5.1. "Indebtedness", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Obligations under Interest Rate Agreements and Currency Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. "Indemnified Liabilities" has the meaning assigned to that term in subsection 10.3. "Indemnitee" has the meaning assigned to that term in subsection 10.3. "Intellectual Property" means all patents, trademarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of the business of Company and its Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Company and its Subsidiaries, taken as a whole. "Interest Payment Date" means (i) with respect to any Base Rate Loan, the last Business Day of each March, June, September and December, of each year, commencing on the first such date to occur after the Closing Date, and (ii) with respect to any LIBO Rate Loan, the last Business Day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of longer than three months "Interest Payment Date" shall also include the Business Day that is three months, or any multiple thereof, after the commencement of such Interest Period. "Interest Period" has the meaning assigned to that term in subsection 2.2B. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "Interest Rate Determination Date" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "Investment" means (i) any direct or indirect purchase or other acquisition by Company or any of its Subsidiaries of, or of a beneficial interest in, any Securities of any other Person 20 EXECUTION (including any Subsidiary of Company other than a wholly-owned Domestic Subsidiary of Company), (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Company from any Person other than Company or any of its wholly-owned Domestic Subsidiaries, of any equity Securities of such Subsidiary, (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Company or any of its Subsidiaries to any other Person (other than a wholly-owned Domestic Subsidiary of Company), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business, or (iv) Interest Rate Agreements or Currency Agreements not constituting Hedge Agreements. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment; provided that the amount of an Investment shall be reduced by the amount of capital returned on such Investment (as determined on an after tax basis). "IP Collateral" means, collectively, any Collateral under the Security Agreement consisting of trademarks, servicemarks, tradenames, tradesecrets, business names, logos, patents, patent applications, licenses, copyrights, any registration and franchise rights and interests relating thereto, and any other intellectual property of any type, and all goodwill associated with any of the foregoing. "Issuing Lender" means, with respect to any Letter of Credit, the Revolving Lender that agrees or is otherwise obligated to issue such Letter of Credit, determined as provided in subsection 3.1B(ii). "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party. "Landlord Consent and Estoppel" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor (and all other parties having a consent right) under the related lease, satisfactory in form and substance to Administrative Agent, pursuant to which such lessor (and all other parties having a consent right) agrees, for the benefit of Administrative Agent, (i) that without any further consent of such lessor (and all other parties having a consent right) or any further action on the part of the Loan Party holding such Leasehold Property, such Leasehold Property may be encumbered pursuant to a Mortgage and may be assigned to the purchaser at a foreclosure sale or in a transfer in lieu of such a sale (and to a subsequent third party assignee if any Agent, any Lender, or an Affiliate of either so acquires such Leasehold Property), (ii) that such lessor shall not terminate such lease as a result of a default by such Loan Party thereunder without first giving Administrative Agent notice of such default and at least 15 days in the case of a monetary default and 30 days in the case of a non-monetary default beyond the cure period afforded to the tenant thereunder to cure such default, and (iii) that the related lease is in full force and effect, that no defaults by the lessee exist thereunder, and such other information as is customarily included in a lessor's estoppel certificate, and (iv) to such other matters relating to such Leasehold Property as Administrative Agent may reasonably request. 21 EXECUTION "Leasehold Property" means any leasehold interest of any Loan Party as lessee under any lease of real property. "Lender" and "Lenders" means the persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall include Swing Line Lender unless the context otherwise requires. "Letter of Credit" or "Letters of Credit" means Commercial Letters of Credit and Standby Letters of Credit issued or to be issued by Issuing Lenders for the account of Company pursuant to subsection 3.1. "Letter of Credit Usage" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Lenders and not theretofore reimbursed by Company. For the purposes of this definition, any amount described in clause (i) or (ii) of the preceding sentence which is denominated in a currency other than Dollars shall be valued based on the applicable Exchange Rate for such currency as of the applicable date of determination. "LIBO Rate Loans" means Loans bearing interest at rates determined by reference to the Adjusted LIBO Rate as provided in subsection 2.2A. "Lien" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "Loan" or "Loans" means one or more of the Tranche A Term Loans, Tranche B Term Loans, Revolving Loans or Swing Line Loans or any combination thereof. "Loan Documents" means this Agreement, the Notes, the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by Company in favor of an Issuing Lender relating to, the Letters of Credit), the Subsidiary Guaranties and the Collateral Documents. "Loan Party" means each of Acquisition Co., Company and any of Company's Subsidiaries from time to time executing a Loan Document, and "Loan Parties" means all such Persons, collectively. "Margin Determination Certificate" means a Margin Determination Certificate of Company delivered pursuant to 6.1(xviii) setting forth in reasonable detail the calculation of the Consolidated Leverage Ratio for the four-Fiscal Quarter period ending as of the last day of the Fiscal Quarter immediately preceding the Fiscal Quarter in which such certificate is delivered. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. 22 EXECUTION "Material Adverse Effect" means (i) any event or change in or effect on the business of Company and its Subsidiaries, taken as a whole, that is or can reasonably be expected to be materially adverse to the business, operations, properties (including intangible properties), condition (financial or otherwise), assets, liabilities or prospects of Company and its Subsidiaries, taken as a whole, or (ii) the impairment in any material respect of the ability of any Loan Party to perform, or of Administrative Agent or Lenders to enforce, the Obligations. "Material Leasehold Property" means a Leasehold Property reasonably determined by Administrative Agent to be of material value as Collateral or of material importance to the operations of Company or any of its Subsidiaries. "Merger" means the merger of Acquisition Co. with and into Scientific Games pursuant to the Merger Agreement, with Scientific Games as the surviving corporation. "Merger Agreement" means the Agreement and Plan of Merger dated as of May 18, 2000 by and among Company, Acquisition Co. and Scientific Games, as such agreement may be amended from time to time to the extent permitted under subsection 7.14. "Merger Date" means the date upon which the Merger is consummated. "Mortgage" means (i) a security instrument (whether designated as a deed of trust or a mortgage or by any similar title) executed and delivered by any Loan Party, substantially in such form as may be approved by Administrative Agent in its reasonable discretion, in each case with such changes thereto as may be recommended by Administrative Agent's local counsel based on local laws or customary local mortgage or deed of trust practices, or (ii) at the option of Administrative Agent, in the case of an Additional Mortgaged Property, an amendment to an existing Mortgage, in form reasonably satisfactory to Administrative Agent, adding such Additional Mortgaged Property to the Real Property Assets encumbered by such existing Mortgage, in either case as such security instrument or amendment may be amended, supplemented or otherwise modified from time to time. "Mortgages" means all such instruments, including the Closing Date Mortgages, and any Additional Mortgages, collectively. "Mortgaged Property" means a Closing Date Mortgaged Property or an Additional Mortgaged Property. "Multiemployer Plan" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "Net Asset Sale Proceeds" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale, net of (a) any amounts properly reserved on the financial statements of Company and its Subsidiaries in accordance with GAAP with respect to contingent liabilities directly related to such Asset Sale (provided that the aggregate amount of such reserved amount shall not exceed $5 million at any time), and (b) any bona fide direct costs incurred in connection with such Asset Sale, including (i) income taxes reasonably estimated to be actually payable within two years of 23 EXECUTION the date of such Asset Sale as a result of any gain recognized in connection with such Asset Sale and (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on, any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale. "Net Insurance/Condemnation Proceeds" means any Cash payments or proceeds received by Company or any of its Subsidiaries (i) under any business interruption or casualty insurance policy in respect of a covered loss thereunder or (ii) as a result of the taking of any assets of Company or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, in each case net of any actual and reasonable documented costs incurred by Company or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Company or such Subsidiary in respect thereof. "Notes" means one or more of the Tranche A Term Notes, Tranche B Term Notes, Revolving Notes or Swing Line Notes or any combination thereof. "Notice of Borrowing" means a notice substantially in the form of Exhibit I annexed hereto delivered by Company to Administrative Agent pursuant to subsection 2.1B with respect to a proposed borrowing. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit II annexed hereto delivered by Company to Administrative Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "Obligations" means all obligations of every nature of each Loan Party from time to time owed to Agents, Lenders or any of them under the Loan Documents to which any of the Lenders is a party, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnification or otherwise. "Officer's Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its president, one of its vice-presidents, its chief financial officer (or if there is no chief financial officer, its chief accounting officer) or its treasurer; provided that every Officer's Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officer's Certificate has or have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signer or signers, such signer or signers has or have made or has or have caused to be made such examination or investigation as is necessary to enable such signer or signers to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signer or signers, such condition has been complied with. "Olivetti" means Olivetti S.p.A. 24 EXECUTION "Operating Lease" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease in accordance with GAAP other than any such lease under which that Person is the lessor. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "Permitted Acquisition" means any acquisition, whether by purchase, merger, reorganization or any other method, by Company or any of its Subsidiaries of (x) another Person which is engaged primarily in the same or a related line of business as Company and its Subsidiaries or (y) any assets or other property of another Person relating primarily to the same or a related line of business as Company and its Subsidiaries (any such Person, assets or other property being an "Acquired Business"); provided that any such Permitted Acquisition shall comply with the provisions of subsection 7.7(vii). "Permitted Currency" means, Euros, Pounds Sterling, Italian Lire, French Francs, Belgium Francs, Irish Punts, German Marks, Luxembourg Francs, Dutch Guilders and Austrian Schillings. "Permitted Encumbrances" means the following types of Liens (excluding (x) any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA and (y) any such Lien relating to or imposed in connection with any Environmental Claim which, solely with respect to Liens within the ambit of this clause (y), would give rise to a Material Adverse Effect): (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3 but excluding any lien for the reimbursement of charges incurred by any governmental authorities in connection with any Hazardous Materials Activity; (ii) statutory Liens of landlords, statutory Liens of banks and rights of set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 15 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral on account of such Lien; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and 25 EXECUTION appeal 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), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) leases or subleases granted to third parties in accordance with any applicable terms of the Collateral Documents and not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries or resulting in a material diminution in the value of any Collateral as security for the Obligations; (vi) easements, rights-of-way, covenants, conditions, restrictions, encroachments, and other defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries or result in a material diminution in the value of any Collateral as security for the Obligations; (vii) any (a) interest or title of a lessor or sublessor under any lease permitted under this Agreement, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; (viii) Liens arising from filing UCC financing statements relating solely to leases not prohibited by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Company and its Subsidiaries; and (xii) licenses of patents, trademarks and other intellectual property rights granted by Company or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Company or such Subsidiary. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint 26 EXECUTION Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments (whether federal, state or local, domestic or foreign, and including political subdivisions thereof) and agencies or other administrative or regulatory bodies thereof. "Potential Event of Default" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "Prime Rate" means the prime lending rate as set forth on the British Banking Association Telerate page 5 (or such other comparable page as may, in the opinion of the Administrative Agent, replace such page for the purpose of displaying such rate), as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually available. Administrative Agent or any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Pro Forma Basis" means, as of any date of determination, the compliance of Company with the financial covenants set forth in subsection 7.6A, 7.6B and 7.6C as of the last day of the four Fiscal Quarter period most recently ended prior to such date of determination for which the relevant financial information is available (the "Compliance Period"), after giving effect on a pro forma basis to any Permitted Acquisitions made during such Compliance Period and any dispositions made during such Compliance Period, other than sales of inventory in the ordinary course of business and dispositions of obsolete equipment on the following basis: (i) any Indebtedness incurred or assumed by Company or any of its Subsidiaries in connection with such Permitted Acquisitions and any Indebtedness repaid in connection with such Permitted Acquisitions or dispositions shall be deemed to have been incurred or repaid, respectively, as of the first day of the Compliance Period; (ii) if such Indebtedness incurred or assumed by Company or any of its Subsidiaries in connection with such Permitted Acquisitions has a floating or formula rate, then the rate of interest for such Indebtedness for the applicable period shall be computed as if the rate in effect for such Indebtedness on the relevant measurement date had been the applicable rate for the entire applicable period; (iii) income statement items (whether positive or negative) attributable to the property or business acquired or disposed of in such Permitted Acquisitions or dispositions shall be included as if such acquisitions or dispositions took place on the first day of such Compliance Period on a pro forma basis; and (iv) any historical extraordinary non-recurring costs or expenses or other verifiable costs or expenses that will not continue after the acquisition or disposition date may be eliminated and other expenses and cost reductions may be reflected on a basis consistent with Regulation S-X promulgated by the Securities and Exchange Commission. With respect to any such Permitted Acquisitions, such pro forma calculations shall be based on the audited or reviewed financial results to the extent delivered in compliance with clause (g) of subsection 7.7(vii). All pro forma adjustments shall be approved by the Administrative Agent. 27 EXECUTION "Pro Rata Share" means (i) with respect to all payments, computations and other matters relating to the Tranche A Term Loan Commitment or the Tranche A Term Loan of any Lender, the percentage obtained by dividing (x) the Tranche A Term Loan Exposure of that Lender by (y) the aggregate Tranche A Term Loan Exposure of all Lenders, (ii) with respect to all payments, computations and other matters relating to the Tranche B Term Loan Commitment or the Tranche B Term Loan of any Lender, the percentage obtained by dividing (x) the Tranche B Term Loan Exposure of that Lender by (y) the aggregate Tranche B Term Loan Exposure of all Lenders, (iii) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of Credit issued or participations therein purchased by any Lender or any participations in any Swing Line Loans purchased or deemed purchased by any Revolving Lender, the percentage obtained by dividing (x) the Revolving Loan Exposure of that Lender by (y) the aggregate Revolving Loan Exposure of all Lenders, and (iv) for all other purposes with respect to each Lender, the percentage obtained by dividing (x) the sum of the Tranche A Term Loan Exposure of that Lender plus the Tranche B Term Loan Exposure of Lender plus the Revolving Loan Exposure of that Lender by (y) the sum of the aggregate Tranche A Term Loan Exposure of all Lenders plus the Tranche B Term Loan Exposure of that Lender plus the aggregate Revolving Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii) and (iii) of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. "PTO" means the United States Patent and Trademark Office or any successor or substitute office in which filings are necessary or, in the opinion of Administrative Agent, desirable in order to create or perfect Liens on any IP Collateral. "Purchase Money Indebtedness" means Indebtedness of Company or any of its Subsidiaries incurred in connection with the purchase of assets or other property for the business of Company or any of its Subsidiaries; provided that the recourse of the lenders with respect to such Indebtedness is limited solely to the assets or other property so purchased (and the proceeds of such assets or other property) without further recourse to either Company or any of its Subsidiaries. "Real Property Asset" means, at any time of determination, any interest then owned by any Loan Party in any real property. "Recorded Leasehold Interest" means a Leasehold Property with respect to which a Record Document (as hereinafter defined) has been recorded in all places necessary or desirable, in the reasonable judgment of Administrative Agent, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. For purposes of this definition, the term "Record Document" means, with respect to any Leasehold Property, (a) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (b) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document or a memorandum thereof, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Administrative Agent. 28 EXECUTION "Refunded Swing Line Loans" has the meaning assigned to that term in subsection 2.1A(iii). "Register" has the meaning assigned to that term in subsection 2.1D. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Reimbursement Date" has the meaning assigned to that term in subsection 3.3B. "Related Agreements" means, collectively, the Merger Agreement, the Convertible Preferred Stock Purchase Agreement, the Stockholders Agreement, the Certificate of Designations, the Senior Subordinated Note Indenture and the Senior Subordinated Notes. "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the movement of any Hazardous Materials through the air, soil, surface water or groundwater. "Replaced Lender" has the meaning assigned to that term in subsection 2.8. "Replacement Lender" has the meaning assigned to that term in subsection 2.8. "Request for Issuance of Letter of Credit" means a notice substantially in the form of Exhibit III annexed hereto delivered by Company to Administrative Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "Requisite Class Lenders" means, at any time of determination, (i) for the Class of Lenders having Tranche A Term Loan Exposure, Lenders having or holding more than 50% of the aggregate Tranche A Term Loan Exposure of all Lenders, (ii) for the Class of Lenders having Tranche B Term Loan Exposure, Lenders having or holding more than 50% of the aggregate Tranche B Term Loan Exposure of all Lenders, (iii) for the Class of Lenders having Revolving Loan Exposure, Lenders having or holding more than 50% of the aggregate Revolving Loan Exposure of all Lenders and (iv) for any Lenders having exposure in additional commitments or loans in any additional Class created in accordance with clause (vi) of subsection 10.6A, Lenders having or holding more than 50% of the aggregate exposure in commitments or loans of such Class. "Requisite Lenders" means Lenders having or holding more than 50% of the sum of (i) the aggregate Tranche A Term Loan Exposure of all Lenders plus (ii) the aggregate Tranche B Term Loan Exposure of all Lenders plus (iii) the aggregate Revolving Loan Exposure of all Lenders. "Restricted Junior Payment" means (i) any distribution, direct or indirect, on account of any class of stock of Company now or hereafter outstanding, except a distribution payable solely in shares of that class of stock payable solely to holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or 29 EXECUTION indirect, of any class of stock of Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "Revised Financial Plan" has the meaning assigned to that term in subsection 6.1(xiii). "Revolving Lender" means a Lender having a Revolving Loan Commitment. "Revolving Loan Commitment" means the commitment of a Revolving Lender to make Revolving Loans to Company pursuant to subsection 2.1A(iii), and "Revolving Loan Commitments" means such commitments of all Revolving Lenders in the aggregate. "Revolving Loan Commitment Termination Date" means September 30, 2006. "Revolving Loan Exposure" means, with respect to any Revolving Lender as of any date of determination (i) prior to the termination of the Revolving Loan Commitments, that Revolving Lender's Revolving Loan Commitment and (ii) after the termination of the Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Revolving Lender plus (b) in the event that Revolving Lender is an Issuing Lender, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Revolving Lender (in each case net of any participations purchased or deemed purchased by other Revolving Lenders in such Letters of Credit or any unreimbursed drawings thereunder) plus (c) the aggregate amount of all participations purchased or deemed purchased by that Revolving Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit plus (d) in the case of Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein purchased or deemed purchased by other Revolving Lenders) plus (e) the aggregate amount of all participations purchased or deemed purchased by that Revolving Lender in any outstanding Swing Line Loans. "Revolving Loans" means the Loans made by Revolving Lenders to Company pursuant to subsection 2.1A(iii). "Revolving Notes" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(iii) on the Closing Date and (ii) any promissory notes issued by Company pursuant to subsection 10.1B in connection with assignments of the Revolving Loan Commitments and Revolving Loans of any Revolving Lenders, in each case substantially in the form of Exhibit IV-C annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "Scheduled Principal Payments" has the meaning assigned to that term in the definition of "Consolidated Fixed Charges" in this subsection 1.1. "Scientific Games" means Scientific Games Holdings Corp., a Delaware corporation. 30 EXECUTION "Scientific Games Common Stock" means prior to the Merger the Common Stock, $.001 par value, of Scientific Games. "Security Agreement" means the Security Agreement executed and delivered by Company and the wholly-owned Domestic Subsidiaries of Company on the Closing Date and to be executed and delivered by additional wholly-owned Domestic Subsidiaries of Company from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XII annexed hereto, as such Security Agreement may thereafter be amended, supplemented or otherwise modified from time to time and any documents or agreements delivered by Company or any of its wholly-owned Domestic Subsidiaries with respect to the pledge of capital stock or other equity interests in Foreign Subsidiaries pursuant to subsection 6.8D. "Securities" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Senior Subordinated Note Indenture" means the Indenture dated as of August 14, 2000 executed by Company and a trustee named therein pursuant to which the Senior Subordinated Notes were issued, as amended by the First Supplemental Indenture dated as of September 6, 2000, and as such indenture may be further amended from time to time to the extent permitted under subsection 7.14. "Senior Subordinated Notes" means the unsecured Senior Subordinated Notes due 2010, issued by Company pursuant to the Senior Subordinated Note Indenture, as such Senior Subordinated Notes may be amended from time to time to the extent permitted under subsection 7.14, all the proceeds of which are to be used pursuant to subsection 4.1D. "SGIL" has the meaning assigned to that term in subsection 7.1(x). "Solvent" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time 31 EXECUTION shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit" means any standby letter of credit or similar instrument issued for the purpose of supporting (i) Indebtedness of Company or any of its Subsidiaries in respect of industrial revenue or development bonds or financings, (ii) workers' compensation liabilities of Company or any of its Subsidiaries, (iii) the obligations of third party insurers of Company or any of its Subsidiaries, (iv) obligations with respect to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and (v) performance, payment, deposit or surety obligations of Company or any of its Subsidiaries, in any case if required by law or governmental rule or regulation or in accordance with custom and practice in the industry; provided that Standby Letters of Credit may not be issued for the purpose of supporting (a) trade payables or (b) any Indebtedness constituting "antecedent debt" (as that term is used in Section 547 of the Bankruptcy Code). "Stockholders' Agreement" means that certain Stockholders' Agreement dated as of September 6, 2000, by and among Company, Cermatica Gaming, S.A., Olivetti International, S.A., The Oak Fund, Peconic Fund Ltd. and Ramius Securities, LLC. "Subordinated Indebtedness" means the Senior Subordinated Notes, the Convertible Subordinated Debt and any other Indebtedness of Company subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance reasonably satisfactory to Administrative Agent and Requisite Lenders. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Subsidiary Guarantor" means (i) any wholly-owned Domestic Subsidiary of Company with respect to the Subsidiary Guaranty executed and delivered by such Subsidiaries in favor of Administrative Agent, on behalf of Lenders, on the Closing Date and to be executed and delivered by any additional wholly-owned Domestic Subsidiaries of Company from time to time thereafter in accordance with subsection 6.8, and (ii) any wholly-owned Domestic Subsidiary of Company that executes and delivers a counterpart of the Subsidiary Guaranty in favor of Administrative Agent, on behalf of Lenders, from time to time after the Closing Date in accordance with subsection 6.8. "Subsidiary Guaranty" means the Subsidiary Guaranty in favor of Administrative Agent, on behalf of Lenders, executed and delivered by the wholly-owned Domestic Subsidiaries of Company (other than any Inactive Subsidiary) on the Closing Date and to be executed and 32 EXECUTION delivered by additional wholly-owned Domestic Subsidiaries of Company (other than any Inactive Subsidiary) from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XIII annexed hereto, as such Subsidiary Guaranty may hereafter be amended, supplemented or otherwise modified from time to time. "Supplemental Collateral Agent" has the meaning assigned to that term in subsection 9.1B. "Swing Line Lender" means DLJ, or any Person serving as a successor Administrative Agent hereunder, in its capacity as Swing Line Lender hereunder. "Swing Line Loan Commitment" means the commitment of Swing Line Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(iv). "Swing Line Loans" means the Loans made by Swing Line Lender to Company pursuant to subsection 2.1A(iv). "Swing Line Note" means (i) the promissory note of Company issued pursuant to subsection 2.1E(iii) on the Closing Date and (ii) any promissory note issued by Company to any successor Administrative Agent and Swing Line Lender pursuant to the last sentence of subsection 9.5B, in each case substantially in the form of Exhibit IV-D annexed hereto, as it may be amended, supplemented or otherwise modified from time to time. "Syndication Agent" has the meaning assigned to that term in the introduction to this Agreement. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the overall net income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its lending office). "Tender Premiums" means the tender premiums and/or redemption payable under the Existing Company Senior Notes. "Term Loans" means the Tranche A Term Loans and the Tranche B Term Loans. "Title Company" means one or more title insurance companies reasonably satisfactory to Administrative Agent. "Total Utilization of Revolving Loan Commitments" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans 33 EXECUTION plus (ii) the aggregate principal amount of all outstanding Swing Line Loans plus (iii) the Letter of Credit Usage. "Tranche A Term Loan Commitment" means the commitment of a Lender to make a Tranche A Term Loan to Company pursuant to subsection 2.1A(i), and "Tranche A Term Loan Commitments" means such commitments of all Lenders in the aggregate. "Tranche A Term Loan Exposure" means, with respect to any Tranche A Term Loan Lender as of any date of determination (i) prior to the funding of all of the Tranche A Term Loans, that Lender's original Tranche A Term Loan Commitment and (ii) after the funding of all of the Tranche A Term Loans, the outstanding principal amount of the Tranche A Term Loan of that Lender. "Tranche A Term Loan Lender" means any Lender who holds a Tranche A Term Loan Commitment, or who has made a Tranche A Term Loan hereunder and any assignee of such Lender pursuant to subsection 10.1B. "Tranche A Term Loans" means the Tranche A Term Loans made by Tranche A Term Loan Lenders to Company pursuant to subsection 2.1A(i). "Tranche A Term Notes" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(i) on the Closing Date and (ii) any promissory notes issued by Company pursuant to subsection 10.1B in connection with assignments of the Tranche A Term Loan Commitments or Tranche A Term Loans of any Tranche A Term Loan Lenders, in each case substantially in the form of Exhibit IV-A annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "Tranche B Term Loan Commitment" means the commitment of a Lender to make a Tranche B Term Loan to Company pursuant to subsection 2.1A(ii), and "Tranche B Term Loan Commitments" means such commitments of all Lenders in the aggregate. "Tranche B Term Loan Exposure" means, with respect to any Tranche B Term Loan Lender as of any date of determination (i) prior to the funding of the Tranche B Term Loans, that Lender's Tranche B Term Loan Commitment and (ii) after the funding of the Tranche B Term Loans, the outstanding principal amount of the Tranche B Term Loan of that Lender. "Tranche B Term Loan Lender" means any Lender who holds a Tranche B Term Loan Commitment or who has made a Tranche B Term Loan hereunder, and any assignee of such Lender pursuant to subsection 10.1B. "Tranche B Term Loans" means the Tranche B Term Loans made by Tranche B Term Loan Lenders to Company pursuant to subsection 2.1A(ii). "Tranche B Term Notes" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(ii) on the Closing Date and (ii) any promissory notes issued by Company pursuant to subsection 10.1B in connection with assignments of the Tranche B Term Loan Commitments or Tranche B Term Loans of any Tranche B Term Loan Lenders, in each case 34 EXECUTION substantially in the form of Exhibit IV-B annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "Transaction Costs" means the fees, costs and expenses payable by any Loan Party or by Scientific Games in connection with the Merger, the related financing and other transactions contemplated by the Loan Documents and the Related Agreements in an aggregate amount not to exceed $30.1 million; provided that the foregoing shall not include any related non-cash compensation paid to any of the Lenders or any Affiliates of any of the Lenders on or before the Closing Date in connection with any of the financings contemplated by the Loan Documents. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UK Property" shall mean the property located at Quayside, Thwaitgate, Leeds LS10, England. .1 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement. Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (i), (ii), and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 6.1(v)). Calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize accounting principles and policies in conformity with those used to prepare the financial statements referred to in subsection 5.3. .2 Other Definitional Provisions and Rules of Construction. A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. B. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. C. The use in any of the Loan Documents of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. 35 EXECUTION Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS .1 Commitments; Making of Loans; Notes. A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, each Tranche A Term Loan Lender hereby severally agrees to make the Tranche A Term Loans described in subsection 2.1A(i), each Tranche B Term Loan Lender hereby severally agrees to make the Tranche B Term Loans described in subsection 2.1A(ii), each Revolving Lender hereby severally agrees to make the Revolving Loans described in subsection 2.1A(iii) and each Swing Line Lender hereby agrees to make the Swing Line Loans described in subsection 2.1A(iv). (i) Tranche A Term Loans. Each Tranche A Term Loan Lender severally agrees to lend to Company on the Closing Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche A Term Loan Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Tranche A Term Loan Lender's Tranche A Term Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Tranche A Term Loan Commitments is $60 million; provided that the Tranche A Term Loan Commitments of the Tranche A Term Loan Lenders shall be adjusted to give effect to any assignments of the Tranche A Term Loan Commitments pursuant to subsection 10.1B. Each Tranche A Term Loan Lender's Term Loan Commitment to the extent unused, shall expire on the close of business on the Closing Date. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) Tranche B Term Loans. Each Tranche B Term Loan Lender severally agrees to lend to Company on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche B Term Loan Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Tranche B Term Loan Lender's Tranche B Term Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Tranche B Term Loan Commitments is $220 million; provided that the Tranche B Term Loan Commitments of Tranche B Term Loan Lenders shall be adjusted to give effect to any assignments of the Tranche B Term Loan Commitments pursuant to subsection 10.1B. Each Tranche B Term Loan Lender's Tranche B Term Loan Commitment to the extent unused, shall expire on the close of business on the Closing Date. Amounts borrowed under this subsection 2.1A(ii) and subsequently repaid or prepaid may not be reborrowed. (iii) Revolving Loans. Each Revolving Lender severally agrees, subject to the limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Revolving Loan Commitments to be used for the purposes identified in subsection 2.5B. The original amount of each Revolving Lender's Revolving Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Revolving Loan Commitments is $65 million; provided 36 EXECUTION that the Revolving Loan Commitments of the Revolving Lenders shall be adjusted to give effect to any assignments of the Revolving Loan Commitments pursuant to subsection 10.1B; and provided further that the amount of the Revolving Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Revolving Lender's Revolving Loan Commitment shall expire on September 30, 2000 if the Term Loans are not made on or before such date or on the Revolving Loan Commitment Termination Date if the Term Loans are made and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than the Revolving Loan Commitment Termination Date. Amounts borrowed under this subsection 2.1A(iii) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect. (iv) Swing Line Loans. Swing Line Lender hereby agrees, subject to the limitations set forth below with respect to the maximum amount of Swing Line Loans permitted to be outstanding from time to time, to make a portion of the Revolving Loan Commitments available to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date by making Swing Line Loans to Company in an aggregate amount not exceeding the amount of the Swing Line Loan Commitment to be used for the purposes identified in subsection 2.5B, notwithstanding the fact that such Swing Line Loans, when aggregated with Swing Line Lender's outstanding Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed Swing Line Lender's Revolving Loan Commitment. The original amount of the Swing Line Loan Commitment is $10 million; provided that any reduction of the Revolving Loan Commitments made pursuant to subsection 2.4B(ii) or 2.4B(iii) which reduces the aggregate Revolving Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment to the amount of the Revolving Loan Commitments, as so reduced, without any further action on the part of Company, Administrative Agent or Swing Line Lender. The Swing Line Loan Commitment shall expire on September 30, 2000 if the Term Loans are not made on or before such date or on the Revolving Loan Commitment Termination Date if the Term Loans are made and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than the Revolving Loan Commitment Termination Date. Amounts borrowed under this subsection 2.1A(iv) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the limitation that in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect. 37 EXECUTION With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender may, at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 1:00 P.M. (New York City time) on the first Business Day in advance of the proposed Funding Date, a notice (which shall be deemed to be a Notice of Borrowing given by Company) requesting Revolving Lenders to make Revolving Loans that are Base Rate Loans on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the date such notice is given which Swing Line Lender requests Revolving Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Revolving Loans made by Revolving Lenders other than Swing Line Lender shall be immediately delivered by Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans and shall be due under the Revolving Note of Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Revolving Lenders, including the Revolving Loan deemed to be made by Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Revolving Lenders in the manner contemplated by subsection 10.5. Immediately upon funding of the Swing Line Loan, each Revolving Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans in an amount equal to its Pro Rata Share of the unpaid amount of such Swing Line Loans together with accrued interest thereon. Upon one Business Day's notice from Swing Line Lender, each Revolving Lender shall deliver to Swing Line Lender an amount equal to its respective participation in same day funds at the Funding and Payment Office. In the event any Revolving Lender fails to make available to Swing Line Lender the amount of such Revolving Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Revolving Lender together with interest thereon at the Federal Funds Effective Rate for three Business Days and thereafter at the Base Rate. In the event Swing Line Lender receives a payment of any amount in which other Revolving Lenders have purchased participations as provided in this paragraph, Swing Line Lender shall promptly distribute to each such other Revolving Lender its Pro Rata Share of such payment. 38 EXECUTION Anything contained herein to the contrary notwithstanding, each Revolving Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Revolving Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including (a) any set-off, counterclaim, recoupment, defense or other right which such Revolving Lender may have against Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of an Event of Default or a Potential Event of Default; (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each Revolving Lender are subject to satisfaction of one of the following conditions (X) Swing Line Lender believes in good faith that all conditions under Section 4 to the making of the applicable Refunded Swing Line Loans or unpaid Swing Line Loans, as the case may be, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made or (Y) the satisfaction of any such condition not satisfied has been waived in accordance with subsection 10.6 prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made. (v) Increases of the Revolving Loan Commitments. With the written consent of Administrative Agent, Company may request in writing at any time during the period from the Closing Date to and including July 31, 2005 that the then effective aggregate principal amount of Revolving Loan Commitments be increased; provided that (1) the aggregate principal amount of the increases in Revolving Loan Commitments pursuant to this subsection 2.1A(v) shall not exceed $35 million, (2) Company may not make more than one request for such increase in Revolving Loan Commitments, (3) no Event of Default or Potential Event of Default shall have occurred and be continuing or shall occur as a result of such increases in Revolving Loan Commitments, and (4) Company shall, and shall cause its Subsidiaries to, execute and deliver such documents and instruments and take such other actions (including, without limitation, obtaining appropriate endorsements to title insurance policies) as may be reasonably requested by Administrative Agent in connection with such increases. Any request under this subsection 2.1A(v) shall be submitted by Company to Administrative Agent (which shall forward copies to Lenders), specify the proposed effective date and amount of such increase and be accompanied by an Officer's Certificate stating that no Event of Default or Potential Event of Default exists or will occur as a result of such increase. Company may also specify any fees offered to those Lenders (the "Increasing Lenders") which agree to increase the principal amount of their Revolving Loan Commitments, which fees may be variable based upon the amount by which any such Lender is willing to increase the principal amount of its Revolving Loan Commitment. No Lender shall have any obligation, express or implied, to offer to increase the aggregate principal amount of its Revolving Loan Commitment. Only the consent of each Increasing Lender and Administrative Agent shall be required for an increase in the aggregate principal amount of Revolving Loan Commitments pursuant to this subsection 2.1A(v). No Lender which elects not to increase the principal amount of 39 EXECUTION its Revolving Loan Commitment may be replaced in respect of its existing Revolving Loan Commitment as a result thereof without such Lender's consent. Each Increasing Lender shall as soon as practicable specify the amount of the proposed increase which it is willing to assume. Company may accept some or all of the offered amounts or designate new lenders who qualify as Eligible Assignees and which are reasonably acceptable to Administrative Agent as additional Lenders hereunder in accordance with this subsection 2.1A(v) (each such new lender being a "New Lender"), which New Lender may assume all or a portion of the increase in the aggregate principal amount of the Revolving Loan Commitments. Company and Administrative Agent shall have discretion jointly to adjust the allocation of the increased aggregate principal amount of Revolving Loan Commitments, among Increasing Lenders and New Lenders. Each New Lender designated by Company and reasonably acceptable to Administrative Agent shall become an additional party hereto as a New Lender concurrently with the effectiveness of the proposed increase in the aggregate principal amount of the Revolving Loan Commitments, upon its execution of an Agreement of Joinder in the form of Exhibit XIV (and, in each case, otherwise in form and substance reasonably satisfactory to Administrative Agent). Subject to the foregoing, any increase requested by Company shall be effective as of the date proposed by Company and shall be in the principal amount equal to (i) the principal amount which Increasing Lenders are willing to assume as increases to the principal amount of their Revolving Loan Commitments, plus (ii) the principal amount offered by New Lenders with respect to Revolving Loan Commitments, in either case as adjusted by Company and Administrative Agent pursuant to this subsection 2.1A(v). Upon effectiveness of any such increase, the Pro Rata Share of each Lender will be adjusted to give effect to the increase in Revolving Loan Commitments, Administrative Agent shall distribute to Lenders a revised Schedule 2.1 reflecting the Revolving Loan Commitment and Pro Rata Share of each Lender after giving effect to such increase. To the extent that the adjustment of Pro Rata Shares results in loss or expenses to any Lender as a result of the prepayment of any Adjusted LIBO Rate Loan on a date other than the scheduled last day of the applicable Interest Period, Company shall be responsible for such loss or expense pursuant to subsection 2.6D. B. Borrowing Mechanics. Loans made on any Funding Date as Base Rate Loans (other than Revolving Loans made pursuant to a request by Swing Line Lender pursuant to subsection 2.1A(iii) for the purpose of repaying any Refunded Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it) shall be in an aggregate minimum amount of $1 million and multiples of $50,000 in excess of that amount; provided that Loans made on any Funding Date as LIBO Rate Loans with a particular Interest Period shall be in an aggregate minimum amount of $3 million and multiples of $500,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $200,000 and multiples of $50,000 in excess of that amount. Whenever Company desires that Lenders make Loans it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (New York City time) at least three Business Days in advance of the proposed Funding Date (in 40 EXECUTION the case of a LIBO Rate Loan) or at least one Business Day in advance of the proposed Funding Date (in the case of a Base Rate Loan). Whenever Company desires that Swing Line Lender make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing no later than 1:00 P.M. (New York City time) on the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and type of Loans requested, (iii) in the case of Swing Line Loans, that such Loans shall be Base Rate Loans, (iv) whether such Loans shall be Base Rate Loans or LIBO Rate Loans, and (v) in the case of any Loans requested to be made as LIBO Rate Loans, the initial Interest Period requested therefor. Term Loans and Revolving Loans may be continued as or converted into Base Rate Loans and LIBO Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall be confirmed in writing by delivery of a Notice of Borrowing to Administrative Agent on the date of such telephonic notice. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected Loans hereunder. Company shall notify Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re-certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a LIBO Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. All Loans (other than Swing Line Loans) under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares of the Tranche A Term Loan Commitment, Tranche B Term Loan Commitment and the Revolving Loan Commitment, as the case may be, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Administrative Agent shall notify each Lender or Swing Line Lender, as the case may be, of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent not later than 1:00 P.M. (New York City time) on the applicable Funding Date, and Swing Line Lender shall make the amount of its Swing Line Loan available to 41 EXECUTION Administrative Agent not later than 2:00 P.M. (New York City time) on the applicable Funding Date, in each case in same day funds in Dollars, at the Funding and Payment Office. Except as provided in subsection 2.1A(iii) or subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Closing Date), 4.2 (in the case of Loans made on the Merger Date) and 4.3 (in the case of all Loans), Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders or Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless Administrative Agent shall have been notified in writing by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Funding Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Funding Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the Federal Funds Effective Rate for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Base Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. D. The Register. (i) Administrative Agent shall maintain, at its address referred to in subsection 10.8, a register for the recordation of the names and addresses of Lenders and the Commitments and Loans of each Lender from time to time (the "Register"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Upon the Company's written request, the Administrative Agent shall provide the Company with a copy of the Register. (ii) Administrative Agent shall record in the Register the Tranche A Term Loan Commitment, the Trance B Term Loan Commitment and the Revolving Loan Commitment, and the Tranche A Term Loan, the Tranche B Term Loan and the Revolving Loans from time to time of each Lender, the Swing Line Loan Commitment and the Swing Line Loans from time to time of Swing Line Lender, and each repayment or prepayment in respect of the principal amount of the Tranche A Term Loan, the Tranche B Term Loan or the Revolving Loans of each Lender or the Swing Line Loans of 42 EXECUTION Swing Line Lender. Any such recordation shall be conclusive and binding on Company and each Lender, absent error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans. (iii) Each Lender shall record on its internal records (including, without limitation, the Notes held by such Lender) the amount of the Tranche A Term Loan, the Tranche B Term Loan and each Revolving Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans; and provided further that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern. (iv) Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (v) Company hereby designates Administrative Agent to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent Administrative Agent serves in such capacity, Administrative Agent and its officers, directors and employees shall constitute Indemnitees for all purposes under subsection 10.3. E. Evidence of Debt. (i) The Register maintained by the Administrative Agent pursuant to Section 2.1D shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date, amount and tenor, as applicable, of each Loan, the type of Loan and the Interest Period applicable thereto, (ii) the terms of each Assignment Agreement delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder, and (iv) the amount of any sum received by the Administrative Agent from the Company hereunder and each Lender's share thereof. (ii) The entries made in the Register shall be conclusive and binding for all purposes, absent manifest error. 43 EXECUTION (iii) If, in the opinion of any Lender, a promissory note or other evidence of debt is required, appropriate or desirable to reflect or enforce the indebtedness of the Company resulting from a Tranche A Loan, a Tranche B Loan, a Revolving Loan or a Swing Line Loan made, or to be made, by such Lender to the Company, then, upon written request of such Lender, the Company shall promptly execute and deliver to such Lender a promissory note substantially in the form of Exhibit IV-A in the case of Tranche A Loans, Exhibit IV-B in the case of Tranche B Loans, Exhibit IV-C in the case of Revolving Loans and Exhibit IV-D in the case of Swing Line Loans, payable to the order of such Lender in an amount up to the maximum amount of Tranche A Loans, Tranche B Loans, Revolving Loans or Swing Line Loans, as the case may be, payable or to be payable by Company to such Lender from time to time hereunder. (iv) Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by Administrative Agent as provided in subsection 10.1B(ii). Any request, authority or consent of any person or entity 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, assignee or transferee of that Note or of any Note or Notes issued in exchange therefor. F. Special Provisions Governing Foreign Currency Letters of Credit. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Letters of Credit denominated in a currency other than Dollars, in each case as to the matters covered: (i) Calculation of Dollar Equivalent Amount of Foreign Currency Letters of Credit. For purposes of determining (1) whether the Total Utilization of Commitments exceeds the Revolving Loan Commitments then in effect or (2) the Letter of Credit Usage, Administrative Agent shall determine the Dollar Equivalent amounts with respect to any Letters of Credit denominated in a currency other than Dollars (a) on the first Business Day following each monthly anniversary of the issuance of such Letter of Credit, and (b) at such other dates as Administrative Agent may reasonably require (each such date under clauses (a) and (b) being a "Computation Date"). Administrative Agent shall determine the Dollar Equivalent amount for a particular Letter of Credit at the time a Request for Issuance of Letter of Credit is given with respect to such Letter of Credit. (ii) European Monetary Union. The European Monetary Union (the "European Monetary Union") anticipates the introduction of a single currency and the substitution of such currency for the national currencies of the member states participating in the European Monetary Union. On the date on which any currency under which a Letter of Credit is issued is replaced by such single currency, the conversion of any outstanding Letters of Credit denominated in such foreign currency into such single currency shall take effect; provided that the original foreign currency shall be retained for so long as legally permissible; provided further that any such conversion shall be based on the rate of conversion officially fixed by the European Monetary Union on the date such single currency replaces the applicable foreign currency. Notwithstanding anything contained herein to the contrary, none of the introduction of such single currency, the rate of 44 EXECUTION conversion or any economic consequences that arise from any of the aforementioned events or otherwise in connection with the European Monetary Union shall give rise to any right to terminate prematurely, contest, cancel, rescind, modify or renegotiate this Agreement or any of its provisions or to raise any other objections and/or exceptions or to assert any claim for compensation. (iii) Limitation to Permitted Currencies. Letters of Credit issued in a currency other than Dollars shall only be issued in a Permitted Currency. .2 Interest on the Loans. A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Adjusted LIBO Rate. Subject to the provisions of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate. The applicable basis for determining the rate of interest with respect to any Loan shall be selected by Company initially at the time a Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.1B, and the basis for determining the interest rate with respect to any Loan may be changed from time to time pursuant to subsection 2.2D. If on any day a Loan is outstanding with respect to which notice has not been delivered to Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. (i) Subject to the provisions of subsections 2.2E and 2.7, the Tranche A Term Loans, the Tranche B Term Loans and the Revolving Loans shall bear interest through maturity as follows: (1) if a Base Rate Loan, then at the sum of the Base Rate plus the Applicable Base Rate Margin or (2) if a LIBO Rate Loan, then at the sum of the Adjusted LIBO Rate plus the Applicable LIBO Rate Margin. (ii) Subject to the provisions of subsections 2.2E and 2.7, the Swing Line Loans shall bear interest through maturity at the sum of the Base Rate plus the Applicable Base Rate Margin for Revolving Loans minus the Commitment Fee Percentage. Upon delivery of a Margin Determination Certificate by Company to Administrative Agent pursuant to subsection 6.1(xviii), each of the Applicable Base Rate Margin and the Applicable LIBO Rate Margin shall automatically be adjusted in accordance with such Margin Determination Certificate, such adjustment to become effective on the next succeeding Business Day following the receipt by Administrative Agent of such Margin Determination Certificate; provided that if at any time a Margin Determination Certificate is not delivered at the time required pursuant to subsection 6.1(xviii), the highest Applicable Base Rate Margin or Applicable LIBO Rate Margin, as the case may be, shall be applicable from such time until delivery of such Margin Determination Certificate; provided further that if a Margin 45 EXECUTION Determination Certificate erroneously indicates an applicable margin more favorable to Company than should be afforded by the actual calculation of the Consolidated Leverage Ratio, Company shall promptly pay additional interest, letter of credit fees and all other applicable fees or commitment fees, as the case may be, to correct such error. B. Interest Periods. In connection with each LIBO Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an interest period (each an "Interest Period") to be applicable to such Loan, which Interest Period shall be, at Company's option, either a one, two, three or six month period; provided that: (i) the initial Interest Period for any LIBO Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a LIBO Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a LIBO Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a LIBO Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would otherwise expire on a day that 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; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the Tranche A Term Loans shall extend beyond July 31, 2006, no Interest Period with respect to any portion of the Tranche B Term Loans shall extend beyond July 31, 2007 and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Loan Commitment Termination Date; (vi) no Interest Period with respect to any portion of the Tranche A Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of the Tranche A Term Loans unless the sum of (a) the aggregate principal amount of Tranche A Term Loans that are Base Rate Loans plus (b) the aggregate principal amount of Tranche A Term Loans that are LIBO Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Tranche A Term Loans on such date; (vii) no Interest Period with respect to any portion of the Tranche B Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of the Tranche B Term Loans unless the sum of (a) the aggregate principal 46 EXECUTION amount of Tranche B Term Loans that are Base Rate Loans plus (b) the aggregate principal amount of Tranche B Term Loans that are LIBO Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Tranche B Term Loans on such date; (viii) there shall be no more than ten Interest Periods outstanding at any time; and (ix) in the event Company fails to specify an Interest Period for any LIBO Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. C. Interest Payments. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity); provided that in the event any Swing Line Loans or any Revolving Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such Swing Line Loans or Revolving Loans through the date of such prepayment shall be payable on the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity). D. Conversion or Continuation. Subject to the provisions of subsection 2.6, Company shall have the option to convert at any time all or any part of its outstanding Loans equal to $3 million and multiples of $500,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis or (ii) upon the expiration of any Interest Period applicable to a LIBO Rate Loan, to continue all or any portion of such Loan equal to $3 million and multiples of $500,000 in excess of that amount as a LIBO Rate Loan; provided, however, that (i) a LIBO Rate Loan may only be converted into a Base Rate Loan on the expiration date of an Interest Period applicable thereto. Company shall deliver a Notice of Conversion/Continuation to Administrative Agent no later than 10:00 A.M. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBO Rate Loan). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a LIBO Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a LIBO Rate Loan, that no Potential Event of Default or Event of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/ Continuation to Administrative Agent on or before the proposed conversion/continuation date. Upon receipt of written or telephonic notice of any proposed conversion/continuation under this subsection 2.2D, Administrative Agent shall promptly transmit such notice by telefacsimile or telephone to each Lender. 47 EXECUTION Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a LIBO Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. E. Default Rate. Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans); provided that, in the case of LIBO Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such LIBO Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of any Agent or any Lender. F. Computation of Interest. Interest on the Loans shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a LIBO Rate Loan, the date of conversion of such LIBO Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a LIBO Rate Loan, the date of conversion of such Base Rate Loan to such LIBO Rate Loan, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. .3 Fees. A. Commitment Fees. Company agrees to pay to Administrative Agent, for distribution to each Revolving Lender in proportion to that Lender's Pro Rata Share of the Revolving Loan Commitments, commitment fees for the period from and including the Closing Date to and excluding the Revolving Loan Commitment Termination Date equal to (x) the average of the daily 48 EXECUTION excess of the Revolving Loan Commitments over the Total Utilization of Revolving Loan Commitments (but not including any outstanding Swing Line Loans) multiplied by (y) the applicable Commitment Fee Percentage, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on the last Business Day of each March, June, September and December of each year, commencing on the first such date to occur after the Closing Date, and on the Revolving Loan Commitment Termination Date. B. Other Fees. Company agrees to pay to Arranger and Administrative Agent such other fees in the amounts and at the times separately agreed upon between Company, Arranger and Administrative Agent (including that certain letter agreement dated May 18, 2000 relating to fees for the Commitments and Loans made hereunder). C. Tranche B Term Loan Prepayment Fees. Voluntary payments or prepayments of Tranche B Term Loans made on or before the second anniversary of the Closing Date shall be accompanied by payment of a prepayment fee as follows: (i) if such voluntary payment or prepayment is made on or before the first anniversary of the Closing Date, a fee equal to 2% of the amount of such voluntary payment or prepayment; and (ii) if such voluntary payment or prepayment is made after the first anniversary of the Closing Date but on or before the second anniversary of the Closing Date, a fee equal to 1% of the amount of such voluntary payment or prepayment. .4 Repayments, Prepayments and Reductions in Loan Commitments; General Provisions Regarding Payments. A. Scheduled Payments of Term Loans. (i) Company shall make principal payments on the Tranche A Term Loans on each of the following dates in the aggregate amount set forth opposite such date in the table set forth below: ------------------------------------------------------ Scheduled Repayment Date Scheduled Repayment of Tranche A Term Loans ------------------------------------------------------ December 31, 2000 $750,000.00 March 31, 2001 $750,000.00 June 30, 2001 $750,000.00 September 30, 2001 $750,000.00 December 31, 2001 $1,500,000.00 March 31, 2002 $1,500,000.00 June 30, 2002 $1,500,000.00 September 30, 2002 $1,500,000.00 December 31, 2002 $2,250,000.00 March 31, 2003 $2,250,000.00 June 30, 2003 $2,250,000.00 49 EXECUTION ------------------------------------------------------ Scheduled Repayment Date Scheduled Repayment of Tranche A Term Loans ------------------------------------------------------ September 30, 2003 $2,250,000.00 December 31, 2003 $3,000,000.00 March 31, 2004 $3,000,000.00 June 30, 2004 $3,000,000.00 September 30, 2004 $3,000,000.00 December 31, 2004 $3,750,000.00 March 31, 2005 $3,750,000.00 June 30, 2005 $3,750,000.00 September 30, 2005 $3,750,000.00 December 31, 2005 $3,750,000.00 March 31, 2006 $3,750,000.00 June 30, 2006 $3,750,000.00 September 30, 2006 $3,750,000.00 ----------------------- Total $ 60,000,000.00 ; provided that the scheduled installments of principal of the Tranche A Term Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Tranche A Term Loans in accordance with subsection 2.4B(iv); and provided further that the Tranche A Term Loans and all other amounts owed hereunder with respect to the Tranche A Term Loans shall be paid in full no later than September 30, 2006, and the final installment payable by Company in respect of the Tranche A Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche A Term Loans. (i) Company shall make principal payments on the Tranche B Term Loans on each of the following dates in the aggregate amount set forth opposite such date in the table set forth below: ------------------------------------------------------ Scheduled Repayment Date Scheduled Repayment of Tranche B Term Loans ------------------------------------------------------ December 31, 2000 $550,000.00 March 31, 2001 $550,000.00 June 30, 2001 $550,000.00 September 30, 2001 $550,000.00 50 EXECUTION ------------------------------------------------------ Scheduled Repayment Date Scheduled Repayment of Tranche B Term Loans ------------------------------------------------------ December 31, 2001 $550,000.00 March 31, 2002 $550,000.00 June 30, 2002 $550,000.00 September 30, 2002 $550,000.00 December 31, 2002 $550,000.00 March 31, 2003 $550,000.00 June 30, 2003 $550,000.00 September 30, 2003 $550,000.00 December 31, 2003 $550,000.00 March 31, 2004 $550,000.00 June 30, 2004 $550,000.00 September 30, 2004 $550,000.00 December 31, 2004 $550,000.00 March 31, 2005 $550,000.00 June 30, 2005 $550,000.00 September 30, 2005 $550,000.00 December 31, 2005 $550,000.00 March 31, 2006 $550,000.00 June 30, 2006 $550,000.00 September 30, 2006 $550,000.00 December 31, 2006 $51,700,000.00 March 31, 2007 $51,700,000.00 June 30, 2007 $51,700,000.00 September 30, 2007 $51,700,000.00 ------------------------- Total $220,000,000.00 ; provided that the scheduled installments of principal of the Tranche B Term Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Tranche B Term Loans in accordance with subsection 2.4B(iv); and provided further that the Tranche B Term Loans and all other amounts owed hereunder with respect to the Tranche B Term Loans shall be paid in full no later September 30, 2007, and the final installment payable by Company in respect of the Tranche B Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche B Term Loans. 51 EXECUTION A. Prepayments of Loans and Unscheduled Reductions in Revolving Loan Commitments. (i) Voluntary Prepayments. (a) Company may, upon written or telephonic notice to Administrative Agent on or prior to 12:00 Noon (New York City time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay, without premium or penalty, any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $100,000 and multiples of $50,000 in excess of that amount. Subject to subsection 2.3C, Company may, upon not less than one Business Day's prior written or telephonic notice, in the case of Base Rate Loans, and three Business Days' prior written or telephonic notice, in the case of LIBO Rate Loans, in each case given to Administrative Agent by 12:00 Noon (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time prepay, without premium or penalty, any Loans on any Business Day in whole or in part in an aggregate minimum amount of $500,000 and multiples of $50,000 in excess of that amount; provided, however, that a LIBO Rate Loan may only be prepaid on the expiration of the Interest Period applicable thereto unless Company complies with subsection 2.6D with respect to any breakage costs resulting from such prepayment being made on a date prior to the expiration of the applicable Interest Period. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4B(iv). (b) In the event Company is entitled to replace a non-consenting Lender pursuant to subsection 10.6B, Company shall have the right, upon five Business Days' written notice to Administrative Agent (which notice Administrative Agent shall promptly transmit to each of the Lenders), to prepay all Loans, together with accrued and unpaid interest, fees and other amounts owing to such Lender (including without limitation amounts owing to such Lender pursuant to subsection 2.6D and subsection 2.3C) in accordance with subsection 10.6B so long as (1) in the case of the prepayment of the Revolving Loans of any Lender pursuant to this subsection 2.4B(i)(b), the Revolving Loan Commitment of such Lender is terminated concurrently with such prepayment pursuant to subsection 2.4B(ii)(b) (at which time Schedule 2.1 shall be deemed modified to reflect the changed Revolving Loan Commitments), and (2) in the case of the prepayment of the Loans of any Lender, the consents required by subsection 10.6B in connection with the prepayment pursuant to this subsection 2.4B(i)(b) shall have been obtained, and at such time, such Lender shall no longer constitute a "Lender" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, subsections 2.6D, 2.7, 3.6, 10.2 and 10.3), which shall survive as to such Lender. 52 EXECUTION (ii) Voluntary Reductions of Loan Commitments. (a) Company may, upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Revolving Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction; provided that any such partial reduction shall be in an aggregate minimum amount of $500,000 and multiples of $100,000 in excess of that amount. Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Loan Commitment of each Revolving Lender proportionately to its Pro Rata Share. (b) In the event Company is entitled to replace a non-consenting Lender pursuant to subsection 10.6B, Company shall have the right, upon five Business Days' written notice to Administrative Agent (which notice Administrative Agent shall promptly transmit to each of the Lenders), to terminate the entire Revolving Loan Commitment of such Lender so long as (1) all Loans, together with accrued and unpaid interest, fees and other amounts owing to such Lender are repaid, including without limitation amounts owing to such Lender pursuant to subsection 2.6D, pursuant to subsection 2.4B(i)(b) concurrently with the effectiveness of such termination (at which time Schedule 2.1 shall be deemed modified to reflect such changed amounts), and (2) the consents required by subsection 10.6B in connection with the prepayment pursuant to subsection 2.4B(i)(b) shall have been obtained, and at such time, such Lender shall no longer constitute a "Lender" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, subsections 2.6D, 2.7, 3.6, 10.2 and 10.3), which shall survive as to such Lender. (iii) Mandatory Prepayments and Mandatory Reductions of Loan Commitments. The Loans shall be prepaid and/or the Revolving Loan Commitments shall be permanently reduced in the amounts and under the circumstances set forth below, all such prepayments and/or reductions to be applied as set forth below or as more specifically provided in subsection 2.4B(iv): (a) Prepayments and Reductions From Net Asset Sale Proceeds. No later than the first Business Day following the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to 100% of such Net Asset Sale Proceeds minus any such Net Asset Sale Proceeds (the "Proposed Asset Sale 53 EXECUTION Reinvestment Proceeds") that Company or any Subsidiary intends to use within 360 days of such date of receipt to acquire any asset used or useful to the Company or such Subsidiary in conducting its business; provided that Company shall have delivered to Administrative Agent, on or before such first Business Day, an Officer's Certificate setting forth the proposed use of the Proposed Asset Sale Reinvestment Proceeds and such other information with respect to such proposed use as Administrative Agent may reasonably request. In addition, no later than 360 days after receipt of any Net Asset Sale Proceeds, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to the amount of any related Proposed Asset Sale Reinvestment Proceeds that have not been applied to the purchase of an asset by Company or such Subsidiary as provided above; provided further that the aggregate amount of any such Proposed Asset Sale Reinvestment Proceeds so reinvested in the business of Company or any Subsidiary shall not exceed $20 million for any Fiscal Year. If, following the receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds, Company is required to apply or cause to be applied any portion of such Net Asset Sale Proceeds to prepay any Indebtedness evidenced by any of the Related Agreements pursuant to the applicable Related Agreement, then, notwithstanding anything contained in this subsection 2.4B(iii)(a), Company shall prepay the Loans and/or reduce the Revolving Loan Commitments as set forth in this subsection 2.4B(iii)(a) so as to eliminate any obligation to prepay such Indebtedness. (b) Prepayments and Reductions from Net Insurance/Condemnation Proceeds. No later than the fifth Business Day following the date of receipt by Administrative Agent or by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds, Company shall, or shall instruct the Administrative Agent to, prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to 100% of the amount of such Net Insurance/Condemnation Proceeds minus any such Net Insurance/Condemnation Proceeds (the "Proposed Reinvestment Proceeds") that Company or such Subsidiary intends to use within 360 days of such date of receipt to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received; provided that Company shall have delivered to Administrative Agent, on or before such first Business Day, an Officer's Certificate setting forth the proposed use of the Proposed Reinvestment Proceeds and such other information with respect to such proposed use as Administrative Agent may reasonably request. In addition, no later than 360 days after receipt of any Net Insurance/Condemnation Proceeds, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to the amount of any related Proposed Reinvestment Proceeds that have not been applied to the costs of repairing, restoring or replacing the applicable assets of Company or such Subsidiary as provided above; provided further that the aggregate amount of any such Proposed Reinvestment Proceeds so applied to such repair, restoration or replacement shall not exceed $35 million for any Fiscal Year. 54 EXECUTION (c) Prepayments and Reductions Due to Issuance of Equity Securities. No later than the first Business Day following receipt by Company or any of its Subsidiaries of the Cash proceeds (any such Cash proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, being "Net Equity Securities Proceeds"), from the issuance of equity Securities of Company (other than Net Equity Proceeds from the Convertible Preferred Stock and proceeds from common equity Securities (including options, warrants or other convertible equity securities) of Company issued to officers, employees, directors, consultants and certain other qualified persons of Company and its Subsidiaries pursuant to option plans or other similar plans or agreements adopted by Company's Board of Directors), Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to 50% of such Net Equity Securities Proceeds. (d) Prepayments and Reductions Due to Issuance of Debt Securities. No later than the first Business Day following receipt by Company or any of its Subsidiaries of the Cash proceeds (any such Cash proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, being "Net Debt Securities Proceeds"), from the issuance of debt Securities of Company or any of its Subsidiaries after the Closing Date (including the Net Debt Securities Proceeds of Indebtedness permitted under subsection 7.1(x) but excluding the Net Debt Securities Proceeds of Indebtedness permitted under subsection 7.1 as in effect on the Closing Date (other than subsection 7.1(x)), Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to 100% of such Net Debt Securities Proceeds. (e) Prepayments and Reductions from Consolidated Excess Cash Flow. In the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with the Fiscal Year ending on or about December 31, 2001), Company shall, no later than ninety (90) days after the end of such Fiscal Year, prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to 50% of such Consolidated Excess Cash Flow; provided that such percentage shall be reduced to 25% if the Consolidated Leverage Ratio as at the last day of such Fiscal Year is less than 3.00:1.00. (f) Prepayments Due to Restrictions on Revolving Loans Commitments or Currency Fluctuations. Company shall from time to time prepay first the Swing Line Loans and second the Revolving Loans to the extent necessary so that the Total Utilization of Revolving Loan Commitments shall not exceed the Revolving Loan Commitments then in effect. If on any Computation Date Administrative Agent shall have determined that the Total Utilization of Revolving Loan Commitments exceeds the Revolving Loan Commitments because of a change in applicable rates of exchange between Dollars and any other currency under which a Letter of Credit has been issued, then Administrative Agent shall give notice to the Company that a prepayment is required under this subsection 2.4B(iii)(f) and 55 EXECUTION Company shall promptly (x) prepay first its Swing Line Loans and second its Revolving Loans and/or (y) cash collateralize its outstanding Letters of Credit by depositing Dollars into the Collateral Account established under the Security Agreement, in each case to the extent necessary so that the Total Utilization of Revolving Loan Commitments shall not exceed the Revolving Loan Commitments. (g) Calculations of Net Proceeds Amounts; Additional Prepayments and Reductions Based on Subsequent Calculations. Concurrently with any prepayment of the Loans and/or reduction of the Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(e), Company shall deliver to Administrative Agent an Officer's Certificate demonstrating the calculation of the amount (the "Net Proceeds Amount") of the applicable Net Asset Sale Proceeds or Net Insurance/Condemnation Proceeds, or Net Equity Securities Proceeds (as such term is defined in subsection 2.4B(iii)(c)) or Net Debt Securities Proceeds (as such term is defined in subsection 2.4B(iii)(d)) or the applicable Consolidated Excess Cash Flow, as the case may be, that gave rise to such prepayment and/or reduction. In the event that Company shall subsequently determine that the actual Net Proceeds Amount exceeded the amount set forth in such Officer's Certificate by $100,000 or more, Company shall promptly make an additional prepayment of the Loans (and/or, if applicable, the Revolving Loan Commitments shall be permanently reduced) in an amount equal to the amount of such excess, and Company shall concurrently therewith deliver to Administrative Agent an Officer's Certificate demonstrating the derivation of the additional Net Proceeds Amount resulting in such excess. (iv) Application of Prepayments. (a) Application of Voluntary Prepayments by Type of Loans and Order of Maturity. Any voluntary prepayments pursuant to subsection 2.4B(i) shall be applied to the Loans as specified by Company in the applicable notice of prepayment; provided that in the event Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied first to repay outstanding Swing Line Loans to the full extent thereof, second to repay outstanding Revolving Loans to the full extent thereof and third to repay outstanding Term Loans to the full extent thereof. Any voluntary prepayments of the Term Loans pursuant to subsection 2.4B(i) (whether the application thereof is specified by Company or not) shall be applied to prepay the Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and shall be applied on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) to each scheduled installment of principal of the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, set forth in subsection 2.4A(i) or 2.4A(ii), respectively, that is unpaid at the time of such prepayment; provided that, notwithstanding anything to the contrary contained in the sentence immediately preceding this proviso, up to the first $25 million of any voluntary prepayment of the Term Loans shall be applied to prepay the Tranche A Term Loans or Tranche B Term Loans, or both, as the case may be, as specified by the Company and shall 56 EXECUTION be applied on a pro rata basis (in accordance with the respective outstanding principal thereof) to each scheduled installment of principal of the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, set forth in subsection 2.4A(i) or 2.4A(ii), respectively, that is unpaid at the time of such prepayment. (b) Application of Mandatory Prepayments by Type of Loans. Any amount (the "Applied Amount") required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(e) shall be applied first to prepay the Term Loans to the full extent thereof as provided in subsection 2.4B(iv)(c), second, to the extent of any remaining portion of the Applied Amount, to prepay the Swing Line Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, third, to the extent of any remaining portion of the Applied Amount, to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Loan Commitments by the amount of such prepayments, and fourth, to the extent of any remaining portion of the Applied Amount, to further permanently reduce the Revolving Loan Commitments to the full extent thereof; provided, however that the Revolving Loan Commitments shall not be reduced pursuant to this subsection 2.4B(iv)(b) to an amount less than $35 million. (c) Application of Mandatory Prepayments to Term Loans and the Scheduled Installments of Principal Thereof. Any mandatory prepayments of the Term Loans pursuant to subsection 2.4B(iii) shall be applied to prepay the Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and shall be applied on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) to each scheduled installment of principal of the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, set forth in subsection 2.4A(i) or 2.4A(ii), respectively, that is unpaid at the time of such prepayment; provided, however, that Tranche B Term Lenders shall have the option to waive their rights to receive any such prepayment (a "Waivable Mandatory Prepayment"). In the event any such Tranche B Term Lender desires to waive such Lender's right to receive such Waivable Mandatory Prepayment, (1) such Tranche B Term Lender shall so advise Administrative Agent in writing no later than the close of business on the Business Day following the date it receives notice of the prepayment from Administrative Agent and (2) upon receipt of such written advice from such Tranche B Term Lender, Administrative Agent shall apply the amount so waived by such Tranche B Term Lender to prepay the Tranche A Term Loans and to reduce the unpaid scheduled installments of principal on the Tranche A Term Loans set forth in subsection 2.4A(i) on a pro rata basis and apply the remainder of the amount so waived by such Lender to prepay the Revolving Loans. Company shall use its best efforts to notify Administrative Agent (which shall promptly notify the Tranche B Term Lenders) of any Waivable Mandatory Prepayment at least three Business Days prior to the payment to Administrative Agent of such Waivable Mandatory Prepayment. 57 EXECUTION (d) Application of Prepayments to Base Rate Loans and LIBO Rate Loans. Considering Tranche A Term Loans, Tranche B Term Loans and Revolving Loans being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to LIBO Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. B. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Company of principal, interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 2:00 P.M. (New York City time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes Administrative Agent to charge its accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. Except as provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest payments in respect of Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by Administrative Agent and the commitment fees of such Lender when received by Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any LIBO Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. 58 EXECUTION (v) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. C. Application of Proceeds of Collateral and Payments Under Guaranties (i) Application of Proceeds of Collateral. Except as provided in subsection 2.4B(iii)(a) with respect to prepayments from Net Asset Sale Proceeds, all proceeds received by Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Collateral Document may, in the discretion of Administrative Agent, be held by Administrative Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by Administrative Agent against, the applicable Secured Obligations (as defined in such Collateral Document) in the following order of priority: (a) To the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Administrative Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by Administrative Agent in connection therewith, and all amounts for which Administrative Agent is entitled to indemnification under such Collateral Document and all advances made by Administrative Agent thereunder for the account of the applicable Loan Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the exercise of any right or remedy under such Collateral Document, all in accordance with the terms of this Agreement and such Collateral Document; (b) thereafter, to the extent of any excess such proceeds, to the payment of all other such Secured Obligations for the ratable benefit of the holders thereof; (c) thereafter, to the extent of any excess such proceeds, to the payment of cash collateral for Letters of Credit for the ratable benefit of the Issuing Lenders thereof and holders of participations therein; and (d) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) Application of Payments Under Subsidiary Guaranty. All payments received by Administrative Agent under the Subsidiary Guaranty shall be applied promptly from time to time by Administrative Agent in the following order of priority: (a) to the payment of the costs and expenses of any collection or other realization under the Subsidiary Guaranty, including reasonable compensation to 59 EXECUTION Administrative Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by Administrative Agent in connection therewith, all in accordance with the terms of this Agreement and the Subsidiary Guaranty; (b) thereafter, to the extent of any excess such payments, to the payment of all other Guarantied Obligations (as defined in the Subsidiary Guaranty) for the ratable benefit of the holders thereof; (c) thereafter, to the extent of any excess such payments, to the payment of cash collateral for Letters of Credit for the ratable benefit of the Issuing Lenders thereof and holders of participations therein; and (d) thereafter, to the extent of any excess such payments, to the payment to the applicable Subsidiary Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. .2 Use of Proceeds. A. Term Loans. On the Closing Date, after application of approximately $3.9 million in cash on hand, the cash proceeds, if any, of $150 million of the Senior Subordinated Notes and $110 million of the Convertible Preferred Stock, both as described in subsection 4.1D, then the proceeds of the Term Loans shall be applied by Company to pay any remaining Acquisition Financing Requirements on the Closing Date. B. Revolving Loans; Swing Line Loans. On the Closing Date, after the application of the proceeds of the Term Loans, then approximately $3.0 million of the proceeds of the Revolving Loans and any Swing Line Loans may be applied to pay any remaining Acquisition Financing Requirements to be paid on the Closing Date and the remaining proceeds of the Revolving Loans shall be applied by Company for working capital and general corporate purposes, which may include the making of interest payments on the Loans, Permitted Acquisitions, the payment of any remaining Acquisition Financing Requirements to be paid after the Closing Date and the making of intercompany loans to any of Company's Subsidiaries in accordance with subsection 7.1(iv) for their own working capital purposes, and Letters of Credit may be issued for the purposes set forth in the definition of such term. C. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by Company or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. .3 Special Provisions Governing LIBO Rate Loans. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to LIBO Rate Loans as to the matters covered: 60 EXECUTION A. Determination of Applicable Interest Rate. As soon as practicable after 10:00 A.M. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBO Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. B. Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBO Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted LIBO Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, LIBO Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. C. Illegality or Impracticability of LIBO Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its LIBO Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, LIBO Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a LIBO Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding LIBO Rate Loans (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a LIBO Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to 61 EXECUTION all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, LIBO Rate Loans in accordance with the terms of this Agreement. D. Compensation For Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, upon written request by that Lender (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by that Lender to lenders of funds borrowed by it to make or carry its LIBO Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any LIBO Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any LIBO Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i)) or other principal payment or any conversion of any of its LIBO Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its LIBO Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its LIBO Rate Loans when required by the terms of this Agreement. E. Booking of LIBO Rate Loans. Any Lender may make, carry or transfer LIBO Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. F. Assumptions Concerning Funding of LIBO Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant LIBO Rate Loans through the purchase of a LIBO deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted LIBO Rate in an amount equal to the amount of such LIBO Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such LIBO deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its LIBO Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. G. LIBO Rate Loans After Default. After the occurrence of and during the continuation of a Potential Event of Default or an Event of Default, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a LIBO Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. 62 EXECUTION .4 Increased Costs; Taxes; Capital Adequacy. A. Compensation for Increased Costs and Taxes. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof, or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to LIBO Rate Loans that are reflected in the definition of Adjusted LIBO Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto in an amount deemed by such Lender (in its sole discretion) to be material; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 63 EXECUTION B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Company under this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from which a payment is made by or on behalf of Company or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-up of Payments. If Company or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company to Administrative Agent or any Lender under any of the Loan Documents: (a) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (b) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (c) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that no such additional amount shall be required to be paid to any Lender under clause (c) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) affecting any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. 64 EXECUTION (iii) Evidence of Exemption from U.S. Withholding Tax. (a) Each Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof (for purposes of this subsection 2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (1) two original copies of Internal Revenue Service Form 1001 or 4224 (or any successor forms), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents or (2) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (1) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. (b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. (c) Company shall not be required to pay any additional amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender shall have 65 EXECUTION failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.7B(iii); provided that if such Lender shall have satisfied the requirements of subsection 2.7B(iii)(a) on the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it became a Lender (in the case of each other Lender), nothing in this subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iii)(a). C. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. .5 Obligation of Lenders and Issuing Lenders to Mitigate; Replacement of Lender. A. Mitigation. Each Lender and Issuing Lender agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender or Issuing Lender to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or Issuing Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or Issuing Lender through another lending or letter of credit office of such Lender or Issuing Lender, or (ii) take such other measures as such Lender or Issuing Lender may deem reasonable, if as a result thereof the circumstances which would cause 66 EXECUTION such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be materially reduced and if, as determined by such Lender or Issuing Lender in its sole discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or Issuing Lender; provided that such Lender or Issuing Lender will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender or Issuing Lender as a result of utilizing such other lending or letter of credit office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or Issuing Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error. B. Replacement of Lender. If Company receives a notice pursuant to subsection 2.7A, 2.7B, 2.7C or 3.6, a Lender defaults in its obligations hereunder or in the event a Lender has not consented to a proposed change, waiver, discharge or termination with respect to this Agreement which requires the consent of all Lenders and which has been approved by Requisite Lenders, as provided in subsection 10.6B, Company shall have the right, if no Potential Event of Default or Event of Default then exists, to replace such Lender (a "Replaced Lender") with one or more Eligible Assignees (collectively, the "Replacement Lender") acceptable to Administrative Agent; provided that (i) at the time of any replacement pursuant to this subsection 2.8, the Replacement Lender shall enter into one or more Assignment Agreements pursuant to subsection 10.1B (and with all fees payable pursuant to subsection 10.1B to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the outstanding Loans and Commitments of, and in each case participations in Letters of Credit and Swing Line Loans 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 (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, (B) an amount equal to all unpaid drawings with respect to Letters of Credit 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 (C) an amount equal to all accrued, but theretofore unpaid, fees owing to the Replaced Lender with respect thereto, (y) the appropriate Issuing Lender an amount equal to such Replaced Lender's Pro Rata Share of any unpaid drawings with respect to Letters of Credit (which at such time remains an unpaid drawing) issued by it to the extent such amount was not theretofore funded by such Replaced Lender, and (z) Swing Line Lender an amount equal to such Replaced Lender's Pro Rata Share of any Refunded Swing Line Loans to the extent such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations (including without limitation all such amounts, if any, owing under subsection 2.6D and, except in the case in which Company is replacing such Replaced Lender because such Replaced Lender has defaulted in its obligations hereunder, all fees which become payable as a result of such replacement under subsection 2.3C (it being acknowledged and agreed that such replacement shall be deemed to be a voluntary prepayment of the Loans of the Replaced Lender for purposes of subsection 2.3C)) of Company owing to the Replaced Lender (other 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 67 EXECUTION paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, recordation of such assignment in the Register by Administrative Agent pursuant to subsection 2.1D, the payment of amounts referred to in clauses (i) and (ii) above and delivery to the Replacement Lender of the appropriate Note or Notes executed by Company, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder except with respect to indemnification provisions under this Agreement which by the terms of this Agreement survive the termination of this Agreement, which indemnification provisions shall survive as to such Replaced Lender. Notwithstanding anything to the contrary contained above, no Issuing Lender may be replaced hereunder at any time while it has Letters of Credit outstanding hereunder unless arrangements satisfactory to such Issuing Lender (including the furnishing of a Standby Letter of Credit in form and substance, and issued by an issuer, satisfactory to such Issuing Lender or the furnishing of cash collateral in amounts and pursuant to arrangements satisfactory to such Issuing Lender) have been made with respect to such outstanding Letters of Credit. Section 2. LETTERS OF CREDIT .1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein. A. Letters of Credit. In addition to Company requesting that Revolving Lenders make Revolving Loans pursuant to subsection 2.1A(iii) and that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iv), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the date which is thirty (30) days prior to the Revolving Loan Commitment Termination Date, that one or more Revolving Lenders issue Letters of Credit negotiated on a sight basis for the account of Company for the purposes specified in the definitions of Commercial Letters of Credit and Standby Letters of Credit. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, any one or more Revolving Lenders may, but (except as provided in subsection 3.1B(ii)) shall not be obligated to, issue such Letters of Credit in accordance with the provisions of this subsection 3.1; provided that Company shall not request that any Revolving Lender issue (and no Revolving Lender shall issue): (i) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan Commitments then in effect; (ii) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $25 million; (iii) any Standby Letter of Credit having an expiration date later than the earlier of (a) the date which is ten (10) Business Days prior to the Revolving Loan Commitment Termination Date and (b) the date that is one year from the date of issuance of such Standby Letter of Credit; provided that the immediately preceding clause (b) shall not prevent any Issuing Lender from agreeing that a Standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each unless such Issuing Lender elects not to extend for any such additional period; and 68 EXECUTION provided further that such Issuing Lender shall elect not to extend such Standby Letter of Credit if it has knowledge that an Event of Default has occurred and is continuing (and has not been waived in accordance with subsection 10.6) at the time such Issuing Lender must elect whether or not to allow such extension; (iv) any Commercial Letter of Credit having an expiration date (a) later than the earlier of (X) the date which is thirty (30) days prior to the Revolving Loan Commitment Termination Date and (Y) the date which is 180 days from the date of issuance of such Commercial Letter of Credit or (b) that is otherwise unacceptable to the applicable Issuing Lender in its reasonable discretion; (v) any Letter of Credit at a tenor other than at sight; or (vi) any Letter of Credit denominated in a currency other than Dollars if, after giving effect to such issuance, the Dollar Equivalent of the Letter of Credit Usage for all Letters of Credit denominated in a currency other than Dollars would exceed $25 million. B. Mechanics of Issuance. (i) Request for Issuance. Whenever Company desires the issuance of a Letter of Credit, it shall deliver to the proposed Issuing Lender (with, simultaneously, a copy to Administrative Agent if Administrative Agent is not the proposed Issuing Lender) a Request for Issuance of Letter of Credit in the form of Exhibit III annexed hereto no later than 12:00 Noon (New York City time) at least five Business Days, or such shorter period as may be agreed to by the Issuing Lender in any particular instance, in advance of the proposed date of issuance. The Issuing Lender, in its reasonable discretion, may require changes in the text of the proposed Letter of Credit or any documents described in or attached to the Request for Issuance of Letter of Credit. No Letter of Credit shall require payment against a conforming demand for payment to be made thereunder on the same business day (under the laws of the jurisdiction in which the office of the Issuing Lender to which such demand for payment is required to be presented is located) that such demand for payment is presented if such presentation is made after 10:00 A.M. (in the time zone of such office of the Issuing Lender) on such business day. The Request for Issuance of Letter of Credit shall specify (a) the proposed date of issuance (which shall be a Business Day), (b) whether the Letter of Credit is to be a Standby Letter of Credit or a Commercial Letter of Credit, (c) the face amount of the Letter of Credit, (d) in the case of a Letter of Credit which Company requests to be denominated in a currency other than Dollars, the currency in which Company requests such Letter of Credit to be issued, (e) the expiration date of the Letter of Credit, (f) the name and address of the beneficiary, (g) the name of the Revolving Lender which has agreed to be the Issuing Lender and (h) either the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit; provided that the Issuing Lender, in its reasonable discretion, may require changes in the text of the proposed Letter of Credit or any such documents. 69 EXECUTION Company shall notify the applicable Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Request for Issuance of Letter of Credit is no longer true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Request for Issuance of Letter of Credit. (ii) Determination of Issuing Lender. Upon receipt by a proposed Issuing Lender of a Request for Issuance of Letter of Credit pursuant to subsection 3.1B(i) requesting the issuance of a Letter of Credit, (a) in the event Administrative Agent is the proposed Issuing Lender, Administrative Agent shall be the Issuing Lender with respect to such Letter of Credit, notwithstanding the fact that the Letter of Credit Usage with respect to such Letter of Credit and with respect to all other Letters of Credit issued by Administrative Agent, when aggregated with Administrative Agent's outstanding Revolving Loans and Swing Line Loans, may exceed Administrative Agent's Revolving Loan Commitment then in effect; provided that Administrative Agent shall not be obligated to issue any Letter of Credit denominated in a foreign currency which in the judgment of Administrative Agent is not readily and freely available; and (b) in the event any other Revolving Lender is the proposed Issuing Lender, such Revolving Lender shall promptly notify Company and Administrative Agent whether or not, in its sole discretion, it has elected to issue such Letter of Credit, and (1) if such Revolving Lender so elects to issue such Letter of Credit it shall be the Issuing Lender with respect thereto and (2) if such Revolving Lender fails to so promptly notify Company and Administrative Agent or declines to issue such Letter of Credit, Company may request Administrative Agent or another Revolving Lender to be the Issuing Lender with respect to such Letter of Credit in accordance with the provisions of this subsection 3.1B. (iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in accordance with subsection 10.6) of the conditions set forth in subsection 4.3, the Issuing Lender shall issue the requested Letter of Credit in accordance with the Issuing Lender's standard operating procedures. (iv) Notification to Revolving Lenders. Upon the issuance of or amendment to any Letter of Credit the applicable Issuing Lender shall promptly notify Administrative Agent and each other Revolving Lender of such issuance or amendment. The notice to Administrative Agent shall be accompanied by a copy of such Letter of Credit or amendment and in the event a Revolving Lender requests a copy of such issuance or amendment, such copies will be provided by Administrative Agent. Promptly after receipt of such notice (or, if Administrative Agent is the Issuing Lender, together with such notice), Administrative Agent shall notify each Revolving Lender of the amount of such Lender's respective participation in such Letter of Credit, determined in accordance with subsection 3.1C. (v) Reports to Revolving Lenders. In the event that the Issuing Lender is other than Administrative Agent, such Issuing Lender will send by facsimile transmission to 70 EXECUTION Administrative Agent, promptly on the first Business Day of each month, the daily maximum amount available to be drawn for the Letters of Credit for the previous month. Administrative Agent shall deliver to each Revolving Lender, upon each Letter of Credit fee payment, a report setting forth for such period the daily maximum amount available to be drawn under the Letters of Credit issued by all Issuing Lenders during such period. (vi) Collateralization of Letters of Credit Due to Currency Fluctuation. If on any Computation Date Administrative Agent shall have determined that the Letter of Credit Usage exceeds the amount permitted under subsection 3.1A(ii) by an amount greater than $50,000 because of a change in applicable rates of exchange between Dollars and any foreign currency, then Administrative Agent shall give notice to the Company that cash collateralization of the Letter of Credit Usage exceeding the amount permitted under subsection 3.1A(ii) is required and Company shall cash collateralize its outstanding Letters of Credit by depositing Dollars into the Collateral Account established under the Security Agreement in an amount equal to the extent that the Letter of Credit Usage exceeds the amount permitted under subsection 3.1A(ii). C. Revolving Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Revolving Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. .2 Letter of Credit Fees. Company agrees to pay the following amounts with respect to Letters of Credit issued hereunder: (i) with respect to each Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to the greater of (x) $500 and (y) 0.25% per annum the Dollar Equivalent of the daily amount available to be drawn under such Letter of Credit and (b) a letter of credit fee, payable to Administrative Agent for the account of Revolving Lenders (based upon their respective Pro Rata Shares), equal to (x) the Applicable LIBO Rate Margin multiplied by (y) the Dollar Equivalent of the daily maximum amount available from time to time to be drawn under such Letter of Credit, each such fronting fee or letter of credit fee to be payable in arrears on and to (but excluding) the last Business Day of each March, June, September and December of each year and computed on the basis of a 360-day year for the actual number of days elapsed; and (ii) with respect to the issuance, amendment or transfer of each Letter of Credit and each payment of a drawing made thereunder (without duplication of the fees payable under clause (i) above), documentary and processing charges payable directly to the applicable Issuing Lender for its own account in accordance with such Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or payment, as the case may be. 71 EXECUTION For purposes of calculating any fees payable under clause (i) of this subsection 3.2, (1) the Dollar Equivalent of the daily amount available to be drawn under any Letter of Credit shall be determined as of the close of business on any date of determination and (2) the Dollar Equivalent of any amount described in such clause which is denominated in a currency other than Dollars shall be determined by the applicable Exchange Rate for such currency as of the immediately preceding monthly anniversary of the date of issuance of such Letter of Credit. Promptly upon receipt by Administrative Agent of any amount described in clause (i)(b) of this subsection 3.2, Administrative Agent shall distribute to each Revolving Lender its Pro Rata Share of such amount. .3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit. A. Responsibility of Issuing Lender With Respect to Drawings. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in substantial accordance with the terms and conditions of such Letter of Credit. B. Reimbursement by Company of Amounts Paid Under Letters of Credit. In the event an Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall immediately notify Company and Administrative Agent, and Company shall reimburse such Issuing Lender on or before the Business Day immediately following the date on which such drawing is honored (the "Reimbursement Date") in an amount in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate) and in same day funds equal to the amount of such drawing; provided that, anything contained in this Agreement to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and such Issuing Lender prior to 10:00 A.M. (New York City time) on the date such drawing is honored that Company intends to reimburse such Issuing Lender for the amount of such drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate) equal to the amount of such drawing and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.3B, Revolving Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse such Issuing Lender for the amount of such drawing; and provided further that if for any reason proceeds of Revolving Loans are not received by such Issuing Lender on the Reimbursement Date in an amount equal to the amount of such drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in same day funds equal to the excess of the amount of such drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Revolving Lender from its obligation to make Revolving Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it may have against any Revolving Lender resulting from the failure of such Lender to make such Revolving Loans under this subsection 3.3B. 72 EXECUTION C. Payment by Revolving Lenders of Unreimbursed Amounts Paid Under Letters of Credit. (i) Payment by Revolving Lenders. In the event that Company shall fail for any reason to reimburse any Issuing Lender as provided in subsection 3.3B in an amount (calculated, in the case of a drawing under a Letter of Credit denominated in a currency other than Dollars, by reference to the applicable Exchange Rate) equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each other Revolving Lender of the unreimbursed amount of such drawing and of such other Revolving Lender's respective participation therein based on such Revolving Lender's Pro Rata Share. Each Revolving Lender shall make available to such Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of such Issuing Lender specified in such notice, not later than 12:00 Noon (New York City time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Lender is located) after the date notified by such Issuing Lender. In the event that any Revolving Lender fails to make available to such Issuing Lender on such business day the amount of such Revolving Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Lender shall be entitled to recover such amount on demand from such Revolving Lender together with interest thereon at the Federal Funds Effective Rate for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Revolving Lender to recover from any Issuing Lender any amounts made available by such Revolving Lender to such Issuing Lender pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Revolving Lender constituted gross negligence or willful misconduct on the part of such Issuing Lender. (ii) Distribution to Revolving Lenders of Reimbursements Received From Company. In the event any Issuing Lender shall have been reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i) for all or any portion of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall distribute to each other Revolving Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Revolving Lender's Pro Rata Share of all payments subsequently received by such Issuing Lender from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Revolving Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Revolving Lender may request. D. Interest on Amounts Paid Under Letters of Credit. (i) Payment of Interest by Company. Company agrees to pay to each Issuing Lender, with respect to drawings honored under any Letters of Credit issued by it, interest on the amount paid by such Issuing Lender in respect of each such drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to 73 EXECUTION subsection 3.3B) at a rate equal to (a) for the period from the date of such drawing to but excluding the Reimbursement Date, the rate then in effect under this Agreement with respect to Revolving Loans that are Base Rate Loans and (b) thereafter, a rate which is 2.00% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Revolving Loans that are Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 360-day year for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. (ii) Distribution of Interest Payments by Issuing Lender. Promptly upon receipt by any Issuing Lender of any payment of interest pursuant to subsection 3.3D(i) with respect to a drawing under a Letter of Credit issued by it, (a) such Issuing Lender shall distribute to each other Revolving Lender, out of the interest received by such Issuing Lender in respect of the period from the date of such drawing to but excluding the date on which such Issuing Lender is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that such other Revolving Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored under such Letter of Credit, and (b) in the event such Issuing Lender shall have been reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i) for all or any portion of such drawing, such Issuing Lender shall distribute to each other Revolving Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such drawing such other Revolving Lender's Pro Rata Share of any interest received by such Issuing Lender in respect of that portion of such drawing so reimbursed by other Revolving Lenders for the period from the date on which such Issuing Lender was so reimbursed by other Revolving Lenders to but excluding the date on which such portion of such drawing is reimbursed by Company. Any such distribution shall be made to a Revolving Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Revolving Lender may request. .4 Obligations Absolute. The obligation of Company to reimburse each Issuing Lender for drawings made under the Letters of Credit issued by it and to repay any Revolving Loans made by Revolving Lenders pursuant to subsection 3.3B and the obligations of Revolving Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Revolving Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender or other Lender or any other Person or, in the case of a Lender, against Company, 74 EXECUTION whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or 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) payment by the applicable Issuing Lender under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (vi) any breach of this Agreement or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Lender under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of such Issuing Lender under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). .5 Indemnification; Nature of Issuing Lenders' Duties. A. Indemnification. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Lender, other than as a result of (a) the gross negligence or willful misconduct of such Issuing Lender as determined by a final judgment of a court of competent jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Governmental Acts"). B. Nature of Issuing Lenders' Duties. As between Company and any Issuing Lender, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance 75 EXECUTION and not in limitation of the foregoing, such Issuing Lender shall not be responsible (absent a determination of a court of competent jurisdiction of gross negligence or willful misconduct by such Issuing Lender) for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Lender, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to Company. Notwithstanding anything to the contrary contained in this subsection 3.5, Company shall retain any and all rights it may have against any Issuing Lender for any liability arising solely out of the gross negligence or willful misconduct of such Issuing Lender, as determined by a final judgment of a court of competent jurisdiction. .6 Increased Costs and Taxes Relating to Letters of Credit. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Issuing Lender or Revolving Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by any Issuing Lender or Revolving Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Issuing Lender or Revolving Lender (or its applicable lending or letter of credit office) to any additional Tax (other than any Tax on the overall net income of such Issuing Lender or Revolving Lender) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any 76 EXECUTION other obligations under this Section 3, whether directly or by such being imposed on or suffered by any particular Issuing Lender; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Lender or participations therein purchased by any Revolving Lender; or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Lender or Revolving Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Lender or Revolving Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Lender or Revolving Lender (or its applicable lending or letter of credit office) with respect thereto (in any amount deemed by such Issuing Lender (in its sole discretion) to be material); then, in any case, Company shall promptly pay to such Issuing Lender or Revolving Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate such Issuing Lender or Revolving Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Issuing Lender or Revolving Lender shall deliver to Company a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Lender or Revolving Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. Section 3. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of Lenders to make Loans and the issuance of Letters of Credit hereunder are subject to the satisfaction of the following conditions: .1 Conditions to Initial Loans. The obligations of Lenders to make the initial Loans to be made on the Closing Date are, in addition to the conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction of the following conditions: A. Loan Party Documents. On or before the Closing Date, Company shall, and shall cause each other Loan Party to, deliver to Administrative Agent for Lenders (with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following with respect to Company or such Loan Party, as the case may be, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Certificate or Articles of Incorporation of such Person, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation and each other state in which such Person is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from 77 EXECUTION the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Closing Date; (ii) Copies of the Bylaws of such Person, certified as of the Closing Date by such Person's corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of such Person approving and authorizing the execution, delivery and performance of the Loan Documents and the Related Agreements to which it is a party, and the consummation of the transactions contemplated by the foregoing, certified as of the Closing Date by the corporate secretary or an assistant secretary of such Person as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of the officers of such Person executing the Loan Documents to which it is a party; (v) Executed originals of the Loan Documents, in each case to which such Person is a party; and (vi) Such other documents as Administrative Agent may reasonably request in writing. B. Scientific Games Documents. On or before the Closing Date, Company shall, or shall cause Scientific Games and its Domestic Subsidiaries to, as the case may be, deliver to Administrative Agent for Lenders (with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Certificate or Articles of Incorporation of each of Scientific Games and its Domestic Subsidiaries, together with, where applicable, a good standing certificate from the Secretary of State of its jurisdiction of incorporation and each other state in which Scientific Games or any of its Domestic Subsidiaries is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Closing Date; (ii) Copies of the Bylaws of each of Scientific Games and its Domestic Subsidiaries, certified as of the Closing Date by such Person's corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of Scientific Games and its Domestic Subsidiaries approving and authorizing the execution, delivery and performance of the Loan Documents and the Related Agreements to which it is a party and the consummation of the transactions contemplated by the foregoing, each certified as of the Closing Date by the corporate secretary or an assistant secretary of such Person as being in full force and effect without modification or amendment; 78 EXECUTION (iv) Signature and incumbency certificates of the officers of Scientific Games and its Subsidiaries executing the Loan Documents to which it is a party; (v) Originals of the Loan Documents, in each case executed by Scientific Games and each of its Domestic Subsidiaries that is a party thereto, as the case may be; and (vi) Such other documents as Administrative Agent may reasonably request in writing; C. No Material Adverse Change. Since October 31, 1999, Company and each of its Subsidiaries and, since December 31, 1999, Scientific Games and each of its Subsidiaries, shall have conducted its business in the ordinary course of business and consistent with past practice and there shall not have been any Material Adverse Effect. D. Senior Subordinated Notes and Convertible Preferred Stock; Use of Proceeds. (i) Senior Subordinated Notes. On or before the Closing Date the Senior Subordinated Notes shall have been sold for gross proceeds of not less than $150 million and the Senior Subordinated Note Indenture as amended by the First Supplemental Indenture dated as of September 6, 2000 (the "First Supplemental") shall be in full force and effect and shall not have been amended, supplemented, waived or otherwise modified without the consent of Administrative Agent, and executed or conformed copies thereof (including all exhibits and schedules thereto) and any amendments thereto and all material documents executed in connection therewith shall have been delivered to Administrative Agent. (ii) Convertible Preferred Stock. On or before the Closing Date, (1) Company shall have executed and delivered the Convertible Preferred Stock Purchase Agreement and such agreement shall be in full force and effect and shall not have been amended, supplemented, waived or otherwise modified without the consent of Administrative Agent, and executed or conformed copies thereof (including all exhibits and schedules thereto) and any amendment thereto and all documents executed in connection therewith shall have been delivered to Administrative Agent and (2) Company shall have received the net cash proceeds from the issuance of $110 million of Convertible Preferred Stock. (iii) Use of Proceeds. On or before the Closing Date, (1) Company shall have contributed the net cash proceeds from the Senior Subordinated Notes issuance to Acquisition Co., and Company and Acquisition Co. shall have applied such proceeds to the Acquisition Financing Requirements; (2) Company shall have applied the net cash proceeds from the Convertible Preferred Stock issuance to the Acquisition Financing Requirements; and (3) Company shall have applied approximately $3.9 million in cash on hand to the Acquisition Financing Requirements. E. Necessary Governmental Authorizations and Consents; Expiration of Waiting Periods, Etc. Company, Acquisition Co. and Scientific Games shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements and the continued operation of the business 79 EXECUTION conducted by Company and its Subsidiaries and Scientific Games and its Subsidiaries in substantially the same manner as conducted prior to the consummation of the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements, and each of the foregoing shall be in full force and effect, in each case other than those the failure to obtain or maintain which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All applicable waiting periods relating to competition or antitrust laws and regulations shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Merger, the related financings and the transactions contemplated by the Loan Documents and the Related Agreements. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. F. Merger Matters. (i) Merger Agreement and certain other Related Agreements. Administrative Agent shall have received fully executed or conformed copies of the Merger Agreement and any documents executed in connection therewith, and the Merger Agreement shall be in full force and effect and no provision thereof shall have been amended, supplemented, waived or otherwise modified in any respect determined by Administrative Agent to be material (including, without limitation, any increase in the price to be paid for the Scientific Games Common Stock to an amount in excess of $26.00 per share), in each case without the consent of Administrative Agent; (ii) Merger Conditions. All conditions to the Merger set forth in the Merger Agreement shall have been satisfied or the fulfillment of any such conditions shall have been waived with the consent of Administrative Agent and Requisite Lenders; (iii) Merger Effective. The Merger shall have become effective in accordance with the terms of the Merger Agreement and the Delaware General Corporation Law; (iv) Merger Documents. Administrative Agent shall have received satisfactory evidence of the filing of the documents with the Secretary of State of the State of Delaware effecting the Merger on the Merger Date; (v) Aggregate Cash Consideration. The aggregate cash consideration for the shares of Scientific Games Common Stock to be acquired in any manner whatsoever in connection with the Merger shall not exceed approximately $307.7 million in the aggregate; (vi) Transaction Costs. Transaction Costs incurred as of the Closing Date shall not exceed $30.1 million and Administrative Agent shall have received evidence to its satisfaction to such effect; (vii) Use of Proceeds. Company shall have provided evidence satisfactory to Administrative Agent that the proceeds of the Senior Subordinated Notes, Convertible Preferred Stock and the Company's cash on hand described in subsection 4.1D have been 80 EXECUTION irrevocably committed, prior to the application of the proceeds of the Term Loans and the Revolving Loans made on the Closing Date, to the payment of a portion of the Acquisition Financing Requirements; (viii) Merger Officer's Certificate. Administrative Agent shall have received an Officer's Certificate of Company to the effect set forth in clauses (i)-(vii) above; (ix) Officer's Certificates. Administrative Agent shall have an Officer's Certificate from Company to the effect that the representations and warranties of each of Acquisition Co. and Scientific Games in the Merger Agreement are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date. Administrative Agent shall have received Officer's Certificates from Company to the effect that (a) the Merger Agreement is in full force and effect and no provision thereof has been amended, supplemented, waived or otherwise modified in any material respect without the consent of Administrative Agent and (b) each of the parties to the Merger Agreement has complied with all agreements, terms and conditions contained in the Merger Agreement and any agreements or documents referred to therein required to be performed or complied with by each of them on or before the Closing Date, except where such failure to comply or perform could not reasonably be expected to have a Material Adverse Effect, and none of such Persons is in default in their performance or compliance with any of the terms or provisions thereof, except where such default could not reasonably be expected to have a Material Adverse Effect; (x) Existing Company Indebtedness; Release of Liens. Contemporaneously with the application of the proceeds of the initial Loans to be made on the Closing Date: (a) Company shall have paid the Prepayment Premiums and shall have repaid in full the Existing Company Bank Debt, the Existing Company Senior Notes and the Existing Company Convertible Debt, and shall have terminated any commitments to lend or make other extensions of credit under the agreements relating to the Existing Company Bank Debt and no other Indebtedness of Company and its Subsidiaries shall remain outstanding other than the Indebtedness permitted under subsection 7.1; (b) Company shall have delivered to Administrative Agent all documents and instruments and taken all other actions, in each case necessary to release all Liens securing the Existing Company Bank Debt in connection therewith; (c) Company shall have made arrangements satisfactory to Administrative Agent with respect to the cancellation of any letters of credit outstanding under the agreements relating to the Existing Company Bank Debt or the issuance of Letters of Credit to support the obligations of Company and its Subsidiaries with respect thereto; (d) Administrative Agent shall have received an Officer's Certificate of Company stating that, after giving effect to the transactions described in this subsection 4.1F, there shall be no existing Indebtedness of Company or its 81 EXECUTION Subsidiaries outstanding after consummation of the Closing Date transactions other than the Indebtedness permitted under subsection 7.1, such Indebtedness to be in form and substance satisfactory to Administrative Agent; (xi) Existing Scientific Games Indebtedness. Contemporaneously with the application of the proceeds of the initial Loans to be made on the Closing Date: (a) Scientific Games and its Subsidiaries shall have repaid in full the Existing Scientific Games Bank Debt and shall have terminated any commitments to lend or make other extensions of credit thereunder; (b) Scientific Games shall have delivered to Administrative Agent all documents and instruments and taken all other actions, in each case necessary to release all Liens securing the Existing Scientific Games Bank Debt in connection therewith; and (c) Scientific Games shall have made arrangements satisfactory to Administrative Agent with respect to the cancellation of any letters of credit (other than the Existing Letters of Credit) outstanding under the agreements relating to the Existing Scientific Games Bank Debt or the issuance of Letters of Credit to support the obligations of Scientific Games and its Subsidiaries with respect thereto; and (xii) Existing Letters of Credit. Company shall have furnished to Administrative Agent copies of all Existing Letters of Credit and all amendments thereto. Company shall have (x) cash collateralized the Existing Letters of Credit on or before the Closing Date and (y) paid to the issuing lenders with respect to such Existing Letters of Credit all fees and other amounts owing with respect thereto through and including the Closing Date. G. Mortgages; Mortgage Policies; Etc. Administrative Agent shall have received from Company and each applicable Subsidiary of Company: (i) Mortgages. Fully executed and notarized Mortgages and any assignments thereof in favor of Administrative Agent, on behalf of Lenders (each a "Closing Date Mortgage" and, collectively, the "Closing Date Mortgages"), in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Property Asset listed in Schedule 5.5 annexed hereto and identified as a Closing Date mortgaged property (each a "Closing Date Mortgaged Property" and, collectively, the "Closing Date Mortgaged Properties"); (ii) Matters Relating to Flood Hazard Properties. (a) Evidence, which may be in the form of a letter from an insurance broker or a municipal engineer, as to whether (1) any Closing Date Mortgaged Property is a Flood Hazard Property and (2) the community in which any such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if there are any such Flood Hazard Properties, such Person's written acknowledgement of receipt of written notification from 82 EXECUTION Administrative Agent (1) as to the existence of each such Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event any such Flood Hazard Property is located in a community that participates in the National Flood Insurance Program, evidence that Company or the applicable Subsidiary of Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System; (iii) Opinions of Local Counsel. If reasonably required by Administrative Agent, an opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Closing Date Mortgages to be recorded in such state and such other matters as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent; (iv) Landlord Consents and Estoppels; Recorded Leasehold Interests. In the case of each Closing Date Mortgaged Property consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel with respect thereto and (b) evidence that such Leasehold Property is a Recorded Leasehold Interest; (v) Title Insurance. (a) ALTA mortgagee title insurance policies or unconditional commitments therefor (the "Closing Date Mortgage Policies") issued by the Title Company with respect to the Closing Date Mortgaged Properties listed on Schedule 5.5 annexed hereto, in amounts not less than the respective amounts designated therein with respect to any particular Closing Date Mortgaged Properties, insuring fee simple title to, or a valid leasehold interest in, each such Closing Date Mortgaged Property vested in such Loan Party and assuring Administrative Agent that the applicable Closing Date Mortgages create valid and enforceable First Priority mortgage Liens on the respective Closing Date Mortgaged Properties encumbered thereby (provided that Company may cause to be delivered to Administrative Agent on the Closing Date a Closing Date Mortgage Policy listing as an exception any of the items set forth on Schedule 5.5 annexed hereto so long as such exception is removed by endorsement within 15 days of the Closing Date), which Closing Date Mortgage Policies (1) shall include an endorsement for mechanics' liens, for future advances under this Agreement and for any other matters reasonably requested by Administrative Agent and (2) shall provide for affirmative insurance and such reinsurance as Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Administrative Agent; and (b) evidence satisfactory to Administrative Agent that such Loan Party has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Closing Date Mortgage Policies and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the Closing Date Mortgage Policies and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Closing Date Mortgages in the appropriate real estate records; 83 EXECUTION (vi) Surveys. Unless otherwise approved by Administrative Agent for delivery pursuant to subsection 6.9D, ALTA Surveys of each Closing Date Mortgaged Property satisfactory in form and substance to the Administrative Agent and the Title Company reasonably current and certified to Administrative Agent and Title Company by a licensed surveyor. Notwithstanding anything to the contrary herein, if Administrative Agent, in its sole discretion, determines not to record a Mortgage against one or more Mortgaged Properties on the Closing Date, because the survey for such Mortgaged Property has not been delivered to Administrative Agent, Company shall not be in default hereunder for failure to satisfy the requirements of this subsection with respect to such Mortgaged Property; provided, however, that Company or the applicable Subsidiary Guarantor shall satisfy such requirements no later than forty-five (45) days after the Closing Date; (vii) Copies of Documents Relating to Title Exceptions. Copies of all recorded documents listed as exceptions to title or otherwise referred to in the Closing Date Mortgage Policies; and (viii) Environmental Indemnity. If requested by Administrative Agent, or if required by any Supplemental Collateral Agent, an environmental indemnity agreement, reasonably satisfactory in form and substance to Administrative Agent and its counsel, to such Supplemental Collateral Agent and its counsel and to Company and its counsel and Borrower and its counsel, with respect to the indemnification of Agents and Lenders for any liabilities that may be imposed on or incurred by any of them as a result of any Hazardous Materials Activity. H. Security Interests in Personal and Mixed Property. To the extent not otherwise satisfied pursuant to subsection 4.1G, Administrative Agent shall have received evidence satisfactory to it that Company and Subsidiary Guarantors shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings (other than the filing or recording of items described in clauses (iii) and (iv) below) that may be necessary or, in the reasonable opinion of Administrative Agent, desirable in order to create in favor of Administrative Agent, for the benefit of Lenders, a valid and (upon such filing and recording) perfected First Priority security interest in the entire personal and mixed property Collateral (including Collateral property fixtures). Such actions shall include the following: (i) Schedules to Collateral Documents. Delivery to Administrative Agent of accurate and complete schedules to all of the applicable Collateral Documents; (ii) Stock Certificates and Instruments. Delivery to Administrative Agent of (a) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Administrative Agent) representing all capital stock pledged pursuant to the Security Agreement executed by Company and the Subsidiary Guarantors and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to Administrative Agent) evidencing any Collateral; 84 EXECUTION (iii) Lien Searches and UCC Termination Statements. Delivery to Administrative Agent of (a) the results of a recent search, by a Person satisfactory to Administrative Agent, of all effective UCC financing statements and fixture filings which may have been made with respect to any personal or mixed property of any Loan Party, together with copies of all such filings disclosed by such search, and (b) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture filings disclosed in such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement); (iv) UCC Financing Statements and Fixture Filings. Delivery to Administrative Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Loan Party with respect to all personal and mixed property Collateral of such Loan Party, for filing in all jurisdictions as may be necessary or, in the reasonable opinion of Administrative Agent, desirable to perfect the security interests created in such Collateral pursuant to the Collateral Documents; (v) PTO Cover Sheets, Etc. Delivery to Administrative Agent of all cover sheets or other documents or instruments required to be filed with the PTO in order to create or perfect Liens in respect of any IP Collateral; and (vi) Opinions of Local Counsel. To the extent reasonably required by Administrative Agent, delivery to Administrative Agent of an opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) under the laws of each jurisdiction in which any Loan Party or any personal or mixed property Collateral is located with respect to the creation and perfection of the security interests in favor of Administrative Agent in such Collateral and such other matters governed by the laws of such jurisdiction regarding such security interests as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent. I. Environmental Reports. Administrative Agent shall have received all reports in possession or control of Company and related letters from the respective authors of such reports authorizing Lenders to rely on such to the same extent as though they were addressed to Lenders and other information in possession or control of Company, in form, scope and substance satisfactory to Administrative Agent, regarding environmental matters relating to Company, its Subsidiaries, Scientific Games and its Subsidiaries and the Facilities, which reports shall include a Phase I environmental site assessment of the Facility owned by Scientific Games, Inc. and located in Alpharetta, Georgia, and updates of the existing Phase I environmental site assessments of the Facilities owned by Autotote Enterprises, Inc. and located in New Haven, Connecticut and in Windsor Locks, Connecticut, and, as to the Facility located in New Haven, Connecticut, an estimate of the reasonable cost of investigating and remediating any Hazardous Materials Activity thereon (to the extent any such reliance letter, Phase I, update or estimate has not been received by Administrative Agent on the Closing Date, Company shall provide oral reports of the environmental consultants' findings and conclusions as work on such reports proceeds, and Company shall deliver to Administrative Agent no later than 30 days after the Closing Date such completed reliance letter, Phase I, updates and estimate) (collectively, the "Phase I and II 85 EXECUTION Reports"). Such Phase I environmental site assessments and updates shall conform to the ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E 1527. J. Financial Statements; Pro Forma Balance Sheet. Lenders shall have received (i) audited financial statements of Company and its Subsidiaries for the Fiscal Years ended October 31, 1999, 1998 and 1997, and of Scientific Games and its Subsidiaries for the Fiscal Years ended December 31, 1999, 1998 and 1997, consisting of balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such Fiscal Years, (ii) unaudited financial statements of Company and its Subsidiaries, for the Fiscal Quarters ended January 31, 2000 and April 30, 2000, and unaudited financial statements of Scientific Games and its Subsidiaries as of March 31, 2000 and June 30, 2000, consisting of a balance sheet and the related consolidated statements of income and cash flows for the three- and six-month periods ending on such dates, all in reasonable detail and certified by the chief financial officer of Company and Scientific Games, as the case may be, that they fairly present the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes from audit and normal year-end adjustments, (iii) unaudited pro forma consolidated balance sheets of Company and its Subsidiaries and of Scientific Games and its Subsidiaries as at July 31, 2000, prepared in accordance with GAAP and reflecting the estimated effects of the consummation of the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements, which pro forma financial statements shall be in form and substance satisfactory to Agents and Lenders, and (iv) projected financial statements (including balance sheets and related statements of operations and cash flows) of Company and its Subsidiaries through and including the last day of Company's Fiscal Year ended on or about December 31, 2008, which projected financial statements shall be in form and substance satisfactory to Agents and Lenders (the "Financial Plan"). K. Solvency Assurances. On the Closing Date, Administrative Agent and Lenders shall have received a Financial Condition Certificate from the chief financial officer of Company, with appropriate attachments, in each case demonstrating that, after giving effect to the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements, Company and its Subsidiaries will be Solvent. L. Evidence of Insurance. Administrative Agent shall have received a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 6.4 is in full force and effect and that Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 6.4. M. Opinions of Counsel to Loan Parties; Reliance Letters. Lenders and their respective counsel shall have received originally executed copies of one or more favorable written opinions of Kramer Levin Naftalis & Frankel LLP, counsel for Company, dated as of the Closing Date, together with opinions from each of Martin E. Schloss, Esq., General Counsel of Company, C. Gray Bethea, Esq., General Counsel of Scientific Games, Smith, Gambrell & Russell, LLP, special Georgia counsel for Company, Sills, Cummis, Radin, Tischman, Epstein & Gross P.A., special New Jersey counsel for Company, Tobin, Carberry, O'Malley, Riley & Selinger, P.C., special 86 EXECUTION Connecticut counsel for Company, and Schreck Morris, special Nevada counsel for Company, and substantially in the form of Exhibit VII-A, Exhibit VII-B, Exhibit VII-C, Exhibit VII-D, Exhibit VII-E, Exhibit VII-F and Exhibit VII-G, as the case may be, annexed hereto and as to such other matters as Administrative Agent acting on behalf of Lenders may reasonably request. Administrative Agent and its counsel shall have received copies of each of the opinions of counsel delivered to the parties under the Related Agreements on or prior to the Closing Date, together with a letter from each such counsel authorizing Lenders to rely upon such opinion to the same extent as though it were addressed to Lenders. N. Opinions of Administrative Agent's Counsel. Lenders shall have received originally executed copies of one or more favorable written opinions of O'Melveny & Myers LLP, counsel to Administrative Agent, dated as of the Closing Date, substantially in the form of Exhibit VIII annexed hereto and as to such other matters as Administrative Agent acting on behalf of Lenders may reasonably request. O. Fees. Company shall have paid to Arranger, Agents and Lenders the fees payable on the Closing Date. P. Representations and Warranties; Performance of Agreements. Company shall have delivered to Administrative Agent an Officer's Certificate, in form and substance satisfactory to Administrative Agent, to the effect that the representations and warranties in Section 5 hereof are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date) and that Company shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before the Closing Date except as otherwise disclosed to and agreed to in writing by Administrative Agent and Requisite Lenders. Q. Additional Information. There shall have been no information relating to conditions or events not previously disclosed to Administrative Agent or relating to new information or additional developments concerning conditions of events previously disclosed to Administrative Agent which may have a Material Adverse Effect on the business, operations, properties, assets, liabilities, condition (financial or otherwise) or prospects of Company, Scientific Games and their respective Subsidiaries. The results of Administrative Agent's legal, tax, regulatory and environmental investigations with respect to Scientific Games and its Subsidiaries, the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements shall be reasonably satisfactory in all material respects to Administrative Agent. R. Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request in writing. 87 EXECUTION Each Lender hereby agrees that by its execution and delivery of its signature page hereto and by the funding of its Loans to be made on the Closing Date, such Lender approves of and consents to each of the matters set forth in this subsection 4.1 which must be approved by, or satisfactory to, Requisite Lenders; provided that, in the case of any agreement or document which must be approved by, or which must be satisfactory to, Requisite Lenders, a copy of such agreement or document shall have been delivered to such Lender on or prior to the Closing Date by Administrative Agent. .2 Conditions to All Loans. The obligations of Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: A. Administrative Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by an Authorized Representative. B. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default; (iii) Each Loan Party shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before that Funding Date; (iv) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it on that Funding Date; (v) The making of the Loans requested on such Funding Date shall not violate any law including Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System; and (vi) There shall not be pending or, to the knowledge of Company, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries that has not been disclosed by Company in writing pursuant to subsection 5.6 or 6.1(ix) prior to the making of the last preceding Loans (or, in the case of the initial Loans, prior to the execution of this Agreement), and there shall have occurred no development not so 88 EXECUTION disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, that, in either event, in the opinion of Administrative Agent or of Requisite Lenders, would be expected to have a Material Adverse Effect; and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated by this Agreement or the making of the Loans hereunder. .3 Conditions to Letters of Credit. The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Lender is obligated to issue such Letter of Credit) is subject to the following conditions precedent: A. On or before the date of issuance of the initial Letter of Credit pursuant to this Agreement, the initial Loans shall have been made. B. On or before the date of issuance of such Letter of Credit, Administrative Agent and Issuing Lender shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Request for Issuance of Letter of Credit, in each case signed by an Authorized Representative, together with all other information specified in subsection 3.1B(i) and such other documents or information as the applicable Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. C. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2B shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. Section 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders and the Agents to enter into this Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce other Lenders to purchase participations therein, Company represents and warrants to each Lender and the Agents, on the date of this Agreement, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: .1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries. A. Organization and Powers. Each Loan Party is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization as specified in Schedule 5.1 annexed hereto. Each Loan Party has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents and the Related Agreements to which it is a party and to carry out the transactions contemplated thereby. B. Qualification and Good Standing. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry 89 EXECUTION out its business and operations, except in jurisdictions, individually or in the aggregate for all such jurisdictions, where the failure to be so qualified or in good standing has not had and will not have a Material Adverse Effect. C. Conduct of Business. Company and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.13. D. Subsidiaries. All of the Subsidiaries of Company, including any Inactive Subsidiaries, are identified in Schedule 5.1 annexed hereto, as said Schedule 5.1 may be supplemented from time to time pursuant to the provisions of subsection 6.1(xvi). The capital stock of each of the Subsidiaries of Company identified in Schedule 5.1 is duly authorized, validly issued, fully paid and nonassessable and none of such capital stock (other than the Scientific Games Common Stock) constitutes Margin Stock. Each of the Subsidiaries of Company identified in Schedule 5.1 is a corporation, limited liability company or such other entity duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation or organization set forth therein, has all requisite corporation or limited liability company, as the case may be, power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such corporation or limited liability company, as the case may be, power and authority, individually or in the aggregate, has not had and will not have a Material Adverse Effect. Schedule 5.1 correctly sets forth the ownership interest of Company and each of its Subsidiaries in each of the Subsidiaries of Company identified therein. .2 Authorization of Borrowing, etc. A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents and the Related Agreements have been duly authorized by all necessary actions on the part of each Loan Party that is a party thereto. B. No Conflict. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements and the consummation of the transactions contemplated by the Loan Documents and the Related Agreements do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or the Articles of Incorporation or Bylaws of Company or any of Company's Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of Company's Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, except for such breaches, conflicts and defaults which could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of Company's Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of or consent of any Person under any Contractual Obligation of Company or any of Company's Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders or which the failure to 90 EXECUTION obtain could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. C. Governmental Consents. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements and the consummation of the transactions contemplated by the Loan Documents and the Related Agreements do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body, except for filings required in connection with the perfection of security interests granted pursuant to the Loan Documents, and such other registrations, consents, approvals, notices or other actions which have been or will be made, obtained, given or taken on or before the Closing Date or which the failure to obtain or take could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. D. Binding Obligation. Each of the Loan Documents and the Related Agreements has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. E. Valid Issuance of Equity Securities. The capital stock of Acquisition Co. to be sold on or before the Closing Date, when issued and delivered, will be duly and validly issued, fully paid and nonassessable. No stockholder of Acquisition Co. has or will have any preemptive rights to subscribe for any additional equity Securities of Acquisition Co. The issuance of sale of such common equity Securities of Acquisition Co., upon such issuance and sale, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. F. Senior Subordinated Notes. Company has the corporate power and authority to issue the Senior Subordinated Notes. The Senior Subordinated Notes are the legally valid and binding obligations of Company, enforceable against Company in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The subordination provisions of the Senior Subordinated Notes are enforceable against the holders thereof in accordance with their terms and the Loans, Letters of Credit and all other monetary Obligations hereunder are within the definitions of "Senior Indebtedness" and "Designated Senior Indebtedness" included in such provisions. The issuance and sale by Company of Senior Subordinated Notes were either (a) registered or qualified under applicable federal and state securities laws or (b) are exempt therefrom. G. Valid Issuance of Convertible Preferred Stock. The Convertible Preferred Stock, when issued and delivered, will be duly and validly issued, fully paid and nonassessable. The Convertible Preferred Stock is either (a) registered or qualified under applicable federal and state securities law or (b) is exempt therefrom. 91 EXECUTION .3 Financial Condition. Company has heretofore delivered to Lenders, at Lenders' request, the following financial statements and information: (i) the audited consolidated balance sheets of Company and its Subsidiaries as at October 31, 1999, 1998 and 1997 and the audited consolidated balance sheets of Scientific Games and its Subsidiaries as at December 31, 1999, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows of Company, Scientific Games and their respective Subsidiaries for the Fiscal Years then ended and (ii) the unaudited consolidated balance sheet of Company and its Subsidiaries for the Fiscal Quarters ending on or about January 31, 2000 and April 30, 2000 and of Scientific Games and its Subsidiaries as of March 31, 2000 and June 30, 2000, and the related unaudited consolidated statements of income and cash flows of Company, Scientific Games and their respective Subsidiaries for the three months then ended. All such statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. Company does not (and will not following the funding of the initial Loans) have any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not required to be reflected in the foregoing financial statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries, taken as a whole. .4 No Material Adverse Change; No Restricted Junior Payments. Since October 31, 1999, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, and neither Company nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted under subsection 7.5. .5 Title to Properties; Liens; Real Property. A. Title to Properties; Liens. Company and its Subsidiaries have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of their respective properties and assets reflected in the financial statements referred to in subsection 5.3 or in the most recent financial statements delivered pursuant to subsection 6.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under subsection 7.7. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. With respect to those Liens set forth on Schedule 5.5 annexed hereto, the debts secured thereby have been paid in full and are no longer outstanding. B. Real Property. As of the Closing Date, Schedule 5.5 annexed hereto contains a true, accurate and complete list of (i) all real property owned by Company or any Subsidiary and (ii) all 92 EXECUTION material leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Property Asset of any Loan Party, regardless of whether such Loan Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Except as specified in Schedule 5.5 annexed hereto, each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and Company and each Loan Party do not have knowledge of any default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of each applicable Loan Party, enforceable against such Loan Party in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. .6 Litigation; Adverse Facts. A. Except as set forth in Schedule 5.6 annexed hereto, there are no actions, suits, proceedings, arbitrations or governmental investigations (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including any Environmental Claims) that are pending or, to the knowledge of Company, threatened against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries and that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or could reasonably be expected to prevent or unduly delay the Merger. Neither Company nor any of its Subsidiaries (i) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. .7 Payment of Taxes. Except to the extent permitted by subsection 6.3, all tax returns and reports of Company and its Subsidiaries required to be filed by any of them have been timely filed, and all material taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Company and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable other than those being contested in good faith. Company knows of no proposed tax assessment against Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect and which is not being actively contested by Company or such Subsidiary in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 93 EXECUTION .8 Performance of Agreements; Materially Adverse Agreements. A. Neither Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. B. Neither Company nor any of its Subsidiaries is a party to or is otherwise subject to any agreements or instruments or any charter or other internal restrictions which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. .9 Governmental Regulation. Neither Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. .10 Securities Activities. A. Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. B. Not more than 25% of the value of the assets (either of Company only or of Company and its Subsidiaries on a consolidated basis) that are subject to the restrictions on Liens or dispositions contained in subsection 7.2 or 7.7 or subject to any restriction contained in any agreement or instrument, between Company and any Lender or any Affiliate of any Lender, relating to Indebtedness and within the scope of subsection 8.2, will be Margin Stock. .11 Employee Benefit Plans. A. Company and each of its Subsidiaries are in material compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Company Employee Benefit Plan, and have performed all their obligations under each Company Employee Benefit Plan, except where a failure to comply or perform could not reasonably be expected to have a Material Adverse Effect. Each Company Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code is so qualified. B. No ERISA Event has occurred or is reasonably expected to occur that could reasonably be expected to have a Material Adverse Effect. C. Except to the extent required under Section 4980B of the Internal Revenue Code or other applicable law or individual contract, no Company Employee Benefit Plan provides health 94 EXECUTION or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Company, any of its Subsidiaries or any of their respective ERISA Affiliates. D. As of the most recent valuation date for any Pension Plan, and excluding for purposes of such computation all Pension Plans with respect to which assets exceed benefit liabilities (as defined in Section 4001(a)(16) of ERISA), the sum of: (i) the unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) individually or in the aggregate for all Company Pension Plans; and (ii) the liability that Company or its Subsidiaries could reasonably be expected to incur as the result of such unfunded benefit liabilities, individually or in the aggregate, for all Pension Plans other than Company Pension Plans (assuming amortization of such unfunded benefit liabilities over ten years); does not exceed $5 million. E. As of the most recent valuation date for which an actuarial report has been received and based on information available pursuant to Section 4221(e) of ERISA, the sum of: (i) the potential liability of Company and its Subsidiaries for a complete withdrawal from all Multiemployer Plans (within the meaning of Section 4203 of ERISA) to which Company or any of its Subsidiaries contribute; and (ii) the liability of Company or its Subsidiaries could be reasonably be expected to incur as a result of the complete withdrawal from all Multiemployer Plans to which neither Company nor any of its Subsidiaries contribute, after considering the financial condition of all of the ERISA Affiliates most closely related to the contributing employer(s); does not exceed $5 million. .12 Certain Fees. Other than as disclosed in the Merger Agreement, no broker's or finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and Company hereby indemnifies Lenders against, and agrees that it will hold Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. .13 Environmental Protection. Except as set forth in Schedule 5.13 annexed hereto: (i) To the knowledge of the Company and its Subsidiaries, neither Company nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person 95 EXECUTION relating to (a) any Environmental Law, (b) any Environmental Claim, or (c) any Hazardous Materials Activity, except where such an order, consent, decree or settlement agreement, individually or in the aggregate, would not be reasonably expected to have a Material Adverse Effect; (ii) neither Company nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9604) or any comparable state law, except where such a letter or request, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (iii) To the knowledge of the Company and its Subsidiaries, there are and have been no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Company or any of its Subsidiaries, except where such a condition, occurrence or Hazardous Materials Activity, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; (iv) neither Company nor any of its Subsidiaries nor, to Company's knowledge, any predecessor of Company or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, and none of Company's or any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent, except where such treatment or generation, transportation, storage or disposal, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; and (v) To the knowledge of the Company and its Subsidiaries, compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws will not, individually or in the aggregate, give rise to a Material Adverse Effect. To the knowledge of the Company and its Subsidiaries, notwithstanding anything in this subsection 5.13 to the contrary, no event or condition has occurred or is occurring with respect to Company or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity, including any matter disclosed on Schedule 5.13 annexed hereto, which individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. .14 Employee Matters. There is no strike or work stoppage in existence or, to the best knowledge of the Company, threatened involving Company or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. .15 Solvency. Each Loan Party is and, upon the incurrence of any Obligations by such Loan Party on any date on which this representation is made, will be, Solvent. 96 EXECUTION .16 Matters Relating to Collateral. A. Creation, Perfection and Priority of Liens. Subject to the filing of UCC financing statements and the taking of possession by the Administrative Agent of all stock certificates and instruments, if any, constituting Collateral, the execution and delivery of the Collateral Documents by Loan Parties, together with actions taken pursuant to subsections 4.1G, 4.1H, 6.8 and 6.9 are effective, or in the case of subsections 6.8 and 6.9, will be effective at the time of the acquisition of such Subsidiaries, to create in favor of Administrative Agent for the benefit of Lenders, as security for the respective Secured Obligations (as defined in the applicable Collateral Document in respect of any Collateral), a valid and perfected First Priority Lien on all of the Collateral. B. Governmental Authorizations. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the pledge or grant by any Loan Party of the Liens purported to be created in favor of Administrative Agent pursuant to any of the Collateral Documents or (ii) the exercise by Administrative Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to any of the Collateral Documents or created or provided for by applicable law), except for filings or recordings contemplated by subsection 5.16A and except as may be required, in connection with the disposition of any Pledged Collateral (as defined in the Security Agreement), by laws generally affecting the offering and sale of securities. C. Absence of Third-Party Filings. Except such as may have been filed (x) in favor of Administrative Agent, (y) with respect to Permitted Encumbrances, and (z) as to which executed UCC termination statements have been delivered to the Administrative Agent for filing (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. Margin Regulations. The pledge of the Pledged Collateral (as defined in the Security Agreement) pursuant to the Collateral Documents does not violate Regulation U or X of the Board of Governors of the Federal Reserve System. E. Information Regarding Collateral. All written information supplied to Agents by or on behalf of any Loan Party with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects. .17 Related Agreements. A. Delivery of Related Agreements. Company has delivered to Lenders complete and correct copies of each Related Agreement and of all exhibits and schedules thereto. B. Warranties. Subject to the qualifications set forth therein, each of the representations and warranties given by Company, Acquisition Co. and Scientific Games in the Merger Agreement is true and correct in all material respects as of the date hereof (or as of any earlier date to which such representation and warranty specifically relates) and will be true and correct in all material respects as of the Closing Date (or such earlier date as the case may be). 97 EXECUTION C. Survival. Notwithstanding anything in the Merger Agreement to the contrary, the representations and warranties of Company set forth in subsection 5.17B shall, solely for purposes of this Agreement, survive the Closing Date for the benefit of Lenders. .18 Disclosure. No representation or warranty of any Loan Party contained in any Loan Document or Related Agreement or in any other document, certificate or written statement furnished to Lenders by or on behalf of Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. .19 Certain Jurisdictions. Company and its Subsidiaries do not have any assets located in any of (i) Trinidad and Tobago, St. Maarten, Barbados, Bermuda, Jamaica, Guyana, Dutch West Indies, St. Kitts West, Aruba or Virgin Islands and (ii) Panama and Mexico, except, in respect of each such jurisdiction, assets of Company and its Subsidiaries located in such jurisdiction with an aggregate market value of not more than (i) $10,000 and (ii) $300,000, respectively. Section 5. COMPANY'S AFFIRMATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. .1 Financial Statements and Other Reports. Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to Agents and Lenders: (i) Monthly Financials: as soon as available and in any event within 30 days after the end of each calendar month (or, in the case of the calendar month of October, 2000, 98 EXECUTION the last calendar month of each Fiscal Quarter and the last calendar month of each Fiscal Year, as soon as available and in any event within 45 days after the end of such calendar month) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such calendar month and the related consolidated and consolidating statements of income and cash flows of Company and its Subsidiaries for such calendar month, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; (ii) Quarterly Financials: as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters, (a) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated and consolidating statements of income and cash flows of Company and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan or Revised Financial Plan, as the case may be, for the current Fiscal Year, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; provided that with respect to the Fiscal Quarters ending September 30, 2000, December 31, 2000, March 31, 2001 and June 30, 2001, Company shall not be required to set forth in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year; provided further that, with respect to the Fiscal Quarters ending September 30, 2000, December 31, 2000 and March 31, 2001, Company shall not be required to deliver the consolidated and consolidating balance sheets of Company and its Subsidiaries and the related consolidated and consolidating statements of income and cash flows of Company and its Subsidiaries for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter; provided still further, that is hereby acknowledged and agreed that any such financial statements delivered hereunder for any period that ends prior to the Closing Date or includes the Closing Date shall be prepared on a Pro Forma Basis as if the Merger had been consummated on the first day of the Fiscal Quarter ending on September 30, 2000 and the Merger was a Permitted Acquisition of Company and its Subsidiaries and (b) a narrative report describing the operations of Company and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter (it being understood and agreed that the "Management Discussion and Analysis" contained in the Company's quarterly report on Form 10-Q filed with the Securities and Exchange Commission for such period shall be deemed to comply with the foregoing requirement); (iii) Year-End Financials: as soon as available and in any event within 90 days after the end of each Fiscal Year, (a) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Year and the related 99 EXECUTION consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Revised Financial Plan or Financial Plan, as the case may be, for the Fiscal Year covered by such financial statements, all in reasonable detail and certified by the chief financial officer, chief accounting officer or controller of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated; provided that, with respect to the Fiscal Year ending December 31, 2000, Company shall not be required to set forth in comparative form the corresponding figures for the previous Fiscal Year, (b) a narrative report describing the operations of Company and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Year (it being understood and agreed that the "Management Discussion and Analysis" contained in the Company's annual report on Form 10-K or such similar report filed with the Securities and Exchange Commission shall be deemed to comply with the foregoing requirement), and (c) in the case of such consolidated financial statements, a report thereon of KPMG Peat Marwick or other independent certified public accountants of recognized national standing selected by Company and reasonably satisfactory to Administrative Agent, which report shall be unqualified, shall express no doubts about the ability of Company and its Subsidiaries to continue as a going concern, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iv) Officer's and Compliance Certificates: together with each delivery of financial statements pursuant to subdivisions (ii) and (iii) above, (a) an Officer's Certificate (provided that such Officer's Certificate shall be executed on behalf of Company by its president or one of its vice-presidents and by its chief financial officer (or if there is no chief financial officer its chief accounting officer) or its treasurer) of Company stating that the signers have reviewed the terms of this Agreement and the other Loan Documents and have made, or caused to be made under their supervision, a review in reasonable detail of the material transactions and condition of Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take with respect thereto and (b) a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7, in each case to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period; 100 EXECUTION (v) Reconciliation Statements: if, as a result of the Company's adoption of any change in accounting principles, from those used in the preparation of the audited financial statements referred to in subsection 5.3, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this subsection 6.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles been made, then (a) together with the first delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, consolidated financial statements of Company and its Subsidiaries for (x) the current Fiscal Year to the effective date of such change and (y) the full Fiscal Year immediately preceding the Fiscal Year in which such change is made, in each case prepared on a pro forma basis as if such change had been in effect during such periods, and (b) together with each delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, a written statement of the chief accounting officer or chief financial officer of Company setting forth the differences (including without limitation any differences that would affect any calculations relating to the financial covenants set forth in subsection 7.6) which would have resulted if such financial statements had been prepared without giving effect to such change; (vi) Accountants' Certification: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (iii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit examination has included a review of the terms of Section 7 as they relate to accounting matters, (b) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination, and (c) stating that based on their audit examination nothing has come to their attention that causes them to believe either or both that the information contained in the certificates delivered therewith pursuant to subdivision (iv) above is not correct or that the matters set forth in the Compliance Certificates delivered therewith pursuant to clause (c) of subdivision (iv) above for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement; (vii) Accountants' Reports: promptly upon receipt thereof (unless restricted by applicable professional standards), copies of all "Management Letters" submitted to Company by independent certified public accountants in connection with each annual, interim or special audit of the financial statements of Company and its Subsidiaries made by such accountants, including any comment letter submitted by such accountants to management in connection with their annual audit; (viii) SEC Filings and Press Releases: promptly upon their becoming available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Company to its security holders or by any Subsidiary of Company to its security holders other than Company or another Subsidiary of Company, (b) all regular 101 EXECUTION and periodic financial reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission and (c) all press releases made by Company or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries; (ix) Events of Default, etc.: promptly upon any officer of Company obtaining knowledge (a) of any condition or event that constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender has given any notice (other than to Administrative Agent) or taken any other action with respect to a claimed Event of Default or Potential Event of Default, (b) that any Person has given any notice to Company or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2, (c) of any condition or event that would be required to be disclosed in a current report filed by Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) whether or not Company is required to file such reports under the Exchange Act, or (d) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officer's Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto; (x) Litigation or Other Proceedings: (a) promptly upon any officer of Company obtaining knowledge of (X) the institution of, or non-frivolous threat of, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries (collectively, "Proceedings") not previously disclosed in writing by Company to Lenders or (Y) any material development in any Proceeding that, in any case set forth in clause (x) or (y): (1) if adversely determined, could reasonably be expected to have a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to Company to enable Lenders and their respective counsel to evaluate such matters; and (b) within twenty days after the end of each Fiscal Quarter, a schedule of all Proceedings involving an alleged liability of, or claims against or affecting, Company or any of its Subsidiaries equal to or greater than $500,000, and promptly after request by Administrative Agent such other information as may be reasonably requested by Administrative Agent to enable Administrative Agent and its respective counsel to evaluate any of such Proceedings; 102 EXECUTION (xi) ERISA Events: reasonably promptly upon Company becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, which would reasonably be expected to result in a liability to the Company, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $500,000, a written notice specifying the nature thereof, what action Company, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (xii) ERISA Notices: with reasonable promptness, copies of (a) all notices received by Company, any of its Subsidiaries or (if obtained by Company) any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (b) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request; (xiii) Financial Plans: as soon as practicable and in any event no later than fifteen (15) days subsequent to the beginning of the Fiscal Year ending on or about December 31, 2001 and each subsequent Fiscal Year, a revised consolidated and consolidating plan and financial forecast for such Fiscal Year and the next four succeeding Fiscal Years (the "Revised Financial Plan" for such Fiscal Years, it being acknowledged and agreed that each succeeding Revised Financial Plan shall replace the immediately preceding Financial Plan or Revised Financial Plan, as the case may be (other than with respect to any representations, warranties, certifications or other statements previously made as of the date thereof with respect to such preceding Financial Plan or Revised Financial Plan, as the case may be)), including (a) a forecast consolidated and consolidating balance sheet and forecast consolidated and consolidating statements of income and cash flows of Company and its Subsidiaries for each such Fiscal Year and an explanation of the assumptions on which such forecasts are based, (b) forecast consolidated and consolidating balance sheet and forecast consolidated and consolidating statements of income and cash flows of Company and its Subsidiaries for each quarter of the first such Fiscal Year, together with pro forma financial covenant calculations for such Fiscal Year determined in a manner consistent with financial covenant calculations shown in a Compliance Certificate and (c) such other information and projections as Administrative Agent or any Lender may reasonably request in writing; (xiv) Insurance: as soon as practicable and in any event by the last day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Company and its Subsidiaries and all material insurance coverage planned to be maintained by Company and its Subsidiaries in the immediately succeeding Fiscal Year; (xv) Board of Directors: with reasonable promptness, written notice of any change in the Board of Directors of Company; (xvi) New Subsidiaries: promptly upon any Person becoming a Subsidiary of Company, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of Company and (b) all of the data required to be set 103 EXECUTION forth in Schedule 5.1 annexed hereto with respect to all Subsidiaries of Company (it being understood that such written notice shall be deemed to supplement Schedule 5.1 annexed hereto for all purposes of this Agreement); (xvii) UCC Search Report: As promptly as practicable after the date of delivery to Administrative Agent of any UCC financing statement executed by any Loan Party pursuant to subsection 4.1H, 4.2F or 6.8A, copies of completed UCC searches evidencing the proper filing, recording and indexing of all such UCC financing statements and listing all other effective financing statements that name such Loan Party as debtor, together with copies of all such other financing statements not previously delivered to Administrative Agent by or on behalf of Company or such Loan Party; (xviii) Margin Determination Certificate: together with each delivery of financial statements pursuant to subdivisions (ii) and (iii) above, a Margin Determination Certificate demonstrating in reasonable detail the calculation of the Consolidated Leverage Ratio for the four consecutive Fiscal Quarters ending on the last day of the accounting period covered by such financial statements; and (xix) Other Information: with reasonable promptness, such other information and data with respect to Company or any of its Subsidiaries as from time to time may be reasonably requested in writing by Administrative Agent or any Lender. .2 Legal Existence, etc. Except as permitted under subsection 7.7, Company will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its legal existence and all rights and franchises material to its business; provided, however, that neither Company nor any of its Subsidiaries shall be required to preserve any such right or franchise if the Board of Directors of Company or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of Company or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to Company, such Subsidiary or Lenders. .3 Payment of Taxes and Claims; Tax Consolidation. A. Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a material Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (1) such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor and (2) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such charge or claim. 104 EXECUTION B. Company will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Company or any of its Subsidiaries). .4 Maintenance of Properties; Insurance; Application of Net Insurance/Condemnation Proceeds. A. Maintenance of Properties. Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Company and its Subsidiaries (including all Intellectual Property) and from time to time will make or cause to be made all repairs, renewals and replacements thereof which the Company deems appropriate. B. Insurance. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Subsidiaries as may customarily be carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations similarly situated in the industry. Without limiting the generality of the foregoing, Company will maintain or cause to be maintained (i) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (ii) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times satisfactory to Administrative Agent in its commercially reasonable judgment. Each such policy of insurance shall (a) name Administrative Agent for the benefit of Lenders as an additional insured thereunder as its interests may appear and (b) in the case of each business interruption and casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Administrative Agent, that names Administrative Agent for the benefit of Lenders as the loss payee thereunder for any covered loss in excess of $2 million and provides for at least (x) in the case of any such policies with respect to Scientific Games and its Subsidiaries, 30 days and (y) in the case of any such policies with respect to Company and its Subsidiaries (other than Scientific Games and its Subsidiaries) 10 days, prior written notice to Administrative Agent of any modification or cancellation of such policy. Company will use its commercially reasonable efforts to cause its insurers to change the provisions of its existing insurance policies to provide for at least 30 days prior written notice to Administrative Agent of any modification or cancellation of such policy in connection with the October 31, 2000 renewal of Company's and its Subsidiaries' insurance policies. C. Application of Net Insurance/Condemnation Proceeds. (i) Business Interruption Insurance. Upon receipt by Company or any of its Subsidiaries of any business interruption insurance proceeds constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event of Default or Potential Event 105 EXECUTION of Default shall have occurred and be continuing, Company or such Subsidiary may retain and apply such Net Insurance/Condemnation Proceeds for working capital purposes, and (b) if an Event of Default or Potential Event of Default shall have occurred and be continuing, Company shall apply an amount equal to such Net Insurance/Condemnation Proceeds to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b); (ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds other than from business interruption insurance, (a) so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, Company shall, or shall cause one or more of its Subsidiaries to, promptly and diligently apply such Net Insurance/Condemnation Proceeds to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received or, to the extent not so applied, to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b) (it being acknowledged and agreed that, in the event that the Company fully repairs, restores or replaces, as the case may be, the assets in respect of which such Net Insurance/Condemnation Proceeds were received for less than the amount of such Net Insurance/Condemnation Proceeds, Company may retain such excess Net Insurance/Condemnation Proceeds; provided that the amount of such excess Net Insurance/Condemnation Proceeds retained by Company shall not exceed $10 million in any Fiscal Year) and (b) if an Event of Default or Potential Event of Default shall have occurred and be continuing, Company shall apply an amount equal to such Net Insurance/Condemnation Proceeds to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b); provided that the aggregate amount applied by Company to pay or reimburse the costs of repairing, restoring or replacing such assets pursuant to the foregoing clause (a) shall not exceed $25 million for any Fiscal Year. (iii) Net Insurance/Condemnation Proceeds Received by Administrative Agent. Upon receipt by Administrative Agent of any Net Insurance/Condemnation Proceeds as loss payee, if and to the extent Company would have been required to apply such Net Insurance/Condemnation Proceeds (if it had received them directly) to prepay the Loans and/or reduce the Revolving Loan Commitments, Administrative Agent shall, and Company hereby authorizes Administrative Agent to, apply such Net Insurance/Condemnation Proceeds to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b), and (b) to the extent the foregoing clause (a) does not apply and (1) the aggregate amount of such Net Insurance/Condemnation Proceeds received (and reasonably expected to be received) by Administrative Agent in respect of any covered loss does not exceed $20 million, Administrative Agent shall deliver such Net Insurance/Condemnation Proceeds to Company, and Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds to the costs of repairing, restoring, or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received, and (2) if the aggregate amount of Net Insurance/Condemnation Proceeds received (and reasonably expected to be received) by Administrative Agent in respect of any covered loss exceeds $20 million, Administrative Agent shall hold such Net 106 EXECUTION Insurance/Condemnation Proceeds in the Collateral Account established under the Security Agreement and, so long as Company or any of its Subsidiaries proceeds diligently to repair, restore or replace the assets of Company or such Subsidiary in respect of which such Net Insurance/Condemnation Proceeds were received, Administrative Agent shall from time to time disburse to Company or such Subsidiary from the Collateral Account established under the Security Agreement, to the extent of any such Net Insurance/Condemnation Proceeds remaining therein in respect of the applicable covered loss, amounts necessary to pay the cost of such repair, restoration or replacement after the receipt by Administrative Agent of invoices or other documentation relating to the amount of costs so incurred and the work performed (including, if required by Administrative Agent, lien releases and architects' certificates); provided, however that if at any time Administrative Agent reasonably determines after discussion with Company (A) that Company or such Subsidiary is not proceeding diligently with such repair, restoration or replacement or (B) that such repair, restoration or replacement cannot be completed with the Net Insurance/Condemnation Proceeds then held by Administrative Agent for such purpose, together with funds otherwise available to Company for such purpose, or that such repair, restoration or replacement cannot be completed within 360 days after the receipt by Administrative Agent of such Net Insurance/Condemnation Proceeds, Administrative Agent shall, and Company hereby authorizes Administrative Agent, one Business Day following Administrative Agent's sending of written notice to Company, to apply such Net Insurance/ Condemnation Proceeds to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b); provided that Administrative Agent's failure to provide such written notice will not affect the right of Administrative Agent to apply such Net Insurance/Condemnation Proceeds to prepay the Loans (and to reduce the Revolving Loan Commitments) pursuant to this subsection,. .5 Inspection Rights; Lender Meeting. A. Inspection Rights. Company shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by Administrative Agent or any Lender to visit and inspect any of the properties of Company or of any of its Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that Company may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested. B. Lender Meeting. Company will, upon at least thirty (30) days prior written notice from Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 107 EXECUTION .6 Compliance with Laws, etc. Company shall comply, and shall cause each of its Subsidiaries and all other Persons on or occupying any Facilities to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including all Environmental Laws), noncompliance with which could reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect. .7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws. A. Environmental Review and Investigation. Company agrees that Administrative Agent may, from time to time and in its reasonable discretion, at Company's expense, (i) retain an independent professional consultant to review any environmental audits, investigations, analyses and reports relating to Hazardous Materials prepared by or for Company and (ii) upon receipt of information that there may exist at any Facility an environmental matter which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect or there may exist at any Facility any Environmental Claims which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, or upon the occurrence of any Event of Default, conduct its own investigation of any Facility; provided that, in the case of any Facility no longer owned, leased, operated or used by Company or any of its Subsidiaries, Company shall only be obligated to use its reasonable good faith efforts to obtain permission for Administrative Agent's professional consultant to conduct an investigation of such Facility. For purposes of conducting such a review and/or investigation, Company hereby grants to Administrative Agent and its respective agents, employees, consultants and contractors the right to enter into or onto any Facilities currently owned, leased, operated or used by Company or any of its Subsidiaries and to perform such tests on such property (including taking samples of soil, groundwater and suspected asbestos-containing materials) as are reasonably necessary in connection therewith. Any such investigation of any Facility shall be conducted, unless otherwise agreed to by Company and Administrative Agent, during normal business hours and, to the extent reasonably practicable, shall be conducted so as not to interfere with the ongoing operations at such Facility or to cause any damage or loss to any property at such Facility. So long as no Event of Default or Potential Event of Default has occurred and is continuing, Administrative Agent shall provide reasonable notice to Company prior to the inspection of any Facility. Company and Administrative Agent hereby acknowledge and agree that any report of any investigation conducted at the request of Administrative Agent pursuant to this subsection 6.7A will be obtained and shall be used by Administrative Agent and Lenders for the purposes of Lenders' internal credit decisions, to monitor and police the Loans and to protect Lenders' security interests, if any, created by the Loan Documents. Administrative Agent agrees to deliver a copy of any such report to Company with the understanding that Company acknowledges and agrees that (x) it will indemnify and hold harmless Administrative Agent and each Lender from any costs, losses or liabilities relating to Company's use of or reliance on such report, (y) none of the Administrative Agent or any Lender makes any representation or warranty with respect to such report, and (z) by delivering such report to Company, none of the Administrative Agent or any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. 108 EXECUTION B. Environmental Disclosure. Company will deliver to Administrative Agent and Lenders: (i) Environmental Audits and Reports. As soon as practicable following receipt thereof, copies of material environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Company or any of its Subsidiaries or by independent consultants, governmental authorities or any other Persons, with respect to significant environmental matters at any Facility which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect or with respect to any Environmental Claims which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect; (ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly upon the occurrence thereof, written notice describing in reasonable detail (a) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, (b) any remedial action taken by Company or any other Person of which Company has knowledge in response to (1) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (2) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect, and (c) Company's discovery of any occurrence or condition on any real property adjoining any Facility that could cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws. (iii) Written Communications Regarding Environmental Claims, Releases, Etc. As soon as practicable following the sending or receipt thereof by Company or any of its Subsidiaries, a copy of any and all written communications with respect to (a) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (b) any Release required to be reported to any federal, state or local governmental or regulatory agency, and (c) any request for information from any governmental agency that suggests such agency is investigating whether Company or any of its Subsidiaries may be potentially responsible for any Environmental Claim. (iv) Notice of Certain Proposed Actions Having Environmental Impact. Prompt written notice describing in reasonable detail (a) any proposed acquisition of stock, assets, or property by Company or any of its Subsidiaries that could reasonably be expected to (1) expose Company or any of its Subsidiaries to, or result in, Environmental Claims that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (2) affect the ability of Company or any of its Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (b) any proposed action to be taken by Company or any of its Subsidiaries to commence manufacturing or other industrial operations or to modify current operations in a manner that could reasonably be expected to subject Company or any of its Subsidiaries to any additional obligations or 109 EXECUTION requirements under any Environmental Laws that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (v) Other Information. With reasonable promptness, such other documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this subsection 6.7. C. Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws. (i) Remedial Actions Relating to Hazardous Materials Activities. Company shall promptly undertake, and shall cause each of its Subsidiaries promptly to undertake, any and all investigations, studies, sampling, testing, abatement, cleanup, removal, remediation or other response actions necessary to remove, remediate, clean up or abate any Hazardous Materials Activity on, under or about any Facility that is required by any Governmental Authority or that is in violation of any Environmental Laws or that presents a material risk of giving rise to an Environmental Claim that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. In the event Company or any of its Subsidiaries undertakes any such action with respect to any Hazardous Materials, Company or such Subsidiary shall conduct and complete such action in compliance with all applicable Environmental Laws and in accordance with the policies, orders and directives of all federal, state and local governmental authorities except when, and only to the extent that, Company's or such Subsidiary's liability with respect to such Hazardous Materials Activity is being contested in good faith by Company or such Subsidiary. (ii) Actions with Respect to Environmental Claims and Violations of Environmental Laws. Company shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all actions necessary to (a) cure any violation of applicable Environmental Laws by Company or its Subsidiaries that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and (b) make an appropriate response to any Environmental Claim against Company or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder where failure to do so would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. .8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents by Certain Subsidiaries and Future Subsidiaries; IP Collateral. A. Execution of Subsidiary Guaranty and Personal Property Collateral Documents. In the event that any Person (other than an Inactive Subsidiary) becomes a wholly-owned Domestic Subsidiary of Company or any Subsidiary Guarantor after the Closing Date, Company will promptly notify Administrative Agent of that fact and (i) Company or such Subsidiary Guarantor shall execute and deliver to Administrative Agent a Pledge Amendment (as defined in the Security Agreement) to the Security Agreement pledging all of the stock of such wholly-owned Domestic Subsidiary owned by Company or such Subsidiary Guarantor and (ii) cause such wholly-owned Domestic Subsidiary to execute and deliver to Administrative Agent a counterpart of the 110 EXECUTION Subsidiary Guaranty and, as applicable, a Pledge Amendment and Additional Mortgages (as defined in subsection 6.9) and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 4.1H) as may be necessary or, in the reasonable opinion of Administrative Agent, desirable to create in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on all of the personal and mixed property assets of such wholly-owned Domestic Subsidiary described in the applicable forms of Collateral Documents. B. Execution of Future Foreign Subsidiary Guaranty and Collateral Documents. In the event that any Person (other than an Inactive Subsidiary) becomes a direct Foreign Subsidiary of Company or any Subsidiary Guarantor after the Closing Date, Company will promptly notify Administrative Agent of that fact and Company or such Subsidiary Guarantor will execute a Pledge Amendment (as defined in the Security Agreement) to the Security Agreement pledging not less than 65% (66% in the case of any Foreign Subsidiary organized under the laws of France or any political subdivision thereof) of the stock of such Foreign Subsidiary. In the event that U.S. tax laws and/or any other applicable laws in foreign jurisdictions, as the case may be, are amended to permit a Foreign Subsidiary to guarantee the Loans without the incurrence of an investment in U.S. property or other deemed dividends for U.S. tax purposes or without otherwise resulting in U.S. taxable income or without otherwise violating any other applicable laws in foreign jurisdictions, Company will promptly notify Administrative Agent of that fact and Company or such Subsidiary Guarantor will execute Pledge Amendments to the Security Agreement pledging not less than 100% of the stock of its wholly-owned Foreign Subsidiaries (other than Inactive Subsidiaries) and Company will cause its Foreign Subsidiaries (other than Inactive Subsidiaries) to execute and deliver to Administrative Agent a counterpart of the Subsidiary Guaranty and the Security Agreement and Additional Mortgages, as applicable, and to take all such further action and execute all such further documents and instruments as may be reasonably required to grant and perfect in favor of Administrative Agent, for the benefit of Lenders, a First Priority security interest in all of the personal and mixed property assets of such Subsidiary described in the applicable Collateral Documents. C. Subsidiary Charter Documents, Legal Opinions, Etc. Company shall deliver to Administrative Agent, together with such Loan Documents, (i) certified copies of such Subsidiary's Certificate or Articles of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation and each other state in which such Person is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each to be dated a recent date prior to their delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws certified by its secretary or an assistant secretary as of a recent date prior to their delivery to Administrative Agent, (iii) a certificate executed by the secretary or an assistant secretary of such Subsidiary as to (a) the fact that the attached resolutions of the Board of Directors of such Subsidiary approving and authorizing the execution, delivery and performance of such Loan Documents are in full force and effect and have not been modified or amended and (b) the incumbency and signatures of the officers of such Subsidiary executing such Loan Documents, and (iv) if required by the Administrative Agent, a favorable opinion of counsel to such Subsidiary, in form and substance satisfactory to Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, 111 EXECUTION execution and delivery by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan Documents against such Subsidiary, (d) such other matters (including matters relating to the creation and perfection of Liens in any Collateral pursuant to such Loan Documents) as Administrative Agent may reasonably request, all of the foregoing to be satisfactory in form and substance to Administrative Agent and its counsel. D. Pledge of Foreign Subsidiary Stock. To the extent not otherwise satisfied on the Closing Date with respect to Company's Foreign Subsidiaries, no later than 120 days after the Closing Date, Company shall, and shall cause each of its Subsidiary Guarantors owning direct Foreign Subsidiaries to, deliver to Administrative Agent such Pledge Amendments or other similar documents executed with respect to the capital stock of each such Foreign Subsidiary (other than Inactive Subsidiaries) and to deliver such stock certificates or such other related documents or instruments as shall grant to Administrative Agent a perfected First Priority Lien on such capital stock, all in form and substance reasonably satisfactory to Administrative Agent. .9 Leasehold Properties; Matters Relating to Additional Real Property Collateral; Certain Opinions; Removal of Liens. A. Leasehold Properties. To the extent not otherwise satisfied on the Closing Date with respect to Company and its Subsidiaries, each of Company and each applicable Subsidiary Guarantor shall use its reasonable good faith best efforts (without requiring Company or such Subsidiary Guarantor to relinquish any material rights or incur any material obligations or to expend more than a nominal amount of money as well as reasonable attorneys' fees incurred by (x) the landlord under the applicable lease, (y) Administrative Agent and (z) Company or such Subsidiary Guarantor) to: (i) Landlord Consents and Estoppels; Recorded Leasehold Interests. Deliver to Administrative Agent no later than 45 days after the Closing Date, in the case of each Material Leasehold Property of Company or its Subsidiary Guarantors existing as of the Closing Date, (a) a Landlord Consent and Estoppel with respect thereto and (b) evidence that such Material Leasehold Property is a Recorded Leasehold Interest; (ii) Collateral Access Agreements. Deliver to Administrative Agent no later than 45 days after the Closing Date, in the case of each Leasehold Property of Company or its Subsidiary Guarantors existing as of the Closing Date designated by Administrative Agent, a Collateral Access Agreement with respect thereto and in the event that any landlord party to a Collateral Access Agreement requests an estoppel certificate regarding such Leasehold Property, Company or the applicable Subsidiary Guarantor will include a description of such Collateral Access Agreement in such estoppel certificate; and (iii) Conforming Leasehold Interests. If Company or any of its Subsidiary Guarantors acquires any Material Leasehold Property after the Closing Date, Company shall, or shall cause such Subsidiary to, use its reasonable good faith best efforts (without requiring Company or such Subsidiary to relinquish any material rights or incur any material obligations or to expend more than a nominal amount of money as well as reasonable attorneys' fees incurred by (x) the landlord under the applicable lease, (y) 112 EXECUTION Administrative Agent and (z) Company or such Subsidiary) to cause such Material Leasehold Property to be a Conforming Leasehold Interest. B. Additional Mortgages, Etc. From and after the Closing Date, in the event that (i) Company or any Subsidiary Guarantor acquires any fee interest in real property having a fair market value in excess of $1 million or any Material Leasehold Property or (ii) at the time any Person becomes a Subsidiary Guarantor, such Person owns or holds any fee interest in real property or any Material Leasehold Property, in either case excluding any such Real Property Asset the encumbrancing of which requires the consent of any applicable lessor or (in the case of clause (ii) above) then-existing senior lienholder, where Company and its Subsidiaries are unable to obtain such lessor's or senior lienholder's consent or (iii) Company or any Subsidiary Guarantor acquires a leasehold interest in the property presently occupied by Company or any Subsidiary and located at 100 Bellevue Road, Newark, Delaware (any such non-excluded Real Property Asset described in the foregoing clause (i) or (ii) or (iii) being an "Additional Mortgaged Property"), Company or such Subsidiary Guarantor shall deliver to Administrative Agent, as soon as practicable after such Person acquires such Additional Mortgaged Property or becomes a Subsidiary Guarantor, as the case may be, the following: (i) Additional Mortgage. A fully executed and notarized Mortgage (an "Additional Mortgage"), duly recorded in all appropriate places in all applicable jurisdictions, encumbering the interest of such Loan Party in such Additional Mortgaged Property; (ii) Opinions of Counsel. If reasonably required by Administrative Agent, (a) a favorable opinion of counsel to such Loan Party, in form and substance satisfactory to Administrative Agent and its counsel, as to the due authorization, execution and delivery by such Loan Party of such Additional Mortgage and such other matters as Administrative Agent may reasonably request, and (b) an opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) in the state in which such Additional Mortgaged Property is located with respect to the enforceability of the form of Additional Mortgage recorded in such state and such other matters (including any matters governed by the laws of such state regarding personal property security interests in respect of any Collateral) as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent; (iii) Landlord Consent and Estoppel; Recorded Leasehold Interest. In the case of an Additional Mortgaged Property consisting of a Material Leasehold Property, after using reasonable good faith best efforts (without requiring Company or such Subsidiary Guarantor to relinquish any material rights or incur any material obligations or to expend more than a nominal amount of money as well as reasonable attorneys' fees incurred by (i) the landlord under the applicable lease, (ii) Administrative Agent and (iii) Company or such Subsidiary Guarantor) to obtain the following: (a) a Landlord Consent and Estoppel, unless Company or such Subsidiary Guarantor is unable to obtain the Landlord Consent and Estoppel and (b) evidence that such Material Leasehold Property is a Recorded Leasehold Interest, and in the case of the property located at 100 Bellevue Road, Newark, Delaware, (c) a Landlord Consent and Estoppel and (d) evidence that such Material Leasehold Property is a Recorded Leasehold Interest; 113 EXECUTION (iv) Title Insurance. (a) If required by Administrative Agent, an ALTA mortgagee title insurance policy or an unconditional commitment therefor (an "Additional Mortgage Policy") issued by the Title Company with respect to such Additional Mortgaged Property, in an amount reasonably satisfactory to Administrative Agent, insuring fee simple title to, or a valid leasehold interest in, such Additional Mortgaged Property vested in such Loan Party and assuring Administrative Agent that such Additional Mortgage creates a valid and enforceable First Priority mortgage Lien on such Additional Mortgaged Property, which Additional Mortgage Policy (1) shall include, if available in the state in which such Mortgaged Property is located, a lender's aggregation endorsement, an endorsement for future advances under this Agreement and for any other matters reasonably requested by Administrative Agent and (2) shall provide for affirmative insurance and such reinsurance as Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Administrative Agent; and (b) evidence reasonably satisfactory to Administrative Agent that such Loan Party has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Additional Mortgage Policy and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the Additional Mortgage Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Additional Mortgage in the appropriate real estate records; (v) Title Report. If no Additional Mortgage Policy is required with respect to such Additional Mortgaged Property, a title report issued by the Title Company with respect thereto, dated not more than 30 days prior to the date such Additional Mortgage is to be recorded and reasonably satisfactory in form and substance to Administrative Agent; (vi) Copies of Documents Relating to Title Exceptions. Copies of all recorded documents listed as exceptions to title or otherwise referred to in the Additional Mortgage Policy or title report delivered pursuant to clause (iv) or (v) above; (vii) Matters Relating to Flood Hazard Properties. (a) Evidence, which may be in the form of a letter from an insurance broker or a municipal engineer, as to (1) whether such Additional Mortgaged Property is a Flood Hazard Property and (2) if so, whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if such Additional Mortgaged Property is a Flood Hazard Property, such Loan Party's written acknowledgement of receipt of written notification from Administrative Agent (1) that such Additional Mortgaged Property is a Flood Hazard Property and (2) as to whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event such Additional Mortgaged Property is a Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, evidence that Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System; and 114 EXECUTION (viii) Surveys. ALTA Surveys of each Additional Mortgaged Property satisfactory in form and substance to the Administrative Agent and the Title Company reasonably current and certified to Administrative Agent and Title Company by a licensed Surveyor. (ix) Environmental Audit. If required by Administrative Agent, reports and other information, in form, scope and substance satisfactory to Administrative Agent and prepared by environmental consultants satisfactory to Administrative Agent, concerning any environmental hazards or liabilities to which Company or any of its Subsidiaries may be subject with respect to such Additional Mortgaged Property. C. Real Estate Appraisals. Company shall, and shall cause each of its Subsidiary Guarantors to, permit an independent real estate appraiser satisfactory to Administrative Agent, upon reasonable notice, to visit and inspect any Additional Mortgaged Property for the purpose of preparing an appraisal of such Additional Mortgaged Property satisfying the requirements of any applicable laws and regulations (in each case to the extent required under such laws and regulations as determined by Administrative Agent in its discretion). Any such inspection of any Additional Mortgaged Property shall be conducted, unless otherwise agreed to by Company and Administrative Agent, during normal business hours and, to the extent reasonably practicable, shall be conducted so as not to interfere with the ongoing business operations at such Additional Mortgaged Property. D. Surveys. To the extent not otherwise satisfied on the Closing Date with respect to Company and its Subsidiaries, Company and each Subsidiary Guarantor, as applicable, shall (a) no later than forty-five (45) days after the Closing Date, deliver or cause to be delivered to Administrative Agent a survey for each of the Mortgaged Properties, in the form more specifically described in subsection 4.1G(vi), (b) no later than fifteen (15) days after the delivery of such surveys to Administrative Agent, cause the Title Company to issue endorsements removing the standard survey exception (the "Survey Endorsements") from the appropriate Closing Date Mortgage Policies, (c) pay to the Title Company all costs associated with the issuance of such Survey Endorsements and (d) in the event Administrative Agent determined not to record a Mortgage against one or more Mortgaged Properties on the Closing Date, because the survey for such Mortgaged Property was not available, Company shall deliver such Mortgage no later than forty-five (45) days after the Closing Date. E. Removal of Liens. With respect to those Liens set forth on Schedule 5.5 annexed hereto, Company shall cause such Liens to be released of record within 15 days of the Closing Date for Closing Date Mortgaged Properties (as such term is defined in subsection 4.1G); provided that Company may satisfy such requirement by causing Title Company to issue an endorsement to the Closing Date Mortgage Policy (as such term is defined in subsection 4.1G) removing the Liens set forth on Schedule 5.5 as an exception to such Title Policies within the periods set forth herein for removal of such Liens. F. Additional Collateral Access Agreements. From and after the Closing Date, in the event that Company or any Subsidiary Guarantor acquires a Leasehold Property in which Collateral is located, Company shall inform Administrative Agent and, upon Administrative 115 EXECUTION Agent's request, shall use its commercially reasonable efforts to promptly deliver to Administrative Agent a Collateral Access Agreement for such Leasehold Property. .10 Interest Rate Protection. Within 120 days after the Closing Date, Company shall obtain and shall thereafter maintain in effect for a period of not less than two years after the Merger Date one or more Interest Rate Agreements with respect to the Term Loans, in an aggregate notional principal amount of not less than 50% of the Term Loans outstanding on the Closing Date, each such Interest Agreement to be in form and substance reasonably satisfactory to Administrative Agent. .11 Fiscal Year . On or before December 31, 2000, Company shall change its Fiscal Year-end from October 31 of each calendar year to December 31 of each calendar year. .12 Connecticut Lottery Corporation. Company hereby agrees to use its commercially reasonable efforts to procure within 60 days an agreement by and among Company, the Connecticut Lottery Corporation ("CLC") and Administrative Agent substantially similar to that certain Agreement dated as of May 22, 1998 by and among CLC, Company, Autotote Lottery Corporation and Heller Financial Inc. and otherwise reasonably satisfactory in form and substance to Administrative Agent. .13 Delisting. On or before the second Business Day following the Closing Date, Company shall cause appropriate documents to delist the Scientific Games Common Stock to be filed with the New York Stock Exchange and the SEC. Section 6. COMPANY'S NEGATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 7. .1 Indebtedness. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (i) Company may become and remain liable with respect to the Obligations; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any obligations actually 116 EXECUTION arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; (iii) Company and its Subsidiaries may become and remain liable with respect to (x) Purchase Money Indebtedness and (y) Indebtedness in respect of Capital Leases entered into after the Closing Date and 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 its Subsidiaries; provided that the aggregate amount of such Purchase Money Indebtedness and Indebtedness incurred in respect of such Capital Leases, 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 its Subsidiaries, does not exceed $20 million at any time outstanding; (iv) Company may become and remain liable with respect to Indebtedness to any of its Subsidiary Guarantors and any of its Foreign Subsidiaries, and any Subsidiary Guarantor of Company may become and remain liable with respect to Indebtedness to Company or any other Subsidiary Guarantor or any Foreign Subsidiary of Company and any Foreign Subsidiary of Company may become and remain liable with respect to Indebtedness (A) to Company or any Subsidiary Guarantor to the extent that such Indebtedness is a permitted Investment by Company or such Subsidiary Guarantor under subsection 7.3(viii) or subsection 7.3(v) and (B) to any other Foreign Subsidiary of Company to the extent that such Indebtedness is a permitted Investment by such Foreign Subsidiary under subsection 7.3(viii); provided that (a) all such intercompany Indebtedness shall be evidenced by promissory notes; (b) all such intercompany Indebtedness owed by Company to any of its Subsidiaries shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement, and (c) any payment by any Subsidiary of Company under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any intercompany Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made; (v) Company and its Subsidiaries, as applicable, may remain liable with respect to Indebtedness and Indebtedness in respect of Capital Leases, in each case, existing as of the Closing Date and described in Schedule 7.1 annexed hereto; provided that the aggregate amount of such Indebtedness does not exceed $2.5 million at any time outstanding; (vi) Company may become and remain liable with respect to Indebtedness evidenced by the Senior Subordinated Notes in an aggregate principal amount which does not exceed $150 million on the Closing Date; (vii) Intentionally Omitted (viii) Intentionally Omitted 117 EXECUTION (ix) Company and its Domestic Subsidiaries may become and remain liable with respect to other Indebtedness, and Contingent Obligations permitted under subsection 7.4(x), in an aggregate amount not to exceed $20 million at any time outstanding; (x) Scientific Games International Limited ("SGIL") may become and remain liable with respect to Indebtedness in respect of mortgage financing of the land and improvements comprising the UK Property and any equipment located at the UK Property, including costs, fees and expenses related to such mortgage financing; provided that the aggregate amount of such Indebtedness shall not exceed $20 million at any time outstanding; provided, further that (x) the recourse of the lenders with respect to such Indebtedness is limited solely to the land and improvements comprising the U.K. Property and any equipment located at the UK Property without further recourse to any of Company or any of its Subsidiaries (including SGIL) or any other asset of any of Company or any of its Subsidiaries (including SGIL), and (y) Company shall make prepayments pursuant to subsection 2.4B(iii)(d) in an amount equal to the Net Debt Securities Proceeds received by Company and its Subsidiaries in connection with the incurrence of such Indebtedness, which shall be applied to prepay the Loans as provided in subsection 2.4B(iii)(d); (xi) Company's Foreign Subsidiaries may become and remain liable with respect to other Indebtedness, and Contingent Obligations permitted under subsection 7.4(xi), in an aggregate amount not to exceed $10 million at any time outstanding; provided that any such Indebtedness is non-recourse to Company and its Domestic Subsidiaries; and (xii) Company and its Subsidiaries, as applicable, may become and remain liable with respect to Indebtedness which refinances the Indebtedness described in clause (v) of this subsection 7.1; provided that (x) such refinancing Indebtedness shall be incurred by Company or the applicable Subsidiary, as the case may be, that incurred the Indebtedness described in clause (v) of this subsection 7.1 that is being refinanced, (y) the maturity date of such refinancing Indebtedness shall be later than the maturity date of the Indebtedness described in clause (v) of this subsection 7.1 that is being refinanced and (z) the aggregate principal amount of such refinancing Indebtedness shall be less than the lesser of (1) the sum of the aggregate principal amount of Indebtedness being refinanced as of the date of such refinancing plus all related costs, fees and expenses related to the refinancing and (2) the aggregate principal amount of such Indebtedness as of the Closing Date. .2 Liens and Related Matters. A. Prohibition on Liens. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any State or under any similar recording or notice statute, except: 118 EXECUTION (i) Permitted Encumbrances; (ii) Liens granted pursuant to the Collateral Documents; (iii) Liens described in Schedule 7.2 annexed hereto; (iv) Liens securing Indebtedness permitted under subsection 7.1(iii) with respect to the property or assets (and the proceeds thereof) financed by such Indebtedness; (v) Liens securing Indebtedness incurred by a Foreign Subsidiary under (X) subsection 7.1(xi) and encumbering only the assets of such Foreign Subsidiary and (Y) subsection 7.1(x) and encumbering only the UK Property and any equipment located at the UK Property; (vi) Liens securing Indebtedness permitted by subsection 7.1(ix) in an aggregate amount not to exceed $10 million at any time outstanding; and (vii) Liens securing Indebtedness permitted by subsection 7.1(xii), solely to the extent such Liens replace Liens set forth in Schedule 7.2 annexed hereto with respect to the Indebtedness permitted by subsection 7.1(v) that is being refinanced by the Indebtedness permitted by subsection 7.1(xii). B. Equitable Lien in Favor of Lenders. If Company or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 7.2A, it shall make or cause to be made effective provision whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided that, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A; and provided further that Company shall under no circumstances be required to make or cause to be made effective provision whereby the Obligations will be secured, directly or indirectly, by Margin Stock. C. No Further Negative Pledges. Except with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale or held in respect of Capital Leases permitted pursuant to subsection 7.1(iii), neither Company nor any of its Subsidiaries shall enter into any agreement (other than (x) the Senior Subordinated Note Indenture and (y) an agreement prohibiting only the creation of Liens securing Subordinated Indebtedness) prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired; provided that the foregoing shall not preclude Company and its Subsidiaries from entering into: (a) agreements with governmental authorities prohibiting the creation or assumption of any Lien on assets located in the jurisdiction of any such governmental authority and utilized pursuant to the applicable agreement, (i) to the extent existing on the Closing Date, as set forth in Schedule 7.2C(a) and (ii) to the extent such agreements are entered into after the Closing Date, at the time any such agreement is entered into, the aggregate value of such assets subject to such prohibitions, together with the aggregate value of any such assets subject to the 119 EXECUTION encumbrances and restrictions permitted by subsection 7.2D(a)(ii), in each case as set forth on the most recent consolidated balance sheet of Company and its Subsidiaries in accordance with GAAP, shall not exceed 5% of the aggregate value of all assets set forth on the most recent consolidated balance sheet of Company and its Subsidiaries in accordance with GAAP; (b) (A) agreements containing customary provisions restricting (1) the subletting or assignment of any lease or (2) the transfer of copyrighted or patented materials, (B) agreements containing provisions that restrict the assignment of such agreements or rights thereunder; provided that payments received or to be received pursuant to such agreements shall be subject to the Liens securing the Obligations or (C) customary provisions contained in the terms of any shares, interests, participations or other equivalents of corporate stock of any Subsidiary of Company that is a corporation or any partnership, limited liability company or other equity interests of any Subsidiary of Company that is not a corporation (hereinafter "Equity Interests") restricting the payment of dividends and the making of distributions on Equity Interests, in each case described in this clause (C) solely to the extent set forth in Schedule 7.2D(c); (c) agreements or instruments governing Indebtedness permitted by subsection 7.1(xi) prohibiting the creation or assumption of any Lien on assets or properties of the Foreign Subsidiary incurring such Indebtedness; provided that the projected Consolidated EBITDA attributable to the Foreign Subsidiary incurring such Indebtedness and any of its Subsidiaries in any Fiscal Year (as set forth in the Financial Plan or Revised Financial Plan, as the case may be, for such Fiscal Year) shall not exceed 5% of the aggregate projected Consolidated EBITDA of Company and its Subsidiaries in such Fiscal Year (as set forth in the Financial Plan or Revised Financial Plan, as the case may be, for such Fiscal Year); provided further that, in the event that the Foreign Subsidiary incurring such Indebtedness was not included in the Financial Plan or Revised Financial Plan, as the case may be, for such Fiscal Year because such Foreign Subsidiary was not a Subsidiary of Company at the time such Financial Plan or Revised Financial Plan, as the case may be, was prepared, for purposes of the preceding proviso the projected Consolidated EBITDA attributable to such Foreign Subsidiary and its Subsidiaries for such Fiscal Year shall be deemed to be the projected Consolidated EBITDA of such Foreign Subsidiary and its Subsidiaries for the twelve months immediately succeeding the incurrence of such Indebtedness as detailed in an Officer's Certificate in form and substance reasonably acceptable to Administrative Agent delivered to Administrative Agent prior to the incurrence of such Indebtedness; (d) restrictions on the transfer of assets subject to any Lien permitted under Subsection 7.2 to the extent imposed by the agreements creating such Liens; (e) agreements containing customary rights of first refusal with respect to Company's and its Subsidiaries' interests in their respective non wholly-owned Subsidiaries and Joint Ventures; provided that any such agreements existing on the Closing Date are set forth in Schedule 7.2C(e); (f) applicable law to the extent restricting the transfer of assets; and 120 EXECUTION (g) agreements (other than agreements referred to in clause (a) above) prohibiting the creation or assumption of any Lien on assets utilized pursuant to such agreement solely to the extent set forth in Schedule 7.2C(g). D. No Restrictions on Subsidiary Distributions to Company or Other Subsidiaries. Except as provided herein, Company will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of such Subsidiary's capital stock owned by Company or any other Subsidiary of Company (other than any such restrictions imposed by applicable law), (ii) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company (other than any such restrictions imposed by applicable foreign law with respect to the repayment or prepayment of Indebtedness owed to or by a Foreign Subsidiary), (iii) make loans or advances to Company or any other Subsidiary of Company, or (iv) transfer any of its property or assets to Company or any other Subsidiary of Company, except for such consensual encumbrances or restrictions to the extent arising pursuant to: (a) agreements with governmental authorities containing a consensual encumbrance or restriction on the ability of any Subsidiary to transfer any of its assets located in the jurisdiction of any such governmental authority and utilized pursuant to the applicable agreement to Company or any other Subsidiary of Company (i) to the extent existing on the Closing Date, as set forth on Schedule 7.2D(a) and (ii) to the extent such agreements are entered into after the Closing Date, at the time any such agreement is entered into, the aggregate value of such assets subject to such encumbrances or restrictions, together with the aggregate value of any such assets subject to the prohibitions permitted by subsection 7.2C(a)(ii), in each case as set forth on the most recent consolidated balance sheet of Company and its Subsidiaries in accordance with GAAP, shall not exceed 5% of the aggregate value of all assets set forth on the most recent consolidated balance sheet of Company and its Subsidiaries in accordance with GAAP; (b) the Senior Subordinated Notes, the Senior Subordinated Note Indenture or any guarantee thereof; (c) (A) solely with respect to clause (iv) above, agreements containing customary provisions restricting (1) the subletting or assignment of any lease or (2) the transfer of copyrighted or patented materials, (B) solely with respect to clause (iv) above, provisions in agreements that restrict the assignment of such agreements or rights thereunder; provided that payments received or to be received pursuant to such agreements shall be subject to the Liens securing the Obligations or (C) solely with respect to clause (i) above, customary provisions contained in the terms of any Equity Interests restricting the payment of dividends and the making of distributions on Equity Interests, in each case solely to the extent set forth in Schedule 7.2D(c); (d) any agreement or instrument governing Indebtedness permitted by subsection 7.1(xi) containing any consensual encumbrance or restriction on the ability of the Foreign Subsidiary incurring such Indebtedness to (i) pay dividends or make any other distributions on any of such Foreign Subsidiary's capital stock or (ii) transfer any of its property or assets to Company or any other Subsidiary of Company; provided that the projected Consolidated EBITDA 121 EXECUTION attributable to the Foreign Subsidiary incurring such Indebtedness and any of its Subsidiaries in any Fiscal Year (as set forth in the Financial Plan or Revised Financial Plan, as the case may be, for such Fiscal Year) shall not exceed 5% of the aggregate projected Consolidated EBITDA of Company and its Subsidiaries in such Fiscal Year (as set forth in the Financial Plan or Revised Financial Plan, as the case may be, for such Fiscal Year); provided further that, in the event that the Foreign Subsidiary incurring such Indebtedness was not included in the Financial Plan or Revised Financial Plan, as the case may be, for such Fiscal Year because such Foreign Subsidiary was not a Subsidiary of Company at the time such Financial Plan or Revised Financial Plan, as the case may be, was prepared, for purposes of the preceding proviso the projected Consolidated EBITDA attributable to such Foreign Subsidiary and its Subsidiaries for such Fiscal Year shall be deemed to be the projected Consolidated EBITDA of such Foreign Subsidiary and its Subsidiaries for the twelve months immediately succeeding the incurrence of such Indebtedness as detailed in an Officer's Certificate in form and substance reasonably acceptable to Administrative Agent delivered to Administrative Agent prior to the incurrence of such Indebtedness; (e) solely with respect to clause (iv) above, restrictions on the transfer of assets subject to any Liens permitted under subsection 7.2 to the extent imposed by the agreements creating such Liens; (f) solely with respect to clause (iv) above, restrictions imposed by any executed agreement with respect to an Asset Sale not in violation of this Agreement with respect to the transfer of the assets to be sold in such Asset Sale; and (g) customary rights of first refusal with respect to Company's and its Subsidiaries' interests in their respective non-wholly owned Subsidiaries and Joint Ventures; provided that any such agreements existing on the Closing Date are set forth in Schedule 7.2C(e). .3 Investments; Joint Ventures. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except: (i) Company and its Subsidiaries may make and own Investments in Cash Equivalents; (ii) Company and its Subsidiaries may continue to own the Investments owned by them as of the Closing Date in any Subsidiaries of Company; (iii) Company and its wholly-owned Subsidiary Guarantors may make Investments in any of Company's wholly-owned Subsidiary Guarantors and Subsidiaries of Company may make Investments in Company; (iv) Company and its Subsidiaries may make (x) Consolidated Capital Expenditures permitted by subsection 7.8 and (y) Consolidated Capital Software Expenditures permitted by subsection 7.16; (v) Company and its Subsidiaries may continue to own the Investments owned by them as of the Closing Date and described in Schedule 7.3 annexed hereto; 122 EXECUTION (vi) Company and its Subsidiaries may make and own Investments in Permitted Acquisitions permitted under subsection 7.7(vii); (vii) Company and its Subsidiaries may hold non-cash consideration consisting of promissory notes received in connection with Asset Sales permitted under subsection 7.7(viii) so long as the aggregate principal amount of all such promissory notes does not exceed $15 million at any time outstanding (determined without regard to any write-downs or write-offs thereof); (viii) Company and its Subsidiaries may make and own Investments in Foreign Subsidiaries in an aggregate amount not to exceed $15 million at any time outstanding; provided that in the event that any of Company or any of its Subsidiaries has an Investment in a Foreign Subsidiary that is solely a holding company with no material assets, liabilities or operations ("Foreign Holdco") other than an equity Investment in another Foreign Subsidiary that is a direct subsidiary of Foreign Holdco, Company's or such Subsidiary's equity Investment in Foreign Holdco will not be counted for purposes of the $15 million amount permitted by this subsection 7.3(viii) to the extent such equity Investment in Foreign Holdco is equal to or less than the equity Investment of Foreign Holdco in such other Foreign Subsidiary; (ix) Company and its Subsidiaries may make and own Investments in Joint Ventures and non-wholly owned Subsidiaries in an aggregate amount not to exceed $15 million at any time outstanding; (x) Company and its Subsidiaries may make and own other Investments in an aggregate amount not to exceed $5 million at any time outstanding; and (xi) So long as no Event of Default or Potential Event of Default has occurred and is continuing, Company may make Investments as required to be made by the Company pursuant to and in accordance with the terms of the Consulting Agreement. .4 Contingent Obligations. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: (i) Subsidiaries of Company may become and remain liable with respect to Contingent Obligations in respect of the Subsidiary Guaranty; (ii) Company may become and remain liable with respect to Contingent Obligations in respect of (x) Letters of Credit and (y) surety bonds incurred in the ordinary course of business; (iii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations under (x) Interest Rate Agreements with Lenders with respect to Indebtedness in an aggregate notional principal amount not to exceed at any time the aggregate amount of the Commitments and (y) Currency Agreements with Lenders entered into in the ordinary course of business for hedging purposes only; 123 EXECUTION (iv) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of customary indemnification and purchase price adjustment obligations incurred in connection with Asset Sales or other sales of assets; (v) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of the performance by the Subsidiaries of Company of obligations (other than obligations for the payment of money) of such Subsidiaries incurred in the ordinary course of business; (vi) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of any Indebtedness of Company or any of its wholly-owned Domestic Subsidiaries permitted by subsection 7.1 (other than subsection 7.1(vi)); (vii) Company and its Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations described in Schedule 7.4 annexed hereto; (viii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in connection with Operating Leases; (ix) Subsidiary Guarantors may become and remain liable with respect to Contingent Obligations arising under subordinated guaranties of the Senior Subordinated Notes as set forth in and to the extent required under the Senior Subordinated Note Indenture as in effect on the Closing Date; (x) Company and its Domestic Subsidiaries may become and remain liable with respect to other Contingent Obligations; provided that the maximum aggregate liability, contingent or otherwise, of Company and its Domestic Subsidiaries in respect of all such Contingent Obligations, together with the aggregate principal amount of all Indebtedness permitted under subsection 7.1(ix), shall at no time exceed $20 million; (xi) Company's Foreign Subsidiaries may become and remain liable with respect to other Contingent Obligations; provided that the Contingent Obligations are non-recourse to Company and its Domestic Subsidiaries and the maximum aggregate liability, contingent or otherwise, of Company's Foreign Subsidiaries in respect of all such Contingent Obligations, together with the aggregate principal amount of all Indebtedness permitted under subsection 7.1(xi), shall at no time exceed $10 million; (xii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of the contingent deferred purchase price of any Permitted Acquisitions in an aggregate amount not to exceed $5 million at any time outstanding; and (xiii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of any Indebtedness of SGIL permitted under subsection 7.1(x). 124 EXECUTION .5 Restricted Junior Payments. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment, except: (i) Company may make Restricted Junior Payments consisting of payment-in-kind dividends paid on the Convertible Preferred Stock; (ii) Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for payment on the Senior Subordinated Notes; provided that Company may make payments of regularly scheduled interest in respect of the Senior Subordinated Notes in accordance with the terms of and to the extent required by, and subject to the subordination provisions contained in, the Senior Subordinated Note Indenture; (iii) Company may repurchase (x) shares of its common stock and/or warrants, rights or options to purchase such common stock to the extent such repurchase is deemed to occur upon the exercise of stock options to acquire common stock or similar arrangements to acquire common stock; provided that such repurchased common stock and/or warrants, rights or options to acquire shares of such common stock represent a portion of the exercise price thereof; provided further that no cash is expended (or obligation to expend cash is incurred) by Company or any of its Subsidiaries pursuant to this clause (iii)(x) and (y) shares of its common stock and/or warrants, rights or options to purchase such common stock held by directors, executive officers, members of management or employees of Company or any of its Subsidiaries upon the death, disability, retirement or termination of employment of such directors, executive officers, members of management or employees, so long as (1) no Default or Event of Default then exists or would result therefrom and (2) the aggregate amount of cash expended by Company pursuant to this clause (iii) (y) does not exceed $2 million in any Fiscal Year of Company; and (iv) Company may make withholding tax payments on behalf of the holders of the Convertible Preferred Stock solely to the extent required in connection with the payment by Company of payment-in-kind dividends on the Convertible Preferred Stock; provided that the aggregate amount of such withholding tax payments made by Company in any Fiscal Year shall not exceed $1 million; provided, further, that the aggregate amount of such withholding tax payments made by Company shall not exceed $5 million for the period from the Closing Date through and including December 31, 2005; provided, further, still, that prior to Company making any such withholding tax payments in any Fiscal Year, the holders of the Convertible Preferred Stock shall have previously made, or transferred to Company adequate funds so that Company may make on behalf of the holders of the Convertible Preferred Stock, withholding tax payments in an amount equal to 10% of the fair market value of such payment-in-kind dividends. 125 EXECUTION .6 Financial Covenants A. Minimum Fixed Charge Coverage Ratio. Company shall not permit the Consolidated Fixed Charge Coverage Ratio, calculated on a Pro Forma Basis, for any four-Fiscal Quarter period ending during any of the periods set forth below to be less than the correlative ratio indicated:
Minimum Fixed Charge Period Coverage Ratio --------------------------------------- --------------------- Closing Date through September 30, 2000 1.35:1.00 October 1, 2000 through June 30, 2002 1.40:1.00 July 1, 2002 and thereafter 1.45:1.00
A. Maximum Consolidated Leverage Ratio. Company shall not permit the Consolidated Leverage Ratio, calculated on a Pro Forma Basis, for any four-Fiscal Quarter period ending during any of the periods set forth below to exceed the correlative ratio indicated:
Maximum Consolidated Period Leverage Ratio ----------------------------------------- --------------------- Closing Date through December 31, 2000 5.25:1.00 January 1, 2001 through March 31, 2001 5.00:1.00 April 1, 2001 through June 30, 2001 4.75:1.00 July 1, 2001 through September 30, 2001 4.50:1.00 October 1, 2001 through December 31, 2001 4.35:1.00 January 1, 2002 through March 31, 2002 4.15:1.00 April 1, 2002 through June 30, 2002 4.10:1.00 July 1, 2002 through September 30, 2002 3.95:1.00 October 1, 2002 through December 31, 2002 3.80:1.00 January 1, 2003 through March 31, 2003 3.65:1.00 April 1, 2003 through June 30, 2003 3.55:1.00 July 1, 2003 through September 30, 2003 3.40:1.00 October 1, 2003 through December 31, 2003 3.30:1.00 January 1, 2004 through March 31, 2004 3.25:1.00 April 1, 2004 through June 30, 2004 3.15:1.00 July 1, 2004 through September 30, 2004 3.05:1.00 October 1, 2004 through December 31, 2004 2.95:1.00
126 EXECUTION January 1, 2005 through March 31, 2005 2.85:1.00 April 1, 2005 through June 30, 2005 2.75:1.00 July 1, 2005 through September 30, 2005 2.70:1.00 October 1, 2005 through December 31, 2005 2.60:1.00 January 1, 2006 through March 31, 2006 2.50:1.00 April 1, 2006 through June 30, 2006 2.45:1.00 July 1, 2006 through September 30, 2006 2.35:1.00 October 1, 2006 through December 31, 2006 2.25:1.00 January 1, 2007 and thereafter 2.00:1.00
A. Minimum Interest Coverage Ratio. Company shall not permit the Consolidated Interest Coverage Ratio, calculated on a Pro Forma Basis, during any of the periods set forth below to be less than the correlative ratio indicated:
Minimum Interest Period Coverage Ratio ----------------------------------------- --------------------- Closing Date through December 31, 2000 1.70:1.00 January 1, 2001 through March 31, 2001 1.75:1.00 April 1, 2001 through June 30, 2001 1.85:1.00 July 1, 2001 through September 30, 2001 1.90:1.00 October 1, 2001 through December 31, 2001 1.95:1.00 January 1, 2002 through March 31, 2002 2.05:1.00 April 1, 2002 through June 30, 2002 2.10:1.00 July 1, 2002 through September 30, 2002 2.20:1.00 October 1, 2002 through December 31, 2002 2.25:1.00 January 1, 2003 through March 31, 2003 2.35:1.00 April 1, 2003 through June 30, 2003 2.45:1.00 July 1, 2003 through September 30, 2003 2.50:1.00 October 1, 2003 through December 31, 2003 2.60:1.00 January 1, 2004 through March 31, 2004 2.65:1.00 April 1, 2004 through June 30, 2004 2.75:1.00 July 1, 2004 through September 30, 2004 2.80:1.00 October 1, 2004 through December 31, 2004 2.90:1.00
127 EXECUTION January 1, 2005 through March 31, 2005 2.95:1.00 April 1, 2005 through June 30, 2005 3.05:1.00 July 1, 2005 through September 30, 2005 3.15:1.00 October 1, 2005 through December 31, 2005 3.25:1.00 January 1, 2006 through March 31, 2006 3.35:1.00 April 1, 2006 through June 30, 2006 3.45:1:00 July 1, 2006 and thereafter 3.50:1.00
A. Minimum Consolidated Net Worth. Company shall not permit Consolidated Net Worth at any time to be less than the sum of (i) $38.7 million ("Base Amount") plus (ii) (a) the sum of Adjusted Consolidated Net Income for each Fiscal Quarter ending after the Closing Date and ending on or before such date of determination in which Adjusted Consolidated Net Income was positive multiplied by (b) 75%; provided that for purposes of calculating Adjusted Consolidated Net Income for the Fiscal Quarter ending on September 30, 2000, such Fiscal Quarter shall be deemed to commence on the first day after the Closing Date and end on September 30, 2000; provided further, that the Base Amount shall be increased to reflect 75% of any increase in the Consolidated Net Worth of Company and its Subsidiaries as a result of any Merger-related accounting adjustments made on or after the Closing Date. .2 Restriction on Fundamental Changes; Asset Sales and Acquisitions. Company shall not, and shall not permit any of Company's Subsidiaries to, alter the corporate, capital or legal structure of Company or any of Company's Subsidiaries, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, except: (i) any Domestic Subsidiary of Company may be merged with or into Company or any wholly-owned Subsidiary Guarantor, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any wholly-owned Subsidiary Guarantor; provided that, in the case of such a merger, Company or such wholly-owned Subsidiary Guarantor shall be the continuing or surviving corporation; (ii) Company and its Subsidiaries may make (x) Consolidated Capital Expenditures permitted under subsection 7.8 and (y) Consolidated Capital Software Expenditures permitted under subsection 7.16; 128 EXECUTION (iii) Company and its Subsidiaries may dispose of obsolete, worn out or surplus property in the ordinary course of business; (iv) Company and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided that the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (v) Acquisition Co. and Scientific Games may consummate the Merger; (vi) Company or any of its Subsidiaries may convey, sell, transfer or otherwise dispose for Cash of any Margin Stock, whether now owned or hereafter acquired; provided that such disposition is for fair value and the proceeds are held in Cash or Cash Equivalents; (vii) Company and its Subsidiaries may consummate Permitted Acquisitions; provided that each of the following conditions is satisfied: (a) the Acquired Business is engaged in a line of business that Company and its Subsidiaries are permitted to engage in under subsection 7.13A; (b) the Acquired Business becomes a wholly-owned Subsidiary Guarantor of Company or is acquired by a wholly-owned Subsidiary Guarantor of Company in such Permitted Acquisition; (c) the aggregate amount of Cash consideration paid by Company and its Subsidiaries (x) for any Permitted Acquisition or series of related Permitted Acquisitions made after the Closing Date shall not exceed $20 million and (y) for all Permitted Acquisitions made after the Closing Date shall not exceed $60 million; (d) the excess of the Revolving Loan Commitments over the Total Utilization of Revolving Loan Commitments immediately after giving effect to such Permitted Acquisition will be not less than $15 million; (e) concurrently with the consummation of such Permitted Acquisition, Company shall, and shall cause its Subsidiaries to, comply with the requirements of subsections 6.8 and 6.9 with respect to such Permitted Acquisition; (f) Company shall deliver to Administrative Agent an Officer's Certificate (1) certifying that no Potential Event of Default or Event of Default shall then exist or shall occur as a result of such Permitted Acquisition and (2) demonstrating that after giving effect to such Permitted Acquisition and to all Indebtedness to be incurred or assumed or repaid in connection with or as consideration for such Permitted Acquisition, Company will be in compliance with the financial covenants set forth in subsection 7.6, calculated on a Pro Forma Basis, as of the last day of the four Fiscal Quarter period most recently ended prior to the date of the proposed Permitted Acquisition for which the relevant financial information is available; 129 EXECUTION (g) prior to the consummation of any Permitted Acquisition having a purchase price in excess of $10 million, Company shall deliver to Administrative Agent a copy, prepared in conformity with GAAP (subject to year-end adjustments and the absence of footnotes), of (i) financial statements of the Person or business so acquired for the immediately preceding four consecutive Fiscal Quarter period corresponding to the calculation period for the financial covenants in the immediately preceding clause and (ii) to the extent available from the applicable seller of the Acquired Business or the Acquired Business, audited or reviewed financial statements of the Person or business so acquired for the fiscal year ended within such period of such Person; (h) prior to the consummation of any Permitted Acquisition having a purchase price in excess of $15 million, Company shall deliver to Administrative Agent revised financial projections (in a form substantially consistent with previously provided projections) for Company, on a Pro Forma Basis, for such proposed Permitted Acquisition for the succeeding four Fiscal Quarters; (i) the aggregate purchase price of all Permitted Acquisitions that result in a new Foreign Subsidiary of Company or result in the Acquired Business being owned by a Foreign Subsidiary of Company shall not exceed $10 million; and (viii) Company and its Subsidiaries may make Asset Sales of assets having a fair market value of not in excess of $20 million in any Fiscal Year or of $60 million in the aggregate for all such Asset Sales during the term of this Agreement; provided that in each case (x) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (y) 80% of the consideration received therefor shall be Cash; and (z) the proceeds of any such Asset Sale are applied as required by subsection 2.4B(iii)(a). .3 Consolidated Capital Expenditures. Company shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures, in any Fiscal Year indicated below, in an aggregate amount in excess of the corresponding amount (the "Maximum Consolidated Capital Expenditures Amount") set forth below opposite such Fiscal Year; provided that the Maximum Consolidated Capital Expenditures Amount for any Fiscal Year shall be increased by an amount equal to the excess, if any, of the Maximum Consolidated Capital Expenditures Amount for the previous Fiscal Year only (prior to any adjustment in accordance with this proviso) over the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year; provided, further that in no event shall the amount of such increase exceed 50% of the Maximum Consolidated Capital Expenditures Amount for such previous Fiscal Year (prior to any adjustment in accordance with this proviso): 130 EXECUTION
Fiscal Year Maximum Consolidated Capital Expenditures ---------------------------------------------------------------------- Fiscal Year 2000 $80.0 million Fiscal Year 2001 $45.0 million Fiscal Year 2002 $35.0 million Fiscal Year 2003 $28.0 million Fiscal Year 2004 $28.0 million Fiscal Year 2005 $25.0 million Fiscal Year 2006 $25.0 million Fiscal Year 2007 $18.75 million
.1 Sales and Lease-Backs. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than Company or any of its Subsidiaries) or (ii) which Company or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Company or any of its Subsidiaries to any Person (other than Company or any of its Subsidiaries) in connection with such lease; provided that Company and its Subsidiaries may become and remain liable as lessee, guarantor or other surety with respect to any such lease to the extent that (i) such lease, if a Capital Lease, is permitted pursuant to subsection 7.1(iii), (ii) the consideration received is at least equal to the fair market value of the property sold as determined in good faith by Company's Board of Directors; provided prior consent of the Board of Directors was obtained if such fair market value was determined to be in excess of $1 million and (iii) the Net Asset Sale Proceeds derived from the sale/leaseback of such sold properties or assets owned by the Company or its Subsidiaries shall be applied to prepay Loans and/or reduce commitments pursuant to subsection 2.4B(iii)(a) without regard to any reinvestment of such Net Asset Sale Proceeds otherwise permitted under such subsection. .2 Sale or Discount of Receivables. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable; provided that Company may discount accounts receivable arising under letters of credit with respect to deferred customer financing in the ordinary course of 131 EXECUTION business so long as the aggregate amount of such discount does not exceed $2 million in any Fiscal Year. .3 Transactions with Stockholders and Affiliates. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of Company or with any Affiliate of Company or of any such holder, on terms that are less favorable to Company or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction shall not apply to (i) any transaction between Company and any of its wholly-owned Subsidiaries or between any of its wholly-owned Subsidiaries, (ii) reasonable and customary fees paid to members of the Boards of Directors of Company and its Subsidiaries, (iii) reasonable fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of Company or any Subsidiary as determined in good faith by Company's Board of Directors or its senior management, (iv) Investments and Restricted Junior Payments permitted hereunder, (v) transactions between the Company and any of its Subsidiaries or between Subsidiaries, in each case, so long as no portion of the minority interest in such Subsidiary is owned by an Affiliate of Company (other than a wholly-owned Subsidiary or directors or officers of such Subsidiary that hold capital stock of such Subsidiary to the extent that local law requires a resident of such jurisdiction to own capital stock of such Subsidiary); provided such transactions are not otherwise prohibited hereunder and the Board of Directors of (x) Company, in the case of a transaction between Company and any of its non-wholly owned Subsidiaries, or (y) the applicable wholly-owned Subsidiary in the case of a transaction between a non-wholly owned Subsidiary and such wholly-owned Subsidiary, in each case shall determine in good faith that such transaction is fair to Company or such wholly-owned Subsidiary, as the case may be, or (vi) any agreement as in effect as of the Closing Date (as amended by any amendment thereto or any transaction contemplated thereby, in each case solely to the extent such agreement and such transactions are set forth in Schedule 7.11(vi); provided that (a) any such amended agreement thereto is not more disadvantageous to Company or any Subsidiary, as applicable, in any material respect than such original agreement and (b) such amendment is not materially adverse to Lenders. .4 Disposal of Subsidiary Equity. Except pursuant to the Collateral Documents and except for any sale of 100% of the capital stock or other equity Securities of any its Subsidiaries in compliance with the provisions of subsection 7.7(i) or 7.7(viii), Company shall not: (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Subsidiaries, except to qualify directors if required by applicable law; or (ii) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of 132 EXECUTION any of its Subsidiaries (including such Subsidiary), except to Company, a Domestic Subsidiary of Company, or to qualify directors if required by applicable law. .5 Conduct of Business. A. From and after the Closing Date, Company shall not, and shall not permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by Company and its Subsidiaries on the Closing Date and similar or related businesses and (ii) such other lines of business as may be consented to by Requisite Lenders. B. Company will not permit Acquisition Co. to engage in any activities other than those that are necessary or advisable to effect the Merger, and to effect the transaction contemplated by this Agreement. .6 Amendments or Waivers of Related Agreements. A. None of Company or any of its Subsidiaries will agree to any material amendment to, or waive any of its material rights under, any Related Agreement or the Consulting Agreement, as the case may be, or terminate or agree to terminate any Related Agreement or the Consulting Agreement, as the case may be, without in each case obtaining the prior written consent of Requisite Lenders to such amendment, waiver or termination, other than any amendment, waiver or termination of any Related Agreement or the Consulting Agreement, as the case may be, which is neither material nor adverse to Lenders. B. Company shall not, and shall not permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions thereof (or of any guaranty thereof), or change any collateral therefor (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be adverse to Company or Lenders. C. Company shall not, and shall not permit any of its Subsidiaries to, designate any Indebtedness as "Designated Senior Debt" (as defined in the Senior Subordinated Note Indenture) for purposes of the Senior Subordinated Note Indenture without the prior written consent of Requisite Lenders. D. Company shall not make any payment on the Convertible Preferred Stock in cash which could be made by the issuance of additional shares of Convertible Preferred Stock. 133 EXECUTION .7 Fiscal Year. Other than in compliance with subsection 6.11, Company shall not change its Fiscal Year-end from October 31 of each calendar year, and, once such change has been effected in compliance with subsection 6.11, Company shall not change its Fiscal Year-end from December 31 of each calendar year. .8 Consolidated Capital Software Expenditures. Company shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Software Expenditures, in any Fiscal Year indicated below, in an aggregate amount in excess of the corresponding amount (the "Maximum Consolidated Capital Software Expenditures Amount") set forth below opposite such Fiscal Year; provided that the Maximum Consolidated Capital Software Expenditures Amount for any Fiscal Year shall be increased by an amount equal to the excess, if any, of the Maximum Consolidated Capital Software Expenditures Amount for the previous Fiscal Year only (prior to any adjustment in accordance with this proviso) over the actual amount of Consolidated Capital Software Expenditures for such previous Fiscal Year; provided, further that in no event shall the amount of such increase exceed 50% of the Maximum Consolidated Capital Software Expenditures Amount for such previous Fiscal Year (prior to any adjustment in accordance with this proviso):
Fiscal Year Maximum Consolidated Capital Software Expenditures ----------------------------------------------------------------- Fiscal Year 2000 $6.0 million Fiscal Year 2001 $5.0 million Fiscal Year 2002 $4.5 million Fiscal Year 2003 $4.0 million Fiscal Year 2004 $4.0 million Fiscal Year 2005 $4.0 million Fiscal Year 2006 $4.0 million Fiscal Year 2007 $3.0 million
.1 Margin Stock. Notwithstanding anything to the contrary contained herein, Company and its Subsidiaries shall not own Margin Stock with an aggregate value in excess of $5,000,000. 134 EXECUTION Section 2. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur: .1 Failure to Make Payments When Due. Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; failure by Company to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit; or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement within five days after the date due; or .2 Default in Other Agreements. (i) Failure of Company or any of its Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1) or Contingent Obligations in an aggregate principal amount of $5 million or more beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Subsidiaries with respect to any other material term of (a) one or more items of Indebtedness or Contingent Obligations in the aggregate principal amount referred to in clause (i) above or (b) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or .3 Breach of Certain Covenants. Failure of Company to perform or comply with any term or condition contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or .4 Breach of Warranty. Any representation, warranty, certification or other statement made by Company or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by Company or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or .5 Other Defaults Under Loan Documents. Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within thirty (30) days after the earlier of (i) an officer of Company or such 135 EXECUTION Loan Party becoming aware of such default or (ii) receipt by Company and such Loan Party of notice from Administrative Agent or any Lender of such default; or .6 Involuntary Bankruptcy; Appointment of Receiver, etc. A court having jurisdiction in the premises shall enter a decree or order for relief in respect of Company or any of its Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Company or any of its Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Company or any of its Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Company or any of its Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Company or any of its Subsidiaries, and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or .7 Voluntary Bankruptcy; Appointment of Receiver, etc. (i) Company or any of its Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Company or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Company or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of Company or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or .8 Judgments and Attachments. Any money judgment, writ or warrant of attachment or similar process involving either in any individual case or in the aggregate at any time an amount in excess of $5 million (in either case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Company or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than five days prior to the date of any proposed sale thereunder); or 136 EXECUTION .9 Dissolution. Any order, judgment or decree shall be entered against Company or any of its Subsidiaries decreeing the dissolution or split up of Company or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or .10 Employee Benefit Plans. There shall occur one or more ERISA Events which individually or in the aggregate results in, or, excluding any event described in clause (x) of the definition of ERISA Event, would reasonably be expected to result in, liability to Company, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $5 million during the term of this Agreement; or there shall exist an amount of unfunded benefit liability calculated in accordance with the provisions of subsection 5.11D which exceeds $5 million; or .11 Change in Control. Any Change in Control shall occur; or .12 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations. At any time after the execution and delivery thereof, (i) any Subsidiary Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) any Collateral Document shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the Obligations or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Administrative Agent shall not have or shall cease to have a valid and perfected First Priority Lien in any Collateral purported to be covered thereby, in each case for any reason other than the failure of any Agent or any Lender to take any action within its control, or (iii) any Loan Party shall contest the validity or enforceability of any Loan Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Loan Document to which it is a party; THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, upon the written request, or may, with the written consent, of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) 137 EXECUTION above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate; provided that the foregoing shall not affect in any way the obligations of Revolving Lenders under subsection 3.3C(i) or the obligations of Revolving Lenders to purchase participations in any unpaid Swing Line Loans as provided in subsection 2.1A(iv). Any amounts described in clause (b) above, when received by Administrative Agent, shall be held by Administrative Agent in the Collateral Account established pursuant to the Security Agreement and shall be applied as provided therein. Notwithstanding anything contained in the second preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to clause (ii) of such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of Requisite Lenders and are not intended, directly or indirectly, to benefit Company, and such provisions shall not at any time be construed so as to grant Company the right to require Lenders to rescind or annul any acceleration hereunder or to preclude Administrative Agent or Lenders from exercising any of the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. Section 3. THE AGENTS .1 Appointment. A. Appointment of Agents. DLJ is hereby appointed Administrative Agent and Syndication Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Administrative Agent and Syndication Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. LCPI is hereby appointed Documentation Agent. Each of Administrative Agent and Syndication Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The Documentation Agent shall have no duties or responsibilities under this Agreement and the other Loan Documents. The provisions of this Section 9 are solely for the benefit of each of Agents and Lenders and Company shall have no rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each of Administrative Agent and Syndication Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Company or any of its Subsidiaries. 138 EXECUTION B. Appointment of Supplemental Collateral Agents. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case Administrative Agent deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Administrative Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "Supplemental Collateral Agent" and collectively as "Supplemental Collateral Agents"). In the event that Administrative Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to Administrative Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Administrative Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to Administrative Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to Administrative Agent shall be deemed to be references to Administrative Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by Administrative Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, Company shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by Administrative Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by Administrative Agent until the appointment of a new Supplemental Collateral Agent. .2 Powers and Duties; General Immunity. A. Powers; Duties Specified. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No 139 EXECUTION Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. Notwithstanding anything herein to the contrary, Agent shall not be responsible for notifying any Federal banking authority of its activities hereunder (including pursuant to the Bank Service Company Act (12 U.S.C. 1867)). B. No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by such Agent to Lenders or by or on behalf of Company to such Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of Company or any other Person liable for the payment of any Obligations, nor shall such Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or the use of the Letters of Credit or as to the existence or possible existence of any Event of Default or Potential Event of Default. Anything contained in this Agreement to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof. C. Exculpatory Provisions. None of the Agents nor any of their respective officers, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any such Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Company and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). 140 EXECUTION D. Agents Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include such Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection with this Agreement and otherwise without having to account for the same to Lenders. .3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness. Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Company and its Subsidiaries in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Company and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender 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, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. .4 Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as Administrative Agent or Syndication Agent, as the case may be, in any way relating to or arising out of this Agreement or the other Loan Documents; 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 any Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. .5 Successor Agents and Swing Line Lender. A. Successor Agents. Each Agent may resign at any time by giving 30 days' prior written notice thereof to the other Agents, Lenders and Company, and any Agent may be removed at any 141 EXECUTION time with or without cause by an instrument or concurrent instruments in writing delivered to Company and the Agents and signed by Requisite Lenders. Upon any notice of resignation or removal of Administrative Agent, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Administrative Agent. If for any reason Requisite Lenders cannot agree on a successor Administrative Agent, the resigning Administrative Agent shall have the right to designate a successor Administrative Agent, after consulting with Company. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent, and the retiring or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. B. Successor Swing Line Lender. Any resignation or removal of Administrative Agent pursuant to subsection 9.5A shall also constitute the resignation or removal of DLJ or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (i) Company shall prepay any outstanding Swing Line Loans made by the retiring or removed Administrative Agent in its capacity as Swing Line Lender, (ii) upon such prepayment, the retiring or removed Administrative Agent and Swing Line Lender shall surrender the Swing Line Note held by it to Company for cancellation, and (iii) Company shall issue a new Swing Line Note to the successor Administrative Agent and Swing Line Lender substantially in the form of Exhibit IV-D annexed hereto, in the principal amount of the Swing Line Loan Commitment then in effect and with other appropriate insertions. .6 Collateral Documents and Guaranties. A. Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into each Collateral Document as secured party and to be the agent for and representative of Lenders under each Subsidiary Guaranty, and each Lender agrees to be bound by the terms of each Collateral Document and Subsidiary Guaranty; provided that Administrative Agent shall not (i) enter into or consent to any material amendment, modification, termination or waiver of any provision contained in any Collateral Document or Subsidiary Guaranty or (ii) release any Collateral (except as otherwise expressly permitted or required pursuant to the terms of this Agreement or the applicable Collateral Document), in each case without the prior consent of Requisite Lenders (or, if required pursuant to subsection 10.6, all Lenders); provided further, however, that, without further written consent or authorization from Lenders, Administrative Agent may execute any documents or instruments necessary to (a) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted by this Agreement or to which Requisite Lenders have otherwise consented or (b) release any Subsidiary Guarantor from the Subsidiary Guaranty if all of the equity Securities of such Subsidiary Guarantor are sold to any Person (other than an Affiliate of Company) pursuant to a sale or other disposition permitted hereunder or to which Requisite Lenders have otherwise consented. Anything contained in any of the Loan Documents to the contrary notwithstanding, Company, each Agent and each Lender hereby agree that (X) no 142 EXECUTION Lender shall have any right individually to realize upon any of the Collateral under any Collateral Document or to enforce any Subsidiary Guaranty, it being understood and agreed that all rights and remedies under the Collateral Documents and the Subsidiary Guaranties may be exercised solely by Administrative Agent for the benefit of Lenders in accordance with the terms thereof, and (Y) in the event of a foreclosure by Administrative Agent on any of the Collateral pursuant to a public or private sale, any Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Administrative Agent, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Administrative Agent at such sale. B. Each Lender hereby authorizes Administrative Agent to execute any and all powers of attorney or other instruments on behalf of such Lender necessary to affect the pledge of any Subsidiary's shares of capital stock under the laws of a jurisdiction outside of the United States of America. Section 4. MISCELLANEOUS .1 Successors and Assigns. A. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that Company may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by Company without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto and their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Affiliates of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. B. Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Revolving Loan Commitments (which for this purpose includes Loans outstanding thereunder) or principal outstanding balance of the Term Loan of the assigning Lender subject to each such assignment (determined as of the date the Assignment Agreement with respect to such assignment is delivered to Administrative Agent) shall not be less than $5 million, in the case of any assignment of a Revolving Loan, or $1 million, in the case of any assignment of a Term Loan, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, Company otherwise consent (each such consent not to be unreasonably withheld or delayed), (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this 143 EXECUTION clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Commitments or Loans on a non-pro rata basis, and (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment Agreement, together with a processing and recordation fee of $1500, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire. Subject to acceptance and recording thereof by Administrative Agent in the Register, from and after the effective date specified in each Assignment Agreement, the Eligible Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of subsections 2.6, 2.7, 3.6, 10.2 and 10.3. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection 10.1B shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection 10.1C. C. Any Lender may, without the consent of, or notice to, Company or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Company, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant agree to any amendment, modification or waiver described in clauses (a), (b), (c), (d) or (e) of subsection 10.6A that affects such Participant. Subject to subsection 10.1D, Company agrees that each Participant shall be entitled to the benefits of subsections 3.6, 2.6D and 2.7 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection 10.1B. To the extent permitted by law, each Participant also shall be entitled to the benefits of subsection 10.4 as though it were a Lender, provided such Participant agrees to be subject to subsection 10.5 as though it were a Lender. D. A Participant shall not be entitled to receive any greater payment under subsection 2.7 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with Company's prior written consent. A Participant that would be a foreign Lender if it were a Lender shall not be entitled to the benefits of subsection 2.7 unless Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of Company, to comply with Section 2.7B(iii)(a) as though it were a Lender. 144 EXECUTION E. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. F. Information. Each Lender may furnish any information concerning any Loan Party in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.19. G. Representations of Lenders. Each Lender listed on the signature pages hereof hereby represents and warrants (i) that it is an Eligible Assignee or, upon the approval of Administrative Agent and such other Persons, if any, required under the definition of Eligible Assignee, will be an Eligible Assignee; (ii) that it has experience and expertise in the making of loans such as the Loans; and (iii) that it will make its Loans for its own account in the ordinary course of its business and without a view to distribution of such Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this subsection 10.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). Each Lender that becomes a party hereto pursuant to an Assignment Agreement will be deemed to agree that the representations and warranties of such Lender contained in Section 2(c) of such Assignment Agreement are incorporated herein by this reference. .2 Expenses. Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (i) all the actual out of pocket and reasonable costs and expenses of preparation of the Loan Documents and any consents, amendments, waivers or other modifications thereto; (ii) all the costs of furnishing all opinions by counsel for Company (including any opinions requested by Administrative Agent or Lenders as to any legal matters arising hereunder) and of Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including with respect to confirming compliance with environmental, insurance and solvency requirements; (iii) the reasonable fees, expenses and disbursements of counsel to Arranger and Administrative Agent in connection with the negotiation, preparation, execution and administration of the Loan Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (iv) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Administrative Agent on behalf of Lenders pursuant to any Collateral Document, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums, and reasonable fees, expenses and disbursements of counsel to Administrative Agent and of counsel providing any opinions that Administrative Agent or Requisite Lenders may request in respect of the Collateral Documents or the Liens created pursuant thereto; (v) all the actual out of pocket costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any auditors, accountants or appraisers and any environmental or other consultants, advisors and agents employed or retained by Administrative Agent or their respective counsel) of obtaining and reviewing any appraisals, environmental audits or reports and any audits or reports provided for 145 EXECUTION under subsection 4.1I, 6.9B or 6.9C; (vi) the custody or preservation of any of the Collateral; (vii) all other actual and reasonable costs and expenses incurred by Arranger or Administrative Agent in connection with the syndication of the Commitments and the negotiation, preparation and execution of the Loan Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (viii) after the occurrence and during the continuation of an Event of Default, all costs and expenses, including reasonable attorneys' fees and costs of settlement, incurred by Administrative Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranties or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings). .3 Indemnity. In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby shall be consummated, Company agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless Arranger, Agents and Lenders, and the officers, directors, trustees, employees, agents and affiliates of Arranger, Agents and Lenders (collectively called the "Indemnitees"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that Company shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise solely from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. As used herein, "Indemnified Liabilities" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs (including without limitation the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity not caused solely by the gross negligence or willful misconduct of Administrative Agent or the Lenders), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof or the issuance of Letters of Credit hereunder or the use or intended use of any thereof), or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranties), (ii) the statements contained in the commitment letter delivered by any 146 EXECUTION Lender to Company with respect thereto, or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Company or any of its Subsidiaries. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. .4 Set-Off; Security Interest in Deposit Accounts. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuation of any Event of Default each Lender is hereby authorized by Company at any time or from time to time, without notice to Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of Company against and on account of the obligations and liabilities of Company to that Lender under this Agreement, the Letters of Credit and participations therein and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not (i) that Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Company hereby further grants to each Agent and each Lender a security interest in all deposits and accounts maintained with such Agent or such Lender as security for the Obligations. .5 Ratable Sharing. Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of 147 EXECUTION such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. .6 Amendments and Waivers. A. No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes, and no consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that any amendment, modification, termination, waiver or consent which: (a) extends the final scheduled maturity of any Loan or Note, or extends the stated maturity of any Letter of Credit beyond the Revolving Loan Commitment Termination Date, or reduces the rate or extends 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 reduces the principal amount thereof (except to the extent repaid in cash), or increases the amount or extends the expiration date of any Lender's Commitments; or (b) releases all or substantially all of (x) the Collateral (except as expressly provided in the Loan Documents) under all the Collateral Documents (it being understood that an increase in the amount of Indebtedness of the Company secured ratably by the Collateral shall not be deemed a release of Collateral), or (y) the Subsidiary Guarantors (except as expressly provided in the Loan Documents) from their obligations under the Subsidiary Guaranty; or (c) amends, modifies or waives any provision of this subsection 10.6; or (d) reduces the percentage specified in the definition "Requisite Lenders" or "Requisite Class Lenders" (it being understood that, with the consent of Requisite Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of Requisite Lenders on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Closing Date); or (e) consents to the assignment or transfer by Company of any of its rights and obligations under this Agreement or any other Loan Document; shall be effective only if evidenced in a writing signed by or on behalf of all Lenders (with Obligations being directly affected in the case of clause (a) above). 148 EXECUTION In addition, (i) no amendment, modification, termination or waiver of any provision of any Note held by a Lender or which increases the Commitments of any Lender over the amount thereof then in effect shall be effective without the written concurrence of such Lender, (ii) no amendment, modification, termination or waiver of any provision of subsection 2.1A(iv) or any other provision of this Agreement relating to the Swing Line Lender shall be effective without the written concurrence of Swing Line Lender, (iii) no amendment, modification, termination or waiver of any provision of Section 9 or of any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of Administrative Agent shall be effective without the written concurrence of Administrative Agent, (iv) no amendment, modification, termination or waiver of any provision of subsection 2.3C or subsection 2.4 that has the effect of changing any voluntary or mandatory prepayments or Commitment reductions or voluntary prepayment fees applicable to any Class (the "Affected Class") in a manner that disproportionately disadvantages such Class relative to the other Classes shall be effective without the written concurrence of Requisite Class Lenders of the Affected Class (it being understood and agreed that any amendment, modification, termination or waiver of any such provision that only postpones or reduces voluntary or mandatory prepayment or Commitment reduction upon those set forth in subsection 2.4 with respect to one Class but not the other Classes shall be deemed to disproportionately disadvantage one Class but not to disproportionately disadvantage such other Classes for purposes of this clause (iv), and it being further understood that any amendment covered by clause (v) or clause (vi) shall be deemed not to disproportionately disadvantage any Class), (v) any increase in the Tranche A Term Loan Commitments, Tranche B Term Loan Commitments or the Revolving Loan Commitments (and any appropriate conforming and supplemental modifications to this Agreement) shall require only the approval of Requisite Lenders and each Lender increasing its Tranche A Term Loan Commitments, Tranche B Term Loan Commitments or the Revolving Loan Commitments, as the case may be (provided that increases pursuant to subsection 2.1A(v) do not require the consent of Requisite Lenders), and (vi) the creation of an additional Class of commitments and loans made thereunder (and any appropriate conforming and supplemental modifications to this Agreement) shall require only the approval of Requisite Lenders and each Lender providing a commitment under such additional Class. B. If, in connection with any proposed amendment, modification, termination or waiver of any of the provisions of this Agreement or the Notes which requires the consent of all Lenders, the consent of Requisite Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Company shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clause (i) or (ii) below, to either (i) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to subsection 2.8 so long as at the time of such replacement, each such Replacement Lender consents to the proposed amendment, modification, termination or waiver, or (ii) terminate such non-consenting Lender's Commitments and repay in full its outstanding Loans in accordance with subsections 2.4B(i)(b) and 2.4B(ii)(b); provided that unless the Commitments that are terminated and the Loans that are repaid pursuant to the preceding clause (ii) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to the preceding clause (ii), the Requisite Lenders (determined before giving effect to the proposed action) shall specifically consent thereto; provided further that Company shall not have the right to terminate 149 EXECUTION such non-consenting Lender's Commitment and repay in full its outstanding Loans pursuant to clause (ii) of this subsection 10.6B if, immediately after the termination of such Lender's Revolving Loan Commitment in accordance with subsection 2.4B(ii)(b), the Revolving Loan Exposure of all Lenders would exceed the Revolving Loan Commitments of all Lenders; provided still further that Company shall not have the right to replace a Lender 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 paragraph of subsection 10.6A. C. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. .7 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. .8 Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that notices to Administrative Agent shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or (i) as to Company and Administrative Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Administrative Agent. .9 Survival of Representations, Warranties and Agreements. A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections 9.2C, 9.4 and 10.5 shall survive the payment of the 150 EXECUTION Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, the foreclosure (including by the exercise of power of sale) of any Mortgage or any deed given in lieu of foreclosure, and the termination of this Agreement. .10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. .11 Marshalling; Payments Set Aside. None of Agents or Lenders shall be under any obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all of the Obligations. To the extent that Company makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent for the benefit of Lenders), or any of Agents or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. .12 Severability. In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. .13 Obligations Several; Independent Nature of Lenders' Rights. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 151 EXECUTION .14 Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. .15 Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. .16 [Intentionally omitted.] .17 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING 152 EXECUTION PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. .18 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. .19 Confidentiality. Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by Company that in any event a Lender may make disclosures to Affiliates and professional advisors of such Lender or disclosures reasonably required by (a) any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein or (b) by 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 to keep such information confidential to the same extent required of the 153 EXECUTION Lenders hereunder, or disclosures required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided further that in no event shall Administrative Agent or any Lender be obligated or required to return any materials furnished by Company or any of its Subsidiaries. .20 Counterparts; Effectiveness. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 154 EXECUTION IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: AUTOTOTE CORPORATION By: /s/ Martin E. Schloss ---------------------------------------- Name: Martin E. Schloss Title: Vice President Notice Address: 220 Continental Drive, Suite 407 Newark, DE 19713 Attention: Bob Becker Phone: (302) 737-4300 Fax: (302) 737-8424 S-1 EXECUTION LENDERS: DLJ CAPITAL FUNDING, INC., individually and as Administrative Agent and Syndication Agent By: /s/ Joseph Adipietro ----------------------------------------- Name: Joseph Adipietro Title: Vice President Notice Address: 277 Park Avenue New York, NY 10172 Attention: Dana Klein Tel.: 212-892-2903 Fax: 212-892-6031 LEHMAN COMMERCIAL PAPER INC., individually and as Documentation Agent By: /s/ Andrew Keith ----------------------------------------- Name: Andrew Keith Title: Authorized Signatory Notice Address: 3 World Financial Center New York, NY 10285 Attention: Andrew Keith Tel.: (212) 526-4059 Fax: (212) 526-0242 S-2 EXECUTION LEHMAN BROTHERS INC., as Co-Arranger By: /s/ Andrew Keith ----------------------------------------- Name: Andrew Keith Title: Senior Vice President Notice Address: 3 World Financial Center New York, NY 10285 Attention: Andrew Keith Tel.: (212) 526-4059 Fax: (212) 526-0242 S-3 EXECUTION EX-10.40 10 0010.txt SECURITY AGREEMENT [FORM OF SECURITY AGREEMENT] SECURITY AGREEMENT This SECURITY AGREEMENT (this "Agreement") is dated as of September 6, 2000 and entered into by and among Autotote Corporation, a Delaware corporation ("Company"), each of THE UNDERSIGNED SUBSIDIARIES of Company (each of such undersigned Subsidiaries being a "Subsidiary Grantor" and collectively "Subsidiary Grantors") and each ADDITIONAL GRANTOR that may become a party hereto after the date hereof in accordance with Section 22 hereof (each of the Company, each Subsidiary Grantor, and each Additional Grantor being a "Grantor" and collectively the "Grantors") and DLJ CAPITAL FUNDING, INC., as Administrative Agent for and representative of (in such capacity herein called "Secured Party") the financial institutions ("Lenders") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined). PRELIMINARY STATEMENTS A. Pursuant to the Credit Agreement dated as of September 6, 2000 (said Credit Agreement, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, being the "Credit Agreement"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, the financial institutions listed therein as Lenders, DLJ Capital Funding, Inc., as Administrative Agent, Syndication Agent, Lead Arranger and Sole Book Running Manager, Lehman Commercial Paper Inc., as Documentation Agent, and Lehman Brothers Inc., as Co-Arranger, Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Company. B. Company and the Subsidiary Guarantors, as the case may be, may from time to time enter, or may from time to time have entered, into one or more Hedge Agreements (collectively, the "Lender Hedge Agreements") with one or more Persons that are Lenders or Affiliates of Lenders at the time such Hedge Agreements are entered into (in such capacity, collectively, "Hedge Exchangers") in accordance with the terms of the Credit Agreement, and it is desired that the obligations of Company and the Subsidiary Guarantors, under the Lender Hedge Agreements, including without limitation the obligation of Company and the Subsidiary Guarantors, as the case may be, to make payments thereunder in the event of early termination thereof or other termination payments, together with all obligations of Company under the Credit Agreement and the other Loan Documents, be secured hereunder. C. Subsidiary Grantors have executed and delivered that certain Subsidiary Guaranty dated the date hereof (said Subsidiary Guaranty, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, being the "Subsidiary Guaranty") in favor of Secured Party for the benefit of Lenders and any Hedge Exchangers, pursuant to which each Subsidiary Grantor has guarantied the prompt payment and performance when due of all obligations of Company under the Credit Agreement and all obligations of Company under the Lender Hedge Agreements, including without limitation the obligation of Company to make payments thereunder in the event of early termination thereof or other termination payments. D. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Grantors listed on the signature pages hereof shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement and to induce Hedge Exchangers to enter into the Lender Hedge Agreements, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each Grantor hereby agrees with Secured Party as follows: section 1. Grant of Security. Each Grantor hereby assigns to Secured Party, and hereby grants to Secured Party a security interest in, all of such Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing, whether tangible or intangible, or in which such Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Collateral"): (a) all equipment in all of its forms, all parts thereof and all accessions thereto (any and all such equipment, parts and accessions being the "Equipment"); (b) all inventory in all of its forms, including but not limited to (i) all goods held by such Grantor for sale or lease or to be furnished under contracts of service or so leased or furnished, (ii) all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in such Grantor's business, (iii) all goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind, and (iv) all goods which are returned to or repossessed by such Grantor and all accessions thereto and products thereof (collectively the "Inventory") and all negotiable and non-negotiable documents of title (including without limitation warehouse receipts, dock receipts and bills of lading) issued by any Person covering any Inventory (any such negotiable document of title being a "Negotiable Document of Title"); (c) all accounts, contract rights, chattel paper, documents, instruments, general intangibles and other rights and obligations of any kind owned by or owing to such Grantor and all rights in, to and under all security agreements, leases and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, documents, instruments, general intangibles or other obligations (any and all such accounts, contract rights, chattel paper, documents, instruments, general intangibles and other obligations being the "Accounts", and any and all such security agreements, leases and other contracts being the "Related Contracts"); 2 (d) all deposit accounts ("Deposit Accounts") including the restricted deposit account established and maintained by Secured Party pursuant to Section 12 (the "Collateral Account"), together with (i) all amounts on deposit from time to time in such deposit accounts and (ii) all interest, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing; (e) the "Securities Collateral", which term means: (i) the shares of stock, partnership interests, interests in joint ventures, limited liability company interests and all other equity interests in a Person that is, or becomes, a direct Subsidiary or direct Joint Venture, as the case may be, of such Grantor, including all securities convertible into, and rights, warrants, options and other rights to purchase or otherwise acquire, any of the foregoing now or hereafter owned by such Grantor, including those owned on the date hereof and described on Schedule 1(e)(i), and the certificates or other instruments representing any of the foregoing and any interest of such Grantor in the entries on the books of any securities intermediary pertaining thereto (the "Pledged Shares"), and all dividends, distributions, returns of capital, cash, warrants, options, rights, instruments, rights to vote or manage the business of such Person pursuant to organizational documents governing the rights and obligations of the stockholders, partners, members or other owners thereof and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; provided, that if the issuer of any of such Pledged Shares is a controlled foreign corporation (used hereinafter as such term is defined in Section 975(a) or a successor provision of the Internal Revenue Code), the Pledged Shares shall not include any shares of stock of such issuer in excess of the number of shares of such issuer possessing up to but not exceeding 65% (66% in the case of any issuer organized under the laws of France or any political subdivision thereof) of the voting power of all classes of capital stock entitled to vote of such issuer, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; (ii) the indebtedness from time to time owed to such Grantor by any obligor that is, or becomes, a direct or indirect Subsidiary or a direct or indirect Joint Venture, as the case may be, of such Grantor, including the indebtedness described on Schedule 1(e)(ii) and issued by the obligors named therein, and the instruments evidencing such indebtedness (the "Pledged Debt"), and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; and (iii) all other investment property as that term is defined in Article 9 of the Uniform Commercial Code as in effect in the State of New York (the "UCC"), of such Grantor; (f) the "Intellectual Property Collateral", which term means: 3 (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise) in and to all trademarks, service marks, designs, logos, indicia, tradenames, trade dress, corporate names, company names, business names, fictitious business names, trade styles, domain names and/or other source and/or business identifiers and applications pertaining thereto, owned by such Grantor, or hereafter adopted and used, in its business (including, without limitation, the trademarks specifically identified in Schedule 1(f)(i), as the same may be amended pursuant hereto from time to time) (collectively, the "Trademarks"), all registrations that have been or may hereafter be issued or applied for thereon in the United States and any state thereof and in foreign countries (including, without limitation, the registrations and applications specifically identified in Schedule 1(f)(i), but excluding all applications which are filed based on an intent to use, until such time as use is established and the appropriate affidavit filed, as the same may be amended pursuant hereto from time to time) (the "Trademark Registrations"), all common law and other rights in and to the Trademarks in the United States and any state thereof and in foreign countries (the "Trademark Rights"), and all goodwill of such Grantor's business symbolized by the Trademarks and associated therewith (the "Associated Goodwill"): (ii) all rights, title and interest (including rights acquired pursuant to a license or otherwise) in and to all patents and patent applications and rights and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned or held by such Grantor and all patents and patent applications and rights, title and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned by such Grantor in whole or in part (including, without limitation, the patents and patent applications listed in Schedule 1(f)(ii), as the same may be amended pursuant hereto from time to time), all rights corresponding thereto (including, without limitation, the right, exercisable only upon the occurrence and during the continuation of an Event of Default, to sue for past, present and future infringements in the name of such Grantor or in the name of Secured Party or Lenders), and all re-issues, divisions, continuations, renewals, extensions and continuations-in-part thereof (all of the foregoing being collectively referred to as the "Patents"); it being understood that the rights and interests included in the Intellectual Property Collateral hereby shall include, without limitation, all rights and interests pursuant to licensing or other contracts in favor of such Grantor pertaining to patent applications and patents presently or in the future owned or used by third parties but, in the case of third parties which are not Affiliates of such Grantor, only to the extent permitted by such licensing or other contracts and, if not so permitted, only with the consent of such third parties; and (iii) all rights, title and interest (including rights acquired pursuant to a license or otherwise) under copyright in various published and unpublished works of authorship including, without limitation, computer programs, computer data bases, other computer software, layouts, trade dress, drawings, designs, writings, and formulas owned by such Grantor (including, without limitation, the works listed on Schedule 1(f)(iii), as the same may be amended pursuant hereto from time to time) (collectively, the 4 "Copyrights"), all copyright registrations issued to such Grantor and applications for copyright registration that have been or may hereafter be issued or applied for thereon by such Grantor in the United States and any state thereof and in foreign countries (including, without limitation, the registrations listed on Schedule 1(f)(iii), as the same may be amended pursuant hereto from time to time) (collectively, the "Copyright Registrations"), all common law and other rights in and to the Copyrights in the United States and any state thereof and in foreign countries including all copyright licenses (but with respect to such copyright licenses, only to the extent permitted by such licensing arrangements) (the "Copyright Rights"), including, without limitation, each of the Copyrights, rights, titles and interests in and to the Copyrights, all derivative works and other works protectable by copyright, which are presently, or in the future may be, owned, created (as a work for hire for the benefit of such Grantor), authored (as a work for hire for the benefit of such Grantor), or acquired by such Grantor, in whole or in part, and all Copyright Rights with respect thereto and all Copyright Registrations therefor, heretofore or hereafter granted or applied for, and all renewals and extensions thereof, throughout the world, including all proceeds thereof (such as, by way of example and not by limitation, license royalties and proceeds of infringement suits), the right to renew and extend such Copyright Registrations and Copyright Rights and to register works protectable by copyright and the right to sue for past, present and future infringements of the Copyrights and Copyright Rights; (g) all information used or useful or arising from the business including all goodwill, trade secrets, trade secret rights, know-how, customer lists, processes of production, ideas, confidential business information, techniques, processes, formulas, and all other proprietary information; (h) the agreements listed in Schedule 1(h), as each such agreement may be amended, restated, supplemented or otherwise modified from time to time (said agreements, as so amended, restated, supplemented or otherwise modified, being referred to herein individually as an "Assigned Agreement" and collectively as the "Assigned Agreements"), including, without limitation, (i) all rights of such Grantor to receive moneys due or to become due under or pursuant to the Assigned Agreements, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) all claims of such Grantor for damages arising out of any breach of or default under the Assigned Agreements, and (iv) all rights of such Grantor to terminate, amend, supplement, modify or exercise rights or options under the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder; (i) to the extent not included in any other paragraph of this Section 1, all other general intangibles (including without limitation tax refunds, rights to payment or performance, choses in action and judgments taken on any rights or claims included in the Collateral); (j) all plant fixtures, business fixtures and other fixtures and storage and office facilities, and all accessions thereto and products thereof; 5 (k) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (l) all proceeds, products, rents and profits of or from any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding anything to the contrary contained herein, the Collateral shall not include any Margin Stock for so long as it constitutes Margin Stock. Notwithstanding anything herein to the contrary, in no event shall the Collateral include, and no Grantor shall be deemed to have granted a security interest in (i) any of such Grantor's rights or interests in any Governmental Authorization, license, contract or agreement to which such Grantor is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such Governmental Authorization, license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any Governmental Authorization, license, contract or agreement to which such Grantor is a party (other than to the extent that any such term would be rendered ineffective pursuant to Section 9-318(4) of the UCC or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and such Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect, or (ii) any real property leasehold, unless a Grantor has executed a leasehold mortgage or leasehold deed of trust covering such real property leasehold or (iii) such Grantor's rights or interest in any agreements with governmental authorities prohibiting the creation or assumption of any Lien on assets located in the jurisdiction of any such governmental authority and utilized pursuant to the applicable agreement, (x) to the extent existing on the date hereof, as set forth in Schedule 7.2C(a) of the Credit Agreement and (y) to the extent such agreements are entered into after the date hereof, at the time any such agreement is entered into, the aggregate value of such assets subject to such prohibitions, together with the aggregate value of any such assets subject to the encumbrances and restrictions permitted by subsection 7.2D(a)(ii) of the Credit Agreement, in each case as set forth on the most recent consolidated balance sheet of Grantor and its Subsidiaries in accordance with GAAP, shall not exceed 5% of the aggregate value of all assets set forth on the most recent consolidated balance sheet of Grantor and its Subsidiaries in accordance with GAAP. In the event that any asset of Grantor is excluded from the Collateral by virtue of the foregoing paragraph, such Grantor agrees to use all reasonable efforts to obtain all requisite consents to enable such Grantor to provide a security interest in such asset pursuant hereto as promptly as practicable. 6 section 2. Security for Obligations. This Agreement secures, and the Collateral assigned by each Grantor is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including without limitation the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of all Secured Obligations of such Grantor. "Secured Obligations" means: (a) with respect to Company, all obligations and liabilities of every nature of Company now or hereafter existing under or arising out of or in connection with the Credit Agreement and the other Loan Documents and any Lender Hedge Agreement, and (b) with respect to each Subsidiary Grantor and Additional Grantor, all obligations and liabilities of every nature of such Grantor now or hereafter existing under or arising out of or in connection with the Subsidiary Guaranty and any Lender Hedge Agreement; in each case together with all extensions or renewals thereof, whether for principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy with respect to Company or any other Grantor, would accrue on such obligations, whether or not a claim is allowed against Company or such Grantor for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of or other termination payments with respect to Lender Hedge Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party or any Lender or Hedge Exchanger as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Grantors now or hereafter existing under this Agreement. section 3. Grantors Remain Liable. Anything contained herein to the contrary notwithstanding, (a) each Grantor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under any contracts, licenses, and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 7 section 4. Representations and Warranties. Each Grantor represents and warrants as follows: (a) Ownership of Collateral. Except as expressly permitted by the Credit Agreement and for the security interest created by this Agreement, such Grantor owns the Collateral owned by such Grantor free and clear of any Lien. Except as expressly permitted by the Credit Agreement (including any financing statements with respect to which Grantors have delivered UCC termination statements on the date of this Agreement) and such as may have been filed in favor of Secured Party relating to this Agreement, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office. (b) Locations of Equipment and Inventory. All of the Equipment and Inventory is, as of the date hereof, or in the case of an Additional Grantor, the date of the applicable counterpart entered into pursuant to Section 22 (each, a "Counterpart") located at the places specified in Schedule 4(b), except for Inventory which, in the ordinary course of business, is in transit either (i) from a supplier to a Grantor, (ii) between the locations specified in Schedule 4(b), or (iii) to customers of a Grantor. (c) Negotiable Documents of Title. No Negotiable Documents of Title are outstanding with respect to any of the Inventory. (d) Office Locations. The chief place of business, the chief executive office and the office where such Grantor keeps its records regarding the Accounts and all originals of all chattel paper that evidence Accounts are, as of the date hereof, and have been for the four month period preceding the date hereof, or, in the case of an Additional Grantor, the date of the applicable Counterpart, located at the locations set forth on Schedule 4(d); (e) Names. No Grantor (or predecessor by merger or otherwise of such Grantor) has, within the four month period preceding the date hereof, or, in the case of an Additional Grantor, the date of the applicable Counterpart, had a different name from the name of such Grantor listed or the signature pages hereof, except the names listed in Schedule 4(e) annexed hereto. (f) Delivery of Certain Collateral. All certificates or instruments (excluding checks or other instruments of payment for an aggregate amount of less than $5,000 at any time) evidencing, comprising or representing the Collateral (including, without limitation, the Securities Collateral) have been delivered to Secured Party duly endorsed or accompanied by duly executed instruments of transfer or assignment in blank. (g) Securities Collateral. (i) All of the Pledged Shares described on Schedule 1(e)(i) have been duly authorized and validly issued and are fully paid and non-assessable; (ii) all of the Pledged Debt described on Schedule 1(e)(ii) has been duly authorized, authenticated or issued, and delivered and is the legal, valid and binding obligation of the issuers thereof and is not in default; (iii) except as set forth on Schedule 1(e)(i), the Pledged Shares constitute all of the 8 issued and outstanding shares of stock or other equity interests of each issuer thereof (subject to the proviso to Section 1(e)(i) with respect to shares of a foreign controlled corporation), and there are no outstanding warrants, options or other rights to purchase, or other agreements outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares; (iv) the Pledged Debt constitutes all of the issued and outstanding intercompany indebtedness evidenced by a promissory note of the respective issuers thereof owing to such Grantor; (v) Schedule 1(e)(i) sets forth all of the Pledged Shares owned by each Grantor on the date hereof; and (vi) Schedule 1(e)(ii) sets forth all of the Pledged Debt in existence on the date hereof. (h) Intellectual Property Collateral. (i) a true and complete list of all Trademark Registrations and Trademark applications owned, held (whether pursuant to a license or otherwise) or used by such Grantor, in whole or in part, is set forth in Schedule 1(f)(i); (ii) a true and complete list of all Patents owned, held (whether pursuant to a license or otherwise) or used by such Grantor, in whole or in part, is set forth in Schedule 1(f)(ii); (iii) a true and complete list of all Copyright Registrations and applications for Copyright Registrations held (whether pursuant to a license or otherwise) by such Grantor, in whole or in part, is set forth in Schedule 1(f)(iii); (iv) after reasonable inquiry, such Grantor is not aware of any pending or threatened claim by any third party that any of the Intellectual Property Collateral owned, held or used by such Grantor is invalid or unenforceable; and (v) no effective security interest or other Lien covering all or any part of the Intellectual Property Collateral is on file in the United States Patent and Trademark Office or the United States Copyright Office, other than the Liens with respect to Intellectual Property Collateral with respect to which Grantors have delivered releases on the date of this Agreement. (i) Perfection. The security interests in the Collateral granted to Secured Party for the ratable benefit of the Lenders and Hedge Exchangers hereunder constitute valid security interests in the Collateral, securing the payment of the Secured Obligations. Upon (i) the filing of UCC financing statements naming each Grantor as "debtor", naming Secured Party as "secured party" and describing the Collateral in the filing offices with respect to such Grantor set forth on Schedule 4(i), (ii) in the case of the Securities Collateral consisting of certificated securities or evidenced by instruments, delivery of the certificates representing such certificated securities and delivery of such instruments to Secured Party, in each case duly endorsed or accompanied by duly executed instruments of assignment or transfer in blank, (iii) in the case of the Intellectual Property Collateral, in addition to the filing of such UCC financing statements, the filing of a Grant of Trademark Security Interest, substantially in the form of Exhibit I, and a Grant of Patent Security Interest, substantially in the form of Exhibit II, with the United States Patent and 9 Trademark Office and the filing of a Grant of Copyright Security Interest, substantially in the form of Exhibit III, with the United States Copyright Office (each such Grant of Trademark Security Interest, Grant of Patent Security Interest and Grant of Copyright Security Interest being referred to herein as a "Grant"), and (iv) in the case of Equipment that is covered by a certificate of title, the filing with the registrar of motor vehicles or other appropriate authority in the applicable jurisdiction of an application requesting the notation of the security interest created hereunder on such certificate of title, the security interests in the Collateral granted to Secured Party for the ratable benefit of the Lenders and Hedge Exchangers will constitute perfected security interests therein prior to all other Liens (except for Permitted Encumbrances), and all filings and other actions necessary or desirable to perfect and protect such security interest will have been duly made or taken. section 5. Further Assurances. (a) Generally. Each Grantor agrees that from time to time, at the expense of Grantors, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor will: (i) at the request of Secured Party, mark conspicuously each item of chattel paper included in the Accounts, each Related Contract and, at the request of Secured Party, each of its records pertaining to the Collateral, with a legend, in form and substance reasonably satisfactory to Secured Party, indicating that such Collateral is subject to the security interest granted hereby, (ii) at the reasonable request of Secured Party, deliver and pledge to Secured Party hereunder all promissory notes and other instruments (and, upon an Event of Default, including checks) and all original counterparts of chattel paper constituting Collateral, duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party, (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby, (iv) furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail, (v) promptly after the acquisition by such Grantor of any item of Equipment that is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title, (vi) within 30 days after the end of each calendar quarter, deliver to Secured Party copies of all such applications or other documents filed during such calendar quarter and copies of all such certificates of title issued during such calendar quarter indicating the security interest created hereunder in the items of Equipment covered thereby, (vii) at any reasonable time, upon request by Secured Party, exhibit the Collateral to and allow inspection of the Collateral by Secured Party, or persons designated by Secured Party, 10 (viii) at Secured Party's request, appear in and defend any action or proceeding that may affect such Grantor's title to or Secured Party's security interest in all or any part of the Collateral, and (ix) upon any Event of Default, use commercially reasonable efforts to obtain any necessary consents of third parties to the assignment and perfection of a security interest to Secured Party with respect to any Collateral. Each Grantor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of any Grantor. Each Grantor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by such Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. (b) Securities Collateral. Without limiting the generality of the foregoing Section 5(a), each Grantor agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder, promptly (and in any event within five Business Days for the pledge of all shares of stock or other securities of any domestic Person, and as soon as possible, but in any event within twenty (20) Business Days for the pledge of all shares of stock or other securities of any foreign controlled corporation) deliver to Secured Party a Pledge Supplement, duly executed by such Grantor, in substantially the form of Exhibit IV (a "Pledge Supplement"), in respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant to this Agreement. Upon each delivery of a Pledge Supplement to Secured Party, the representations and warranties contained in clauses (i)-(iv) of Section 4(g) hereof shall be deemed to have been made by such Grantor as to the Securities Collateral described in such Pledge Supplement as of the date thereof. Each Grantor hereby authorizes Secured Party to attach each Pledge Supplement to this Agreement and agrees that all Pledged Shares or Pledged Debt of such Grantor listed on any Pledge Supplement shall for all purposes hereunder be considered Collateral of such Grantor; provided, the failure of any Grantor to execute a Pledge Supplement with respect to any additional Pledged Shares or Pledged Debt pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. (c) Intellectual Property Collateral. Without limiting the generality of the foregoing Section 5(a), if any Grantor shall hereafter obtain rights to any new Intellectual Property Collateral or become entitled to the benefit of (i) any patent application or patent or any reissue, division, continuation, renewal, extension or continuation-in-part of any Patent or any improvement of any Patent or (ii) any Copyright Registration, application for Copyright Registration or renewals or extension of any Copyright, then in any such case, the provisions of this Agreement shall automatically apply thereto. Each Grantor shall promptly notify Secured Party in writing of any of the foregoing rights acquired by such Grantor after the date hereof and of (i) any Trademark Registrations issued or application for a Trademark Registration or application for a Patent made, and (ii) any Copyright Registrations issued or applications for Copyright Registration made, in any such case, after the date hereof. Promptly after the filing of an application for any (1) Trademark Registration; (2) Patent; and (3) Copyright Registration, each Grantor shall execute and deliver to Secured Party and record in all places where a Grant is recorded an IP Supplement, substantially in the form of Exhibit V (an "IP Supplement"), pursuant to which such Grantor shall grant to Secured Party a security interest to the extent of its 11 interest in such Intellectual Property Collateral; provided, if, in the reasonable judgment of such Grantor, after due inquiry, granting such interest would result in the grant of a Trademark Registration or Copyright Registration in the name of Secured Party, such Grantor shall give written notice to Secured Party as soon as reasonably practicable and the filing shall instead be undertaken as soon as practicable but in no case later than immediately following the grant of the applicable Trademark Registration or Copyright Registration, as the case may be. Upon delivery to Secured Party of an IP Supplement, Schedules 1(f)(i), 1(f)(ii), and 1(f)(iii) hereto and Schedule A to each Grant, as applicable, shall be deemed modified to include reference to any right, title or interest in any existing Intellectual Property Collateral or any Intellectual Property Collateral included on Schedule A to such IP Supplement. Each Grantor hereby authorizes Secured Party to modify this Agreement without the signature or consent of any Grantor by attaching Schedules 1(f)(i), 1(f)(ii), and 1(f)(iii), as applicable, that have been modified to include such Intellectual Property Collateral or to delete any reference to any right, title or interest in any Intellectual Property Collateral in which any Grantor no longer has or claims any right, title or interest; provided, the failure of any Grantor to execute an IP Supplement with respect to any additional Intellectual Property Collateral pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. section 6. Certain Covenants of Grantors. Each Grantor shall: (a) not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or material ordinance or any policy of insurance covering the Collateral; (b) notify Secured Party of any change in such Grantor's name, identity or corporate structure within 15 days of such change; (c) give Secured Party 30 days' prior written notice of any change in such Grantor's chief place of business, chief executive office or residence or the office where such Grantor keeps its records regarding the Accounts and all originals of all chattel paper that evidence Accounts; (d) if Secured Party gives value to enable such Grantor to acquire rights in or the use of any Collateral, use such value for such purposes; and (e) except as expressly permitted by the Credit Agreement, pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, services, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided that such Grantor shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against such Grantor or any of the Collateral as a result of the failure to make such payment. 12 section 7. Special Covenants With Respect to Equipment and Inventory. Each Grantor shall: (a) keep the Equipment and Inventory owned by such Grantor at the places therefor specified on Schedule 4(b) or, upon 30 days' prior written notice to Secured Party, at such other places in jurisdictions where all action that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory shall have been taken; (b) cause the Equipment owned by such Grantor to be maintained and preserved in the same condition, repair and working order as when new, ordinary wear and tear excepted, and in accordance with such Grantor's past practices, and shall forthwith make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end. Each Grantor shall promptly furnish to Secured Party a statement respecting any material loss or damage to any of the Equipment owned by such Grantor; (c) keep correct and accurate records of Inventory owned by such Grantor, itemizing and describing the kind, type and quantity of such Inventory, such Grantor's cost therefor and (where applicable) the current list prices for such Inventory; (d) if any Inventory is in possession or control of any of such Grantor's agents or processors, if the aggregate book value of all such Inventory exceeds $100,000, and in any event, if so requested by the Secured Party by written notice given upon or after the occurrence of an Event of Default (as defined in Section 16(a)), instruct such agent or processor to hold all such Inventory for the account of Secured Party and subject to the instructions of Secured Party; (e) promptly upon the issuance and delivery to such Grantor of any Negotiable Document of Title, deliver such Negotiable Document of Title to Secured Party; (f) Each Grantor shall, at its own expense, maintain insurance with respect to the Equipment and Inventory in accordance with the terms of the Credit Agreement; and section 8. Special Covenants with respect to Accounts and Related Contracts. (a) Each Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Accounts and Related Contracts, and all originals of all chattel paper that evidence Accounts, at the locations therefor set forth on Schedule 4(d), upon 30 days' prior written notice to Secured Party, at such other location in a jurisdiction where all action that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Accounts and Related Contracts shall have been taken. Each Grantor will hold and preserve such records and chattel paper and will permit representatives of Secured Party at any time during normal business hours to inspect and make abstracts from such records and 13 chattel paper, and each Grantor agrees to render to Secured Party, at Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Promptly upon the request of Secured Party, each Grantor shall deliver to Secured Party complete and correct copies of each Related Contract. (b) Each Grantor shall, for not less than three (3) years from the date on which each Account of such Grantor arose, maintain (i) records complete in all material respects of such Account, including records of all payments received, credits granted and merchandise returned, and (ii) all material documentation relating thereto. (c) Except as otherwise provided in this subsection (c), each Grantor shall continue to collect, at its own expense, all amounts due or to become due to such Grantor under the Accounts and Related Contracts. In connection with such collections, each Grantor may take (and, upon the occurrence and during the continuance of an Event of Default at Secured Party's direction, shall take) such action as such Grantor or Secured Party may deem necessary or advisable to enforce collection of amounts due or to become due under the Accounts; provided, however, that Secured Party shall have the right at any time, upon the occurrence and during the continuation of an Event of Default and upon written notice to such Grantor of its intention to do so, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to Secured Party and to direct such account debtors or obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to Secured Party, to notify each Person maintaining a lockbox or similar arrangement to which account debtors or obligors under any Accounts have been directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to Secured Party and, upon such notification and at the expense of Grantors, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt by such Grantor of the notice from Secured Party referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including checks and other instruments) received by such Grantor in respect of the Accounts and the Related Contracts shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 18, and (ii) such Grantor shall not adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. section 9. Special Covenants With Respect to the Securities Collateral. (a) Delivery. Each Grantor agrees that all certificates or instruments representing or evidencing the Securities Collateral shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be in suitable form for transfer by delivery or, as applicable, shall be accompanied by such Grantor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. Secured Party shall have the right at any time to exchange certificates or instruments representing 14 or evidencing Securities Collateral for certificates or instruments of smaller or larger denominations. (b) Covenants. Each Grantor shall (i) not, except as expressly permitted by the Credit Agreement, permit any issuer of Pledged Shares to merge or consolidate unless all the outstanding capital stock or other equity interests of the surviving or resulting Person is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding shares of any other constituent corporation; provided, if the surviving or resulting Person upon any such merger or consolidation involving an issuer of Pledged Shares which is a controlled foreign corporation is a controlled foreign corporation, then such Grantor shall only be required to pledge outstanding capital stock of such surviving or resulting Person possessing up to but not exceeding 66% (66% in the case of any issuer organized under the laws of France or any political subdivision thereof) of the voting power of all classes of capital stock of such issuer entitled to vote; (ii) cause each issuer of Pledged Shares not to issue any stock, other equity interests or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to such Grantor; (iii) pledge hereunder, promptly upon its acquisition (directly or indirectly) thereof (and in any event within five Business Days for the pledge of all shares of stock, other equity interests or other securities of any domestic issuer, and as soon as possible, but in any event within twenty (20) Business Days for the pledge of all shares of stock, other equity interests or other securities of any foreign controlled corporation) any and all additional shares of stock, other equity interests or other securities of each issuer of Pledged Shares; (iv) pledge hereunder, promptly upon its acquisition (directly or indirectly) thereof (and in any event within five Business Days for the pledge of all shares of stock, other equity interests or other securities of any domestic Person, and as soon as possible, but in any event within twenty (20) Business Days for the pledge of all shares of stock, other equity interests or other securities of any foreign controlled corporation), any and all shares of stock or other equity interests of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary of such Grantor; provided, notwithstanding anything contained in this clause (iv) to the contrary, such Grantor shall only be required to pledge the outstanding capital stock of a controlled foreign corporation possessing up to but not exceeding 65% of the voting power of all classes of capital stock of such controlled foreign corporation entitled to vote; (v) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of additional indebtedness from time to time owed to such Grantor by any obligor on the Pledged Debt; (vi) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of indebtedness from time to time owed to such Grantor by any Person that after the date of this Agreement becomes, as a result of any occurrence, a direct or indirect Subsidiary or Joint Venture, as the case may be, of such Grantor; (vii) upon an Event of Default, promptly notify Secured Party of any event of which such Grantor becomes aware causing loss or depreciation in the value of the Securities Collateral; (viii) upon an Event of Default, promptly deliver to Secured Party all written notices received by it with respect to the Securities Collateral; and (ix), at the request of Secured Party, promptly execute and deliver to Secured Party an agreement providing for the control, as that term is defined in the UCC, by Secured Party of all securities entitlements and securities accounts of such Grantor. 15 (c) Voting and Distributions. So long as no Event of Default shall have occurred and be continuing, (i) each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Securities Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, no Grantor shall exercise or refrain from exercising any such right if Secured Party shall have notified such Grantor in writing that, in Secured Party's judgment, such action would have a material adverse effect on the value of the Securities Collateral or any part thereof; and provided further, such Grantor shall give Secured Party at least five Business Days' prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right (it being understood, however, that neither (A) the voting by such Grantor of any Pledged Shares for or such Grantor's consent to the election of directors or other members of a governing body of an issuer of Pledged Shares at a regularly scheduled annual or other meeting of stockholders or holders of equity interests or with respect to incidental matters at any such meeting, nor (B) Grantor's consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section, and no notice of any such voting or consent need be given to Secured Party); (ii) each Grantor shall be entitled to receive and retain, and to utilize free and clear of the lien of this Agreement, any and all dividends, other distributions and interest paid in respect of the Securities Collateral; provided, any and all (A) dividends, distributions and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Securities Collateral, (B) during the continuance of an Event of Default, dividends and other distributions paid or payable in cash in respect of any Securities Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) during the continuance of an Event of Default, cash paid, payable or otherwise distributed in respect of principal or in redemption of or in exchange for any Securities Collateral, shall be, and shall forthwith be delivered to Secured Party to hold as, Securities Collateral and shall, if received by such Grantor, be received in trust for the benefit of Secured Party, be segregated from the other property or funds of such Grantor and be forthwith delivered to Secured Party as Securities Collateral in the same form as so received (with all necessary endorsements); provided that, if no Event of Default shall have occurred, to the extent any of the property described in the foregoing clause (B) or (C) shall constitute Net Asset Sale Proceeds or Net Insurance/Condemnation Proceeds (or proceeds thereof), it shall be applied as required by the Credit Agreement; and (iii) Secured Party shall promptly execute and deliver (or cause to be executed and delivered) to such Grantor all such proxies, dividend payment orders and other instruments as Grantor may from time to time reasonably request for the purpose of enabling Grantor to exercise the voting and other consensual rights which it is entitled to exercise pursuant to clause (i) above and to receive the dividends, distributions, principal or interest payments which it is authorized to receive and retain pursuant to clause (ii) above. Upon the occurrence and during the continuation of an Event of Default, (x) upon written notice from Secured Party to any Grantor, all rights of such Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights; (y) all rights of such 16 Grantor to receive the dividends, other distributions and interest payments which it would otherwise be authorized to receive and retain pursuant hereto shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to receive and hold as Securities Collateral such dividends, other distributions and interest payments; and (z) all dividends, principal, interest payments and other distributions which are received by Grantor contrary to the provisions of clause (ii) of the immediately preceding paragraph or clause (y) above shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Grantor and shall forthwith be paid over to Secured Party as Securities Collateral in the same form as so received (with any necessary endorsements). In order to permit Secured Party to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder, (I) each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies, dividend payment orders and other instruments as Secured Party may from time to time reasonably request, and (II) without limiting the effect of clause (I) above, each Grantor hereby grants to Secured Party an irrevocable proxy to vote the Pledged Shares and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Shares would be entitled (including giving or withholding written consents of shareholders or other holders of equity interests, calling special meetings of shareholders or other holders of equity interests and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Shares on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Shares or any officer or agent thereof), upon the occurrence of an Event of Default and which proxy shall only terminate upon the payment in full of the Secured Obligations. section 10. Special Covenants With Respect to the Intellectual Property Collateral. (a) Each Grantor shall: (i) diligently keep reasonable records respecting the Intellectual Property Collateral and at all times keep at least one complete set of its records concerning such Collateral at its chief executive office or principal place of business; (ii) use commercially reasonable efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that could or might in any way impair or prevent the creation of a security interest in, or the assignment of, such Grantor's rights and interests in any property included within the definitions of any Intellectual Property Collateral acquired under such contracts; (iii) take any and all reasonable steps to protect the secrecy of all trade secrets relating to the products and services sold or delivered under or in connection with the Intellectual Property Collateral, including, without limitation, where appropriate entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents; 17 (iv) use proper statutory notice in connection with its use of any of the Intellectual Property Collateral; (v) use a commercially appropriate standard of quality (consistent with such Grantor's past practices) in the manufacture, sale and delivery of products and services sold or delivered under or in connection with the Trademarks; and (vi) furnish to Secured Party from time to time at Secured Party's reasonable written request statements and schedules further identifying and describing any Intellectual Property Collateral and such other reports in connection with such Collateral, all in reasonable detail. (b) Except as otherwise provided in this Section 10, each Grantor shall continue to collect, at its own expense, all amounts due or to become due to such Grantor in respect of the Intellectual Property Collateral or any portion thereof. In connection with such collections, each Grantor may take (and, after the occurrence and during the continuance of any Event of Default, at Secured Party's reasonable direction, shall take) such action as such Grantor or Secured Party may deem reasonably necessary or advisable to enforce collection of such amounts; provided, Secured Party shall have the right at any time, upon the occurrence and during the continuation of an Event of Default and upon written notice to such Grantor of its intention to do so, to notify the obligors with respect to any such amounts of the existence of the security interest created hereby and to direct such obligors to make payment of all such amounts directly to Secured Party, and, upon such notification and at the expense of such Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt by any Grantor of the notice from Secured Party referred to in the proviso to the preceding sentence and during the continuation of any Event of Default, (i) all amounts and proceeds (including checks and other instruments) received by each Grantor in respect of amounts due to such Grantor in respect of the Intellectual Property Collateral or any portion thereof shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 18, and (ii) such Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon. (c) Each Grantor shall have the duty diligently, through appropriate counsel, to prosecute, file and/or make, unless and until such Grantor, in its commercially reasonable judgment, decides otherwise, (i) any application relating to any of the Intellectual Property Collateral owned, held or used by such Grantor and identified on Schedules 1(f)(i), 1(f)(ii) or 1(f)(iii), as applicable, that is pending as of the date of this Agreement, (ii) any Copyright Registration on any existing or future unregistered but copyrightable works (except for works of nominal commercial value or with respect to which such Grantor has determined in the exercise of its commercially reasonable judgment that it shall not seek registration), (iii) any application on any future patentable but unpatented innovation or invention comprising Intellectual Property Collateral (except where, in its commercially reasonable judgment, such Grantor decides to 18 attempt to maintain the information as know-how or a trade secret), and (iv) any Trademark opposition and cancellation proceedings, renew Trademark Registrations and Copyright Registrations and do any and all acts which are necessary or desirable to preserve and maintain all rights in all Intellectual Property Collateral. Any expenses incurred in connection therewith shall be borne solely by Grantors. Subject to the foregoing, each Grantor shall give Secured Party prior written notice of any abandonment of any Intellectual Property Collateral or any pending patent application or any Patent. (d) Except as provided herein, each Grantor shall have the right to commence and prosecute in its own name, as real party in interest, for its own benefit and at its own expense, such suits, proceedings or other actions for infringement, unfair competition, dilution, misappropriation or other damage, or reexamination or reissue proceedings as are necessary to protect the Intellectual Property Collateral. Secured Party shall provide, at such Grantor's expense, all reasonable and necessary cooperation in connection with any such suit, proceeding or action including, without limitation, joining as a necessary party. Each Grantor shall promptly, following its becoming aware thereof, notify Secured Party of the institution of, or of any adverse determination in, any proceeding (whether in the United States Patent and Trademark Office, the United States Copyright Office or any federal, state, local or foreign court) or regarding such Grantor's ownership, right to use, or interest in any Intellectual Property Collateral. Each Grantor shall provide to Secured Party any information with respect thereto reasonably requested by Secured Party. (e) In addition to, and not by way of limitation of, the granting of a security interest in the Collateral pursuant hereto, each Grantor, effective upon the occurrence and during the continuation of an Event of Default, hereby assigns, transfers and conveys to Secured Party the nonexclusive right and license to use all trademarks, tradenames, copyrights, patents or technical processes (including, without limitation, the Intellectual Property Collateral) owned or used by such Grantor that relate to the Collateral and any other collateral granted by such Grantor as security for the Secured Obligations, together with any goodwill associated therewith, all to the extent necessary to enable Secured Party to realize on the Collateral in accordance with this Agreement and to enable any transferee or assignee of the Collateral to enjoy the benefits of the Collateral. This right shall inure to the benefit of Secured Party and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license shall be granted free of charge, without requirement that any monetary payment whatsoever be made to such Grantor. In addition, each Grantor hereby grants to Secured Party and its employees, representatives and agents the right to visit such Grantor's and any of its Affiliate's or subcontractor's plants, facilities and other places of business that are utilized in connection with the manufacture, production, inspection, storage or sale of products and services sold or delivered under any of the Intellectual Property Collateral (or which were so utilized during the prior six month period), and to inspect the quality control and all other records relating thereto upon reasonable advance written notice to such Grantor and at reasonable dates and times and as often as may be reasonably requested. If and to the extent that any Grantor is permitted to license the Intellectual Property Collateral, Secured Party shall promptly enter into a non-disturbance agreement or other similar arrangement, at such Grantor's request and expense, with such Grantor and any licensee 19 of any Intellectual Property Collateral permitted hereunder in form and substance reasonably satisfactory to Secured Party pursuant to which (i) Secured Party shall agree not to disturb or interfere with such licensee's rights under its license agreement with such Grantor so long as such licensee is not in default thereunder, and (ii) such licensee shall acknowledge and agree that the Intellectual Property Collateral licensed to it is subject to the security interest created in favor of Secured Party and the other terms of this Agreement. section 11. Special Provisions With Respect to the Assigned Agreements. (a) Each Grantor shall at its expense: (i) if consistent with sound business practices, perform and observe all material terms and provisions of the Assigned Agreements to be performed or observed by it, maintain the Assigned Agreements in full force and effect, enforce the Assigned Agreements in accordance with their terms, and take all such action to such end as may be from time to time reasonably requested by Secured Party; and (ii) upon the reasonable request of Secured Party, furnish to Secured Party, promptly upon receipt thereof, copies of all notices, requests and other documents received by such Grantor under or pursuant to the Assigned Agreements, and from time to time (A) furnish to Secured Party such information and reports regarding the Assigned Agreements as Secured Party may reasonably request and (B) upon request of Secured Party make to the parties to such Assigned Agreements such demands and requests for information and reports or for action as such Grantor is entitled to make under the Assigned Agreements. (b) Upon the occurrence and during the continuance of an Event of Default, no Grantor shall: (i) cancel or terminate any of the Assigned Agreements or consent to or accept any cancellation or termination thereof; (ii) amend or otherwise modify the Assigned Agreements or give any consent, waiver or approval thereunder that would, in any case, be material or adverse to Lenders; (iii) waive any default under or breach of the Assigned Agreements; (iv) consent to or permit or accept any prepayment of amounts to become due under or in connection with the Assigned Agreements, except as expressly provided therein; or (v) take any other action in connection with the Assigned Agreements that could reasonably be expected to materially impair the value of the interest or rights of such Grantor thereunder or that could reasonably be expected to materially impair the interest or rights of Secured Party. 20 section 12. Collateral Account. Secured Party is hereby authorized to establish and maintain at or at the direction of Secured Party as a blocked account in the name of Company and under the sole dominion and control of Secured Party, a restricted deposit account designated as "Autotote Corporation Collateral Account". All amounts at any time held in the Collateral Account shall be beneficially owned by Grantors but shall be held in the name of Secured Party hereunder, for the benefit of Lenders, as collateral security for the Secured Obligations upon the terms and conditions set forth herein. Grantors shall have no right to withdraw, transfer or, except as expressly set forth herein, otherwise receive any funds deposited into the Collateral Account. Anything contained herein to the contrary notwithstanding, the Collateral Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect. All deposits of funds in the Collateral Account shall be made by wire transfer (or, if applicable, by intra-bank transfer from another account of a Grantor) of immediately available funds, in each case addressed in accordance with instructions of Secured Party. Each Grantor shall, promptly after initiating a transfer of funds to the Collateral Account, give notice to Secured Party by telefacsimile of the date, amount and method of delivery of such deposit. Cash held by Secured Party in the Collateral Account shall not be invested by Secured Party but instead shall be maintained as a cash deposit in the Collateral Account pending application thereof as elsewhere provided in this Agreement. To the extent permitted under Regulation Q of the Board of Governors of the Federal Reserve System, any cash held in the Collateral Account shall bear interest at the standard rate paid by Secured Party to its customers for deposits of like amounts and terms. Subject to Secured Party's rights hereunder, any interest earned on deposits of cash in the Collateral Account shall be deposited directly in, and held in the Collateral Account. section 13. Secured Party Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints Secured Party as such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including without limitation: (a) upon the occurrence and during the continuance of an Event of Default, to obtain and adjust insurance required to be maintained by such Grantor or paid to Secured Party pursuant to Section 7; (b) upon the occurrence and during the continuance of an Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) upon the occurrence and during the continuance of an Event of Default, to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clauses (a) and (b) above; 21 (d) upon the occurrence and during the continuance of an Event of Default, to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral; (e) to pay or discharge taxes or Liens (other than Liens permitted under this Agreement or the Credit Agreement) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become obligations of such Grantor to Secured Party, due and payable immediately without demand; (f) upon the occurrence and during the continuance of an Event of Default, to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral; and (g) upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Grantors' expense, at any time or from time to time, all acts and things that Secured Party deems necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. section 14. Secured Party May Perform. If any Grantor fails to perform any agreement contained herein, Secured Party, upon notice to Grantor, may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Grantors under Section 19(b). section 15. Standard of Care. The powers conferred on Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property. section 16. Remedies. (a) Generally. If any Event of Default (as defined in the Credit Agreement), or the occurrence of an Early Termination Date (as defined in a Master Agreement in the form prepared by the International Swap and Derivatives Association, Inc. or a similar event under any 22 similar swap agreement or Currency Agreement) under any Lender Hedge Agreement which is not immediately paid, (either such occurrence being an "Event of Default" for purposes of this Agreement) shall have occurred and be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral), and also may (i) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, (ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Secured Party deems appropriate, (iv) take possession of any Grantor's premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of such Grantor's equipment for the purpose of completing any work in process, taking any actions described in the preceding clause (iii) and collecting any Secured Obligation, (v) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, (vi) exercise dominion and control over and refuse to permit further withdrawals from any Deposit Account maintained with Secured Party or any Lender constituting a part of the Collateral and (vii) without notice to any Grantor, transfer to or register in the name of Secured Party or any of its nominees any or all of the Securities Collateral. Secured Party or any Lender or Hedge Exchanger may be the purchaser of any or all of the Collateral at any such sale and Secured Party, as agent for and representative of Lenders and Hedge Exchangers (but not any Lender or Hedge Exchanger in its individual capacity unless Requisite Obligees (as defined in Section 21(a)) shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the 23 Collateral are insufficient to pay all the Secured Obligations, Grantors shall be jointly and severally liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and each Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. (b) Securities Collateral. (i) Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Securities Collateral conducted without prior registration or qualification of such Securities Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Securities Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances and the registration rights granted to Secured Party by such Grantor pursuant hereto, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Securities Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If Secured Party determines to exercise its right to sell any or all of the Securities Collateral, upon written request, each Grantor shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number of shares and other instruments included in the Securities Collateral which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. (ii) If Secured Party shall determine to exercise its right to sell all or any of the Securities Collateral pursuant to this Section, each Grantor agrees that, upon request of Secured Party (which request may be made by Secured Party in its sole discretion), Grantor will, at its own expense (A) execute and deliver, and cause each issuer of the Securities Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to register such Securities Collateral under the provisions of the 24 Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (B) use its best efforts to qualify the Securities Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Securities Collateral, as requested by Secured Party; (C) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (D) do or cause to be done all such other acts and things as may be necessary to make such sale of the Securities Collateral or any part thereof valid and binding and in compliance with applicable law; and (E) bear all costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section. (iii) Without limiting the generality of subsections 10.2 and 10.3 of the Credit Agreement, in the event of any public sale described herein, each Grantor agrees to indemnify and hold harmless Secured Party, and each Lender and each Hedge Exchanger and each of their respective directors, officers, employees and agents from and against any loss, fee, cost, expense, damage, liability or claim, joint or several, to which any such Persons may become subject or for which any of them may be liable, under the Securities Act or otherwise, insofar as such losses, fees, costs, expenses, damages, liabilities or claims (or any litigation commenced or threatened in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, registration statement, prospectus or other such document published or filed in connection with such public sale, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse Secured Party and such other Persons for any legal or other expenses reasonably incurred by Secured Party and such other Persons in connection with any litigation, of any nature whatsoever, commenced or threatened in respect thereof (including any and all fees, costs and expenses whatsoever reasonably incurred by Secured Party and such other Persons and counsel for Secured Party and such other Persons in investigating, preparing for, defending against or providing evidence, producing documents or taking any other action in respect of, any such commenced or threatened litigation or any claims asserted). This indemnity shall be in addition to any liability which any Grantor may otherwise have and shall extend upon the same terms and conditions to each Person, if any, that controls Secured Party or such Persons within the meaning of the Securities Act. (c) Collateral Account. If an Event of Default has occurred and is continuing and, in accordance with Section 8 of the Credit Agreement, Company is required to pay to Secured Party an amount (the "Aggregate Available Amount") equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding under the Credit 25 Agreement, Company shall deliver funds in such an amount for deposit in the Collateral Account. If for any reason the aggregate amount delivered by Company for deposit in the Collateral Account as aforesaid is less than the Aggregate Available Amount, the aggregate amount so delivered by Company shall be apportioned among all outstanding Letters of Credit for purposes of this Section in accordance with the ratio of the maximum amount available for drawing under each such Letter of Credit (as to such Letter of Credit, the "Maximum Available Amount") to the Aggregate Available Amount. Upon any drawing under any outstanding Letter of Credit in respect of which Company has deposited in the Collateral Account any amounts described above, Secured Party shall apply such amounts to reimburse the Issuing Lender for the amount of such drawing. In the event of cancellation or expiration of any Letter of Credit in respect of which Company has deposited in the Collateral Account any amounts described above, or in the event of any reduction in the Maximum Available Amount under such Letter of Credit, Secured Party shall apply the amount then on deposit in the Collateral Account in respect of such Letter of Credit (less, in the case of such a reduction, the Maximum Available Amount under such Letter of Credit immediately after such reduction) first, to the payment of any amounts payable to Secured Party pursuant to Section 18 hereof, second, to the extent of any excess, to the cash collateralization pursuant to the terms of this Agreement of any outstanding Letters of Credit in respect of which Company has failed to pay all or a portion of the amounts described above (such cash collateralization to be apportioned among all such Letters of Credit in the manner described above), third, to the extent of any further excess, to the payment of any other outstanding Secured Obligations in such order as Secured Party shall elect, and fourth, to the extent of any further excess, to the payment to whomsoever shall be lawfully entitled to receive such funds. section 17. Additional Remedies for Intellectual Property Collateral. (a) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default, (i) Secured Party shall have the right (but not the obligation) to bring suit, in the name of any Grantor, Secured Party or otherwise, to enforce any Intellectual Property Collateral, in which event each Grantor shall, at the request of Secured Party, do any and all lawful acts and execute any and all documents required by Secured Party in aid of such enforcement and each Grantor shall promptly, upon demand, reimburse and indemnify Secured Party as provided in Sections 10.2 and 10.3 of the Credit Agreement and Section 19 hereof, as applicable, in connection with the exercise of its rights under this Section, and, to the extent that Secured Party shall elect not to bring suit to enforce any Intellectual Property Collateral as provided in this Section, each Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement of any of the Intellectual Property Collateral by others and for that purpose agrees to use its commercially reasonable judgement in maintaining any action, suit or proceeding against any Person so infringing reasonably necessary to prevent such infringement; (ii) upon written demand from Secured Party, each Grantor shall execute and deliver to Secured Party an assignment or assignments of the Intellectual Property Collateral and such other documents as are necessary or appropriate to carry out the intent and purposes of this Agreement; (iii) each Grantor agrees that such an assignment and/or recording shall be applied to reduce the Secured Obligations outstanding only to the extent that Secured Party (or any Lender) receives cash 26 proceeds in respect of the sale of, or other realization upon, the Intellectual Property Collateral; and (iv) within five Business Days after written notice from Secured Party, each Grantor shall make available to Secured Party, to the extent within such Grantor's power and authority, such personnel in such Grantor's employ on the date of such Event of Default as Secured Party may reasonably designate, by name, title or job responsibility, to permit such Grantor to continue, directly or indirectly, to produce, advertise and sell the products and services sold or delivered by such Grantor under or in connection with the Trademarks, Trademark Registrations and Trademark Rights, such persons to be available to perform their prior functions on Secured Party's behalf and to be compensated by Secured Party at such Grantor's expense on a per diem, pro-rata basis consistent with the salary and benefit structure applicable to each as of the date of such Event of Default. (b) If (i) an Event of Default shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (ii) no other Event of Default shall have occurred and be continuing, (iii) an assignment to Secured Party of any rights, title and interests in and to the Intellectual Property Collateral shall have been previously made, and (iv) the Secured Obligations shall not have become immediately due and payable, upon the written request of any Grantor, Secured Party shall promptly execute and deliver to such Grantor such assignments as may be necessary or desirable to reassign to such Grantor any such rights, title and interests as may have been assigned to Secured Party as aforesaid, subject to any disposition thereof that may have been made by Secured Party; provided, after giving effect to such reassignment, Secured Party's security interest granted pursuant hereto, as well as all other rights and remedies of Secured Party granted hereunder, shall continue to be in full force and effect; and provided further, the rights, title and interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to Secured Party and Permitted Encumbrances. section 18. Application of Proceeds. Except as expressly provided elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied as provided in the Credit Agreement. section 19. Indemnity and Expenses. (a) Grantors jointly and severally agree to indemnify Secured Party, each Lender and each Hedge Exchanger from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including without limitation enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's or such Lender's or Hedge Exchanger's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) Grantors jointly and severally agree to pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the 27 administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by any Grantor to perform or observe any of the provisions hereof. (c) The obligations of Grantors in this Section 19 shall survive the termination of this Agreement and the discharge of Grantors' other obligations under this Agreement, the Lender Hedge Agreements, the Credit Agreement and the other Loan Documents. section 20. Continuing Security Interest; Transfer of Loans. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the payment in full of the Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Grantors and their respective successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), (i) but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise and (ii) any Hedge Exchanger may assign or otherwise transfer any Lender Hedge Agreement to which it is a party to any other Person in accordance with the terms of such Lender Hedge Agreement, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Hedge Exchangers herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the applicable Grantors. Upon any such termination Secured Party will, at Grantors' expense, execute and deliver to Grantors such documents as Grantors shall reasonably request to evidence such termination. In addition, upon the proposed sale, transfer or other disposition of any Collateral by a Grantor in accordance with the Credit Agreement for which such Grantor desires to obtain a security interest release from Secured Party, such Grantor shall deliver an Officer's Certificate (x) stating that the Collateral subject to such disposition is being sold, transferred or otherwise disposed of in compliance with the terms of the Credit Agreement and (y) specifying the Collateral being sold, transferred or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate, Secured Party shall, at Grantor's expense, so long as Secured Party has no reason to believe that the Officer's Certificate delivered by such Grantor with respect to such sale is not true and correct, execute and deliver such releases of its security interest in such Collateral which is to be so sold, transferred or disposed of, as may be reasonably requested by such Grantor. section 21. Secured Party as Agent. (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders and, by their acceptance of the benefits hereof, Hedge Exchangers. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or 28 refrain from exercising any rights, and to take or refrain from taking any action (including without limitation the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured Party shall exercise, or refrain from exercising, any remedies provided for in Section 16 in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the cancellation or expiration of all Letters of Credit and the termination of the Commitments, (A) the holders of a majority of the aggregate notional amount under all Lender Hedge Agreements (including Lender Hedge Agreements that have been terminated) or (B) if all Lender Hedge Agreements have been terminated in accordance with their terms, the aggregate amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Hedge Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "Requisite Obligees"). In furtherance of the foregoing provisions of this Section 21(a), each Hedge Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Hedge Exchanger that all rights and remedies hereunder may be exercised solely by Secured Party for the benefit of Lenders and Hedge Exchangers in accordance with the terms of this Section 21(a). (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. (c) Secured Party shall not be deemed to have any duty whatsoever with respect to any Hedge Exchanger until it shall have received written notice in form and substance satisfactory to Secured Party from a Grantor or the Hedge Exchanger as to the existence and terms of the applicable Lender Hedge Agreement. 29 section 22. Additional Grantors. The initial Subsidiary Grantors hereunder shall be such of the wholly-owned Domestic Subsidiaries of Company as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, additional wholly-owned Domestic Subsidiaries of Company may become parties hereto as additional Grantors (each an "Additional Grantor"), by executing a Counterpart substantially in the form of Exhibit VI annexed hereto. Upon delivery of any such Counterpart to Secured Party, notice of which is hereby waived by Grantors, each such Additional Grantor shall be a Grantor and shall be as fully a party hereto as if such Additional Grantor were an original signatory hereto. Each Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder, nor by any election of Administrative Agent not to cause any wholly-owned Domestic Subsidiary of Company to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder. section 23. Amendments; Etc. No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by any Grantor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Grantors; provided this Agreement may be modified by the execution of a Counterpart by an Additional Grantor in accordance with Section 22 and Grantors hereby waive any requirement of notice of or consent to any such amendment. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. section 24. Notices. Any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that notices to Secured Party shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement or as set forth under such party's name on the signature pages hereof or such other address as shall be designated by such party in a written notice delivered to the other parties hereto. section 25. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or 30 privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. section 26. Severability. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. section 27. Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. section 28. Governing Law; Terms; Rules of Construction. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UCC PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Agreement mutatis mutandis. section 29. Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE , COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 24; (IV) AGREES THAT SERVICE AS 31 PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 29 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. section 30. Waiver of Jury Trial. GRANTORS AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Grantor and Secured Party acknowledge that this waiver is a material inducement for Grantors and Secured Party to enter into a business relationship, that Grantors and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Each Grantor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 30 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. section 31. Counterparts. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. section 32. Suretyship Waivers by Grantors, etc. (a) Each Grantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Secured Obligations. In furtherance of the foregoing and without limiting the generality thereof, each 32 Grantor agrees as follows: (i) Secured Party or any Lender or any Hedge Exchanger may from time to time, without notice or demand and without affecting the validity or enforceability of this Agreement or giving rise to any limitation, impairment or discharge of such Grantor's liability hereunder, (A) renew, extend, accelerate or otherwise change the time, place, manner or terms of payment of the Secured Obligations, (B) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Secured Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations, (C) request and accept guaranties of the Secured Obligations and take and hold other security for the payment of the Secured Obligations, (D) release, exchange, compromise, subordinate or modify, with or without consideration, any other security for payment of the Secured Obligations, any guaranties of the Secured Obligations, or any other obligation of any Person with respect to the Secured Obligations, (E) enforce and apply any other security now or hereafter held by or for the benefit of Secured Party, any Lender or any Hedge Exchanger in respect of the Secured Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that Secured Party, Lenders or Hedge Exchangers, or any of them, may have against any such security, as Secured Party in its discretion may determine consistent with the Credit Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and (F) exercise any other rights available to Secured Party, Lenders or Hedge Exchangers, or any of them, under the Loan Documents and the Lender Hedge Agreements, at law or in equity; and (ii) this Agreement and the obligations of each Grantor hereunder shall be valid and enforceable and shall not be subject to any limitation, impairment or discharge for any reason (other than payment in full of the Secured Obligations), including without limitation the occurrence of any of the following, whether or not such Grantor shall have had notice or knowledge of any of them: (A) any failure to assert or enforce or agreement not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy with respect to the Secured Obligations or any agreement relating thereto, or with respect to any guaranty of or other security for the payment of the Secured Obligations, (B) any waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events of default) of the Credit Agreement, any of the other Loan Documents, any of the Lender Hedge Agreements or any agreement or instrument executed pursuant thereto, or of any guaranty or other security for the Secured Obligations, (C) the Secured Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect, (D) the application of payments received from any source to the payment of indebtedness other than the Secured Obligations, even though Secured Party, Lenders or Hedge Exchangers or any of them, might have elected to apply such payment to any part or all of the Secured Obligations, (E) any failure to perfect or continue perfection of a security interest in any other collateral which secures any of the Secured Obligations, (F) any defenses, set-offs or counterclaims which Company may allege or assert against Secured Party, any Lender or any Hedge Exchanger in respect of the Secured Obligations, including but not limited to failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury, and (G) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Grantor as an obligor in respect of the Secured Obligations. 33 (b) Each Grantor hereby waives, for the benefit of Lenders, Hedge Exchangers and Secured Party: (i) any right to require Secured Party, Lenders or Hedge Exchangers, as a condition of payment or performance by such Grantor, to (A) proceed against Company, any guarantor of the Secured Obligations or any other Person, (B) proceed against or exhaust any other security held from Company, any guarantor of the Secured Obligations or any other Person, (C) proceed against or have resort to any balance of any deposit account or credit on the books of Secured Party, any Lender or any Hedge Exchanger in favor of Company or any other Person, or (D) pursue any other remedy in the power of Secured Party or any Lender or any Hedge Exchanger whatsoever; (ii) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Secured Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company from any cause other than payment in full of the Secured Obligations; (iii) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (iv) any defense based upon Secured Party's, any Lender's or any Hedge Exchanger's errors or omissions in the administration of the Secured Obligations, except behavior which amounts to bad faith; (v) (A) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Agreement and any legal or equitable discharge of such Grantor's obligations hereunder, (B) the benefit of any statute of limitations affecting such Grantor's liability hereunder or the enforcement hereof, (C) any rights to set-offs, recoupments and counterclaims, and (D) promptness, diligence and any requirement that Secured Party, any Lender or any Hedge Exchanger protect, secure, perfect or insure any other security interest or lien or any property subject thereto; (vi) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, notices of default under the Credit Agreement or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Secured Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in the preceding paragraph and any right to consent to any thereof; and (vii) to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Agreement. (c) As used in this Section 32(c), any reference to "the principal" includes Company, and any reference to "the creditor" includes Secured Party, each Lender and each Hedge Exchanger. In accordance with Section 2856 of the California Civil Code (a) each Grantor waives any and all rights and defenses available to Grantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code, including without limitation any and all rights or defenses such Grantor may have by reason of protection afforded to the principal with respect to any of the Secured Obligations, or to any guarantor of any of the Secured Obligations with respect to any of such guarantor's obligations under its guaranty, in either case pursuant to the antideficiency or other laws of the State of California limiting or discharging the principal's indebtedness or such guarantor's obligations, including without limitation Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure; and (b) each Grantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for any of the 34 Secured Obligations, has destroyed such Grantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the Code of Civil Procedure or otherwise; and even though that election of remedies by the creditor, such as nonjudicial foreclosure with respect to security for an obligation of any guarantor of any of the Secured Obligations, has destroyed such Grantor's rights of contribution against such guarantor. No other provision of this Agreement shall be construed as limiting the generality of any of the covenants and waivers set forth in this Section 32(c). As provided in Section 28, this Agreement shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of New York, without regard to conflicts of laws principles. This Section 32(c) is included solely out of an abundance of caution, and shall not be construed to mean that any of the above-referenced provisions of California law are in any way applicable to this Agreement or to any of the Secured Obligations. (d) Until the Secured Obligations shall have been paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Grantor shall withhold exercise of (i) any claim, right or remedy, direct or indirect, that such Grantor now has or may hereafter have against Company or any of its assets in connection with this Agreement or the performance by such Grantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute (including without limitation under California Civil Code Section 2847, 2848 or 2849), under common law or otherwise and including without limitation (A) any right of subrogation, reimbursement or indemnification that Grantor now has or may hereafter have against Company, (B) any right to enforce, or to participate in, any claim, right or remedy that Secured Party, any Lender or any Hedge Exchanger now has or may hereafter have against Company, and (C) any benefit of, and any right to participate in, any other collateral or security now or hereafter held by Secured Party, any Lender or any Hedge Exchanger, and (ii) any right of contribution such Grantor may have against any guarantor of the Secured Obligations. Each Grantor further agrees that, to the extent the waiver of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Grantor may have against Company or against any other collateral or security, and any rights of contribution such Grantor may have against any such guarantor, shall be junior and subordinate to any rights Secured Party, Lenders or Hedge Exchangers may have against Company, to all right, title and interest Secured Party, Lenders or Hedge Exchangers may have in any such other collateral or security, and to any right Secured Party, Lenders or Hedge Exchangers may have against any such guarantor. (e) Lenders, Hedge Exchangers and Secured Party shall have no obligation to disclose or discuss with any Grantor their assessment, or such Grantor's assessment, of the financial condition of Company. Each Grantor has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Loan Documents and Lender Hedge Agreements, and such Grantor assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Secured Obligations. Each Grantor hereby waives and relinquishes any duty on the part of Secured Party, 35 any Lender or any Hedge Exchanger to disclose any matter, fact or thing relating to the business, operations or condition of Company now known or hereafter known by Secured Party, any Lender or any Hedge Exchanger. [Remainder of page intentionally left blank] 36 IN WITNESS WHEREOF, Grantors and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: AUTOTOTE CORPORATION By: ---------------------------------------- Name: Title: SUBSIDIARY GRANTORS: AUTOTOTE MANAGEMENT CORPORATION By: ---------------------------------------- Name: Title: Address: 100 Bellevue Road Newark , DE 19714 AUTOTOTE SYSTEMS, INC. By: ---------------------------------------- Name: Title: Address: 100 Bellevue Road Newark , DE 19714 A-1 AUTOTOTE INTERNATIONAL, INC. By: ---------------------------------------- Name: Title: Address: 100 Bellevue Road Newark , DE 19714 AUTOTOTE ENTERPRISES, INC. By: ---------------------------------------- Name: Title: Address: 600 Long Wharf Drive New Haven, CT 06511 AUTOTOTE KENO CORPORATION By: ---------------------------------------- Name: Title: Address: 100 Bellevue Road Newark , DE 19714 A-2 AUTOTOTE LOTTERY CORPORATION By: ---------------------------------------- Name: Title: Address: 1500 Bluegrass Lakes Parkway Alpharetta, GA 30004 ACRA ACQUISITION CORP. By: ---------------------------------------- Name: Title: Address: 100 Bellevue Road Newark , DE 19714 MARVIN H. SUGARMAN PRODUCTIONS, INC. By: ---------------------------------------- Name: Title: Address: 750 Lexington Avenue New York, NY 10022 A-3 AUTOTOTE GAMING, INC. By: ---------------------------------------- Name: Title: Address: 100 Bellevue Road Newark , DE 19714 AUTOTOTE DOMINICANA, INC. By: ---------------------------------------- Name: Title: Address: 100 Bellevue Road Newark , DE 19714 SCIENTIFIC GAMES HOLDING CORP. By: ---------------------------------------- Name: Title: Address: 1500 Bluegrass Lakes Parkway Alpharetta, GA 30004 A-4 SCIENTIFIC GAMES INC. By: ---------------------------------------- Name: Title: Address: 1500 Bluegrass Lakes Parkway Alpharetta, GA 30004 SCIENTIFIC GAMES (GREECE), INC. By: ---------------------------------------- Name: Title: Address: 1500 Bluegrass Lakes Parkway Alpharetta, GA 30004 SCIENTIFIC ACQUISITION INC. By: ---------------------------------------- Name: Title: Address: 1500 Bluegrass Lakes Parkway Alpharetta, GA 30004 A-5 SCIENTIFIC GAMES FINANCE CORPORATION By: ---------------------------------------- Name: Title: Address: 900 Market Street, Suite 200 Wilmington, DE 19801 SCIENTIFIC GAMES ROYALTY CORPORATION By: ---------------------------------------- Name: Title: Address: 900 Market Street, Suite 200 Wilmington, DE 19801 SCIGAMES FRANCE INC. By: ---------------------------------------- Name: Title: Address: 1500 Bluegrass Lakes Parkway Alpharetta, GA 30004 A-6 DLJ CAPITAL FUNDING, INC., as Secured Party By: ---------------------------------------- Name: Title: SCHEDULE 1(e)(i) TO SECURITY AGREEMENT - -------------------------------------------------------------------------------- Class Percentage of Stock Par Number of of Stock Issuer Stock Certificate Nos. Value Shares Outstanding Shares Pledged ================================================================================ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1(e)(i)-1 SCHEDULE 1(e)(ii) TO SECURITY AGREEMENT - -------------------------------------------------------------------------------- Amount of Debt Issuer Indebtedness - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ 1(e)(ii)-1 SCHEDULE 1(f)(i) TO SECURITY AGREEMENT U.S. Trademarks: Trademark Registration Registration Registered Owner Description Number Date ---------------- ----------- ------ ---- Foreign Trademarks: Trademark Registration Registration Registered Owner Description Number Date ---------------- ----------- ------ ---- 1(f)(i)-1 SCHEDULE 1(f)(ii) TO SECURITY AGREEMENT U.S. Patents Issued: Patent No. Issue Date Invention Inventor ---------- ---------- --------- -------- U.S. Patents Pending: Applicant's Date Application Name Filed Number Invention Inventor ---- ----- ------ --------- -------- Foreign Patents Issued: Patent No. Issue Date Invention Inventor ---------- ---------- --------- -------- 1(f)(ii)-1 Foreign Patents Pending: Applicant's Date Application Name Filed Number Invention Inventor ---- ----- ------ --------- -------- 1(f)(ii)-2 SCHEDULE 1(f)(iii) TO SECURITY AGREEMENT U.S. Copyrights: Title Registration No. Date of Issue Registered Owner - ----- ---------------- ------------- ---------------- Foreign Copyright Registrations: Country Title Registration No. Date of Issue - ------- ----- ---------------- ------------- Pending U.S. Copyright Registrations & Applications: Title Reference No. Date of Application Copyright Claimant - ----- ------------- ------------------- ------------------ Pending Foreign Copyright Registrations & Applications: Country Title Registration No. Date of Issue - ------- ----- ---------------- ------------- 1(f)(iii)-1 SCHEDULE 1(h) TO SECURITY AGREEMENT Assigned Agreements 1(h)-1 SCHEDULE 1(m) TO SECURITY AGREEMENT 1(m)-1 SCHEDULE 4(b) TO SECURITY AGREEMENT Locations of Equipment and Inventory Name of Grantor Locations of Equipment and Inventory - --------------- ------------------------------------ 4(b)-1 SCHEDULE 4(d) TO SECURITY AGREEMENT Office Locations Name of Grantor Office Locations - --------------- ---------------- 4(d)-1 SCHEDULE 4(e) TO SECURITY AGREEMENT Other Names Name of Grantor Other Names - --------------- ----------- 4(e)-1 SCHEDULE 4(i) TO SECURITY AGREEMENT Filing Offices Grantor Filing Offices ------- -------------- 4(i)-1 EXHIBIT I TO SECURITY AGREEMENT [FORM OF GRANT OF TRADEMARK SECURITY INTEREST] GRANT OF TRADEMARK SECURITY INTEREST WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns and uses in its business, and will in the future adopt and so use, various intangible assets, including the Trademark Collateral (as defined below); and WHEREAS, Autotote Corporation, a Delaware corporation ("Company"), has entered into a Credit Agreement dated as of September 6, 2000 (said Credit Agreement, as it may heretofore have been and as it may hereafter be amended, supplemented, restated or otherwise modified from time to time, being the "Credit Agreement") with the financial institutions named therein (collectively, together with their respective successors and assigns party to the Credit Agreement from time to time, the "Lenders"), DLJ Capital Funding, Inc., as Administrative Agent, Syndication Agent, Lead Arranger and Sole Book Running Manager ("Secured Party"), Lehman Commercial Paper Inc., as Documentation Agent and Lehman Brothers Inc., as Co-Arranger, pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Company; and WHEREAS, Company [and its Subsidiary Guarantors, as the case may be,] may from time to time enter, or may from time to time have entered, into one or more Hedge Agreements (collectively, the "Lender Hedge Agreements") with one or more Persons that are Lenders or Affiliates of Lenders at the time such Lender Hedge Agreements are entered into (in such capacity, collectively, "Hedge Exchangers"); and [Insert if Grantor is a Subsidiary:] [WHEREAS, Grantor has executed and delivered that certain Subsidiary Guaranty dated as of September 6, 2000 (said Subsidiary Guaranty, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "Guaranty") in favor of Secured Party for the benefit of Lenders and any Hedge Exchangers, pursuant to which Grantor has guarantied the prompt payment and performance when due of all obligations of Company under the Credit Agreement and the other Loan Documents and all obligations of Company under the Lender Hedge Agreements, including without limitation the obligation of Company to make payments thereunder in the event of early termination thereof; and] WHEREAS, pursuant to the terms of a Security Agreement dated as of September 6, 2000 (as amended, supplemented or otherwise modified from time to time, the "Security Agreement"), among Grantor, Secured Party and the other grantors named therein, Grantor has agreed to create in favor of Secured Party a secured and protected interest in, and Secured Party has agreed to become a secured creditor with respect to, the Trademark Collateral; I-1 NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and conditions of the Security Agreement, Grantor hereby grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Trademark Collateral"): (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise but only to the extent permitted by agreements governing such license or other use) in and to all trademarks, service marks, designs, logos, indicia, tradenames, trade dress, corporate names, company names, business names, fictitious business names, trade styles and/or other source and/or business identifiers and applications pertaining thereto, owned by such Grantor, or hereafter adopted and used, in its business (including, without limitation, the trademarks specifically identified in Schedule A) (collectively, the "Trademarks"), all registrations that have been or may hereafter be issued or applied for thereon in the United States and any state thereof and in foreign countries (including, without limitation, the registrations and applications specifically identified in Schedule A) (the "Trademark Registrations"), all common law and other rights (but in no event any of the obligations) in and to the Trademarks in the United States and any state thereof and in foreign countries (the "Trademark Rights"), and all goodwill of such Grantor's business symbolized by the Trademarks and associated therewith (the "Associated Goodwill"); and (ii) all proceeds, products, rents and profits of or from any and all of the foregoing Trademark Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Trademark Collateral. For purposes of this Grant of Trademark Security Interest, the term "proceeds" includes whatever is receivable or received when Trademark Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding anything herein to the contrary, in no event shall the Trademark Collateral include, and Grantor shall be not deemed to have granted a security interest in, any of Grantor's rights or interests in any license, contract or agreement to which Grantor is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any license, contract or agreement to which Grantor is a party; provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Trademark Collateral shall include, and Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the Trademark Collateral granted hereby I-2 are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. [The remainder of this page is intentionally left blank.] I-3 IN WITNESS WHEREOF, Grantor has caused this Grant of Trademark Security Interest to be duly executed and delivered by its officer thereunto duly authorized as of the __ day of _______, _____. [NAME OF GRANTOR] By: ---------------------------------------- Name: ---------------------------------- Title: --------------------------------- I-4 SCHEDULE A TO GRANT OF TRADEMARK SECURITY INTEREST United States Trademark Registration Registration Registered Owner Description Number Date - ---------------- ----------- ------ ---- I-A-1 EXHIBIT II TO SECURITY AGREEMENT [FORM OF GRANT OF PATENT SECURITY INTEREST] GRANT OF PATENT SECURITY INTEREST WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns and uses in its business, and will in the future adopt and so use, various intangible assets, including the Patent Collateral (as defined below); and WHEREAS, Autotote Corporation, a Delaware corporation ("Company"), has entered into a Credit Agreement dated as of September 6, 2000 (said Credit Agreement, as it may heretofore have been and as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "Credit Agreement") with the financial institutions named therein (collectively, together with their respective successors and assigns party to the Credit Agreement from time to time, the "Lenders"), DLJ Capital Funding, Inc., as Administrative Agent, Syndication Agent, Lead Arranger and Sole Book Running Manager ("Secured Party"), Lehman Commercial Paper Inc., as Documentation Agent and Lehman Brothers Inc., as Co-Arranger, pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Company; and WHEREAS, Company [and its Subsidiary Guarantors, as the case may be,] may from time to time enter, or may from time to time have entered, into one or more Hedge Agreements (collectively, the "Lender Hedge Agreements") with one or more Persons that are Lenders or Affiliates of Lenders at the time such Lender Hedge Agreements are entered into (in such capacity, collectively, "Hedge Exchangers"); and [Insert if Grantor is a Subsidiary:] [WHEREAS, Grantor has executed and delivered that certain Subsidiary Guaranty dated as of September 6, 2000 (said Subsidiary Guaranty, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "Guaranty") in favor of Secured Party for the benefit of Lenders and any Hedge Exchangers, pursuant to which Grantor has guarantied the prompt payment and performance when due of all obligations of Company under the Credit Agreement and the other Loan Documents and all obligations of Company under the Lender Hedge Agreements, including without limitation the obligation of Company to make payments thereunder in the event of early termination thereof; and] WHEREAS, pursuant to the terms of a Security Agreement dated as of September 6, 2000 (as amended, supplemented or otherwise modified from time to time, the "Security Agreement"), among Grantor, Secured Party and the other grantors named therein, Grantor has agreed to create in favor of Secured Party a secured and protected interest in, and Secured Party has agreed to become a secured creditor with respect to, the Patent Collateral; II-1 NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and conditions of the Security Agreement, Grantor hereby grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Patent Collateral"): (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise but only to the extent permitted by agreements governing such license or other use) in and to all patents and patent applications and rights and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned or held by such Grantor and all patents and patent applications and rights, title and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned by such Grantor in whole or in part (including, without limitation, the patents and patent applications listed in Schedule A), all rights (but not obligations) corresponding thereto to sue for past, present and future infringements and all re-issues, divisions, continuations, renewals, extensions and continuations-in-part thereof (all of the foregoing being collectively referred to as the "Patents"); and (ii) all proceeds, products, rents and profits of or from any and all of the foregoing Patent Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Patent Collateral. For purposes of this Grant of Patent Security Interest, the term "proceeds" includes whatever is receivable or received when Patent Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding anything herein to the contrary, in no event shall the Patent Collateral include, and Grantor shall be not deemed to have granted a security interest in, any of Grantor's rights or interests in any license, contract or agreement to which Grantor is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any license, contract or agreement to which Grantor is a party; provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Patent Collateral shall include, and Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the Patent Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. [The remainder of this page intentionally left blank.] II-2 IN WITNESS WHEREOF, Grantor has caused this Grant of Patent Security Interest to be duly executed and delivered by its officer thereunto duly authorized as of the ___ day of ____________, _____. [NAME OF GRANTOR] By: ---------------------------------------- Name: ---------------------------------- Title: --------------------------------- II-3 SCHEDULE A TO GRANT OF PATENT SECURITY INTEREST Patents Issued: Patent No. Issue Date Invention Inventor ---------- ---------- --------- -------- Patents Pending: Applicant's Date Application Name Filed Number Invention Inventor ---- ----- ------ --------- -------- II-A-1 EXHIBIT III TO SECURITY AGREEMENT [FORM OF GRANT OF COPYRIGHT SECURITY INTEREST] GRANT OF COPYRIGHT SECURITY INTEREST WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns and uses in its business, and will in the future adopt and so use, various intangible assets, including the Copyright Collateral (as defined below); and WHEREAS, Autotote Corporation, a Delaware corporation ("Company"), has entered into a Credit Agreement dated as of September 6, 2000 (said Credit Agreement, as it may heretofore have been and as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "Credit Agreement") with the financial institutions named therein (collectively, together with their respective successors and assigns party to the Credit Agreement from time to time, the "Lenders"), DLJ Capital Funding, Inc., as Administrative Agent, Syndication Agent, Lead Arranger and Sole Book Running Manager ("Secured Party"), Lehman Commercial Paper Inc., as Documentation Agent and Lehman Brothers Inc., as Co-Arranger, pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Company; and WHEREAS, Company [and its Subsidiary Guarantors, as the case may be,] may from time to time enter, or may from time to time have entered, into one or more Hedge Agreements (collectively, the "Lender Hedge Agreements") with one or more Persons that are Lenders or Affiliates of Lenders at the time such Lender Hedge Agreements are entered into (in such capacity, collectively, "Hedge Exchangers"); and [Insert if Grantor is a Subsidiary:] [WHEREAS, Grantor has executed and delivered that certain [Subsidiary] Guaranty dated as of September 6, 2000 (said Subsidiary Guaranty, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "Guaranty") in favor of Secured Party for the benefit of Lenders and any Hedge Exchangers, pursuant to which Grantor has guarantied the prompt payment and performance when due of all obligations of Company under the Credit Agreement and the other Loan Documents and all obligations of Company under the Lender Hedge Agreements, including without limitation the obligation of Company to make payments thereunder in the event of early termination thereof; and] WHEREAS, pursuant to the terms of a Security Agreement dated as of September 6, 2000 (as amended, supplemented or otherwise modified from time to time, the "Security Agreement"), among Grantor, Secured Party and the other grantors named therein, Grantor has agreed to create in favor of Secured Party a secured and protected interest in, and Secured Party has agreed to become a secured creditor with respect to, the Copyright Collateral; III-1 NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and conditions of the Security Agreement, Grantor hereby grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Copyright Collateral"): (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise but only to the extent permitted by agreements governing such license or other use) under copyright in various published and unpublished works of authorship including, without limitation, computer programs, computer data bases, other computer software layouts, trade dress, drawings, designs, writings, and formulas (including, without limitation, the works listed on Schedule A, as the same may be amended pursuant hereto from time to time) (collectively, the "Copyrights"), all copyright registrations issued to Grantor and applications for copyright registration that have been or may hereafter be issued or applied for thereon in the United States and any state thereof and in foreign countries (including, without limitation, the registrations listed on Schedule A, as the same may be amended pursuant hereto from time to time) (collectively, the "Copyright Registrations"), all common law and other rights in and to the Copyrights in the United States and any state thereof and in foreign countries including all copyright licenses (but with respect to such copyright licenses, only to the extent permitted by such licensing arrangements) (the "Copyright Rights"), including, without limitation, each of the Copyrights, rights, titles and interests in and to the Copyrights, all derivative works and other works protectable by copyright, which are presently, or in the future may be, owned, created (as a work for hire for the benefit of Grantor), authored (as a work for hire for the benefit of Grantor), or acquired by Grantor, in whole or in part, and all Copyright Rights with respect thereto and all Copyright Registrations therefor, heretofore or hereafter granted or applied for, and all renewals and extensions thereof, throughout the world, including all proceeds thereof (such as, by way of example and not by limitation, license royalties and proceeds of infringement suits), the right (but not the obligation) to renew and extend such Copyright Registrations and Copyright Rights and to register works protectable by copyright and the right (but not the obligation) to sue in the name of such Grantor or in the name of Secured Party or Lenders for past, present and future infringements of the Copyrights and Copyright Rights; and (ii) all proceeds, products, rents and profits of or from any and all of the foregoing Copyright Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Copyright Collateral. For purposes of this Grant of Copyright Security Interest, the term "proceeds" includes whatever is receivable or received when Copyright Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. III-2 Notwithstanding anything herein to the contrary, in no event shall the Copyright Collateral include, and Grantor shall be not deemed to have granted a security interest in, any of Grantor's rights or interests in any license, contract or agreement to which Grantor is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any license, contract or agreement to which Grantor is a party; provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Copyright Collateral shall include, and Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the Copyright Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. [The remainder of this page intentionally left blank.] III-3 IN WITNESS WHEREOF, Grantor has caused this Grant of Copyright Security Interest to be duly executed and delivered by its officer thereunto duly authorized as of the ___ day of ___________, _____. [NAME OF GRANTOR] By: ---------------------------------------- Name: ---------------------------------- Title: --------------------------------- III-4 SCHEDULE A TO GRANT OF COPYRIGHT SECURITY INTEREST U.S. Copyrights: Title Registration No. Date of Issue Registered Owner - ----- ---------------- ------------- ---------------- Pending U.S. Copyright Registrations & Applications: Title Reference No. Date of Application Copyright Claimant - ----- ------------- ------------------- --------- -------- III-A-1 EXHIBIT IV TO SECURITY AGREEMENT PLEDGE SUPPLEMENT This Pledge Supplement, dated __________________, is delivered pursuant to the Security Agreement, dated September 6, 2000, between ____________________, a _______________ ("Grantor"), the other Grantors named therein, and __________________ (as it may be from time to time amended, modified or supplemented, the "Security Agreement"). Capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in the Security Agreement. Grantor hereby agrees that the [Pledged Shares] [Pledged Debt] listed on the schedule attached hereto shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and shall become part of the Securities Collateral and shall secure all Secured Obligations. IN WITNESS WHEREOF, Grantor has caused this Amendment to be duly executed and delivered by its duly authorized officer as of _______________. [GRANTOR] By: ---------------------------------------- Title: IV-1 EXHIBIT V TO SECURITY AGREEMENT IP SUPPLEMENT This IP SUPPLEMENT, dated _______, is delivered pursuant to and supplements (i) the Security Agreement, dated as of September 6, 2000 (as it may be from time to time amended, modified or supplemented, the "Security Agreement"), among Autotote Corporation, [Insert Name of Grantor], the other Grantors named therein, and DLJ Capital Funding, Inc., as Secured Party, and (ii) the [Grant of Trademark Security Interest] [Grant of Patent Security Interest] [Grant of Copyright Security Interest] dated as of ___________, _____ (the "Grant") executed by Grantor. Capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in the Grant. ["Grantor"] grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the [Trademark Collateral] [Patent Collateral] [Copyright Collateral] listed on Schedule A attached hereto. All such [Trademark Collateral] [Patent Collateral] [Copyright Collateral] shall be deemed to be part of the [Trademark Collateral] [Patent Collateral] [Copyright Collateral] and shall be hereafter subject to each of the terms and conditions of the Security Agreement and the Grant. IN WITNESS WHEREOF, Grantor has caused this Supplement to be duly executed and delivered by its duly authorized officer as of ______________. [GRANTOR] By: ---------------------------------------- Name: Title: V-1 EXHIBIT VI TO SECURITY AGREEMENT [FORM OF COUNTERPART] COUNTERPART (this "Counterpart"), dated _______, is delivered pursuant to Section 22 of the Security Agreement referred to below. The undersigned hereby agrees that this Counterpart may be attached to the Security Agreement, dated as of September 6, 2000 (as it may be from time to time amended, modified or supplemented, the "Security Agreement"; capitalized terms used herein not otherwise defined herein shall have the meanings ascribed therein), among Autotote Corporation, the other Grantors named therein, and DLJ Capital Funding, Inc., as Secured Party. The undersigned by executing and delivering this Counterpart hereby becomes a Grantor under the Security Agreement in accordance with Section 22 thereof and agrees to be bound by all of the terms thereof. [Without limiting the generality of the foregoing, the undersigned hereby: (i) authorizes the Secured Party to add the information set forth on the Schedules to this Agreement to the correlative Schedules attached to the Security Agreement(1); (ii) agrees that all Collateral of the undersigned, including the items of property described on the Schedules hereto, shall become part of the Collateral and shall secure all Secured Obligations; and (iii) makes the representations and warranties set forth in the Security Agreement, as amended hereby, to the extent relating to the undersigned.] [NAME OF ADDITIONAL GRANTOR] By: ----------------------------------------- Name: Title: - ---------------- VI-1 EX-10.41 11 0011.txt WARRANT REGISTRATION RIGHTS AGREEMENT WARRANT REGISTRATION RIGHTS AGREEMENT AUTOTOTE CORPORATION Warrants to Purchase 2,900,000 Shares of Class A Common Stock Dated as of September 6, 2000 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION and LB I GROUP INC. This Warrant Registration Rights Agreement (this "Agreement") is made and entered into as of September 6, 2000, among Autotote Corporation, a Delaware corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities Corporation and LB I Group Inc. (collectively, the "Initial Holders"). FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby acknowledged, the Company has agreed to provide the registration rights set forth in this Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Warrants. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following capitalized terms shall have the following meanings: Advice: As defined in Section 4(b) hereof. Black Out Notice: As defined in Section 4(b) hereof. Black Out Period: As defined in Section 3(a) hereof. Closing Date: The date hereof. Commission: The Securities and Exchange Commission. Holder: As defined in Section 2 hereof. NASD: National Association of Securities Dealers, Inc. Prospectus: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Registration Statement: Any registration statement of the Company relating to the registration for resale of Transfer Restricted Securities that is filed pursuant to the provisions of this Agreement and including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. -2- Rule 144: Rule 144 promulgated under the Act. Transfer Restricted Securities: Each Warrant and Warrant Security until the earlier to occur of (i) the date on which such Warrant or Warrant Security (other than any Warrant Security issued upon exercise of a Warrant in accordance with a Registration Statement) has been disposed of in accordance with a Registration Statement and (ii) the date on which such Warrant or Warrant Security (or the related Warrant) is distributed to the public pursuant to Rule 144 under the Act. Warrants: Collectively, (i) the Warrant, of even date herewith, issued to Donaldson, Lufkin & Jenrette Securities Corporation initially to acquire 2,320,000 shares of Class A Common Stock, (ii) the Warrant, of even date herewith, issued to LB I Group Inc. initially to acquire 580,000 shares of Class A Common Stock, and (iii) any additional warrants of the same series as the foregoing which may be issued from time to time in accordance with the terms hereof and thereof. Warrant Securities: Collectively, the shares of Class A Common Stock issuable upon exercise or redemption of the Warrants, as adjusted pursuant to the terms of the Warrants from time to time, and all other securities which issuable upon exercise or redemption of the Warrants pursuant to their terms. 2. Holders A person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such person is the holder of record of Transfer Restricted Securities. 3. Shelf Registration (a) Shelf Registration. The Company shall prepare and cause to be filed with the Commission on or before 90 days from the Closing Date pursuant to Rule 415 under the Act a Registration Statement on the appropriate form relating to resales of Transfer Restricted Securities by the Holders thereof and the issuance of Warrant Securities upon the exercise or redemption of the Warrants sold pursuant to such Registration Statement. The Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the Commission on or before 180 days after the Closing Date. To the extent necessary to ensure that the Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 3(a), the Company shall use its commercially reasonable efforts to keep any Registration Statement required by this Section 3(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 4(a) hereof and in conformity in all material respects with the requirements of this Agreement, the Act and the policies, rules -3- and regulations of the Commission as announced from time to time, until the second anniversary of the effective date of the Registration Statement; provided, however, that such obligation shall expire before such date if the Company delivered to each Holder a written opinion of counsel to the Company (which opinion of counsel shall be reasonably satisfactory to the Initial Holders) that all Holders (other than Affiliates of the Company) of Warrants and Warrant Securities may resell the Warrants and the Warrant Securities without registration under the Act and without restriction as to the manner, timing or volume of any such sale; and provided, further, that notwithstanding the foregoing, any Affiliate of the Company may, with notice to the Company, require the Company to keep the Registration Statement continuously effective for resales by such Affiliate for so long as such Affiliate holds Warrants or Warrant Securities, including as a result of any market-making activities or other trading activities of such Affiliate. Notwithstanding the foregoing, the Company shall not be required to amend or supplement the Registration Statement, any related prospectus or any document incorporated therein by reference, for a period (a "Black Out Period") not to exceed, for so long as this Agreement is in effect, an aggregate of 60 days in any calendar year, in the event that (i) an event occurs and is continuing as a result of which the Registration Statement, any related prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii)(A) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a material business transaction which has not yet been publicly disclosed; provided, however, that such Black Out Period shall be extended for any period, not to exceed an aggregate of 30 days in any calendar year, during which the Commission is reviewing any proposed amendment or supplement to the Registration Statement, any related prospectus or any document incorporated therein by reference which has been filed by the Company. (b) Provision by Holders of Certain Information in Connection with the Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 10 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, or such other information as the Company may reasonably request under the Act for use in connection with any Registration Statement or Prospectus or preliminary prospectus included therein or in any application to the NASD. Each Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. -4- 4. Registration Procedures (a) In connection with the Registration Statement and any related Prospectus required by this Agreement, the Company shall: (i) comply in all material respects with all the provisions of this Section 4(a) and use its commercially reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 3(b) hereof), and pursuant thereto the Company will prepare and cause to be filed with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof; (ii) use its commercially reasonable efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 of this Agreement. Upon the occurrence and during the continuance of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statement therein, in the light of the circumstances under which they were made, not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company shall, subject to Section 3(a), file promptly an appropriate amendment to such Registration Statement or a supplement to the Prospectus, as applicable, curing such defect, and, in the case of an amendment, use its commercially reasonable efforts to cause such amendment to be declared effective as soon as practicable thereafter; (iii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3; use its commercially reasonable efforts to cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply in all material respects with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply in all material respects with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; -5- (iv) promptly advise each Holder whose Transfer Restricted Securities have been included in the Registration Statement (each, a "Relevant Holder") and the Initial Holders and, if reasonably requested in writing by such person, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, and (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (v) subject to Section 4(a)(ii), if any fact or event contemplated by Section 4(a)(iv)(D) hereof shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vi) furnish to each Relevant Holder and the Initial Holder, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including, upon reasonable request, all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such persons in connection with such sale, if any, for a period of -6- at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such person shall reasonably object in writing to the Company within five Business Days after the receipt thereof. Such person shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or fails to comply with the applicable requirements of the Act; (vii) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to each Relevant Holder and the Initial Holder, make the Company's representatives available for discussion of such document and other customary due diligence matters, upon reasonable notice, and, to the extent reasonably practicable, include such information in such document prior to the filing thereof as such persons may reasonably request; (viii) make available, at reasonable times and upon reasonable notice, for inspection by each Relevant Holder and the Initial Holders and any attorney or accountant retained by such persons, all financial and other records and pertinent corporate documents of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested in writing by any such person, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; provided, however, that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of such Registration Statement or the use of any Prospectus, except if the Company obtains "confidential treatment" for any document or information in accordance with the rules of the Commission), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such person or (iv) such information becomes available to such person from a source other than the Company and its subsidiaries and such source is not known, after due inquiry, by such person to be bound by a confidentiality agreement; -7- (ix) if reasonably requested by any Relevant Holder or by the Initial Holders, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as any such person reasonably requests to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (x) furnish to the Initial Holders and each Relevant Holder upon reasonable request, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including, upon the reasonable request of such Person, all documents incorporated by reference therein and all exhibits (including, if so requested, exhibits incorporated therein by reference); (xi) deliver to the Initial Holders and each Relevant Holder, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such persons reasonably may request; the Company hereby consents to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each Initial Holder and each Relevant Holder in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto and all market-making activities of the Initial Holders, as the case may be; (xii) upon the request of any Relevant Holder or the Initial Holders, enter into such customary agreements (including underwriting agreements) as are customary in comparable offerings and make such customary representations and warranties and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested in writing by any Relevant Holder in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection, the Company shall: (A) upon the reasonable request of any Relevant Holder, furnish (or in the case of paragraphs (2) and (3), use its commercially reasonable efforts to cause to be furnished) to each such Holder, upon the effectiveness of the Registration Statement: (1) a certificate, signed on behalf of the Company by (x) the President or any Vice President and (y) a principal financial or account- -8- ing officer of the Company, confirming the matters such person may reasonably request; (2) an opinion, dated the date of effectiveness of the Registration Statement, of counsel for the Company covering such matters as such person may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company and has considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing, no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of effectiveness of the Registration Statement, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings; and (B) deliver such other documents and certificates as may be reasonably requested in writing by such Holders to evidence compliance with the matters covered in clause (A) above and with any customary conditions contained in the underwriting agreement or other such agreements entered into by the Company pursuant to this clause; -9- (xiii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not so subject; (xiv) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Registered Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xv) use its commercially reasonable efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xiii) above; (xvi) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Relevant Holder or its designee with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with The Depository Trust Company; (xvii) otherwise use its commercially reasonable efforts to comply in all material respects with all applicable rules and regulations of the Commission so long as any provision of this Agreement shall be applicable, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in Rule 158(c) under the Act); and -10- (xviii) provide promptly to each Relevant Holder and the Initial Holders, upon reasonable request, each document filed after the date of this Agreement with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (b) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security and the Initial Holders agree that, upon receipt of the notice from the Company of the commencement of a Black Out Period (in each case, a "Black Out Notice"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus referred to in Section 4(a)(v) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (the "Advice"). Each Holder receiving a Black Out Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Black Out Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 hereof shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Black Out Notice to and including the date when each Holder that received a Black Out Notice shall have received the copies of the supplemented or amended Prospectus contemplated by Section 4(a)(v) hereof or shall have received the Advice. 5. Registration Expenses All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees; (ii) all reasonable fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all reasonable expenses of printing (including printing Prospectuses), messenger and delivery services and telephone; (iv) all reasonable fees and disbursements of counsel for the Company; (v) all applications and filing fees in connection with listing the Warrant Securities on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all reasonable fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). Notwithstanding anything in this Section 5 to the contrary, the Company shall not be required to pay any underwriting discounts, commissions or transfer taxes, if any, relating to the sale of disposition of any Holder's Transfer Restricted Securities. -11- The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. 6. Indemnification (a) The Company agrees to indemnify and hold harmless each Holder, its directors, officers, partners, employees, representatives and agents and each person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities, judgments (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) directly or indirectly caused by, related to, based upon, arising out of or in connection to any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Transfer Restricted Securities, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any Holder furnished in writing to the Company by any such Holder. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent as the foregoing indemnity from the Company set forth in Section 6(a) hereof, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In case any action or proceeding shall be brought against the Company or its directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder of Transfer Restricted Securities, such Holder shall have the rights and duties given the Company, and the Company, such directors or officers or such controlling person shall have the rights and duties given to each Holder by the preceding paragraph. In no event shall any Holder, its directors, officers or any person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any person who controls such -12- Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 6(a) or 6(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing, and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that, in the case of any action in respect of which indemnity may be sought pursuant to both Sections 6(a) and 6(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 6(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party, unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 6(a), and by the Company, in the case of parties indemnified pursuant to Section 6(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without the indemnifying party's written consent if the settlement is entered into more than 60 days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. Except as provided in the preceding sentence, no indemnifying party shall be liable for any settlement effected without its consent. The indemnifying party shall not, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment -13- with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 6 is unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof (other than by reason of exceptions provided in those sections) in respect of any losses, claims, damages, liabilities, expenses or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities, expenses or judgments in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and of the Holders, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities, expenses or judgments, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holders, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the Holders, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities, expenses and judgments referred to above shall be deemed to include, subject to the limitations set forth in Section 6(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, expenses or judgments referred to above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities, expenses or judgments. Notwithstanding the provisions of this Section 6, no Holder, its directors, its officers or any person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds the sum of (i) the amount paid by such Holder for such Transfer Restricted -14- Securities plus (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 6(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. (e) The Company agrees that the indemnity and contribution provisions of this Section 6 shall apply to the Initial Holders to the same extent, on the same conditions, as it applies to Holders. 7. Rule 144 The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. 8. Miscellaneous (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply in all material respects with its obligations under Section 3 hereof may result in material irreparable injury to the Initial Holders or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Holders or any Holder may obtain such relief as may be required under applicable law to specifically enforce the Company's obligations under Section 3 hereof. (b) No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. -15- (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless (i) in the case of this Section 8(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities, and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Company; and (ii) if to the Company: Autotote Corporation 750 Lexington Avenue, 25th Floor New York, New York 10022 Facsimile No.: (212) 754-2372 Attention: General Counsel With a copy to: Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 Facsimile No.: (212) 715-8000 Attention: Peter Smith, Esq. All such notices and communications 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 receipt acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. -16- The address or person or entity to whose attention any notice or communication shall be given may be changed in accordance with the provisions of this Section 8(e). Upon the date of filing a Registration Statement, notice shall be delivered to the Initial Holders (in the form attached hereto as Exhibit A) and shall be addressed to: Donaldson, Lufkin & Jenrette Securities Corporation, Attention: Louise Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10172. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation, and without the need for an express assignment, subsequent Holders; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Warrants. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and such person shall be entitled to receive the benefits hereof. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or -17- referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. SIGNATURE PAGE TO FOLLOW IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. AUTOTOTE CORPORATION By:________________________________ Name: Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By:_________________________________ Name: Title: LEHMAN BROTHERS INC. By:_________________________________ Name: Title: EXHIBIT A NOTICE OF FILING OF WARRANT REGISTRATION STATEMENT To: Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Attention: Louise Guarneri (Compliance Department) Fax: (212) 892-7272 From: Autotote Corporation Warrants to Purchase Shares of Class A Common Stock Date: For your information only (NO ACTION REQUIRED): Today, __________, we filed a Shelf Registration Statement with the Securities and Exchange Commission. We currently expect this registration statement to be declared effective within ___ business days of the date hereof. EX-10.42 12 0012.txt EMPLOYMENT AGREEMENT EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT This Agreement is made and entered into as of ___ day of _____________, 2000, by and between SCIENTIFIC GAMES INC., a Delaware corporation (hereinafter called the "Company"), and ____________________________ (hereinafter called "Executive"). W I T N E S S E T H: WHEREAS, contemporaneously with the effectiveness of this Agreement, the Company will have been acquired (the "Acquisition") by a wholly-owned indirect subsidiary of Autotote Corporation ("Autotote"); and WHEREAS, the Company desires to retain, and Autotote, in connection with the Acquisition, desires the Company to retain the services of the Executive, and the Executive desires to provide such services to the Company; NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. EMPLOYMENT; TERM. The Company employs Executive and Executive accepts employment with the Company in the position of ______ for the Company and its subsidiaries upon the terms and conditions hereinafter set forth. The term of Executive's employment is subject to termination by the Company at any time without cause upon sixty (60) days' written notice, subject to Executive's right to receive the applicable severance benefits described herein. Except as otherwise provided herein (including Section 8 hereof), Executive may terminate his employment with the Company upon sixty (60) days' prior written notice or such shorter period as the Company may allow. Except as otherwise provided herein, no severance benefits shall be due in the event of Executive's voluntary termination of employment hereunder. The term of this Agreement shall be for three (3) years from the date first written above; provided, however, that the term of this Agreement shall automatically extend for an additional year on each anniversary date of this Agreement unless the Company or Executive shall give notice to the other party of their decision not to extend the term of this Agreement by giving at least thirty (30) days' written notice prior to such anniversary, in which event this Agreement shall have a remaining term equal to the longer of two hundred seventy (270) days or the then remaining term of this Agreement. 2. DUTIES. During the term of his employment under this Agreement, the Executive will serve as _____________________ of the Company, and as an officer of such subsidiaries and affiliates of the Company as the Board of Directors of the Company (the "Board") shall determine. In such capacities, the Executive shall perform such duties and shall have such responsibilities as are normally associated with such positions and as otherwise may be assigned to the Executive from time to time by or upon the authority of the Board. Subject to Section 8(a), Executive's functions, duties and responsibilities are subject to reasonable changes as the Company may in good faith determine. The Executive hereby agrees to accept such employment and to serve the Company to the best of his ability in such capacities, devoting substantially all of his business time to such employment. 3. COMPENSATION. (a) As compensation to the Executive for performance of the services required hereunder and as consideration for his execution and delivery of this Agreement, the Company shall pay or provide, as applicable, to him or cause Autotote to pay or provide, as applicable, to him, and the Executive agrees to accept, the following salary and other compensation and benefits: (i) an initial base salary, payable in equal installments not less frequently than monthly, at the rate of $___________ per annum (such annual salary, as adjusted pursuant to Section 3(b) is hereinafter referred to as "Base Salary"); (ii) an annual cash bonus in an amount commensurate with, and based upon substantially the same criteria as, annual cash bonuses awarded to the Executive Officers of Autotote ("Executive Officer" as used herein has the meaning ascribed to such term in Section 3b-7 of the Exchange Act); (iii) an annual grant of stock options entitling the Executive to purchase shares of Autotote common stock commensurate with, and awarded on the basis of substantially the same criteria as, options grants awarded to Executive Officers of Autotote; and (iv) such other and additional benefits as may from time to time be determined by the Board to be applicable to the Executive, which shall be commensurate with benefits accorded other executives of the Company and Autotote by virtue of their executive positions or salary level. For purposes of determining the Executive's entitlement to such other and additional benefits, the Company shall consider the length of time the Executive has been employed by the Company. (b) The Executive's Base Salary shall be increased each year by an amount equal to percentage increases in base salary generally provided to the Executive Officers of Autotote. (c) The Executive shall be offered and shall be permitted to participate in disability, medical, hospitalization, health, life and accident insurance plans upon terms and conditions and at coverage levels substantially equivalent, taken as a whole, to those currently available to the Executive through the Company. (d) The Executive shall be entitled during the term of his employment under this Agreement and thereafter to participate in any retirement, savings or other plans of -2- Autotote as and to the same extent as is generally available to the Executive Officers or other employees of Autotote. (e) The Executive shall be entitled to a transportation allowance. The Company shall furnish a transportation allowance of [$8,000 for non-senior members of the executive team] and [$16,000 for senior members of the executive team] per year for the benefit of Executive. Such transportation allowance shall include the cost of providing the motor vehicle, gas, maintenance and repairs thereon and insurance therefor (which may be the allocable cost of group insurance for the Company's owned motor vehicles). The Executive's annual transportation allowance shall be increased each year by an amount equal to the product of the previous year's transportation allowance and a fraction, the numerator of which shall be the excess of the Index for December of such first mentioned year over the Index for December of the immediately preceding year and the denominator of which shall be the Index for December of the year immediately preceding, the date of this Agreement. "Index" shall mean the consumer price index for all urban consumers, all item as published by the Bureau of Labor Statistics of the United States Department of Labor. The transportation allowance shall be utilized by the Company to purchase or lease a motor vehicle selected by Executive and suitable for Executive's position. The Company also shall pay on behalf of Executive or reimburse Executive in the form of an additional transportation allowance for all parking expenses and for any other motor vehicle related expenses incurred by Executive for which the Company generally pays or reimburses pays or reimburses its senior executives, as of the date of this Agreement. 4. INDEMNITY, PROFESSIONAL AND OFFICERS LIABILITY INSURANCE. (a) Indemnity. The Company agrees to indemnify and save harmless Executive from all liability and costs incurred (including reasonable attorney's fees and disbursements) as a consequence of claims by third parties, whether or not derivatively on behalf of the Company resulting from or growing out of Executive's status as or as a result of his having been an officer or director of (or counsel to) the Company or any affiliate thereof, to the full extent permitted by law. In no event shall the terms, provisions and conditions of the indemnity provided for hereunder be less than the same as those presently provided for under the Articles of Incorporation and By-Laws of the Company. Said terms, provisions and conditions of indemnity shall remain an independent, contractual obligation of the Company to Executive from and after the date hereof regardless of how the Company might hereafter amend or change its Articles of Incorporation or By-Laws to provide for different terms, conditions and provisions of indemnity for other officers and directors of the Company. In the event the Company should amend its articles of Incorporation or Bylaws to provide for different terms, conditions and provisions of indemnity after the effective date hereof, Executive shall be notified in writing of the change. Executive shall thereafter have thirty (30) days to elect in writing to accept the changed conditions of indemnity as a modification to the Company's contractual obligation hereunder or to continue under the terms of indemnity as provided for herein. The Company's agreement to provide indemnity hereunder shall -3- survive the termination of this contract regardless of the cause of termination. The Company shall advance promptly as incurred reasonable fees and disbursements of counsel for Executive in defending Executive against any claims for which the Company would be so required to indemnify Executive provided (i) Executive shall otherwise comply with such mandatory requirements of Delaware law as may be required for such indemnification and (ii) Executive shall cause his counsel to cooperate fully in good faith with such requests as the Company or its counsel may reasonably make in order to endeavor to keep such legal fees at a minimum level consistent with an adequate defense of Executive. (b) Officers and Directors' Liability Insurance. The Company agrees to provide, at no expense to the Executive, insurance insuring Executive in his capacity as an officer and/or director of the Company and its affiliates (including Autotote) in such form and amount substantially equal to that presently maintained by the Company for or covering its executive officers and directors or in such other form and amount as Executive and Company may, from time to time, in good faith agree are reasonable and appropriate for executive officers and directors of corporations substantially similar in size to the Company or Autotote. 5. TERMINATION OF EMPLOYMENT BY COMPANY FOR CAUSE. The Company may terminate Executive's employment at any time for "Just and Substantial Cause" but only after written Notice of Termination (as defined below) as approved by the Chief Executive Officer of the Company and the Chief Executive Officer of Autotote specifying the cause of such action shall be rendered to Executive. "Just and Substantial Cause" shall mean: conviction of a felony; commission of an act or acts of dishonesty on the part of Executive when such acts are intended to result, directly or indirectly, in substantial wrongful gain or substantial wrongful personal enrichment of Executive at the expense of the Company; or the engaging by Executive in willful misconduct materially injurious to the Company with respect to which (x) Executive knew or reasonably should have known that such conduct would result in material financial injury to the Company, (y) such conduct actually results in material financial injury to the Company, and (z) such damage is not cured (if the same is reasonably susceptible to cure) within a reasonable time following receipt by Executive of written notice thereof from the Company referring to this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Just and Substantial Cause unless and until there shall have been delivered to Executive written notice (a) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment (the "Statement of Just and Substantial Cause"), and (b) stating that as a result, Executive is being terminated for Just and Substantial Cause and the specific termination provision in this Agreement being relied upon (collectively with the Statement of Just and Substantial Cause, a "Notice of Termination"). For purposes of this Agreement, no such purported termination shall be effective without Notice of Termination. In the event Executive shall be terminated for Just and Substantial Cause, Executive shall be entitled to all salary actually earned prior to termination, all stock options vested prior to or vesting upon termination, all bonuses vested prior to or vesting upon termination, and all restricted shares vested prior to or vesting upon termination. No severance pay would be owing in the event of termination pursuant to this Section 5 for Just and Substantial Cause. -4- 6. TERMINATION OF EMPLOYMENT IN THE EVENT OF EXECUTIVE'S DISABILITY. Executive and the Company agree that Executive may not reasonably be expected to be able to perform his duties and the essential functions of his office if Executive shall have been permanently disabled (as defined below) or absent from his duties with the Company, or not otherwise be performing the duties of his office due to physical or mental illness, in each case, on a full-time basis for one hundred eighty (180) business days in the time periods specified below. Accordingly, if, in the reasonable, good faith opinion of the Board, as a result of Executive's incapacity due to physical or mental illness, (i) Executive shall have been permanently disabled, within the meaning of the disability policy then maintained for the benefit of employees of the Company (and the insurance company shall not have disputed such determination), or (ii) if no such disability policy shall be in force and effect covering Executive, Executive shall have been absent from his duties with the Company on a full time basis for one hundred eighty (180) consecutive business days or for shorter periods aggregating one hundred eighty (180) business days during any 52-week period, and within thirty (30) days after written notice of intent to terminate is given by the Company, Executive shall not have returned to the full time performance of his duties, Executive's employment shall be terminated for "Disability", in which event Executive shall not be entitled to receive severance benefits under this Agreement and Executive shall be compensated pursuant to the provisions of this Section 6 as follows: Executive's Base Salary shall continue at the level as provided in Section 3(a) for a period of twelve (12) months from the date of the Notice of Termination. All disability, life and medical insurance provided by the Company prior to termination shall continue for a period of twelve (12) months after such termination. In such event, Executive shall be entitled to all stock options vested prior to or vesting upon termination, all bonuses vested prior to or vesting upon termination, together with that portion of any bonus (whether or not vested) for the then-current fiscal year prorated to date of termination (based upon performance against target through the applicable measurement date), all restricted stock vested prior to or vesting upon termination and all other benefits vested prior to or vesting upon termination. Payments of Base Salary under this Section 6 shall be reduced by any disability payments provided Executive as a result of any Company-sponsored disability plan providing benefits to Executive, if the payments to Executive hereunder and thereunder would exceed one hundred percent (100%) of Executive's Base Salary. Executive's employment shall not be terminable under this Section 6 if Executive is absent from his duties upon a bona fide leave of absence granted by the Company other than pursuant to physical or mental illness. 7. TERMINATION OF EMPLOYMENT IN THE EVENT OF DEATH DURING EMPLOYMENT. If Executive dies during the term of this Agreement, the Company shall pay to the last beneficiary designated by the Executive by written notice to the Company or, failing such designation, to Executive's estate, compensation which would otherwise be payable to Executive pursuant to this Agreement up to end of the month in which his death occurs, plus a lump sum death benefit equal to six (6) months of Executive's Base Salary. The compensation payable under this Section 7 shall include all stock options vested prior to or vesting upon termination, all unpaid bonuses which are vested prior to or vesting upon termination, all restricted stock and all other benefits vested prior to or vesting upon termination, including, in each case, all benefits which vest by their terms upon Executive's death. In the event there are any bonuses with respect to a calendar year which has not ended prior to Executive's death, such bonuses (whether or not -5- vested) shall be paid on a pro rata basis based upon performance against target through the period to the date of death. The Executive shall have the right to name, from time to time, any one person as beneficiary hereunder or, with the consent of the Board, he may make other forms of designation of beneficiary or beneficiaries. The Executive's designated beneficiary or personal representative, as the case may be, shall accept the payments provided for in this Section 7 in full discharge and release of the Company of and from any further obligations under this Agreement (other than to pay compensation or benefits which accrued prior to the date of such termination). 8. TERMINATION OF EMPLOYMENT WITHOUT CAUSE OR IN CONNECTION WITH CONSTRUCTIVE TERMINATION. (a) Should the Company (i) change the location of Executive's office or of the Company's principal executive offices from the existing location in Alpharetta, Georgia to a place not within forty (40) miles of the existing location in Alpharetta, Georgia, or change the location of Executive's office to a location other than the location of the Company's principal executive office, (ii) fail to appoint or reappoint Executive to the office and position Executive holds by virtue of this Agreement or such other position held immediately prior to any Notice of Termination (or to a higher or equivalent office and position to which Executive agrees in writing, such agreement not to be unreasonably withheld) (provided, a notice not to extend under Section 1 hereof shall not be deemed such a failure), (iii) make any reduction in Executive's salary, (iv) adversely change the methodology pursuant to which Executive's bonus is determined or make any other material adverse change in any of Executive's employee benefits (other than any such benefit which is immaterial or inconsequential or any change which is required by law), (v) make such change or changes as would, taken as a whole, result in a material diminution in the functions, duties and responsibilities of Executive's position in the Company as of the date hereof or materially reduce the seniority of the person or persons within the Company to whom Executive reports as of the date hereof (recognizing, however, that no such changes shall be deemed to have occurred solely as a result of the change in the status of the Company to that of a wholly-owned subsidiary of Autotote by virtue of the Merger, including, without limitation, the reconstitution of the Board in a customary or appropriate manner for a subsidiary corporation or the elimination or diminution of those functions, duties or responsibilities associated with various positions at a public company or at a parent company in a consolidated group of companies); (vi) fail to obtain the express written assumption of this Agreement by any successor of the Company or any assignee of all or substantially all of its assets at or prior to such succession or assignment (such succession or assignment not relieving the Company or Autotote of any liability hereunder), (vii) breach this Agreement in any material respect which is not cured within fifteen (15) days after written notice from Executive to the Company, Executive shall be entitled to terminate his employment, effective immediately, and receive severance benefits under this Agreement as set forth in the remainder of this Section 8 upon the giving of written notice of termination from Executive to the Company (unless in any case referred to in the preceding clauses (i) through (vii), the Company shall at such time have grounds -6- to terminate Executive for Just and Substantial Cause and shall have delivered to Executive a copy of the Statement of Just and Substantial Cause contemplated by Section 5 hereof, except that such written notice is not accompanied by a Notice of Termination.) (b) The Company shall pay to Executive as severance benefits under this Section 8: (i) a lump sum on the thirtieth (30th) day following the Date of Termination, in an amount equal to the sum of (a) Executive's full Base Salary through the Date of Termination to the extent such Base Salary has not previously been paid through such date, at the rate in effect at the time written notice of termination is given and (b) any bonus or awards theretofore made to Executive which have not yet been paid to Executive. (ii) no later than ninety (90) days following the end of the fiscal year in which the Date of Termination occurs, that pro rata portion of any bonus or award which would have been payable to Executive had Executive remained in employment with the Company during the entire year in which the Date of Termination occurred (Pro rata calculations under Section 6, Section 7 and Section 8 of this Agreement shall be determined by multiplying a fraction, the numerator of which is the number of whole months in such year prior to the Date of Termination and the denominator of which is twelve, times the bonus or award which would have been payable to Executive had the performance of the Company for the entire year continued on a basis annualized from the period of months during such year ended on the last day of the month preceding the Date of Termination); and (iii) if such termination without cause or constructive termination occurs after the date of this Agreement, but on or before the date of the first (1st) anniversary thereof, a sum each month for a period of three (3) years after the Date of Termination, equal to one twelfth of the highest annual rate of Base Salary plus bonus paid to Executive during the twenty-four (24) month period immediately preceding the Date of Termination. (iv) if such termination without cause or constructive termination occurs after the date of the first (1st) anniversary of this Agreement but on or before the date of the second (2nd) anniversary thereof, a sum each month for a period of two (2) years after the Date of Termination, equal to one twelfth of the highest annual rate of Base Salary plus bonus paid to Executive during the twenty-four (24) month period immediately preceding the Date of Termination. (v) if such termination without cause or constructive termination occurs after the date of the second (2nd) anniversary of the date of this Agreement, a sum each month for a period of one (1) year after the Date of Termination, equal to one twelfth of the highest annual rate of Base Salary plus -7- bonus paid to Executive during the twenty-four (24) month period immediately preceding the Date of Termination. (c) As a further severance benefit, the Company, at its expense, shall maintain in full force and effect, for Executive's continued benefit until the earliest of (i) during the applicable period in which severance is being paid under Section 8(b)(iii) (the "Severance Payment Period"), (ii) eighteen months after Executive's Date of Termination if at such time Executive is uninsurable under the Company's life, accident, medical and dental insurance plans, or (iii) the date Executive becomes entitled to participate in similar plans, programs or arrangements provided by Executive's subsequent employer: all life, accident, medical and dental insurance benefit plans and programs or arrangements in which Executive was entitled to participate immediately prior to the Date of Termination provided that Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that Executive's participation in such plan or program is legally or contractually barred, the Company shall arrange to provide Executive for a period of not less than the Severance Period (eighteen (18) months if the reason Executive's participation is barred is that Executive is uninsurable) following Executive's Date of Termination, with benefits substantially similar to those which Executive would have been entitled to receive under such plans and programs or, if the Company is barred from doing so, it will pay to Executive in a lump sum an amount of cash equal on an after-tax basis to the cost to Executive of obtaining the benefits to be provided to Executive under this Section 8(c) (but which the Company is unable to provide or cause to be provided) for the period specified. The cost of such benefits shall be based on the cost to Executive of obtaining such benefits from one or more fiscally sound providers whose reputation and stature are substantially similar to the Company's applicable benefit providers immediately prior to Executive's Date of Termination. At the end of the period of coverage, Executive shall have the option to have assigned to Executive at no cost to Executive and with no apportionment of prepaid premiums (but without the necessity of the incurrence by the Company of any additional out-of-pocket transfer cost which Executive declines to reimburse), any assignable insurance policy owned by the Company and relating specifically to Executive. (d) As a severance benefit, if at any time it is required that Executive must include a portion or all of the severance benefits provided pursuant to this Section 8 in Executive's gross income for federal income tax purposes prior to the time Executive receives payment of such benefits, then the Company agrees to pay Executive, as soon as administratively feasible, an amount of cash sufficient to enable Executive to pay the full federal and state tax liability attributable to the inclusion of the severance benefits, or a portion thereof, in Executive's gross income. Any cash so paid to Executive shall directly reduce the amount of future installments, pro rata, of severance benefits payable to Executive as provided hereunder. (e) As a further benefit, the Company, at its expense, shall cause to be vested in Executive, free and clear title to the motor vehicle then being furnished to Executive by the Company at or prior to Executive's Date of Termination. -8- 9. LEGAL FEES, MITIGATION OF DAMAGES. The Company shall reimburse such costs, legal fees and expenses as may be reasonably incurred by Executive in contesting or disputing any such termination, or in seeking to obtain or enforce any right or benefit provided by this Agreement if Executive is successful in any material respect in connection with enforcing any of Executive's rights or the Company's obligations under this Agreement in such dispute. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after the Date of Termination, or otherwise. The Company and its subsidiaries and affiliates shall have no right to set off payments owed to Executive under this Agreement against amounts owed or claimed to be owed by the Executive to any of such persons under this Agreement or otherwise. 10. SUCCESSORS; BINDING AGREEMENT. (a) The Company will require any successor (whether direct or indirect, by purchaser, merger, consolidation or otherwise) to the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement shall constitute a material breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if such succession had not occurred, except that for purposes of implementing the foregoing, the date of which any such succession becomes effective shall be deemed the Date of Termination, As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 10 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts are still payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee of, if there be no such designee, to Executive's estate. 11. NOTICE. All notices and other communications to be given or to otherwise be made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by certified mail or by a recognized national courier service, postage or charges prepaid, (a) to the Company at 1500 Bluegrass Lakes Parkway, Alpharetta, Georgia 30004, (b) to the Executive, at the address set forth on the last page of this Agreement, or (c) to such other replacement address as may be designated in writing by the addressee to the addressor. -9- 12. MISCELLANEOUS. To the extent that any applicable state or federal law, rule or regulation confers upon Executive any greater benefit or right than that set forth in this Agreement, such law, rule or regulation shall control in lieu of the provisions hereof relating to such benefit or right. 13. VALIDITY; SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not effect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and still be legal, valid or enforceable. It is acknowledged that any payment which may be made by the Company to Executive under this Agreement is in the nature of employment and/or severance and not a penalty payment. Should the obligation to make any payment hereunder be held to be void or voidable as a penalty by a final non-appealable judgment, this Agreement shall be deemed to provide an obligation on the part of the Executive to render such consulting services as the Company may reasonably request during the period of and in exchange for such payments as would otherwise have been made by the Company as severance benefits and the parties agree such payments shall constitute reasonable compensation for the value of Executive's services during such period. 14. CONFIDENTIALITY. During the term of his employment under this Agreement, and thereafter during the Severance Payment Period (but in no event longer than two (2) years after the term of this Agreement), the Executive will not use or disclose, furnish or make accessible to anyone any Confidential Information (as such term is hereinafter defined): (a) as used in this Agreement, the term "Confidential Information" shall mean trade secrets, confidential or proprietary information, and all other knowledge, know-how, information, documents or materials, owned, developed or possessed by Company, whether in tangible or intangible form, pertaining to the business of the Company, the confidentiality of which the Company takes reasonable measures to protect, including, but not limited to, the Company's research and development operations, products (including prices, costs, sales or content), processes, techniques, machinery, contracts, financial information or measures, business methods, future business plans, data bases, computer programs, designs, models, operating procedures, knowledge of the organization, and other information owned, developed or possessed by the Company; provided, however, that Confidential Information shall not include information that is or shall become generally known to the public or the trade without violation of this Section 14. -10- (b) Notwithstanding anything to the contrary contained in this Section 14, in the event that the Executive is required to disclose any Confidential Information by court order or decree or in compliance with the rules and regulations of a governmental agency or in compliance with law, the Executive will provide the Company with prompt notice of such required disclosure so that the Company may seek an appropriate protective order and/or waive the Executive's compliance with the provisions of this Section 14. If, in the absence of a protective order or the receipt of a waiver hereunder, the Executive is advised by his counsel that such disclosure is necessary to comply with such court order, decree, rule, regulation or law, he may disclose such information without liability hereunder. 15. DEDUCTIONS AND WITHHOLDING. The Executive agrees that the Company and/or its subsidiaries or affiliated companies shall withhold from any and all compensation required to be paid to the Executive pursuant to this Agreement all Federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect. 16. ENTIRE AGREEMENT; GOVERNING LAW; AMENDMENT; WAIVER. This Agreement sets forth the entire understanding of the parties and supersedes all prior agreements or understandings, whether written or oral, with respect to the subject matter hereof, including any prior severance benefit agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation construction and performance of this Agreement shall be governed by the laws of the State of Georgia without giving effect to the conflict of laws principals thereof, and any applicable federal laws of the United States of America. No terms, conditions, warranties, other than those contained herein, and no amendments or modifications hereto shall be binding unless made in writing and signed by the parties hereto. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and the Chief Executive Officer of the Company or such employee of the Company as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other part hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 17. BINDING EFFECT. This Agreement shall extend to and be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns; provided, however, that neither party shall have the right to assign, transfer or convey this Agreement. 18. TITLES. Titles of the headings herein are used solely for convenience and shall not be used for interpretation or construing any work, section clause, paragraph, or provision of this Agreement. 19. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which shall be -11- deemed to be an original and all of which taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 20. ENFORCEMENT. The provisions of this Agreement may be enforced by all legal and equitable remedies available to the parties including specific performance and injunction. Nothing herein shall be construed as prohibiting either party from pursuing any other remedies available to it, including recovery of damages. 21. CONSTRUCTION. Each of the parties has agreed to the use of the particular language of the provisions of this Agreement and all attached exhibits, and any questions of doubtful interpretation shall not be resolved solely by any rule or interpretation against the draftsman but rather in accordance with the fair meaning thereof. ***** SIGNATURES BEGIN ON FOLLOWING PAGE ***** -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above. SCIENTIFIC GAMES INC. By: ______________________________________ Its: President and Chief Executive Officer ATTEST: By:_______________________________________ Its: _____________________________________ EXECUTIVE __________________________________________ __________________________________________ (PRINT NAME) __________________________________________ (ADDRESS FOR NOTICE) -13- EX-10.43 13 0013.txt CONSULTING AGREEMENT CONSULTING AGREEMENT This CONSULTING AGREEMENT (this "Agreement") is made as of ________ __, 2000 (the "Effective Date") by and between Autotote Corporation, a Delaware corporation (the "Company"), and William G. Malloy ("Consultant"). BACKGROUND The Company has entered into an Agreement and Plan of Merger, dated as of __________ _____, 2000 (the "Merger Agreement"), with Scientific Games Holding Corporation, a Delaware corporation ("SGHC"), pursuant to which Dream Corp. Merger Sub, Inc., a Delaware corporation and, a wholly owned subsidiary of the Company will merge (the "Merger") with and into SGHC. Consultant serves as the Chairman, President and Chief Executive Officer of SGHC pursuant to an employment and severance benefits agreement with SGHC, dated as of January 1, 1998, as amended by the First Amendment thereto dated as of April 4th, 2000 (the "ESBA"), pursuant to which Consultant has the right, but not the obligation, to resign pursuant to Section 11(b) thereof and receive the benefits specified therein. In his capacity as Chairman, President and Chief Executive Officer of SGHC, Consultant has gained certain knowledge of the business and affairs of SGHC and its policies, methods, personnel, and plans for the future. Effective as of the day and time of the Merger (the "Effective Time"), the parties desire to terminate Consultant's position as Chairman, President and Chief Executive Officer of SGHC by having Consultant tender his resignation pursuant to Section 11(b) of the ESBA and enter into a consulting relationship, under which Consultant would provide services to the Company in accordance with the terms and conditions of this Agreement. The Company and Consultant agree that, notwithstanding anything in the ESBA to the contrary, the Merger constitutes a Change in Control under the ESBA and that the ESBA shall survive as provided therein with respect to the payment of severance benefits to Consultant as a result of such Change in Control as contemplated by the ESBA. Each of Consultant and the Company agree that the terms, conditions, and provisions of this Agreement are fair and reasonable and are necessary to protect the legitimate business interests of each other. THEREFORE, in consideration of the mutual promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the Company and Consultant agree as follows: 1. STATUS OF EMPLOYMENT UNDER ESBA AGREEMENT. As of the Effective Time, Consultant hereby terminates his employment pursuant to Section 11(b) of the ESBA as President and Chief Executive Officer of SGHC and any other position he may hold 1 with SGHC or any of its affiliates, and the Company hereby acknowledges SGHC's acceptance of such resignation under the ESBA and the acceptance by SGHC and any of such affiliates of such other resignations. Consultant agrees that his obligations under the ESBA will survive the execution of this Agreement pursuant to the terms of the ESBA. 2. CONSULTING SERVICES. Subject to the terms and conditions set forth in this Agreement, the Company hereby agrees to engage Consultant as an independent business Consultant for the Term (as defined in Section 4 of this Agreement). In such position, Consultant shall perform such consulting service for the Company diligently and to the reasonable satisfaction of the Company's Board of Directors. During the Term, Consultant will be available to the Company to devote himself to the tasks reasonably specified by the Board of Directors of the Company and the Chairman of the Board and Chief Executive Officer of the Company for not more than 100 days per year not to exceed 15 days per month. Consultant agrees not to accept other full-time employment if such employment would result in a material adverse effect on Consultant's abilities to perform his duties hereunder. Consultant will report to the Chief Executive Officer of the Company or the Chairman of the Board of the Company. 3. DIRECTORSHIP . The Consultant shall be elected to the Board of Directors of the Company as of the Effective Time and Consultant agrees to serve as a member of the Board of Directors of the Company pursuant to such initial election. During the Term, so long as Consultant serves as a consultant pursuant to this Agreement, the Company shall nominate Consultant for election to its Board of Directors. Nothing in this Agreement shall prohibit Consultant from resigning from the Board of Directors of the Company at any time nor shall it prohibit Consultant from subsequently declining to stand for re-election to the Board of Directors and, except as otherwise expressly provided in Section 5(b) of this Agreement, the rights and obligations of the parties hereunder are independent of whether or not Consultant is a member of the Board of Directors of the Company. So long as Consultant serves on the Board of Directors of the Company, as a non-employee director, Consultant shall be entitled to all benefits provided to other non-employee directors of the Company. 4. TERM AND TERMINATION. The term of Consultant's engagement under this Agreement (the "Term") will commence on the Effective Time and continue until the second anniversary of the Effective Time. The provisions of this Agreement shall survive the termination of this Agreement to the extent required to give full effect to the covenants and agreements contained herein. The Company may end the Term earlier under the following circumstances: (a) in the event of Consultant's death; (b) if Consultant is totally disabled so that he has been unable to perform his duties and responsibilities hereunder for a period of 180 consecutive days; (c) if the Company's Board of Directors terminates this Agreement with Cause (as defined below); or 2 (d) without cause, upon thirty (30) days' prior written notice to Consultant; provided, however, that if the Company terminates this Agreement pursuant to this clause (d), the Company shall pay to Consultant all compensation and benefits which would be payable to Consultant over the remaining stated Term of the Agreement, with such compensation and benefits to be paid or provided, at Consultant's election, either in a lump sum as of the termination date or over time, but, in no event, longer than the stated Term of this Agreement; and further provided that the Company's obligation to fund insurance benefits over the specified periods shall be unaffected by any such termination unless the Company shall have made, and the Consultant shall have accepted, the Insurance Prepayment (as defined in Section 6(b)(i). If the Company terminates this Agreement pursuant to Section 4(a), (b), (c) or (d) prior to the stated end of the Term, Consultant (or his representative in the event of his death) will be entitled to receive payment of all compensation payable by the Company pursuant to this Agreement through the second anniversary of the Effective Time (or such longer period as expressly contemplated hereby), except that amounts due under Section 3 will only be due under this Agreement (without prejudice to any rights which may accrue to Consultant solely from his continued service as a director) through the date of termination (except as otherwise provided in any plan under which such benefits are provided) and except that unpaid amounts due under Section 5 or Section 6 will only be due or be provided through the date of termination, in the event of termination for Cause. To the extent any payments may be due to Consultant under Section 7, such obligations shall survive termination of this Agreement for any reason. The provisions of Section 8 hereof will survive any termination in accordance with its terms and the terms of the ESBA. As used in this Agreement, termination with "Cause" means any termination evidenced by a finding adopted in good faith by the Board of Directors of the Company that the Consultant (i) willfully and continually failed to substantially perform his duties under this Agreement (other than a failure resulting from the Consultant's incapacity due to physical or mental illness) and such failure continues after written notice to the Consultant providing a reasonable description of the basis for the determination that the Consultant has failed to perform his duties, (ii) has been indicted for or has entered into a plea bargain with respect to a criminal offense, other than misdemeanors not disclosable under the federal securities laws, (iii) has breached this Agreement in any material respect and such breach is not susceptible to remedy or cure or, is susceptible to remedy or cure and material damage to the Company has occurred, and such breach is not cured or remedied reasonably promptly after written notice to the Consultant providing a reasonable description of the breach, (iv) engaged in conduct to the material detriment of the Company that is dishonest, fraudulent, unlawful or grossly negligent or which is not in compliance with the Company's written Code of Conduct or similar applicable set of standards or conduct and business practices set forth in writing and provided to the Consultant prior to such conduct, (v) has been found by any regulatory authority, gaming commission, lottery agency or similar authority in any jurisdiction in which the Company is conducting business or intends to submit a proposal or conduct business unsuitable or unfit to continue to perform his obligations to the Company under this Agreement, and is the subject of a written notice received by the Company from such authority of such a finding or (vi) has failed to file appropriate applications with, provide requested information to, or otherwise fails to cooperate with, any such authority. No act, nor failure to act, on the Consultant's part, 3 shall be considered "willful" for purposes of (i) above unless he has acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. 5. COMPENSATION. (a) As compensation for the performance of Consultant's services under this Agreement, the Company will pay Consultant $16,667 per month; (b) In lieu of all estimated and potential pension benefits which would have continued to accrue in the future but for the Merger and in consideration of Consultant's agreement to forego payments which would otherwise be due to him under the Supplemental Executive Retirement Plan of SGHC had Consultant's employment with SGHC continued, the Company will pay Consultant a one-time cash payment in the amount of $1,200,000, payable at the Effective Time. (c) In consideration of the extension by the Consultant of certain restrictions under the ESBA on his conduct to include not only SGHC but also the Company, as further described in Section 8 of this Agreement, the Company will pay Consultant a one-time cash payment in the amount of $1,000,000, payable at the Effective Time. (d) As additional compensation for service on the Board of Director of the Company, the same compensation and benefits that the Company pays to other members of its Board of Directors that are not employees or officers of the Company. 6. CONSULTANT BENEFITS; REIMBURSEMENT OF EXPENSES. As further compensation for the performance of Consultant's services under this Agreement, the Company shall pay or provide the following benefits, without duplication of, or diminishment of, benefits otherwise payable to Consultant by SGHC under the ESBA as a result of a Change in Control of SGHC. In the event any compensation or benefits payable under any provision of this Agreement are payable either by the Company under this Agreement or SGHC under the ESBA, such benefits shall be deemed paid under the ESBA for all purposes. (a) Reimbursement of Expenses. The Company shall pay, or reimburse Consultant in accordance with the Company's prevailing corporate policy, for reasonable travel, entertainment, and other expenses incurred by Consultant in performing his duties under this Agreement in accordance with corporate policy. Notwithstanding the foregoing, reasonable travel expenses always shall include subsonic first class air travel for all domestic air travel and subsonic business class air travel for all international air travel. Consultant shall obtain the advance approval of the Company before incurring any expenses in excess of $5,000 in connection with a single assignment or event. (b) Insurance Benefits. The Company, at its expense, shall 4 (i) provide and maintain or cause to be provided and maintained, in either case in full force and effect, for the continued benefit of Consultant, his spouse and dependents until the earliest of: (A) the third anniversary of the Effective Date; (B) eighteen (18) months after the Effective Date if at such time Consultant, his spouse or dependents, as applicable, is uninsurable under the applicable plans: all health, life, accident, medical and dental insurance benefit plans and programs or arrangements of SGHC, including long term disability insurance, in which Consultant, his spouse and dependents were entitled to participate immediately prior to the Effective Date all in amounts and coverage comparable to those provided to such persons by SGHC or its subsidiaries immediately prior to the Effective Date provided that the continued participation of Consultant, his spouse and dependents, as applicable, is possible under the general terms and provisions of such plans and programs. In the event that the participation of Consultant, his spouse or dependents in any such plan or program is legally or contractually barred, the Company shall use commercially reasonable efforts to arrange or cause SGHC to arrange to provide Consultant, his spouse or dependents, as the case may be, to the fullest extent permitted by law or applicable regulation, so long as said insurance is available at commercially reasonable rates, for a period of not less than thirty-six (36) months (eighteen (18) months if the reason the participation of Consultant, his spouse or dependents are barred is that Consultant, his spouse or dependents, as applicable, are uninsurable) following the Effective Date, with benefits substantially similar to those which Consultant, his spouse and dependents would have been entitled to receive under such plans and programs; or, if the Company is barred from doing so, it will pay to Consultant in a lump sum (the "Insurance Prepayment") an amount of cash equal on an after-tax basis to the cost to Consultant of obtaining the benefits to be provided to Consultant and his spouse and dependents under this Section 6(b) (but which the Company is unable to provide or cause to be provided) for the period specified. The cost of such benefits shall be based on the cost to Consultant of obtaining such benefits from one or more fiscally sound providers whose reputation and stature is substantially similar to the Company's applicable benefit providers immediately prior to Executive's Date of Termination (ii) Pay the annual premium on the existing term life insurance policy insuring the life of Consultant in the amount of $4,000,000, the beneficiary of which will continue to be designated in the sole discretion of Consultant. If for any reason during the term of this Agreement any required policy or coverage is canceled or coverage denied for any reason, the Company agrees to use commercially reasonable efforts to provide Consultant with replacement insurance in the required amount so long as said insurance is available at commercially reasonable rates. The Company may change or discontinue such term insurance benefits only so long as the total 5 economic value of such term insurance benefits provided to Consultant is not diminished. (c) Transportation Allowance. The Company shall furnish a transportation allowance of $2,628 per year for the benefit of Consultant. Such transportation allowance shall include the cost of operating Consultant's motor vehicle, including gas, maintenance and repairs thereon and insurance therefor (which may be the allocable cost of group insurance for the owned motor vehicles of the Company or its subsidiaries). The Consultant's annual transportation allowance shall be increased each year by an amount equal to the product of the previous year's transportation allowance and a fraction, the numerator of which shall be the excess of the Index for March of such first mentioned year over the Index for March of the immediately preceding year and the denominator of which shall be the Index for March of the immediately preceding year, of this Agreement. The Company also shall pay on behalf of Consultant or reimburse Consultant in the form of an additional transportation allowance for all parking expenses and for any other motor vehicle related expenses incurred by Consultant for which the Company generally pays or reimburses pays or reimburses its Executive Officers or other Consultants. "Index" shall mean the consumer price index for all urban consumers, all item as published by the Bureau of Labor Statistics of the United States Department of Labor. (d) Medical Examinations. The Company shall pay the complete cost of an annual physical examination for Consultant to be conducted by a Board certified physician, selected by the Consultant, if such costs are not otherwise paid by insurance furnished by the Company, not to exceed $1,000 per year. (e) Club Membership. The Company shall pay Consultant's monthly membership dues for his membership in the Golf Club of Georgia in an amount not to exceed $450 per month. (f) Computer and Communications Capability. The Company shall provide Consultant with the lap top computer and the wireless hand-held telephone provided to Consultant by SGHC immediately prior to the Effective Time. The Company also shall provide maintenance and repair or replacement thereof during the Term, as well as the cost of high speed internet access and the cost of all telephone access fees, air time charges (including long distance and roaming charges), taxes and other user charges with respect to the operation of such equipment. The Company also shall transfer title to such equipment then provided to Consultant upon the termination or expiration of this Agreement. (g) Licensing Costs. The Company shall reimburse Consultant for all licensing costs incurred by Consultant in connection with his duties under this Agreement in accordance with the policies of the Company in effect from time to time. 6 (h) ESBA Payments. The Company shall cause SGHC to pay all cash payments and transfers of property due under the ESBA to be paid as of the Effective Time instead of at any later time permitted thereunder. (i) Accounting Fees. The Company shall pay the fees and expenses of Ernst & Young to calculate the amount of all payments due to Consultant at the Effective Time pursuant to Section 6(h) above including any additional payment due to Consultant under Section 11(d) of the ESBA or Section 7(b) of this Agreement. 7. CERTAIN OTHER PAYMENTS. (a) Payments In the Event of Constructive Receipt. As a further benefit, if at any time it is determined that Consultant must include a portion or all of the compensation or benefits provided pursuant to this Agreement in Consultant's gross income for federal income tax purposes prior to the time Consultant receives payment of such benefits, then the Company agrees to pay Consultant, as soon as administratively feasible, an amount of cash sufficient to enable Consultant to pay the full federal and state tax liability attributable to the inclusion of the compensation or benefits, or a portion thereof, in Consultant's gross income. Any cash so paid to Consultant shall directly reduce the amount of future installments, pro rata, of compensation or benefits payable to Consultant as provided hereunder. (b) Excess Parachute Payment. The Company shall, for purposes of this Agreement, without admission of liability to any Person other than Consultant, consider all payments due under Section 5(b) and Section 5(c) as being made in connection with a change in control of SGHC and shall pay, as of the Effective Time, as additional compensation hereunder, an amount which would equal, after deducting all state and federal income taxes incurred by the Consultant with respect to receipt of such payment, the excise tax imposed on Consultant pursuant to Section 4999 of the Code, without duplication of payment or benefits otherwise due to Consultant under the ESBA. As part of his Consulting Services under Section 2 of this Agreement, Consultant will reasonably cooperate with the Company, at its sole expense, if the Company elects to seek a refund of some or all of such tax payments from the applicable taxing authorities on the grounds that no taxes were due, in whole or in part. In the event that any other payment or benefit, or any combination of payments or benefits, to Consultant payable by the Company hereunder with respect to a termination in connection with a change in control of SGHC pursuant to the Merger is determined to be an "excess parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company, at the time such determination becomes final, shall pay to Consultant, as additional compensation hereunder, an amount which would equal, after deducting all state and federal income taxes incurred by the Consultant with respect to receipt of such payment the excise tax (including penalties and interest) in each case, if any, imposed on Consultant pursuant to Section 4999 of the Code, without duplication of payments or benefits otherwise due to Consultant under the ESBA. 7 8. CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION, RIGHTS TO MATERIALS, INVENTIONS, WORKS FOR HIRE. In consideration of the benefits provided under this Agreement, Consultant agrees that the provisions in Section 20 through Section 28 of the ESBA shall, as of the Effective Time, apply and be construed to apply not only to SGHC but also to the Company and its subsidiaries in existence as of the Effective Time; provided, however that notwithstanding anything in the ESBA to the contrary the term of such limitations with respect to the Company and its subsidiaries in existence as of the Effective Time shall, in no event, exceed three (3) years from the Effective Time. 9. INJUNCTIVE RELIEF. Each party acknowledges that a remedy at law for any breach or attempted breach of this Agreement will be inadequate, agrees that each party will be entitled to specific performance and injunctive and other equitable relief in case of any breach or attempted breach, and agrees not to use as a defense that any party has an adequate remedy at law. This Agreement shall be enforceable in a court of equity, or other tribunal with jurisdiction, by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection herewith. Such remedy shall not be exclusive and shall be in addition to any other remedies now or hereafter existing at law or in equity, by statute or otherwise. No delay or omission in exercising any right or remedy set forth in this Agreement shall operate as a waiver thereof or of any other right or remedy and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right or remedy. 10. NOTICES. Any notice or other communication required or permitted under this Agreement shall be in writing and shall be delivered personally, or sent by certified, registered, or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, or, if mailed five (5) days after the date of deposit in the United States mails, as follows: (a) If to the Company: Autotote Corporation 750 Lexington Avenue, 25th Floor New York, New York 10022 Attention: Martin E. Schloss, Esq. (b) If to Consultant: William G. Malloy 9220 Stonemist Trace Roswell, Georgia 30076 or, in either case, to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. LEGAL FEES; MITIGATION OF DAMAGES. The Company shall reimburse, as and when incurred, such costs, legal fees and expenses as may be reasonably incurred by 8 Consultant in contesting or disputing any such termination of this Agreement, or in seeking to obtain or enforce any right or benefit provided by this Agreement, and Consultant shall have no obligation to reimburse the Company for such costs if Consultant is successful in any material respect in connection with enforcing any of Consultant's rights or the Company's obligations under this Agreement in such dispute. Consultant shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Consultant after the Term, or otherwise. Neither the Company or any of its subsidiaries shall have any right to set off payments owed to Consultant under this Agreement against amounts claimed to be owed by the Consultant to any of such Persons under this Agreement or otherwise, except that such Persons shall be entitled (in each case without duplication) to offset any payments owed against amounts owed to such Persons after (but only after) the entry of, and which are evidenced by, one or more final, non-appealable judgments in favor of such Persons against Consultant. 12. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement among the parties with respect to the subject matter of this Agreement, and there are no prior written or prior or contemporaneous oral understandings or Agreements relative to this Agreement that are not fully expressed in this Agreement, provided however, this Agreement does not terminate or amend the ESBA except as expressly provided herein or contemplated hereby or by the action of Consultant's resignation as contemplated hereby. 13. WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded, cancelled, renewed, or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay or omission on the part of either party in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof. Nor shall any waiver on the part of either party of any such right, power, or privilege, nor any single or partial exercise of any such right, power, or privilege, preclude any further exercise thereof or the exercise of any other such right, power, or privilege. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition, or provision. All remedies provided for in this Agreement will be cumulative and in addition to and not in lieu of any other remedies available to either party at law, in equity, or otherwise. 14. GOVERNING LAW. This agreement shall be governed by and construed in accordance with the substantive laws, and not the choice of law provisions, of the State of Georgia . 15. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns and legal representatives. The Company may assign this Agreement in connection with a reincorporation, merger, or consolidation involving the Company or a sale of substantially all of the assets of the Company, to the surviving entity or purchaser, as the case may be. 9 16. COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 17. HEADINGS. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. 18. SEVERABILITY. The parties hereto expressly agree that it is not the intention of any of them to violate any public policy, statutory or common law rules, regulations, or decisions of any governmental or regulatory body. The invalidity or unenforceability of any provision of this Agreement shall not effect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and still be legal, valid or enforceable. It is acknowledged that any payment, which may be made by the Company to Consultant under this Agreement, is in the nature of payment for consulting services and other benefits to the Company and not a penalty payment. Should the obligation to make any payment hereunder be held to be void or voidable as a penalty by a final non-appealable court of competent jurisdiction, this Agreement shall be deemed to provide an obligation on the part of the Consultant to render such further consulting services as the Company may reasonably request during the period of and in exchange for such payments as would otherwise have been made by the Company as severance benefits and the parties agree such payments shall constitute reasonable compensation for the value of Consultant's services during such period. 19. EFFECTIVE DATE. This Agreement shall be effective upon the execution of the Merger Agreement; provided, however, if such Merger Agreement is terminated by any party thereto, this Agreement shall, without the necessity of any action on behalf of the Consultant or the Company, automatically terminate and shall be null and void for all purposes, effective as of the date first written above. 10 IN WITNESS WHEREOF, the parties to this Agreement have executed and delivered this Agreement on the date first above written. AUTOTOTE CORPORATION By:_____________________________________ Name:________________________________ Title:_______________________________ ________________________________________ William G. Malloy EX-27 14 0014.txt FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 AUTOTOTE CORPORATION AND SUBSIDIARIES Financial Data Schedule THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-31-2000 NOV-01-1999 JUL-31-2000 3,181 0 26,759 (3,114) 8,452 39,211 223,791 132,424 174,704 42,691 35,000 0 0 370 (43,583) 174,704 150,605 150,605 97,007 97,007 35,731 0 12,850 5,017 586 4,431 0 0 0 4,431 0.12 0.11
EX-99.11 15 0015.txt FORM OF WARRANT FORM OF WARRANT TO PURCHASE CLASS A COMMON STOCK THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES AND SUCH DISPOSITION FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH. Void After 5:00 p.m., Eastern Time, on September 6, 2007 [_______] Warrant to Purchase [_____] shares of Class A Common Stock, par value $.01 per share of AUTOTOTE CORPORATION This is to Certify That, FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby acknowledged, [___________________________] (the "Holder") is entitled to purchase, subject to the provisions of this Warrant, from Autotote Corporation ("Company"), a Delaware corporation, at any time prior to 5:00 p.m., Eastern Time, on September 6, 2007, a total of [________________] shares of Class A Common Stock, par value $.01 per share, of the Company ("Securities") at an initial purchase price of $0.01 per share. The number of Securities to be received upon the exercise of this Warrant and the price to be paid for the Securities may be adjusted from time to time as hereinafter set forth. The number of Securities to be received upon the exercise of this Warrant in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Rate" and the purchase price per Security in effect at any time and as adjusted from time to time, and subject to the minimum purchase price set forth in Section 7(l), is hereinafter sometimes referred to as the "Exercise Price" per Security. This Warrant is or may be one of a series of Warrants identical in form issued by the Company to purchase an aggregate of [___________] shares of Class A Common Stock. The Securities, as adjusted from time to time, together with any other Securities issuable upon exercise of this Warrant are hereinafter sometimes referred to as "Warrant Securities". Certain capitalized terms used in this Warrant are defined in Section 15 hereof. 1. Exercise of Warrant. Subject to the provisions of Section 8 hereof, this Warrant may be exercised at the option of the Holder in whole or in part at any time or from time to time prior to 5:00 p.m., Eastern Time on September 6, 2007, or if September 6, 2007 is a Saturday, Sunday or a day on which banking institutions in New York, New York are authorized by law to close, then on the next succeeding day (a "Business Day") which shall not be such a day, by presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed, and accompanied by payment of the Exercise Price (other than in the case of the exercise of the Cashless Exercise Option set forth in Section 8 hereof), for the number of Securities specified in such Form, together with all federal and state taxes applicable upon such exercise. If, upon exercise of this Warrant, the Warrant Securities issuable upon exercise -2- of this Warrant are not then registered under the Act pursuant to an effective registration statement thereunder, the Holder shall be deemed to have represented and warranted to the Company that such Holder (x) is a "qualified institutional buyer" as defined in Rule 144A under the Act or and "accredited investor" as defined in Rule 501 under the Act, in either case with such knowledge and experience in financial and business matters as is necessary to evaluate the merits and risks of an investment in the Warrant Securities, and (y) such Holder is not acquiring the Warrant Securities with a view to any distribution thereof or with any intention of offering or selling any Warrant Securities in a transaction that would violate the Act or the securities laws of any state of the United States. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Securities purchasable hereunder. Upon receipt by the Company of this Warrant at the office of the Company or at the office of the Company's stock transfer agent, in proper form for exercise and accompanied by the Exercise Price, if and as applicable, the Holder shall be deemed to be the holder of record of the Securities issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Securities shall not then be actually delivered to the Holder. 2. Reservation of Securities. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Securities as shall be required for issuance or delivery upon exercise of this Warrant. The Company covenants and agrees that, upon exercise of this Warrant and payment of the Exercise Price therefor, if and as applicable, all Securities and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as this Warrant shall be outstanding, the Company shall use its best efforts to cause all Securities issuable upon the exercise of this Warrant to be listed (subject to official notice of issuance) on all securities exchanges or quotation systems on which its Class A Common Stock issued may then be listed and/or quoted. 3. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Prior Day Market Value of such fractional share. 4. Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase (under the same terms and conditions as provided by this Warrant) in the aggregate the same number of Securities purchasable hereunder. Subject to compliance with the provisions of Section 10 hereof, this Warrant may be divided or combined with other Warrants of the same series upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, issued together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrants" as used in this paragraph includes any Warrants issued in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. -3- 5. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and the registration rights agreement referred to in Section 17 hereof. 6. Certain Notices to Warrant Holders. The Company shall give prompt written notice to the Holder of any determination to make a distribution to the holders of its Class A Common Stock of any cash dividends, assets, debt securities, preferred stock, or any rights or warrants to purchase debt securities, preferred stock, assets or other securities (other than Class A Common Stock, or rights, options, or warrants to purchase Class A Common Stock) of the Company, which notice shall state the nature and amount of such planned dividend or distribution and the record date therefor, and shall be received by the Holder or sent to the Holder by reputable overnight courier, in either case to its address as provided in Section 9, at least 10 days prior to such record date therefor. The Company shall provide notice to the Holder that any tender offer is being made for securities of the same class as any Warrant Securities no later than the first Business Day after the day the Company becomes aware of any such tender offer. Notwithstanding any notice provided to the Holder pursuant to this Section 6, the Holder shall be entitled to any and all applicable adjustments to the Exercise Rate and the Exercise Price per Security as provided in Section 7 arising out of any event requiring notice to the Holder in this Section 6. 7. Adjustment of Exercise Rate and Exercise Price. The Exercise Rate and the Exercise Price are subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 7. The Exercise Rate shall initially be the number of Securities for which this Warrant is initially exercisable as set forth in the introductory paragraph to this Warrant. In the event that this Warrant is transferred or exercised in part, the initial Exercise Rate of the portion not exercised or transferred shall be adjusted proportionately as shall the initial Exercise Rate of any partial transfer of this Warrant. For the purposes of Sections 7(a) and 7(b), (i) shares of Class A Common Stock issuable upon the exercise of this Warrant and all other warrants of the same series as this Warrant shall be deemed to be outstanding and (ii) all shares of Class A Common Stock that would be deemed to be outstanding as of the date of determination in respect of Convertible Securities, as determined in accordance with GAAP, shall be deemed to be outstanding. (a) Adjustment for Change in Capital Stock. If, after the Issue Date, the Company: (i) pays a dividend or makes a distribution on shares of its Class A Common Stock payable in shares of its Class A Common Stock (except to the extent any such dividend results in the grant, issuance, sale or making of Distribution Rights or Distributions (each as defined in Section 7(c)) to the Holder pursuant to Section 7(c)); (ii) subdivides or splits its outstanding shares of Class A Common Stock into a greater number of shares; or (iii) combines its outstanding shares of Class A Common Stock into a smaller number of shares; then (1) the Exercise Rate in effect immediately prior to such action for this Warrant shall be adjusted by multiplying the Exercise Rate in effect immediately prior to such action by a fraction (A) the numerator of which shall be the number of shares of Class A Common Stock outstanding immediately after such action and (B) the denominator of which shall be the number of shares of Class A Common Stock outstanding immediately prior -4- to such action or the record date applicable to such action, if any and (2) the Exercise Price per Security in effect immediately prior to such action shall be adjusted by multiplying the Exercise Price per Security in effect immediately prior to such action by a fraction (A) the numerator of which is one and (B) the denominator of which shall be the fraction calculated in clause (1) of the above formula. The adjustments shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision or combination. In the event that such dividend or distribution is not so paid or made or such subdivision, combination or reclassification is not effected, the Exercise Rate and the Exercise price per Security shall again be adjusted to be the Exercise Rate and the Exercise Price per Security which would then be in effect if such record date or effective date had not been so fixed. (b) Adjustment for Certain Sales of Class A Common Stock Below Current Market Value. If, after the Issue Date, the Company (i) grants or sells to any Affiliate of the Company (other than a wholly owned subsidiary of the Company) or any Affiliate of Olivetti S.p.A. or Ramius Capital Group or (ii) grants, sells or offers to grant or sell to all holders of Class A Common Stock, any shares of Class A Common Stock or Convertible Securities (other than, in the case of each of clauses (i) and (ii), (1) pursuant to any Convertible Security outstanding as of the Issue Date, or (2) upon the conversion, exchange or exercise of any Convertible Security as to which upon the issuance thereof an adjustment pursuant to this Section 7 has been made), at a price below the then Current Market Value, the Exercise Rate and the Exercise price per Security for this Warrant shall be adjusted in accordance with the formulae: E(1) = E x (O+N) $(1) = $ x (O + N x P/M) ------------------ ----------------- (O + (N x P/M)) (O + N) where: E(1) = the adjusted Exercise Rate for this Warrant; E = the then current Exercise Rate for this Warrant; $(1) = the adjusted Exercise Price per Security for this Warrant; $ = the then current Exercise Price per Security for this Warrant; O = the number of shares of Class A Common Stock outstanding immediately prior to the sale of such Class A Common Stock or issuance of Convertible Securities; N = the number of shares of Class A Common Stock so sold or the maximum stated number of shares of Class A Common Stock issuable upon the conversion, exchange or exercise of any such Convertible Securities; P = the proceeds per share of Class A Common Stock received by the Company, which (i) in the case of shares of Class A Common Stock is the amount received by the Company in consideration for the sale and issuance of such shares; and (ii) in the case of Convertible Securities is the amount received by the Company in consideration for the sale and issuance of such Convertible Securities, plus the minimum aggregate amount of additional consideration, other than the surrender of such Convertible Securities, payable to the Company upon exercise, conversion or exchange thereof; and -5- M = the Current Market Value as of the Time of Determination or at the time of sale, as the case may be, of a share of Class A Common Stock. The adjustments shall become effective immediately after the record date for the determination of shareholders entitled to receive the rights, warrants or options to which this paragraph (b) applies or upon consummation of the sale of Class A Common Stock, as the case may be. To the extent that shares of Class A Common Stock are not delivered after the expiration of such rights, warrants or options or exercise, conversion or exchange rights in respect to such Convertible Securities, the Exercise Rate and the Exercise Price per Security for this Warrant shall be readjusted to the Exercise Rate and the Exercise Price per Security which would otherwise be in effect had the adjustment made upon the issuance of such rights, warrants or options or Convertible Securities been made on the basis of delivery of only the number of shares of Class A Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Exercise Rate and the Exercise Price per Security for this Warrant shall again be adjusted to be the Exercise Rate and the Exercise Price per Security which would then be in effect if such date fixed for determination of shareholders entitled to receive such rights, warrants or options had not been so fixed. No adjustments shall be made under this paragraph (b) if the application of the formula stated above in this paragraph (b) would result in a value of E1 that is lower than the value of E. No adjustments shall be made under this paragraph (b) for any adjustments which are the subject of paragraphs (a), (c) or (e) of this Section 7. Anything in this Warrant to the contrary notwithstanding, an event which would otherwise give rise to adjustments pursuant to this Section 7(b) shall not give rise to such adjustments if the Company grants, sells or offers to sell shares of Class A Common Stock or Convertible Securities, in each case on the same terms as the underlying event, to the Holder on a pro rata basis, assuming for the purpose of this Section 7(b) that all warrants of the same series as this Warrant had been exercised. Notwithstanding the foregoing, no adjustment in the Exercise Rate or the Exercise Price per Security will be required in respect of: (a) the grant of any stock option or other stock incentive award pursuant to any stock option or stock incentive plan or arrangement as disclosed in the Company's Proxy Statement dated February 22, 2000 or pursuant to any other customary compensatory stock option or stock incentive plan for employees, officer and/or directors, (b) the grant of any stock option or stock incentive award at an exercise price at least equal to the then Prior Day Market Value or (c) the exercise of any stock option or stock incentive or award. (c) Adjustment upon Certain Distributions. (i) If at any time after the Issue Date the Company grants, issues or sells options, any Convertible Security, or rights to purchase capital stock or other securities (other than Class A Common Stock) pro rata to the record holders or series of Class A Common Stock ("Distribution Rights") or, without duplication, makes any distribution (other than a distribution pursuant to a plan of liquidation) other than a Permitted Cash Dividend (a "Distribution") on shares of Class A Common Stock (whether in cash, property, evidences of indebtedness, or otherwise), then the Exercise Rate and the Exercise Price per Security shall be adjusted in accordance with the formulae: E(1) = E x (M/(M-F)) $(1) = $ x ((M-F)/M) -6- where: E(1) = the adjusted Exercise Rate; E = the current Exercise Rate for this Warrant; $(1) = the adjusted Exercise Price per Security for this Warrant; $ = the current Exercise Price per Security for this Warrant; M = the Current Market Value per share of Class A Common Stock at the Time of Determination; F = the fair market value at the Time of Determination of such portion of the options, Convertible Securities, capital stock or other securities, cash, property or assets distributable pursuant to such Distribution Rights or Distribution per share of outstanding Class A Common Stock. The adjustments shall become effective immediately after the Time of Determination with respect to the shareholders entitled to receive the options, Convertible Securities, warrants, cash, property, evidences of indebtedness or other securities or assets to which this paragraph (c)(i) applies. No adjustments shall be made under this paragraph (c) if the application of the formula stated above in this paragraph (c)(i) would result in a value of E1 that is lower than the value of E. This paragraph (c)(i) does not apply to any securities which result in adjustments pursuant to paragraphs (a) or (b) of this Section 7. (ii) Anything in this Warrant to the contrary notwithstanding, an event which would otherwise give rise to adjustments pursuant to Section 7(c)(i) shall not give rise to such adjustments (or to adjustments pursuant to any other provision of this Section 7) if the Company grants, issues or sells Distribution Rights to the Holder or includes the Holder in such Distribution, in each case on a pro rata basis, assuming for the purpose of this Section 7(c)(ii) that all warrants of the same series as this Warrant had been exercised. (iii) Notwithstanding anything to the contrary set forth in this Section 7(c), if, at any time, the Company makes any distribution pursuant to any plan of liquidation (a "Liquidating Distribution") on shares of Class A Common Stock (whether in cash, property, evidences of indebtedness or otherwise), then, subject to applicable law, the Company shall make to the Holder the aggregate Liquidating Distribution which the Holder would have acquired if the Holder had held the maximum number of shares of Class A Common Stock acquirable upon the complete exercise of this Warrant immediately before the Time of Determination of shareholders entitled to receive Liquidating Distributions. (d) Notice of Adjustments. Whenever the Exercise Rate and Exercise Price per Security are adjusted, the Company shall promptly mail to the Holder a notice of the adjustments. The Company shall also provide the Holder with a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustments and the manner of computing it. The certificate shall be conclusive evidence that the adjustments are correct, absent manifest error. (e) Reorganization of Company; Fundamental Transaction. -7- (i) If (x) the Company shall reclassify its Class A Common Stock (other than a change in par value, or from par value to no par value, or a subdivision or combination thereof), or (y) the Company, in a single transaction or through a series of related transactions, consolidates with or merges with or into any other person or sells, assigns, transfers, leases, conveys or otherwise disposes of all or substantially all of its properties and assets to another person or group of affiliated persons or is a party to a merger or binding share exchange which, in the case of any of the transactions referred to in this clause (y), reclassifies or changes its outstanding Class A Common Stock (each of (x) and (y) above being referred to as a "Fundamental Transaction"), as a condition to consummating any such Fundamental Transaction, the Company, in the case of any such reclassification referred to in clause (x), or the person formed by or surviving any such consolidation or merger if other than the Company or the person to whom such transfer has been made in the case of clause (y) above (the "Surviving Person"), shall enter into a supplemental warrant agreement. The supplemental warrant agreement shall provide (a) that the Holder may exercise this Warrant for the kind and amount of securities, cash or other assets which the Holder would have received immediately after the Fundamental Transaction if the Holder had exercised this Warrant immediately before the effective date of the transaction (without giving effect to the Cashless Exercise Option), assuming (to the extent applicable) that the Holder (i) was not a constituent person or an affiliate of a constituent person to any transaction described in clause (y) above, (ii) made no election with respect to any transaction described in clause (y) above, and (b) in the case of any transaction described in clause (y) above, that the Surviving Person shall succeed to and be substituted to every right and obligation of the Company in respect of this Warrant. The supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. The Surviving Person or the Company, as applicable, shall mail to the Holder a notice briefly describing the supplemental warrant agreement. If the issuer of securities deliverable upon exercise of this Warrant is an affiliate of a Surviving Person, that issuer shall join in the supplemental warrant agreement. (ii) Notwithstanding the foregoing, if a Fundamental Transaction shall occur and, upon consummation of such Fundamental Transaction, consideration is payable to holders of shares of Class A Common Stock which consideration consists solely of cash, assuming (to the extent applicable) that the Holder (i) was not a constituent person or an affiliate of a constituent person to a transaction described in Section 7(e)(i)(y) above and (ii) made no election with respect thereto, then the Holder shall be entitled to receive distributions upon consummation of such Fundamental Transaction on an equal basis with holders of Class A Common Stock as if this Warrant had been exercised immediately prior to such event, less the aggregate Exercise Price therefor; provided that the Company or the Surviving Person, as the case may be, may require the surrender of this Warrant to such person prior to making any such distribution to the Holder. Upon receipt of such payment, if any, the rights of the Holder shall terminate and cease and this Warrant shall expire. (iii) If this paragraph (f) applies, it shall supersede the application of paragraph (a), (b) or (c) of this Section 7. (f) Other Events If any event occurs as to which the provisions of this Section 7 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the board of directors of the Company, fairly and adequately protect the rights of the Holder in accordance with the essential intent and principles of such provisions, then such board of directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of such board of directors, to protect such rights as aforesaid, but in no event shall any such adjustment have the effect of decreasing the Exercise Rate or decreasing the number of Securities issuable upon exercise of this Warrant or increasing the Exercise Price per Security. -8- (g) Company Determination Final. Any determination that the Company or the board of directors of the Company must make pursuant to this Section 7 shall be conclusive, absent manifest error. (h) Specificity of Adjustments. Regardless of any adjustments in the number or kind of shares purchasable upon the exercise of this Warrant or the Exercise Price per Security, this Warrant may continue to express the same number and kind of Securities initially issuable pursuant to this Warrant and the initial Exercise Price per Security as set forth in the first paragraph hereof. (i) Voluntary Adjustment. The Company from time to time may increase the Exercise Rate and correspondingly decrease the Exercise Price per Security by any number and for any period of time; provided, however, that such period is not less than 20 Business Days. Whenever the Exercise Rate is so increased and the Exercise Price per Security is so decreased, the Company shall mail to the Holder a notice thereof. The Company shall give the notice at least 10 days before the date the increased Exercise Rate and decreased Exercise Price per Security takes effect. The notice shall state the increased Exercise Rate and decreased Exercise Price per Security and the period it will be in effect. A voluntary increase in the Exercise Rate and decrease in the Exercise Price per Security shall not change or adjust the Exercise Rate or Exercise Price per Security otherwise in effect as determined by this Section 7. (j) Multiple Adjustments. After an adjustment to the Exercise Rate and Exercise Price per Security for this Warrant under this Section 7, any subsequent event requiring an adjustment under this Section 7 shall cause an adjustment to the Exercise Rate and Exercise Price per Security for this Warrant as so adjusted. (k) When De Minimis Adjustment May Be Deferred. No adjustment in the Exercise Rate or Exercise Price per Security shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Rate; provided, however, that any adjustments which by reason of the foregoing are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations of the Exercise Rate shall be rounded to the nearest whole number. All calculations of the Exercise Price per Security shall be rounded to the nearest ten thousandth of one cent. No adjustments need be made for a change in the par value of the Class A Common Stock and no adjustments shall be deferred beyond the date on which this Warrant is exercised. (l) Notwithstanding any adjustment to the Exercise Price called for by this Section 7, in no event will the Exercise Price per share of Class A Common Stock be adjusted to an amount that is less than the par value per share of the Class A Common Stock at the time of such adjustment, and if, but for the provisions of this Section 7(l), an adjustment to the Exercise Price would be required under this Section 7 that would result in an Exercise Price per share of Class A Common Stock that is less than the par value per share of the Class A Common Stock, then the Exercise Price shall be adjusted such that the Exercise Price per share of Class A Common Stock equals the par value of the Class A Common Stock. (m) Amendments of the Certificate of Incorporation. The Company shall not amend its Certificate of Incorporation to increase the par value of any Warrant Security such that such par value would exceed the Exercise Price per share of such Warrant Security. 8. Cashless Exercise. In lieu of exercising this Warrant for cash, the Holder shall have the right to exercise this Warrant or any portion thereof (the "Cashless Exercise Option") into Class A Common Stock as provided in this Section 8 at any time or from time to time during the period specified on page one of this Warrant by the surrender of this Warrant to the Company with a duly executed and completed Exercise Form marked to reflect cashless exercise. Upon exercise of the Cashless Exercise Option with respect to a particular -9- number of shares subject to this Warrant and noted on the Exercise Form (the "Cashless Exercise Securities"), the Company shall deliver to the Holder (without payment by the Holder of any Exercise Price or any cash or other consideration) that number of shares of fully paid and nonassessable shares of Class A Common Stock equal to the quotient obtained by dividing (X) the value of this Warrant (or the specified portion hereof) on the Cashless Exercise Date, which value shall be determined by subtracting (A) the aggregate Exercise Price of the Cashless Exercise Securities immediately prior to the exercise of the Cashless Exercise Option from (B) the aggregate Prior Day Market Value of the Cashless Exercise Securities issuable upon exercise of this Warrant (or the specified portion hereof) on the Cashless Exercise Date (as herein defined) by (Y) the Prior Day Market Value of one share of Class A Common Stock on the Cashless Exercise Date (as herein defined). Expressed as a formula as shown below, such net issuance exercise shall be computed as follows: X = B-A --- Y where: X = the number of shares of Class A Common Stock that may be issued to the Holder Y = the Prior Day Market Value of one share of Class A Common Stock as of the Cashless Exercise Date A = the aggregate Exercise Price (i.e. the product determined by multiplying the Cashless Exercise Securities by the Exercise Price per Security) B = the aggregate Prior Day Market Value (i.e. the product determined by multiplying the Prior Day Market Value by the Cashless Exercise Securities). 9. Notices. Any notices or certificates by the Company to the Holder and by the Holder to the Company shall be deemed delivered if in writing and delivered personally or sent by certified mail or reputable overnight courier, to the Holder, addressed as set forth in the Instructions for Registration of Warrant delivered to the Company, which may be superseded from time to time upon notice to the Company, and, if to the Company, addressed to Autotote Corporation, 750 Lexington Avenue, 25th Floor, New York, New York 10022, Attention: General Counsel. The Company may change its address by written notice to the Holder. 10. Limitations on Transferability. This Warrant may be divided or combined, upon request to the Company by the Holder, into a certificate or certificates evidencing the same aggregate number of Warrants. This Warrant may not be offered, sold, transferred, pledged or hypothecated in the absence of an effective registration statement as to this Warrant and such transaction filed under the Act, or an exception from the requirement of such registration, and compliance with the applicable federal and state securities laws. The Company may require an opinion of counsel satisfactory to the Company that such registration is not required and that such laws are complied with. The Company may treat the registered holder of this Warrant as he or it appears on the Company's books at any time as the Holder for all purposes. The Company shall permit the Holder or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered holders of Warrants. 11. Transfer to Comply With the Securities Act of 1933. The Company may cause the following legend, or one similar thereto, to be set forth on this Warrant and on each certificate representing Warrant Se- -10- curities, or any other security issued or issuable upon exercise of this Warrant, unless (a) the Company has received an opinion of counsel satisfactory to the Company as to any such certificate that such legend, or one similar thereto, is unnecessary or (b) a registration statement with respect to this Warrant and the Warrant Securities has become effective under the Act. "THIS SECURITY HAS NOT BEEN REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITY AND SUCH DISPOSITION FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH." 12. Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to conflict of law principles. 13. Amendments. This Warrant may not be amended except in a writing signed by the Holder and the Company. 14. Severability. If any provisions of this Warrant shall be held to be invalid or unenforceable, such invalidity or enforceability shall not affect any other provision of this Warrant. 15. Certain Definitions. In addition to the capitalized terms defined elsewhere in this Warrant, the following capitalized terms shall have the meanings set forth below. "Act" shall mean the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. "Affiliate" of a person shall mean a person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such person. The term "control" means the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise. "Convertible Security" shall mean any security convertible into or exchangeable or exercisable for Class A Common Stock, including but not limited to, rights, options or warrants entitling the holder thereof to acquire Class A Common Stock or any security convertible into or exchangeable for Class A Common Stock. "Current Market Value" per share of Class A Common Stock of the Company at any date shall mean: (1) if Class A Common Stock is not then registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System, (a) the value of such Class A Common Stock, determined in good faith by the board of directors of the Company and certified in a board resolution, taking into account the most recently completed arms-length transaction between the Company and a person other than an -11- Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the six-month period preceding such date, or (b) if no such transaction shall have occurred on such date or within such six-month period, the fair market value of the security as determined by a nationally recognized investment bank; provided, however, that, in the case of the calculation of Current Market Value for determining the cash value of fractional shares, no such determination by an investment bank shall be required and the good faith judgment of the board of directors as to such value shall be conclusive, or (2) (a) if Class A Common Stock is then registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System, the average of the daily closing sales prices of such Class A Common Stock for the 20 consecutive trading days immediately preceding such date, or (b) if Class A Common Stock has been registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System for less than 20 consecutive trading days before such date, then the average of the daily closing sales prices for all of the trading days before such date for which closing sales prices are available, in the case of each of (2)(a) and (2)(b), as certified by the Chief Executive Officer, the President, any Executive Vice President or the Chief Financial Officer or Treasurer of the Company. The closing sales price of each such trading day shall be the closing sales price, regular way, on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder. "GAAP" shall mean generally accepted accounting principles in the United States as in effect on September 6, 2000. "Issue Date" shall mean September 6, 2000. "Permitted Cash Dividend" shall mean any regular cash dividend in respect of Class A Common Stock declared after September 6, 2005 that, together with all such dividends (other than dividends with respect to which an adjustment has been made pursuant to Section 7(c)(i) or a dividend which was also paid on a pro rata basis to the Holder as contemplated by Section 7(c)(ii)) declared in respect of Class A Common Stock during the previous twelve months, on a per share basis, does not exceed 5% of the average closing sales prices per share of the Class A Common Stock for each trading day during such twelve month period; provided that no dividend shall be a Permitted Cash Dividend if the Class A Common Stock is not at the time such dividend is declared registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System. "Prior Day Market Value" per share of Class A Common Stock of the Company at any date shall mean: -12- (1) if Class A Common Stock is not then registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System, the Current Market Value per share of Class A Common Stock, or (2) if Class A Common Stock is then registered under the Exchange Act and traded on a national securities exchange or on the Nasdaq National Market System, the closing sales price of Class A Common Stock for the trading day ending immediately prior to the event causing the Prior Day Market Value to be determined. "Time of Determination" shall mean (i) in the case of any distribution of securities or other property to existing shareholders to which Section 7(b) or (c) applies, the time and date of the determination of shareholders entitled to receive such securities or property or (ii) in the case of any other issuance and sale to which Section 7(b) or 7(c) applies, the time and date of such issuance or sale. 16. Warrant Registration Rights Agreement. The Holder shall be entitled to the benefits of the Warrant Registration Rights Agreement, dated as of the Issue Date, by and among the Company and Donaldson, Lufkin & Jenrette Securities Corporation and LB I Group Inc. 17. Special Redemption of Warrant. Anything in this Warrant to the contrary notwithstanding, the Company shall have the right to redeem this Warrant in full, but not in part, at any time prior to the thirtieth (30th) day following the date hereof by issuing shares of Class A Common Stock to the Holder in such number as is equal to the number of shares of Class A Common Stock the Holder would have received if the Holder had exercised this Warrant in full on the date of redemption. The Company may exercise its special redemption right provided for in this paragraph upon 2 Business Days written notice to the Holder. Upon receipt by the Holder of the shares of Class A Common Stock issuable upon the special redemption provided for in this paragraph, this Warrant shall become null and void and cease to be of further force and effect, and the Holder shall deliver this Warrant to the Company or its designee in accordance with the Company's instructions. AUTOTOTE CORPORATION By:_________________________________ Name: Title: Date:_________________________ Attest: PURCHASE FORM Dated ____________, 20__ The undersigned hereby irrevocably elects to exercise this Warrant to the extent of _______shares of Class A Common Stock (without giving effect to the Cashless Exercise Option). The undersigned |_| has concurrently herewith made payment of $______ in payment of the aggregate Exercise Price. |_| elects to use the Cashless Exercise Option provided for in this Warrant (the number of Securities delivered will be net of the number applied to the aggregate Exercise Price). If the issuance of the Warrant Securities is not registered under the Securities Act of 1933, as amended, the undersigned makes the representation and warranty set forth in Section 1 of this Warrant. INSTRUCTIONS FOR REGISTRATION OF SECURITIES Name ______________________________________________________________________ (please typewrite or print in block letters) Address ___________________________________________________________________ Signature _________________________________________________________________ ASSIGNMENT FORM FOR VALUE RECEIVED, _______________________________________________________ hereby sells, assigns and transfers unto Name ______________________________________________________________________ (please typewrite or print in block letters) Address ___________________________________________________________________ the right to purchase shares of Class A Common Stock as represented by this Warrant to the extent of shares of Class A Common Stock as to which such right is exercisable and does hereby irrevocably constitute and appoint, __________________ attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Signature _________________________________________________________________ Dated: _______________ 20____ INSTRUCTIONS FOR REGISTRATION OF WARRANT Name ______________________________________________________________________ (please typewrite or print in block letters) Address ___________________________________________________________________ Signature _________________________________________________________________ -----END PRIVACY-ENHANCED MESSAGE-----