UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington , D.C.  20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2012

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________
 
Commission File Number 0-1678
 
IMAGE
 
BUTLER NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Kansas
 
41-0834293
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

19920 West 161st Street, Olathe, Kansas 66062
(Address of principal executive offices)(Zip Code)

Registrant's telephone number, including area code:      (913) 780-9595

Former name, former address and former fiscal year if changed since last report:
Not Applicable

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 twelve 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 T    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):  Yes T No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of " large accelerated filer, " " accelerated filer " and " smaller reporting company " in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer T
Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes  o No T

The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of September 3, 2012 was 58,146,314 shares.
 
 
 
 
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1
Financial Statements
PAGE NO.
     
 
3
     
 
4
     
 
5
     
 
6-7
     
Item 2
7-15
     
Item 3
15
     
Item 4
15-16

PART II. OTHER INFORMATION

Item 1
17
     
Item 1A
17
     
Item 2
17
     
Item 3
17
     
Item 4
 
     
Item 5
17
     
Item 6
17-18
     
19

 
2
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of July 31, 2012 and April 30, 2012
(in thousands except per share data)
(unaudited)

   
July 31, 2012
   
April 30, 2012
 
ASSETS
           
CURRENT ASSETS:
           
Cash
  $ 7,769     $ 7,431  
Accounts receivable
    5,276       3,589  
Inventories
               
Raw materials
    6,263       6,305  
Work in process
    1,160       982  
Finished goods
    305       424  
Total inventory
    7,728       7,711  
Prepaid expenses and other current assets
    834       1,493  
Total current assets
    21,607       20,224  
                 
PROPERTY, PLANT AND EQUIPMENT:
               
Land and building
    3,915       3,915  
Aircraft
    6,673       6,288  
Machinery and equipment
    3,714       3,714  
Office furniture and fixtures
    3,233       3,217  
Leasehold improvements
    31       31  
      17,566       17,165  
Accumulated depreciation
    (7,267 )     (6,688 )
Total property, plant and equipment
    10,299       10,477  
                 
SUPPLEMENTAL TYPE CERTIFICATES (net of amortization of  $2,514 at July 31, 2012 and $2,500 at April 30, 2012)
    1,663       1,677  
                 
OTHER ASSETS:
               
Deferred tax asset
    1,167       1,167  
Other assets (net of accumulated amortization of $671 at July 31, 2012 and $538 at April 30, 2012)
    6,884       7,017  
Total other assets
    8,051       8,184  
Total Assets
  $ 41,620     $ 40,562  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES:
               
Line of credit
  $ 304     $ 462  
Current maturities of long-term debt and capital lease obligations
    3,719       3,757  
Accounts payable
    1,936       1,169  
Customer deposits
    1,476       1,015  
Gaming facility mandated payment
    1,160       1,281  
Compensation and compensated absences
    1,123       1,342  
Accrued income tax
    (241 )     47  
Other
    213       207  
Total current liabilities
    9,690       9,280  
                 
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT MATURITIES:
    8,386       8,678  
Total liabilities
    18,076       17,958  
                 
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDERS' EQUITY:
               
Preferred stock, par value $5:
               
Authorized 50,000,000 shares, all classes
               
Designated Classes A and B 200,000 shares
               
$1,000 Class A, 9.8%, cumulative if earned liquidation and redemption value $100, no shares issued and outstanding
    -       -  
$1,000 Class B, 6%, convertible cumulative, liquidation and redemption value $1,000, no shares issued and outstanding
    -       -  
Common stock, par value $.01:Authorized 100,000,000 shares issued and outstanding 58,146,314 shares at July 31, 2012   and 57,907,564 shares at April 30, 2012
      581         579  
Common stock, owed but not issued 278,573 shares at July 31, 2012 and at April 30, 2012
    3       3  
Capital contributed in excess of par
    12,698       12,568  
Treasury stock at cost, 600,000 shares
    (732 )     (732 )
Retained Earnings
    8,438       8,170  
Total stockholders’ equity Butler National Corporation
    20,988       20,588  
Noncontrolling Interest in BHCMC, LLC
    2,556       2,016  
Total stockholders' equity
    23,544       22,604  
Total Liabilities and Stockholders' Equity
  $ 41,620     $ 40,562  

The accompanying notes are an integral part of these financial statements
 
 
3
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2012 AND 2011
(in thousands, except per share data)
(unaudited)
 
   
THREE MONTHS ENDED
July 31,
 
   
2012
   
2011
 
REVENUES:
           
Professional services
  $ 9,807     $ 8,598  
Aerospace products
    3,661       3,548  
Total revenues
    13,468       12,146  
                 
COSTS AND EXPENSES:
               
Cost of professional services
    5,137       4,977  
Cost of aerospace products
    2,924       2,936  
Marketing and advertising
    1,120       945  
Employee benefits
    482       758  
Depreciation and amortization
    711       463  
General, administrative and other
    1,809       1,393  
Total costs and expenses
    12,183       11,472  
OPERATING INCOME
    1,285       674  
                 
OTHER INCOME (EXPENSE):
               
Interest expense
    (346 )     (89 )
Other income (expense), net
    9       3  
Total other income (expense),
    (337 )     (86 )
                 
INCOME BEFORE INCOME TAXES
    948       588  
                 
PROVISION FOR INCOME TAXES
               
Provision for income taxes
    140       82  
NET INCOME
    808       506  
Net income attributable to noncontrolling interest in BHCMC, LLC
    (540 )     (398 )
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION
  $ 268     $ 108  
                 
BASIC EARNINGS PER COMMON SHARE
  $ .00     $ .00  
                 
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
    57,527,949       56,594,262  
                 
DILUTED EARNINGS PER COMMON SHARE
  $ .00     $ .00  
                 
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
    57,527,949       56,594,262  
 
The accompanying notes are an integral part of these financial statements.
 
 
4
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING JULY 31, 2012 AND 2011
(dollars in thousands)
(unaudited)
 
   
THREE MONTHS ENDED
July 31,
 
             
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 808     $ 506  
Adjustments to reconcile cash flows from operating activities
               
Depreciation and amortization
    726       473  
Stock issued for services
    91       -  
Stock options issued to employees and directors
    37       125  
                 
Changes in assets and liabilities
               
Accounts receivable
    (1,687 )     (242 )
Inventories
    (16 )     (189 )
Prepaid expenses and other current assets
    658       (274 )
Accounts payable
    768       (567 )
Customer deposits
    461       -  
Accrued liabilities
    (508 )     (580 )
Gaming facility mandated payment
    (121 )     (397 )
Other liabilities
    10       (102 )
Cash flows from operating activities
    1,227       (1,247 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Capital expenditures
    (402 )     (17 )
Cash flows from investing activities
    (402 )     (17 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Borrowings line of credit, net
    (158 )     429  
Contributed capital
    -       5  
Borrowings of promissory notes, long-term debt and capital lease obligations
    365       -  
Repayments of promissory notes, long-term debt and capital lease obligations
    (694 )     (470 )
Cash flows from financing activities
    (487 )     (36 )
                 
NET INCREASE (DECREASE) IN CASH
    338       (1,300 )
                 
CASH, beginning of year
    7,431       8,475  
                 
CASH, end of year
  $ 7,769     $ 7,175  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
Interest paid
  $ 344     $ 89  
Income taxes paid
  $ 428     $ 202  
                 
NON CASH OPERATING ACTIVITY
               
Non cash stock issued for services
  $ 91     $ -  
Non cash stock options issued to employees and directors
  $ 37     $ 125  
 
The accompanying notes are an integral part of these financial statements.
 
 
5
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
(in thousands)
(unaudited)

1.   The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and article 10 of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  Therefore, these financial statements should be read in conjunction with the annual report on Form 10-K for the fiscal year ended April 30, 2012.  In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included.  Operating results for the three months ended July 31, 2012 are not indicative of the results of operations that may be expected for the fiscal year ended April 30, 2013.

Certain reclassifications within the condensed financial statement captions have been made to maintain consistency in presentation between years.

2.  Net Income (Loss) Per Share: The Company follows ASC 260 that requires the reporting of both basic and diluted earnings (loss) per share.  Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  In accordance with ASC 260, any anti-dilutive effects on net earnings (loss) per share are excluded.

3.  Research and Development: We invested in research and development activities.  The amount invested in the three months ended July 31, 2012   and 2011 was approximately $372 and $408 respectively.

4.  Borrowings:  At July 31, 2012, the Company had one line of credit totaling $1 million.  The unused line at July 31, 2012 was $696.  During the current year these funds were primarily used for the purchase of inventory for the modifications and avionics operations.

At July 31, 2012, there were several notes collateralized by aircraft security agreements totaling $2,471.  These notes were used for the purchase and modifications of these collateralized aircraft.

There are three notes at a bank totaling $1,878 for real estate located in Olathe, Kansas and Tempe, Arizona.  The due date for these notes is in March 2013, and August 2016.

One note totaling $342 remains for real estate purchased in June 2009 in Dodge City, Kansas.

One note with a balance of $392 is collateralized by the first and second position on all assets of the company.   There are several other notes collateralized by automobiles and equipment totaling an additional $209.

5.  Leases:  BHCMC, LLC (“BHCMC”) as tenant entered into a lease dated May 1, 2011, and amended via an addendum dated January 1, 2012 (collectively, the “Lease”), with BHC Investment Company, L.C. (“BHCI”) as landlord for a total obligation of $7,423.  BHCI provided funds to BHCMC for the purchase of certain intangible items and gaming related items related to the Boot Hill Casino and Resort.  Commencing on January 1, 2012, BHCMC is obligated to make a minimum payment to BHCI of $177 per month until termination of the Lease on September 30, 2017.  The Lease may be terminated early but only in the event BHCMC repays the advance plus a 15% annual return through the early termination date.  The remaining balance on the obligation is $6,814.

On August 24, 2012, BHCMC and BHCI entered into a second lease (“Second Lease”), which includes an advance of up to $3,250 for tenant improvements related to expansion of the Boot Hill Casino and Resort.  Commencing on November 1, 2012, BHCMC is obligated to make a minimum payment to BHCI of approximately $55 per month until termination of the Second Lease on November 30, 2017.  Prior to the rent commencement date of November 1, 2012, BHCMC must pay to BHCI the interest that accrues at an annual rate of 12%.  The Second Lease may be terminated early but only in the event BHCMC repays the advance plus a 12% annual return through the early termination date.  Only $2,500 of the $3,250 available was advanced to the tenant, with the remaining $750 available at the request of BHCMC.

 
6

6.  Other Assets:  Our other asset account includes intangible assets of $5,500 related to the Kansas Expanded Lottery Act Management Contract privilege fee and JET autopilot intellectual property of $2,055.  BHCMC, LLC expects the intangible assets for the Kansas Expanded Lottery Act contract privilege fee of $5,500 to have value over the remaining life of the Management Contract with the State of Kansas which will end in December 2024 (approximately 13 years).  There is no assurance of Management Contract renewal.  The privilege fee will be fully amortized by the projected end of the Management Contract.  Based on the projected sales of the Legacy line of “JET” products it was determined that it would be fully amortized within 15 years.

7.  Stockholders’ Equity:   On May 8, 2012, the Company issued 238,750 shares of Company common stock to Reign Strategy & Investment Group, LLC (“Reign”).  The expense will be amortized over the life of the agreement for a total amount of $90.  These shares were issued in consideration for Reign’s marketing and consulting services related to increasing public awareness and shareholder interest in the Company.

The issuance of stock by the Company to Reign is exempt from registration pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended.  Reign has represented to the Company and the Company believes that Reign is an “accredited investor” as defined in Rule 501(a) of Regulation D.

8 .  Stock Options:  Approximately 7.2 million stock options were issued on December 31, 2010.  Previously issued stock options were time-vesting and did not include share price performance targets.  All of the newly issued stock options expire December 31, 2015.

The exercise price for the incentive stock options is $0.49 (closing price as of December 31, 2010).  The Board of Directors approved the issuance of incentive stock options on December 31, 2010 with the goals of increasing shareholder value, expanding the number of managers participating in the program, and increasing the percentage of compensation tied to share price performance.

The incentive stock options are allocated in three groups with two conditions for vesting.  The first condition is stock price and the second condition is time:
 
Year 1: Target $0.92
 
§
2,420,688 options that can be exercised on or after December 31, 2011 if and when the share price reaches $0.92
Year 2: Target $1.41
 
§
2,420,688 options that can be exercised on or after December 31, 2012 if and when the share price reaches $1.41
Year 3: Target $1.90
 
§
2,420,688 options that can be exercised on or after December 31, 2013 if and when the share price reaches $1.90

At July 31, 2012 we had 7,262,064 outstanding stock options with an average exercise price of $1.42.
 
 
7
 
ITEM 2. 

Statements made in this report, filed with the Securities and Exchange Commission, communications to stockholders, press releases, and oral statements made by representatives of the Company that are not historical in nature, or that state the Company or management intentions, hopes, beliefs, expectations or predictions of the future, may constitute "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance" or "estimate" or the negative of these words, variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties, and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Cautionary Statements and Risk Factors, filed as Exhibit 99 and Item 1A. Risk Factors to the Company's Annual Report on Form 10-K for the year ended April 30, 2012 are incorporated herein by reference.  Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.

Management Overview

Management is focused on increasing long-term shareholder value from increased cash generation, earnings growth, and prudently managing capital expenditures. We plan to do this by continuing to drive increased revenues from product and service innovations, strategic acquisitions, and targeted marketing programs.  

Our revenues are primarily derived from two very different business segments; aerospace products and professional services. These segments operate through various Butler National Corporation subsidiaries and affiliates listed on page 58 of the Company’s annual report on form 10K.

Aerospace products derives its revenues by designing, engineering, manufacturing, installing, servicing, and repairing products for classic and current production aircraft. These products include JET autopilot service and repairs, AVCON provisions for special mission equipment installations, KINGS avionics equipment sales and installation, and BUTLER National electronic controls and safety equipment manufacture and sales. Aerospace customers range in size from owners and operators of small single engine airplanes to owners and operators of large commercial and military aircraft. Aerospace products are sold to and serviced for customers located in many countries of the world.

Aerospace is the legacy part of the Butler National business. Organized over 50 years ago, this business is based upon design engineering and installation innovations to enhance and support products related to airplanes and ground support equipment. These new products included: in the 1960’s, aircraft electronic load sharing and system switching equipment, a number of airplane electronic navigation instruments, radios and transponders; in the 1970’s, ground based VOR navigation equipment sold worldwide and military GPS equipment as we know it today in civilian use; in the 1980’s, special mission modifications to business jets for aerial surveillance and conversion of passenger configurations to cargo; in the 1990’s, classic aviation support of aging airplanes with enhanced protection of electrical systems through transient suppression devices (TSD), control electronics for military weapon systems and improved aerodynamic control products (Avcon Fins) allowing stability at higher gross weights for additional special mission applications; in the 2000’s, improved accuracy of the airspeed and altimeter systems to allow less vertical separation between flying airplanes (RVSM) and acquisition of the JET autopilot product line to support and replace aged electronic equipment in the classic fleet of Learjet airplanes; and in the 2010’s, the acquisition of Kings Avionics to provide additional classic airplane support by retrofit of avionics from the past 40 years to modern state of the art equipment for sale worldwide using FAA supplemental type certification to make the installations (STC) acceptable to foreign governments for installation abroad.

 
8

Aerospace continues to be the focus for new product design and development. We expect this segment will continue to grow in the future. To address the three to five year business cycles related to the aerospace industry, in the 1990’s, we began providing professional services to markets outside the aerospace industry.

Professional services derives its revenues from (a) professional management services in the gaming industry through Butler National Service Corporation (“BNSC”) and BHCMC, LLC (“BHCMC”), (b) licensed architectural and civil engineering services to the business community through BCS Design, and (c) monitoring services to owners and operators of intelligence gathering systems through Butler National Services, Inc. (“BNSI”).

Professional services grew from the experiences gained from the BNSI monitoring products and services of the 1980’s including SCADA systems and products including digital voice technology for the telephone industry and nuclear plant and civil defense warning systems. BNSI sold these professional services and products to utilities and municipalities resulting in relatively stable revenue streams. The defense warning products were sold in the 1980’s to a third party leaving only the current BNSI service business in Florida.

In the early 1990’s, management determined that more revenue stable business units were needed to sustain the Company. Members of the Board of Directors had contacts with several American Indian tribes, others members were associated with gaming operators in Las Vegas and the 1988 Indian Gaming Regulatory Act (IGRA) which was relatively new to the industry. We reached out to various Indian tribes with land in the area to explore the opportunities for operations under IGRA. This resulted in the “Stables” an Indian owned casino on Modoc Indian land opened in September 1988 developed and managed by BNSC.  A copy of the original management agreement with the Modoc and Miami Indian tribes dated December 12, 1996, (the “Stables Management Agreement”) is attached to this quarterly report on Form 10-Q as Exhibit 10.1 and incorporated herein by reference.  The Stables Management Agreement has been available on the website maintained by the National Indian Gaming Commission (“NIGC”).  The Stables Management Agreement was subsequently amended by various amendments dated April 30, 2003 (the “First Amendment”), November 30, 2006 (the “Second Amendment”), October 19, 2009 (the “Third Amendment”) and September 22, 2011 (the “Fourth Amendment”).  The result of the First Amendment, Second Amendment, Third Amendment and Fourth Amendment is to provide that twenty (20%) of Net Profits from The Stables are distributed to BNSC, to eliminate the participation of the Miami Indian tribe from the business and to extend the duration of the Stables Management Agreement through September 30, 2018.  A copy of the First Amendment, Second Amendment, Third Amendment and Fourth Amendment are attached to this quarterly report on Form 10-Q as Exhibits 10.2, 10.3, 10.4 and 10.5 respectively, and are incorporated herein by reference.  BCS Design has also assisted with the design, construction and continued refurbishment of this venture.

From this experience with IGRA and the success of the Indian gaming industry, we determined that the IGRA model may be applicable for state owned gaming. We spent Butler National Corporation innovation, legal and market development funds to design and encourage the use of an Indian owned gaming model in the State of Kansas. From these efforts, Kansas enacted the Kansas Expanded Lottery Act (KELA) in 2007 allowing four state owned casinos to be developed in Kansas. In 2007, BNSC made application to manage a state owned casino. In 2008, BNSC was awarded a fifteen year term to manage the Boot Hill Casino and Resort in Dodge City, Kansas pursuant to a Lottery Gaming Facility Management Contract (the “Boot Hill Casino Management Contract”).  A copy of the Boot Hill Casino Management Contract and related supporting documents between BNSC and BHCMC, LLC are attached to this quarterly report on Form 10-Q as Exhibit 10.6 and is incorporated herein by reference.  The Boot Hill Casino Management Contract was amended on December 29, 2009 (the “First Amendment to the Boot Hill Casino Management Contract”) to bring the definition of “Fiscal Year” in line with the fiscal year of BNSC (May 1 to April 30).  A copy of the First Amendment to the Boot Hill Casino Management Contract is attached to this quarterly report on Form 10-Q as Exhibit 10.7 and is incorporated herein by reference.  BHCMC was organized to be the manager of the casino in Dodge City. The casino opened in December 2009.

By 2009, Butler National Corporation was clearly established into two segments; the professional services and aerospace products business segments.

Results Overview

Our first quarter fiscal 2013 revenues increased 11% to $13.5 million compared to $12.1 million in the first quarter fiscal 2012. The quarter to quarter increase in revenue reflects additional professional services revenues (up 14%) driven by increased revenues from gaming activities and an increase in aerospace products revenues (up 3%) attributable to increased military support products.  We anticipate future domestic military spending reductions and continued slow growth of the United States economy.

 
9

Our first quarter fiscal 2013 net income increased 148% to $268 compared to $108 in the first quarter fiscal 2012. Diluted earnings per share remained the same at $0.00 from first quarter fiscal 2012 to the first quarter fiscal 2013. The growth in net earnings and diluted earnings per share was driven primarily by strong revenue growth and continued progress with our margin expansion initiatives, including efficiencies in our implementation and operational processes and controlling general and administrative expenses. Our first quarter fiscal 2013 operating margin was 10%, an increase of four percentage points from our margin of 6% in first quarter fiscal 2012.

RESULTS OF OPERATIONS

FIRST QUARTER FISCAL 2013 COMPARED TO FIRST QUARTER FISCAL 2012

(dollars in thousands)
 
Three
Months
Ended
July 31, 2012
   
Percent
of total
revenue
   
Three
Months
Ended
July 31, 2011
   
Percent
of total
revenue
   
Percent
Change
2011-2012
 
Revenues:
                             
Professional services
  $ 9,807       73 %   $ 8,598       71 %     14 %
Aerospace products
    3,661       27 %     3,548       29 %     3 %
                                         
Total revenues
    13,468       100 %     12,146       100 %     11 %
                                         
Costs and expenses:
                                       
Cost of professional services
    5,137       38 %     4,977       41 %     3 %
Cost of aerospace products
    2,924       22 %     2,936       24 %     0 %
Marketing and advertising
    1,120       8 %     945       8 %     19 %
Employee benefits
    482       4 %     758       6 %     (36 )%
Depreciation and amortization
    711       5 %     463       4 %     54 %
General, administrative and other
    1,809       13 %     1,393       11 %     30 %
                                         
Total costs and expenses
    12,183       90 %     11,472       94 %     6 %
Operating income
  $ 1,285       10 %   $ 674       6 %     91 %
 
Revenues:

Revenues increased 11% to $13.5 million in the three months ended July 31, 2012, as compared to $12.1 million in the three months ended July 31, 2011.

 
·
Professional services derives its revenues from professional management services in the gaming industry through BNSC and BHCMC, licensed architectural and civil engineering services to the business community through BCS Design and monitoring services to owners and operator of SCADA through BNSI.  Revenues from professional services increased 14% to $9.8 million in the three months ended July 31, 2012 from $8.6 million in the three months ended July 31, 2011. The increase in professional services revenues was driven by increased revenues from gaming activities.

 
·
Aerospace products derives it revenues by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.  Aerospace products revenues increased 3% for the three months from $3.7 million at July 31, 2012 compared to $3.5 million at July 31, 2011. This increase is attributable to increased military support products.  We anticipate future domestic military spending reductions and the continued slow growth of the United States economy.
 
Costs and expenses:
 
Costs and expenses related to Professional services and Aerospace products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy.
 
 
10
 
Costs and expenses increased 6% in the three months ended July 31, 2012 to $12.2 million compared to $11.5 million in the three months ended July 31, 2011.  Costs and expenses were 90% of total revenues in the three months ended July 31, 2012, as compared to 94% of total revenues in the three months ended July 31, 2011. The lower costs and expenses as a percent of total revenues in fiscal 2012 were primarily driven by lower engineering costs in aerospace products and maintaining a lower percent of professional services costs as professional services revenues increased.
 
Marketing and advertising expenses as a percent of total revenues were 8% in the three months ended July 31, 2012, as compared to 8% in three months ended July 31, 2011. These expenses increased 19% to $1.1 million in the three months ended July 31, 2012, from $945 thousand in the three months ended July 31, 2011. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions. The increase in these expenses was primarily attributable to growth in the professional services business reflecting a marketing plan to target specific marketing sectors in the Wild West market to increase destination casino revenues.  The Boot Hill Casino and Resort definition of the Wild West market includes the area east from the Rocky Mountains to the Mississippi River and the southern Canadian border to the northern border of Mexico.
 
Employee benefits expenses as a percent of total revenues were 4% in the three months ended July 31, 2012, compared to 6% in the three months ended July 31, 2011. These expenses decreased 36% to $482 thousand in the three months ended July 31, 2012, from $758 thousand in the three months ended July 31, 2011.  These expenses include the employers’ share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.  The decreased expenses are related to a decrease in the number of employees in professional services.
 
Depreciation and amortization expenses as a percent of total revenues were 5% in the three months ended July 31, 2012, compared to 4% in the three months ended July 31, 2011. These expenses increased 54% to $711 thousand in the three months ended July 31, 2012, from $463 thousand in the three months ended July 31, 2011.  These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino and Resort being expensed over the term of the gaming contract with the State of Kansas.  BHCMC, LLC depreciation and amortization expense for the three months ended July 31, 2012 was $226 compared to $10 at July 31, 2011.
 
General, administrative and other expenses as a percent of total revenues were 13% in the three months ended July 31, 2012, compared to 11% in the three months ended July 31, 2011. These expenses increased 30% to $1.8 million in fiscal 2012, from $1.4 million in fiscal 2011.  The increase reflects the increase in number of administrative personnel in professional services, the increased legal fees and expenses and the outside professional consulting fees related to working within the Kansas gaming regulations.
 
Other income (expense):

Interest and other expenses were $337 thousand in the three months ended July 31, 2012 compared with interest and other expenses of $86 thousand in the three months ended July 31, 2011, an increase of $251 thousand, 292%, from the three months ended July 31, 2011 to the three months ended July 31, 2012.  Interest of $262 thousand was related to obligations of BHCMC, LLC.
 
Operations by Segment
 
We have two operating segments, professional services and aerospace products. The professional services segment includes revenue contributions and expenditures associated with monitoring services for SCADA systems owned by others, professional architectural services and casino management services.  Aerospace products derives its revenues by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
 
 
11
 
The following table presents a summary of our operating segment information for the three months ended July 31, 2012 and July 31, 2011:

(dollars in thousands)
 
Three
Months
Ended
July 31, 2012
   
Percent of
Revenue
   
Three
Months
Ended
July 31, 2011
   
Percent of
Revenue
   
Percent
Change
2011-2012
 
Professional Services
                             
Revenues
                             
Boot Hill Casino and Resort
  $ 7,701       78 %   $ 6,623       77 %     16 %
Management/Professional Services
    2,106       22 %     1,975       23 %     7 %
Net Revenue
    9,807       100 %     8,598       100 %     14 %
                                         
Costs of professional services
    5,137       52 %     4,977       58 %     3 %
Expenses
    3,302       34 %     2,680       31 %     23 %
Total costs and expenses
    8,439       86 %     7,657       89 %     10 %
Professional services operating income (loss) before noncontrolling interest in BHCMC, LLC
    1,368       14 %     941       11 %     45 %
Noncontrolling interest in BHCMC, LLC
    (540 )     6 %     (398 )     5 %     36 %
                                         
Professional services operating income (loss) after noncontrolling interest in BHCMC, LLC
  $ 828       8 %   $ 543       6 %     52 %

(dollars in thousands)
 
Three
Months
Ended
July 31, 2012
   
Percent of
Revenue
   
Three
Months
Ended
July 31, 2011
   
Percent of
Revenue
   
Percent
Change
2011-2012
 
Aerospace Products
                             
Revenues
  $ 3,661       100 %   $ 3,548       100 %     3 %
                                         
Costs of aerospace products
    2,924       80 %     2,936       83 %     0 %
Expenses
    820       22 %     879       25 %     (7 )%
Total costs and expenses
    3,744       102 %     3,815       108 %     (2 )%
                                         
Aerospace products operating income (loss)
  $ (83 )     (2 )%   $ (267 )     (8 )%     69 %

Professional Services
 
·
Revenues from professional services increased 14% to $9.8 million in the three months ended July 31, 2012 from $8.6 million in the three months ended July 31, 2011. The increase in professional services revenues was driven by increased revenues from gaming activities.

 
In the quarter ended July 31, 2012 Boot Hill Casino and Resort received gross receipts for the State of Kansas of $11.2 million compared to $10.7 million for the three months ended July 31, 2011.  Mandated fee, taxes and distributions reduced gross receipts by $3.5 million leaving net gaming revenue of $7.7 million for the three months ended July 31, 2012 compared to $6.6 million for the three months ended July 31, 2011 an increase of 16%.

 
The remaining management and professional services revenues includes professional management services in the gaming industry, licensed architectural and civil engineering services, food and beverage retail from Boot Hill Casino and Resort,  and monitoring services for SCADA systems.  Management and professional services revenue increased 7% to $2.1 million in the three months ended July 31,012 from $2.0 million in the three months ended July 31, 2011.  Gaming related revenue including food and beverage retail increased 2.3% to $1.5 million for the three months ended July 31, 2012 compared to $1.47 million for the three months ended July 31, 2011.  Professional services revenue including architectural, civil engineering and monitoring services increased 19% to $603 thousand for the current three months ended July 31, 2012.
 
 
12
 
 
·
Costs increased 3% in the three months ended July 31, 2012 to $5.1 million compared to $5.0 million in the three months ended July 31, 2011.  Costs were 52% of segment total revenues in the three months ended July 31, 2012, as compared to 58% of segment total revenues in the three months ended July 31, 2011.
 
·
Expenses increased 23% in the three months ended July 31, 2012 to $3.3 million compared to $2.7 million in the three months ended July 31, 2011.  Expenses were 34% of segment total revenues in the three months ended July 31, 2012, as compared to 31% of segment total revenues in the three months ended July 31, 2011.

Aerospace Products
 
·
Revenues increased 3% from $3.7 million in the three months ended July 31, 2012 compared to $3.5 million in the three months ended July 31, 2011. This increase is attributable to military support products.   We anticipate future domestic military spending reductions and the continued slow growth of the United States economy.
 
·
Costs were relatively unchanged in the three months ended July 31, 2012 to $2.92 million compared to $2.94 million in the three months ended July 31, 2011.  Costs were 80% of segment total revenues in the three months ended July 31, 2012, as compared to 83% of segment total revenues in the three months ended July 31, 2011.
 
·
Expenses decreased 7% in the three months ended July 31, 2012 at $820 thousand compared to $879 thousand in the three months ended July 31, 2011.  Expenses were 22% of segment total revenues in the three months ended July 31, 2012, as compared to 25% of segment total revenues in the three months ended July 31, 2011.

Employees

Other than persons employed by our gaming subsidiaries there are 105 full time and 3 part time employees on July 31, 2012 compared to 114 full time and 4 part time employees on July 31, 2011.  As of September 3, 2012, staffing is 102 full time and 3 part time employees.  Our staffing at Boot Hill Casino & Resort on July 31, 2012 was 220 full time and 76 part time employees and at September 3, 2012 are 209 full time employees and 71 part time employees.  None of the employees are subject to any collective bargaining agreements.

Liquidity and Capital Resources (in thousands)

We believe that our current banks will provide the necessary capital for our business operations.  However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in 2012 and beyond.

On May 1, 2011 BHC Investment Company exercised the option to acquire 100% of the Class A Preferred Interest in BHCMC, LLC.  The ownership structure of BHCMC, LLC is now:

Membership Interest
 
Members of
Board of Managers
   
Equity Ownership
   
Income (Loss)
Sharing
 
Class A
    3       20 %     40 %
Class B
    4       80 %     60 %

BHCMC, LLC, rents the casino building under the terms of a 25 year lease from BHC Development L.C. “BHCD”.  Butler National Corporation, its management, or subsidiaries have no ownership interest in BHCI or BHCD.

The terms of the agreement between the Kansas Lottery and BNSC/BHCMC require the completion of an addition to the Boot Hill Casino and Resort.  We may need additional funding to complete this expansion if not completed by a franchised vendor. The phase II development of an adjacent hotel and community owned special events center was funded by a third parties, is completed, and open to the public.  The remaining phase II construction requirements are in process, and are expected to be completed by early 2013. Phase II expansion of the unfinished gaming floor space built during Phase I construction and tenant improvements is estimated to cost approximately $8 million and is being funded by tenant improvement leases, gaming machine leases, and current casino earnings, with minimum exposure to Butler National Corporation.  The Phase II expansion includes the interior finish of 15,000 square feet of casino shell and 216 additional gaming machines.  At completion Boot Hill Casino and Resort will have approximately 800 gaming machines on the floor.  The lease documents associated with expansion are attached to this quarterly report on Form 10-Q as Exhibits 10.8 and 10.9 and are incorporated herein by reference.

 
13

Analysis and Discussion of Cash Flow

During the quarter ended July 31, 2012 our cash position increased by $338.  We had net income of $808.  Cash flows from operating activities provided $1,227.  Non-cash activities consisting of depreciation and amortization contributed $726 and stock options issued to employees and directors contributed $37.  Stock issued for services contributed $91.  The following items decreased our cash position.  Customer deposits and receivables increased by $1,226 while inventories increased by $16.  Prepaid expenses and other current assets increased our cash by $658, while an increase of accounts payable and accrued expenses increased our cash by an additional $149.  

Cash used in investing activities was $402.  We invested $385 towards modification equipment and aircraft, and $17 towards a casino liquor dispensing system.

Cash used in financing activities was $487.  We reduced our debt by $694 and our line of credit by $158.  We borrowed $365 towards the purchase of a used aircraft.

Critical Accounting Policies and Estimates :

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue recognition, the use of estimates, long-lived assets, and Supplemental Type Certificates. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management Discussion and Analysis of Financial Condition and Results of Operations." In addition, Note 1 to the consolidated financial statements expands upon discussion of our accounting policies.

Revenue Recognition:   Generally, we perform aircraft modifications under fixed-price contracts.  Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the direct labor and material costs incurred compared to total estimated direct labor costs.  Each quarter our management reviews the progress and performance of our significant contracts.  Based on this analysis, any adjustment to sales, cost of sales and/or profit is recognized as necessary in the period they are earned.  Changes in estimates of contract sales, cost of sales and profits are recognized using a cumulative catch-up, which is recognized in the current period of the cumulative effect of the change on current or prior periods.  Revenue for off-the-shelf items and aircraft sales is recognized on the date of sale.

Net gaming revenue is the gross gaming win as reported by the Kansas Lottery casino reporting systems, less the mandated payments by and for the State of Kansas.  Electronic games-slots and table games revenue is the aggregate of gaming wins and losses.  Liabilities are recognized for chips and “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to anticipated payout of progressive jackpots.  Progressive gaming machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are deducted from revenue as the amount of jackpots increase.  Food, beverage, and other revenue is recorded when the service is received and paid for.

Revenues from Avionics products are recognized when shipped.  Payment for these Avionics products is due within 30 days of the invoice date after shipment.  Revenue for SCADA services, Gaming Management, and other Corporate/Professional Services are recognized as the service is rendered and invoiced.  Payments for these service invoices are usually received within 30 days.

In regard to warranties and returns, our products are special order and are not suitable for return.  Our products are unique upon installation and tested prior to their release to the customer and acceptance by the customer.  In the rare event of a warranty claim, the claim is processed through the normal course of business and may include additional charges to the customer.  In our opinion any future warranty work would not be material to the financial statements.

 
14

Use of Estimates:   The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Future events and their effects cannot be determined with certainty.  Therefore, the determination of estimates requires the exercise of judgment.  Actual results could differ from those estimates, and any such differences may be material to our financial statements.

Long-lived Assets:   The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, formerly SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."  ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate.  The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition.  If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value.

Supplemental Type Certificates: Supplemental Type Certificates (STCs) are authorizations granted by the Federal Aviation Administration (FAA) for specific modification of a certain aircraft.  The STC authorizes us to perform modifications, installations, and assemblies on applicable customer-owned aircraft.  Costs incurred to obtain STCs are capitalized and subsequently amortized against revenues being generated from aircraft modifications associated with the STC.  The costs are expensed as services are rendered on each aircraft through costs of sales using the units of production method.  The legal life of an STC is indefinite.  We believe we have enough future sales to fully amortize our STC development costs.

Changing Prices and Inflation

We have experienced upward pressure from inflation in 2012.  From fiscal year 2011 to fiscal year 2012 a majority of the increases we experienced were in material costs.  This additional cost may not be transferable to our customers resulting in lower income in the future.  We anticipate fuel costs and possibly interest rates to rise in fiscal 2012 and 2013.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3.

Please see Item 7(a) of our Form 10-K for the period ended April 30, 2012, which incorporated herein by reference.
 
Item 4. 
 
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms.  Our principal executive and financial officers have evaluated our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q and have determined that such disclosure controls and procedures are effective, based on criteria in Internal Control-Integrated Framework, issued by COSO.

Evaluation of disclosure controls and procedures:   Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

 
15

In connection with the preparation of this Form 10-Q, our Chief Executive Officer and our Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2012.  Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of July 31, 2012.

Internal Control Over Financial Reporting

Management Report on Internal Control Over Financial Reporting:   Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of July 31, 2012.

Our internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Company assets that could have a material effect on the financial statements.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management's report is not subject to attestation by the Company registered public accounting firm because Section 989G(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act exempts us, a company with a public float of less than $75 million from the requirement that our registered public accounting firm attest to our financial controls.

Limitations on Controls
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.  The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.  These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control Over Financial Reporting :  In our opinion there were no material changes in the Company internal controls over financial reporting during the three months ended July 31, 2012 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.
 
 
16
 
PART II.
OTHER INFORMATION

Item 1.
 
BHCMC, LLC and BHC Development, LC filed a lawsuit in the United States District Court for the District of Kansas on June 21, 2012, against Bally Gaming Inc. doing business as Bally Technologies for breach of contract and negligent representation among other claims related to the performance of computer software systems.  BHCMC and BHC Development seek damages in excess of $75,000.

 
As of September 3, 2012, there are no other significant known legal proceedings pending against us.  We consider all such unknown proceedings, if any, to be ordinary litigation incident to the character of the business.  We believe that the resolution of any claims will not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

Item 1A .
 
There are no material changes to the risk factors disclosed under Item 1A of our Form 10-K for the fiscal year ended April 30, 2012.

Item 2.
 
None.

Item 3.
 
None.

Item 4.

Item 5.
 
None.

Item 6.

 
3.1
Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.
     
 
3.2
Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form DEF 14A filed on December 15, 2003.
     
 
10.1
Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated December 12, 1996.
     
 
10.2
First Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated April 30, 2003.
     
 
10.3
Second Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated November 30, 2006.
     
 
10.4
Third Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated October 19, 2009.
     
 
10.5
Fourth Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated September 22, 2011.
     
 
10.6
Lottery Gaming Facility Management Contract between the State of Kansas and Butler National Service Corporation, approved by the Kansas Racing and Gaming Commission on December 8, 2008.
     
 
10.7
First Amendment to the Lottery Gaming Facility Management Contract between the State of Kansas and Butler National Service Corporation, dated December 29, 2009.
     
 
10.8
Lease between BHCMC, LLC as tenant and BHC Investment Company, L.C. as landlord, dated May 1, 2011 and amended via addendum dated January 1, 2012.

 
17

 
10.9
Lease between BHCMC, LLC as tenant and BHC Investment Company, L.C. as landlord, dated August 24, 2012.
     
 
31.1
Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).
     
 
31.2
Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).
     
 
32.1
Certifications of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
 
32.2
Certifications of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
 
99
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, are incorporated by reference to Exhibit 99 of the Form 10-K for the fiscal year ended April 30, 2012.
     
 
101
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2012, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of July 31, 2012 and April 30, 2012, (ii) Condensed Consolidated Statements of Operations for the three months ended July 31, 2012 and 2011, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 2012 and 2011, and (iv) the Notes to Consolidated Financial Statements, with detail tagging.  In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise this Exhibit 101 shall be deemed “furnished” and not “filed.”
 
18
 
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.

 
BUTLER NATIONAL CORPORATION
(Registrant)
     
September 14, 2012
/s/ Clark D. Stewart
 
Date
Clark D. Stewart
 
(President and Chief Executive Officer)
     
September 14, 2012
/s/ Angela D. Shinabargar
 
Date
Angela D. Shinabargar
 
 
(Chief Financial Officer)
 
 
19
 
 
Exhibit Index
 
   
Exhibit
Number
Description of Exhibit
3.1
Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.
   
3.2
Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form DEF 14A filed on December 15, 2003.
   
Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated December 12, 1996.
   
First Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated April 30, 2003.
   
Second Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated November 30, 2006.
   
Third Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated October 19, 2009.
   
Fourth Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated September 22, 2011.
   
Lottery Gaming Facility Management Contract between the State of Kansas and Butler National Service Corporation, approved by the Kansas Racing and Gaming Commission on December 8, 2008.
   
First Amendment to the Lottery Gaming Facility Management Contract between the State of Kansas and Butler National Service Corporation, dated December 29, 2009.
   
Lease between BHCMC, LLC as tenant and BHC Investment Company, L.C. as landlord, dated May 1, 2011 and amended via addendum dated January 1, 2012.
   
Lease between BHCMC, LLC as tenant and BHC Investment Company, L.C. as landlord, dated August 24, 2012.
   
Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).
   
Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).
   
Certifications of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
Certifications of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
99
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, are incorporated by reference to Exhibit 99 of the Form 10-K for the fiscal year ended April 30, 2012.
   
101
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2012, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of July 31, 2012 and April 30, 2012, (ii) Condensed Consolidated Statements of Operations for the three months ended July 31, 2012 and 2011, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 2012 and 2011, and (iv) the Notes to Consolidated Financial Statements, with detail tagging.  In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise this Exhibit 101 shall be deemed “furnished” and not “filed.”
 
 
E1
Exhibit 10.1
 
STABLES - JTVT II & III
Document          of      5  
 
MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
THIS Agreement entered into on the 12th day of December, 1996, at Miami, Oklahoma, by and between the MIAMI TRIBE OF OKLAHOMA , an Indian Tribe organized pursuant to Section 3 of the Oklahoma Indian Welfare Act of 1936, 25 U.S.C. § 503 (1982), hereafter sometimes referred to as “ Miami Tribe ” and the MODOC TRIBE OF OKLAHOMA , an Indian Tribe organized pursuant to Section 3 of the Oklahoma Indian Welfare Act of 1936, 25 U.S.C. § 503 (1982), hereafter sometimes referred to as Modoc Tribe, both the Miami Tribe and the Modoc Tribe as joint venture partners hereafter sometimes referred to as “ Tribe ”; and BUTLER NATIONAL SERVICE CORPORATION (a Delaware corporation) or it’s assigned subsidiary, hereafter referred to as “ Manager ”; and to be submitted for approval to the National Indian Gaming Commission hereafter referred to as “ Commission ”.
 
1.0
Recitals .
 
1.1           The Miami Tribe of Oklahoma and the Modoc Tribe of Oklahoma are both federally recognized Indian tribes possessing sovereign powers over land held in trust for Tribe and its members within Tribe’s territorial boundaries located within the State of Oklahoma and other states, pursuant to the Constitution and By-Laws of Tribe, and as approved by the Secretary of the Interior for the Modoc Tribe on July 27, 1990, and for the Miami Tribe by operation of law on January 18, 1996, and by the Secretary of the Interior on February 22, 1996.
 
1.2           Modoc Tribe now owns a parcel of land, in Oklahoma, more particularly described in Appendix “A” of this Agreement, hereafter referred to as “ Tract ”, in order to improve and provide for the economic conditions of its members and to enable Tribe to better serve the social, economic, educational and health needs of Tribe, and to increase tribal revenues and enhance tribal economic self-sufficiency and self-determination.
 
1.3           Manager has agreed to loan to Tribe the funds necessary to construct a facility and commence the operation of a gaming enterprise, hereafter referred to as “Enterprise”, on Tract as hereafter defined, provided Tribe provides land available and suitable for the selected Enterprise.
 
1.4           The operation of the Enterprise will provide significant financial resources to Tribe without the necessity of initial capital outlay by Tribe.
 
1.5           Tribe presently lacks the resources and expertise necessary to operate Enterprise in an efficient and profitable manner, and thus is desirous of entering into an agreement by which Enterprise will be managed, and by which Tribe will obtain the management expertise necessary to establish and operate Enterprise.
 
 
 
 
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
1.6           Tribe is seeking technical experience and expertise for the operation of Enterprise, and to instruct members of Tribe as to the operation of Enterprise, and it is agreed that Manager can supply and has such experience, expertise, and instruction.
 
1.7           Tribe desires to enter into a MANAGEMENT AGREEMENT, LOAN AGREEMENT, NOTE and SECURITY AGREEMENT for the development, construction, operation and maintenance of a Class II and Class III gaming Facility and other improvements on Tract.
 
1.8           On the date of the execution of this Agreement or at later date mutually agreeable to the parties, the parties hereto are executing the LOAN AGREEMENT, attached hereto as Appendix “B”, for the construction of a Class II and Class III gaming Facility, and the initial working capital for Enterprise, a NOTE, attached hereto as Appendix “C”, evidencing the indebtedness contemplated by LOAN AGREEMENT; and a SECURITY AGREEMENT, attached herein as Appendix “D”, as security for the indebtedness evidence in NOTE, and each of these agreements serves as essential and mutually interdependent consideration for each of the other agreements.
 
1.9           Tribe is desirous of vesting in Manager the exclusive right and obligation to develop, manage, operate and maintain Enterprise during the term of and in conformance with the provisions of this MANAGEMENT AGREEMENT.
 
1.10          Manager is desirous of performing the functions described in paragraph 1.9 above as exclusive agent of Tribe as limited by paragraph 3.3 below.
 
1.11           This agreement is entered into pursuant to Indian Gaming Regulatory Act of 1988, PL 100-497, 102 Stat. 2467, 25 U.S.C. 2701-2721, (hereafter referred to as “ IGRA ”) and other applicable federal law which pervasively regulates the field of Indian Gaming and relations between the parties herein.  Any dispute regarding this agreement between the parties to this Agreement shall be deemed to have arisen under IGRA and other applicable federal law.
 
1.12           Tribe has adopted a Tribal Gaming Ordinance, hereafter referred to as “ Ordinance ”, pursuant to its law which complies with Indian Gaming Regulatory Act of 1988, P.L. 100-497, 102 Stat. 2467, 25 U.S.C. 2701-2721, Ordinance is attached as Appendix “E”.  The Enterprise will operate under the Modoc Tribe Ordinance.
 
1.13          The Manager will comply with the provisions of the National Environmental Policy Act (the “ NEPA ”).  The Manager will supply the Commission with all necessary information in order for the Commission to comply with the regulations of the Commission issued pursuant to NEPA.
 
1.14          The Tribe agrees to allow the Manager the first right of refusal concerning Class III gaming activity in the States of Kansas, Missouri and Oklahoma.
 
1.15          Parties agree that this MANAGEMENT AGREEMENT, including exhibits and recitals is the entirety of the agreement between the parties.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
2.0
Definitions .
 
As they are used in this MANAGEMENT AGREEMENT, the terms listed below shall have the meaning assigned to them in this section:
 
2.1            Enterprise .  “ Enterprise ” is a commercial enterprise which includes Class II and Class III gaming as is allowed under IGRA and other business within Enterprise as agreed upon by the Tribe and Manger.
 
2.2            Management Committee .  “ Management Committee ” shall be composed of three persons: two Tribal Representatives and Managing Officer; however, if either of the member of Management Committee desire to designate another person to exercise the authority which such representative has as a Management Committee member, such designation is permissible, provided that it is made in writing and has been subject of a written notice provided in accordance with paragraph 8 of this Agreement.
 
2.3            Tribal Representatives .  Modoc Tribe, pursuant to its law, has established the Modoc Tribe Elected Council to manage all tribal business affairs.  Modoc Tribe hereby appoints and designates the Chief of the Modoc Tribe Elected Council to be the Tribe’s duly appointed “Modoc Tribal Representative.”  Miami Tribe, pursuant to its law, has established the Miami Tribe Business Committee to manage all tribal business affairs.  Miami Tribe hereby appoints and designates the Chief of the Miami Tribe Business Committee to be the Tribe’s duly appointed “Miami Tribal Representative”.
 
2.4            Managing Officer .  “ Managing Officer ” shall be one of the officers of Manager, designed by notice given to Tribe in accordance with paragraph 8 of this Agreement, or his or her designee.
 
2.5            Gaming .  “ Gaming ” shall include Class II and Class III gaming as may be allowed under IGRA.
 
2.6            General Contractor .  “ General Contractor ” shall mean a person or entity selected by Management Committee who is a licensed General Contractor experienced in the construction of commercial buildings and appurtenant structures and service facilities and is capable of furnishing a performance bond of not less than $1,000,000, except that if locating a general contractor with a performance bond of $1,000,000 becomes unreasonably difficult or unreasonably expensive, the amount of the bond may be reduced or waived altogether, provided that the waiver of such bond is approved by Management Committee.
 
2.7            General Manager .  “ General Manager ” shall mean the person selected by Manager and approved by Tribal Representative, who has had experience in the operation, maintenance and accounting for a gaming enterprise and who can furnish a personal fidelity bond of or is bondable for not less than $100,000.00.  Said General Manager shall be the person responsible for and with the necessary authority for carrying out the duties and responsibilities of Manager as set forth in paragraph 6 below, in connection with the operation of Enterprise to utilize the Facility.
 
2.8            Manager .  “ Manager ” shall mean a natural person or entity that has entered into a management contract with the Tribe which has been approved pursuant to 25 U.S.C. 2710(d)(b).
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
2.9            Commission .  “ Commission” shall mean the National Indian Gaming commission established pursuant to 25 U.S.C. 2704.
 
2.10          Tribal Gaming Commission .  “ Tribal Gaming Commission ” or “ MMTGC ” shall mean the commission of the Miami Tribe and Modoc Tribe.  The MMTGC will operate as authorized by the Modoc Tribe gaming ordinances for Class II (approved by the NIGC November 8, 1993) and Class III (approved by the NIGC on December 15, 1994).
 
2.11           Gross Receipts .  “ Gross Receipts ” shall mean the total gaming revenues received by Enterprise from all sources excluding loan proceeds.  Other nongaming revenues will be segregated from gaming revenues.
 
2.12           Operating Expenses .  “ Operating Expenses ”, determined in accordance with GAAP shall mean all expenses necessary for the operation of Enterprise, including but not limited to the following:
 
 
(1)
the payment of salaries, wages, and benefit programs for Enterprise’s employees:
 
(2)
prizes;
 
(3)
materials and supplies for Enterprise;
 
(4)
utilities;
 
(5)
remodeling, repairs and maintenance of Enterprise (provided that these costs do not extend the useful life of the asset);
 
(6)
interest of installation contract(s), if any purchased by Enterprise;
 
(7)
insurance and bonding;
 
(8)
advertising and marketing costs as budgeted and approved within the overall operating budget;
 
(9)
accounting fees;
 
(10)
security costs;
 
(11)
depreciation on buildings and equipment;
 
(12)
cost to Tribe and Manager for legal and other professional fees determined in accordance with Generally Accepted Accounting Principles (“ GAAP ”), incurred on behalf of Enterprise with the specific approval of Management Committee, and cost to the Management Committee and Manager for legal and other professional fees not to exceed $700,000 dollars each incurred for purposes of entering into or obtaining approval of this Agreement, completion of the gaming feasibility project or in connection with construction of Facility unless specifically and individually approved by the Management Committee;
 
(13)
reasonable travel expenses for the officers of Manger, Tribe and Management Committee to inspect and oversee Enterprise, subject to the budget agreed upon by the parties;
 
(14)
equipment and gaming equipment rental and/or operating lease payments;
 
(15)
trash removal;
 
(16)
costs of goods sold;
 
(17)
other expenses designed as operating expenses in the annual budget of Enterprise as approved by Management Committee;
 
(18)
expenses specifically designed as operating expenses in this MANAGEMENT AGREEMENT;
 
(19)
such other expenses that may be designated as operating expenses by Management Committee and approved by Tribe; and
 
(20)
interest expense.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
2.13           Net Profits .  “ Net Profits ” shall mean gross gaming revenues of an Indian gaming operation less - (a) Amounts paid out as, or paid for, prizes; and (b) Total gaming-related operating expenses, excluding management fees.
 
2.14           Facility .  “ Facility ” located on Tract, shall mean the building and associated parking and adjacent real and personal property, within which Enterprise will be housed.
 
2.15           Tract .  “ Tract ” shall mean a parcel of land, more particularly described in Appendix “A” attached as a part hereof, of which Tribe will build Facility, which parcel is held by the United States in trust for the Modoc Tribe.
 
3.0
Covenants .
 
In consideration of the foregoing Recitals, the parties agree and covenant as follows:
 
3.1            Engagement of Manager .  Tribe hereby retains and engages Manager and Manager accepts such retention and engagement, for a term of five (5) years commencing the date Enterprise opens for business to the public to offer Class II and/or Class III Gaming.  Tribe retains Manager to develop, manage, operate and maintain Enterprise.  Manager, along with Manager’s primary management officials and key employees of Enterprise, shall be licensed to operate Enterprise under Tribe’s Ordinance.  Tribe will not unreasonably withhold such licenses from Manager, its qualified primary management officials, or its qualified key employees.
 
Both Tribe and Manager agree that Manager shall have the option to extend this Agreement for an additional term of two (2) years from the expiration date of the initial five (5) year term, provided that;
 
 
a.
Manager is not in default on any of its obligations under this Agreement,
 
 
b.
Manager has not been repaid funds advanced to the Enterprise under the terms of the LOAN AGREEMENT, and
 
 
c.
Tribe does not at that time have funds available with which to pay the loan balance in full before the end of the initial term.
 
Manager shall notify Tribe of its election to extend this Agreement no later than ninety (90) days and no earlier than one hundred eighty (180) days before the end of the initial term.  Manager agrees that the effectiveness of the election to extend to shall be contingent upon Manager’s continuing satisfactory performance through the expiration of the initial term of this Agreement and the Tribe’s ability to repay is not substantially attributable to the Manager’s neglect or inability to perform its responsibilities under the Agreement during the last year of the Agreement.
 
3.2            Exclusivity of Manager’s Rights and Obligations .  Tribe warrants that during the term of this Agreement it will not establish or conduct any other Class II and Class III gaming subject to IGRA within a ten (10) minute driving time of the Tract.  Manager agrees that during the term of this Agreement it will not manage a Class II and Class III gaming enterprise within a ten (10) minute driving time of the Tract that would prejudice this Enterprise without the written approval of the Tribe.  Such approval shall not be unreasonably withheld.  The warranties in this paragraph 3.2 shall extend to and be binding on any entity owned (in whole or part), controlled, or in which any interest is held by Tribe or Manager or its Shareholders.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
3.3            Establishment and Operation of Management Committee .  Within one week following   the   effective   date   of this   Agreement,   Manager shall designate Managing Officer and request approval by Tribe, which such approval shall not be unreasonably withheld.     Thereafter, Management Committee shall have the obligations and authorities described in this Agreement.  In order to be effective, any action of Management Commission must be a result of mutual agreement of the three management Committee members or their designees.  In the event a mutual agreement cannot be reached, then in such event, the appropriate action shall be determined by arbitration as provided in paragraph 22 below.
 
3.4            Manager’s Compliance with Tribe’s Gaming Ordinance .  Manager agrees that it will at all times comply with the terms of Tribe’s Ordinance, and any licenses issued thereunder.
 
3.5            Tribal Amendments to Tribal Gaming Ordinance .  Tribe agrees that any amendments made to Tribal Gaming Ordinance will be a legitimate effort to ensure the gaming operation is conducted in a manner that adequately protects the environment, the public health and safety, and the integrity of gaming at Enterprise.  Tribe agrees that it will exempt Enterprise and Manager from any amendments to that ordinance which will prejudice Manager’s rights under this Agreement, LOAN AGREEMENT, NOTE, or SECURITY AGREEMENT.
 
3.6            Effective Date .  The management contract shall not be effective unless and until it is approved by the Chairman of the National Indian Gaming Commission, date of signatures of the private parties notwithstanding.
 
4.0
Construction of Facility .
 
Following Effective Date of this Agreement, Tribe, subject to the conditions in LOAN AGREEMENT and provisions of this paragraph 4, shall undertake all steps necessary to construct Facility, including without limitation, the following:
 
4.1            Architect, Materials, Equipment, Labor, Facility .
 
4.1.1          Construction Manager .  Management Committee shall select a “ Construction Manager ” to oversee the design and construction of Facility.  Management Committee in counsel with Construction Manager shall select and contract with an Architect and a General Contractor.  Selection of the Architects and General Contractors shall be based upon selection from a minimum of three (3) qualified bidders.  Estimated design and construction cost including the cost of the Construction Manager to be reviewed and recommended by Management Committee and approved by Tribe and, if required, by the Bureau of Indian Affairs.
 
4.1.2          Architect and Design .  Architect shall be responsible for designing the Facility, including sewage facilities and site development; PROVIDED, that the design, construction and maintenance of such Facility and site shall meet or exceed the minimum standards which would be imposed on such facilities by existing State or Federal statute or regulation which would be applicable if Facility were located outside of the territorial boundaries of Tribe, although those requirements would not otherwise apply within those territorial boundaries; provided further, that nothing in this subparagraph shall grant any jurisdiction over Tract or its development and management to the State of Oklahoma or any political subdivision thereof.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
4.1.3          General Contractors .  General Contractors shall be responsible for providing all materials, equipment and labor to construct and initially equip Enterprise as necessary,   including site development, and supervise the construction of Facility so as to comply with the terms of LOAN AGREEMENT.   Management Committee and Construction Manager shall cause General Contractors to construct a facility of sufficient size to accommodate safely and comfortably the anticipation number of patrons who will use this Facility together with  sufficient parking, sanitary facilities, office space and refreshment facilities.  The design and construction of Facility will adequately protect the environment and the public health and safety.  The allowable costs and compensation of General Contractors shall not exceed those permitted by appropriate federal guidelines and shall be on terms and in an amount to be negotiated and recommended by Management Committee and approved by the Tribe and Commission.
 
4.1.4          Detailed Plans .  Detailed plans for the construction of Facility to house Enterprise shall be submitted for approval to Manager Committee prior to the commencement of the construction of Facility.
 
4.2             Supervision, Construction, Development and Improvements .
 
4.2.1          Supervision and Construction .  Construction Manager shall have the responsibility to supervise the completion of all construction, development, improvements and related activities undertaken pursuant to the terms and conditions of the contracts with Architects and General Contractors.  Tribe and Management Committee shall agree to plans and specifications for Facility, defining all activities, materials, and services necessary for Facility and Enterprise.  Construction Manager shall make weekly reports to the Management Committee presenting all plans, including cost estimates, fixed price contracts, actual expenditures and project schedule status for approval.
 
The cost of the architectural and engineering services, and the construction of Facility, including the building, furniture and furnishings, initial supplies, landscaping and parking area, shall not exceed the amount recommended by Management Committee and approved by Tribe.  Tribe, using funds loaned to it as costs are incurred, under the terms of LOAN AGREEMENT, shall provide all funds necessary for such architectural and engineering services, and construction.  If there are cost overruns for any activity, material or service that are in substantial conformity with such plans, and specifications previously agreed to by the parties, Manager shall cause a loan to be made to Tribe for the funds necessary to cover these approved cost overruns up to an agreed upon maximum for Tribe’s repayment obligations.
 
Tribe shall keep Facility and Tract free and clear of all mechanics’ and other liens resulting from the construction of Facility, which shall at all times remain the property of Tribe.  If such lien is claimed or filed, it shall be the duty of Tribe within thirty (30) days after having been given written notice of such a claim, either by payment to the claimant, by the posting of a bond or the payment into the court of the amount necessary to relieve and discharge the property from such claim, or in any other manner which will result in the discharge of such lien.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
4.2.2          Equipment Acquisition and Cost .  Management Committee shall select and Tribe shall provide necessary gaming equipment and Manager agrees to provide funds in a sum recommended by Management Committee and approved by Tribe for lease and/or purchase.  Such amount shall be accounted for as an operating lease, a capital lease or a purchase as provided under the rules of GAAP.
 
4.2.3          Working Capital .  Manager agrees to provide to Tribe the amount recommended by Management Committee and approved by Tribe, to be used as working capital in the operation of Enterprise; provided however, when such sum is not needed in the judgment of Tribe and Manager, then such sum shall be returned to Manager and credited to the principal  due under NOTE.  Repayment of such sum utilized for working capital shall be repaid to Manager by the Tribe and not treated as an operating expense of Enterprise.  See LOAN AGREEMENT for specific amounts.
 
4.2.4          Fire & Safety .  The Manager will be responsible to insure that all facilities on Tract shall be constructed and maintained in compliance with all fire and safety statutes, ordinances, and regulations which would be applicable if facilities were located outside of the exterior boundaries of the territory of Tribe, although those requirements would not otherwise apply on that territory provided, that nothing in this subparagraph shall grant any jurisdiction to the State of Oklahoma or any political subdivision thereof over Tract.  The Manager will be responsible for providing fire protection services.
 
4.2.5          Construction Commencement and Completion .  Contracts between Tribe, Construction Manager, Architect and General Contractor shall contain such provisions for the protection of Tribe as it shall deem appropriate, and shall provide that construction of Facility shall commence within a reasonable time following the granting of all approvals necessary to commence construction, and also provide that Construction Manager, Architect and General Contractor shall exert its best efforts to complete construction within six (6) months of the commencement of construction.  General Contractor shall warrant the construction to be free of defects and unworkmanlike labor or materials for a period of one year subsequent to the date the Construction Manager and Architect certifies Facility as complete.
 
4.2.6          Title and Taxes .  Title to any and all facilities constructed or improved, including fixtures and equipment, during the period of this Agreement shall vest solely in Tribe.  If any non-Tribal governments attempt to impose any possessory interest tax upon either party to this Agreement (Except for Income Taxes on Manager’s share of Net Profits.) regarding Enterprise, Tribe shall resist such attempt through legal action.  The costs of such action and the compensation of legal counsel shall be an expense of the Enterprise.  If a court of competent jurisdiction finally determines that any such tax is legally due, it shall be an expense of the Enterprise.
 
4.3             Situs of Contracts .  All contracts entered into between Tribe and anyone or any entity providing services associated with the contemplated Enterprise shall be entered into on lands subject to the Modoc Tribe’s jurisdiction and shall be subject to all applicable laws and regulations of Tribe and in compliance with paragraphs 3.4 and 3.5.
 
5.0
Business and Affairs in Connection with Property .
 
5.1            Manager Authority and Responsibility .  Once construction of Facility has been completed in accordance with this Agreement and LOAN AGREEMENT, and for the remainder of the term of this Agreement, all business and affairs in connection with the financing, construction, improvements, development and day-to-day operation, management and maintenance of Enterprise shall be the sole management responsibility of Manager, which is hereby granted the necessary power and authority to act in order to fulfill its responsibility pursuant to this Agreement.  Manager shall establish the hours and days of operation with the approval of the Management Committee.  Manager shall design, place and administer the advertising and marketing programs and expenditures in accordance with the approved annual operating budget.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
5.2             Duties of Manager .  In managing, operating, and maintaining Enterprise, Manager’s duties shall include, but not be limited to the following:
 
5.2.1          Manage Enterprise .  Manager shall use reasonable measures for the orderly administration, management, and operation of Enterprise, including without limitation    cleaning, painting, decorating, plumbing, carpeting, grounds care, and such other maintenance and repair work as is reasonably necessary.  Manager shall not obligate or encumber any funds or assets of Enterprise, except as specifically set forth in paragraph 5.7 below.
 
5.2.2          Compliance .  In carrying out its obligations under this Agreement, Manager agrees to comply with all duly enacted statutes, regulations, and ordinances of Tribe that are presently in effect or which may in the future be enacted in compliance with paragraphs 3.4 and 3.5, provided that Tribe will take no action and adopt no statute or ordinance that violates the Indian Civil Rights Act, 25 U.S.C. § 1301 et. seq., and provided that any changes in Tribe’s land use or zoning regulations or ordinances shall provide that during the term of this Agreement, or any extensions thereof, that Tract shall be exempt from such changes.  Provided further that, for a period of 180 days after the signing of this Agreement, Manager retains the right to, in its sole discretion, terminate this and all other accompanying agreements if it reasonably determines that any Tribal, commercial or taxation statue, or regulation would render Enterprise prohibitively uncompetitive.  Manager will also comply with all the terms of the MANAGEMENT AGREEMENT, LOAN AGREEMENT, NOTE and SECURITY AGREEMENT.  In all situations, all gaming covered by this contract will be conducted in accordance with the Indian Gaming Regulatory Act (IGRA or The Act), and governing Tribal ordinance(s).
 
5.3            Security Force .  Manager shall be responsible for organizing a security force sufficient to reasonably assure the safety of the customers, personnel, monies, and property of Enterprise.  Such security force shall be comprised of security officers employed directly by Enterprise who shall report directly to General Manager, and each security officer shall be bonded or bondable in sufficient amounts commensurate with their enforcement duties and obligations as defined by the Management Committee.  The costs of such security service shall be included in the operating expenses of Enterprise.  Paying the costs of any increased public safety services shall be included in the operating expenses of Enterprise.
 
5.4             Cessation of Enterprise .  If Enterprise ceases operations as a result of a decision of a court of competent jurisdiction, or by operation of any applicable legislation, by fire, war, or other casualty, or by an Act of God, and such cessation was not the result of any act or fault of Manager, Manager shall have the following options:
 
5.4.1          Maintenance of Facility .  Manager shall have the option to continue its interest in this Agreement and to recommence the operation of gaming at Facility if at some subsequent date such recommendation shall be legally and commercially feasible in the sole judgment of Manager.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
5.4.2          Repair of Replacement Option .  If Facility is damaged or destroyed so that gaming can no longer be conducted at Facility, Manager may, at its sole discretion after consultation with Management Committee, choose to reconstruct Facility to a condition where gaming can once again be conducted at Facility.  If the insurance proceeds are insufficient to reconstruct Facility to a condition where gaming can once again be conducted at Facility, Manager may supply such funds to reconstruct Facility to such condition.  Should Manager sue any funds of its own beyond those provided by insurance proceeds, such funds shall be considered a loan to Tribe and, consequently, shall become part of the repayment obligation of Tribe to Manager.  These additional funds are subject to the maximum loan amount as    specified by Section 1.11 of the LOAN AGREEMENT.  If the insurance proceeds are not used to repair Facility, then such proceeds shall be first applied to the amounts due Manager under      the NOTE, and any surplus funds shall be distributed to Tribe.  In either event Manager may elect to terminate this Agreement under the provision of paragraph 5.4.4.
 
5.4.3          Other Business Purposes .  Manager shall have the option to use Facility for other business purposes, provided Management Committee has approved such uses and an annual budget for such uses in advance, which such approval shall not be unreasonably withheld.  Manager shall not be involved as owner or operator with the operation of Indian related businesses within Facility, such as smoke shop, gift shop, etc.  Manager has the right to approve management and to specify the image, decor and promotion approaches of such operations within the Facility.
 
5.4.4          Termination of Contract .  Manager shall have the option to notify Tribe in writing that it is terminating operations under this Agreement in which case, Manager shall forfeit all rights under this Agreement except any rights retained under the provisions of the NOTE and LOAN AGREEMENT.
 
5.4.5          Division of Profits on Non-gaming Operations .  If Manager elects to proceed under the option described in subparagraph 5.4.3, then the proceeds of any business established by Manager shall be apportioned between Manager and Tribe in accordance with a separate agreement to be negotiated between the parties.  Both parties agree to be fair and reasonable in the negotiation of division of profits for any non-gaming operation.  Parties agree that all accounting of non-gaming operations will be separate from the accounting for gaming operations.
 
5.4.6          Recommencement of Gaming .  If after a period of cessation gaming on Tract, the recommencement of gaming is possible, and if Manager has not terminated this Agreement under the provisions of paragraph 5.4.4, then all provisions of this Agreement shall also recommence.  If the period of cessation of gaming has not resulted from any act or fault of Manager, and if Managers has not elected to terminate this Agreement during that period, then the period of such cessation shall not be deemed to have been part of the term of this Agreement and the date of expiration of the term of this Agreement shall be extended by the number of days of such cessation period.  Any reasonable payments made to any third party to eliminate rights acquired in the premises during the period of cessation shall be deemed operating expenses of Enterprise.
 
5.5            Alcoholic Beverages .  During the term of this Agreement, no alcoholic beverages shall be sold on Tract unless Tribal Representative and Manager mutually agree to the serving of such beverages, and unless the serving of such beverage is otherwise in accordance with applicable law.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
5.6            Training and Management .
 
5.6.1          General Manager .  Manager shall, with the approval of Tribal Representative, which approval shall not be unreasonably withheld, select and employ General Manager for Enterprise, who will be assigned to the operation and management of Enterprise on a full-time basis.  The salary and employment benefits paid to such person shall be operating expenses of Enterprise, whether that salary and those benefits are in the form of an hourly wage, contract fees, bonuses for performance or in some other form.  General Manager, Accountant and the person or persons selected by General Manager to be in charge of the money room of   Enterprise, shall each be bonded or bondable in a minimum amount of One Hundred Thousand Dollars ($100,000.00).
 
5.6.2          Accountant .  General Manager shall select and employ a qualified accountant who will be in charge of and responsible for the accounting and audit of all receipt, disbursements, and cash management of Enterprise.  Accountant shall be employed by Enterprise on a full-time or less than full-time basis, depending on the requirements of Enterprise.  The cost of Accountant shall be paid by Enterprise as an operating expense.  Management Committee shall have the right to approve the qualified accountant selected by General Manager, which approval shall not be unreasonably withheld.  The qualified accountant shall be supervised by General Manager of Enterprise.  In addition, an annual certified audit of financial statements, books and records of Enterprise shall be conducted by a Nationally recognized firm of Certified Public Accountants (“ Auditor ”) as suggested by the Management Committee and selected by the Tribe.  The Auditor shall be instructed to consider within the audit scope a detail review of all contracts for supplies, services or concessions for a contract amount in excess of Twenty Five Thousand Dollars ($25,000.00) annually (except contracts for professional legal or accounting services).  Audit reports shall be sent to Tribe, Management Committee and Manager.  The cost of such audits shall be an operating expense of Enterprise.
 
5.6.3          Training Aid .  Manager will provide individuals to carry out a program of instruction for job applicants accepted for employment, and will provide personnel who will supervise and instruct the job applicants accepted for employment, and provide opportunity for upward mobility in employment.  The salary and employment benefits paid to such individuals, other than employees of the Manager, shall be budgeted operating expenses of Enterprise.
 
5.7            Budget .  Manager shall not make any expenditures from funds or assets of Enterprise except as set forth in a quarterly budget, approved by Management Committee.  The quarterly budget shall include projected operating expenses, capital expenditures, and contingent liabilities.  Following approval of the quarterly operating budget, Manager shall be authorized to make budget expenditures without further approval and shall be authorized, with approval of Management Committee, a margin of excess from such budget figures not to exceed fifteen percent (15%) of any line item during the first year of operation, and ten percent (10%) thereafter.  Except however Manager may reallocate budgeted funds from one line item to another without further approval.
 
5.8            Employees .
 
5.8.1          Manager Responsibility .  It is understood and agreed that Manager shall provide Enterprise with personnel and personnel management and, subject to the provision of paragraphs 5.8.2, 5.8.3, 5.8.5, and 5.8.7 of this Agreement, shall have the exclusive responsibility and authority to employ, direct, contract for and discharge all personnel performing regular services in and on Tract in connection with development, maintenance, operations and management of Enterprise and any activity upon Tract.  Manager, at its discretion may contract for full-time and/or part-time employees subject to the provisions of this paragraph.
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  11 of 29
 
 
 
 
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 

 
5.8.2          Indian Preference and Wages .
 
5.8.2.1       Employment .   In order to maximize benefits of Enterprise to Tribe, Manager shall give preference in recruiting, training, and employment to members of Tribe and their spouses in all job categories of Enterprise, but especially in top management positions.   Manager shall provide to Management Committee written notice of all job openings before accepting applications for any positions, and shall provide special training programs under paragraph 5.6.3 above for Tribal members and their spouses.  To the extent that qualified members of Tribe or their spouses are not available to fill a position, preference in employment shall be given first to qualified members of other Indian tribes.  Tribe agrees to provide and maintain a current list of registered tribal members for employment verification by Manager.  Actual job placement shall be made in accordance with Personnel Policies and Procedures, reference 5.8.4.
 
5.8.2.2      Contracting .  Manager shall also give preference within a five percent (5%) cost margin, all other factors being equal, to qualified members of Tribe, their spouses, and business entities certified by Tribe to be controlled by Tribe, its member or their spouses, when selecting an outside contractor or subcontractor and when hiring personnel for any construction, renovation or improvement, if such person or entities are available.  Manager shall provide written notice to Tribe in advance of such contracting, subcontracting and construction opportunities.
 
5.8.2.3       Determination of Qualifications and Compensation .  For the purpose of this paragraph 5.8.2.3, Manager shall have the sole responsibility for determining whether a prospective employee or independent contractor is qualified and the appropriate level of compensation to be paid.  Actual job placement shall be made in accordance with Personnel Policies and Procedures, reference 5.8.4.
 
5.8.2.4       Litigation .  If, by reason of this provision, Tribe, Management Committee, Manager, or any contractor or subcontractor is sued by any person for an alleged violation of any State or Federal statute or law, or is charged with unlawful discriminatory acts, Tribe, Management Committee and/or Manager shall defend such action or actions.  The cost of such litigation shall be an operating expense of Enterprise.
 
Except that Tribe, and/or Management Committee reserves the right to decline to participate in the defense of any such suit.  However, should Tribe and/or Management Committee decline to participate in any such lawsuit, Manager retains the right to defend any such lawsuit, and the cost of defending any such lawsuit shall be an operating expense of Enterprise.
 
5.8.3          Employment Background Check .  A background check shall be conducted by Tribe in accordance with the procedures defined by the Tribal Ordinance on each applicant prior to his or her being hired, and no individual whose prior activities, criminal record, if any, or reputation, habits and associations pose a threat to the public interest or the effective regulation of gaming, or create or enhance the dangers of unsuitable, unfair or illegal practices and methods and activities in the conduct of gaming, shall be employed by Enterprise.  However, Parties agree that all screening must be within the federal guidelines established by the EEOC.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
5.8.4          Personnel Policy .  Manager shall prepare and maintain a documented Personnel Management System (“ PMS ”).  The PMS shall contain, among other systems and procedures, written position descriptions defining the positions available within the Enterprise including the minimum skills, qualifications, experience and compensation range.  General Manager shall submit a description of PMS to the Management Committee for review and comments thirty  (30) days prior to Enterprise’s commencement of operations.  The PMS also shall include a grievance procedure in order to establish fair and uniform standards for the employees of Enterprise.   APPENDIX “G” is a copy of this policy.  Any revisions to the personnel policies and procedures shall not be effective unless they are approved in the same manner as was the original manual.
 
5.8.5          Procurement Policy .  Manager shall prepare a draft of procurement policies and procedures, which policies and procedures shall be presented by General Manager to Management Committee for review and comments thirty (30) days prior to Enterprise’s commencement of operations.  Any revisions to the procurement policies shall not be effective unless they are approved in the same manner as were the original policies and procedures.  In all purchasing for Enterprise, Manager shall give preference to qualified members of Tribe, their spouses, and business entities certified by Tribe to be so qualified by Tribe, its members or their spouses provided that all other factors are equal.
 
5.8.6          No Manager Wages or Salaries .  Neither Manager, nor any officers, directors, partners, limited partners or investors shall be compensated by wages from or contract payments by Enterprise for their efforts or for any work which they perform under this Agreement except as provided for herein.  The share of net profits under this Agreement, and the interest income earned under LOAN AGREEMENT and paid to Manager, shall constitute the exclusive sources of compensation to such persons for their efforts under this Agreement.  However, the parties agree that each Management Committee member may be compensated for its actual out-of-pocket expenses appropriately documented and approved by the Tribal Representative and the Manager.
 
5.8.7          Employee License Required .  Each key employee shall maintain a current tribal license as a condition of employment in accordance with the Ordinance.
 
5.9             Cash Management .  General Manager shall document and install a system for monitoring all funds, which system shall be submitted in advance of implementation to Management Committee for approval.  Any changes in such system after commencement of Enterprise also shall be subject to review and approval by Tribal Representative.  Manager shall have the right and duty to maintain and police its system for cash management in order to prevent any loss of proceeds from Enterprise.  Tribal Representative shall have the right to inspect and oversee the system at all times.  Tribal Representative or its designee shall have the right to be present and count or oversee the counting of the cash revenues on a daily basis.
 
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STABLES - JTVT II & III
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
5.10           Bank Accounts .  Management Committee shall select a bank for the deposit and maintenance of funds.  Management Committee shall establish six (6) bank accounts at that  bank for follows (1) general account, (2) operating account, (3) constitution account, (4) prize fund account, (5) impressed payroll account and (6) Cash Contingency Reserve Fund.    All funds shall be deposited into the general account and distributed under the control of the Management Committee and the General Manager to the appropriate other accounts.      Transfers shall be made from the “General Account” to the operating expenses account (“ Operating Account ”) sufficient to cover all operating expenses and distributions of Enterprise.  The Operating Account and payroll account shall be set up to use computer printed checks.  If for any reason a transfer from General Account to the Operating Account in the amount of any sum necessary to pay all debt service, both principal and interest pursuant to the LOAN AGREEMENT, is not made, then Manager shall be authorized to transfer from such General Account an amount necessary to pay such debt service.  Manager shall retain all responsibility and authority for making all payments from all accounts and shall provide Tribal Representative a monthly report on all expenditures from all accounts.  Daily and/or weekly reports are available upon request.  Except to pay operating expenses as they come due, including payment of interest on NOTE, payment from General Account shall require the signature of Tribal Representative and Managing Officer or designee, appointed in accordance with the definition of the “Management Committee”, paragraph 2.2 above.     All depositories and the accounts therein shall be federally insured.  All parties agree that idle funds in the various accounts are to invested as directed by the Management Committee and that funds in excess of $100,000 may not be federally insured.
 
5.10.1        Daily Deposits to General Account .  Manager shall collect, receive, and receipt all gross sales, revenues and any other proceeds connected with or arising from the operation of Enterprise, the sale of all products, foods and refreshments, and all other activities on the premises, and deposit them daily into General Account established per 5.10 as soon as reasonably possible after the established daily cut-off time of business or more frequently as determined by Manager.  All money received by Enterprise on each day that it is open must be counted at the close of operations for that day.  Adequate security shall be provided in transporting the funds to the bank.  The parties hereto agree to obtain a bonded transportation service to effect the safe transportation of the daily receipts to the bank, if such service is available at a reasonable cost.
 
5.10.2        Generating Account .  Manager shall, consistent with and pursuant to the approved annual budget, have responsibility and authority for making all payments for operating expenses from Expense Account as defined in this Agreement.
 
5.10.3        No Cash Disbursements .  Manager shall not make any coin and/or currency disbursements from any Enterprise fund for any reason whatsoever, except for the payment of cash prizes pursuant to the schedule of cash prize awards established and approved by Management Committee.  Any and all other payments or disbursements by Manager shall be made by check drawn against “Operating Account.”  General Manager shall have the obligation to promptly file any reports of gaming winnings and the names of winners that may be required by the Internal Revenue Service of the United States.
 
5.10.4        Cash Contingency Reserve .  Enterprise shall maintain a cash contingency reserve, funded by the Tribe, and a petty cash fund, the amount of which shall be agreed to quarterly by the Management Committee in conjunction with the establishment of the annual operating budget, or more often as mutually agreed and approved by the Management Committee.  The cash contingency reserve shall initially be deposited in the General Account and shall be used to provide the initial balance of the Operating Account, and the initial Cash Prize Reserve Fund.  The petty cash fund shall be used for miscellaneous small expenditures of Enterprise, and shall be maintained at Facility.
 
5.11           Best Efforts .  Manager shall devote its best effort to the fulfillment of its duties outlined in this Agreement.
 
5.12           Accounting and Books of Account .
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
5.12.1        Statements .  Manager shall prepare and provide to Tribe comparative financial statements monthly, quarterly, and annually of all sales, revenues, and all other amounts collected and received, and all deductions and disbursements made therefrom in connection   with Enterprise and in conformance with the budget.  An annual certified audit of financial statements, books and records of Enterprise shall be conducted by a Nationally recognized firm of Certified Public Accountants (“ Auditor ”) as suggested by the Management Committee and selected by the Business Committee of the Tribe.  Auditor shall report to a three member Audit Committee appointed by Manager and Tribe.  Such Audit Reports shall be sent to Tribe, Management Committee and Manager.  The Auditor shall be instructed to consider within the audit scope a detail review of all contracts for supplies, services or concessions for a contract amount in excess of Twenty Five Thousand Dollars ($25,000) annually (except for contracts    for professional, legal or accounting services).  The costs incurred for such audits shall be an operating expense of Enterprise.  Such audits may be provided by Tribe to officials of the Commission as required by law.
 
5.12.2        Books of Account .  Manager shall maintain full and accurate books of account at an office in Facility.  The books shall be kept on the accrual basis and the records shall be maintained using generally accepted accounting principles.  Additionally, the Manager will comply with all applicable provisions of the Internal Revenue Code as well as provide an adequate system of internal accounting controls.  Tribal Representative shall have access to the daily operations of Enterprise and shall have the right to inspect, examine, and copy all such books and supporting business records at any time.  Such rights may be exercised through an agent, employee, attorney, or independent accountant acting on behalf of Tribe.
 
5.12.3        NIGC Annual Fees .  Manager shall maintain adequate accounting records to allow the calculation of Commission fees in accordance with 25 CPR 514.1.  Manager shall have the authority and responsibility for making all financial reports to the Commission and for making all estimated fee payments to the Commission from the Tribe’s account.
 
5.12.4        Financial System Design .  Manager shall design, install and operate a financial accounting and control system for the Enterprise to be included within the operating expenses of the Enterprise.  In addition to other elements described elsewhere within this Agreement, the key elements of the system shall include:
 
 
(a)
an adequate system of internal accounting controls;
 
(b)
the preparation of financial statements in accordance with generally accepted accounting principals;
 
(c)
the reports and procedures must be susceptible to audit;
 
(d)
the reports to allow the Manager, the Tribe and the Commission to calculate the annual fee due under the Act;
 
(e)
the reports clearly showing the calculation and payment of the Manager’s fee; and
 
(f)
the data base and related reports required for the allocation of revenues, operating expenses and/or overhead expenses among the Tribe, the Tribe’s gaming Enterprise, the Manager and any other user sharing the facilities and services.
 
5.12.5        Accounting for Promotional Departments .  Manager does not plan to participate in the non-gaming operations of the Tribe (such as gift shop, smoke shop, etc.).  However, Manager is responsible for ancillary support activities (such as concessions, food service, conference scheduling, travel planning, etc.) which could be used as promotional items as a part of the advertising and marketing plan.  The financial losses or contributions from the departments responsible for these ancillary support activities are to be included as a cost of operation of the Enterprise.
 
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STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
6.0
Liens .
 
Tribe herein specifically warrants and represents to Manager that during the term of this Agreement, Tribe shall not act in any way whatsoever, either directly or indirectly to cause any party to become an encumbrance or lien holder of the property subject to this Agreement without the prior written consent of Manager.
 
7.0
Compensation and Reimbursement .
 
7.1            Compensation .  Within fifteen (15) days after the end of each calendar month of operating, Manager shall calculate and report to Tribal Representative the gross receipts, operating expenses, and Net Profits of Enterprise for the previous month’s operation.  Parties agree that during the first 120 days of operation the operating reports may not be prepared within the fifteen day guideline.
 
Such Net Profits shall be designated for distribution by the Management Committee seventy percent (70%) to the Tribe [thirty five percent (35%) to the Miami Tribe plus thirty five percent (35%) to the Modoc Tribe] and thirty (30%) to the Manager.
 
7.2            Distribution Preference .  The monthly preference of the designated distribution amount shall be made according to the following priority distribution scheme:
 
 
A.
Notwithstanding the provisions of Paragraphs B below, Tribe shall receive from its designated distribution amount a “Minimum Payment” of  $500 per month [i.e. $250 to the Miami Tribe and $250 to the Modoc Tribe] during the life of this Agreement, guaranteed by the Manager.  Such Minimum Payment shall have priority over the recoupment of construction and development costs.
 
 
B.
Any balance of designated distribution remaining shall be distributed to Tribe and Manager as provided hereinbefore in this section.  Tribe’s share under priority B shall be decreased by the amount paid to Tribe in priority A.
 
7.3            Credit for Excess Distribution .  Manager shall receive credit for any amount of its distribution paid to Tribe under this priority distribution scheme should any amount paid exceed that which would have been paid to Tribe had the net profits simply been distributed according to the aforesaid schedule absent the priority distribution scheme.
 
7.4            Maximum Construction and Development Cost Recoupment .  Manager shall not receive in excess of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000) as the recoupment for construction, development, working capital and other pre-opening advances as identified in the LOAN AGREEMENT.
 
8.0
Notice .
 
Any notice required to be given by the parties or the Commission pursuant to this Agreement shall be delivered by Certified Mail, Return Receipt Requested, addressed to Manager or Tribe as follows:
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  16 of 29
 
 
 
 

STABLES - JTVT II & III
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
 
MANAGER:
President, BUTLER NATIONAL SERVICE CORPORATION
 
1546 East Spruce Road
 
Olathe, Kansas 66061
 
 
TRIBE:
Chief, MODOC TRIBE OF OKLAHOMA
 
515 G Southeast
 
Miami, Oklahoma 74354-8224
 
 
TRIBE:
Chief, MIAMI TRIBE OF OKLAHOMA
 
202 South Eight Tribes Trial
 
Miami, Oklahoma 74355
 
or to such other different address(es) as Manger or Tribe may in writing specify, using the notice procedure called for in this paragraph.
 
9.0
Warranties .
 
9.1            Warranties .  Manager and Tribe each warrant and represent they shall not act in any way whatsoever, either directly or indirectly, to cause this Agreement to be altered, amended, modified, canceled, or terminated or attempt to assign or transfer this Agreement or any right to or interest in said Agreement, without the consent of the other party, except that Manager reserves the right to transfer its rights under this Agreement to a wholly owned subsidiary, further, Manager and Tribe warrant and represent that they shall take all actions necessary to insure that the Agreement shall remain in good standing at all times.  Manager and Tribe shall mutually agree on additional changes to the operational procedures, which changes are not otherwise provided for in this Agreement, as necessary, so as to implement and better develop the revenue and efficiency of Enterprise.
 
9.2            Interference in Tribal Affairs .  It is understood and agreed that Manager, acting as manager for Enterprise, shall not directly or indirectly interfere with the internal affairs of Tribe, its members, or its government or any subdivision or department thereof,  No contributions or funding shall be made for political campaigns.  A material breach of this condition shall be grounds for termination of this Agreement and shall not be subject to the cure provisions of paragraph 10, (Grounds for Termination).  For purposes of this paragraph, interference shall be defined as any attempt to influence a decision of Tribe, or General Council, or any officer of Tribe or to influence Tribal election process by doing any of the following acts: offering cash incentives, making written or oral threats to the personal or financial status of any person or thing, or similar acts, except normal business discussions that only affect the activities of Enterprise.  Interference shall be grounds for termination only if such interference has been determined to have taken place by a decision of an arbitrator, under the arbitration provisions of paragraph 23 of this Agreement.
 
10.0
Grounds for Termination .
 
10.1           Voluntary Termination and Termination for Cause .  In addition to the provisions of paragraph 5.4.4 above, this Agreement may be terminated upon the mutual written consent and approval of both parties, and either party may terminate this Agreement if the other party commits or allows to be committed any material breach of this Agreement.    A material breach of this Agreement shall include, but not be limited to, a failure to either party to perform any duty or obligation on its part for any twenty (20) consecutive days.     However, neither party may terminate this Agreement on grounds of material breach, except as provided in this paragraph and paragraphs 8 (Notice) and 16 (Disclosures), unless it has provided written notice to the other party of its intention to declare a default and to terminate Agreement, and the defaulting party thereafter fails to cure or take steps to substantially cure the default within    sixty (60) days of receipt of such notice.   The discontinuance or correction of the material breach shall constitute a cure thereof.  In the event of any termination for cause, regardless of fault, the parties shall retain all monies previously paid to them pursuant to paragraph 7 (Compensation and Reimbursement); and Tribe shall retain title to all Enterprise fixtures, improvements, supplies, equipment, funds and accounts except to the extent that Manager has undistributed earnings in any fund or account and except if the promissory NOTE (NOTES)    has not been paid in full.  The Manager will not make claim against or encumber any real property of the Tribe.
 
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MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
10.1.1        Manager Breach .  In the event of termination where Manager has breached this Agreement, Manager shall continue to have the right to repayment of unpaid principal and interest under NOTE and LOAN AGREEMENT and any net profits on hand to be distributed in accordance with paragraph 7 above, but shall not have the right to otherwise share in the future profits from Enterprise or any other gaming as allowed under IGRA within the territorial boundaries of tribe, except for the repayment of its loan principle and interest; Manager shall indemnity and hold Tribe harmless against all liabilities of whatever nature whatsoever created by or remaining after their termination of this Agreement, provided that Manager shall have no responsibility for any liabilities created in the ordinary course of business by Manager within the scope of Manager’s authority under this Agreement; and Manager shall execute appropriate releases.
 
10.1.2        Tribal Breach .  In the event of termination where Tribe has breached this Agreement, Manager shall not be required to perform any further services under this Agreement.  Any net profits on hand will be distributed in accordance with paragraph 7 above.  Tribe shall indemnify and hold Manager harmless against all liabilities of any nature whatsoever created by reason of Tribe’s breach.  Manager shall continue to have the right to demand and receive accelerated repayment of the unpaid principal and interest under NOTE and LOAN AGREEMENT and shall be entitled to money damages for lost profits payable from this gaming Enterprise for the remainder of the original term or any extension or renewal thereof.
 
10.2           Involuntary Termination Due to Changes in Applicable Law .  It is the present understanding and intention of the parties that the establishment and operation of Enterprise contemplated herein conforms to and complies with all applicable laws.  In the event that this Agreement or Enterprise is determined by the Congress of the United States, Commission, or a court of competent jurisdiction to no longer be lawful, the obligation of the parties hereto shall cease, and this Agreement shall be of no further force and effect; PROVIDED:  (1) that Manager shall have the rights of the parties set forth in paragraph 5.4 (Cessation of Enterprise); (2) that Manager and Tribe shall retain all monies previously paid to them pursuant to paragraph 7 (Compensation and Reimbursement); (3) that all funds of Enterprise (excluding the working capital if it has not been repaid to Manager by Tribe) in any account shall be paid and distributed as provided in paragraph 7; (4) that any monies loaned to Tribe under NOTE and LOAN AGREEMENT shall be repaid in accordance with NOTE and LOAN AGREEMENT; and (5) that Tribe shall retain title to all Enterprise fixtures, supplies, or equipment of Enterprise that have been perfected pursuant to LOAN AGREEMENT.  The Manager will not make claim against or encumber any real property of the Tribe.
 
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STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
11.0
Dispute Provisions .
 
The Miami-Modoc Tribe Gaming Commission is responsible for the resolution of disputes between the gaming public (the patrons) and the Tribe and/or the Tribe’s management contractor in accordance with the Ordinance.
 
12.0
Insurance .
 
Tribe shall maintain public liability insurance in the amount of at least One Million Dollars (US $1,000,000.00) per person and Five Million Dollars (US $5,000,000.00) per occurrence for all activities on Tract.  Tribe shall also keep all buildings, improvements, and contents thereof insured with extended coverage for their full replacement value against loss or damage by fire, robbery, theft, malicious mischief, and vandalism.  The exact nature and extent of such coverages shall be determined by the Management Committee.  Tribe shall also maintain Builders Risk Insurance in the full amount during construction; and, shall maintain Workers Compensation insurance or reserves with limits as would be required by Kansas, Missouri or Oklahoma laws if such law were applicable to Enterprise, PROVIDED that Tribe shall supply Manager with written evidenced satisfactory to Manager of such coverage.  The costs of said insurance, to the extent that it relates to Tract and Enterprise, shall be an operating expense of Enterprise.  In addition, Enterprise shall maintain a general fidelity bond for personnel working in the Facility.  Manager shall be named as an additional insured in any such policies.
 
13.0
Successors .
 
The benefits and obligations of this Agreement shall inure to and be binding upon the parties hereto and may not be assigned, transferred, subcontracted or encumbered by Manager except with the written consent of Tribe pursuant to a duly approved authorization of Tribal Representative, and approval by the Chairman of the Commission, PROVIDED Manager may assign all or any part of its rights to receive payment, and to enforce its security interest under this Agreement, LOAN AGREEMENT, and NOTE to another corporation or limited partnership within which Manager has a controlling interest; PROVIDED further, that the names of any officers, directors and major (five percent or more) shareholders in such assignee corporation or of any partners in such a limited partnership shall be submitted to Tribe and to the Chairman of the National Indian Gaming Commission for review at least one-hundred-eighty (180) days before the effective date of such assignment.  Consent of Tribe shall be deemed to have been given unless Manager receives written notice of disapproval by either Tribe, Chairman of the National Indian Gaming Commission within the one-hundred-eighty (180) day period.  Tribe retains the absolute right to deny consent to any proposed assignment, transfer, or encumbrance, except as specifically allowed herein, provided that Tribal approval shall not be required for any transfer of an interest formerly owned by a deceased shareholder of Manager if that transfer is made to an heir at law or trustee of such heir through a probate proceeding or is made under the rules of the Securities and Exchange Commission.  In addi-tion, the corporate form of Manager’s entity shall not be changed without the prior written approval of Tribe, which consent shall not be unreasonably withheld.  Such change in form shall include:  the sale of the stock of the corporation in such a manner as to cause a change in control of the Manager as defined by the Securities and Exchange Commission; but shall not include the removal or termination of any partner, shareholder, or other ownership interest that exists and that has been disclosed to Tribe on the date of execution of this Agreement or approved by Tribe subsequent thereto.  Disclosure is hereby made that Manager is currently controlled by a parent corporation owned by the public, Butler National Corporation; that Manager and parent intend to file the appropriate registration documents with the Securities and Exchange Commission under the 1933 act to cause Manager to become a public company and offer its securities to the public; and that Manager intends to maintain its affairs under the rules of the Securities and Exchange Commission.
 
The remainder of this page is intended to be blank.
 
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Document          of      5  

MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
14.0
Recordation .
 
At the option of Manger or Tribe this Agreement may be recorded in any Public Records.
 
15.0
Consents and Approvals .
 
15.1          Tribe .  At all places in this Agreement where approval or consent or other action of Tribe is required, said approval shall mean the written approval of Tribe by duly enacted resolution by Tribal Representative and any such approval, consent or action shall not be unreasonably withheld; provided, that the foregoing does not apply where a specific provision of this allows Tribe an absolute right to deny approval or consent or withhold action.
 
15.2           Manager .  At all places in this Agreement where approval or consent or other action of Manager is required, said approval shall mean the written approval of Manager’s Managing Officer, and such approval, consent or other action shall not be unreasonably withheld.  Manager shall appoint its Managing Officer by resolution pursuant to the terms of Manager’s Corporate documents and the terms of paragraph 3.3 hereof.
 
16.0
Disclosures .
 
16.1           Investors .  Manager warrants that Manager has not received gifts, loans, investments, or other funds, and that its partners have not received any gifts, loans, investments or other funds for the purpose of investing in Manager except such as may be necessary and proper to fund the corporation to achieve the goals set out herein.  Manager is controlled by a public corporation as described in 13 above.  The affairs of the parent and it subsidiaries are reported to the public via the Securities and Exchange Commission quarterly report on Form 10-Q and annually on Form 10-K including the officers, directors or five percent (5%) beneficial shareholders.
 
Tribe warrants that Tribe has not received gifts, loans, investments, or other funds, and that its partners have not received any gifts, loans, investments or other funds for the purpose of investing in Tribe, Facility and/or Enterprise except such as may be necessary and proper to fund its corporation to achieve the goals set out herein.
 
16.2           Warranties .  Manager further warrants as follows:  (1) that there are no management, financial, or ownership interests in Manager,  except the interests,  if any,  that have been disclosed in writing to Tribe on the date of the execution of this Agreement; (2) that no officer, director or five percent (5%) beneficial shareholder of Manager has been arrested, indicted for, convicted of, or pleaded nolo contendre to any felony or any gaming offense, or had any association with individuals or entities connected with organized crime; and (3) no person or entity listed in paragraph 16.1, including any officers, director or five percent (5%) beneficial shareholders, has been arrested, indicted for, convicted of, or pleaded nolo contendre to any felony or any gaming offense, or had any association with individuals or entities connected with organized crime.  For the purposes of this paragraph, the management, financial, or ownership interests that are set forth in written documents shall be considered “undisclosed” until a copy of such document is provided to Tribe.  Manager further warrants that Appendix “F” attached to this Agreement contains a description of any previous experi-ence that each person listed in paragraph 16.1 has had with other gaming contracts with Indian tribes or with the gaming industry generally, including specifically the name and address of any licensing or regulatory agency with which such person has had a contract relating to gaming.
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  20 of 29
 
 
 
 
 
STABLES - JTVT II & III
Document          of      5  
 
MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
16.3           Criminal and Credit Investigation .  Manager agrees that its officers, partners, employees, directors and/or five percent (5%) beneficial shareholders (whether or not involved in Enterprise), all person and entities referred to in paragraphs 15.1 and 15.2 and all employees of Enterprise shall consent to background investigations to be conducted by the Federal Bureau of Investigation, National Indian Gaming Commission or Tribe at the request of Tribe and shall be subject to licensing requirements in accordance with Federal and/or Tribal law.  Manager agrees that Manager, its officers, shareholders, and all persons and entities referred to in paragraphs 15.1 and 15.2 shall consent to a financial and credit investigation to be conducted by a credit reporting or investigation agency at the request of Tribe.  Manager further warrants that Manager, its officers, partners, employees (whether or not involved in Enterprise), and all persons and entities referred to in paragraphs 15.1 and 15.2, shall disclose any information requested by Tribe  which would facilitate in the background and financial investigations, and will cooperate fully with such investigations.  Any false or deceptive disclosures or failure to cooperate fully with such investigations by an employee of Manager or an employee of Enterprise shall result in the immediate dismissal of the employee.  The results of any such investigation may be disclosed by Tribe to the Chairman of the National Indian Gaming Commission as required by IGRA.
 
16.4           Disclosure Amendments .  Manager warrants whenever it learns there is any change in the information disclosed pursuant to paragraph 16, it shall immediately notify Tribe of such change not later than thirty (30) days following Manager’s discovery of such change.  All of the warranties and agreements contained in this paragraph shall apply to any person or entity referred to in paragraph 15 as a result of such changes.
 
16.5           Breach of Manager Warranties .  See paragraph 10.1 in addition to this paragraph.  The breach of any warranty contained in subparagraphs 16.1, 16.2, 16.3, 16.4 and 16.5 shall be grounds for immediate termination of Agreement, PROVIDED, that is a breach of the warranty contained in subparagraph 16.3 is discovered during the term of Agreement, and such breach was not disclosed by any background check conducted by the Federal Bureau of Investigation as part of the Bureau of Indian Affairs or National Indian Gaming Commission approval of this Agreement, or was discovered by the FBI investigation but offices, directors, and shareholders of Manager sign a sworn affidavit that they had no knowledge of such breach therein, Manager shall have ninety (90) days from the day it is informed of such breach to terminate the interest of the breaching person or entity and if such termination takes place, this contract shall remain in full force and effect.
 
17.0
Use of Facility .
 
Manager and Management Committee shall not conduct or allow to be conducted at Facility any clearly illegal activities or any activities not approved by Tribe including the use or possession of illegal drugs or other substances.  Manager shall maintain an orderly, clean, and healthy atmosphere, and prohibit the use or possession of alcohol at Facility unless approved as required by paragraph 5.5 and appropriate licenses are obtained by Tribe.
 
18.0
Authority to Execute .
 
Each party warrants to the other that it has full authority to execute this Agreement.
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  21 of 29
 
 
 
 
 
STABLES - JTVT II & III
Document          of      5  
 
MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
19.0
No present Lien or Lease .
 
The parties of this Agreement agree and expressly warrant that this Agreement is not a lease and does not convey any present interest whatsoever in Facility or Tract, nor any proprietary interest in Enterprise itself.
 
20.0
Tribe’s Limited Waiver of Sovereign Immunity .
 
By this Agreement, Tribe does not waive, limit, or modify its sovereign immunity from uncontested suit except as provided in this Section 20.  Tribe expressly waives in a limited manner its immunity from suit and consents to be sued by Manager in Modoc Tribal Court, the United States District Court for the Northern District of Oklahoma, the United States District Court for the District of Kansas, the United States Court of Appeals for the Tenth Circuit, and the United States Supreme Court.  Said waiver is specifically limited to the following actions and judicial remedies:
 
20.1           Monetary Damages .  The enforcement of an award of money damages by arbitration pursuant to paragraph 23 (Arbitration); provided that the arbitrator(s) and/or Court shall have no authority or jurisdiction to execute against any assets of Tribe except for assets of Enterprise (not including Tract or the physical building structure or fixtures), undistributed or future proceeds of Enterprise, and the future proceeds of any other gaming operation conducted by Tribe.  In no instance shall any enforcement of any kind whatsoever be allowed against any assets of Tribe other than the limited assets of Tribe specified above in this section.
 
20.2           Consents and Approvals .  The enforcement of a determination by arbitration pursuant to paragraph 23 (Arbitration) that a consent or approval by Tribe or Tribal Representative, that cannot be unreasonably withheld in fact has been unreasonably withheld, then such consent or approval is thereby deemed to have been granted.
 
20.3           Injunctive Relief and Specific Performance .  The enforcement of a determination by arbitration pursuant to paragraph 23 (Arbitration) that prohibits Tribe from taking any action that would prevent Manager from operating Enterprise pursuant to the terms of this Agreement, or that mandates Tribe to specifically perform any obligation under this Agreement (other than an obligation to pay money which is provided for in Section 20.1 above) shall not be enforced against the Tribe or enforced in any way that would interfere with the Tribe’s governmental and regulatory responsibilities.
 
20.4           Title 9 .  The awards of any arbitration shall be governed by Title 9 of the United States Codes except as the same may be changed or limited by the provisions of this Agreement.
 
21.0
Time is of the Essence .
 
Time is of the essence in the performance of this Agreement.
 
22.0
Tribal Assets .
 
Nothing in this Agreement shall obligate or authorize the payment of encumbrance of any funds or assets of Tribe except the assets of Enterprise (not including Tract and the physical building structures and fixtures).  Nothing in this Agreement or any of the accompanying agreements shall obligate or authorize the payment or encumbrance of any funds or assets of Tribe other than the limited funds or assets of Tribe specified above in this section.
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  22 of 29
 
 
 
 
 
STABLES - JTVT II & III
Document          of      5  
 
MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
23.0
Arbitration .
 
Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in a Court subject to the provisions of paragraph 20 above.  Either party may specify and require that any arbitrator selected shall be an attorney licensed to practice law in one of the following jurisdictions: (1) State of Oklahoma and/or State of Kansas; (2) the United States District Court for the District of Kansas and/or (3) the United States District Court for the Northern District of Oklahoma.  If more than one arbitrator is used, Tribe shall select one, Manager shall select one, and the two so selected shall select a third arbitrator.  In any arbitration proceeding, each party shall be responsible to pay its own expenses and legal fees, and one half of the cost of arbitration.
 
24.0
Execution .
 
This Agreement is being executed in five numbered duplicate originals, two to be retained by each party and one to the NIGC for approval.  Each of the five originals is equally valid.
 
25.0
Effective Date .
 
The effective date of this Agreement shall be the date that written approval of this Agreement is granted by the Chairman of the National Indian Gaming Commission as is required pursuant to IGRA and the requirements of 3.6 have been completed.
 
26.0
Tribal Tax .
 
Tribe agrees that no license fee, tax or other charge may be imposed, other than an annual fee of $500.00 for the Manger and Manager’s employees, upon Manager or upon any activity or asset thereof from which Manager derives revenues or any Manager’s employees.  In the event the governing body of Tribe does in fact levy any such additional license fee, tax or charge, and such Tribal action is held valid by a court of competent jurisdiction, Tribe agrees that any payment of such sums may be paid solely from Tribe’s fees otherwise due and owing from Manager to Tribe.
 
27.0
Compliance with 25 U.S.C. 2711(c) .
 
The parties understand that other Indian tribes have or continue to engage in gaming drawing from the same population market as that contemplated by parties for Enterprise.  Tribe agrees to petition the Chairman of the National Indian Gaming Commission for a seventy-thirty percent (70%/30%) split of the Net Profits under the provisions of IGRA.  Tribe agrees to use its best efforts and comply with the provisions of IGRA to secure approval of this Agreement and its provisions as to participation and division of Net Profits.
 
The remainder of this page is intended to be blank.
 
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  23 of 29
 
 
 
 

STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
28.0
Tribal Buy-out Option .
 
Should the option to extend under Section 3.1 be effective, at any time following the first day following the completion of the fifth full year of the term of this Agreement, not counting any time during which operations are ceased at Facility under the provisions of paragraph 5.4 of this Agreement, Tribe shall have the option to purchase all of Manager’s rights in this Agreement by paying to Manager a sum equal to: (a) all principal and accrued interest that is at that time unpaid under NOTE and/or LOAN AGREEMENT, plus (b) an amount equal to the years remaining under the terms of this Agreement, multiplied by the annual profits received and/or earned by Manager from its share of the net profits of Enterprise for the preceding twelve (12) months (with any repayment of principal under NOTE and LOAN AGREEMENT not being subtracted from total receipts of Enterprise calculating profits), and not including any period during which operations were ceased at Facility under the provisions of paragraph 5.4 of this Agreement, toward the twelve (12) month calculation.
 
29.0
Default on Loan Payment .
 
Should the Net Profits from the Establishment not be sufficient to make the loan payments as required by the LOAN AGREEMENT AND NOTE, the parties agree that a new loan agreement and note may be agreed upon.  If the parties agree that a new loan agreement and note are not appropriate, the Tribe may exercise its buy-out option under paragraph 28, the Manager may exercise its termination option under the terms of paragraph 5.4.4 or paragraph 10.1.2, or the parties may agree upon another solution in the best interest of the Manager and the Tribe.
 
The remainder of this page is intended to be blank.
 
 
 
 
 

STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT
FINAL REVISION - October 23, 1996
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
 
MODOC TRIBE
MODOC TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Bill G. Follis
 
Bill G. Follis, Its Chief
   
ATTEST:
 
   
Secretary
 
   
MIAMI TRIBE
MIAMI TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Floyd E. Leonard
 
Floyd E. Leonard, Its Chief
   
ATTEST:
 
   
Secretary
 
   
MANAGER:
BUTLER NATIONAL SERVICE CORPORATION
 
A Kansas Corporation
   
 
By: /s/ Clark D. Stewart
 
Clark D. Stewart, President
 
Its authorized officer
   
ATTEST:
 
   
/s/ Secretary
 
   
APPROVED:
NATIONAL INDIAN GAMING COMMISSION
 
UNITED STATES DEPARTMENT OF THE INTERIOR
   
 
By:
 
Its Chairwoman
 
 
 
 
 
STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT

INDEX
 
Accountant, 11
Accounting and Books of Account, 14
Accounting for Promotional Departments, 15
Alcoholic Beverages, 10
Arbitration, 23
Architect, Materials, Equipment, Labor, Facility, 6
Architect and Design, 6
Authority to Execute, 22

Bank Accounts, 13
Best Efforts, 14
Books of Account, 15
Breach of Manager Warranties, 21
Budget, 11
Business and Affairs in Connection with Property, 8
BUTLER NATIONAL SERVICE CORPORATION, 1

Cash Contingency Reserve, 14
Cash Management, 13
Cessation of Enterprise, 9
Commission, 1, 3
Commission”, 3
Compensation, 16
Compensation and Reimbursement, 16
Compliance, 9
Compliance with 25 U.S.C. 2711(c), 24
Consents and Approvals, 20, 22
Construction Commencement and Completion, 8
Construction Manager, 6
Construction of Facility, 6
Contracting, 12
Covenants, 5
Credit for Excess Distribution, 16
Criminal and Credit Investigation, 21

Daily Deposits to General Account, 14
Default on Loan Payment, 24
Definitions, 2
Detailed Plans, 7
Determination of Qualifications and Compensation, 12
Disclosure Amendments, 21
Disclosures, 20
Dispute Provisions, 18
Distribution Preference, 16
Division of Profits on Non-gaming Operations, 10
Duties of Manager, 8
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  1 of 29
 
 
 
 

STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT

INDEX
 
Effective Date, 6, 23
Employee Background Check, 12
Employee License Required, 13
Employees, 11
Employment, 11
Engagement of Manager, 5
Enterprise, 2
Equipment Acquisition and Cost, 7
Establishment and Operation of Management Committee, 5
Exclusivity of Manager’s Rights and Obligations, 5
Execution, 23

Facility, 4
Financial System Design, 15
Fire & Safety, 8

GAAP, 4
Gaming, 3
General Contractor, 3, 6
General Manager, 3, 10
Gross Receipts, 4
Grounds for Termination, 17

IGRA, 2
Indian Preference and Wages, 11
Injunctive Relief and Specific Performance, 22
Inspector Decision, 19
Insurance, 19
Interference in Tribal Affairs, 17
Investors, 20
Involuntary Termination Due to Changes in Applicable Law, 18

Liens, 15
Litigation, 12

Maintenance of Facility, 9
Manage Enterprise, 8
Management Committee, 2
Manager, 1, 3, 20
Manager Authority and Responsibility, 8
Manager Breach, 18
Manager Responsibility, 11
Manager’s Compliance with Tribe’s Gaming Ordinance, 6
Managing Officer, 3
Maximum Construction and Development Cost Recoupment, 16
Miami Tribal Representative, 3
Miami Tribe, 1, 16
MIAMI TRIBE OF OKLAHOMA, 1
MMTGC, 3
Modoc Tribal Representative, 3
Modoc Tribe, 1, 16
MODOC TRIBE OF OKLAHOMA, 1
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  2 of 29
 
 
 
 

STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT

INDEX
 
Monetary Damages, 22

NEPA, 2
Net Profits, 4
NIGC Annual Fees, 15
No Cash Disbursements, 14
No Manager Wages or Salaries, 13
No present Lien or Lease, 22
Notice, 16
Notice to Patrons, 19

Operating Account, 14
Operating Expenses, 4
Ordinance, 2
Other Business Purposes, 10

Personnel Policy, 12
Procurement Policy, 13

Recitals, 1
Recommencement of Gaming, 10
Recordation, 20
Refusal to Pay Winners, 18
Repair or Replacement Option, 9
Review of Decision, 19

Security Force, 9
Situs of Contracts, 8
Statements, 14
Successors, 19
Supervision, Construction, Development and Improvements, 7
Supervision and Construction, 7

Termination of Contract, 10
Time is of the Essence, 23
Title 9, 23
Title and Taxes, 8
Tract, 1, 5
Training Aid, 11
Training and Management, 10
Tribal Amendments to Tribal Gaming Ordinance, 6
Tribal Assets, 23
Tribal Breach, 18
Tribal Buy-out Option, 24
Tribal Gaming Commission, 3
Tribal Representative, 3
Tribal Tax, 23
Tribe, 1, 20
Tribe’s Limited Waiver of Sovereign Immunity, 22

Use of Facility, 22
 
Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  3 of 29
 
 
 
 

STABLES - JTVT II & III
Document          of      5  

MANAGEMENT AGREEMENT

INDEX
 
Voluntary Termination and Termination for Cause, 17

Warranties, 17, 21
Working Capital, 7
 
 
  Copyright 1996 Butler National Service Corporation V2.0 COMPLETE REVISION September 23, 1996 - Page  4 of 29
 
Exhibit 10.2

STABLES – JTVT II & III
Document ­­­­­­    4   of     4  

MANAGEMENT AGREEMENT
AMENDMENT NO. ONE – April 30, 2003
 
This Amendment No. ONE entered into on the 30th day of April, 2003, at Miami, Oklahoma by the parties of the Management Agreement dated December 12, 1996, approved by the NIGC on January 14, 1997. The parties, as defined in the Management Agreement are the “ Modoc Tribe ”; and the “ Miami Tribe ”;   and as joint venture partners hereafter referred to as “Tribe”; and Butler National Service Corporation hereafter referred to as “ Manager ”;   and for approval the National Indian Gaming Commission hereafter referred to as “ Commission ”.

 
1.0            Recitals.
 
 
1.1
The Tribe desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997.
 
 
1.2
The Manager desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997.
 
 
1.3
The date the Enterprise opened for business to the public to offer Class II and Class III Gaming as defined in section 3.1 Engagement of Manager is September 18, 1998.
 
 
1.4
The Tribe desires to revise section 3.1 Engagement of Manager to extend the term of the Management Agreement through September 30, 2008.
 
 
1.5
The Manager desires to revise section 3.1 Engagement of Manager to extend the term of the Management Agreement through September 30, 2008.
 
 
1.6
The Tribe desires to revise section 7.1 Compensation of Manager from thirty percent (30%) to twenty percent (20%), and the distribution from seventy (70%) to eighty (80%) to the Tribe [forty percent (40%) to the Miami Tribe plus forty percent (40%) to the Modoc Tribe].
 
 
1.7
The Manager desires to revise section 7.1 Compensation of Manager from thirty percent (30%) to twenty percent (20%) and the distribution from seventy (70%) to eighty (80%) to the Tribe [forty percent (40%) to the Miami Tribe plus forty percent (40%) to the Modoc Tribe].
 
 
1.8
The Manager desires to revise section 8.0 Notice to reflect its current address as 19920 W. 161 st Street, Olathe, Kansas 66062.
 
 
Page 1
 
 
STABLES – JTVT II & III
Document ­­­­­­    4   of     4  

MANAGEMENT AGREEMENT
AMENDMENT NO. ONE – April 30, 2003
 
 
1.9
Tribe and Manager desire that all other provisions of the Management Agreement continue through September 30, 2008.
 
AMENDMENT NO. 1 – April 30, 2003
 
 
Page 2
 

STABLES – JTVT II & III
Document ­­­­­­         of         

MANAGEMENT AGREEMENT
AMENDMENT NO. ONE – April 30, 2003
 
2.0
Definitions.
 
All definitions are to remain as defined in the MANAGEMENT AGREEMENT unless revised by the Amendment No. ONE.
 
3.0
Incorporation by Reference.
 
This Amendment No. ONE incorporates the Management Agreement by this reference.
 
4.0    
Covenants.
 
In consideration of the foregoing Recitals, the parties agree and covenant as follows:
 
 
4.1
Revision to section 3.1 Engagement of Manager .  Section 3.1, paragraph one, is hereby revised to read as follows:  Tribe hereby retains and engages Manager and Manager accepts such retention and engagement, for a second term of five (5) years, commencing September 18, 2003 through September 30, 2008.
 
 
4.2
Revision to section 7.1 Compensation .  Section 7.1, paragraph two, is hereby revised to read as follows:  Such Net Profits shall be designated for distribution by the Management Committee eighty percent (80%) to the Tribe [forty percent (40%) to the Miami Tribe plus forty percent (40%) to the Modoc Tribe] and twenty (20%) to the Manager.
 
 
4.3
Revision to section 8.0 Notice .  Section 8.0, MANAGER, is hereby revised to read as follows:  President, BUTLER NATIONAL SERVICE CORPORATION, 19920 W. 161 st Street, Olathe, Kansas 66062.
 
(The remainder of this page is intended to be blank.)
 
AMENDMENT NO. 1 – April 30, 2003
 
 
Page 3
 
 
STABLES – JTVT II & III
Document ­­­­­­         of         

MANAGEMENT AGREEMENT
AMENDMENT NO. ONE – April 30, 2003
 
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. ONE the day and year first above written.
 
MODOC TRIBE
MODOC TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Bill G. Follis
 
Bill G. Follis, Its Chief
   
ATTEST:
 
   
Secretary
 
   
MIAMI TRIBE
MIAMI TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Floyd E. Leonard
 
Floyd E. Leonard, Its Chief
   
ATTEST:
 
   
Secretary
 
   
MANAGER:
BUTLER NATIONAL SERVICE CORPORATION
 
A Kansas Corporation
   
 
By: /s/ Clark D. Stewart
 
Clark D. Stewart, President
 
Its authorized officer
   
ATTEST:
 
   
/s/ Secretary
 
   
APPROVED:
NATIONAL INDIAN GAMING COMMISSION
 
UNITED STATES DEPARTMENT OF THE INTERIOR
   
 
By:
 
Its Chairwoman
 
AMENDMENT NO. 1 – April 30, 2003
 
 
Page 4
 
Exhibit 10.3

STABLES - JTVT II & III
Document ___ of ____
 
MANAGEMENT AGREEMENT
AMENDMENT NO. TWO - November 30, 2006
 
This Amendment No. TWO entered into on the 1st day of January, 2007, at Miami, Oklahoma by the parties of the Management Agreement dated December 12, 1996, approved by the NIGC on January 14, 1997 which was amended by Amendment No. ONE dated April 30, 2003 with NIGC approval dated September 5, 2003.  The parties, as defined in the Management Agreement are the “ Modoc Tribe ”; and the “ Miami Tribe ”; and as joint venture partners hereafter referred to as “ Tribe ”; and Butler National Service Corporation hereafter referred to as “ Manager ”; and for approval by the National Indian Gaming Commission hereafter referred to as “ Commission ”.
 
1.0
Recitals .
 
 
1.1
The Tribe desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997, as amended by Amendment No. ONE that was approved by the Commission on September 5, 2003.
 
 
1.2
The Manager desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997, as amended by Amendment No. ONE that was approved by the Commission on September 5, 2003.
 
 
1.3
The date the Enterprise opened for business to the public to offer Class II and Class III Gaming as defined in section 3.1 Engagement of Manager is September 18, 1998.
 
 
1.4
The Tribe desires to revise section 3.1 Engagement of Manager to extend the term of the Management Agreement through September 30, 2013.
 
 
1.5
The Manager desires to revise section 3.1 Engagement of Manager to extend the term of the Management Agreement through September 30, 2013.
 
 
1.6
The Tribe desires to continue section 7.1 Compensation of Manager at twenty percent (20%), and the distribution at eighty percent (80%) to the Tribe [forty percent (40%) to the Miami Tribe plus forty percent (40%) to the Modoc Tribe].
 
AMENDMENT NO. TWO - November 30, 2006
 
 
Page 1
 
 
STABLES - JTVT II & III
Document ___ of ____
 
MANAGEMENT AGREEMENT
AMENDMENT NO. TWO - November 30, 2006
 
 
1.7
The Manager desires to continue section 7.1 Compensation of Manager at twenty percent (20%) and the distribution at eighty percent (80%) to the Tribe [forty percent (40%) to the Miami Tribe plus forty percent (40%) to the Modoc Tribe].
 
 
1.8
Tribe and Manager desire that all other provisions of the Management Agreement continue through September 30, 2013.
 
2.0
Definitions .
 
All definitions are to remain as defined in the MANAGEMENT AGREEMENT unless revised by the Amendment No. ONE or Amendment No. TWO.
 
3.0
Incorporation by Reference .
 
This Amendment No. TWO incorporates the Management Agreement and Amendment No. ONE by this reference.
 
4.0
Covenants .
 
In consideration of the foregoing Recitals, the parties agree and covenant as follows:
 
 
4.1
Revision to section 3.1 Engagement of Manager .  Section 3.1, paragraph one, is hereby revised to read as follows:  Tribe hereby retains and engages Manager and Manager accepts such retention and engagement, for a third term of five (5) years, commencing October 1, 2008 through September 30, 2013.
 
(The remainder of this page is intended to be blank.)
 
AMENDMENT NO. TWO - November 30, 2006
 
 
Page 2
 
 
STABLES - JTVT II & III
Document ___ of ____
 
MANAGEMENT AGREEMENT
AMENDMENT NO. TWO - November 30, 2006
 
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. TWO the day and year first above written.
 
MODOC TRIBE
MODOC TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Bill G. Follis
 
Bill G. Follis, Its Chief
   
ATTEST:
 
   
Secretary
 
   
MIAMI TRIBE
MIAMI TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Floyd E. Leonard
 
Floyd E. Leonard, Its Chief
   
ATTEST:
 
   
Secretary
 
   
MANAGER:
BUTLER NATIONAL SERVICE CORPORATION
 
A Kansas Corporation
   
 
By: /s/ Clark D. Stewart
 
Clark D. Stewart, President
 
Its authorized officer
   
ATTEST:
 
   
/s/ Secretary
 
   
APPROVED:
NATIONAL INDIAN GAMING COMMISSION
 
UNITED STATES DEPARTMENT OF THE INTERIOR
   
 
By:
 
Its Chairwoman
 
AMENDMENT NO. TWO - November 30, 2006
 
 
Page 3
 
Exhibit 10.4

STABLES – JTVT II & III
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
This Amendment No. THREE entered into on the 19 th day of October, 2009, at Miami, Oklahoma by the parties of the Management Agreement dated December 12, 1996, approved by the NIGC on January 14, 1997 which was amended by Amendment No. ONE dated April 30, 2003 with NIGC approval dated September 5, 2003 and by Amendment No. TWO dated November 30, 2006 with NIGC approval dated March 20, 2007. The parties to this Amendment No. 3, as defined in the Management Agreement, are the “ Modoc Tribe ”, hereafter referred to as “ Tribe ”, and Butler National Service Corporation, hereafter referred to as “ Manager ”; and for approval by the National Indian Gaming Commission hereafter referred to as “ Commission ”.
 
1.0
Recitals.
 
 
1.1
The Tribe desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997, as amended by Amendment No. ONE that was approved by the Commission on September 5, 2003; and as further amended by Amendment No. TWO that was approved by the Commission on March 20, 2007.
 
 
1.2
The Manager desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997, as amended by Amendment No. ONE that was approved by the Commission on September 5, 2003, and as further amended by Amendment No. TWO that was approved by the Commission on March 20, 2007.
 
 
1.3
The Enterprise opened for business to the public to offer Class II and Class III Gaming as a joint venture pursuant to the Joint Venture Agreement between the Miami Tribe of Oklahoma and the Modoc Tribe dated October 18, 1994. The term of the Joint Venture Agreement was for fifteen (15) years. Upon the expiration of the Joint Venture Agreement term and pursuant to the terms of the Joint Venture Agreement, the Joint Venture between the Miami Tribe of Oklahoma and the Modoc Tribe was terminated. The Modoc Tribe now exclusively owns the Enterprise and desires to continue with terms of the Management Agreement with Manager as approved with the latest amendments as described above.
 
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
 
Page 1
 
 
STABLES – JTVT II & III
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
 
1.4
The Tribe desires to revise the parties to the Management Agreement to remove all references to the Miami Tribe of Oklahoma or Miami Tribe and to replace all such references with only the Modoc Tribe.
 
 
1.5
The Manager desires to revise the parties to the Management Agreement to remove all references to the Miami Tribe of Oklahoma or Miami Tribe and replace all such references with only the Modoc Tribe.
 
 
1.6
The Tribe and Manager desire to change section 2.3 Tribal Representatives to delete “Miami Tribe, pursuant to its law, has established the Miami Tribe Business Committee to manage all tribal business affairs. Miami Tribe hereby appoints and designates the Chief of the Miami Tribe Business Committee to be the Tribe’s duly appointed ‘Miami Tribal Representative’”, and replace the deleted words with: “For the second Tribal Representative to the Management Committee, the Modoc Tribe hereby appoints and designates the Second Chief of the Modoc Tribe Elected Council to be the Tribe’s duly appointed second ‘Modoc Tribal Representative.’”
 
 
1.7
The Tribe and Manager desire to change section 2.10 Tribal Gaming Commission to remove the reference to the Miami Tribe in the first sentence. Section 2.10 shall now state: “Tribal Gaming Commission” or “MMTGC” shall mean the gaming commission of the Modoc Tribe. The MMTGC will operate as authorized by the Modoc Tribe gaming ordinances for Class II (approved by the NIGC November 8, 1993) and Class III (approved by the NIGC on December 15, 1994).
 
 
1.8
The Tribe and Manager desire to change section 7.1 Compensation of Manager at twenty percent (20%) and the distribution at eighty percent (80%) to the Modoc Tribe.
 
 
1.9
The Tribe and Manager desire to change section 11. Dispute Provisions   to state: “The Modoc Tribe Gaming Commission is responsible for the resolution of disputes between the gaming public (the patrons) and the Tribe and or the Tribe’s management contractor in accordance with the Ordinance.”
 
 
1.10
Tribe and Manager desire that all other provisions of the Management Agreement continue through September 30, 2013.
 
2.0
Definitions.
 
All definitions are to remain as defined in the MANAGEMENT AGREEMENT unless revised by the Amendment No. ONE, Amendment No. TWO, or this Amendment No. THREE.
 
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
 
Page 2
 
 
STABLES – JTVT II & III
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
3.0
Incorporation by Reference.
 
This Amendment No. THREE incorporates the Management Agreement and Amendment No. ONE and Amendment No. TWO by this reference.
 
(The remainder of this page is intended to be blank.)
 
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. TWO the day and year first above written.
 
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
 
Page 3
 
 
STABLES – JTVT II & III
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
MODOC TRIBE
MODOC TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Bill G. Follis
 
Bill G. Follis, Its Chief
   
ATTEST:
 
   
Secretary
 
   
MANAGER:
BUTLER NATIONAL SERVICE CORPORATION
 
A Kansas Corporation
   
 
By: /s/ Clark D. Stewart
 
Clark D. Stewart, President
 
Its authorized officer
   
ATTEST:
 
   
/s/ Christopher J. Reedy
 
Secretary
 
   
APPROVED:
NATIONAL INDIAN GAMING COMMISSION
 
UNITED STATES DEPARTMENT OF THE INTERIOR
   
 
By:
 
Its Chairwoman
 
AMENDMENT NO. THREE – OCTOBER 19, 2009
 
 
Page 4
Exhibit 10.5

STABLES-AMDT4
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. FOUR-SEPTEMBER 22, 1011
 
This Amendment No. FOUR entered into on the 22 nd day of September, 2011, at Miami, Oklahoma by the parties of the Management Agreement dated December 12, 1996, approved by the NIGC on January 14, 1997 which was amended by Amendment No. ONE dated April 30, 2003 with NIGC approval dated September 5, 2003, and Amendment No. TWO dated November 30, 2006 with NIGC approval dated March 20, 2007, and Amendment No. 3 dated February 3, 2011 and received by the NIGC on February 10, 2011.  The parties, as defined in the Management Agreement are now the Modoc Tribe of Oklahoma hereafter referred to as the “Modoc Tribe” or “Tribe” and Butler National Service Corporation hereafter referred to as “Manager”; and for approval by the National Indian Gaming Commission hereafter referred to as “Commission”.
 
1.0  Recitals.
 
 
1.1
The Tribe desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997, as amended by Amendment No. ONE that was approved by the Commission on September 5, 2003, and Amendment No. Two that was approved by the Commission on March 20, 2007, and Amendment No. Three that was received by the Commission on Feb. 10, 2011.
 
 
1.2
The Manager desires to amend the Management Agreement entered into on December 12, 1996 and approved by the Commission on January 14, 1997, as amended by Amendment No. ONE that was approved by the Commission on September 5, 2003, and Amendment No. Two that was approved by the Commission on March 20, 2007, and Amendment No. Three that was received by the Commission on Feb. 10, 2011.
 
 
1.3
The date the Enterprise opened for business to the public to offer Class II and Class III Gaming as defined in section 3.1 Engagement of Manager   is September 18, 1998.
 
 
1.4
The Tribe desires to revise section 3.1 Engagement of Manager to extend the term of the Management Agreement through September 30, 2018.
 
 
1.5
The Manager desires to revise section 3.1 Engagement of Manager to extend the term of the Management Agreement through September 30, 2018.
 
AMENDMENT NO. FOUR-September 22, 2011
 
 
Page 1
 
 
STABLES-AMDT4
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. FOUR-SEPTEMBER 22, 1011
 
 
1.6
The Tribe desires to continue section 7.1 Compensation of Manager at twenty percent (20%), and the distribution at eighty percent (80%) to the Modoc Tribe.
 
AMENDMENT NO. FOUR-September 22, 2011
 
 
Page 2
 
 
STABLES-AMDT4
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. FOUR-SEPTEMBER 22, 1011
 
 
1.7
The Manager desires to continue section 7.1 Compensation of Manager at twenty percent (20%) and the distribution at eighty percent (80%) to the Modoc Tribe.
 
 
1.8
Tribe and Manager desire that all other provisions of the Management Agreement, as amended to date, continue through September 30, 2018.
 
2.0 
Definitions.
 
All definitions are to remain as defined in the MANAGEMENT AGREEMENT unless revised by the Amendment No. ONE or Amendment No. TWO or Amendment No. Three or Amendment No. Four.
 
3.0 
Incorporation by Reference.
 
This Amendment No. FOUR incorporates the Management Agreement and Amendment No. ONE and Amendment No. TWO and Amendment No. THREE by this reference.
 
4.0 
Covenants.
 
In consideration of the foregoing Recitals, the parties agree and covenant as follows:
 
 
4.1
Revision to section 3.1 Engagement of Manager .  Section 3.1, paragraph one, is hereby revised to read as follows: Tribe hereby retains and engages Manager and Manager accepts such retention and engagement, for a fourth term of five (5) years, commencing October 1, 2013 through September 30, 2018.
 
(The remainder of this page is intended to be blank)

AMENDMENT NO. FOUR-September 22, 2011
 
 
Page 3
 
 
STABLES-AMDT4
Document ____ of ____

MANAGEMENT AGREEMENT
AMENDMENT NO. FOUR-SEPTEMBER 22, 1011
 
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. FOUR the day and year first above written.
 
MODOC TRIBE
MODOC TRIBE OF OKLAHOMA
 
A Federally recognized Indian Tribe
   
 
By: /s/ Bill G. Follis
 
Bill G. Follis, Its Chief
ATTEST:
 
   
Secretary
 
   
MANAGER:
BUTLER NATIONAL SERVICE CORPORATION
 
A Kansas Corporation
   
 
By: /s/ Clark D. Stewart
 
Clark D. Stewart, President
 
Its authorized officer
   
ATTEST:
 
   
/s/ Christopher J. Reedy
 
Secretary
 
   
APPROVED:
NATIONAL INDIAN GAMING COMMISSION
 
UNITED STATES DEPARTMENT OF THE INTERIOR
   
 
By:
 
Tracie Stevens
 
Its Chairwoman

AMENDMENT NO. FOUR-September 22, 2011
 
 
Page 4
 
Exhibit 10.6

LOTTERY GAMING FACILITY MANAGEMENT CONTRACT
(Pursuant to the Kansas Expanded Lottery Act)
 
This LOTTERY GAMING FACILITY MANAGEMENT CONTRACT is for the development, construction, and management of a Lottery Gaming Facility, the business of which will be owned and operated by the Kansas Lottery, to be located in the Southwest Gaming Zone.
 
This Agreement is between the Kansas Lottery, which is acting on behalf of the State of Kansas in accordance with the Kansas Expanded Lottery Act, K.S.A. 2007 Supp. 74-8733 through 74-8773, and Butler National Service Corporation (“Manager”).
 
NOW THEREFORE, in consideration for the mutual promises and covenants between the parties, it is agreed that:
 
1.              Certain Defined Terms . The capitalized terms listed below will have the following meanings. Any other capitalized terms not specifically defined in this Agreement will have the meanings attributed to them in the Kansas Lottery Act, the Kansas Expanded Lottery Act, or the rules and regulations implementing those Acts, as the case may be, and as amended from time to time.
 
 
a)
“Ancillary Lottery Gaming Facility Operations” means additional non-lottery facility game products and services not owned and operated by the state which may be included in the overall development associated with the Lottery Gaming Facility. Such operations may include, but are not limited to, restaurants, hotels, motels, museums or entertainment facilities.
 
 
b)
“Application for Lottery Gaming Facility Manager” means the competitive proposal and all attachments submitted to the Kansas Lottery by Manager under the Kansas Expanded Lottery Act for the privilege of being designated the Lottery Gaming Facility Manager in the Southwest gaming zone.
 
 
c)
“Business Plan” means the document prepared by Manager and approved by the Executive Director, at least annually, setting out the management activities anticipated for the Lottery Gaming Facility as provided below in Paragraph 11 for an upcoming Fiscal Year or portion of Fiscal Year as the case may be.
 
 
d)
“Commencement Date” means the date specified in writing when the Executive Director first determines Manager has satisfied all conditions required by this Agreement so that Lottery Facility Games may be offered for play at the Lottery Gaming Facility.
 
 
 
 
 
 
e)
“Commission” means the Kansas Lottery Commission.
 
 
f)
“Effective Date” means the date this Agreement is signed by all the parties, the Kansas Supreme Court has held the Kansas Expanded Lottery Act is constitutional in State ex rel. Six v. Kansas Lottery, et al. , Supreme Court Case No. 08-99957-S and all required approvals for the Agreement are obtained in accordance with the Kansas Expanded Lottery Act and rules and regulations promulgated pursuant thereto.
 
 
g)
“Electronic Gaming Machine” means any electronic, electromechanical, video or computerized device, contrivance or machine authorized by the Kansas Lottery which, upon insertion of cash, tokens, electronic cards or any consideration, is available to play, operate or simulate the play of a game authorized by the Kansas Lottery pursuant to the Kansas Expanded Lottery Act, including, but not limited to, bingo, poker, blackjack, keno and slot machines, and which may deliver or entitle the Player operating the machine to receive cash, tokens, merchandise or credits that may be redeemed for cash. Electronic Gaming Machines may use bill validators and may be single-position reel-type, single or multi-game video and single-position multi-game video electronic game, including, but not limited to, poker, blackjack and slot machines. Electronic Gaming Machines are one type of Lottery Facility Games.
 
 
h)
“Executive Director” means the executive director of the Kansas Lottery.
 
 
i)
“Fiscal Year” means the accounting year established for the Lottery Gaming Facility, which is specified here to be a calendar year, and includes any partial (short) year.
 
 
j)
“Gray Machine” means any mechanical, electro-mechanical or electronic device, available to the public for play that is capable of being used for gambling, that is: (1) not authorized by the Kansas Lottery; (2) not linked to the lottery central computer system as required by the Kansas Expanded Lottery Act; or (3) capable of simulating a game played on an Electronic Gaming Machine or any similar gambling game authorized pursuant to the Kansas Expanded Lottery Act.
 
 
k)
“Kansas Expanded Lottery Act” means the provisions contained in K.S.A. 2007 Supp. 74-8733 through 74-8773, and amendments thereto which may become effective during this Agreement’s term.
 
 
2
 
 
 
l)
“Kansas Lottery” means the state agency created by the Kansas Lottery Act, K.S.A. 74-8701, et seq. , as amended, to operate a lottery or lotteries pursuant to the Kansas Lottery Act or the Kansas Expanded Lottery Act.
 
 
m)
“Lottery Facility Games” means any Electronic Gaming Machines and any other games authorized, as of January 1, 2007, to be conducted or operated at a tribal gaming facility, as defined in K.S.A. 74-9802, and amendments thereto, located within the State of Kansas’ boundaries and are owned and operated by the Kansas Lottery.
 
 
n)
“Lottery Gaming Enterprise” means the entertainment enterprise and all facilities and operations associated therewith, including a Lottery Gaming Facility and Ancillary Lottery Gaming Facility Operations, as more fully set forth in the Manager’s Application for Lottery Gaming Facility Manager.
 
 
o)
“Lottery Gaming Facility” means that portion of the building used for the purposes of operating, managing and maintaining Lottery Facility Games, as more fully described in the Application for Lottery Gaming Facility Manager filed by Manager with the Kansas Lottery, or temporary facility used for such purposes as approved by the Executive Director.
 
 
p)
“Lottery Gaming Facility Revenues” means the total revenues from the play of Lottery Facility Games operated at the Lottery Gaming Facility after all related Prizes are paid. This term does not include (i) money generated from Ancillary Lottery Gaming Facility Operations (in which the Kansas Lottery has no financial interest) even if the revenue is generated within the Lottery Gaming Facility or (ii) Promotional Credit(s).
 
 
q)
“Player” means a person who: (1) takes part in a Lottery Facility Game by paying consideration or using Promotional Credit for the chance of winning a Prize; and (2) is lawfully eligible to play a Lottery Facility Game under the Kansas Expanded Lottery Act or applicable rules and regulations.
 
 
r)
“Progressive Electronic Game” means a game played on one or more Electronic Gaming Machines for which at least one payoff increases uniformly as the game is played and the Prize is determined by application of a formula to the income of independent, local, or interlinked Electronic Gaming Machines.
 
 
s)
“Promotional Credit” means any non-cashable credit, coupon or voucher redeemable by a Player at a Lottery Gaming Facility for use in playing Lottery Facility Games that is provided to a Player by Manager on a discretionary basis for purposes of promoting the Lottery Gaming Facility in accordance with a promotional program approved by the Executive Director.
 
 
3
 
 
 
t)
“Promotional Item” means any non-cash, complimentary service or discount provided to a Player by Manager on a discretionary basis for purposes of promoting the Lottery Gaming Facility in accordance with a promotional program approved by the Executive Director.
 
 
u)
“Prize” means any money, cash, tokens, merchandise, or credits redeemable for cash or play in a Lottery Facility Game that a Player may be entitled to as an award for playing a Lottery Facility Game under the rules of that game. For any Electronic Gaming Machines offering progressive winnings to a Player based on the use of Electronic Gaming Machines in a Progressive Electronic Game, “Prize” also includes a percentage of every wager played on a Progressive Electronic Game that is contributed to a growing jackpot amount to a successful Player as an award for playing an Electronic Gaming Machine under the rules of that Progressive Electronic Game, but does not include the reset amount. “Prize” does not include any administrative fees or other expenses associated with an Electronic Gaming Machine’s acquisition, operation, maintenance or replacement that are not payable to a winning Player.
 
2.             Date Agreement Becomes Binding . This Agreement will become effective and binding on the Effective Date; except that the parties agree that Paragraphs 2, 20, 58, 70, 71 and 72 will become effective and binding on the parties immediately upon this Agreement’s approval by the Commission.
 
3.             Term of Agreement . This Agreement will terminate fifteen (15) years after the Commencement Date or by operation of law, unless this Agreement is terminated earlier, renegotiated, or renewed, in accordance with the terms set out below.
 
4.             Commencement Date Deadline . The Commencement Date will occur no later than twelve (12) months following the Effective Date for the phase one interim gaming facility as described in Manager’s Application for Lottery Gaming Facility Manager. This deadline will be extended by the number of days determined by the Executive Director that Manager is unable to perform its responsibilities under this Agreement due to:
 
 
a)
Court order restricting the authority of the Commission or the Kansas Lottery to own and operate Lottery Facility Games at the Lottery Gaming Facility under the Kansas Expanded Lottery Act or under this Agreement, or enjoining Manager from performing under this Agreement;
 
 
4
 
 
 
b)
Any force majeure cause as provided in Paragraph 63; or
 
 
c)
Any other reason determined by the Executive Director in his sole discretion that adversely impacted Manager’s ability to perform.
 
5.             Renewal of Agreement . Prior to its expiration, this Agreement may be renewed by the mutual written consent of the parties and in accordance with the Kansas Expanded Lottery Act, and amendments thereto. This written consent will set out the terms under which the renewal is to be effective.
 
6.             Manager’s Representations and Warranties . Manager represents and warrants to the Kansas Lottery as follows:
 
 
a)
Manager is a corporation, duly organized, validly existing and in good standing under the laws of the State of Kansas, and is duly qualified to do business as such in Kansas.
 
 
b)
Manager has full power, authority, and legal right to perform and observe the provisions in this Agreement, the requirements imposed by the Kansas Expanded Lottery Act, the rules and regulations imposed by the Commission, and the rules and regulations imposed by the Kansas Racing and Gaming Commission.
 
 
c)
Subject to the condition that all approvals required by the Kansas Expanded Lottery Act are obtained, this Agreement constitutes a valid and binding obligation on Manager that is fully enforceable in accordance with its terms, and does not constitute a breach of, or default under, any other agreement to which Manager is a party or any of its assets are bound or affected.
 
 
d)
During this Agreement’s term, Manager will, at its own expense, keep in full force and effect its legal existence, rights and franchises required in order for it to observe all of this Agreement’s terms and conditions. Upon receiving any information or notice contrary to the representations contained in this subsection during this Agreement’s term, Manager must immediately notify the Executive Director in writing with full details regarding the same.
 
 
e)
Manager has acquired full title to the premises on which the Lottery Gaming Facility will be located, free and clear of any liens, encumbrances, covenants, charges, burdens or claims, except (i) those which do not materially and adversely affect the use by Manager of the premises as a Lottery Gaming Enterprise, and (ii) any secured liens directly related to the Lottery Gaming Enterprise, which will be disclosed to the Executive Director concurrently with Manager’s acquisition of the property or for which the Executive Director’s prior approval has been obtained.
 
 
5
 
 
 
f)
The Lottery Gaming Enterprise and the operations thereof at all times will conform in all material respects with all applicable zoning, planning, building, licensing, and environmental laws and regulations of governmental authorities (federal, state, or local) having jurisdiction over the Lottery Gaming Enterprise, including any amendments to such laws or regulations occurring after this Agreement’s execution. Such laws include, but are not limited to, the federal Money Laundering Control Act of 1986, the Bank Secrecy Act of 1970, and the USA Patriot Act of 2001, and amendments thereto. The Manager shall defend, indemnify and hold the Kansas Lottery and the State of Kansas and all employees of the Kansas Lottery and the State of Kansas harmless from any liability or expenses resulting from any failure by the Manager to comply with the provisions of this subsection (f).
 
 
g)
There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body pending or, to the knowledge of the Manager, threatened against or affecting the Manager or its principals, and in which an adverse result would in any way diminish or adversely impact the Manager’s ability to fulfill it obligations under this Lottery Gaming Facility Management Contract except the litigation against the Kansas Lottery and the Executive Director involving the constitutionality of the Kansas Expanded Lottery Act and other litigation identified in Paragraph 8 below. No revenue bonds, state tax abatement, local tax abatement, tax increment financing or similar financing has or will be used to finance or apply to any part of Manager’s Lottery Gaming Enterprise.
 
 
h)
The Lottery Gaming Enterprise will comply in all material respects with all environmental laws and regulations, and, except in material compliance with environmental laws and regulations agrees that to the best of its knowledge (1) that no pollutants, contaminants, solid wastes, or toxic or hazardous substances will be stored, treated, generated, disposed of, or allowed to exist at the Lottery Gaming Facility or the location of any related Ancillary Lottery Gaming Facility Operations, except in compliance with all applicable laws; (2) Manager will take all reasonable and prudent steps to prevent an unlawful release of hazardous substances onto the Lottery Gaming Facility or the location of any related Ancillary Lottery Gaming Facility Operations or onto any other property; (3) that no asbestos will be incorporated into or disposed of on the Lottery Gaming Facility or the location of any related Ancillary Lottery Gaming Facility Operations; (4) that no underground storage tanks will be located on the Lottery Gaming Facility or the location of any related Ancillary Lottery Gaming Facility Operations, except as approved by the Executive Director; and (5) that no investigation, order, agreement, notice, demand or settlement with respect to any of the above is threatened, anticipated, or in existence with respect to the Lottery Gaming Facility or the location of any related Ancillary Lottery Gaming Facility Operations. Upon receiving any information or notice contrary to the representations contained in this subsection, Manager must immediately notify the Executive Director in writing with full details regarding the same. Manager and its principals will execute the Environmental Compliance Agreement attached as Exhibit A. Manager shall defend, indemnify and hold the Kansas Lottery and the State of Kansas harmless from any liability or expenses resulting from any failure by Manager to comply with the provisions of this subsection (h).
 
 
6
 
 
 
i)
Manager will provide to the Executive Director a certificate or certificates of insurance containing all of the insurance provision requirements provided in this Agreement as follows: as respects the builder’s risk and liability including worker’s compensation covering construction activities, prior to the commencement of construction activities, and as respects all other insurance, prior to the commencement of any operations presenting an insurable risk. Each insurance policy obtained by Manager to comply with the insurance provision requirements must provide that if the insurance is canceled for any reason whatsoever, or the same is allowed to lapse or expire, or there be any reduction in amount, or any material change is made in the coverage, such cancellation, lapse, expiration, reduction or change shall not be effective as to the Kansas Lottery or the State of Kansas until at least thirty (30) days after receipt by the Executive Director of written notice by the insurer of such cancellation, lapse, expiration, reduction or change.
 
 
j)
Manager will comply with all requirements imposed by the Kansas Racing and Gaming Commission now or in the future for the oversight of all operations at the Lottery Gaming Facility including, but not limited to: oversight of internal controls; adherence to technical standards adopted by the Kansas Racing and Gaming Commission; oversight of security; performance of background investigations; determinations of qualifications and any required certifications, credentialing or licensing of Manager’s officers, directors, board members, employees, contractors and agents; auditing of Lottery Gaming Facility Revenues; maintenance and integrity of all Lottery Facility Games approved by the Executive Director for play at the Lottery Gaming Facility; maintenance of facility exclusion lists; player tracking, rewards, clubs, coupons or other incentive programs; oversight of progressive payout systems and programs; oversight of unclaimed winnings; or oversight of lost patron monies. Manager understands and agrees that failure to adhere to the Kansas Racing and Gaming Commission’s rules, regulations, or technical standards may result in the imposition of fines, or other sanctions or penalties against Manager. Upon receiving any information or notice claiming a violation of any requirement of the Kansas Racing and Gaming Commission or any other governmental entity with jurisdiction over gaming-related activities after the Effective Date, Manager must immediately notify the Executive Director in writing with full details regarding the same.
 
 
7
 
 
 
k)
Manager, at a minimum, meets the following criteria: (1) has sufficient access to financial resources to support the activities required of it by this Agreement and the Kansas Expanded Lottery Act; (2) is current in filing all applicable tax returns and in payment of all taxes, interest and penalties owed to the state of Kansas and any taxing subdivisions where the Manager is located in the state of Kansas, excluding items under formal appeal pursuant to applicable statutes; and (3) Manager or its principals, affiliates or officers have at least three consecutive years’ experience in the management of gaming which would be class III gaming, as defined in K.S.A. 46-2301, and amendments thereto, operated pursuant to state or federal law.
 
 
l)
Manager will comply with all applicable rules and regulations imposed now, or in the future, by the Kansas Lottery.
 
 
m)
Except as may be authorized by applicable law and confirmed in writing by the Executive Director, Manager will not own, lease, license, or control the rights to: (1) any software, hardware, computer chip, EPROMS (erasable, programmable, read-only memory), flash drives, CD-ROM or other computerized device required to operate the games available for play on the Lottery Facility Games, (2) any software, hardware, computer chip, EPROMS (erasable, programmable, read-only memory), flash drives, CD-ROM or other computerized device containing information regarding or affecting an Lottery Facility Game’s chance of winning, awarding of Prizes, or setting the consideration paid by a Player, such as the random number generator or payout tables; (3) any CPUs or other electronic components involved in the operation and calculation or display of game play (e.g., game controller electronics and components housing the game or system firmware program storage media or EPROMS); or (4) any communication controller electronics, and components housing the communication control program that is used for communicating financial data, program information and security events to the central computer authorized by the Executive Director for purposes of security, real-time monitoring and auditing, as well as ticket validation and any other system used that affects the integrity of the Lottery Facility Games made available at the Lottery Gaming Facility.
 
 
8
 
 
 
n)
Manager acknowledges and agrees the State of Kansas, acting through the Commission and the Kansas Lottery, pursuant to their statutory authority, has the sole right to own, lease and operate the Lottery Facility Games placed at the Lottery Gaming Facility and has the full, complete and ultimate ownership and operational control of the gaming operation of the Lottery Gaming Facility. Manager further acknowledges and agrees the Lottery explicitly retains the power to overrule any action of Manager affecting the gaming operation without prior notice and the Lottery retains full control over all decisions concerning Lottery Gaming Facility Games. No Gray Machines will be permitted at the Lottery Gaming Facility.
 
 
o)
Manager, on behalf of the Kansas Lottery, will be responsible at all times for processing payment of all Prizes and matters relating thereto, including the withholding of income taxes and reporting of Prizes in accordance with all applicable laws and regulations.
 
 
p)
Manager has a resolution of endorsement from the city commission where the Lottery Gaming Facility will be located, which is attached as Exhibit B.
 
 
q)
The undersigned is duly authorized to execute and deliver this Lottery Gaming Facility Management Contract on behalf of Manager.
 
7.             The Kansas Lottery’s Representations and Warranties . The Kansas Lottery represents and warrants to Manager as follows:
 
 
a)
The Kansas Lottery is duly established under the Kansas Lottery Act and the Kansas Expanded Lottery Act, and has the power to enter into the transactions contemplated by this Lottery Gaming Facility Management Contract and to carry out its obligations. Based upon the representations of Manager as to the utilization of the Lottery Gaming Facility, the Kansas Lottery has the authority to take the actions contemplated by applicable statute.
 
 
b)
The Executive Director is duly authorized to execute and deliver this Lottery Gaming Facility Management Contract.
 
 
9
 
 
 
c)
Neither the execution and delivery of this Lottery Gaming Facility Management Contract, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the provisions of this Agreement will conflict with or result in a breach of any of the terms, conditions or provisions of any other contract to which the Commission or Kansas Lottery is a party or by which either is bound, or will constitute default under any of the foregoing.
 
8.               Kansas Expanded Lottery Act Litigation . Manager acknowledges it enters into this Agreement with the understanding that the Kansas Expanded Lottery Act’s constitutionality under the Kansas Constitution, and/or the implementation of that Act by the Kansas Lottery or the Commission, may come under review by courts of competent jurisdiction from time to time during this Agreement’s term. Manager acknowledges it is aware of the pending case of State ex rel. Stephen Six v. Kansas Lottery and Ed Van Petten , Shawnee County District Court Case No. 07 C 1312, and presently docketed with the Kansas Supreme Court as Case No. 08-99957-S, in which the constitutionality of the Kansas Expanded Lottery Act is under review. Manager further acknowledges that other litigation may be commenced in the future challenging the KELA or the Kansas Lottery’s implementation pursuant thereto. The Kansas Lottery makes no warranty or representation, either express or implied, regarding the Kansas Expanded Lottery Act’s constitutionality or validity, or the implementation pursuant thereto. Manager agrees it will proceed with its responsibilities under this Agreement at its own risk as to the Kansas Expanded Lottery Act’s validity, or the validity of the implementation of that Act by any state agency; except that nothing in this sentence will be interpreted to restrict or to be prejudicial to any right Manager may have through litigation or other legal means to seek repayment of Manager’s privilege fee if the Kansas Expanded Lottery Act is declared unconstitutional.
 
9.             Required Approvals Prior to this Agreement Becoming Effective . Subject to the terms of Paragraph 2, this Agreement will not become effective until it is approved, as required by the Kansas Expanded Lottery Act, by all three of the following public entities: (a) the Commission; (b) the Lottery Gaming Facility Review Board; and (c) the Kansas Racing and Gaming Commission.
 
10.           Conditions Precedent to Lottery Gaming Facility Opening . Prior to permitting initial public access to the Lottery Gaming Facility, Manager must:
 
 
a)
Be in compliance with all statutory requirements imposed by the Kansas Expanded Lottery Act, as amended, for placing Lottery Facility Games at the Lottery Gaming Facility.
 
 
10
 
 
 
b)
Be in compliance with all rules and regulations, written policies, or written standards imposed by the Kansas Lottery Commission for placing Lottery Facility Games at the Lottery Gaming Facility.
 
 
c)
Be in compliance with all rules and regulations, licensing requirements, written policies, or written standards imposed by the Kansas Racing and Gaming Commission for placing Lottery Facility Games at the Lottery Gaming Facility.
 
 
d)
Have in an operational condition Manager’s portion of the central communication system specified by the Executive Director for the purposes of security, monitoring and auditing of Electronic Gaming Machines placed at the Lottery Gaming Facility.
 
 
e)
Have current written approvals from the Executive Director for all Lottery Gaming Facility activities as required by this Agreement.
 
 
f)
Be in compliance with all local zoning requirements applicable to the Lottery Gaming Facility,
 
 
g)
Deliver to the Secretary of State, with a copy to Executive Director, Manager’s irrevocable consent to the jurisdiction and courts of the State of Kansas in accordance with K.S.A. 2007 Supp. 74-8755.
 
 
h)
Obtain and maintain all necessary governmental permits and licenses when and as may be required by law.
 
 
i)
Be in compliance with all other requirements in this Agreement as and when applicable.
 
11.            Manager’s Business Plan . The Executive Director and Manager will jointly develop a Business Plan, which will be based upon and not inconsistent with Manager’s Application for Lottery Gaming Facility Manager, promptly after the Effective Date. This Business Plan will provide for the Lottery Gaming Facility’s pre-opening activities in preparation for operation after the Commencement Date, hours of operation with 24 hour operations seven days a week being permitted by the Executive Director, advertising, marketing, public relations, number and type of Lottery Facility Games to be available to the public, process for selection of such games, Prizes, theoretical hold percentages, initial budget, Promotional Credits and procedures for controlling and accounting for the use of Promotional Credits, Promotional Items and procedures for controlling and accounting for the use of Promotional Items, special events or activities planned or anticipated by Manager during the period of time covered by the Business Plan, and other management activities to be performed by Manager consistent with the Kansas Expanded Lottery Act and applicable law that either the Manager or the Executive Director wants to address in the Business Plan. Once approved by the Executive Director, Manager will implement the approved Business Plan. The Executive Director, in consultation with Manager, may amend the Business Plan from time to time to promote the Lottery Gaming Facility’s competitive position in the market in order to maximize Lottery Gaming Facility Revenues. The initial Business Plan will include Manager’s proposed name for the Lottery Gaming Facility, which must be approved by the Executive Director. Any subsequent change to the facility’s name must be approved by the Executive Director.
 
 
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12.            Ancillary Lottery Gaming Facility Operations . At the same time that Manager and the Executive Director develop a proposed Business Plan for the Lottery Gaming Facility, Manager separately will provide the Executive Director with Manager’s anticipated business plan and budget for all Ancillary Lottery Gaming Facilities Operations that Manager anticipates developing in conjunction with the Lottery Gaming Facility, such as restaurants, hotels, motels or entertainment facilities. Manager agrees not to conduct any Ancillary Lottery Gaming Facility Operations that the Executive Director determines in his sole discretion would: (a) result in an appearance that reflects adversely on the Kansas Lottery or the Kansas Lottery Commission as the owner and operator of the Lottery Facility Games; or (b) violate any regulatory standards or local zoning laws.
 
13.            Lottery Gaming Facility Construction . Manager will diligently construct at its own expense the Lottery Gaming Facility substantially in accordance with Manager’s Application for Lottery Gaming Facility Manager and the plans and specifications, including Manager’s plans for a phase one interim Lottery Gaming Facility (the “Phase One Lottery Gaming Facility”) and phase two permanent Lottery Gaming Facility (the “Phase Two Lottery Gaming Facility”). Prior to beginning construction, the Executive Director must approve the final plans and specifications for the Lottery Gaming Facility (or in lieu thereof such other construction-related documents acceptable to the Executive Director that are suitable for this purpose) to ensure construction will conform with the Manager’s Application for Lottery Gaming Facility Manager and Manager’s representation to the Kansas Lottery Commission, Lottery Gaming Facility Review Board, the Kansas Racing and Gaming Commission, or the county or city governing body where the Lottery Gaming Facility is to be located. All construction of the Phase One Lottery Gaming Facility must be completed and the Lottery Facility Games ready for play by the public within that facility no later than 12 months following the Effective Date, and all construction of the Phase Two Lottery Gaming Facility must be completed and the Lottery Facility Games ready for play by the public within that facility no later than 38 months following the Effective Date, unless a time extension is approved by the Executive Director. The schedule setting out Manager’s anticipated benchmarks for construction completion is attached as Exhibit C For each month between the Effective Date and the Commencement Date, Manager will report no less than monthly as directed by the Executive Director on Manager’s progress toward completing construction, implementing the Business Plan, and opening the Lottery Gaming Facility to the public. No material alterations to the scope and design of the plan for the Lottery Gaming Facility increasing or decreasing the total costs by more than one percent (1%) of the total cost provided for in Manager’s Application for Lottery Gaming Facility Manager may be made without the Executive Director’s written approval unless such change materially affects the floor plan, surveillance, or security for the Lottery Gaming Facility in which case the Executive Director’s approval is required for any material change regardless of the dollar amount. The Executive Director will promptly notify Manager of his approval or rejection of any proposed change. Manager will not need to obtain the Executive Director’s approval for expenditures covered by the Manager’s contingency budget.
 
 
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14.            Construction Related to Ancillary Lottery Gaming Facilities Operations . Manager will diligently construct at no expense to the Kansas Lottery the buildings and related improvements for its Ancillary Lottery Gaming Facility Operations substantially in accordance with Manager’s Application for Lottery Gaming Facility Manager and Exhibit C.
 
15.            Manager’s Construction-Related Responsibilities . Manager will be responsible for the management and construction of all aspects of construction-related activities concerning the Lottery Gaming Facility and the buildings and related improvements for its Ancillary Lottery Gaming Facility Operations. The responsibilities include, but are not necessarily limited to, the following:
 
 
a)
The direction of all construction activities;
 
 
b)
The direction and coordination of the performance of the architect, the other consultants and contractors;
 
 
c)
Causing all construction activities to be carried out in a good and workmanlike manner, all in substantial compliance with the Manager’s Application for Lottery Gaming Facility Manager;
 
 
d)
Preparing the Lottery Gaming Facility to accommodate the central communication system as required by the Executive Director in accordance with the vendor contract for that central communication system, including installation of all specified power and communication services;
 
 
e)
Correcting or remedying or causing to be corrected or remedied, any violations of applicable law;
 
 
f)
Arranging for the preparation of all working drawings and specifications;
 
 
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g)
Preparing or arranging for the preparation of all construction contracts and arranging for the preparation and execution of all other related documentation required in accordance with the development obligations undertaken by Manager;
 
 
h)
Securing financing, if necessary, including mortgage liens on the real property and improvements and liens on personal property, for the construction of the Lottery Gaming Facility or the building and improvements related to the Ancillary Gaming Facility Operations, including completing the necessary documentation therefor;
 
 
i)
Maintaining appropriate cost-accounting records in accordance with generally accepted accounting principles;
 
 
j)
Obtaining all necessary government approvals, consents, permits, and licenses;
 
 
k)
Providing legal support related to the development and construction responsibilities undertaken by Manager; and
 
 
l)
Ensuring all required insurance is maintained in force.
 
16.            Exclusive Use of Lottery Gaming Facility . The Lottery Gaming Facility will be used exclusively for the playing of Lottery Facility Games owned and operated by the Kansas Lottery, and the ancillary management activities approved by the Executive Director, which may include beverage service, food service, and ATM facilities. Manager may not permit any other business activities within the Lottery Gaming Facility unless approved in writing by the Executive Director.
 
17.            Approval of Manager’s Floor Plan . Prior to opening the Lottery Gaming Facility, Manager must submit its proposed floor plan to the Executive Director for approval. This floor plan must show the location of all Lottery Facility Games, count rooms, cages and other equipment and facilities to be contained within the Lottery Gaming Facility. No material change affecting surveillance or security, or any other material aspect of operations may be made to the approved floor plan without the Executive Director’s prior written approval. Manager must perform its duties in accordance with the floor plan approved by the Executive Director, except to the extent necessary for Manager to implement pre-approved changes to the plan. The Executive Director, after consultation with Manager, will determine the location within the floor plan for each game, or type of game, to be offered to the public at the Lottery Gaming Facility.
 
 
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18.            Approval of Manager’s Surveillance Plan . Prior to opening the Lottery Gaming Facility, Manager must submit its proposed surveillance plan to the Executive Director for approval. This surveillance plan at a minimum must contain all items required by applicable rule and regulation. No material change to the approved surveillance plan may be made without the Executive Director’s prior written approval. Manager must perform its duties in accordance with the surveillance plan approved by the Executive Director, except to the extent necessary for Manager to implement pre- approved changes to the plan.
 
19.            Approval of Manager’s Security Plan . Prior to opening the Lottery Gaming Facility, Manager must submit its proposed policies and procedures relating to security to the Executive Director for approval. This security plan at a minimum must contain all items required by applicable rule and regulation. No material change to the approved security plan may be made without the Executive Director’s prior written approval. Manager must perform its duties in accordance with the security plan approved by the Executive Director, except to the extent necessary for Manager to implement pre-approved changes to the plan.
 
20.            Privilege Fee Payment . No later than thirty (30) days after the Commission approves this Agreement, Manager must pay to the state treasurer of the State of Kansas a privilege fee of $5.5 million. This payment to the state treasurer will be deposited into the state treasury and credited to the Lottery Gaming Facility Manager Fund, which is a temporary fund created pursuant to the Kansas Expanded Lottery Act. Notwithstanding any other provision in this Agreement, if Manager fails to pay this privilege fee within 30 days after the Commission’s approval, this Agreement will be void and Manager will forfeit any rights it may have to be a Lottery Gaming Facility Manager under the Kansas Expanded Lottery Act. Once all required approvals for this Agreement are obtained in accordance with the Kansas Expanded Lottery Act, the Manager’s privilege fee will be transferred on the Effective Date from the Lottery Gaming Facility Manager Fund to the Expanded Lottery Act Revenues Fund as provided by law. The Executive Director will provide Manager with notice of any meeting of the Kansas Racing and Gaming Commission to consider approval of Manager and this Agreement within ten (10) days of the Executive Director receiving notice of such meeting. If (a) the required approvals for this Agreement are not obtained in accordance with the Kansas Expanded Lottery Act or (b) if Manager withdraws its application to Lottery Gaming Facility Manager in the Southwest Kansas gaming zone prior to transfer of Manager’s privilege fee payment to the Expanded Lottery Revenue Fund, the Executive Director will promptly direct the state treasurer to refund, without interest, Manager’s privilege fee payment. If the Kansas Expanded Lottery Act, or any portion thereof, is declared unconstitutional by a court of competent jurisdiction before Manager’s privilege fee is transferred to the Expanded Lottery Act Revenues Fund, the Executive Director will promptly direct the state treasurer to refund, without interest, Manager’s privilege fee payment at Manager’s written request. This paragraph does not preclude Manager from pursuing whatever rights it might have to recover the privilege fee after Manager’s privilege fee is transferred to the Expanded Lottery Act Revenues Fund.
 
 
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21.            Lottery Facility Game Ownership . The Manager must purchase or lease, on behalf of the State of Kansas, for the Kansas Lottery all Lottery Facility Games, including all necessary equipment such as approved tables, felt, dice, cards, chips, layouts, or intellectual property rights as determined by the Executive Director. Manager has no authority under this Agreement to own, purchase or lease any Lottery Facility Games, except on behalf of the State of Kansas and through the Kansas Lottery. The Executive Director, in consultation with Manager, will select the Lottery Facility Games to be offered for play at the Lottery Gaming Facility and determine the Prizes to be awarded for the play of such games. The Executive Director will determine and approve all rules of play and gaming policies that are applicable to the play of all Lottery Facility Games offered at the Lottery Gaming Facility.
 
22.            Control Software Licensing and Ownership . The Kansas Lottery will be the licensee, owner and possessor of the right to use all control software and logic chips required to operate the games available on the Lottery Facility Games at the Lottery Gaming Facility. This includes: (a) any software, hardware, computer chip, EPROMS (erasable, programmable, read-only memory), flash drives, CD-ROM or other computerized device required to operate the games available for play on the Lottery Facility Games, (b) any software, hardware, computer chip, EPROMS (erasable, programmable, read-only memory), flash drives, CD-ROM or other computerized device containing information regarding or affecting a Lottery Facility Game’s chance of winning, awarding of prizes, or setting the consideration paid by a Player, such as the random number generator or payout tables; (c) CPUs and other electronic components involved in the operation and calculation or display of game play (e.g., game controller electronics and components housing the game or system firmware program storage media or EPROMS); or (d) communication controller electronics, and components housing the communication control program that is used for communicating financial data, program information and security events to the central computer authorized by the Executive Director for purposes of security, real-time monitoring and auditing, as well as ticket validation and any other system used that affects the integrity of the Lottery Facility Games made available to Players at the Lottery Gaming Facility. Manager will transfer to the Kansas Lottery any rights obtained by Manager to use all control software and logic chips required to operate the games available on the Lottery Facility Games available to Players at the Lottery Gaming Facility. The Executive Director must approve all agreements concerning software licensing and ownership affecting the Lottery Facility Games made available to Players at the Lottery Gaming Facility.
 
 
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23.            Daily Electronic Payment of Lottery Gaming Facility Revenues . Manager must pay all Lottery Gaming Facility Revenues daily to the Executive Director as provided by applicable regulation. Manager will make this payment electronically in accordance with the Executive Director’s written instructions, which will conform to necessary banking practices. These instructions may be changed from time to time in the Executive Director’s sole discretion with reasonable notice to Manager. The Executive Director, in consultation with Manager, will develop a process so that Manager may audit and reconcile Lottery Gaming Facility Revenues after the daily payments are made. Notwithstanding any other provision in this Agreement, Manager’s failure to make a daily electronic payment of Lottery Gaming Facility Revenues as required by this Agreement will be deemed an event of default unless the payment cannot be achieved due to the unavailability of bank services, force majeure events, or malfunctions in the central communications system not within Manager’s control in which case the payment must be made on the first succeeding day that such services are available or such events or malfunctions cease. Manager’s failure to comply with this paragraph will authorize the Executive Director in his sole discretion to immediately terminate this Agreement if Manager does not cure its failure within 24 hours of receiving written notice of Manager’s failure to comply, provided that Manager’s failure to make the required daily payment is not intentional.
 
24.            Payment Obligation is Unconditional . Manager’s obligation to make the daily payments of all Lottery Gaming Facility Revenues required above is a general obligation of Manager and is absolute and unconditional irrespective of any defense or any rights of setoff, recoupment, or counterclaim Manager may otherwise have against the Commission, the Kansas Lottery, or any agency of the State of Kansas. Manager agrees it will not suspend, discontinue or abate any daily payment required above for any cause whatsoever including, without limiting the generality of the foregoing, failure of consideration, destruction of or damage to the Lottery Gaming Facility, commercial frustration of purpose, any change in the tax or other laws, any administrative rulings of or administrative actions by the State of Kansas or any political subdivision thereof, or any failure by any agency or entity acting on behalf of the State of Kansas to perform and observe any agreement, whether expressed or implied, or any duty, liability or obligation arising out of or in connection with this Lottery Gaming Facility Management Contract, or otherwise. Subject to the foregoing provisions, nothing contained in this paragraph shall be construed to release the Kansas Lottery from the performance of any of the agreements on its part contained in this Lottery Gaming Facility Management Contract or to affect Manager’s right to seek reimbursement or damages from the Kansas Lottery as provided in this Agreement. Manager must not grant, authorize or permit any interest to be given to anyone in the Lottery Gaming Facility Revenues generated at the Lottery Gaming Facility that are to be remitted daily to the State.
 
25.            Setoff Right Against Manager . Any amounts owed to Manager under this Agreement are subject to set off by the state, municipalities, or certain others in accordance with K.S.A. 75-6201, et seq ., and amendments thereto.
 
 
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26.            Total Compensation Paid to Lottery Gaming Facility Manager . As its sole compensation for the management services for the Lottery Gaming Facility as set out in this Agreement, Manager will be paid the following percentages of the Lottery Gaming Facility Revenues generated at the Lottery Gaming Facility depending upon the applicable year of operation, as follows: 73% during each year of this agreement. As an incentive to the State of Kansas, the Manager agrees to perform an incentive calculation annually that may result in a Net Incentive Payment by the Manager to the State of Kansas, which is defined and calculated according to Exhibit G attached to this Contract.
 
The Executive Director will direct this payment to Manager on a monthly basis on the fifth (5 th ) day of each month, if possible, but no later than the tenth (10 th ) day of the month (or on a more frequent basis as may be agreed to between the Executive Director and the Manager), in arrears, based on the previous month’s Lottery Gaming Facility Revenues after first deducting Manager’s share of Kansas Lottery expenses and share of Kansas Racing and Gaming Commission expenses incurred for oversight and regulation as provided in Paragraph 28 below. Manager may pledge, encumber or grant any interest in the compensation to be paid Manager, subject to the deductions and setoffs provided for in this Agreement. Manager may pledge, encumber or grant to its lender an interest in management services compensation under this Paragraph 26, any right to receive the return of the Privilege Fee payment paid under Paragraph 20 and any other sums payable to the Manager hereunder. Upon request of Manager, the Executive Director will acknowledge and approve such pledge, encumbrance or grant, agree to make all such payments directly to its lender (or as otherwise directed by its lender) and agree and confirm to its lender such matters as are customary for financing of facilities of this type.
 
27.            Payments to Problem Gaming and Addictions Grant Fund and Local Governments . Pursuant to K.S.A. 2007 Supp. 74-8734(h)(13) and K.S.A. 2007 Supp. 74-8766(c), Manager acknowledges and agrees the Executive Director will cause two percent (2%) of Lottery Gaming Facility Revenues to be paid to the problem gaming and addictions grant fund established by K.S.A. 2006 Supp. 79-4805, and amendments thereto. Manager farther acknowledges and agrees the Executive Director will cause 1.5% of Lottery Gaming Facility Revenues to be paid to Ford County, Kansas, and 1.5% of Lottery Gaming Facility Revenues to be paid to Dodge City, Kansas, as provided in the Kansas Expanded Lottery Act at K.S.A. 2007 Supp. 74-9734(h)(15)(A).
 
28.            Manager’s Payments for Kansas Lottery’s Expenses and Kansas Racing and Gaming Commission’s Costs for Oversight and Regulation . Manager must pay the expenses of the Kansas Lottery and the Kansas Racing and Gaming Commission, as follows:
 
 
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a)
Manager’s share of the Kansas Lottery’s expenses directly attributable to Manager and the Kansas Lottery’s proportionate share of other expenses incurred for the implementation and operation of the Kansas Expanded Lottery Act and this Agreement will be paid in accordance with this subparagraph (a). Expenses incurred by the Kansas Lottery will be billed directly to Manager by the Kansas Lottery within thirty (30) days of the Commission’s approval of this Agreement and must be paid by Manager within thirty (30) days of billing. Thereafter, and prior to the Commencement Date, the Executive Director will bill Manager periodically for the Kansas Lottery’s expenses and Manager will pay such expenses within thirty (30) days of billing. After the Commencement Date, the Executive Director will deduct Manager’s share of Kansas Lottery expenses before making Manager’s monthly compensation payment as provided above in Paragraph 26. Manager’s share of Kansas Lottery expenses will be calculated by taking the costs incurred by the Kansas Lottery that are directly attributed to Manager and Manager’s Lottery Gaming Facility, plus the Kansas Lottery’s common expenses attributable to all racetrack and lottery gaming facility managers as a result of the Kansas Lottery’s activities pursuant to the Kansas Expanded Lottery Act, which common expenses will be divided equally among all managers.
 
 
b)
All costs incurred by the Kansas Racing and Gaming Commission for its oversight and regulation of Manager and the Lottery Gaming Facility in accordance with the requirements for calculating and paying such costs as determined by the executive director of the Kansas Racing and Gaming Commission. Manager acknowledges and agrees this obligation includes the requirement that Manager pay it’s pro rata share of the anticipated expenses of the Lottery Gaming Facility Review Board, which will be billed to Manager after the Kansas Lottery Commission’s approval of this Agreement. If Manager fails to pay these expenses when due, this Agreement will be void, and Manager will forfeit any rights it may have to be a Lottery Gaming Facility Manager under the Kansas Expanded Lottery Act ten (10) days after receiving written notice from the Kansas Racing and Gaming Commission of Manager’s failure to timely pay. Manager further acknowledges it has been advised that the executive director of the Kansas Racing and Gaming Commission will assess each manager, whose agreement is approved by the Lottery Gaming Facility Review Board, a proportionate share of all costs incurred by the Kansas Racing and Gaming Commission since 2007 Senate Bill 66 became effective on April 19, 2007, that are attributable to that agency’s responsibilities under the Kansas Expanded Lottery Act.
 
 
c)
Manager’s share of the expenses incurred for the central computer system, which share will be based proportionately on Lottery Gaming Facility Revenues generated by the Electronic Gaming Machines placed at Manager’s Lottery Gaming Facility in comparison to the revenues generated by the Kansas Lottery at Racetrack Gaming Facilities and Lottery Gaming Facilities that are part of the central computer system.
 
 
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29.            Manager’s Maintenance Responsibilities . Manager must:
 
 
a)
Keep the Lottery Gaming Facility and all property and improvements associated with its Ancillary Lottery Gaming Facility Operations in good repair and in a reasonably safe condition;
 
 
b)
Make all necessary repairs and replacements to the Lottery Gaming Facility, including maintaining in an operational condition Manager’s portion of the central communication system as required by the Executive Director in accordance with the vendor contract for that central communication system, and all property and improvements associated with its Ancillary Lottery Gaming Facility Operations (whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen);
 
 
c)
Maintain the Lottery Gaming Facility and all property and improvements associated with its Ancillary Lottery Gaming Facility Operations in first class condition, ordinary wear and tear excepted, including, without limitation, interior and exterior cleaning, painting and decorating, plumbing, carpentry and such other items that may be commercially reasonable; and
 
 
d)
Manage the Lottery Gaming Facility and all of Ancillary Lottery Gaming Facility Operations in a sound, diligent, and prudent manner in accordance with this Agreement.
 
30.            Prohibitions Applicable to the State . The Kansas Lottery, acting on behalf of the State of Kansas, agrees by entering into this Agreement that:
 
 
a)
Neither the Kansas Lottery nor the State of Kansas will enter into a management contract for more than four (4) lottery gaming facilities or similar facilities in the four gaming zones outlined in the Kansas Expanded Lottery Act with one lottery gaming facility in each gaming zone;
 
 
b)
Neither the Kansas Lottery nor the State of Kansas will designate additional areas of the state where operation of Lottery Gaming Facilities or similar gaming facilities will be authorized, other than those set out in the Kansas Expanded Lottery Act; or
 
 
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c)
Neither the Kansas Lottery nor the State of Kansas will operate an aggregate of more than 2,800 Electronic Gaming Machines at all parimutuel licensee locations.
 
31.            State Payment for Breach . Manager will be entitled, as its sole monetary remedy, to payment in an amount equal to the actual privilege fee paid by Manager, plus interest on such amount, compounded annually at the rate of ten percent (10%), if the State of Kansas violates any provision in Paragraph 30 above during the term of this Agreement. The parties acknowledge and agree that nothing in this paragraph will be interpreted to prevent or limit any rights Manager may have to seek specific performance or other equitable relief against the Kansas Lottery or the State of Kansas to enforce the prohibitions contained in Paragraph 30. Nothing in this paragraph will be deemed a waiver of the immunities and protections reserved to the State of Kansas under the Eleventh Amendment to the Constitution of the United States.
 
32.            Executive Director’s On-Site Personnel . The Executive Director will appoint one or more persons to oversee on-site the Lottery Facility Games at the Lottery Gaming Facility and Manager’s performance under this Agreement. Such person(s) will report to the Executive Director, and have such authority as the Executive Director in writing may determine. Such person(s) will oversee operations, observe gaming activities, enforce gaming rules and policies, resolve disputes between Manager and Players, and perform such other tasks as directed by the Executive Director. All determinations made by such persons will be subject to review by the Executive Director, provided that Manager may act and rely upon written and verbal determinations made by the Executive Director’s on-site personnel until Manager receives written notice from the Executive Director amending or reversing any such determination.
 
33.            Deactivation and Possession of Lottery Facility Games . Upon order of the Executive Director, any or all Lottery Facility Games located at the Lottery Gaming Facility will be subject to immediate deactivation and/or cessation of operation. At any time, the Executive Director will be entitled to physically secure or take possession of any or all Lottery Facility Games and any related equipment necessary to play such games.
 
34.            Insurance Required . At the time provided in Paragraph 6(i) above, and at all times thereafter, including without limitation during any period of construction of the Lottery Gaming Facility, Manager must maintain or cause to be maintained insurance against such risks and for such amounts as are customarily insured against by businesses of like size and type paying, as the same become due and payable, all premiums in respect thereto, including, but not necessarily limited to:
 
 
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a)
Insurance against loss or damage by fire, lightning, and other casualties, with a uniform standard extended coverage endorsement, such insurance to be in an amount not less than the full replacement value of the Lottery Gaming Facility, exclusive of excavations and foundations, as determined by a recognized appraiser or insurer selected by Manager or an amount not less than the maximum foreseeable loss, as determined by a property insurance carrier provided the policy provides a replacement cost endorsement up to the limit of the policy with customary and reasonable deductibles approved by the Executive Director; or as an alternative to the foregoing, Manager may insure the Lottery Gaming Facility under a blanket insurance policy or policies covering not only the Lottery Gaming Facility but other properties as well, provided a periodic appraisal is performed at intervals determined by the Executive Director and provided to the Executive Director.
 
 
b)
Workers’ compensation insurance, disability benefits insurance, and each other form of insurance which Manager is required by law to provide, covering loss resulting from injury, sickness, disability or death of Manager’s employees who are located at or assigned to the Lottery Gaming Facility.
 
 
c)
Commercial General Liability Insurance against loss or losses from liabilities imposed by law or assumed in any written contract and arising from personal injury and death or damage to the property of others caused by any accident or occurrence, with limits of not less than $10,000,000 per accident or occurrence on account of personal injury, including death resulting there from, and $10,000,000 per accident or occurrence on account of damage to the property of others, excluding liability imposed upon Manager by any applicable worker’s compensation law. These liability limits may be satisfied by any combination of primary and excess liability policies. The primary general liability insurance may have a self-insured retention and the excess liability policy may have a commercially-reasonable deductible, as determined by the Executive Director. These liability insurance requirements may be satisfied by blanket policies in the aggregate amount of not less than $10,000,000.
 
 
d)
Business interruption insurance against the perils enumerated in subparagraph (a) and in amounts determined by the Executive Director to be appropriate and commercially reasonable to protect both the Kansas Lottery’s and Manager’s financial interests in the revenue produced by the Lottery Gaming Facility.
 
 
e)
Employer’s practices liability coverage providing customary coverage for alleged violations of local, state or federal civil rights laws or ordinances, or employment discrimination laws.
 
 
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f)
Employee Dishonesty Combination Crime coverage in amount sufficient to cover all employees employed by Manager who are, or may be, responsible for handling any Lottery Gaming Facility Revenues or other monies belonging to the Kansas Lottery that come under the Manager’s custody or control.
 
35.            Additional Provisions Regarding Insurance . In addition to the above, Manager must ensure that:
 
 
a)
All insurance required in Paragraph 34 above names the Commission, the Kansas Lottery, and the State of Kansas as a named insured, or additional named insured. All insurance will be procured and maintained in financially sound and generally recognized responsible insurance companies selected by the Manager, but authorized to write such insurance in Kansas. Such insurance may be written with deductible or self-insured retentions approved by the Executive Director in amounts comparable to those on similar policies carried by other companies engaged in the gaming industry for facilities similar in size, character and other respects to the Lottery Gaming Facility. All policies evidencing such insurance must provide for (1) payment of the losses of the Commission, the Kansas Lottery, the State of Kansas, and the Manager as their respective interest may appear, and (2) at least thirty (30) days written notice of the cancellation thereof to the Executive Director and the Manager. Policies referred to in this subparagraph (a) must include both the Kansas Lottery and the Manager as loss payees as their interest may appear.
 
 
b)
All certificates of insurance from the insurers that such insurance is in force and effect, must be deposited with the Executive Director on or before the Effective Date, except as provided in paragraph 6(i) above. Prior to expiration of the policy evidenced by said certificates, Manager must furnish the Executive Director with evidence that the policy has been renewed or replaced or is no longer required by this Agreement. Copies of the actual insurance policies will be provided to the Executive Director promptly at his request.
 
 
c)
Within one hundred twenty (120) days after the end of each Fiscal Year, the Company must file with the Executive Director a certificate from the Manager to the effect that the insurance it maintains with respect to the Lottery Gaming Facility complies with this Agreement and that duplicate copies of all policies or certificates were filed with the Executive Director and are in full force and effect.
 
 
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36.            Kansas Lottery’s Right to Pay Insurance, Taxes, or Other Charges . If Manager fails (a) to pay any tax, assessment or other governmental charge required to be paid and not being formally contested by Manager in an appropriate forum with jurisdiction to hear such contests, or (b) to maintain any insurance required to be maintained, the Executive Director, in his discretion, and following written notice to Manager, may authorize the Kansas Lottery to make payment of such tax, assessment, or other governmental charge or the premium for such insurance. Manager will reimburse the Kansas Lottery for any amount so paid together with interest thereon from the date of payment at twelve percent (12%) per annum. The Kansas Lottery may set off such payments from any money otherwise due Manager.
 
37.            Lottery Gaming Facility Damage, Destruction or Condemnation . If the Lottery Gaming Facility is damaged, destroyed or condemned (in whole or in part) at any time during the term of this Agreement, Manager must promptly replace, repair, rebuild, or restore the Lottery Gaming Facility to substantially the same condition and value as an operating entity as existed prior to such damage or destruction, with such changes, alterations and modifications as may be desired by Manager and approved by the Executive Director, and may use insurance or condemnation proceeds for all such purposes. Manager will have no obligation to rebuild the Lottery Gaming Facility if such damage, destruction or condemnation occurs within five (5) years of the end of this Agreement’s term. The Kansas Lottery will have no obligation to replace, repair, rebuild or restore the Lottery Gaming Facility.
 
38.            Advertising, Marketing, and Promotion . Manager must use its commercially reasonable efforts to advertise, market, and promote the Lottery Gaming Facility in order to attract the public to the facility and maximize to the greatest extent possible Lottery Gaming Facility Revenues. Manager must comply with all applicable regulatory requirements imposed for such materials and activities. All advertising, marketing and promotion materials employed by Manager must be approved by the Executive Director prior to their first use. Manager agrees that such materials may be disapproved if the Executive Director determines in his sole discretion that such materials would reasonably be expected to offend a substantial number of people, or violate any regulatory standards applicable to such materials. In addition, Manager must make available to the public the odds of winning any prize or prizes for games played on all Lottery Facility Games offered at the Lottery Gaming Facility to the extent possible given the nature of such games and subject to the Executive Director’s approval. Advertising, marketing and promotion materials may include information regarding problem gambling as directed by the Executive Director.
 
 
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39.            Players’ Club . The Executive Director may institute a Player’s club or similar incentive or promotional program applicable to some or all Racetrack Gaming Facilities or Lottery Gaming Facilities owned and operated by the Kansas Lottery. If the Executive Director institutes a Player’s club, the Executive Director agrees that: (a) Manager will have no direct or indirect responsibility to fund such a program; (b) Manager will not be required to provide the Executive Director with any customer data under Manager’s control for purposes of a Player’s club instituted by the Executive Director; and (c) the Executive Director will not institute an incentive or awards programs in such Player’s club that is applicable to another Racetrack Gaming Facility or Lottery Gaming Facility without also making it available to Manager for use at the Lottery Gaming Facility. As to subparagraph (b), Manager acknowledges that nothing in subparagraph (b) will be read to restrict the Executive Director’s access to any customer data for regulatory, security, or auditing purposes; and the Executive Director agrees customer data provided by Manager will not be used for any Player’s club or similar incentive or promotion program instituted by the Executive Director. Nothing in this paragraph will be read to prevent Manager from instituting its own Player’s club or similar incentive or promotional program at the Lottery Gaming Facility provided that such club or program is authorized by the Executive Director. The Executive Director agrees Manager has the right to establish a Player’s club that awards to Players credits based on their play at the Lottery Gaming Facility, provided that such awards programs are approved by the Executive Director.
 
40.            Players’ Tracking System . The Executive Director may institute a Players’ tracking system applicable to some or all Racetrack Gaming Facilities or Lottery Gaming Facilities owned and operated by the Kansas Lottery. Manager will administer such program at the Lottery Gaming Facility as the Executive Director may provide. Nothing in this paragraph will be read to prevent Manager from instituting its own Player’s tracking system at the Lottery Gaming Facility provided that such system is authorized by the Executive Director.
 
41.            Use of Trademarks, Service Marks, and Trade Names . Manager is authorized to employ any of the Kansas Lottery’s trademarks, trade names, and service marks in any advertising, marketing or promotion for the Lottery Gaming Facility or the Lottery Facility Games placed therein, subject to the Executive Director’s right to approve such advertising, marketing or promotion. Manager acknowledges it has no other right regarding the Kansas Lottery’s trademarks, service marks, and trade names. Manager will not be required to pay any royalty or other fee for this usage. In addition, the Executive Director may require Manager to place Kansas Lottery’s trademarks, trade names, or service marks at locations within the Lottery Gaming Facility as designated by the Executive Director in order to identify the games and gaming equipment as being owned and operated by the Kansas Lottery on behalf of the State of Kansas.
 
The Kansas Lottery is authorized to employ any of Manager’s trademarks, trade names, and service marks in any advertising, marketing or promotion for the Lottery Gaming Facility or the Lottery Facility Games placed therein, subject to the Manager’s right to approve such advertising, marketing or promotion. The Kansas Lottery acknowledges it has no other right regarding the Manager’s trademarks, service marks, and trade names. The Kansas Lottery will not be required to pay any royalty or other fee for this usage.
 
 
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42.            Personnel . Manager will provide, supervise, direct the work of, discharge, and determine the compensation and other benefits of all personnel necessary to provide for the play of Lottery Facility Games at the Lottery Gaming Facility, except as otherwise noted in this Agreement, based upon a staffing plan approved by the Executive Director. Such personnel will not be considered employees of the Kansas Lottery or any other agency or department of the State of Kansas. Manager may determine the compensation to be paid to all of its personnel working at the Lottery Gaming Facility. Manager must ensure its personnel meet all applicable regulatory requirements imposed by the Commission or the Kansas Racing and Gaming Commission. Manager will not discriminate against any employee or applicant for employment because of race, creed, color, sex, age, or national origin nor violate any applicable law, regulation or local ordinance governing employer obligations.
 
43.            Personnel Training . Manager will provide and direct employee recruitment, instructional programs, incentives, and on-the-job training necessary to ensure a first class facility for the playing of Lottery Facility Games by the public. Such trainings and other programs for personnel are subject to the Executive Director’s approval, but may be conducted on or off site, on the job, or by instructors at or from educational training facilities.
 
44.            Key Employees . Manager agrees the personnel, or positions, as well as any independent contractors designated in Exhibit D, are considered Key Employees, whose employment and retention are subject to the Executive Director’s approval within his sole discretion; provided, however, that nothing in this paragraph will restrict the right of either the Kansas Lottery or the Kansas Racing and Gaming Commission to take action regarding the license held by any of Manager’s employees in accordance with applicable statutes or rules and regulations promulgated pursuant to law. The Executive Director may amend Key Employees list at any time for any reason.
 
45.            Books and Records; Financial Statements . Manager must maintain an accurate accounting system in connection with its management of the Lottery Gaming Facility. The books and records will be kept in accordance with generally accepted accounting principles maintained in accordance with current industry standards for similar gaming businesses. The books and records shall be maintained at all times either at the Lottery Gaming Facility and at such other locations as may be specified by regulation. The Executive Director, or his designees, shall have the right and privilege of examining these books and records at any time. In addition, the Executive Director may at any time obtain and pay for an audit performed by an independent certified public accountant. If this audit reveals a discrepancy greater than $10,000 in Lottery Gaming Facility Revenues or a discrepancy greater than $100,000 on any other line item previously reported to the Executive Director from the books and records provided by Manager, the audit’s cost will be reimbursed by Manager as a set off from the compensation to be paid Manager pursuant to Paragraph 25 above. On or before the 20th day following the close of each month, Manager must furnish the Executive Director with a reasonably detailed operating statement for the Lottery Gaming Facility for that period, including year-to-date results.
 
 
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46.            Records Retention and Access . Manager must maintain all books and records regarding the Lottery Gaming Facility for a minimum period of five (5) years, or such other longer period as may be imposed by regulation. Manager must permit access to such books and records as is legally required by law, regulation, or this Agreement, including giving access to the Post Auditor for the Kansas Legislature, the Executive Director or his designee, authorized representatives for the Kansas Racing and Gaming Commission, or any authorized representative of the United States government.
 
47.            Budget and Business Plans for Each Fiscal Year . No later than forty-five (45) days prior to the commencement of each Fiscal Year, Manager must submit to the Executive Director a budget (the “Budget”) and a proposed Business Plan for the Lottery Gaming Facility for such Fiscal Year, containing reasonably detailed revenue and expense projections and providing projections for all expenditures that Manager anticipates to be made, as well as all capital expenditures and expenditures for replacements. The Budget will accompany and be compatible with Manager’s proposed Business Plan for the upcoming Fiscal Year. The Budget is intended as, and will represent only, an estimate of the projected revenues and expenditures for the Fiscal Year based upon assumptions believed by Manager to be reasonable at the time of preparation. The Budget and proposed Business Plan for each upcoming Fiscal Year will be subject to the Executive Director’s approval. Thereafter, Manager will use reasonable efforts to achieve the budgetary goals reflected in the Budget, but the parties both recognize the Budget cannot be relied upon as an assurance of actual results for such Fiscal Year. Manager must promptly notify the Executive Director of any need to depart in any material way from the Budget if, in Manager’s judgment, adherence to the Budget is impractical or if such departure is necessary or desirable for the Lottery Gaming Facility’s efficient or profitable operation. Any such deviations from the Budget are subject to the Executive Director’s approval.
 
48.            Bank Accounts . Manager will establish a special bank account in its name at a Kansas bank approved by the Executive Director with Manager being the only party authorized to draw from this account except upon a default under this Agreement by Manager or any termination of this Agreement at which time the Executive Director will have that authority. This bank account will be used by Manager for all payments. The Executive Director will cause Manager’s portion of the Lottery Gaming Facility Revenues to be deposited into this account monthly, unless another time period is authorized by law and agreed to by the Executive Director. With the Executive Director’s approval, Manager may establish at the same bank multiple accounts to segregate a portion of the amount due to the Manager under paragraph 26 herein, for the payment of certain expenses, such as payroll, debt service, equipment lease payments, taxes, marketing and promotional items and other expenses.
 
 
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49.            Events of Default . Each of the following will constitute an event of default by Manager:
 
 
a)
Manager’s failure to pay any amount owed the Kansas Lottery in the manner provided for in this Agreement if the Kansas Lottery decides in its sole discretion to give notice of such default to Manager;
 
 
b)
The filing of a voluntary assignment in bankruptcy or insolvency or a petition for reorganization under any bankruptcy law by Manager;
 
 
c)
The consent to an involuntary petition in bankruptcy by Manager;
 
 
d)
Entry of an order, judgment or decree by any court of competent jurisdiction, on application of a creditor, adjudicating Manager a bankrupt or insolvent or approving a petition seeking reorganization or appointing a receiver, trustee or liquidator of all or a substantial part of Manager’s assets, if such order, judgment or decree continues unstayed and in effect for a period of 120 consecutive days; or
 
 
e)
Manager’s failure to perform, keep or fulfill any other covenant, undertakings, obligations or conditions set out in this Agreement for a period of thirty (30) days after written notice of said failure from the Executive Director (unless a shorter period of time is specified in this Agreement); provided, however, that if the default is not susceptible of being cured within this thirty (30) day period and the defaulting party with due diligence takes and continues action to cure, then no event of default will be deemed to have occurred until the failure to take or to continue to take such action.
 
 
f)
Withdrawal of any approval granted, loss or suspension of any license issued to Manager by the Kansas Racing and Gaming Commission or any other regulatory entity with jurisdiction over Manager’s activities unless such withdrawal, suspension or loss is being contested by Manager in the appropriate forum with jurisdiction over the agency action at issue; or
 
 
g)
Manager’s financial condition being such that the sum of Manager’s debts exceeds the fair market value of Manager’s assets.
 
 
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50.            Remedies on Default . If an event of default occurs as provided above, the Executive Director may, without prejudice to any other legal or equitable remedy which he may have, give Manager notice of the Kansas Lottery’s intention to terminate this Agreement after the expiration of fifteen (15) days from the date of such notice and upon the expiration of such period, unless another cure period is expressly provided for, this Agreement will be deemed terminated; provided, however, that nothing in this paragraph, or in this Agreement, will be construed to restrict the Executive Director’s authority to: (a) immediately cease operation of any or all Lottery Facility Games at the Lottery Gaming Facility for any reason; or (b) physically secure or take possession of any or all Lottery Facility Games and any related equipment necessary to play such games. Manager acknowledges and agrees that once this Agreement is terminated, the Kansas Lottery thereafter will be free to enter into a management contract with a new manager for another Lottery Gaming Facility in the Kansas gaming zone without penalty to the Kansas Lottery or further recourse by Manager. Manager further acknowledges that its failure to make any daily electronic payment of Lottery Gaming Facility Revenues as required by Paragraph 23 will authorize the Executive Director in his sole discretion to immediately terminate this Agreement
 
51.            Remedies Cumulative . No remedy conferred upon or reserved to the Kansas Lottery in this Agreement is intended to be exclusive of any other available remedy, but each and every such remedy will be cumulative and in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default will impair any such right or power or will be construed to be a waiver, but any such right and power may be exercised from time to time and as often as may be deemed expedient in favor of the Kansas Lottery.
 
52.            Surrender Upon Termination . At the Executive Director’s request, Manager agrees that at the expiration or earlier termination of this Agreement, Manager will deliver to the Executive Director, or his designee, all books, records, accounting documents, computerized files, contracts, leases, licenses, permits or other governmental authorizations, files, supplies, keys, locks safe combinations, insurance policies not maintained as part of Manager’s blanket policies, warranty contracts and cards, operating instructions and other information, warranties and guaranties concerning all equipment relating to the Lottery Facility Games, as well as any maintenance or preventive maintenance programs, schedules and logs, records, inventories of personal property and equipment purchased on behalf of the Kansas Lottery or the State of Kansas, and all other information regarding the Lottery Facility Games, and all accounts and sums held or maintained by Manager on behalf of the Kansas Lottery. Manager will have a reasonable period of time, not to exceed forty-five (45) days from the termination date, to complete all accounting functions with respect to the Lottery Gaming Facility. Manager must cooperate with the Executive Director in changing any bank accounts maintained for the Kansas Lottery’s benefit. Manager must take all actions reasonably necessary to facilitate the orderly transition or termination of the management of the Lottery Gaming Facility and must perform all reporting and accounting functions required by this Agreement for the period from the date of the last report or accounting to the termination date. If, at the termination of this Agreement, there are any Lottery Facility Games that were purchased by Manager on behalf of the Kansas Lottery with ownership transferred to the Kansas Lottery, then the Executive Director will transfer ownership of such games to Manager or Manager’s designee, if such transfer is lawful; but if such transfer is not lawful, then the Executive Director will refund to Manager the residual value received by the Executive Director in a sale of such game to an eligible buyer.
 
 
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53.            Agreement to Pay Attorneys’ Fees and Expenses . If Manager defaults under any provision of this Agreement and the Kansas Lottery should employ attorneys or incur other expenses for the collection of amounts payable or to enforce performance or observance of Manager’s obligations under this Agreement, Manager must pay, on demand, the reasonable fees of such attorneys and such other expenses incurred by the Kansas Lottery, if the Kansas Lottery is the prevailing party.
 
54.            Manager’s Indemnification Responsibilities . In addition to any other indemnification obligations provided in this Agreement or by law, Manager agrees as follows:
 
 
a)
To hold and save harmless the State of Kansas, Commission, Commission members, the Executive Director, the Kansas Lottery, Kansas Lottery staff; Kansas Racing and Gaming Commission, Kansas Racing and Gaming Commission members, the Kansas Racing and Gaming Commission’s executive director, and Kansas Racing and Gaming Commission staff (each an “Indemnified Party”) from liability for injury to persons or damages to property by reason of any cause whatsoever, either in and about the Lottery Gaming Facility or elsewhere, when Manager is carrying out the provisions of, or any way connected with, this Agreement.
 
 
b)
To hold and save harmless any Indemnified Party upon demand for any money or other property which they are required to pay out for any reasons whatsoever, whether the payment is for a budgeted expense or any other charges or debts incurred or assumed by Manager, or any other party, or judgments, settlement or expenses in defense of any claim, civil action, proceeding, charge, or prosecution made, instituted or maintained against Manager or an Indemnified Party jointly or severally, affecting or because of the condition or use of the Lottery Gaming Facility, or acts or failure to act by Manager or Manager’s agents, or arising out of or based upon any law, regulation, requirement, contract or award related to the hours of employment, working conditions, wages and/or compensation of employees or former employees at the Lottery Gaming Facility, or any other cause in connection with the Lottery Gaming Facility’s management or Manager’s activities related to any Ancillary Lottery Gaming Facility Operations. This entire Paragraph 54 does not include any action against the Kansas Lottery or its staff regarding the constitutionality of the Kansas Expanded Lottery Act or misconduct by an Indemnified Party that is found to be negligent or criminal.
 
 
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c)
To hold and save harmless any Indemnified Party from liability for any claim arising as a result of the selection of Manager under the Kansas Expanded Lottery Act to manage the Southwest Lottery Gaming Facility.
 
 
d)
To hold and save harmless any Indemnified Party from liability for any violation or breach of this Agreement by Manager, its employees, or agents.
 
 
e)
To hold and save harmless any Indemnified Party from liability for any claims alleging negligent acts or omissions by Manager, its officers, employees, agents, board members, contractors, subcontractors or agents in the performance of this Agreement.
 
 
f)
To hold and save harmless any Indemnified Party from liability for any claims alleging violations of any intellectual property right for any intellectual property supplied by Manager under this Agreement, including but not limited to, infringement of patents, trademarks, trade dress, trade secrets, or copyrights arising from Manager’s performance under this Agreement.
 
Manager’s duties under this paragraph will survive the termination or expiration of this Agreement. Manager agrees to defend (with counsel selected by the Executive Director), at Manager’s sole expense, any Indemnified Party, and to pay on demand all costs and expenses related to such defense regarding any indemnification right provided for in this paragraph. Nothing contained in this provision will relieve Manager from responsibility to the Kansas Lottery, as a result of willful misconduct, gross negligence, material breach of this Agreement, or acts outside the scope of Manager’s authority under this Agreement on the part of Manager, its agents or employees, and Manager agrees to indemnify any Indemnified Party for damage or loss resulting from said acts. Manager’s obligations under this paragraph may be satisfied in whole, or in part, by insurance purchased at Manager’s expense, provided that Manager will be responsible for any indemnified liabilities in excess of insurance limits.
 
 
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55.            Compliance with Orders, Ordinances, Etc. Throughout this Agreement’s term, Manager will promptly comply in all material respects with all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, companies or associations insuring the premises, courts, authorities, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Lottery Gaming Facility or any part thereof, or to any use, manner of use or condition of the Lottery Gaming Facility or any part thereof. Notwithstanding these requirements, Manager may in good faith contest the validity of the applicability of any requirement of the nature referred to in this paragraph. In such event, Manager may fail to comply with the requirement or requirements so contested during the period of such contest and any appeal therefrom, so long as such noncompliance is permitted by law. Manager will give notice to the Executive Director of any such non-compliance.
 
56.            Discharge of Liens and Encumbrances . Manager shall not permit or create or suffer to be permitted or created any lien upon the Lottery Gaming Facility Revenues or the Lottery Gaming Facility, or any part thereof, by reason of any labor, services or materials rendered or supplied or claimed to be rendered or supplied with respect to the Lottery Gaming Facility or any part thereof, except any liens expressly approved by the Executive Director. Notwithstanding these requirements, Manager may in good faith contest any such lien. In such event, Manager, upon prior written notice to the Executive Director, may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal, unless the Executive Director requires Manager to promptly secure payment of all such unpaid items by filing the requisite bond, in form and substance satisfactory to the Executive Director, thereby causing a lien to be removed. Manager agrees this Agreement is not to be considered property, and will not permit this Agreement to be attached, garnished, or executed upon by any creditor for any reason. This Agreement is not transferable in bankruptcy without the Executive Director’s approval.
 
57.            Assignment . This Agreement may not be assigned in whole or in part without the Executive Director’s express written consent, which may be granted or withheld in his sole and absolute discretion. The Executive Director acknowledges that a joint venture or other business combination or transfer of an equity interest involving Manager and suitable third party or parties is permissible, provided such party or parties receive all approvals required by applicable statute or regulation.
 
58.            Notices . All notices and other communications provided for under this Agreement, or any applicable statute or regulation, must be in writing and sent via (a) U.S. Mail, certified mail, return receipt requested, (b) recognized national overnight courier (e.g. FedEx, UPS, DHL, etc.) or (c) fax, if followed by notice under (a) or (b) at the addresses set forth below, or at such other address as such party may specify by written notice to the other parties hereto:
 
 
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If to the Executive Director:
Ed Van Petten
 
 
Kansas Lottery
 
 
128 N. Kansas Avenue
 
 
Topeka, KS 66603-3638
 
 
Telephone: 785-296-5703
 
 
Facsimile: 785-296-5722
 
 
If to Manager:
Clark D. Stewart
 
 
Butler National Service Corporation
 
 
19920 W. 161 st Street
 
 
Olathe, KS 66062
 
 
Telephone: 913-780-9595
 
 
Facsimile:  913-780-5088
 
Notice will be deemed given three days after mailing, if by certified mail, return receipt requested, the next business day after delivery to an overnight delivery service for next business day delivery, or on the date sent by fax if confirmation of receipt is obtained and retained and provided that notice under (a) or (b) above is sent the same day.
 
59.            Amendments . Except as otherwise provided in this paragraph, no amendment, waiver, or consent as to any provision in this Agreement will be effective unless it is in writing and agreed to by the Executive Director and Manager, and each such waiver or consent will be effective only in the specific instance and for the specific purpose for which given. In addition, and notwithstanding any other provision in this Agreement, Manager acknowledges and agrees the Executive Director may overrule any action by Manager affecting operations within the Lottery Gaming Facility without prior notice to Manager, and that the Kansas Lottery maintains at all times full control over all decisions concerning the Lottery Facility Games placed at the Lottery Gaming Facility. This Agreement will also be modified, in whole or in part, in order to comply with future statutory enactments or judicial interpretations of applicable law by a court of competent jurisdiction. This Agreement is subject to modification, in whole or in part, or cancellation, as deemed necessary by the Executive Director to comply with any future statutory enactments, subsequent regulatory changes, or judicial interpretations of applicable law by a court of competent jurisdiction occurring after this Agreement’s execution, without additional consideration being exchanged between the parties. The parties agree nothing in this paragraph will be read to limit the remedies provided to Manager in Paragraphs 31 or 65.
 
60.            No Recourse; Special Obligation . The Kansas Lottery’s obligations and agreements contained herein and any other instrument or document executed in connection with this Agreement, and any other instrument or document supplemental thereto or hereto, are deemed the obligations and agreements of the Kansas Lottery, and not of any member, officer, contractor (other than Manager), or employee of the Commission or Kansas Lottery in his or her individual capacity, and such individuals will not be liable personally hereon or thereon or be subject to any personal liability based upon or in respect hereof or thereof or of any transaction contemplated hereby or thereby.
 
 
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61.            Severability . If any provision in this Agreement is determined to be invalid or unenforceable by any court with competent jurisdiction, such holding will not invalidate or render unenforceable any other provision, and the parties may renegotiate this Agreement to conform to any such court holding.
 
62.            Binding Effect . This Agreement will inure to the benefit of, and will be binding upon, the State of Kansas, the Kansas Lottery, Manager, and their respective successors and assigns.
 
63.            Force Majeure . With respect to any obligation to be performed by a party during this Agreement’s term, no party will be liable for failure to perform when prevented by any force majeure cause beyond the reasonable control of such party such as an act of god, final resolution of any material litigation (including the litigation referred to in Paragraph 8 above) strike, lockout, breakdown, accident, order or regulation of or by any governmental authority, failure of supply or inability, by the exercise of reasonable diligence, to obtain supplies, parts or employees necessary to perform such obligation, or war or other emergency. The time within which such obligation must be performed will be extended for a period of time equivalent to the delay from such cause. But failure to perform by Manager’s subcontractors or agents will not be considered a force majeure unless such subcontractor or supplier is prevented from timely performance by a force majeure as described above. This paragraph will not apply to any financial difficulties of Manager, or any parent, subsidiary, affiliated or associated company of Manager, but will apply to orders of the Kansas Racing and Gaming Commission, or claims or court orders restricting Manager’s ability to perform so long as such orders, claims or court orders are not on account of any misconduct by Manager. The provisions of this Paragraph 63 notwithstanding, the parties agree the litigation component of the force majeure definition does not apply to Manager’s obligations to pay the privilege fee as required by Paragraph 20 above, or to Manager’s obligations to pay the expenses of the Kansas Lottery or the Kansas Racing and Gaming Commission as required by Paragraph 28.
 
 
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64.            Emergency Closings . If at any time during this Agreement’s term it becomes necessary in the Executive Director’s or Manager’s reasonable opinion to cease operations at the Lottery Gaming Facility in order to protect the facility or the health, safety and welfare of guests or employees for reasons of force majeure such as, but not limited to, acts of war, insurrection, civil strife and commotion, labor unrest, environmental risks or other casualty, then the Lottery Gaming Facility may be closed and cease operation of all or part of the facility. If this occurs based on Manager’s determination, Manager must immediately notify the Executive Director, who will then determine when the Lottery Gaming Facility is reopened without jeopardy to the facility, its guests or employees.
 
65.            Manager’s Right to Cease Management Activities . Manager may cease management of the Lottery Gaming Facility and terminate this Agreement with no less than six months advance written notice if:
 
 
a)
K.S.A. 2007 Supp. 74-8734(h)(l) or other applicable statute or regulation is amended to reduce the term of this Agreement;
 
 
b)
Either K.S.A. 2007 Supp. 74-8734(h)(12) or (13) or other applicable statute or regulation are amended to increase the minimum percentages stated in K.S.A. 2007 Supp. 74-8734(h)(12) or (13) above the amounts provided for in this Agreement;
 
 
c)
K.S.A. 2007 Supp. 74-8734 (h)(l6) or other applicable statute or regulation is amended to increase above the aggregate the minimum percentages stated in K.S.A. 2007 Supp. 74-8734(h)(16) above the amounts provided for in this Agreement;
 
 
d)
The Kansas Lottery fails to effect payment of Manager’ s compensation as due under this Agreement and not otherwise in dispute, provided such failure of payment is not cured within ten (10) business days of notice by Manager to the Executive Director;
 
 
e)
K.S.A. 2007 Supp. 74-8739 is amended to no longer permit the sale or service of alcoholic beverages at the Lottery Gaming Facility or Ancillary Lottery Gaming Facility Operations;
 
 
f)
The Kansas Expanded Lottery Act is amended to preclude the Kansas Lottery from owning and operating table games at the Lottery Gaming Facility;
 
 
g)
A court of competent jurisdiction, after all appropriate appeals are exhausted, invalidates paragraph 30 above or the corresponding provisions of the Kansas Expanded Lottery Act;
 
 
h)
The Lottery Gaming Facility operates at a financial loss to Manager at the net income level (as defined by GAAP and verified by an independent audit by an auditor approved by the Executive Director) during a full Fiscal Year and Manager gives the Executive Director at least 180-days’ advance written notice of Manager’s intent to cease management activities within forty-five (45) days after the end of the Fiscal Year in which the financial loss occurs;
 
 
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i)
The Executive Director exercises his right under Paragraph 33 or the Kansas Expanded Lottery Act to physically secure, deactivate or cease operation of such a substantial number of Lottery Facility Games that the Lottery Gaming Facility is no longer commercially viable; or
 
 
j)
If litigation or any other challenge to the constitutionality of the Kansas Expanded Lottery Act or the enforceability of this Agreement remains in question more than 180 days after the Effective Date.
 
The parties agree that in addition to, or in lieu of, Manager’s right to cease management activities under this paragraph, Manager will have available to it any legal or equitable remedy against the State of Kansas, including any impairment of the obligations of this contract prohibited by Article I, Section 10, Clause 1 of the Constitution of the United States of America, if any of the circumstances stated above in sub-paragraphs (a), (b), (c), (d), (e) or (f) occur during the term of this Agreement. Nothing in this paragraph will be deemed a waiver of the immunities and protections reserved to the State of Kansas under the Eleventh Amendment to the Constitution of the United States.
 
66.            Manager’s Ability to Withdraw Application . Manager may withdraw its application to be a Lottery Gaming Facility Manager at any time prior to its approval by the Lottery Gaming Facility Review Board. Notice of Manager’s withdrawal must be given in writing to the Executive Director. If at the time of Manager’s withdrawal, Manager has paid a privilege fee to the state treasurer and credited to the Lottery Gaming Facility Manager Fund, the Executive Director will promptly notify the state treasurer of Manager’s withdrawal and direct the state treasurer to refund Manager’s privilege payment without interest. Manager acknowledges and agrees that if it withdraws its application pursuant to this paragraph, this Agreement will be void and Manager will not be permitted to re-apply as a Lottery Gaming Facility Manager in the Southwest Kansas Gaming Zone unless the application process is reopened. Manager will not be permitted any refund for payments made by Manager to reimburse the Kansas Lottery or the Kansas Racing and Gaming Commission’s expenses as required by this Agreement.
 
67.            Financing Commitment for Construction . In accordance with K.S.A. 2007 Supp. 74-8734(h)(9), Manager attaches as Exhibit E its financing commitment for construction of the Lottery Gaming Facility and ancillary facilities.
 
68.            Executive Director’s Approval and Authority . When it is provided in this Agreement that the Manager will submit a budget, plan or other issue for the Executive Director’s approval, the Executive Director will respond within a commercially reasonable time based on the issue under consideration, provided that any request from Manager in which the Executive Director fails to respond in a commercially reasonable time will be deemed denied. Additionally, the Executive Director will not exercise his authority provided to him in this Agreement in an unreasonable, arbitrary or capricious manner.
 
 
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69.            Central Computer System . Manager acknowledges and agrees that all Electronic Gaming Machines at the Lottery Gaming Facility will be directly linked to a central computer at a location determined by the Executive Director for purposes of security, monitoring, auditing, and providing other available program information to the Kansas Lottery. The Executive Director will have sole authority to determine the functions and operational capacities to be performed through this central computer system by Manager, as well as the services provided by the vendor engaged by the Executive Director to provide the central computer system. In addition to all other functions to be performed by the central computer system, the Executive Director expressly reserves the authority to determine if this central computer system will be used to validate or redeem tickets issued by an Electronic Gaming Machine commonly referred to as “Ticket-in Ticket Out.”
 
70.            Counterparts . This Agreement may be executed in counterparts, each of which will be an original and all of which will constitute one and the same instrument.
 
71.            Applicable Law . This Agreement will be governed, construed, and enforced in accordance with Kansas law for contracts to be wholly performed within the state.
 
72.            Jurisdiction and Venue . Any action by or between the parties challenging the constitutionality of, or arising out of, any provision of the Kansas Expanded Lottery Act, this Agreement, or any rule or regulation promulgated pursuant to the Kansas Expanded Lottery Act must be brought in the district court of Shawnee County, Kansas, unless a dispute is first subject to proceedings under the Kansas Administrative Procedure Act.
 
73.            Headings Not Controlling; Construction; Survival . Each paragraph heading is prepared for convenience only and is not to control, affect the meaning, or be taken as an interpretation for any provision in this Agreement. Use of the word “including” in this Agreement does not mean including in a restrictive sense, but rather means in the sense of providing a non-exclusive illustration, as if the words “including without limitation” were included in the text. Paragraphs 30, 31, 48, 52, 54, 58, 65, 71, 72 and 73 shall survive the termination of this Agreement.
 
74.            No Joint Venture Created . Manager and the Kansas Lottery agree and acknowledge that by entering into this Agreement they are not entering into a joint venture.
 
 
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75.            Covenant for Continued Disclosure . Within 30 days after the close of the Fiscal Year, Manager must update all exhibits to this Agreement. Upon the Executive Director’s written request, Manager will provide such other information regarding the financial or legal undertakings of Manager, the Lottery Gaming Facility, or the Ancillary Lottery Gaming Facility Operations.
 
76.            No Endorsement Made . By executing this Agreement the Kansas Lottery, the Kansas Racing and Gaming Commission, and the State of Kansas have not considered or endorsed the marketability of Manager’s securities or marketability of any securities of Manager’s affiliates.
 
77.            Contractual Attachment . It is further agreed that the provisions found in the Contractual Provisions Attachment (Form DA-146a), which has been revised by the parties and is attached as Exhibit F, are incorporated in this Agreement as though set out in full.
 
IN WITNESS WHEREOF, the Executive Director, on behalf of the Kansas Lottery, and Manager have caused this Agreement to be executed in their respective names, all as of the date first above written.
 
THE KANSAS LOTTERY
 
/s/ Ed Van Petten, Executive Director
 
BUTLER NATIONAL SERVICE CORPORATION
 
/s/ Clark D. Stewart, Chief Executive Officer;
 
 
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EXHIBIT SCHEDULE
 
EXHIBIT A – Environmental Compliance and Indemnification Agreement
 
EXHIBIT B – City Endorsement
 
EXHIBIT C – Expected Construction Sequence
 
EXHIBIT D – Key Employees
 
EXHIBIT E – Financing Commitment Description
 
EXHIBIT F – DA-146a (revised by the parties)
 
EXHIBIT G – Incentive Payment Description

 
39
 
 
EXHIBIT “A”
ENVIRONMENTAL COMPLIANCE AND
INDEMNIFICATION AGREEMENT
 
 
 
 
 
ENVIRONMENTAL COMPLIANCE
AND INDEMNIFICATION AGREEMENT
 
THIS ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION AGREEMENT (the “Environmental Compliance Agreement, dated as of [insert date], is given by Butler National Service Corporation , a Kansas corporation (“Manager”) having offices at 19920 W. 161 st Street, Olathe, KS 66062, to the Kansas Lottery , an agency of the State of Kansas having its principal office at 128 N. Kansas Avenue, Topeka, KS 66603-3638.
 
RECITALS
 
WHEREAS , the Manager is the owner of, or is acquiring title to or other interest in, certain real property located _________________________, State of Kansas and described more fully in Schedule “A” attached and made a part hereof (the “Premises”); and
 
WHEREAS , the Manager is contracting with the Kansas Lottery to be a Lottery Gaming Facility Manager, as that term is defined in the Kansas Expanded Lottery Act, K.S.A. 2007 Supp. 74-8733 through 74-8773, which will consist of a Lottery Gaming Facility and certain Ancillary Lottery Gaming Facility Operations, as referenced in a Lottery Gaming Facility Management Contract of even date, to which this Environmental Compliance Agreement is attached (collectively referred to as the “Project”); and
 
WHEREAS , the Lottery Gaming Facility Management Contract contemplates that Manager will construct and maintain the Project in which a certain portion will be used to house a Lottery Gaming Facility, the business of which will be owned and operated by the Kansas Lottery; and
 
WHEREAS , the Kansas Lottery is unwilling to consummate the Lottery Gaming Facility Management Contract unless the Manager executes and delivers this Environmental Compliance Agreement to the Kansas Lottery.
 
NOW, THEREFORE , in consideration of the foregoing and to induce the Kansas Lottery to consummate the Lottery Gaming Facility Management Contract, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Manager covenants and agrees with the Kansas Lottery as follows:
 
1.             DEFINITIONS . All capitalized terms used in this Environmental Compliance Agreement and not defined will have the meanings set forth below.
 
(a)            Environment means any water, groundwater, water vapor, land (including land surface or subsurface), soil vapor, air, fish, wildlife, biota, and all other natural resources.
 
 
1
 
 
(b)            Environmental Laws mean all federal, state and local environmental, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the Environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances (as defined below) and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto.
 
(c)            Environmental Permits mean all permits, licenses, approvals, authorizations, consents or registrations required by any applicable Environmental Law in connection with the ownership, use and/or operation of the Premises for the storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances or the sale, transfer or conveyance of the Premises.
 
(d)            Hazardous Substance means any substance, which are not naturally occurring, (i) the presence of which requires investigation or remediation under any Environmental Law; or (ii) which is or becomes defined as a “hazardous waste”, “hazardous substance”, “toxic substance”, “solid waste”, pollutant and/or or contaminant under the Comprehensive Environmental Response, Compensation and Liability Act, as amended (42 U.S.C. section 9601 et seq .), the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq .), as amended, the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et seq .), the Clean Air Act (42 U.S.C. Sections 7401 , et seq ., the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601, et seq. ), the Clean Water Act, as amended (33 U.S.C. Sections 1251 et seq .) the Occupational Safety and Health Act, as amended (29 U.S.C.A. 651 et seq .) , and/or any other applicable Environmental Law or any regulations promulgated under any of the foregoing; or (iii) which is toxic (including, but not limited to, toxic mold), explosive, corrosive, flammable, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, the State of Kansas or any political subdivision thereof; or (iv) which contains gasoline, diesel fuel or other petroleum hydrocarbons; or (v) which contains polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde foam insulation.
 
(e)            Improvements mean any buildings, structures and other improvements (if any) presently or hereafter located on the Premises.
 
(f)            Indemnitee means the Kansas Lottery, the Kansas Lottery Commission, and the State of Kansas, and their successors and assigns, and their respective officers, directors, employees, agents, representatives, contractors and subcontractors.
 
 
2
 
 
(g)            Release means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the Environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any Hazardous Substance).
 
2.             REPRESENTATIONS AND WARRANTIES : The Manager represents and warrants to the Kansas Lottery that to the best of the Manager’s knowledge, information and belief:
 
(a)           Neither the Premises nor any property adjacent to the Premises is being or has been used for the storage, treatment, generation, transportation, processing, handling, production, disposal or release of any Hazardous Substance or as a landfill or other solid waste disposal site or for military, manufacturing or industrial purposes or for the storage of petroleum or petroleum based products.
 
(b)           Underground storage tanks are not and have not been located on the Premises, except as set forth in Schedule “B” hereto.
 
(c)           The soil, subsoil, bedrock, soil vapor, surface water and groundwater of the Premises are free of any Hazardous Substances in excess of Kansas Department of Health and Environment limits for commercial use.
 
(d)           There has been no Release nor is there the threat of a Release of any Hazardous Substance on, at or from the Premises, or any property adjacent to or within the immediate vicinity of the Premises which through soil, subsoil, soil vapor, bedrock, surface water or groundwater migration could come to be located on the Premises, and the Manager has not received any form of written notice or inquiry from any federal, state or local governmental agency or authority, any operator, tenant, subtenant, licensee or occupant of the Premises or any property adjacent to or within the immediate vicinity of the Premises or any other person with regard to a Release or the threat of a Release of any Hazardous Substance on, at or from the Premises or any property adjacent to or within the immediate vicinity of the Premises.
 
(e)           All Environmental Permits necessary for the acquisition, construction, equipping, use or operation of the Premises will be obtained and will be in full force and effect.
 
(f)           No event has occurred with respect to the Premises which, with the passage of time or the giving of notice, or both, would constitute a violation of any applicable Environmental Law or non-compliance with any Environmental Permit.
 
 
3
 
 
(g)           There are no agreements, consent orders, decrees, judgments, notices of violations, demand letters, license or permit conditions or other orders or directives of any federal, state or local court, governmental agency or authority relating to the past, present or future ownership, use, operation, sale, transfer or conveyance of the Premises which require any change in the present condition of the Premises or any work, repairs, construction, containment, clean-up, investigations, studies, removal or other remedial action or capital expenditures with respect to the Premises.
 
(h)           There are no actions, suits, claims or proceedings, pending or threatened, which could cause the incurrence of expenses or costs of any name or description or which seek money damages, injunctive relief, investigations, remedial action or any other remedy that arise out of, relate to or result from (i) a violation or alleged violation of any applicable Environmental Law or non-compliance or alleged non-compliance with any Environmental Permit, (ii) the presence of any Hazardous Substance or a Release or the threat of a Release of any Hazardous Substance on, at or from the Premises or any property adjacent to or within the immediate vicinity of the Premises or (iii) human exposure to any Hazardous Substance of whatever kind to the extent the same arise from the condition of the Premises or the ownership, use, operation, sale, transfer or conveyance thereof.
 
3.             COVENANTS OF MANAGER : The Manager covenants and agrees with the Kansas Lottery as follows:
 
(a)           Except in accordance with Environmental Laws, Manager shall keep, and shall cause all operators, tenants, subtenants, licensees, invitees and occupants of the Premises to keep, the Premises free of all Hazardous Substances and shall not cause or permit the Premises or any part thereof to be used for the storage, treatment, generation, transportation, processing, handling, production, disposal or release of any Hazardous Substances.
 
(b)           The Manager shall comply with, and shall cause all operators, tenants, subtenants, licensees, invitees and occupants of the Premises to comply with, all applicable material Environmental Laws, and shall obtain and comply with, and shall cause all operators, tenants, subtenants, licensees, invitees and occupants of the Premises to obtain and comply with, all Environmental Permits.
 
 
4
 
 
(c)           Except in accordance with Environmental laws, Manager shall not cause or permit any change to be made in the present or intended use of the Premises which would (i) involve the storage, treatment, generation, transportation, processing, handling, production, disposal or release of any Hazardous Substance or the use of the Premises as a landfill or other solid waste disposal site or for military, manufacturing or industrial purposes, (ii) violate any applicable Environmental Law, (iii) constitute non-compliance with any Environmental Permit or (iv) increase the risk of a Release of any Hazardous Substance.
 
(d)           The Manager shall promptly provide the Kansas Lottery with a copy of all written notifications which the Manager gives or receives with respect to any past or present Release or the threat of a Release of any Hazardous Substance on, at or from the Premises or any property adjacent to or within the immediate vicinity of the Premises.
 
(e)           To the extent required by applicable Environmental Laws, Manager shall undertake and complete all investigations, studies, sampling and testing and all removal and other remedial actions necessary to contain, remove and clean up all Hazardous Substances that are determined to be present at the Premises in accordance with all applicable Environmental Laws and all Environmental Permits.
 
(f)           The Manager shall at all times, upon reasonable notice, allow the Kansas Lottery and its officers, employees, agents, representatives, contractors and subcontractors reasonable access to the Premises for the purposes of ascertaining site conditions, including, but not limited to, subsurface conditions. In exercising such right, the Kansas Lottery will use good faith efforts to not unreasonably disturb or disrupt the Premises. In exercising such right, the Kansas Lottery will use good faith efforts to not unreasonably disturb or disrupt the Premises. In the event the Kansas Lottery negligently damages the Premises in the exercise of its rights under this subparagraph (f), the Kansas Lottery will return the Premises to the same condition as existed prior to the Kansas Lottery’s entering the Premises pursuant to this subparagraph (f).
 
 
5
 
 
(g)           Except as provided in the Lottery Gaming Facility Management Contract, if at any time the Manager obtains credible evidence or information which suggests that potential violation of Environmental Laws or Environmental Permits may exist at the Premises, the Kansas Lottery may require that a full or supplemental environmental investigation and environmental assessment report (including a Phase II environmental investigation) with respect to the Premises of a scope and level of detail satisfactory to the Kansas Lottery to be prepared by an environmental engineer or other qualified person acceptable to the Kansas Lottery, at the Manager’s expense. Said investigation may include a physical inspection of the Premises, a visual inspection of any property adjacent to or within the immediate vicinity of the Premises, personnel interviews and a review of all Environmental Permits. If the Kansas Lottery requires, such inspection shall also include a records search and/or subsurface testing for the presence of Hazardous Substances in the soil, subsoil, soil vapor, bedrock, surface water and/or groundwater. If the investigations indicate the presence of any Hazardous Substance or a Release or the threat of a Release of any Hazardous Substance on, at or from the Premises, the Manager shall promptly undertake and diligently pursue to completion all necessary, appropriate and legally authorized investigative, containment, removal, and other remedial actions, using methods recommended by the engineer or other person who conducted the investigations and acceptable to the appropriate federal, state and local agencies or authorities.
 
(h)           Attached hereto as Schedule “C” is a complete list of all Environmental Permits presently required for the ownership, use or operation of the Premises and the businesses located thereon. The Manager agrees to notify the Kansas Lottery of any additions, deletions, or modifications of any Environmental Permits and the list thereof. Upon written request of the Kansas Lottery, the Manager shall furnish true and complete copies of all Environmental Permits.
 
 
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4.              INDEMNIFICATION PROVISIONS : Except for claims or liabilities arising from the actions or failure to act by any Indemnitee or Indemnitees or their agents (excluding Manager to the extent an agency relationship would be found as a matter of law between Manager and any Indemnitee), Manager covenants and agrees, at its sole cost and expense, to indemnify, protect, defend, and save harmless each and every Indemnitee from and against any and all damages, losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, judgments, suits, actions, proceedings, costs, disbursements and/or expenses (including, without limitation, attorneys’ and experts’ fees for attorneys and experts selected by the Indemnitee, expenses and disbursements) of any kind or nature whatsoever which may at any time be imposed upon, incurred by or asserted or awarded against any Indemnitee relating to, resulting from or arising out of (a) the use of the Premises, during the term of the Lottery Gaming Facility Management Contract, for the storage, treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Substance, except in accordance with Environmental Laws or Environmental Permits, or as a landfill or other waste disposal site or for military, manufacturing or. industrial purposes, (b) the presence or claimed presence of any Hazardous Substance, except in accordance with Environmental Laws or Environmental Permits, or a Release or the threat of a Release of any Hazardous Substance on, at or from the Premises, or of any property adjacent to or within the immediate vicinity of the Premises during the term of the Lottery Gaming Facility Management Contract, (c) the failure during the term of the Lottery Gaming Facility Management Contract to promptly undertake and diligently pursue to completion all necessary, appropriate and legally authorized investigative, containment, removal, clean-up and other remedial actions with respect to a Release or the threat of a Release of any Hazardous Substance on, at or from the Premises, (d) human exposure during the term of this Lottery Gaming Facility Management Contract to any Hazardous Substance, except in accordance with Environmental Laws or Environmental Permits, to the extent the same arise from the condition of the Premises or the ownership, use, operation, sale, transfer or conveyance thereof, (e) a violation of any applicable Environmental Law during the term of the Lottery Gaming Facility Management Contract, (f) non-compliance with any Environmental Permit during the term of the Lottery Gaming Facility Management Contract, (g) a material misrepresentation or inaccuracy in any representation or warranty or a material breach of or failure to perform any covenant made by the Manager in this Environmental Compliance Agreement, and (h) the designation by any state or governmental entity, the United States Environmental Protection Agency or any other governmental authority of an Indemnitee as a party responsible or potentially responsible for the remediation of any condition on the Premises (collectively, the “Indemnified Matters”).
 
The liability of the Manager to the Kansas Lottery and each Indemnitee shall be perpetual and shall survive for a period of three (3) years following the termination or expiration of the Lottery Gaming Facility Management Contract, and shall in no way be limited, abridged, impaired or otherwise affected, by (i) any amendment or modification of any of the Lottery Gaming Facility Management Contract, (ii) the invalidity or unenforceability of any of the terms or provisions of the Lottery Gaming Facility Management Contract, (iii) any applicable statute of limitations, (iv) any investigation or inquiry conducted by or on the behalf of the Kansas Lottery or any other Indemnitee or any information which the Kansas Lottery or any other Indemnitee may have or obtain with respect to the environmental or ecological condition of the Premises, (v) the sale, transfer or conveyance of all or part of the Premises, (vi) the dissolution or liquidation of the Manager, (vii) the release or discharge, in whole or in part, of the Manager in any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding, (viii) any other circumstances which might otherwise constitute a legal or equitable release or discharge, in whole or in part, of the Manager under this Environmental Compliance Agreement, (ix) the expiration or termination of the Lottery Gaming Facility Management Contract or (x) the reconveyance of title to the Premises by the Manager or any other person, whether in accordance with the terms of a lease, by foreclosure or deed in lieu of foreclosure, sale or otherwise.
 
 
7
 
 
The indemnification agreement contained herein is wholly independent of and in addition to any indemnification agreement given to the Kansas Lottery or any other Indemnitee, as part of the application of the Kansas Expanded Lottery Act or any other applicable statute or regulation.
 
5.             GOVERNING LAW : This Environmental Compliance Agreement shall be governed by, construed in accordance with and enforceable under the laws of the State of Kansas.
 
6.              COUNTERPARTS : This Environmental Compliance Agreement may be executed in one or more counterparts, each of which shall be deemed an original. Said counterparts shall constitute but one and the same instrument and shall be binding upon each of the undersigned as fully and completely as if all had signed the same instrument.
 
7.              SUCCESSORS AND ASSIGNS : This Environmental Compliance Agreement shall be binding upon the Manager, its successors and assigns, all subsequent owners of the Premises, and their respective successors, assigns, executors, administrators, legal representatives, distributees and fiduciaries and shall inure to the benefit of each Indemnitee.
 
IN WITNESS WHEREOF , the Manager has caused this Environmental Compliance Agreement to be duly executed as of the day and year first above written.
 
 
BUTLER NATIONAL SERVICE CORPORATION
 
       
 
By:
   
 
Name: Clark D. Stewart
 
 
Title: President
 
 
 
8
 
 
 
THE KANSAS LOTTERY
 
       
 
By:
   
   
Ed Van Petten, Executive Director
 
 
State of _________ )
County of                   ) 
ss.:
 
On the __ day of _____________ in the year 2008, before me, the undersigned, personally appeared _________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signatures on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.
 
     
 
Notary Public
 
 
 
State of _________ )
County of                   ) )
ss.:
 
On the __ day of __________________ in the year 2007 before me, the undersigned, personally appeared _____________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signatures on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.
 
     
 
Notary Public]
 
 
 
9
 
 
SCHEDULE “A”
 
(Premises)
 
Lot 1, MARIAH CENTER a subdivision in part of Section 21 and part of Section 28, Dodge City, Ford County, Kansas
 
 
A-1
 
 
SCHEDULE “B”
 
(Underground Storage Tanks)
 
None

 
B-1
 
 
SCHEDULE “C”
 
(Environmental Permits)
 
TO BE SUPPLEMENTED

 
C-1
 

EXHIBIT “B”
 
ENDORSEMENT BY LOCAL GOVERNMENT ·
 
 
 
 
 
A RESOLUTION OF ENDORSEMENT FOR THE MANAGEMENT OF A LOTTERY GAMING FACILITY IN DODGE CITY, FORD COUNTY, KANSAS BY BUTLER NATIONAL SERVICE CORPORATION
 
WHEREAS, the City of Dodge City (“City”) and Ford County have undertaken an aggressive economic development program described as the Why Not Dodge development project, the purpose and intent of which is to attract tourists, visitors, conventions and meetings to the City and the Ford County area involving the construction of various entertainment and recreational facilities including facilities and programs, the primary purpose of which would be to enhance, improve and foster the nationally recognized western heritage of the area, thereby broadening, diversifying and enhancing the economic base of Ford County and the City economy; and
 
WHEREAS, in addition to the efforts undertaken by the City and County, a volunteer group of local supporters formed Boothill Gaming Inc. (“Boothill Gaming”), for the purpose of exploring, pursuing and implementing the concept of a gaming facility in the City in order to attract area tourists, conventions, visitors and programs from across the state and nation,
and
WHEREAS, due in part at least to the efforts of Boothill Gaming, Senate Bill 66, the Kansas Expanded Lottery Act (the “Act”), was approved by the Kansas Legislature, signed by the Governor, and was published in the Kansas Register, Vol. 26, No, 16, Pg. 518 on April 19, 2007; and
 
WHEREAS, the Act provides for the development of one Lottery Gaming Facility in each of four Gaming Zones; and

WHEREAS, Dodge City is located in Ford County, which is designated in the Act as the Southwest Kansas Gaming Zone; and

WHEREAS, the Act provides that each county in each gaming zone must submit to the qualified voters a resolution to permit a Lottery Gaming Facility within the County; and

WHEREAS, Ford County called for an election on the question of whether to allow a Lottery Gaming Facility in Ford County; and
 
 
 
 
 
WHEREAS, the election was duly noticed, conducted and the votes counted and canvassed in the matter provided by Kansas law; and

WHEREAS, the qualified electors of Ford County voted in favor of a Lottery Gaming Facility in Ford County and the certified results were transmitted to the Lottery Commission; and

WHEREAS, Boothill Gaming has enlisted the services of Butler National Service Corporation (“Butler”) for the purpose of managing a Lottery Gaming Facility and the development of a Lottery Gaming Enterprise as defined in the Act, in Ford County and

WHEREAS, Butler has entered into a real estate purchase agreement to acquire approximately 400 acres of property in Ford County for the location of the Lottery Gaming Enterprise and has requested said property be annexed into the City, and

WHEREAS, the City has taken the required legal action to accomplish the annexation of said property into the City and has adopted the proper ordinance annexing the property, and

WHEREAS, the Act requites a resolution of endorsement by the City governing body of any prospective Lottery Gaming Facility Manager who submits an application for a Lottery Gaming Facility Management Contract to the Lottery Commission to manage a Lottery Gaming Facility within the City limit; and

WHEREAS, Butler and Boothill Gaming have presented to the City a proposal for the development, construction and management of a Lottery Gaming Enterprise to be located on the annexed property and has requested that the City issue its resolution of endorsement of such proposal, and

WHEREAS, Butler has presented to the City its statement of qualifications, financial resources, proposed site and development plans for the Lottery Gaming Facility and its ancillary development; and
 
 
2
 
 
WHEREAS, after duly considering all information and testimony provided by Butler, the City has determined that Butler possesses the necessary qualifications, financial resources and development plans to manage a Lottery Gaming Facility in the City; and

WHEREAS, the City has determined that the proposed location, together with Butler’s plan for development of a Lottery Gaming Facility and ancillary operations, is well suited to attract tourism and enhance the economic development of the City, Ford County and the surrounding counties and is consistent and compatible with the long range development plans of the City, and

WHEREAS, to facilitate the location of the Southwest Kansas Lottery Gaming Facility in Dodge City, Ford County, Kansas, the City has determined that based on the proposal and information presented by Butler, it is in the best interest of the City to issue a Resolution of Endorsement to Butler; and

WHEREAS, Butler and the City have discussed and have agreed in principle to an overall development plan that will enhance and attract tourism and economic development to the area.

NOW THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF DODGE CITY, FORD COUNTY, KANSAS:
Pursuant to the provisions of Senate Bill No. 66, the City Commission of the City of Dodge City, Kansas does hereby issue its endorsement of the application of Butler National Service Corporation to develop and manage a destination casino in Dodge City, Ford County, Kansas to be constructed and developed in accordance with the requirements of the Act and a development plan to be mutually agreed to by the City and Butler National Service Corporation in anticipation of Butler National Service Corporation being granted a Lottery Gaming Facility management contract pursuant to the Act.
 
Adopted this 21 st day of September, 2007.
 
 
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City Commission of Dodge City, Kansas
   
 
By: /s/ Rick Sowers
 
Rick Sowers, Vice Mayor
   
Attest: /s/ Nannette Pogue
 
Nannette Pogue
 

Certificate
 
The undersigned being duly appointed Clerk of the City of Dodge City, Kansas does hereby certify that the above and forgoing Resolution was duly adopted by majority vote of the City Commission of the City of Dodge City, Kansas on this 21 st day of September, 2007.
 
/s/ Nannette Pogue
Nannette Pogue, City Clerk
 
/Seal of City of Dodge City

 
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EXHIBIT “C”
 
EXPECTED CONSTRUCTION SEQUENCE
 
 
 
 
   
IMAGE 1
 
 
 
 
 
EXHIBIT “D”
 
KEY EMPLOYEES
 
 
 
 

Lottery Gaming Facility Management Contract, Exhibit D
 
Key Employees
 
Chief Executive Officer/General Manager
 
Leadership responsibility for all on-site operations at Boot Hill Casino and Resort including gaming facility and ancillary gaming operations (hotel, food & beverage, conference center, spa & pool).
 
Vice President of Casino Operations
 
Direct responsibility for day-to-day casino operations. Reports to CEO/General Manager.
 
Director of Finance
 
Responsible for daily oversight of accounting and related staff including responsibility for ensuring Count Team and Count Rooms function in compliance with gaming regulations.
 
Director of Surveillance
 
Responsible for the day-to-day operations of the surveillance room. Reports to Vice President of Casino Operations.
 
Manager of Internal Audit
 
Responsible for auditing the adherence to internal control procedures for the casino gaming operations as well as all ancillary operations (hotel, food & beverage, etc.) Reports to Management Board.
 
Director of Security
 
Direct responsibility for security department staff and overall security of the Boot Hill Casino & Resort. Reports to the CEO/General Manager.
 
 
 
 

EXHIBIT “E”
 
FINANCING COMMITMENT
 
 
 
 

IMAGE 2
 
EXHIBIT E
 
FINANCING COMMITMENT DESCRIPTION
 
Manager hereby confirms that it is highly confident that it can obtain the financial resources necessary to support the activities by the Management Agreement and the Kansas Expanded Lottery Act by accessing the senior debt markets, the public debt markets or other available sources of capital. To the extent a parent guarantee is legally required for either the financing commitment, the phasing of the construction or the environmental indemnification, Manager’s parent will work promptly and in good faith to accomplish that.
 
 
Christopher Reedy
 
Vice President and General Counsel
 
Butler National Corporation
 
Dated May 22, 2008
 
PHONE (913) 780-9595 ● FAX (913) 780-5088 ● www.butlernational.com
 
 
 
 
 
EXHIBIT “F”
 
DA-146a CONTRACTUAL
 
ATTACHMENT
 
 
 
 
 
IMAGE 3
 
 
 
 
 
EXHIBIT “G”
 
NET INCENTIVE PAYMENT
 
CALCULATION
 
 
 
 
 
Lottery Gaming Facility Management Contract, Exhibit G
“Net Incentive Payment” Calculation from the Manager to the State of Kansas
 
 
Percent actual casino win exceeds
“Gross Incentive Amount” Calculation
“Incentive Level”
Greater than or equal to
Less than
“Incentive Percentage”
Effective rate for this range
0
n/a
1%
0.0%
27.0%
1
1%
10%
2.0%
29.0%
2
10%
30%
4.0%
31.0%
3
30%
50%
7.0%
34.0%
4
50%
75%
10.0%
37.0%
5
75%
100%
13.0%
40.0%
6
100%
n/a
16.0%
43.0%

Base Plan – Proforma Annual Gaming Win as presented in Exhibit #1 at Section V in Binder 10 of the Application. (Year 1- $39,826,696, 2- $42,848,304, 3- $66,765,023, 4- $70,366,996, & 5- $ 73,478,006: For year 6 and beyond, the year 5 Annual Gaming Win would be increased by 3% per annum, Base plan would be adjusted pro-rata depending on the actual commencement date at gaming operations.
 
Gross Incentive Amount – Calculated gross earned incentive according to above table for a specific fiscal year of operation based on audited financial results.
 
Incentive Level – In any given fiscal year the Gross Incentive Amount may be calculated using one or more Incentive Levels. For instance. should the actual gaming win for a given fiscal year exceed the Base Plan by 32%, the Gross Incentive Amount would be calculated, as follows:
 
by taking the dollar amount of gaming win that is greater than or equal to 1% and less than 10% times the Incentive Level 1 Incentive % of 2.0%
 
plus the dollar amount that is greater than or equal to 10% and less than 30% times Incentive Level 2 incentive % of 4.0%
 
plus the dollar amount of gaming win that is greater than or equal to 30% times Incentive Level 3 Incentive % of 7%.
 
Incentive Percentage – Percentage of gaming win offered by the Manager as an incentive in excess of statutory percentage of 27% for a given Incentive Level.
 
Net Incentive Payment – is the actual incentive payment to the State of Kansas calculated as follows:
The cumulative Gross Incentive Amounts from this and prior fiscal years since contract inception plus the cumulative prior Net Incentive Amounts paid to the State of Kansas in prior fiscal years, minus
The cumulative cost of KLC and KRGC regulation/oversight and the central computer system costs paid by the Manager (reference Section 28 a), b) & c) of the Lottery Gaming Facility Management Contract) from inception to date.
 
Payment Frequency of Net Incentive Amount – Any Net Incentive Amount due to the State of Kansas will be paid by the Manager once each fiscal year 30 days following the completion of the annual financial audit at the financial records of the records of the Boot Hill Casino & Resort by the Manager’s independent auditors.
 
 
 
 
 
[KANSAS LOTTERY LETTERHEAD]

April 28, 2009
 
Butler National Service Corporation
Attention: Mr. Clark D. Stewart, Chief Executive Officer
19920 W. 161 st Street
Olathe, KS 66062
 
Dear Mr. Stewart:
 
It is my understanding that you have asked for the consent of the Executive Director of the Kansas Lottery to enter into an Assumption and Adoption Agreement for Lottery Gaming Facility Management Contract with an entity recently formed or to be formed called BHCMC, LLC, a Kansas limited liability company. We have reviewed your request along with documents provided by Jeffery L. Ungerer including a proposed Management Services Agreement, the proposed Operating Agreement of BHCMC, LLC and the Option to Acquire Member Interest between your firm and BHCMC, LLC.
 
The Kansas Lottery, through the undersigned, hereby consents to the Assumption and Adoption Agreement for Lottery Gaming Facility Management Contract with the following provisos:
 
 
1)
That the Management Services Agreement and the Option to Acquire Member Interest, before assigning, be amended to reflect changes you have discussed with our outside counsel and reflected in the final drafts sent to Gates, Shields & Ferguson, P.A., on April 23, 2009.
 
 
2)
That we understand and you agree that the obligations of BNSC in the original Lottery Gaming Facility Management Contract are in no way reduced or eliminated in the Assumption and Adoption Agreement, and BHCMC, LLC becomes an additional party to and obligor under the original Lottery Gaming Facility management Contract the same as if it were the original Manager under said Agreement.
 
 
3)
That neither the Lottery Commission nor the Executive Director approves or disapproves the language in the Management Services Agreement or the Option to Acquire Member Interest. Neither the Lottery Commission nor the Executive Director is a party to either document and take no position as to their advisability, their enforceability or whether they are reasonable or equitable. The approval of the Assumption and Adoption Agreement cannot be used in any manner to assume that the Lottery Commission or the Executive Director has any opinions, favorable or unfavorable, relating to the Management Services Agreement or the Option to Acquire Member Interest.”
 
 
 
 
 
 
4)
That all members of the BHCMC, LLC and/or the individuals who comprise the members acknowledge and understand each must receive certification from and undergo background review by the Kansas Racing and Gaming Commission.
 
With those understandings which I am asking you to acknowledge and agree to by signature below, the required consent is hereby granted.
 
 
Very truly yours,
 
     
 
/s/ Ed Van Petten
 
 
ED VAN PETTEN
 
 
For
 
 
KANSAS LOTTERY COMMISSION
 
 
Acknowledged and agreed:
 
 
Butler National Service Corporation
 
       
 
By:
/s/ Clark D. Stewart  
  Clark D. Stewart, Chief Executive Officer  
     
  Date:
5-1-2009
 
 
 
 
 
 
ASSUMPTION AND ADOPTION AGREEMENT
FOR LOTTERY GAMING FACILITY MANAGEMENT CONTRACT
 
THIS ASSUMPTION AND ADOPTION AGREEMENT (“Agreement”) is made this 30 th day of April, 2009 by and between Butler National Service Corporation, a Kansas corporation (“BNSC”) and BHCMC, L.L.C., a Kansas limited liability company (“BHCMC”) to evidence an agreement and understanding by and between the parties hereto for assumption and adoption by BHCMC of that certain Lottery Gaming Facility Management Contract entered into by and between the Kansas Lottery on behalf of the State of Kansas and BNSC (the “Contract”).
 
WHEREAS, BNSC and the Kansas Lottery entered into the Contract for management of that certain Lottery Gaming Facility located in Dodge City, Ford County, Kansas (the “LGF”) on behalf of the Kansas Lottery and State of Kansas all pursuant to and in accordance with the Kansas Expanded Lottery Act, K.S.A. 2007 Supplement 748733 through 74-8773; and
 
WHEREAS, BNSC desires to add and supplement its operational and management functions and capacity by BHCMC assuming responsibility with BNSC for management functions and services for the LGF in accordance with the Contract; and
 
WHEREAS, BHCMC desires to adopt and assume, jointly with BNSC, obligations, duties, responsibilities and other functions for operation and management of the LGF all pursuant to and in accordance with the Contract.
 
NOW THEREFORE, BNSC and BHCMC do hereby agree, covenant and contract as follows:
 
1.      BNSC does hereby authorize BHCMC to do, perform, create, execute, sign, bind, contract, hire, fire and take any and all other actions reasonable, customary, appropriate, necessary or useful to perform and complete all obligations of the manager pursuant to the Contract for the LGF in the Southwest Gaming Zone under the Kansas Expanded Lottery Act.
 
2.      BHCMC does hereby agree to be bound by, comply with, assume and adopt joint responsibility, with BNSC, for the completion of any and all required functions, duties, responsibilities, warranties, covenants, obligations, indemnities and other agreements as manager under the Contract for the LGP under the Kansas Expanded Lottery Act.
 
3.      BNSC does hereby affirm and bind itself to be obligated and bound by any and all documents, instruments, contracts, supplements, filings, notices, or other oral or written representations, promises or agreements made by BHCMC for the operation and conducting of business relating to the management of the LGF as set forth in the Contract.
 
 
 
 
 
Assumption and Adoption Agreement
For Lottery Gaming Facility Management Contract
Page 2 of 2
 
IN WITNESS WHEREOF, BNSC and BHCMC have executed this Agreement in duplicate the day and year set forth above to be effective as of the date receipt of written approval from the Kansas Lottery is received to this Agreement.
 
Butler National Service Corporation
 
       
By:
/s/ Clark D. Stewart  
Name:
 
Clark D. Stewart
 
Title:
 
CEO
 
 
BHCMC, L.L.C.
 
       
By:
/s/ Clark D. Stewart  
Clark D. Stewart, Manager
 
 
By: /s/ Jeffrey L. Ungerer  
Jeffrey L. Ungerer, Manager
 
 
 
Exhibit 10.7
 
FIRST AMENDMENT TO LOTTERY GAMING FACILITY MANAGEMENT CONTRACT
 
THIS FIRST AMENDMENT TO LOTTERY GAMING FACILITY MANAGEMENT CONTRACT (the “Amendment”), is made effective as of the dates executed by the patties below, by and among Butler National Service Corporation (“BNSC”), its affiliates and assigns, and the Kansas Lottery on behalf of the State of Kansas as detailed below.
 
RECITALS
 
WHEREAS , on or about May 28, 2008, the undersigned parties hereto executed a certain Lottery Gaming Facility Management Contract for the development, management and construction of a Lottery Gaming Facility (the “Contract”).
 
WHEREAS , the Contract creates certain duties and obligations on BNSC based on a “Fiscal Year”, currently defined under the Contract as a “calendar year”.
 
WHEREAS , the parties agree that the Contract should be amended to change the definition of a “Fiscal Year” to reflect BNSC’s corporate Fiscal Year, currently May 1 – April 30.
 
WHEREAS , Paragraph 59 of the Contract provides that any amendments to the Contract require the express written approval of the Executive Director of the Kansas Lottery.
 
NOW, THEREFORE , for good and valuable consideration, including the mutual covenants and promises contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows;
 
1.       Paragraph 1(i) of the Contract is deleted and replaced with the following :

“Fiscal Year” means the accounting year established for the Lottery Gaming
  Facility, which is specified here to be from May 1 to April 30 of each year.

 
2.
All accounting and financial reporting responsibilities under the Contract previously calculated from a calendar year, shall now be calculated from the definition of “fiscal year” contained above.

 
3.
All other provisions of the Contract shall remain unchanged and in full force and effect.
 
THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK

 
 
 
 
FIRST AMENDMENT TO LOTTERY GAMING FACILITY MANAGEMENT CONTRACT
 
AGREED TO ON THE DATES EXECUTED BELOW:

THE KANSAS LOTTERY
 
   
/s/ Ed Van Petten, Executive Director
Date:  12/28/09
   
BUTLER NATIONAL SERVICE CORPORATION
Date:  12/21/2009
   
/s/ Clark D. Stewart, Chief Executive Officer;
 
 
THE FIRST AMENDMENT TO LOTTERY GAMING FACILITY MANAGEMENT CONTRACT IS AGREED TO AND ASSUMED AS PROVIDED IN THE PREVIOUSLY APPROVED ASSUMPTION AGREEMENT ON THE DATE EXECUTED BELOW:
 
BHCMC, LLC
 
   
/s/ Clark D. Stewart, President;
Date:  12/21/2009
 
 
2 of 2
Exhibit 10.8
 
LEASE
 
This Lease (“ Lease ”) is entered into by and between BHCMC, L.L.C., a Kansas limited liability company, as “ Tenant ”, and BHC Investment Company, L.C., a Kansas limited liability company, as “ Landlord ” effective as of the 1st day of May, 2011 (“ Effective Date ”).
 
 
1.
Definitions and Basic Business Terms .
When used in this Lease, the following terms shall have the indicated meanings:
 
 
(a)
“Property”-
Refers to tangible and intangible items paid for, provided, acquired or obtained with, by or from certain funds provided to Tenant by Landlord in the amount of $6,803,286 (including accrued interest through May 1, 2011), all of which has and is hereby acknowledged and accepted by Tenant.
 
 
(b)
“Rent Commencement Date” -
March 1, 2012.
 
 
(c)
“Acquisition Date” -
This Lease shall terminate when Tenant acquires the Property from Landlord upon satisfaction of the Minimum Payment Amount required hereunder and exercise of Tenant’s Purchase Option and payment of the Purchase Price.
 
 
(d)
“Lease Term” -
The period beginning on the Effective Date and ending on the Acquisition Date, unless earlier terminated as provided herein.  If Tenant does not exercise the Purchase Option on or before September 30, 2017, this Lease shall terminate on September 30, 2017, provided, however the Lease shall not terminate until and unless Tenant has satisfied the Minimum Payment Amount.  Tenant shall return all Property to Landlord, provided however Landlord may arrange for or direct Tenant to release the Property to such other person or persons designated in written notice to Tenant sent on or before August 15, 2017.
 
 
(e)
“Monthly Rent” -
Beginning on the Rent Commencement Date and continuing on the first day of each calendar month thereafter, Tenant shall pay the sum of $182,080.92.  Landlord and Tenant agree that if no Optional Payments are made then upon payment in accordance with the terms hereof of sixty (60) Monthly Rent payments, Tenant shall have satisfied the Minimum Payment Amount.
 
 
(f)
“Minimum Payment Amount” -
Is satisfied upon payment by Tenant, in any combination of Monthly Rent and/or Optional Payments, of an amount equal to the principal sum of $6,803,286 plus a fifteen percent (15%) annual return (1.25% monthly) on such sum adjusted for any payments, after satisfaction of accrued interest balances, from and after the Effective Date.
 
 
 
 

LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page  of 2 of 10
 
 
(g)
“Optional Payments” -
Tenant may pay Landlord, at any time, one or more payments of not less than seventy five thousand dollars ($75,000) which sums shall he applied first towards satisfaction of any accrued interest to date and the balance if any towards principal but shall not reduce or alter the Monthly Rent or the Rent Commencement Date.  Provided, however, Landlord and Tenant, upon Tenant’s request, shall adjust the Monthly Rent to account for Optional Payments made by Tenant.
 
 
(h)
“Late Charge” -
$50.00 per day.  For Rent, the late charge applies from and after the first day of each calendar month if not paid by the fifth day of each month.
 
 
(i)
“Security Deposit” –
None.
 
 
(j)
“Purchase Option” -
Tenant holds an option to acquire ownership of all Property by notice to Landlord at any time after the Minimum Payment Amount has been satisfied upon payment of the Purchase Price.
 
 
(k)
“Purchase Price” -
Upon completion of the Minimum Payment Amount, Tenant may acquire all rights, interests and ownership of the Property by written notice to Landlord as provided in Section 1(j) above and payment to Landlord, in good funds, of one hundred dollars ($100) concurrently with such notice.
 
 
(l)
“Tenant’s Address for Notice”-
 
BHCMC L.L.C. ,
 
 
19920 W. 161 st St.
 
 
Olathe, Kansas  66062
 
 
Attn: Clark Stewart
 
 
(Phone) 913-780-9595
 
 
 
 
With a copy to:
 
BHCMC, L.L.C.
 
 
19920 W. 161 st St.
 
 
Olathe, Kansas  66062
 
 
Attn: Chris Reedy
 
 
 
(m)
“Landlord’s Address for Notice” -
 
BHC Investment Company, L.C.
 
 
3501 SW Fairlawn Road, Suite 200
 
 
Topeka, Kansas  66614
 
 
Attn: Jeffrey L. Ungerer
 
 
(Phone) 785-272-1398 ext. 133
 
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page  of 3 of 10
 
 
(n)
“Tenant’s Trade Name” –
“Boot Hill Casino”
 
The foregoing Definitions and Basic Business Terms are incorporated into the body of this Lease and, to the extent of any conflict between any of the information contained in this Section 1 and the remainder of the Lease, the remainder of the Lease shall control.
 
 
2.
Acceptance .
Landlord hereby leases the Property to Tenant, and Tenant hereby leases the Property from Landlord.  Tenant accepts the Property in its current condition and acknowledges receipt and acceptance of the same.
 
 
3.
Rent .
Beginning on the Rent Commencement Date, Tenant agrees to pay Landlord the amount established under paragraph 1 as Monthly Rent, in advance, without notice, demand, deduction or offset, for every month in the Lease Term.  Tenant’s Rent payments will be made to Landlord at Landlord’s address set forth herein, or at any other address that Landlord may specify.  In addition to any other rights of Landlord, if any monthly Rent payment is not received by Landlord on or before the fifth day of the month for which payable, or any other payment is not received by Landlord within ten (10) days after written demand therefor, the Late Charge will be charged for each day that such payment is late and is clue without requirement for any notice or demand by Landlord.  Tenant shall also pay to Landlord, upon demand, a charge of One Hundred and No/100 Dollars ($100.00) for each check from Tenant which is returned uncollectiblc or “NSF”.
 
 
4.
Use .
Tenant will use the Property in compliance with all laws, codes and ordinances for operation and benefit of the Boot Hill Casino and Tenant will not use the Property, or permit its use, for any other purpose.  Tenant must obtain, at its sole cost and expense, any permits, licenses or other governmental approvals required to use or operate the Property.  Tenant will comply with all federal, state, municipal and other laws, ordinances, rules and regulations that apply to the Property and Tenant’s business.
 
 
5.
Taxes, Insurance and Common Area Maintenance Costs .
Tenant agrees to pay all taxes, insurance premiums and maintenance or repair costs throughout the Lease Term.
 
 
(a)
Taxes .
For purposes hereof, the term “ taxes ” shall refer to all taxes except income taxes, assessments, impositions, levies, charges and other sums, whether or not existing or hereafter arising, levied, assessed or charged by any governmental authority or other taxing authority against the Property or upon the Monthly Rent or any Optional Payments.  Tenant shall pay directly to the taxing authorities promptly when due all taxes imposed upon its business operation.
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page  of 4 of 10
 
 
(b)
Insurance .
The term “ insurance premiums ” shall mean the amount of premiums paid for property and liability insurance (including, but not limited to, general and umbrella liability, hired-auto liability, comprehensive casualty and loss of rents coverage) carried on the Property and any other commercially reasonable insurance which Landlord requires with respect to the Property from time to time, including all insurance coverages required or requested by any of Landlord’s lenders.
 
 
(c)
Maintenance and Repairs .
Landlord shall have no obligation with respect to repairs or maintenance.  Tenant will repair and maintain all elements of the Property and shall keep the Property in good condition and repair and in a clean, sightly and sanitary condition, at Tenant’s sole cost and expense.  If Tenant fails to perform its repair and maintenance obligations under this Lease within ten (10) days following Landlord’s written request that Tenant do so (provided that in the event of an emergency, Landlord only need give Tenant such prior notice as is practicable under the circumstances, if any), then Landlord shall have the right to perform such maintenance or repair work on Tenant’s behalf.  Tenant will reimburse Landlord for Landlord’s costs therefor, upon demand.
 
 
(d)
Surrender of Property .
Upon the termination of this Lease, other than as a result of Tenant’s exercise of the Purchase Option, or upon the termination of Tenant’s right to possession of the Property, Tenant will surrender and deliver up to Landlord or Landlord’s designee the Property, in good repair and condition, ordinary wear and tear excepted, together with all improvements thereon installed by Tenant during the Lease Term (except as otherwise provided herein).
 
 
6.
Insurance .
 
(a)
Tenant’s Property Insurance .
Tenant agrees to maintain, at Tenant’s sole cost and expense, a policy of special form property insurance on the Property in an amount agreed upon between Tenant and Landlord.  Such coverage may be part of policies covering other property.
 
 
(b)
General .
Such policy must be in effect as of the Effective Date and must be maintained at all times during the Lease Term.  A duplicate original or a certificate of all insurance policies required to be maintained by Tenant will be deposited with Landlord within five (5) days following the Effective Date and current certificates (or duplicate Policy originals) will be deposited with Landlord at all times during the Lease Term.  All such insurers shall be licensed to do business in the State of Kansas and rated no less than A-VIII comparable rating, as shown in the most current issue of A.M. Best’s Key Rating Guide.  All of Tenant’s insurance policies must be primary and non-contributing.  Tenant’s insurance policies may not contain any deductible or self-insured retention, provided any casualty insurance may contain a deductible not to exceed fifty thousand dollars ($50,000) for casualty losses only, without Landlord’s prior written approval.  Tenant’s insurance policies shall further provide that not less than thirty (30) days written notice shall be given to Landlord before such policies may be cancelled or changed.
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
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(c)
Indemnity .
Tenant will defend, indemnify and hold Landlord harmless from all loss, cost, liability, expense or damage (including reasonable attorneys’ fees and expenses) (i) arising or allegedly arising from the acts or omissions of Tenant (or Tenant’s agents, employees, contractors, subcontractors, customers and invitees); and (ii) injury or death of any person or damage or destruction of the Property of any person occurring in, around or during use of any of the Property.
 
 
7.
Assignment and Subletting .
Tenant will not grant any concession, license, use agreement or right of use, nor assign this Lease or sublease the Property, or any part of the Property; and Tenant may not pledge its leasehold interest in the Property.  Any attempt by Tenant to do any of these actions will be void and of no effect, unless Tenant has received the written consent of Landlord.  No assignment or subletting by Tenant shall relieve Tenant of any obligations under this Lease or alter, modify or amend any provision of this Lease.
 
In the event that Tenant is a corporation, partnership, joint venture or other business entity, then any change in control of Tenant shall constitute an assignment of this Lease for purposes of this Paragraph.
 
 
8.
Tenant Default/Landlord’s Remedies .
Each of the following acts of Tenant constitute an Event of Default under this Lease:  Tenant’s failure to pay the required Monthly Payment or perform Tenant’s obligations to pay, obtain and/or maintain taxes, insurance coverages or repair and maintenance costs as required hereunder after notice of failure and not cured within five (5) business days of such notice; or Tenant’s failure to comply with any other covenant, duty or obligation of Tenant under this Lease that is not cured within thirty (30) days after Tenant receives a notice of such failure from Landlord.
 
If an Event of Default should occur under this Lease, then Landlord may do either of the following (in addition to pursuing all of the other rights and remedies provided to Landlord by law): (i) terminate the Lease by sending a written termination notice to Tenant at the address set forth herein (in which event, Tenant will immediately surrender possession of the Property to Landlord); or (ii) terminate Tenant’s right to use and possession of the Property, without terminating the Lease (in which event, Tenant will immediately surrender possession of the Property to Landlord).
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page  of 6 of 10
 
Landlord’s exercise of any of the remedies available to Landlord under the Lease will not be deemed to constitute Landlord’s acceptance of surrender of the Property by Tenant, whether by agreement or by operation of law.  Such surrender can be effected only by the written agreement of Landlord and Tenant.  If Landlord elects to terminate Tenant’s right to possession of the Property, without terminating the Lease, Landlord may hold Tenant liable for all amounts due hereunder, plus all Monthly Rent that would have been required to be paid by Tenant to Landlord during the period following termination of possession through the date that would have been the date of expiration of the Lease Term as stated above, diminished by any net sums subsequently received by Landlord.  If Landlord elects to terminate this Lease for an Event of Default, then Tenant will be liable to Landlord, as damages, an amount equal to all unpaid Monthly Rent that would be payable hereunder for the remainder of the Lease Term.  Actions to collect sums due from Tenant may be brought on one or more occasions.  If Landlord engages the services of an attorney, following an Event of Default, to assist Landlord in enforcing Tenant’s obligation to pay a monetary sum due under this Lease, then Tenant will pay Landlord, upon demand, all costs incurred by Landlord in attempting to collect such sum, including reasonable attorneys’ fees.  In addition to any late charges, past-due Monthly Rent and all other past-due payments due from Tenant under the Lease will bear interest from the date due until the date paid, at the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate allowed by law.  Neither acceptance of any sum paid by Tenant, nor failure by Landlord to complain of any action, inaction or Event of Default of Tenant will constitute a waiver by Landlord of any of Landlord’s rights under the Lease or under the law.  Landlord’s waiver of any right for any Event of Default by Tenant will not constitute a waiver of any other right of Landlord for either a subsequent default of the same obligation or for any other default.
 
The remedies of Landlord hereunder and at law and in equity shall be deemed cumulative and not exclusive of each other and may be enforced concurrently and whenever and as often as Landlord deems desirable.  Forbearance by Landlord to enforce one or more of the remedies herein provided upon an Event of Default shall not be deemed or construed to constitute a waiver of such Event of Default.  Landlord may collect and receive any Monthly Rent due from Tenant and the payment thereof shall not constitute a waiver of or affect any notice or demand given, suit instituted or judgment obtained by Landlord or be held to waive, affect, change, modify or alter the rights or remedies which Landlord may have in equity, at law or by virtue of this Lease.  If Tenant fails to make any payment, perform any obligation, or cure any default hereunder within ten (10) days after notice thereof from Landlord to Tenant, Landlord, without obligation to do so and without thereby waiving such failure or default, may make such payment, perform such obligation, and/or remedy such default for the account of Tenant.  Tenant must pay, immediately upon demand by Landlord, all costs and expenses incurred by Landlord in taking such action.
 
 
9.
Landlord Default .
If Landlord should fail to perform any of its obligations under this Lease, Tenant’s exclusive remedy shall be the institution of the suit for damages.  However, prior to instituting such a suit, Landlord shall have a reasonable period of time (not less than thirty (30) days) following Landlord’s receipt of Tenant’s notice specifically describing such default in which to commence curative action.  Tenant may not institute a suit during such thirty (30) day period or during any such time thereafter as Landlord continues to diligently pursue such cure.
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page  of 7 of 10
 
 
10.
Notice .
Any notice given under this Lease must be in writing (unless otherwise expressly stated in this Lease) and delivered by U.S. certified mail or by hand delivery or nationally recognized courier or express mail service.  Notices given to Landlord must be sent to Landlord at Landlord’s Address for Notice; and notices given to Tenant must be sent to Tenant at Tenant’s Address for Notice.  Either party may change its address for notice by giving the other party notice of such change in accordance with this Section.  Notice that is properly addressed, with adequate postage prepaid, will be deemed received upon the earlier of (a) actual receipt; or (b) two (2) days after deposit in the U.S. mail or with such courier or express mail service (whether or not actually received or accepted).  Notice that is hand delivered shall be effective upon actual receipt.
 
 
11.
Estoppel Certificates .
Tenant and Landlord agree periodically, upon written request from the other, to furnish within ten (10) clays after written request, a certificate signed and certifying (i) that this Lease is in full force and effect and unmodified (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), (ii) the Rent Commencement Date and the date through which Monthly Rent and any other payments have been made, (iii) that Tenant accepted possession of the Property and (iv) as to such other matters as may be reasonably requested by Landlord, Tenant or the holder of any deed of trust, mortgage or security agreement or prospective lender.  Any such certificate may be relied upon by any lien holder, purchaser or any beneficiary under any mortgage, deed of trust or security agreement affecting the Property or any interest therein.  Tenant’s or Landlord’s failure to deliver such statement, in addition to being a default under this Lease, shall be deemed to establish conclusively such matters as are requested in the estoppel certificate request.
 
 
12.
Limitations on Tenant .
Prior to the Acquisition Date (as defined in Section 1(c)) Tenant agrees not to make any distributions to members of Tenant, including all Class A Common Interest, Class A Preferred Interests and/or Class B Common Interests, except distributions pursuant to Section 4.1(b)(ii) of the Amended and Restated Limited Liability Company Operating Agreement of BHCMC, L.L.C. dated April 30, 2009.  If Tenant is in default hereunder, Tenant shall not pay or satisfy any other debts or obligations to members of BHCMC, L.L.C. or their affiliates (other than rent under that certain Lease dated April 30, 2009 by and between BHC Development, L.C. and Butler National Service Corporation) until such default has been cured.
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
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13.
Miscellaneous .
The obligation of Tenant to pay Rent and perform Tenant’s other covenants and duties under this Lease constitute independent, unconditional obligations that are to be performed at all times provided for under this Lease.  Tenant waives and relinquishes all rights to claim any nature of lien or right of offset against Rent.  Tenant waives and relinquishes any right to assert that Landlord is bound to perform (or is liable for nonperformance of) any implied covenants or duties of Landlord that are not stated in this Lease.  Tenant waives any implied warranty by Landlord that the Property is suitable for any specific purpose, and Tenant acknowledges that Tenant’s obligations are independent of any such implied warranty and of all other covenants and obligations of Landlord.  Tenant agrees that Landlord will incur no liability to Tenant by reason of any defect in the Property, whether apparent or latent.  Landlord makes no express warranty (nor shall there be any implied warranty) regarding the condition of the Property.  Landlord will never be liable under this Lease for consequential damages or special damages.  All liability of Landlord for damages for breach of any covenant, duty or obligation of Landlord may be satisfied only out of the interest of Landlord in the Property that exists at the time that any liability of Landlord is adjudicated in a proceeding that results in a final, nonappealable judgment of liability.  No prior written, or prior or contemporaneous oral, promises or representations regarding this Lease will be binding.  This document will bind and inure to the benefit of the respective heirs, executors, administrators, permitted successors and assigns of the parties (without altering the provisions of Section 7 above regarding assignment and subletting).  Nothing in this Lease shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent between the parties hereto, or any relationship between the parties hereto other than the relationship of landlord and tenant.  The laws of the State of Kansas shall govern the interpretation, validity, performance and enforcement of this Lease.  Venue for any action under this Lease shall be in Ford County, Kansas and Tenant hereby consents to the jurisdiction and venue of such courts.   LANDLORD AND TENANT HEREBY AGREE NOT TO ELECT A TRIAL BY ANY OF ANY ISSUE TRIABLE BY RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW O HEREAFTER EXIST WITH REGARD TO THIS LEASE.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY.   Except as otherwise expressly provided herein to the contrary, time is of the essence with respect to all matters set forth in this Lease.  If any clause or provision of this Lease is determined to be illegal, invalid or unenforceable under present or future laws, then and in such event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is determined to be illegal, invalid, or unenforceable, there be added as part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.  The voluntary or involuntary surrender of this Lease by Tenant, or mutual cancellation thereof, will not constitute a merger of the Landlord’s estate in the Property and the leasehold estate created hereby, however, in such event, Landlord will have the option, in Landlord’s sole discretion, to either terminate or assume all or any existing subleases or subtenancies.  All indemnities set forth herein and all covenants not fully performed on the date of expiration or earlier termination of this Lease will survive such expiration or termination.  Landlord and Tenant have each negotiated this Lease and have had an opportunity to be advised respecting the provisions contained herein; therefore, this Lease must not be construed against either Landlord or Tenant as a result of the preparation of this Lease by or on behalf of either party.
 
[REMINDER OF PAGE INTENTIONALLY LEFT BLANK.]

 
 
 

LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page  of 9 of 10
 
EXECUTED in multiple counterparts, each having the force and effect of an original, as of the Effective Date.
 
 
LANDLORD
 
BHC INVESTMENT COMPANY, L.C.
   
 
By: /s/ Jeffrey L. Ungerer
 
Name:  Jeffrey L. Ungerer
 
Title:  Manager
   
 
TENANT:
 
BHCMC, L.L.C.
   
 
By:  /s/ Clark D. Stewart
 
Name:  Clark D. Stewart
 
Title:  Chairman of Board of Managers
 
Taxpaper Identification No. 26-3996615
 
 
 
 
 
LEASE ADDENDUM
 
This Lease Addendum is made and entered into effective January 1, 2012 by and between BHCMC, L.L.C., a Kansas limited liability company, as “ Tenant ” and BHC Investment Company, L.C., a Kansas limited liability company, as “ Landlord ”.
 
WHEREAS, Tenant and Landlord entered into that certain Lease dated May 1, 2011 for certain tangible and intangible items paid, provided or obtained by or from funds provided by Landlord to Tenant (herein tee “ Lease ”); and
 
WHEREAS, Landlord and Tenant desire to modify said Lease as follows:
 
 
l)
The “ Rent Commencement Date ” shall be January 1, 2012.
 
 
2)
The “ Monthly Rent ” to commence on the Rent Commencement Date (as modified in this Lease Addendum) shall be $176,596.51.
 
 
3)
Except us specifically provided herein, Landlord and Tenant do hereby ratify and confirm the Lease and all terms and provisions thereof as modified herein.
 
Executed in multiple counterparts, each having the force and effect of an original, as of the date set forth above.
 
BHCMC, L.L.C.
BHC INVESTMENT COMPANY, L.C.
   
By:  /s/ Clark D. Stewart
By: /s/ Jeffrey L. Ungerer
Name:  Clark D. Stewart
Name:  Jeffrey L. Ungerer
Title:  CEO
Title:  Manager
 
 
Exhibit 10.9

LEASE
 
Between
 
BHC INVESTMENT COMPANY, L.C.
 
LANDLORD
 
and
 
BHCMC, L.L.C.
 
TENANT
 
Boot Hill Casino
4000 W. Comanche
Dodge City, KS  67801
 
August 24, 2012
 
 
 
 

TABLE OF CONTENTS
 
1
Definitions and Basic Business Terms.
   
 
(a)
“Property” -
1
 
(b)
“Rent Commencement Date” -
1
 
(c)
“Acquisition Date” -
1
 
(d)
“Lease Term” -
1
 
(e)
“Monthly Rent” -
1
 
(f)
“Minimum Payment Amount” -
1
 
(g)
“Optional Payments” -
1
 
(h)
“Late Charge” -
2
 
(i)
 “Security Deposit” -
2
 
(j)
“Purchase Option” -
2
 
(k)
“Purchase Price” -
2
 
(l)
“Tenant’s Address for Notice” -
2
 
(m)
 
2
 
(n)
 
2
     
2
Acceptance.
3
     
3
Rent.
3
     
4
Use.
3
     
5
Taxes, Insurance and Common Area Maintenance Costs.
3
     
 
(a)
Taxes.
3
 
(b)
Insurance.
4
 
(c)
Maintenance and Repairs.
4
 
(d)
Surrender of Property.
4
     
6
Insurance.
4
     
(a)
 
Tenant’s Property Insurance.
4
(b)
 
General.
4
(c)
 
Indemnity.
5
     
7
Assignment and Subletting.
5
     
8
Tenant Default/Landlord’s Remedies.
5
     
9
Landlord Default.
6
     
10
Notice.
6
 
 
 
 
 
11
Estoppel Certificates.
7
     
12
Limitations on Tenant.
7
     
13
Miscellaneous.
7
 
 
 
 
 
LEASE
 
This Lease (“ Lease ”) is entered into by and between BHCMC, L.L.C., a Kansas limited liability company, as “ Tenant ”, and BHC Investment Company, L.C., a Kansas limited liability company, as “ Landlord ” effective as of the ____ day of August, 2012 (“ Effective Date ”).
 
1.              Definitions and Basic Business Terms .
When used in this Lease, the following terms shall have the indicated meanings:
 
(a)        “Property” -
Refers to tangible and intangible items paid for, provided, acquired or obtained with, by or from certain funds to be provided to Tenant by Landlord in an amount not to exceed $3,250,000.  Tenant acknowledges receipt of funds totaling $2,500,000.  Landlord shall provide additional funds upon written request of Tenant up to $750,000 (total of $3,250,000) pursuant to Addendum attached hereto.
 
(b)       “Rent Commencement Date” -
November 1, 2012.  Prior to Rent Commencement, Tenant shall pay monthly an amount equal to the interest accrued for the preceding calendar month at twelve percent (12%) annually (one percent per month) until the Rent Commencement Date.
 
(c)       “Acquisition Date” -
This Lease shall terminate when Tenant acquires the Property from Landlord upon satisfaction of the Minimum Payment Amount required hereunder and exercise of Tenant’s Purchase Option and payment of the Purchase Price.
 
(d)       “Lease Term” -
The period beginning on the Effective Date and ending on the Acquisition Date, unless earlier terminated as provided herein.  If Tenant does not exercise the Purchase Option on or before November 1, 2017, this Lease shall terminate on November 30, 2017, provided, however the Lease shall not terminate until and unless Tenant has satisfied the Minimum Payment Amount.  Tenant shall return all Property to Landlord, provided however Landlord may arrange for or direct Tenant to release the Property to such other person or persons designated in written notice to Tenant sent on or before November 30, 2017.
 
(e)       “Monthly Rent” -
Beginning on the Rent Commencement Date and continuing on the first day of each calendar month thereafter, Tenant shall pay the sum of $55,611.12 (based upon total advances of $2,500,000).  Landlord and Tenant agree that if no Optional Payments are made then upon payment in accordance with the terms hereof of sixty (60) Monthly Rent payments, Tenant shall have satisfied the Minimum Payment Amount.
 
(f)       “Minimum Payment Amount” -
Is satisfied upon payment by Tenant, in any combination of Monthly Rent and/or Optional Payments, of an amount equal to the principal sum of $2,500,000 increased by any additional funds requested by Tenant pursuant to subparagraph (a) of this paragraph 1. and provided by Landlord plus a twelve percent (12%) annual return (1.00% monthly)
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 2 of 9
 
on such sum adjusted for any payments, after satisfaction of accrued interest balances, from and after the Effective Date.
 
(g)       “Optional Payments” -
Tenant may pay Landlord, at any time, one or more payments of not less than seventy five thousand dollars ($75,000) which sums shall be applied first towards satisfaction of any accrued interest to date and the balance if any towards principal but shall not reduce or alter the Monthly Rent or the Rent Commencement Date.  Provided, however, Landlord and Tenant, upon Tenant’s request, shall adjust the Monthly Rent to account for Optional Payments made by Tenant.  This Lease has no prepayment penalty and may be paid off in full at any time.
 
(h)       “Late Charge” -
$50.00 per day.  For Rent, the late charge applies from and after the first day of each calendar month if not paid by the fifth day of each month.
 
(i)       “Security Deposit” -
None.
 
(j)       “Purchase Option” -
Tenant holds an option to acquire ownership of all Property by notice to Landlord at any time after the Minimum Payment Amount has been satisfied upon payment of the Purchase Price.
 
(k)       “Purchase Price” -
Upon completion of the Minimum Payment Amount, Tenant may acquire all rights, interests and ownership of the Property by written notice to Landlord as provided in Section 1(j) above and payment to Landlord, in good funds, of one hundred dollars ($100) concurrently with such notice.
 
(l)       “Tenant’s Address for Notice” -
 
BHCMC, L.L.C.
 
19920 W. 161 st St.
 
Olathe, Kansas  66062
 
Attn:  Clark Stewart
 
(Phone) 913-780-9595

With a copy to:
 
BHCMC, L.L.C.
 
19920 W. 161 st St.
 
Olathe, Kansas  66062
 
Attn:  Chris Reedy
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 3 of 9
 
(m)            “Landlord’s Address for Notice” -
 
BHC Investment Company, L.C.
 
3501 SW Fairlawn Road, Suite 200
 
Topeka, Kansas  66614
 
Attn:  Jeffrey L. Ungerer
 
(Phone) 785-272-1398 ext. 133

(n)       “Tenant’s Trade Name” -
“Boot Hill Casino”
 
The foregoing Definitions and Basic Business Terms are incorporated into the body of this Lease and, to the extent of any conflict between any of the information contained in this Section 1 and the remainder of the Lease, the remainder of the Lease shall control.
 
2.            Acceptance .
Landlord hereby leases the Property to Tenant, and Tenant hereby leases the Property from Landlord.  Tenant accepts the Property in its current condition and acknowledges receipt and acceptance of the same.
 
3.            Rent .
Beginning on the Rent Commencement Date, Tenant agrees to pay Landlord the amount established under paragraph 1 as Monthly Rent, in advance, without notice, demand, deduction or offset, for every month in the Lease Term.  Tenant’s Rent payments will be made to Landlord at Landlord’s address set forth herein, or at any other address that Landlord may specify.  In addition to any other rights of Landlord, if any monthly Rent payment is not received by Landlord on or before the fifth day of the month for which payable, or any other payment is not received by Landlord within ten (10) days after written demand therefor, the Late Charge will be charged for each day that such payment is late and is due without requirement for any notice or demand by Landlord.  Tenant shall also pay to Landlord, upon demand, a charge of One Hundred and No/100 Dollars ($100.00) for each check from Tenant which is returned uncollectible or “NSF”.
 
4.            Use .
Tenant will use the Property in compliance with all laws, codes and ordinances for operation and benefit of the Boot Hill Casino and Tenant will not use the Property, or permit its use, for any other purpose.  Tenant must obtain, at its sole cost and expense, any permits, licenses or other governmental approvals required to use or operate the Property.  Tenant will comply with all federal, state, municipal and other laws, ordinances, rules and regulations that apply to the Property and Tenant’s business.
 
5.            Taxes, Insurance and Common Area Maintenance Costs .
Tenant agrees to pay all taxes, insurance premiums and maintenance or repair costs throughout the Lease Term.
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 4 of 9
 
(a)       Taxes .
For purposes hereof, the term “ taxes ” shall refer to all taxes, assessments, impositions, levies, charges and other sums, whether or not existing or hereafter arising, levied, assessed or charged by any governmental authority or other taxing authority
 
against the Property or upon the Monthly Rent or any Optional Payments.  Tenant shall pay directly to the taxing authorities promptly when due all taxes imposed upon its business operation.
 
(b)       Insurance .
The term “ insurance premiums ” shall mean the amount of premiums paid for property and liability insurance (including, but not limited to, general and umbrella liability, hired-auto liability, comprehensive casualty and loss of rents coverage) carried on the Property and any other commercially reasonable insurance which Landlord requires with respect to the Property from time to time, including all insurance coverages required or requested by any of Landlord’s lenders.
 
(c)       Maintenance and Repairs .
Landlord shall have no obligation with respect to repairs or maintenance.  Tenant will repair and maintain all elements of the Property and shall keep the Property in good condition and repair and in a clean, sightly and sanitary condition, at Tenant’s sole cost and expense.  If Tenant fails to perform its repair and maintenance obligations under this Lease within ten (10) days following Landlord’s written request that Tenant do so (provided that in the event of an emergency, Landlord only need give Tenant such prior notice as is practicable under the circumstances, if any), then Landlord shall have the right to perform such maintenance or repair work on Tenant’s behalf.  Tenant will reimburse Landlord for Landlord’s costs therefor, upon demand.
 
(d)       Surrender of Property .
Upon the termination of this Lease, other than as a result of Tenant’s exercise of the Purchase Option, or upon the termination of Tenant’s right to possession of the Property, Tenant will surrender and deliver up to Landlord or Landlord’s designee the Property, in good repair and condition, ordinary wear and tear excepted, together with all improvements thereon installed by Tenant during the Lease Term (except as otherwise provided herein).
 
6.            Insurance .
(a)       Tenant’s Property Insurance .
Tenant agrees to maintain, at Tenant’s sole cost and expense, a policy of special form property insurance on the Property in an amount agreed upon between Tenant and Landlord.  Such coverage may be part of policies covering other property.
 
(b)       General .
Such policy must be in effect as of the Effective Date and must be maintained at all times during the Lease Term.  A duplicate original or a certificate of all insurance policies required to be maintained by Tenant will be deposited with Landlord within five (5) days following the Effective Date and current certificates (or duplicate Policy originals) will be deposited with Landlord at all times during the Lease Term.  All such insurers shall be licensed to do business in the State of Kansas and rated no less than A-VIII or comparable rating, as shown in the most current issue of A.M. Best’s Key Rating
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 5 of 9
 
Guide.  All of Tenant’s insurance policies must be primary and non-contributing.  Tenant’s insurance policies may not contain any deductible or self-insured retention, provided any casualty insurance may contain a deductible not to exceed fifty thousand dollars ($50,000) for casualty losses only, without Landlord’s prior written approval.  Tenant’s insurance policies shall further provide that not less than thirty (30) days written notice shall be given to Landlord before such policies may be cancelled or changed.
 
(c)       Indemnity .
Tenant will defend, indemnify and hold Landlord harmless from all loss, cost, liability, expense or damage (including reasonable attorneys’ fees and expenses) (i) arising or allegedly arising from the acts or omissions of Tenant (or Tenant’s agents, employees, contractors, subcontractors, customers and invitees); and (ii) injury or death of any person or damage or destruction of the Property of any person occurring in, around or during use of any of the Property.
 
7.            Assignment and Subletting .
Tenant will not grant any concession, license, use agreement or right of use, nor assign this Lease or sublease the Property, or any part of the Property; and Tenant may not pledge its leasehold interest in the Property.  Any attempt by Tenant to do any of these actions will be void and of no effect, unless Tenant has received the written consent of Landlord.  No assignment or subletting by Tenant shall relieve Tenant of any obligations under this Lease or alter, modify or amend any provision of this Lease.
 
In the event that Tenant is a corporation, partnership, joint venture or other business entity, then any change in control of Tenant shall constitute an assignment of this Lease for purposes of this Paragraph.
 
8.            Tenant Default/Landlord’s Remedies .
Each of the following acts of Tenant constitute an Event of Default under this Lease: (i) Tenant’s failure to pay the required Monthly Payment or perform Tenant’s obligations to pay, obtain and/or maintain taxes, insurance coverages or repair and maintenance costs as required hereunder; or (ii) Tenant’s failure to comply with any other covenant, duty or obligation of Tenant under this Lease that is not cured within thirty (30) days after Tenant receives a notice of such failure from Landlord.
 
If an Event of Default should occur under this Lease, then Landlord may do either of the following (in addition to pursuing all of the other rights and remedies provided to Landlord by law):  (i) terminate the Lease by sending a written termination notice to Tenant at the address set forth herein (in which event, Tenant will immediately surrender possession of the Property to Landlord); or (ii) terminate Tenant’s right to use and possession of the Property, without terminating the Lease (in which event, Tenant will immediately surrender possession of the Property to Landlord).
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 6 of 9
 
Landlord’s exercise of any of the remedies available to Landlord under the Lease will not be deemed to constitute Landlord’s acceptance of surrender of the Property by Tenant, whether by agreement or by operation of law.  Such surrender can be effected only by the written agreement of Landlord and Tenant.  If Landlord elects to terminate Tenant’s right to possession of the Property, without terminating the Lease, Landlord may hold Tenant liable for all amounts due hereunder, plus all Monthly Rent that would have been required to be paid by Tenant to Landlord during the period following termination of possession through the date that would have been the date of expiration of the Lease Term as stated above, diminished by any net sums subsequently received by Landlord.  If Landlord elects to terminate this Lease for an Event of Default, then Tenant will be liable to Landlord, as damages, an amount equal to all unpaid Monthly Rent that would be payable hereunder for the remainder of the Lease Term.  Actions to collect sums due from Tenant may be brought on one or more occasions.  If Landlord engages the services of an attorney, following an Event of Default, to assist Landlord in enforcing Tenant’s obligation to pay a monetary sum due under this Lease, then Tenant will pay Landlord, upon demand, all costs incurred by Landlord in attempting to collect such sum, including reasonable attorneys’ fees.  In addition to any late charges, past-due Monthly Rent and all other past-due payments due from Tenant under the Lease will bear interest from the date due until the date paid, at the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate allowed by law.  Neither acceptance of any sum paid by Tenant, nor failure by Landlord to complain of any action, inaction or Event of Default of Tenant will constitute a waiver by Landlord of any of Landlord’s rights under the Lease or under the law.  Landlord’s waiver of any right for any Event of Default by Tenant will not constitute a waiver of any other right of Landlord for either a subsequent default of the same obligation or for any other default.
 
The remedies of Landlord hereunder and at law and in equity shall be deemed cumulative and not exclusive of each other and may be enforced concurrently and whenever and as often as Landlord deems desirable.  Forbearance by Landlord to enforce one or more of the remedies herein provided upon an Event of Default shall not be deemed or construed to constitute a waiver of such Event of Default.  Landlord may collect and receive any Monthly Rent due from Tenant and the payment thereof shall not constitute a waiver of or affect any notice or demand given, suit instituted or judgment obtained by Landlord or be held to waive, affect, change, modify or alter the rights or remedies which Landlord may have in equity, at law or by virtue of this Lease.  If Tenant fails to make any payment, perform any obligation, or cure any default hereunder within ten (10) days after notice thereof from Landlord to Tenant, Landlord, without obligation to do so and without thereby waiving such failure or default, may make such payment, perform such obligation, and/or remedy such default for the account of Tenant.  Tenant must pay, immediately upon demand by Landlord, all costs and expenses incurred by Landlord in taking such action.
 
9.            Landlord Default .
If Landlord should fail to perform any of its obligations under this Lease, Tenant’s exclusive remedy shall be the institution of the suit for damages.  However, prior to instituting such a suit, Landlord shall have a reasonable period of time (not less than thirty (30) days) following Landlord’s receipt of Tenant’s notice specifically describing such default in which to commence curative action.  Tenant may not institute a suit during such thirty (30) day period or during any such time thereafter as Landlord continues to diligently pursue such cure.
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 7 of 9
 
10.            Notice .
Any notice given under this Lease must be in writing (unless otherwise expressly stated in this Lease) and delivered by U. S. certified mail or by hand delivery or nationally recognized courier or express mail service.  Notices given to Landlord must be sent to Landlord at Landlord’s Address for Notice; and notices given to Tenant must be sent to Tenant at Tenant’s Address for Notice.  Either party may change its address for notice by giving the other party notice of such change in accordance with this Section.  Notice that is properly addressed, with adequate postage prepaid, will be deemed received upon the earlier of (a) actual receipt; or (b) two (2) days after deposit in the U.S. mail or with such courier or express mail service (whether or not actually received or accepted).  Notice that is hand delivered shall be effective upon actual receipt.
 
11.            Estoppel Certificates .
Tenant and Landlord agree periodically, upon written request from the other, to furnish within ten (10) days after written request, a certificate signed and certifying (i) that this Lease is in full force and effect and unmodified (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), (ii) the Rent Commencement Date and the date through which Monthly Rent and any other payments have been made, (iii) that Tenant accepted possession of the Property and (iv) as to such other matters as may be reasonably requested by Landlord, Tenant or the holder of any deed of trust, mortgage or security agreement or prospective lender.  Any such certificate may be relied upon by any lien holder, purchaser or any beneficiary under any mortgage, deed of trust or security agreement affecting the Property or any interest therein.  Tenant’s or Landlord’s failure to deliver such statement, in addition to being a default under this Lease, shall be deemed to establish conclusively such matters as are requested in the estoppel certificate request.
 
12.            Limitations on Tenant .
Prior to the Acquisition Date (as defined in Section 1(c)) Tenant agrees not to make any distributions to members of Tenant, including all Class A Common Interest, Class A Preferred Interests and/or Class B Common Interests, except distributions pursuant to Section 4.1(b)(ii) of the Amended and Restated Limited Liability Company Operating Agreement of BHCMC, L.L.C. dated April 30, 2009.  If Tenant is in default hereunder, Tenant shall not pay or satisfy any other debts or obligations to members of BHCMC, L.L.C. or their affiliates (other than rent under those certain Leases dated April 30, 2009 by and between BHC Development, L.C. and Butler National Service Corporation and the Lease dated May 1, 2011 by and between BHC Investment Company, L.C. and BHCMC, L.L.C.) until such default has been cured.
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 8 of 9
 
13.            Miscellaneous .
The obligation of Tenant to pay Rent and perform Tenant’s other covenants and duties under this Lease constitute independent, unconditional obligations that are to be performed at all times provided for under this Lease.  Tenant waives and relinquishes all rights to claim any nature of lien or right of offset against Rent.  Tenant waives and relinquishes any right to assert that Landlord is bound to perform (or is liable for nonperformance of) any implied covenants or duties of Landlord that are not stated in this Lease.  Tenant waives any implied warranty by Landlord that the Property is suitable for any specific purpose, and Tenant acknowledges that Tenant’s obligations are independent of any such implied warranty and of all other covenants and obligations of Landlord.  Tenant agrees that Landlord will incur no liability to Tenant by reason of any defect in the Property, whether apparent or latent.  Landlord makes no express warranty (nor shall there be any implied warranty) regarding the condition of the Property.  Landlord will never be liable under this Lease for consequential damages or special damages.  All liability of Landlord for damages for breach of any covenant, duty or obligation of Landlord may be satisfied only out of the interest of Landlord in the Property that exists at the time that any liability of Landlord is adjudicated in a proceeding that results in a final, nonappealable judgment of liability.  No prior written, or prior or contemporaneous oral, promises or representations regarding this Lease will be binding.  This document will bind and inure to the benefit of the respective heirs, executors, administrators, permitted successors and assigns of the parties (without altering the provisions of Section 7 above regarding assignment and subletting).  Nothing in this Lease shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent between the parties hereto, or any relationship between the parties hereto other than the relationship of landlord and tenant.  The laws of the State of Kansas shall govern the interpretation, validity, performance and enforcement of this Lease.  Venue for any action under this Lease shall be in Ford County, Kansas and Tenant hereby consents to the jurisdiction and venue of such courts.   LANDLORD AND TENANT HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE BY RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS LEASE.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY.   Except as otherwise expressly provided herein to the contrary, time is of the essence with respect to all matters set forth in this Lease.  If any clause or provision of this Lease is determined to be illegal, invalid or unenforceable under present or future laws, then and in such event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is determined to be illegal, invalid, or unenforceable, there be added as part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.  The voluntary or involuntary surrender of this Lease by Tenant, or mutual cancellation thereof, will not constitute a merger of the Landlord’s estate in the Property and the leasehold estate created hereby, however, in such event, Landlord will have the option, in Landlord’s sole discretion, to either terminate or assume all or any existing subleases or subtenancies.  All indemnities set forth herein and all covenants not fully performed on the date of expiration or earlier termination of this Lease will survive such expiration or termination.  Landlord and Tenant have each negotiated this Lease and have had an opportunity to be advised respecting the provisions contained herein; therefore, this Lease must not be construed against either Landlord or Tenant as a result of the preparation of this Lease by or on behalf of either party.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
 
 
 
 
 
LEASE
By and Between
BHCMC, L.L.C. and BHC Investment Company, L.C.
Page 9 of 9
 
EXECUTED in multiple counterparts, each having the force and effect of an original, as of the Effective Date.
 
 
LANDLORD
 
BHC INVESTMENT COMPANY, L.C.
   
 
By: /s/ Jeffery L. Ungerer
 
Name:  Jeffrey L. Ungerer
 
Title:  Manager
   
 
TENANT:
 
BHCMC, L.L.C.
   
 
By:  /s/ Clark D. Stewart
 
Name:  Clark D. Stewart
 
Title:  CEO

 
 
 
 
ADDENDUM TO LEASE
BY AND BETWEEN BHC INVESTMENT COMPANY, L.C. AS LANDLORD
AND BHCMC, L.L.C. AS TENANT
 
Landlord and Tenant acknowledge the exact amount of cash needed for the Property is uncertain at this time.  Tenant shall determine whether more funds are needed and advise Landlord of the amount needed, not to exceed $3,250,000 total (additional sums of up to $750,000).
 
If Tenant requests additional funds from Landlord, Landlord agrees that Tenant may retain (and add to the balance owed to Landlord) any or all of the payments due Landlord under Section 4.1(b)(ii) up to, but not to exceed $750,000, and add such balances to the principal sum advanced by Landlord to Tenant.  Thereafter Monthly Rent shall be adjusted based upon the increased funding provided by Landlord based upon twelve percent (12%) annual return over the remainder of the term.
 
Tenant shall, in all events, pay monthly amounts based upon total advances made by Landlord to Tenant at a one percent (1%) monthly return on or before the 5 th day of each calendar month for the period of time prior to Rent Commencement Date.  (Tenant shall not make any payment of interest for the calendar month immediately prior to the Rent Commencement Date as such interest shall be part of the Monthly Rent.)
 
Accepted and approved:
 
 
LANDLORD
 
BHC INVESTMENT COMPANY, L.C.
   
 
By: /s/ Jeffery L. Ungerer
 
Name:  Jeffrey L. Ungerer
 
Title:  Manager
   
 
TENANT:
 
BHCMC, L.L.C.
   
 
By:  /s/ Clark D. Stewart
 
Name:  Clark D. Stewart
 
Title:  CEO
 
 
Exhibit 31.1

CERTIFICATIONS

I, Clark D. Stewart, certify that:

1.
I have reviewed this quarterly report on Form 10-Q ended July 31, 2012 of Butler National Corporation.

2.
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:  September 14, 2012
s/s Clark D. Stewart
 
 
Clark D. Stewart
 
 
President and Chief Executive Officer
 
 
Exhibit 31.2

CERTIFICATIONS

I, Angela D. Shinabargar, certify that:

1.
I have reviewed this quarterly report on Form 10-Q ended July 31, 2012 of Butler National Corporation.

2.
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:  September 14, 2012
s/s Angela D. Shinabargar
 
 
Angela D. Shinabargar
 
 
Chief Financial Officer
 
 
EXHIBIT 32.1
 
CERTIFICATION PURUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Butler National Corporation (the "Company") on Form 10-Q for the period ending July 31, 2012, as filed with the Securities and Exchange Commission on the date here of (the "Report"), I, Clark D. Stewart, Chief Executive Officer of the Company, certify, (to the best of my knowledge), pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 that;

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/Clark D. Stewart
 
 
Clark D. Stewart
 
President and Chief Executive Officer
 
Butler National Corporation
 
September 14, 2012
 

"A signed original of this written statement required by Section 906 has been provided to Butler National Corporation and will be retained by Butler National Corporation and furnished to the Securities and Exchange Commission or its staff upon request."
 
 
EXHIBIT 32.2

CERTIFICATION PURUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Butler National Corporation (the "Company") on Form 10-Q for the period ending July 31, 2012, as filed with the Securities and Exchange Commission on the date here of (the "Report"), I, Angela D. Shinabargar, Chief Financial Officer of the Company, certify, (to the best of my knowledge), pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 that;

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Angela D. Shinabargar
 
 
Angela D. Shinabargar
 
Chief Financial Officer
 
Butler National Corporation
 
September 14, 2012
 

"A signed original of this written statement required by Section 906 has been provided to Butler National Corporation and will be retained by Butler National Corporation and furnished to the Securities and Exchange Commission or its staff upon request."