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 January 31, 2013

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


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 March 8, 2013 was 58,142,914 shares.
 
 
 
 
 
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1
Financial Statements
PAGE NO.
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7-8
     
Item 2
9-21
     
Item 3
22
     
Item 4
22

PART II. OTHER INFORMATION

Item 1
23
     
Item 1A
23
     
Item 2
23
     
Item 3
23
     
Item 4
23
     
Item 5
23
     
Item 6
23-24
     
25

 
 
 
 
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of January 31, 2013 and April 30, 2012
(in thousands except per share data)
   
January 31, 2013
   
April 30, 2012
 
   
(unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash
 
$
5,438
   
$
7,431
 
Accounts receivable
   
1,968
     
3,589
 
Inventories
               
Raw materials
   
6,251
     
6,305
 
Work in process
   
1,165
     
982
 
Finished goods
   
301
     
424
 
Total inventory
   
7,717
     
7,711
 
Prepaid expenses and other current assets
   
2,189
     
1,493
 
Total current assets
   
17,312
     
20,224
 
                 
PROPERTY, PLANT AND EQUIPMENT:
               
Land and building
   
3,915
     
3,915
 
Aircraft
   
6,692
     
6,288
 
Machinery and equipment
   
3,714
     
3,714
 
Office furniture and fixtures
   
6,260
     
3,217
 
Leasehold improvements
   
4,048
     
31
 
     
24,629
     
17,165
 
Accumulated depreciation
   
(8,595
)
   
(6,688
)
Total property, plant and equipment
   
16,034
     
10,477
 
                 
SUPPLEMENTAL TYPE CERTIFICATES (net of amortization of $2,577 atJanuary 31, 2013 and $2,500 at April 30, 2012)
   
2,042
     
1,677
 
                 
OTHER ASSETS:
               
Deferred tax asset
   
1,167
     
1,167
 
Other assets (net of accumulated amortization of $971 at January 31, 2013 and $538 at April 30, 2012)
   
7,766
     
7,017
 
Total other assets
   
8,933
     
8,184
 
Total Assets
 
$
44,321
   
$
40,562
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES:
               
Line of credit
 
$
837
   
$
462
 
Current maturities of long-term debt and capital lease obligations
   
4,996
     
3,757
 
Accounts payable
   
1,708
     
1,169
 
Customer deposits
   
391
     
1,015
 
Gaming facility mandated payment
   
2,058
     
1,281
 
Compensation and compensated absences
   
1,190
     
1,342
 
Income tax
   
-
     
47
 
Other current liabilities
   
291
     
207
 
Total current liabilities
   
11,471
     
9,280
 
                 
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT MATURITIES:
   
9,676
     
8,678
 
Total liabilities
   
21,147
     
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 58,142,914 shares at January 31, 2013 and 57,907,564 shares at April 30, 2012
   
581
     
579
 
Common stock, owed but not issued 278,573 shares at January 31, 2013 and at April 30, 2012
   
3
     
3
 
Capital contributed in excess of par
   
12,764
     
12,568
 
Treasury stock at cost, 600,000 shares
   
(732
)
   
(732
)
Retained Earnings
   
7,797
     
8,170
 
Total stockholders’ equity Butler National Corporation
   
20,413
     
20,588
 
Noncontrolling Interest in BHCMC, LLC
   
2,761
     
2,016
 
Total stockholders' equity
   
23,174
     
22,604
 
Total Liabilities and Stockholders' Equity
 
$
44,321
   
$
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 JANUARY 31, 2013 AND 2012
(in thousands, except per share data)
(unaudited)

   
THREE MONTHS ENDED
January 31,
 
   
2013
   
2012
 
REVENUES:
           
Professional services
 
$
8,328
   
$
9,548
 
Aerospace products
   
2,672
     
4,186
 
Total revenues
   
11,000
     
13,734
 
                 
COSTS AND EXPENSES:
               
Cost of professional services
   
5,304
     
5,199
 
Cost of aerospace products
   
2,492
     
3,086
 
Marketing and advertising
   
784
     
1,149
 
Employee benefits
   
586
     
589
 
Depreciation and amortization
   
848
     
559
 
General, administrative and other
   
1,505
     
1,584
 
Total costs and expenses
   
11,519
     
12,166
 
                 
OPERATING INCOME
   
(519
)
   
1,568
 
                 
OTHER INCOME (EXPENSE):
               
Interest expense
   
(417
)
   
(179
)
Other income (expense), net
   
-
     
-
 
Total other income (expense)
   
(417
)
   
(179
)
                 
INCOME (LOSS) BEFORE INCOME TAXES
   
(936
)
   
1,389
 
                 
PROVISION FOR INCOME TAXES
   
(200
)
   
278
 
                 
NET INCOME (LOSS)
   
(736
)
   
1,111
 
Net income attributable to noncontrolling interest in BHCMC, LLC
   
(19
)
   
(543
)
NET INCOME (LOSS) ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION
 
$
(755
)
 
$
568
 
                 
BASIC EARNINGS PER COMMON SHARE
 
$
(.01
)
 
$
.01
 
                 
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
   
57,542,914
     
56,594,262
 
                 
DILUTED EARNINGS PER COMMON SHARE
 
$
(.01
)
 
$
.01
 
                 
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
   
57,542,914
     
56,594,262
 

The accompanying notes are an integral part of these financial statements
 
 
4
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 2013 AND 2012
(in thousands, except per share data)
(unaudited)

   
NINE MONTHS ENDED
January 31,
 
   
2013
   
2012
 
REVENUES:
           
Professional services
 
$
27,305
   
$
27,285
 
Aerospace products
   
10,700
     
12,736
 
Total revenues
   
38,005
     
40,021
 
                 
COSTS AND EXPENSES:
               
Cost of professional services
   
15,811
     
15,191
 
Cost of aerospace products
   
8,593
     
8,599
 
Marketing and advertising
   
2,901
     
4,286
 
Employee benefits
   
1,590
     
2,098
 
Depreciation and amortization
   
2,304
     
1,495
 
General, administrative and other
   
5,341
     
4,731
 
Total costs and expenses
   
36,540
     
36,400
 
                 
OPERATING INCOME
   
1,465
     
3,621
 
                 
OTHER INCOME (EXPENSE):
               
Interest expense
   
(1,095
)
   
(360
)
Other income (expense), net
   
10
     
3
 
Total other income (expense),
   
(1,085
)
   
(357
)
                 
INCOME BEFORE INCOME TAXES
   
380
     
3,264
 
                 
PROVISION FOR INCOME TAXES
   
8
     
666
 
                 
NET INCOME
   
372
     
2,598
 
Net income attributable to noncontrolling interest in BHCMC, LLC
   
(745
)
   
(1,463
)
NET INCOME (LOSS) ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION
 
$
(373
)
 
$
1,135
 
                 
BASIC EARNINGS PER COMMON SHARE
 
$
(.01
)
 
$
.02
 
                 
                 
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
   
57,537,995
     
56,594,262
 
                 
DILUTED EARNINGS PER COMMON SHARE
 
$
(.01
)
 
$
.02
 
                 
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
   
57,537,995
     
56,594,262
 
 
The accompanying notes are an integral part of these financial statements
 
 
5
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING JANUARY 31, 2013 AND 2012
(dollars in thousands)
(unaudited)
 
   
NINE MONTHS ENDED
January 31,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
 
$
372
   
$
2,598
 
Adjustments to reconcile cash flows from operating activities
               
Depreciation and amortization
   
2,417
     
1,548
 
Stock issued for services
   
91
     
-
 
Stock options issued to employees and directors
   
107
     
347
 
                 
Changes in assets and liabilities
               
Accounts receivable
   
1,621
     
(1,872
)
Inventories
   
(6
)
   
(304
)
Prepaid expenses and other current assets
   
(1,878
)
   
(51
)
Accounts payable
   
539
     
(576
)
Customer deposits
   
(624
)
   
(514
)
Accrued liabilities
   
(199
)
   
(673
)
Gaming facility mandated payment
   
777
     
(955
)
Other liabilities
   
84
     
65
 
Cash flows from operating activities
   
3,301
     
(387
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Capital expenditures
   
(2,707
)
   
(1,229
)
Leasehold Improvements
   
(4,017
)
   
-
 
Cash flows from investing activities
   
(6,724
)
   
(1,229
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Borrowings line of credit, net
   
375
     
525
 
Contributed capital
   
-
     
5
 
Borrowings of promissory notes, long-term debt and capital lease obligations
   
3,416
     
728
 
Repayments of promissory notes, long-term debt and capital lease obligations
   
(2,361
)
   
(1,692
)
Cash flows from financing activities
   
1,430
     
(434
)
                 
NET INCREASE (DECREASE) IN CASH
   
(1,993
)
   
(2,050
)
                 
CASH, beginning of period
   
7,431
     
8,475
 
                 
CASH, end of period
 
$
5,438
   
$
6,425
 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
Interest paid
 
$
1,095
   
$
358
 
Income taxes paid
 
$
783
   
$
862
 
                 
NON CASH OPERATING ACTIVITY
               
Non cash stock issued for services
 
$
91
   
$
-
 
Non cash stock options issued to employees and directors
 
$
107
   
$
347
 
Capitalized lease intangible assets
 
$
1,182
   
$
7,423
 
Capitalized lease obligation
 
$
1,182
   
$
7,423
 
 
The accompanying notes are an integral part of these financial statements
 
 
6
 
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
(in thousands, except per share data)
(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 and nine months ended January 31, 2013 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.Financial amounts are in thousands of dollars except per share amounts.

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. Potential common shares as of January 31, 2013are 65,683,551.

3. Research and Development: We invested in research and development activities. The amount invested in the nine months ended January 31, 2013 and 2012 was approximately $1,268 and $1,208 respectively.

4. Borrowings: At January 31, 2013, the Company had one line of credit totaling $1 million. The unused line at January 31, 2013 was $163. During the current year these funds were primarily used for the purchase of inventory for the modifications and avionics operations.

At January 31, 2013, there were several notes collateralized by aircraft security agreements totaling $2,132. These notes were used for the purchase and modifications of these collateralized aircraft.

There are three notes at a bank totaling $1,746 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 $336 remains for real estate purchased in June 2009 in Dodge City, Kansas.

One note with a balance of $266 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 $155.

One note was entered into with Konami Gaming, Inc. effective August 1, 2012, in the amount of $1,733. The purchase of the gaming system was installed at Boot Hill Casino in mid-August and has a current remaining balance of $1,382.

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 September 30, 2017. The remaining balance on the obligation is $6,248.
 
On August 24, 2012, BHCMC and BHCI entered into a second lease (“Second Lease”) of $2,500 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 November 30, 2017.The remaining balance on the obligation is $2,407.
 
 
7
 
6. Other Assets: Other assets include an intangible asset of $5,500 related to the Kansas Expanded Lottery Act Management Contract privilege fee, JET autopilot intellectual property of $2,055, other assets including gaming advances of $547. 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. 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 (“RSIG”). The market value was $91 at date of issue. The expense will be amortized over the term of the agreement. These shares were issued in consideration for RSIG’s marketing and consulting services related to increasing public awareness and shareholder interest in the Company.

The issuance of stock by the Company to RSIG is exempt from registration pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. RSIG has represented to the Company and the Company believes that RSIG 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 all of which expire on December 31, 2015.

The exercise price for the incentive stock options is $0.49. 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. There are 2,420,688 options that may be exercised if and when the share price reaches $0.92, and 2,420,688 options that may be exercised if and when the share price reaches $1.41, and 2,420,688 options that may be exercised on or after December 31, 2013 if and when the share price reaches $1.90.

At January 31, 2013 we had 7,262,064 outstanding stock options with an average exercise price of $1.42.
 
 
8
 
ITEM 2.

THROUGHOUT THIS ITEM 2 ALL NON TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS EXCEPT WHERE MILLIONS OF DOLLARS IS INDICATED.

Forward Looking Statements
 
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. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q and reference to the Cautionary Statements filed by us as Exhibit 99 to the Annual Report on Form 10-K form including the following factors:

 
·
the impact of general economic trends on the Company's business;
 
·
the deferral or termination of programs or contracts for convenience by customers;
 
·
market acceptance of the Company's Aerospace products and or other planned products or product enhancements;
 
·
the ability to gain and maintain regulatory approval of existing products and services and receive regulatory approval of new businesses and products;
 
·
the actions of regulatory, legislative, executive or judicial decisions of the federal, state or local level with regard to our business and the impact of any such actions;
 
·
failure to retain/recruit key personnel;
 
·
the availability of government funding;
 
·
delays in receiving components from third party suppliers;
 
·
the competitive environment;
 
·
the bankruptcy or insolvency of one or more key customers;
 
·
new product offerings from competitors;
 
·
protection of intellectual property rights;
 
·
the ability to service the international market;
 
·
United States and other country defense spending cuts;
 
·
increases in the effective rate of taxation any of our properties or at the corporate level;
 
·
potential future acquisitions; and
 
·
other factors disclosed from time to time in the Company's filings with the Securities and Exchange Commission.

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 fiscal 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.

 
9

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 revenue from product and service innovations, strategic acquisitions, and targeted marketing programs.

Our revenue is 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 in the Company’s fiscal year 2012 annual report on Form 10K.

Aerospace products derives its revenue 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, service, 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 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.

Aerospace continues to be a 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 revenue from (a) professional management services in the gaming industry through Butler National Service Corporation (“BNSC”) and BHCMC, LLC (“BHCMC”), (b) licensed architectural 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.
 
 
10
 
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, other members of the Board 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. 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 end per the management agreement the participation of the Miami Indian tribe from the business and to extend the duration of the Stables Management Agreement through September 30, 2018. BCS Design has also assisted with the design, construction and continued refurbishment of the Stables.

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”). 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). BHCMC was organized to be the manager of the Boot Hill Casino and Resort in Dodge City, Kansas. The casino opened in December 2009.

The Phase II expansion of Boot Hill Casino and Resort began in early 2012 and was completed in January 2013. The unfinished gaming floor space built during Phase I construction and tenant improvements was funded by tenant improvement leases, gaming machine leases, and casino earnings, with minimum exposure to Butler National Corporation. The Phase II expansion included the interior finish of 15,000 square feet of casino shell and 216 additional gaming machines. Part of the expansion included a breezeway connecting the Boot Hill Casino and Resort and the Dodge City special events center (United Wireless Arena). In late January 2013 the snack bar was reopened with additional seating and space as the “Cowboy Cafe.” Boot Hill Casino and Resort now has approximately 800 gaming machines on the floor.

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

Results Overview

The nine months ending January 31, 2013 revenue decreased 5% to $38.0 million compared to $40.0 million in the nine months ending January 31, 2012. In the nine months ending January 31, 2013 the professional services revenue was relatively unchanged at $27.3 million. There was a decrease of 16% in the aerospace products revenue for the nine months ending January 31, 2013. We anticipate future domestic military spending reductions and continued slow growth of the United States economy.

The nine months ending January 31, 2013 net income decreased 133% to a loss of $373 compared to net income of $1,135 in the nine months ending January 31, 2012. Diluted earnings per share decreased to $(0.01) for the nine months ending January 31, 2013 and January 31, 2012. We continue focusing on our margin expansion initiatives, including efficiencies in our implementation and operational processes and controlling general and administrative expenses. The nine months ending January 31, 2013, operating margin was 4%, a decrease of five percentage points from our margin of 9% in the nine months ending January 31, 2012.

 
11
 
RESULTS OF OPERATIONS

NINE MONTHS ENDING JANUARY 31, 2013 COMPARED TO NINE MONTHS ENDING JANUARY 31, 2012

(dollars in thousands)
 
Nine
Months
Ended
Jan. 31, 2013
   
Percent
of Total
Revenue
 
Nine
Months
Ended
Jan. 31, 2012
   
Percent
of Total
Revenue
 
Percent
Change
2012-2013
Revenues:
                             
Professional services
 
$
27,305
     
72
%
 
$
27,285
     
68
%
   
0
%
Aerospace products
   
10,700
     
28
%
   
12,736
     
32
%
   
(16
)%
                                         
Total revenues
   
38,005
     
100
%
   
40,021
     
100
%
   
(5
)%
                                         
Costs and expenses:
                                       
Cost of professional services
   
15,811
     
42
%
   
15,191
     
38
%
   
4
%
Cost of aerospace products
   
8,593
     
23
%
   
8,599
     
21
%
   
0
%
Marketing and advertising
   
2,901
     
8
%
   
4,286
     
11
%
   
(32
)%
Employee benefits
   
1,590
     
4
%
   
2,098
     
5
%
   
(24
)%
Depreciation and amortization
   
2,304
     
6
%
   
1,495
     
4
%
   
54
%
General, administrative and other
   
5,341
     
14
%
   
4,731
     
12
%
   
13
%
                                         
Total costs and expenses
   
36,540
     
96
%
   
36,400
     
91
%
   
0
%
Operating income
 
$
1,465
     
4
%
 
$
3,621
     
9
%
   
(60
)%

Revenues:

Revenue decreased 5% to $38.0 million in the nine months ended January 31, 2013, as compared to $40.0 million in the nine months ended January 31, 2012.

 
·
Professional services derives its revenue from professional management services in the gaming industry through BNSC and BHCMC, licensed architectural services to the business community through BCS Design and monitoring services to owners and operators of SCADA through BNSI. Revenue from professional services was relatively unchanged at $27.3 million in the nine months ended January 31, 2013andJanuary 31, 2012.
 
·
Aerospace products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace products revenue decreased 16% for the nine months to $10.7 million at January 31, 2013 compared to $12.7 million at January 31, 2012. We anticipate future domestic military spending reductions and 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.

Costs and expenses increased 0.4% in the nine months ended January 31, 2013 to $36.5 million compared to $36.4 million in the nine months ended January 31, 2012. Costs and expenses were 96% of total revenue in the nine months ended January 31, 2013, as compared to 91% of total revenue in the nine months ended January 31, 2012. The increased costs and expenses as a percent of total revenue in the nine months ended January 31, 2013 were primarily driven by an increase in labor, material, depreciationand amortization expenses.
 
 
12
 
Marketing and advertising expenses as a percent of total revenue was 8% in the nine months ended January31, 2013, as compared to 11% in nine months ended January 31, 2012. These expenses decreased 32% to $2.9 million in the nine months ended January 31, 2013, from $4.3 million in the nine months ended January 31, 2012. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions. Boot Hill Casino marketing expenses increased $372, however other gaming development expenses decreased. The Boot Hill Casino increase was primarily attributable to additional focus in the professional services business reflecting a marketing plan to target specific marketing sectors to increase destination casino revenue. The Boot Hill Casino and Resort definition of the 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 revenue was 4% in the nine months ended January 31, 2013, compared to 5% in the nine months ended January 31, 2012. These expenses decreased 24% to $1.6 million in the nine months ended January 31, 2013, from $2.1 million in the nine months ended January 31, 2012. 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 revenue was 6% in the nine months ended January 31, 2013, compared to 4% in the nine months ended January 31, 2012. These expenses increased 54% to $2.3 million in the nine months ended January 31, 2013, from $1.5 million in the nine months ended January 31, 2012. 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. Phase II expansion to Boot Hill Casinowas formally completed in early January 2013 and we began depreciation on $4.9 million of assets with various useful lives. BHCMC, LLC depreciation and amortization expense for the nine months ended January 31, 2013 was $848 compared to $102 at January 31, 2012.

General, administrative and other expenses as a percent of total revenue was 14% in the nine months ended January 31, 2013, compared to 12% in the nine months ended January 31, 2012. These expenses increased 13% to $5.3 million in the nine months ended January 31, 2013, from $4.7 million in the nine months ended January 31, 2012. The increase reflects increased costs of administrative personnel in professional services, increased legal fees and expenses, and increased outside professional consulting fees related to working within the Kansas gaming regulations.

Other income (expense):

Interest and other expenses were $1.1 million in the nine months ended January 31, 2013 compared with interest and other expenses of $357in the nine months ended January 31, 2012, an increase of $728, 204%, from the nine months ended January 31, 2012 to the nine months ended January 31, 2013. Interest of $861 was related to obligations of BHCMC, LLC.
 
 
13
 
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 revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.

The following table presents a summary of our operating segment information for the nine months ended January 31, 2013 and January 31, 2012:

(dollars in thousands)
 
Nine
Months
Ended
Jan. 31, 2013
   
Percent of
Revenue
 
Nine
Months
Ended
Jan. 31, 2012
   
Percent of
Revenue
 
Percent
Change
2012-2013
Professional Services
                             
Revenues
                             
Boot Hill Casino and Resort
 
$
24,054
     
88
%
 
$
23,689
     
87
%
   
1
%
Management/Professional Services
   
3,251
     
12
%
   
3,596
     
13
%
   
(10
)%
Revenues
   
27,305
     
100
%
   
27,285
     
100
%
   
0
%
                                         
Costs of professional services
   
15,811
     
58
%
   
15,191
     
56
%
   
4
%
Expenses
   
9,242
     
34
%
   
9,466
     
35
%
   
(2
)%
Total costs and expenses
   
25,053
     
92
%
   
24,657
     
90
%
   
2
%
Professional services operating income before noncontrolling interest in BHCMC, LLC
   
2,252
     
8
%
   
2,628
     
10
%
   
(14
)%
Noncontrolling interest in BHCMC, LLC
   
(745
)
   
3
%
   
(1,463
)
   
5
%
   
(49
)%
                                         
Professional services operating income after noncontrolling interest in BHCMC, LLC
 
$
1,507
     
6
%
 
$
1,165
     
4
%
   
29
%
 
(dollars in thousands)
 
Nine
Months
Ended
Jan. 31, 2013
   
Percent of
Revenue
   
Nine
Months
Ended
Jan. 31, 2012
   
Percent of
Revenue
   
Percent
Change
2012-2013
 
Aerospace Products
                             
Revenues
 
$
10,700
     
100
%
 
$
12,736
     
100
%
   
(16
)%
                                         
Costs of aerospace products
   
8,593
     
80
%
   
8,599
     
68
%
   
0
%
Expenses
   
2,894
     
27
%
   
3,144
     
25
%
   
(8
)%
Total costs and expenses
   
11,487
     
107
%
   
11,743
     
92
%
   
(2
)%
                                         
Aerospace products operating income (loss)
 
$
(787
)
   
(7
)%
 
$
993
     
8
%
   
(179
)%

Professional Services
 
·
Revenue from professional services were relatively unchanged at $27.3 million in the nine months ended January 31, 2013andJanuary 31, 2012.

In the nine months ended January 31, 2013 Boot Hill Casino and Resort received gross receipts for the State of Kansas of $31.8 million compared to $32.1 million for the nine months ended January 31, 2012. Mandated fees, taxes and distributions reduced gross receipts by $10.2 million resulting in gaming revenue of $21.6 million for the nine months ended January 31, 2013 compared to $21.1 million for the nine months ended January 31, 2012 an increase of 2.7%.
 
 
14
 
The remaining management and professional services revenue include professional management services in the gaming industry, licensed architectural services, food, beverage, and retail from Boot Hill Casino and Resort, and monitoring services for SCADA systems. Management and professional services revenue decreased 57.2% to $5.7 million in the nine months ended January 31, 2013 from $6.2 million in the nine months ended January 31, 2012. Gaming related revenue including food, beverage, and retail decreased 8.1% to $2.4 million for the nine months ended January 31, 2013 compared to $2.6 million for the nine months ended January 31, 2012. Professional services revenue including architectural, engineering and monitoring services decreased9.6% to $3.2 million for the current nine months ended January 31, 2013.
 
·
Costs increased 4% in the nine months ended January 31, 2013 to $15.8 million compared to $15.2 million in the nine months ended January 31, 2012. Costs were 58% of segment total revenue in the nine months ended January 31, 2013, as compared to 56% of segment total revenue in the nine months ended January 31, 2012.
 
·
Expenses decreased 2% in the nine months ended January 31, 2013 to $9.2 million compared to $9.5 million in the nine months ended January 31, 2012. Expenses were 34% of segment total revenue in the nine months ended January 31, 2013, as compared to 35% of segment total revenue in the nine months ended January 31, 2012.

Aerospace Products
 
·
Revenue decreased 16% to $10.7 million in the nine months ended January 31, 2013 compared to $12.7 million in the nine months ended January 31, 2012. This decrease is attributable to reduced revenue of $2.0 million in the aerospace segment. We anticipate future domestic military spending reductions and continued slow growth of the United States economy.In an effort to offset decreased domestic military spending, we have invested in the development of several STCs.  These STCs are state of the art avionics and we are aggressively marketing both domestically and internationally.
 
·
Costs were relatively unchanged in the nine months ended January 31, 2013at $8.6 million compared tothe nine months ended January 31, 2012. Costs were 80% of segment total revenue in the nine months ended January 31, 2013, as compared to 68% of segment total revenue in the nine months ended January 31, 2012.
 
·
Expenses decreased 8% in the nine months ended January 31, 2013 at $2.9 million compared to $3.1 million in the nine months ended January 31, 2012. Expenses were 27% of segment total revenue in the nine months ended January 31, 2013, as compared to 25% of segment total revenue in the nine months ended January 31, 2012.

Employees

Other than persons employed by our gaming subsidiaries there are 98 full time and 2 part time employees on January 31, 2013 compared to 108 full time and 3 part time employees on January 31, 2012. As of March 8, 2013, staffing is 98 full time and 2 part time employees. Our staffing at Boot Hill Casino & Resort on January 31, 2013 was 222 full time and 58 part time employees. At March 8, 2013 there are 213 full time employees and 63 part time employees. None of the employees are subject to any collective bargaining agreements.
 
 
15
 
THIRD QUARTER FISCAL 2013 COMPARED TO THIRD QUARTER FISCAL 2012

(dollars in thousands)
 
Three
Months
Ended
Jan. 31, 2013
   
Percent
of Total
Revenue
 
Three
Months
Ended
Jan. 31, 2012
   
Percent
of Total
Revenue
 
Percent
Change
2012-2013
Revenues:
                             
Professional services
 
$
8,328
     
76
%
 
$
9,548
     
70
%
   
(13
)%
Aerospace products
   
2,672
     
24
%
   
4,186
     
30
%
   
(36
)%
                                         
Total revenues
   
11,000
     
100
%
   
13,734
     
100
%
   
(20
)%
                                         
Costs and expenses:
                                       
Cost of professional services
   
5,304
     
48
%
   
5,199
     
38
%
   
2
%
Cost of aerospace products
   
2,492
     
23
%
   
3,086
     
22
%
   
(19
)%
Marketing and advertising
   
784
     
7
%
   
1,149
     
8
%
   
(32
)%
Employee benefits
   
586
     
5
%
   
589
     
4
%
   
(1
)%
Depreciation and amortization
   
848
     
8
%
   
559
     
4
%
   
52
%
General, administrative and other
   
1,505
     
14
%
   
1,584
     
12
%
   
(5
)%
                                         
Total costs and expenses
   
11,519
     
105
%
   
12,166
     
89
%
   
(5
)%
Operating income
 
$
(519
)
   
(5
)%
 
$
1,568
     
11
%
   
(133
)%

Revenues:

Revenue decreased20% to $11.0 million in the three months ended January 31, 2013, as compared to $13.7 million in the three months ended January 31, 2012.

 
·
Professional services derives its revenue from professional management services in the gaming industry through BNSC and BHCMC, licensed architectural, and engineering services to the business community through BCS Design and monitoring services to owners and operator of SCADA through BNSI. Revenue from professional services decreased 13% from $8.3 million in the three months ended January 31, 2013 from $9.5 million in the three months ended January 31, 2012. The decrease in professional services revenue was driven by decreased revenue from Boot Hill casino of $664 and all other professional services of $556.
 
·
Aerospace products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace products revenue decreased 36% for the three months to $2.7 million at January 31, 2013, compared to $4.2 million at January 31, 2012. This decrease is attributable to decreases in all aerospace products. We anticipate future domestic military spending reductions and 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.

Costs and expenses decreased 5% in the three months ended January 31, 2013 to $11.5 million compared to $12.2 million in the three months ended January 31, 2012. Costs and expenses were 105% of total revenue in the three months ended January 31, 2013, as compared to 89% of total revenue in the three months ended January 31, 2012.

Marketing and advertising expenses as a percent of total revenue was 7% in the three months ended January 31, 2013, as compared to 8% in three months ended January 31, 2012. These expenses decreased 32% to $784 in the three months ended January 31, 2013, from $1.1 million in the three months ended January 31, 2012. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions. Boot Hill Casino marketing expenses decreased slightly from January 2012.  The marketing plan is to target specific marketing sectors to increase destination casino revenue. The Boot Hill Casino and Resort definition of the market includes the area east from the Rocky Mountains to the Mississippi River and the southern Canadian border to the northern border of Mexico.
 
 
16
 
Employee benefits expenses as a percent of total revenue was 5% in the three months ended January 31, 2013, compared to 4% in the three months ended January 31, 2012. These expenses decreased 1% to $586in the three months ended January 31, 2013, from $589 in the three months ended January 31, 2012. 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.  The expense for health insurance and workers compensation however continues to increase on a per employee basis.

Depreciation and amortization expenses as a percent of total revenue was 8% in the three months ended January 31, 2013, compared to 4% in the three months ended January 31, 2012. These expenses increased 52% to $848 in the three months ended January 31, 2013, from $559 in the three months ended January 31, 2012. 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. Phase II expansion at Boot Hill casinowas formally completed in early January of 2013 and we began depreciation on $4.9 million of assets with various useful lives. BHCMC, LLC depreciation and amortization expense for the three months ended January 31, 2013 was $361 compared to $82 at January 31, 2012.

General, administrative and other expenses as a percent of total revenue was 14% in the three months ended January 31, 2013, compared to 12% in the three months ended January 31, 2012. These expenses decreased 5% to $1.5 million in the three months ended January 31, 2013, from $1.6 million inthe three months ended January 31, 2012. The decrease reflects adecrease in the number of administrative personnel in professional services, partially offset by an increase in outside professional consulting fees related to working within the Kansas gaming regulations.

Other income (expense):

Interest and other expenses were $417 in the three months ended January 31, 2013 compared with interest and other expenses of $179in the three months ended January 31, 2012, an increase of $238, 133%, from the three months ended January 31, 2012 to the three months ended January 31, 2013. Interest of $337 was related to obligations of BHCMC, LLC.
 
 
17
 
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 revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.

The following table presents a summary of our operating segment information for the three months ended January 31, 2013 and January 31, 2012:

(dollars in thousands)
 
Three
Months
Ended
Jan. 31, 2013
   
Percent of
Revenue
 
Three
Months
Ended
Jan. 31, 2012
   
Percent of
Revenue
 
Percent
Change
2012-2013
Professional Services
                             
Revenues
                             
Boot Hill Casino and Resort
 
$
7,470
     
90
%
 
$
8,134
     
85
%
   
(8
)%
Management/Professional Services
   
858
     
10
%
   
1,414
     
15
%
   
(39
)%
Revenues
   
8,328
     
100
%
   
9,548
     
100
%
   
(13
)%
                                         
Costs of professional services
   
5,304
     
64
%
   
5,199
     
54
%
   
2
%
Expenses
   
2,778
     
33
%
   
2,844
     
30
%
   
(2
)%
Total costs and expenses
   
8,082
     
97
%
   
8,043
     
84
%
   
0
%
Professional services operating income before noncontrolling interest in BHCMC, LLC
   
246
     
3
%
   
1,505
     
16
%
   
(84
)%
Noncontrolling interest in BHCMC, LLC
   
(19
)
   
0
%
   
(543
)
   
6
%
   
(97
)%
                                         
Professional services operating income after noncontrolling interest in BHCMC, LLC
 
$
227
     
3
%
 
$
962
     
10
%
   
(76
)%

(dollars in thousands)
 
Three
Months
Ended
Jan. 31, 2013
   
Percent of
Revenue
 
Three
Months
Ended
Jan. 31, 2012
   
Percent of
Revenue
 
Percent
Change
2012-2013
Aerospace Products
                             
Revenues
 
$
2,672
     
100
%
 
$
4,186
     
100
%
   
(36
)%
                                         
Costs of aerospace products
   
2,492
     
93
%
   
3,086
     
74
%
   
(19
)%
Expenses
   
945
     
35
%
   
1,037
     
25
%
   
(9
)%
Total costs and expenses
   
3,437
     
129
%
   
4,123
     
98
%
   
(17
)%
                                         
Aerospace products operating income (loss)
 
$
(765
)
   
(29
)%
 
$
63
     
2
%
   
(1,314
)%

Professional Services
 
·
Revenue from professional services decreased 13% to $8.3 million in the three months ended January 31, 2013 from $9.5 million in the three months ended January 31, 2012. The decrease in professional services revenue was driven by decreased revenue from gaming activitiesof $664 and other management and professional services of $556.
 
 
18
 
In the quarter ended January 31, 2013 Boot Hill Casino and Resort received gross receipts for the State of Kansas of $10.0 million compared to $10.7 million for the three months ended January 31, 2012. Mandated fees, taxes and distributions reduced gross receipts by $3.3 million resulting in gaming revenue of $6.7 million for the three months ended January 31, 2013 compared to $7.3 million for the three months ended January 31, 2012 a decrease of 7.9%.

The remaining management and professional services revenue includes professional management services in the gaming industry, licensed architectural services, food, beverage, and retail from Boot Hill Casino and Resort, and monitoring services for SCADA systems. Management and professional services revenue decreased 28% to $1.6 million in the three months ended January 31, 2013 from $2.3 million in the three months ended January 31, 2012. Gaming related revenue including food, beverage, and retail decreased 10.4% to $786for the three months ended January 31, 2013 compared to $877 for the three months ended January 31, 2012. Professional services revenue including architectural, engineering and monitoring services decreased 39% to $857for the current three months ended January 31, 2013, as compared to $1.4 million for the three months ended January 31, 2012.
 
·
Costs increased 2% in the three months ended January 31, 2013 to $5.3 million compared to $5.2 million in the three months ended January 31, 2012. Costs were 64% of segment total revenue in the three months ended January 31, 2013, as compared to 54% of segment total revenue in the three months ended January 31, 2012.
 
·
Expenses decreased 2% in the three months ended January 31, 2013 to $2.8 million compared to $2.8 million in the three months ended January 31, 2012. Expenses were 33% of segment total revenue in the three months ended January 31, 2013, as compared to 30% of segment total revenue in the three months ended January 31, 2012.

Aerospace Products
 
·
Revenue decreased 36% from $2.7 million in the three months ended January 31, 2013 compared to $4.2 million in the three months ended January 31, 2012. This decrease is attributable to reduced Aerospace revenue of $1.5 million. We anticipate future domestic military spending reductions and continued slow growth of the United States economy.In an effort to offset decreased domestic military spending, we have invested in the development of several STCs. These STCs are state of the art avionics and we are aggressively marketing both domestically and internationally.
 
·
Costs decreased 19% to $2.5 million in the three months ended January 31, 2013 from $3.1 million in the three months ended January 31, 2012. Costs were 93% of segment total revenue in the three months ended January 31, 2013, as compared to 74% of segment total revenue in the three months ended January 31, 2012.
 
·
Expenses decreased 9% in the three months ended January 31, 2013 at $945 compared to $1.0 million in the three months ended January 31, 2012. Expenses were 35% of segment total revenue in the three months ended January 31, 2013, as compared to 25% of segment total revenue in the three months ended January 31, 2012.

Liquidity and Capital Resources

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 fiscal 2013 and beyond.

On May 1, 2011, BHC Investment Company (BHCI) 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
%
 
 
19
 
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. The phase II development of an adjacent hotel and community owned special events center was funded by a third party, is completed, and open to the public. The Phase II expansion of Boot Hill Casino and Resort began in early 2012 and was completed in January 2013. Phase II expansion of the unfinished gaming floor space built during Phase I construction and tenant improvements was funded by tenant improvement leases, gaming machine leases, and casino earnings, with minimum exposure to Butler National Corporation. The Phase II expansion included the interior finish of 15,000 square feet of casino shell and 216 additional gaming machines. Part of the expansion included a breezeway connecting the Boot Hill Casino and Resort and the Dodge City special events center (United Wireless Arena).In late January 2013 the snack bar was reopened with additional seating and space as the “Cowboy Cafe.”Boot Hill Casino and Resort now has approximately 800 gaming machines on the floor.

Analysis and Discussion of Cash Flow

During the nine months ended January 31, 2013 our cash position decreased by $1,993. We had net income of $372. Cash flows from operating activities provided $3,301. Non-cash activities consisting of depreciation and amortization contributed $2,417 and stock options issued to employees and directors contributed $107. Stock issued for services contributed $91. The following items decreased our cash position. Customer deposits and receivables increased by $997 while inventories decreased by $6. Prepaid expenses and other current assets decreased our cash by $1,878, while an increase in the nine months ended January 31, 2013 of accounts payable and accrued expenses increased our cash by an additional $340.

Cash used in investing activities was $6,724. We invested $405 to purchase used modification equipment and aircraft, $441 towards STCs, and $5,878 to fund the Phase II development project at Boot Hill Casino and Resort.

Cash provided by financing activities was $1,430. We reduced our debt by $2,361 and our line of credit by $375. We borrowed $365 to purchase a used aircraft and $3,051 to fund the Phase II development project at Boot Hill Casino and Resort.

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. Revenue 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.

Revenue 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.
 
 
20
 
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.

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.

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 revenue 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 revenue 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 2013 and 2014.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.
 
 
21
 
Item 3.
Please see Item 7(a) of our Form 10-K for the period ended April 30, 2012, which such Item is 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.

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 January 31, 2013. 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 January 31, 2013.

Internal Control Over Financial Reporting

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 quarter covered in this report that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

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.
 
 
22
 
PART II. - OTHER INFORMATION

Item 1.
BHCMC, LLC and BHC Development LC filed a lawsuit in the United States District Court on June 21,2012 against Bally Gaming Inc. doing business as Bally Technologies for breach of contract and negligent misrepresentation, among other claims related to the performance of computer software systems. BHCMC and BHC Development seek damages in excess of $75,000. Bally’s has counterclaimed for an alleged breach of contract and an alleged continued use of the system. Bally's alleges damages in excess of $410,099.43 which BHCMC and BHC Development deny. BHCMC and BHC Development are vigorously contesting the counterclaims.

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.
None.

Item 5.
On March 12, 2013 the Company amended its bylaws to include Section 1.11, which now requires stockholder proposals (including proposals relating to the nomination of a director) to be provided in writing not less than 120 days before the first anniversary of the mailing date of the notice of the preceding year's stockholder annual meeting. The full bylaws of the Company are attached hereto as Exhibit 3.2 and incorporated herein by reference. The addition of Section 1.11 to the bylaws does not change the date upon which stockholder proposals must be received by the Company's Secretary (such date remains May 28, 2013, as previously identified in the Company's definitive proxy statement for the 2012 annual meeting of stockholders). New Section 1.11 of the Company's bylaws also requires that a stockholder proposal must contain the information required by the Securities Exchange Act of 1934 for any nominee to the board of directors. The submission to the Company must also include a brief description of the business proposed to be brought for the stockholder meeting, the reasons for conducting such business, a description of any material interest the person making the proposal may have in such business, and such information as to permit the Company to confirm the ownership of the Company's common stock held by the person making the proposal.

Item 6.
 
 
10.1
Lease between Butler National Service Corporation and BHC Development, L.C., dated April 30, 2009
     
 
10.2
Legal Description Lot 1 in a future replat of Mariah Center
     
 
10.3
Legal Description Lot 2 in a future replat of Mariah Center
     
 
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 approved by the Board of Directors onMarch 12, 2013.
     
 
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).
 
 
23
 
 
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 January 31, 2013, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of January 31, 2013 and April 30, 2012, (ii) Condensed Consolidated Statements of Operations for the three months ended January 31, 2013 and 2012, (iii) Condensed Consolidated Statements of Operations for the nine months ended January 31, 2013 and 2012, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2013 and 2012, and (v) 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.”
 
 
24
 
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)
   
March 14, 2013
/s/ Clark D. Stewart
Date
Clark D. Stewart
 
(President and Chief Executive Officer)
   
March 14, 2013
/s/ Angela D. Shinabargar
Date
Angela D. Shinabargar
 
(Chief Financial Officer)
 
 
25
 
Exhibit Index

Exhibit
Number
Description of Exhibit
Lease between Butler National Service Corporation and BHC Development, L.C., dated April 30, 2009
   
Legal Description Lot 1 in a future replat of Mariah Center
   
Legal Description Lot 2 in a future replat of Mariah Center
   
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.
   
Bylaws, as amended, are incorporated by reference to Exhibit A of this Form 10Q filed on March 12, 2013.
   
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 January 31, 2013, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of January 31, 2013 and April 30, 2012, (ii) Condensed Consolidated Statements of Operations for the three months ended January 31, 2013 and 2012, (iii) Condensed Consolidated Statements of Operations for the nine months ended January 31, 2013 and 2012, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2013 and 2012, and (v) 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.”
 
 
Exhibit 3.2

BYLAWS

OF

BUTLER NATIONAL CORPORATION

ARTICLE I

Stockholders

Section 1.1.  Annual Meetings.  An annual meeting of stockholders shall be held on the 1st Tuesday of October of each year, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which the stockholders shall elect directors by a plurality vote to serve until the next meeting of stockholders and shall transact such other business as may properly be brought before the meeting.  The meeting may be held either within or without the State of Kansas as may be designated by the Board of Directors from time to time.

Section 1.2.  Special Meetings.  Special meetings of stockholders may be called at any time by the Chairman of the Board, the Vice Chairman of the Board, if any, the Chief Executive Officer, the President or the Board of Directors, to be held at such date, time and place either within or without the State of Kansas as may be stated in the notice of the meeting.

Section 1.3.  Notice of Meetings.  Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.  Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.  If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation.

Section 1.4.  Adjournments.  Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting.  If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 1.5.  Quorum.  At each meeting of stockholders, except where otherwise provided by law or the Articles of Incorporation or these bylaws, the holders of a 35% of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum.  For purposes of the foregoing, two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting.  In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 1.4 of these Bylaws until a quorum shall attend.  Shares of its own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

Section 1.6.  Organization.  Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the Chief Executive Officer, President, or in their absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting.  The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
 
 
 
 
 
Section 1.7.  Voting; Proxies.  Unless otherwise provided in the Articles of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Reference to the Articles of Incorporation in these Bylaws shall mean the Company's Articles of Incorporation as may be amended and/or restated.  Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.  A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation.  Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine.  At all meetings of stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect.  All other elections and questions shall, unless otherwise provided by law or by the Articles of Incorporation or these Bylaws, be decided by the vote of the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at the meeting, provided that (except as otherwise required by law or by the Articles of Incorporation) the Board of Directors may require a larger vote upon any election or question.

Section 1.8.  Fixing Date for Determination of Stockholders of Record.  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.  If no record date is fixed:  (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

Section 1.9.  List of Stockholders Entitled to Vote.  The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.

Section 1.10.  Consent of Stockholders in Lieu of Meeting.  Unless otherwise provided in the Articles of Incorporation, any action required by law to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all the holders of outstanding stock entitled to vote thereon.  In the event that the action which is consented is such as would have required the filing of a certificate under any section of the Kansas Statutes, if such action had been voted upon by stockholders at a meeting thereof, the certificate filed under such other section shall state, in lieu of any statement required by such section concerning a vote of stockholders, that written consent has been given in accordance with the provision of this section.
 
 
 
 
 
Section 1.11.  Stockholder Proposals. For any stockholder proposal to be presented in connection with an annual meeting of stockholders of the Corporation, including any proposal relating to the nomination of a director or directors to be elected to the Board of Directors of the Corporation, the stockholder putting forth such proposal must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 120 days before the first anniversary of the mailing date of the notice of the preceding year's annual meeting. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business   of such stockholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.
 
ARTICLE II

Board of Directors

Section 2.1.  Powers; Number; Tenure.  Except as otherwise specifically provided by applicable statute, all powers of management, direction and control of the Corporation shall be vested in its Board of Directors.

The total number of directors of the Corporation which shall initially constitute the whole Board of Directors of the Corporation shall be five (5).  Thereafter, the minimum and maximum number of directors shall be as set forth in the Articles of Incorporation.  The Board of Directors shall have the power to change the number of directors by resolution adopted by a majority of the whole Board.

The directors shall hold office for a term of three years and shall be so elected that a bare majority shall not be elected in any one year.  The Board shall be comprised of the following three classes of Directors:  Class I, Class II and Class III.  The initial term of the Class I Directors shall expire one year after their initial election, the initial term of the Class II Directors shall expire two years after their initial election, and the initial term of the Class III Directors shall expire three years after their initial election.  After the expiration of the initial term, each class of Directors shall be elected to a three year term.  Directors shall hold office until their successors have been elected and qualified.

Section 2.2.  Resignation; Removal; Vacancies.  Any director may resign at any time upon written notice to the Board of Directors or to the Chief Executive Officer, President or the Secretary of the Corporation.  Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective.

Section 2.3.  Regular Meetings.  Regular meetings of the Board of Directors may be held at such places within or without the State of Kansas and at such times as the Board may from time to time determine, and if so determined, notice thereof need not be given.

Section 2.4.  Special Meetings.  Special meetings of the Board of Directors may be held at any time or place within or without the State of Kansas whenever called by the Chairman of the Board, or by the Vice Chairman of the Board, if any, by the Chief Executive Officer, President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting.

Section 2.5.  Telephonic Meetings Permitted.  Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.
 
 
 
 
 
Section 2.6.  Quorum; Vote Required for Action.  At all meetings of the Board of Directors a majority of the total number of directors shall constitute a quorum for the transaction of business.  The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the Articles of Incorporation or these Bylaws shall require a vote of a greater number.  In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall attend.

Section 2.7.  Organization.  Meetings of the Board of Directors shall be presided over by the Chairmen of the Board or in his absence by the Vice Chairman of the Board, if any, or in his absence by the Chief Executive Officer or President, or in their absence by a chairman chosen at the meeting.  The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8.  Informal Action by Directors.  Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

ARTICLE III

Committees

Section 3.1.  Committees.  The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation.  The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member.  Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the Articles of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, removing or indemnifying directors or amending these Bylaws; and, unless the resolution expressly so provided, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.

Section 3.2.  Committee Rules.  Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business.  In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws.

 
 
 
 
ARTICLE IV

Officers

Section 4.1.  Officers; Election; Qualification; Term of Office; Resignation; Removal; Vacancies.  As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a President and a Secretary, and it may, if it so determines, elect from among its members Co-Chairmen of the Board and a Vice Chairman of the Board.  The Board may also elect a Chief Executive Officer, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and may give any of them such further designations or alternate titles as it considers desirable.  Each such officer shall hold office until the first meeting of the Board after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal.  Any officer may resign at any time upon written notice to the Board or to the Chairman, the President or the Secretary of the Corporation.  Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective.  The Board may remove any officer with or without cause at any time.  Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election or appointment of an officer shall not of itself create contractual rights.  Any number of offices may be held by the same person.  Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board at any regular or special meeting.

Section 4.2.  Powers and Duties of Executive Officers.  The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.  The Board may require any officer, agent or employee to give security for the faithful performance of his duties.

ARTICLE V

Stock
 
Section 5.1.  Certificates.  Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the Chief Executive Officer, President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by him in the Corporation.  If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

Section 5.2.  Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates.  The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

ARTICLE VI

Miscellaneous

Section 6.1.  Fiscal Year.  The fiscal year of the Corporation shall be determined by the Board of Directors.

Section 6.2.  Seal.  The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.  The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

Section 6.3.  Waiver of Notice of Meetings of Stockholders, Directors and Committees.  Whenever notice is required to be given by law or under any provision of the Articles of Incorporation or these Bylaws, a written waiver  thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Articles of Incorporation or these Bylaws.
 
 
 
 
 
Section 6.4.  Indemnification of Directors, Officers, Employees and Agents.

(a)  Directors.  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, by reason of the fact that he is or was a director of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgment, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding, including attorneys' fees, to the full extent permitted by Kansas Corporation Code, as amended, K.S.A. 17-6305.

(b)  Officers, Employees and Agents.  The Corporation may, at the discretion of the Board of Directors, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit, or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, by reason of the fact that he is or was an officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding, including attorneys' fees, to the full extent permitted by Kansas Corporation Code, as amended, K.S.A.  17- 6305.

(c)  Expenses.

(i)    The Corporation shall pay the director, or such person or entity as the director may designate, ona continuing and current basis and in any event not later than 10 business days following receipt bythe Corporation of the director's request for reimbursement of all expenses, including attorneys fees, costs, settlement, fines and judgment incurred by or levied upon the director in connection with any action, suit or proceeding referred to in Section 6.4, subsection (a).

(ii)   To the extent that an officer, employee or agent of the Corporation has been successful on themerits or otherwise in defense of any action, suit or proceeding referred to Section 6.4, subsection (b)or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by such person in connection therewith, including attorneys' fees.

(iii)  Expenses incurred by a director or officer in defending a civil or criminal action, suit, orproceeding may be paid by the Corporation in advance of the final disposition of such action, suit, orproceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it is ultimately determined that the director or officer is not entitled to be indemnified by the Corporation as authorized in these Bylaws.  Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.

(d)  Board Authorization.  Any indemnification of directors, officers, employees or agents pursuant to this Section 6.4, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that such indemnification is proper in the circumstances because such director, officer, employee or agent has met the applicable standard of conduct set forth in Kansas Corporation Code, as amended, K.S.A. 17-6305.  Such determination shall be made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or if such a quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the stockholders.
 
 
 
 
 
(e)  Notification and Defense of Claim.  Promptly after receipt by a director, officer, employee or agent of notice of the commencement of any action, suit or proceeding, the director, officer, employee or agent will, if a claim in respect thereof is to be made, against the Corporation, notify the Corporation of the commencement thereof.  The failure to promptly notify the Corporation will not relieve the Corporation from any liability that it may have to the director, officer, employee or agent hereunder, except to the extent the Corporation is prejudiced in its defense of such claim as a result of such failure.  Unless otherwise requested by the Board of Directors, written notification shall not be necessary if the director, officer, employee or agent informs a majority of the Board of Directors of the commencement of any such action, or, independent of such notification by the director, officer, employee or agent, a majority of the Board of Directors has reason to believe such action has been initiated or threatened.  With respect to any such action, suit or proceeding as to which the director, officer, employee or agent notified, or is deemed to have notified, the Corporation of the commencement thereof; the following shall apply:

(i)    The Corporation will be entitled to participate therein at its own expense;

(ii)   Except as otherwise provided below, to the extent that it may wish, the Corporation, jointly withany other indemnifying party similarly notified, will be entitled to assume the defense thereof withcounsel reasonably satisfactory to the director, officer, employee or agent.  After notice from the Corporation to the director, officer, employee or agent of its election so to assume the defense thereof, the Corporation will not be liable to the director, officer, employee or agent for any legal or other expenses subsequently incurred by the director, officer, employee or agent in connection with the defense thereof other than reasonable costs of investigation or unless: (A) the employment of separate counsel by the director, officer, employee or entity has been authorized by the Corporation; (B) the director, officer, employee or agent reasonably concludes that there may be a conflict of interest between the Corporation and the director, officer, employee or agent in the conduct of the defense of such action and that such conflict may lead to exposure for the director, officer, employee or agent and the director, officer, employee or agent notifies the Corporation of such conclusion and decision to employ separate counsel; or (C) the Corporation fails to employ counsel to assume the defense of such action. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which the director, officer, employee or agent reasonably makes the conclusion provided for in (B) above; and

(iii)  The Corporation shall not be liable to indemnify the director, officer, employee or agent for anyamount paid in settlement of any action or claim effected without its written consent.  TheCorporation shall not settle any action or claim in any manner which would impose any penalty or limitation on the director, officer, employee or agent without the written consent of the director, officer, employee or agent.  Neither the Corporation nor the director, officer, employee or agent will unreasonably withhold their consent to any proposed settlement.

(f)  Not Exclusive.  The indemnification and advancement of expenses provided by this Section 6.4 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Articles of Incorporation, as amended from time to time, or any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person.

(g)  Further Indemnity.  The Corporation shall have the power to give any further indemnity, in addition to the indemnity authorized or contemplated under this Section 6.4, to any person who is or was a director, officer, employee or agent or to any person who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; provided, no such indemnity shall indemnify any person from or on account of such person's conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct, or if it is determined by a final judgment or other final adjudication by a court of competent jurisdiction considering the question of indemnification that such payment of indemnification is or would be in violation of applicable law.  The Corporation may enter into indemnification agreements with each director and officer of the Corporation whom the Board of Directors authorizes by vote of a majority of a quorum of disinterested directors.
 
 
 
 
 
(h)  Insurance.  The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of is status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section 6.4.  When, and if, the Corporation obtains such insurance coverage, the Corporation shall not be required to maintain such insurance coverage in effect; provided, however, that the Corporation notifies the covered person in writing within five business days of the making of the decision to not renew or replace such insurance policy.  The maintenance of such insurance shall not diminish, relieve or replace the Corporation's liability for indemnification under the provisions hereof.  A claim for reimbursement hereunder, shall not be denied on the basis that such amount may or will be covered by such insurance policy, if such payments from the insurance company will not be made to the covered person within 10 business days of the claim for reimbursement.

(i)  Definitions.  For the purpose of this Section 6.4, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director or officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Section 6.4, with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.

For purposes of this Section 6.4, the following definitions shall apply

(i)    The term "other enterprise" shall include employee benefit plans.

(ii)   The term "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan.

(iii)  The term "serving at the request of the Corporation" shall include any service as a director or officer of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants, or beneficiaries.

(iv) A person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation".

Section 6.5.  Interested Directors; Quorum.  No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:  (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

Section 6.6.  Form of Records.  Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time.  The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.
 
 
 
 
 
Section 6.7.  Amendment of Bylaws.  The Bylaws of the Corporation may from time to time be repealed, amended or altered, or new Bylaws may be adopted, in either of the following ways:

(i)    By the vote of a majority of the stockholders entitled to vote at any annual or special meeting thereof; and

(ii)   By resolution adopted by a majority of the members of the Board of Directors then in office; provided, however that the power of the directors to suspend, repeal, amend or otherwise alter the Bylaws or any portion thereof may be denied as to any Bylaws or portion thereof enacted by the stockholders if at the time of such enactment the stockholders shall so expressly provide.

 
 
 
CERTIFICATE OF SECRETARY

I, the undersigned, do hereby certify:

(1) That I am the duly elected and acting Secretary of Butler National Corporation Kansas, a Kansas Corporation; and

(2) That the foregoing Bylaws, comprising nine (9) pages, constitute the bylaws of said Corporation, as duly adopted by the Board of Directors and approved by the stockholders on the 27th day of January, 2004, and as amended and approved by the Board of Directors on the 12 th day of March 2013.

IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this day 12th of March, 2013.
 
   
/S/ Christopher J. Reedy
(SEAL)
Christopher J. Reedy,
 
Secretary
 
 
EXHIBIT 10.1
 
LEASE
 
Between
 
BHC Development, L.C.

LANDLORD
 
and
Butler National Service Corporation

TENANT
 
For the Property located

At
 
Hwy 50 Bypass and Comanche Road, Ford County, Dodge City, Kansas
 
April 30 th , 2009
 
 
 
 
 
TABLE OF CONTENTS
 
1 Definitions and Basic Business Terms  1
       
  (a ) “Property” 1
       
  (b ) “Adjacent Land” 1
       
  (c ) “Landlord’s Construction Work” 1
       
  (d ) “Project Costs” 1
       
  (e ) “Rent Commencement Date” 2
       
  (f ) “Termination Date” 2
       
  (g ) “Lease Term”. 2
       
  (h ) “Rent”  
       
  (i ) “Late Charge” 2
       
  (j ) “Permitted Use” 3
       
  (k ) “Tenant’s Address for Notice” 3
       
  (l ) “Landlord’s Address for Notice” 3
       
  (m ) “Tenant’s Trade Name” 3
       
2. Property 5
     
  (a ) Acceptance 5
       
  (b ) Tender Date 5
       
  (c ) Alterations 5
       
3. Rent  6
     
4. Purchase Option and Related Rights 6
     
5. Lottery Contract  6
     
6 Utilities  7
     
7. Use   7
       
8. Signs   7
       
9. Taxes, Insurance, and Maintenance Costs  7
     
  (a ) Taxes 7
       
  (b ) Insurance 8
       
  (c ) Maintenance Costs 8
       
  (d ) Payment & Reconciliation 8
       
10. Repairs  9
     
  (a ) Landlord’s Obligations 9
 
 
 
 
 
  (b ) Warranties 9
       
  (c ) Tenant’s Obligations 9
       
  (d ) Surrender of Property 8
       
11. Casualty Damage 10
     
12.
Condemnation 10
     
13. Insurance   11
     
  (a ) Tenant’s Property Insurance 11
       
  (b ) Tenant’s Liability Insurance 11
       
  (c ) General 11
       
  (d ) Waiver of Right of Recovery; Waiver of Subrogation 12
       
  (e ) Indemnity 12
       
14. Assignment and Subletting  12
     
15. Tenant Default/Landlord’s Remedies  12
     
16. Landlord Default 14
     
17. Holdover   14
     
18. Notice  15
     
19. Subordination 15
     
20. Estoppel Certificates  16
     
21. Relocation  16
     
22. Broker’s Commissions   16
     
23. Hazardous Material  16
     
24. Miscellaneous 17
     
25. Expansion 17
 
 
 
 
 
 
LIST OF EXHIBITS
     
 
Exhibit “A”
Site Plan
     
 
Exhibit “B”
Land Legal Description
     
 
Exhibit “B-1”
Adjacent Land Legal Description
     
 
Exhibit “C”
Construction Exhibits
     
 
Exhibit “C-1”
Tenant’s Affidavit
     
 
Exhibit “C-2”
General Contractor’s Affidavit and Lien Waiver
     
 
Exhibit “C-3”
Subcontractor’s Lien Waiver
     
 
Exhibit “C-4”
Construction Addendum to Lease
     
 
Exhibit “D”
Landlord’s Development Expenses
     
  Exhibit “E”
Letter of Acceptance and Rent Commencement Date Agreement
     
  Exhibit “F”
Insurance Requirements
     
  Exhibit “G”
BHCMC, L.L.C. Operating Agreement
     

 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 1 of 19
 
LEASE AGREEMENT
 
This Lease and Option Agreement (the “Lease” ) is entered into by and between BHC Development, L.C. , a Kansas limited liability company ( “Landlord” ), and Butler National Service Corporation , a Kansas corporation   ( “Tenant” ), effective as of the ____ day of April 30th, 2009 ( “Effective Date” ).
 
1.                  Definitions and Basic Business Terms .  When used in this Lease, the following terms shall have the indicated meanings:
 
(a)        “Property” – The real property located along Highway 50 Bypass near planned Comanche Street intersection, Ford County, Kansas, as generally shown on the Site Plan attached as Exhibit “A” hereto, consisting of (i) approximately sixty-eight (68) acres of land legally described as set forth in Exhibit “B” attached hereto (the “Land” ), (ii) all land improvements constructed or to be constructed on the Land hereunder (the “Land Improvements” ), and (iii) all buildings constructed or to be constructed on the Land hereunder (the “Buildings” ), all as set forth in more detail in the Construction Exhibit attached as Exhibit “C” hereto.
 
(b)        “Adjacent Land” – Approximately thirty-six (36) acres of land adjacent to the Property and legally described as set forth in Exhibit “B-1” attached hereto.
 
(c)        “Landlord’s Construction Work” – The construction work to be performed by Landlord pursuant to the build-to-suit Construction Exhibit attached as Exhibit “C” hereto.
 
(d)        “Development Expense” – Costs and expenses incurred by Landlord (other than Project Costs) as described on Exhibit “D” hereto.  Landlord shall have no obligation, duty or requirement to fund more than nine million dollars ($9,000,000) of Development Expense.
 
(e)        “Project Costs” – The actual costs and expenses of completing the work set forth in the Construction Exhibit attached as Exhibit “C” hereto, as may be amended from time to time with the approval of both Tenant and Landlord, with such costs to be apportioned as follows:
 
(i)            “Landlord’s Project Costs” – Landlord shall pay Base Project Costs in an amount up to but not to exceed thirty million dollars ($30,000,000), pursuant to the approved Construction Exhibits, plus any additional Project Costs proposed or approved by Tenant in excess of the base Project Costs which Landlord, in its sole discretion, elects in writing to assume and pay as part of Landlord’s Project Costs.
 
(ii)            “Tenant’s Project Costs” – Tenant shall pay all Project Costs proposed or approved by Tenant in excess of the Base Project Cost which are not assumed and paid for by Landlord as set forth above.
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 2 of 19
 
(f)        “Rent Commencement Date” – The earlier to occur of: (i) ninety (90) days after the delivery of the Property to Tenant with Landlord’s Construction Work (as described in Exhibit “C” attached hereto) substantially complete, or (ii) the date Tenant opens for business at the Property.
 
(g)        “Termination Date” – The last day of the three hundredth (300 th ) full calendar month following the Rent Commencement Date, unless terminated earlier as provided hereunder.
 
(h)        “Lease Term” – The period beginning on the Effective Date and ending on the Termination Date, unless earlier terminated as provided herein.
 
(i)        “Rent” – Initially an annual amount equal to the sum of:  (i) twelve percent (12%) of Landlord’s Project Costs, such annual amount to increase by one percent (1%) every twelve (12) months after the Rent Commencement Date; and (ii) fifteen percent (15%) of Landlord’s Development Expense.  One-Twelfth (1/12 th ) of the annual Rent shall be paid each month as monthly Rent as set forth herein.  By way of example, and subject to adjustment based on Landlord’s Project Costs and Development Expense as finally determined, the monthly Rent for thirty million dollars ($30,000,000) Project Costs and eight million dollars ($8,000,000) Development Expense would initially be $400,000 (annual is $4,800,000) with an increase on the first day of the thirteenth month to $403,000 and each twelve month period thereafter.
 
Beginning Month
Ending Month
Monthly Rent
 
  1   12 $ 400,000.00  
  13   24 $ 403,000.00  
  25   36 $ 406,030.00  
  37   48 $ 409,090.30  
  49   60 $ 412,181.20  
  61   72 $ 415,303.02  
  73   84 $ 418,456.05  
  85   96 $ 421,640.61  
  97   108 $ 424,857.01  
  109   120 $ 428,105.58  
  121   132 $ 431,386.64  
  133   144 $ 434,700.50  
  145   156 $ 438,047.51  
  157   168 $ 441,427.98  
  169   180 $ 444,842.26  
  181   192 $ 448,290.69  
  193   204 $ 451,773.59  
  205   216 $ 455,291.33  
  217   228 $ 458,844.24  
  229   240 $ 462,432.69  
  241   252 $ 466,057.01  
  253   264 $ 469,717.58  
  265   276 $ 473,414.76  
  277   288 $ 477,148.91  
  289   300 $ 480,920.39  
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 3 of 19
 
(j)          “Late Charge” – One Hundred dollars ($100) per day.  For Rent, the late charge applies from and after the first (1 st ) day of each calendar month if not paid by the tenth (10 th ) day of each month.
 
(k)            “Permitted Use” – Casino, hotel, restaurant and related development.
 
(l)            “Tenant’s Address for Notice”
 
Butler National Service Corporation
19920 W 161st Street
Olathe, KS 66062
Attn:  Clark D. Stewart
Phone:  913-780-9595
Fax:  913-780-5088   

(m)        “Landlord’s Address for Notice”
 
BHC Development, L.C.
3501 SW Fairlawn Rd., Ste. 200
Topeka, KS 66614
Attn:  Jeffrey L. Ungerer
Phone: 785-272-1398
Fax: 785-272-1796

With a copy to:
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 4 of 19
 
BHC Development, L.C.
3501 SW Fairlawn Rd., Ste. 200
Topeka, KS 66614
Attn: Property Manager
Phone: 785-272-1398
Fax: 785-272-1796

(n)        “Tenant’s Trade Name” – “Boot Hill Casino and Resort”

(o)        Beginning twelve months after the Rent Commencement Date, Tenant shall have the right to reduce the portion of Rent attributable to Landlord’s Development Expense by reimbursement of some or all of the incurred Development Expense as follows:

(i)              Tenant must provide Landlord fifteen (15) days prior written notice of the amount intended to be paid (“Tenant’s Notice”).
 
(ii)              Landlord shall, within ten (10) days after receipt of Tenant’s Notice, notify Tenant of the total unreturned Development Expense remaining (“Landlord Reply”).
 
(iii)              Tenant may make a separate payment to Landlord (the “Reimbursed Amount”) labeled as “Reimbursement of Development Expense” in any amount, not to exceed the unreturned Development Expense specified in Landlord Reply, which must be received by Landlord within the first five days of a calendar month.
 
Any payment made by Tenant under this paragraph (o) shall be applied as a reduction in Landlord’s Development Expense.  Rent for the next calendar month and each succeeding month following the payment shall be reduced by an amount equal to the Reimbursed Amount multiplied by fifteen percent (15%) divided by twelve.  Tenant may make one or more payments of “Reimbursed Amounts” from time to time pursuant to this paragraph (o) provided however each complies with the terms hereof and the total does not exceed Landlord’s Development Expense.  In no event may this provision be used to reduce any portion of rent attributable to Landlord’s Project Costs.  Failure to make any payment of Reimbursed Amounts by the fifth day of any calendar month shall allow Landlord to either:  (i) reject and return such payment, in which event Rent will not be reduced; or (ii) accept such payment with any reduction in Rent to be effective for the second calendar month following receipt of such payment.

Upon repayment of all Landlord’s Development Expense, Rent shall be based upon Landlord’s Project Costs and Tenant shall have no further rights to repay or pay down any costs or expenses or effect any other reductions in Rent.

 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 5 of 19
 
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.                Property .

(a)          Acceptance .  Landlord hereby leases the Property to Tenant, and Tenant hereby leases the Property from Landlord.  Tenant accepts the Property, subject to completion of Landlord’s Construction Work, all zoning regulations, building codes, and other laws and regulations now in effect or hereafter promulgated by any governmental authority having jurisdiction therefor and all easements, encumbrances and other matters of record now affecting the Property or hereafter established or created by Landlord with Tenant’s consent.  The Property and its component parts are illustrated on the Site Plan attached as Exhibit “A” hereto.  Tenant accepts the Property in its existing condition and state of repair, on an “AS-IS” basis, subject to the completion of Landlord’s Construction Work.  Tenant acknowledges and agrees that Exhibits “A”, “B” and “B-1” are attached to this Lease solely for the purpose of indicating the components of the Property and the Adjacent Property, and that no representation, warranty or covenant is to be implied by any other information shown on such exhibits.  Except as specifically described as in the Construction Exhibit attached as Exhibit “C” hereto, Landlord will have no obligation to perform any construction work at the Property.
 
(b)          Tender Date .  Landlord shall give Tenant ninety (90) days written notice of the date on which Landlord shall deliver the Property to Tenant ( “Tender Date” ), which Tender Date is estimated to be November 1, 2009.  Tenant shall acknowledge the Tender Date by execution of the Letter of Acceptance, in the form attached as Exhibit “D” hereto.

(c)          Alterations .  Tenant may not make any structural or exterior alterations or changes to the Property unless Tenant has received the prior written consent of Landlord, which shall not be unreasonably withheld or unduly delayed.  All such activity must comply with the provisions of the Construction Exhibits and such additional requirements as are reasonably promulgated by Landlord from time to time.  Tenant must obtain all permits, licenses, and approvals required therefore and comply with all laws, ordinances, rules and regulations.  Tenant will have no authority to place any lien upon the Property, and any attempt to do so will be void and of no effect.  Any such lien placed upon the Property or Tenant’s interest therein, by, through, or under Tenant shall be released or discharged of record by bond or otherwise by Tenant within ten (10) days after Tenant receives notice of such lien (or such earlier time as is necessary to prevent foreclosure thereof).  If Tenant shall fail to remove or discharge such lien within the above-described time period, Landlord may, in addition to any other remedy of Landlord hereunder, remove or discharge the same and, upon Landlord’s demand, Tenant shall promptly reimburse Landlord for all costs incurred by Landlord in connection therewith.  Tenant shall deliver to Landlord, lien waivers upon completion of any construction, remodeling, or alterations to the Property substantially in the form attached as Exhibits “C-2” and “C-3” hereto (as to subcontractors, such waiver must be provided for any labor and/or materials greater than ten thousand dollars ($10,000)).  In the event any remodeling, improvements, fixturing, or modification to the Property by Tenant results in or causes the Property to be subject to any change or modified compliance with any laws, rules, or regulations then Tenant shall pay for and reimburse Landlord for all costs or expenses, including management costs, reasonably necessary to bring any part or all of the Property into compliance therewith

 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 6 of 19
 
3.                Rent .  Beginning on the Rent Commencement Date, Tenant agrees to pay Landlord the amount established under Section 1 as Rent when due, without notice, demand, deduction or offset, for the duration of the Lease Term.  Rent shall be paid monthly, in advance.  If the Rent Commencement Date is not the first (1 st ) day of a calendar month, then for any fractional month, monthly Rent shall be prorated based upon the number of days during such month which are included within the Lease Term, calculated on the basis of a thirty (30) day month.  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 tenth (10 th ) 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 fifty dollars ($50) for each check from Tenant which is returned “NSF” or otherwise uncollectible.

4.                Purchase Option and Related Rights .  Tenant acknowledges that BHCMC, L.L.C.  has or will be granted purchase option and first right of refusal on the Property and Adjoining Land, and agrees that any transfer of the Property to BHCMC, L.L.C., pursuant to such rights shall result in Landlord being released from its obligations under this Lease and replaced by BHCMC, L.L.C.  as substitute Landlord.

5.                 Lottery Contract .  Tenant has entered into a Lottery Gaming Facility Management Contract with the Kansas Lottery Commission for management  of a gaming facility upon the Property (the “Contract”).  Tenant shall be solely responsible for assuring the construction and operation of the Property, Land Improvements and Building comply with the Contract, provided, however Landlord agrees to complete construction in accordance with Exhibit C and to complete all of Landlord’s obligations hereunder in compliance with all legal requirements and specifications provided by Tenant.  Notwithstanding any provisions to the contrary herein, including paragraphs 10(d) and 15 Landlord shall have no interest, rights or claims to obtain possession of, operate or control any gambling devices, slot machines, tables or other games of chance owned, controlled or regulated by the Kansas Lottery and located upon the Property (herein “Gaming Devices”) as a result of or arising out of this Lease.  Landlord shall cooperate with the Kansas Lottery Commission (“KLC”) if and when the KLC deems it appropriate to physically secure or take possession of the Gaming Devices or any or all related equipment.  Nothing in this Lease will operate to transfer or alter Tenant’s contractual rights or obligations under the Lottery Gaming Facility Management Contract with the Kansas Lottery.

 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 7 of 19
 
6.                Utilities .  Tenant will promptly pay for all water, sewer, electricity, trash, telephone and other utilities used in or upon the Property after the Tender Date.  Landlord will not be liable for any cessation or interruption of utility services to the Property, and no such cessation or interruption of utilities will modify any of the obligations of Landlord or Tenant under this Lease.

7.                Use .  Tenant will use the Property solely for the Permitted Use, and Tenant will not use the Property, or permit its use, for any other purpose.  The designation of a Permitted Use does not include any representation or warranty by Landlord that such use complies with applicable laws and Tenant must obtain, at its sole cost and expense, any permits, licenses or other governmental approvals required to conduct the Permitted Use.  Tenant will comply with all federal, state, municipal and other laws, ordinances, rules and regulations that apply to the Property and Tenant’s business.  Tenant will install, remove and alter such fixtures, equipment and facilities located in the Property and will pay the cost of such alterations to the Property, as may be necessary to comply with all such laws, ordinances, rules and regulations.  Tenant agrees to occupy and use the entire Property continuously and without interruption for the Permitted Use throughout the Lease Term during at least the operating hours of similar gaming operations located in the state of Kansas.  Tenant will operate its business at the Property at all times under Tenant’s Trade Name.
 
8.                Signs .  Tenant must comply with all laws concerning signage and must obtain all governmental permits and approvals required for all signage.

9.                Taxes, Insurance, and Maintenance Costs .  Tenant agrees to directly pay and maintain, in accordance with the terms hereof, (or reimburse Landlord if maintained and/or paid by Landlord) all taxes, insurance premiums, and maintenance costs throughout the Lease Term.
 
 
(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 Tenant’s business, use or activities on the Property.  Tenant shall pay directly to the taxing authorities promptly when due all taxes imposed upon the Property, its business operation and its fixtures, equipment, facilities and other personal property situated in the Property.  If at any time during the Lease Term the present method of taxation shall be changed so that in lieu of the whole or any part of taxes levied, assessed or imposed on the Property, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or an assessment, levy or charge measured by or based, in whole or in part, upon the rents derived from the Property, then all such taxes, assessments, levies or charges or part thereof so measured or based, shall be deemed to be included within the term “taxes” and will be payable by Tenant in accordance with the terms hereof.  Tenant may contest taxes levied against the Property provided no liens may be made upon the Property and Tenant shall post bond or otherwise fully protect the Property against any unpaid levy of taxes.  Tenant shall have the right to directly receive copies of all tax statements relating to the Property.
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 8 of 19
 
(b)          Insurance .  The term “ insurance premiums ” shall mean the amount of premiums paid for all property and liability insurance (including, but not limited to, general and umbrella liability, hired-auto liability, comprehensive casualty,  loss of rents coverage, and any other commercially reasonable insurance deemed appropriate or advisable) which Landlord or Landlord’s lender(s) require to be carried on the Property. An initial list of insurance requirements is set forth in Exhibit “F” attached hereto.  Landlord shall have the option of contracting for and/or acquiring the insurance required hereunder, but in any event Landlord shall retain the right to have Tenant pay the insurance premiums directly to the applicable insurance company or companies.

(c)          Maintenance Costs .  The term “ maintenance costs ” shall include all costs and expenses incurred in operating, maintaining, repairing and replacing the improvements located on the Property and other property as to which Tenant has rights of use and as to which either Tenant or Landlord has an obligation to or actually performs or pays for repairs and maintenance.  The maintenance obligation shall include all interior or exterior parking areas, driveways, ramps, entrances, truck passageways, sidewalks, landscaped areas, parking and lighting facilities and equipment, pylon or monument signs and other areas intended for and available for the use of customers, employees, vendors or other permitted users of the Property.
 
(d)          Payment & Reconciliation .  Tenant shall have the right and obligation to directly pay, maintain, complete and perform (or reimburse Landlord for amounts paid by Landlord) all taxes, insurance, and maintenance costs.   In the event that any such payment is not timely made by Tenant when due, and such non-payment is not cured within ten (10) days thereafter, Landlord shall have the right to require Tenant to escrow, in advance, estimates of such costs to be held by Landlord or its designee.  In such an event, Landlord shall estimate the amount of taxes, insurance premiums, and maintenance costs, or any category of them, (“Reimbursable Expenses” ) payable by Tenant, and may change such estimates from time to time.  Tenant shall, from that point forward, pay Landlord, monthly, as additional Rent, such estimated amounts which sum shall be due and payable at the same time and place as Rent, together will all reasonable expenses of administering such escrow.  Within ninety (90) days after the end of each calendar year during the Lease Term (or as soon thereafter as reasonably practicable), Landlord will determine the actual amount of Reimbursable Expenses payable by Tenant and give notice thereof to Tenant, together with reasonable supporting data.  An appropriate adjustment shall be made from Landlord to Tenant, or from Tenant to Landlord, as the case may be, with respect to any overpayments or underpayments by Tenant during the previous year.  Any additional payment therefor due from Tenant to Landlord shall be made within thirty (30) days of such notice and any overpayment shall be refunded, at Landlord’s option, either by payment to Tenant within thirty (30) days after such notice, or by a credit against the next recurring monthly installment of Rent.
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 9 of 19
 
10.              Repairs .

(a)          Landlord’s Obligations .  The following portions of the Property constitute Landlord’s repair obligation:  roof replacement, foundation, and load-bearing structures supporting the roof (excluding exterior painting and touch-up) for a period of one (1) year after the Tender Date.  Landlord will have no obligation to perform repair or maintenance activities with regard to these portions of the Property unless Tenant gives Landlord written notice of need of repair to these items and a reasonable time has passed for Landlord to commence appropriate repair or maintenance activities.  Landlord shall have no obligation with respect to repairs or maintenance insofar as such damage is caused by the acts or omissions of Tenant, its employees, agents or invitees; however, in such event, Landlord may make any such repairs or perform such maintenance and Tenant shall reimburse Landlord therefor within ten (10) days after written demand.
 
(b)          Warranties .  Landlord shall make available, assign or enforce for the benefit of Tenant all manufacturer or supplier warranties on materials, equipment or work provided, installed or performed as part of Landlord’s Construction upon the Property.  Landlord warrants that all work and materials performed by Landlord will be free of defects for a period of one year after the Tender Date (normal wear and tear and failure to maintain in accordance with manufacturer or supplier requirements excepted).
 
(c)          Tenant’s Obligations .  Tenant will repair, replace and maintain all portions of the Property, other than those which are Landlord’s repair obligation as described in Section 10(a) above, 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, including but not limited to the building walls, entrances, doors, windows, dock area, all glass, electrical, fire suppression systems, plumbing and heating and air conditioning equipment and systems in or serving the Property (including entering into maintenance contracts for such systems acceptable to Landlord, copies of which maintenance agreements shall be delivered to Landlord within thirty (30) days after the Tender Date), parking lots, drives, lights, roof, roof membrane and all other improvements on the Property.  If Tenant fails to perform its repair, replacement and maintenance obligations under this Lease within thirty (30) 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, replacement 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 or upon the termination of Tenant’s right to possession of the Property, Tenant will surrender and deliver up to Landlord the Property broom-clean, in good repair and condition, ordinary wear and tear excepted, together with all improvements thereon installed by Landlord or Tenant during the Lease Term (except as otherwise provided herein).  All furniture, moveable trade fixtures and equipment or other personal property installed by Tenant ( “Tenant’s Personalty” ) shall be removed by Tenant at the termination of this Lease provided, however, if termination is due to Landlord’s election under Section 15 , then no such removal may be made without Landlord’s written authorization.  
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 10 of 19
 
If Tenant’s Personalty is not so removed it shall be deemed abandoned by Tenant and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without notice to Tenant and without any obligation to account for such items.  Any such disposition will not be considered a strict foreclosure or other exercise of Landlord’s rights in respect of any landlord’s lien or security interest granted herein or otherwise.  All such removals shall be accomplished by Tenant in a good and workmanlike manner so as not to damage the Property.  Tenant shall repair all damage to the Property caused by any such removal.  Prior to the end of the Lease Term or within fifteen (15) days after the termination of Tenant’s right to possession of the Property (subject to Landlord’s right to enforce Landlord’s lien interests described herein), Tenant will remove from the Property all of Tenant’s signs and, upon written request of Landlord, replacements and improvements to the Property made by Tenant, and shall repair any damage caused thereby.  If Tenant fails to timely perform such removal obligations (or in the event that Landlord repairs any damage caused by such removal and not repaired by Tenant as herein provided), then the costs and expenses thereof incurred by Landlord may be recovered by Landlord from Tenant.
 
11.              Casualty Damage .  If more than fifty percent of the Property, should be destroyed by fire or other casualty and Tenant has not commenced restoration thereof within sixty (60) days and thereafter diligently pursued and completed such restoration within two hundred forty (240) days, then Landlord may terminate this Lease.  If Landlord elects to terminate this Lease, Landlord will notify Tenant of such election.  If Landlord does not elect to terminate the Lease, then the Lease will remain in full force and effect.  If Landlord elects to terminate, all insurance proceeds for the Property shall be paid to Landlord.
 
12.              Condemnation .  If a material portion of the Property should be condemned by any governmental authority, or if Landlord makes a voluntary conveyance of any material portion of the Property (in lieu of condemnation) to such governmental authority, then the Lease Term as to that portion of the Property taken or conveyed will terminate on the date that possession of the Property is taken by the governmental authority.  If any material portion of the Property within which the Building is located is condemned (or conveyed to a governmental authority, in lieu of condemnation), such that the Building cannot reasonably be modified and repaired for continued use and operation of Tenant’s business, then Tenant may elect to terminate this Lease or to continue the Lease in effect.  All condemnation awards for a taking of the Property will belong to Landlord, except that Tenant may seek recovery for Tenant’s Personalty or leasehold interests provided such award to Tenant does not reduce Landlord’s award.  If Tenant does not elect to terminate this Lease, Tenant and Landlord shall, in good faith, diligently proceed to restore the Property to a condition which is capable of continued operation of Tenant’s business activity (including if necessary and feasible, acquisition of additional land).  Tenant shall pay any and all costs in excess of condemnation proceeds actually received by Landlord for such restoration unless otherwise agreed.
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 11 of 19
 
13.              Insurance .

(a)            Tenant’s Property Insurance .  Beginning upon the Tender Date, Tenant agrees to maintain, at Tenant’s sole cost and expense, a policy of special form property insurance as per Exhibit “F” attached hereto to the extent of one hundred percent (100%) of the replacement cost thereof.
 
(b)            Tenant’s Liability Insurance .  Beginning upon the Tender Date, Tenant agrees to maintain, at Tenant’s sole cost and expense, commercial general liability insurance coverage (occurrence basis) in a minimum amount of one million dollars ($1,000,000) per occurrence, ten million dollars ($10,000,000) policy aggregate (increased every five years based upon CPI increases since the Effective Date hereof), including (i) coverage for bodily injury and death, property damage and products liability coverage, (ii) contractual liability coverage insuring the obligations of Tenant under this Lease, and (iii) fire legal liability coverage with respect to the Property and the Building in which the Property are located in an amount of at least the replacement cost of the Building and Land Improvements.  The policy will designate Landlord, Landlord’s property manager (if any), any mortgage holder of the Property and any affiliates of Landlord designated by Landlord from time to time as additional insureds.  Tenant shall also maintain workers compensation insurance with statutory benefits and limits which shall fully comply with all state and federal requirements applicable thereto and which shall also include broad form all states and voluntary compensation endorsements and employer’s liability insurance with limits of not less than one million dollars ($1,000,000) per accident.
 
(c)            General .  Such policies must be in effect as of the Tender Date and must be maintained at all times during Tenant’s occupancy of the Property and 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 Tender Date and current certificates (or duplicate Policy originals) will be deposited with Landlord at all times during Tenant’s occupancy of the Property and 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 Guide.  All of Tenant’s insurance policies must be primary and non-contributing, with the policies of Landlord, if any, being excess and secondary.  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.  Landlord shall have the right to require Tenant to maintain such additional insurance coverages or additional amounts of coverage as Landlord deems appropriate from time to time in accordance with prudent management practices for the Property.  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 AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 12 of 19
 
(d)            Waiver of Right of Recovery; Waiver of Subrogation .  Tenant waives all rights of recovery against Landlord for any loss or damage to the Property or the property of Tenant caused by fire or other casualty or the condition of the Property, INCLUDING IF CAUSED BY THE NEGLIGENCE OF LANDLORD, ITS EMPLOYEES OR AGENTS , and Tenant agrees that no insurer will have any claim against Landlord, its employees or agents by way of subrogation or assignment.  Landlord waives all rights of recovery against Tenant for damage to the property of Landlord, including the Property, caused by fire or other casualty to the extent of insurance proceeds received by Landlord under any property insurance policies maintained by Tenant or Landlord on the Property, EVEN IF THE CAUSE OF SUCH LOSS IS DUE TO THE NEGLIGENCE OF TENANT , and Landlord agrees that no insurer will have any claim against Tenant therefor by way of subrogation or assignment.
 
(e)            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 at the Property. Tenant’s indemnity obligation will not include, however, any costs incurred by Landlord as a consequence of Landlord’s gross negligence or willful misconduct.
 
14.              Assignment and Subletting .  Tenant may assign this Lease or sublet the entire Property, (except Tenant may not mortgage or pledge its leasehold interest in the Property) provided any attempt by Tenant to do any of these actions will be void and of no effect unless Tenant has received the prior written consent of Landlord which shall not be unreasonably withheld.  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.  Without Landlord’s consent, Tenant may sublet portions or parts of the Property to one or more subtenants for conduct of business or other activities provided all such sublets are consistent with and subject to the terms hereof.  Tenant will, at least annually, provide written summary of all such sublets including use, area, term, subtenant name and address and rate.  Notwithstanding the above, Tenant may assign this Lease, without release of any obligations arising after such assignment, to BHCMC, L.L.C., a Kansas limited liability company, provided such assignment is made concurrent with a valid conveyance of rights under the Contract for BHCMC, L.L.C. to manage a casino upon the Property.  Nothing in this Lease shall act as or waive any obligation of Tenant to notify the KLC of any and all sublets or assignments by Tenant of the Property and Tenant shall notify KLC of any such sublets or assignments in accordance with the Contract.
 
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 Section.
 
15.              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 Rent, taxes, insurance premiums or maintenance costs when due; (ii) Tenant’s failure to pay the required amount of any other Rent within ten (10) days after written demand; (iii) Tenant’s failure to comply with any other covenant, duty or obligation of Tenant under this Lease; or (iv) any default by Tenant under the Contract, which is not either cured or actions commenced to effect a cure and thereafter diligently pursued within thirty (30) days after Tenant receives a notice of such failure from Landlord.

 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 13 of 19
 
If an Event of Default should occur under this Lease, then Landlord may, upon expiration of any applicable cure periods, 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 effective thirty (30) days after sending 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 possession of the Property effective thirty (30) days after written notice to Tenant, without terminating the Lease (in which event, Tenant will immediately surrender possession of the Property to Landlord).
 
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.  Tenant hereby acknowledges that Landlord will have the right, after an Event of Default, to alter locks at the Property and remove Tenant’s property located within the Property.  Tenant acknowledges that Landlord may require full payment of all sums then due to Landlord under this Lease, as a condition to Tenant’s entitlement to a key to new or altered locks that Landlord may have placed on the Property after an Event of Default.  Landlord shall use reasonable commercial efforts to attempt to relet the Property after an Event of Default on such terms and conditions as Landlord in its sole discretion may determine, including a term different than the Lease Term, and rental concessions and alterations of the Property; provided, however, that Landlord hereby reserves the right to refuse to lease the Property to any potential tenant which does not meet Landlord’s standards and criteria for leasing.  If Landlord elects to terminate Tenant’s right to possession of the Property, without terminating the Lease, Landlord may hold Tenant liable for all Rent accrued, plus all 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 through reletting the Property.  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 the difference between all Rent that would have been payable for the remainder of the Lease Term, less the fair market rental value of the Property for the remainder of the Lease Term (net of any commissions or re-letting costs), each discounted to present value at the prime rate published in the Money Rates section of the Wall Street Journal, but not less than zero.  Actions to collect sums due from Tenant may be brought on one or more occasions.  In case of any Event of Default, Tenant will also be liable for broker’s fees incurred by Landlord in connection with reletting the Property, the cost of removal and storage of Tenant’s property and the cost of repairing and remodeling the Property for a new occupant.  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 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.
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 14 of 19
 
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 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 (no notice being required in the event of an emergency), 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 and enter the Property for such purpose.  Tenant must pay, immediately upon demand by Landlord, all costs and expenses incurred by Landlord in taking such action.
 
16.              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 and/or the right to self help to effect a cure thereof with collection of all reasonable costs to effect such cure from Landlord.  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.
 
17.              Holdover . If Tenant should remain in possession of the Property after the expiration or other termination of the Lease Term, then Tenant will be deemed to be occupying the Property as a tenant at sufferance.  Such tenancy at sufferance will be under all of the terms and conditions of this Lease, and Tenant will remain subject to all of the covenants, duties and obligations of Tenant under this Lease, except that the Base Rent payable during the holdover period will be equal to one hundred twenty five percent (125%) of the Base Rent last applicable during the Lease Term, which Base Rent shall be payable to Landlord on a daily basis.  Tenant shall further be liable to Landlord for all other Rent and damages which Landlord shall suffer by reason of any holding over by Tenant, including any claims made by any other tenant or prospective tenant resulting from any delay of Landlord in delivering possession of the Property to such other tenant or prospective tenant.
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 15 of 19
 
18.              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.  Landlord shall provide notice of any default or remedy to the Kansas Lottery.

19.              Subordination .  Tenant agrees that its interest under this Lease shall be subordinate to any mortgage or deed of trust currently existing or hereafter placed on the Property or any interest therein and to any advances made on the security thereof and to any and all increases, renewals, modifications, consolidations and extensions thereof.  This provision shall be self-operative and no further instrument shall be required to effect such subordination of this Lease, provided, Landlord shall provide and Tenant shall execute and deliver promptly an instrument with Landlord’s Mortgagee evidencing such terms and granting to Tenant the right of continued occupancy without disturbance by such Lender except and unless a Tenant Default occurs.  Tenant agrees with Landlord and with any mortgagee of any mortgage and/or beneficiary of any deed of trust now or hereafter constituting a lien on the Property (“ Landlord’s Mortgagee ”), that any such Landlord’s Mortgagee shall have the right at any time to elect, by notice in writing given to Tenant, to make this Lease superior to such mortgage and/or deed of trust and, upon the giving of such notice to Tenant, this Lease shall be deemed prior and superior to such mortgage and/or deed of trust in respect of which said notice was given.  Tenant shall attorn to any such Landlord’s Mortgagee following a foreclosure, deed in lieu of foreclosure or other transfer of possession or title to the Property to Landlord’s Mortgagee.  If Landlord obtains financing for the Property and Landlord’s lender requests reasonable modifications to this Lease as a condition to providing Landlord such financing, Tenant agrees not to unreasonably withhold Tenant’s consent to such modifications so long as such modifications do not materially increase the obligations of Tenant hereunder or materially affect Tenant’s operation of its business for the Permitted Use in the Property.  Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right or election to terminate this Lease in the event of any foreclosure proceeding (or deed in lieu of foreclosure).  In the event of any default by Landlord in performing its covenants or obligations under this Lease, Tenant agrees not to terminate this Lease or take any other actions unless and until: (a) Tenant gives written notice of such default (which notice shall specify the exact nature of such default and how the same may be cured) to the holder of any such mortgage or deed of trust or security agreement who has theretofore notified Tenant in writing of its interest and the address to which notices are to be sent, and (b) such holder of any such mortgage or deed of trust or security agreement fail to cure or cause to be cured such default within thirty (30) days from the receipt of such notice from Tenant (or such additional time as is reasonably necessary to effect such cure), however no such holder of a mortgage or deed of trust or security agreement shall have any obligation to cure any such default.

 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 16 of 19
 
20.              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 Base Rent and other items of Rent have been paid, (iii) that Tenant accepted possession of the Property and that any improvements required by the terms of this Lease to be made have been completed as required by the terms of this Lease 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 for the Property.  Any such certificate may be relied upon by any prospective purchaser, secured party, mortgagee or any beneficiary under any mortgage, deed of trust or security agreement affecting the Property or any interest therein.  Tenant’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.

21.               Relocation .  Intentionally Deleted.

22.              Broker’s Commissions .  Tenant represents and warrants that it has not contacted or dealt with any real estate broker or agent in connection with the execution of this Lease, and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs (including but not limited to attorney’s fees) incurred by Landlord as a result of Tenant’s breach of the warranties and representations contained herein.  Tenant acknowledges that principals of Landlord are licensed real estate agents.
 
23.               Hazardous Material .  The term “Hazardous Substances” , as used in this Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any “Environmental Law” , which term shall mean any federal, state or local law or ordinance relating to pollution, protection of environment or public safety.  Tenant hereby agrees that (i) no activity will be conducted on the Property that will produce any Hazardous Substance, except for such activities that are part of the ordinary course of Tenant’s business (the “ Permitted Activities ”) provided said Permitted Activities comply and are documented in accordance with all Environmental Laws; (ii) the Property will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that are used in the ordinary course of Tenant’s business (the “ Permitted Materials ”) provided that such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws with notice to and right to inspect by Landlord; (iii) no portion of the Property will be used as landfill or a dump; (iv) Tenant will not install any underground tanks of any type; (v) Tenant will not allow any surface or subsurface conditions to exist or come into existence that would constitute, or with the passage of time may constitute, a public or private nuisance; (vi) Tenant will not permit any Hazardous Substances to be brought onto the Property, except for the Permitted Materials, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws.  If at any time during or after the Lease Term, the Property is found to be so contaminated or subject to said conditions, Tenant agrees to indemnify and hold Landlord harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of the use of Property by Tenant.  The foregoing indemnification shall survive the termination or expiration of this Lease.
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 17 of 19
 
24.              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 except as provided by law.  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 its intended, commercial 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 except as to any specific warranties herein.  Except as granted herein, 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.  Upon any transfer or assignment of the real estate upon which the Property exists, Landlord shall be fully released from any or all liability to Tenant hereunder and such assignee shall be substituted as Landlord hereunder, provided notice is given to Tenant of such transfer.  Landlord will have the right, upon prior reasonable notice to Tenant, to enter the Property at all reasonable times during normal business hours, in order to inspect them, in order to evaluate Tenant’s performance under this Lease, to show the Property for financing purposes or to any prospective purchasers, and in order to perform any other acts which Landlord is required or permitted to perform under this Lease, without any such action constituting an eviction of Tenant or authorizing a reduction in Rent.  Landlord may enter the Property at other times after notice to Tenant, or in the event of an emergency, without notice.  During the one-hundred eighty (180) days prior to the expiration of the Lease Term, Tenant will permit Landlord, during normal business hours or upon prior notice at other times, to exhibit the Property to prospective tenants and during the last sixty (60) days of the Lease Term to place notices upon the Property advertising the Property “For Lease”.  This document constitutes the entire agreement between Landlord and Tenant.  No prior written, or prior or contemporaneous oral, promises or representations 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 14 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 or of partnership or of joint venture between the parties hereto, or any relationship between the parties hereto other than the relationship of landlord and tenant.  
 
 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 18 of 19
 
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 the county in which the Property is located and Tenant hereby consents to the jurisdiction and venue of such courts.   TENANT AND LANDLORD HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE BY RIGHT BY JURY, AND WAIVE 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 BY TENANT AND LANDLORD.   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 fee 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.

25.              Expansion .  In the event Tenant desires to expand or enhance the Building or Land Improvements at any time during the Term (a “Proposed Expansion” ), Tenant shall notify Landlord of such desire and provide proposed expansion or enhancement plans for Landlord’s review (all of which shall be subject to the approval provisions provided in this Lease, notwithstanding anything else herein to the contrary).  Landlord shall thereafter have the option to construct the Proposed Expansion on Tenant’s behalf by giving written notice to Tenant within sixty (60) days after receipt of such plans and for such improvements to become part of the Building and Property hereunder.  All expansion costs proposed or approved by Tenant in which Landlord, in its sole discretion, elects in writing to assume and pay shall become part of Landlord’s Project Costs and Rent shall be adjusted based upon twelve percent (12%) of the Project Costs attributable to such expansion for the remainder of the Term effective as of the substantial completion of the Proposed Expansion.  Any Proposed Expansion shall be completed consistent with the terms of this Lease and the Construction Exhibits attached hereto.  If Landlord elects not to construct such proposed expansion, Tenant may proceed with completion of such expansion and construction of such improvements as Tenant deems reasonable and appropriate.

 
 
 
 
LEASE AGREEMENT
By and Between
BHC Development, L.C., and Butler National Service Corporation
Page 19 of 19
 
26.              Grant of Option .  As part of the consideration for Landlord entering into this Lease, Tenant agrees to grant a right to Landlord to obtain all of the Preferred Equity Interest in BHCMC, L.L.C., a Kansas limited liability company, as such interest is defined in the Operating Agreement dated the 30th day of April, 2009 (copy attached hereto as Exhibit “G” ).

27.              Representation of Landlord .  Per the Operating Agreement attached as Exhibit “G” , Landlord shall have the right to appoint three individuals to the Board of Managers until such time as Landlord, or an affiliate of Landlord, exercises the option granted in Section 26 above and becomes the owner of the Class A Preferred Member Interest described in Section 3.2(a)(ii) of such Operating Agreement.
 
EXECUTED in multiple counterparts, each having the force and effect of an original, as of the Effective Date.
 
  LANDLORD  
     
   
BHC Development, L.C.:
 
         
   
By:
/S/  JL Ungerer  
     
Jeffrey L. Ungerer, Manager
 
 
 
TENANT
 
     
   
BHC Development, L.C.:
 
         
   
By:
/S/  Clark D. Stewart  
    Name:  Clark D. Stewart   
    Title: CEO  
    Tax ID:  41-0834293   
 
 
 
 
 
EXHIBIT “A”
 
SITE PLAN
 
[Attached]
 
Exhibit “A” – Shopping Center Site Plan
 
 
 
 
 

EXHIBIT “B”
 
LAND LEGAL DESCRIPTION
 
See attached.
 
Exhibit “B” – Land Site Legal Description – Page 1 of 1
 
 
 
 
 
EXHIBIT “B-1”
 
ADJOINING LAND LEGAL DESCRIPTION
 
See attached.
 
Exhibit “B-1” – Adjoining Land Legal Description – Page 1 of 1
 
 
 
 
 
EXHIBIT “C”
 
CONSTRUCTION EXHIBITS
 
(INCLUDING ALL SERIES “C” SUB-EXHIBITS ATTACHED HERETO)
 
Landlord shall construct and complete all work and provide all materials in accordance with the plans and specifications set out and identified as:
 
Plans and specifications (the “Plans and Specifications”) to be prepared by KKE Architects, Inc. for building improvements with grading plans by Cook, Flatt & Strobel, Engineers and such other plans as jointly approved by both Lessor and Lessee.
 
Section 1.2
 
A.           Landlord’s Work shall be deemed to have been substantially completed, notwithstanding that minor adjustments may be required to be made by Landlord in its work and that various items of Landlord’s Work have not been fully completed, so long as Tenant would be able to use the Leased Property for the purposes provided hereunder upon performance of Tenant’s own construction, installation of its fixtures and equipment, stocking of its merchandise and staffing of its personnel.  Substantial completion by Landlord may, but need not be, evidenced by a certificate of completion or certificate of substantial completion issued by Landlord’s architect.
 
B.           Upon tender of possession of the Leased Property by Landlord to Tenant, Tenant shall enter the Property and Tenant will diligently perform such construction work and provide and install such materials as are provided in the Plans and Specifications and this Lease to be constructed or performed and installed by Tenant, in accordance with the Construction Exhibits, at Tenant’s sole cost and expense.  Tenant will also provide and install all other interior work, trade equipment, furniture, fixtures, and effects of every description necessary or appropriate for Tenant’s business and all such items to be provided and installed by Tenant shall be of first-class quality.  Landlord and Tenant may agree to allow Tenant to commence Tenant’s work prior to the Tender Date, provided Tenant’s performance shall not unreasonably impair or inhibit completion of Landlord’s Work.
 
C.           At all times while Tenant is constructing the improvements at the Leased Property and installing its trade equipment, furniture and fixtures, Tenant shall not interfere with the conducting of business at the Property.  Tenant shall comply with said reasonable requests of Landlord as Landlord might make for the purpose of avoiding such interference.
 
Section 1.3
 
A.           With respect to any labor performed or materials furnished by Tenant at the Property, the following shall apply:  All such labor shall be performed and materials furnished at Tenant’s own cost, expense and risk.  Labor and materials used in the installation of Tenant’s furniture and fixtures, and in any other work on the Property performed by Tenant, shall comply with all terms of the Lease and Exhibits thereto.  Tenant may enter upon the Property prior to the commencement of the Lease Term; however, the continued effectiveness of such license is conditioned upon Tenant’s aforesaid labor working in harmony with and not interfering with labor utilized by Landlord or Landlord’s mechanics or contractors and not interfering with labor utilized by any other tenant or such tenant’s mechanics or contractors.  
 
Exhibit “C” – Construction Rider – Page 1 of 2
 
 
 
 
 
Accordingly, if at any time such entry of Tenant’s labor shall cause disharmony or interference therewith, this license may be withdrawn by Landlord upon forty-eighty (48) hours written notice to Tenant, upon expiration of which Tenant shall have caused all of Tenant’s labor (as to whom Landlord shall have given such notice) to have been removed from the Property.  With respect to any contract for any such labor or materials, Tenant acts as a principal and not as the agent of Landlord.  Tenant agrees to indemnify and hold harmless Landlord from all claims (including costs and expenses of defending against such claims) arising or alleged to arise from any act or omission of Tenant or Tenant’s agents, employees, contractors, subcontractors, laborers, materialmen or invitees or arising from any bodily injury or property damage occurring or alleged to have occurred incident to Tenant’s work at the Property.  Tenant shall have no authority to place any lien upon the Property or any interest therein nor in any way to bind Landlord; and any attempt to do so shall be void and of no effect.  Landlord expressly disclaims liability for the cost of labor performed or materials furnished by Tenant.  If, because of any actual or alleged act or omission of Tenant, any lien, affidavit, charge or order for the payment of money shall be filed against Landlord, the Property or any portion thereof or interest therein, whether or not such lien, affidavit, charge or order is valid or enforceable, Tenant shall, at its own cost and expense, cause same to be discharged of record by payment, bonding or otherwise no later than ten (10) days after notice to Tenant of the filing thereof, but in all events, prior to the foreclosure thereof.  All of Tenant’s construction at the Leased Property shall be performed in compliance with the Plans and Specifications therefore mutually approved by Landlord and Tenant in a good and workmanlike manner.  All such work shall be performed by Tenant in compliance with all applicable building codes, regulations and all other legal requirements and shall be performed in such manner as to not cause Landlord’s property insurance to be canceled or the rate therefor increased (or at Landlord’s option Tenant will upon demand pay any such increase).  In the performance of such work, Tenant shall not interfere with or delay any work being done by Landlord’s contractors.
 
B.           In connection with any construction of improvements at the Property by Tenant, Tenant shall take out and maintain (or cause the contractor under its construction contract(s) to take out and maintain) commercial general liability insurance in a minimum amount of two million dollars ($2,000,000.00) combined single limit (occurrence basis).  Said liability insurance shall name Landlord as an additional insured with Tenant (and shall contain a cross-liability endorsement) and shall be non-cancelable with respect to Landlord except upon thirty (30) days notice to Landlord (given in the same manner as provided in the Lease) (or, at the request of Landlord, shall be in the form of a separate liability policy in which Landlord alone is the named insured).  Tenant shall also take out and maintain such other insurance, in such amounts, as Landlord may reasonably require.  Certificates of all such insurance shall be delivered by Tenant to Landlord within five (5) days following Tenant’s entering into any such construction contract(s) (but in all events prior to Tenant or Tenant’s general contractor commencing construction).  All such insurance shall be maintained with insurance companies reasonably acceptable to Landlord.
 
Exhibit “C” – Construction Rider – Page 2 of 2
 
 
 
 

EXHIBIT “C-1”

TENANT’S AFFIDAVIT
 
STATE OF ________________                                                      §
COUNTY OF ______________                                                      §

1.             BEFORE ME, the undersigned authority, did personally appear ___ (name) _________ as ____ (title) _________ of _______ ( entity)           (“Tenant”), who, being by me duly sworn, states as follows:
 
My name is ________________ and I am the ________________ of ________________, who is the Tenant under a lease dated ____________ ___, _____ with _____________________ “Landlord” for Property known as __________________ all dated the ____ day of _________, 20__.
 
2.             Pursuant to the Lease and the exhibits attached thereto (including Exhibit C - Construction Rider), I do hereby certify as follow:
 
(a)           Tenant has accepted the Property and the Rent Commencement Date as defined in the Lease has occurred.
 
(b)           Tenant has completed the construction of all improvements it anticipates to the Property, all in accordance with the plans and specifications approved by the Landlord and Tenant.
 
(e)           Tenant provided to Landlord on _________ ___, 20___ a complete set of the as-built plans and specifications for all Tenant constructed improvements to the Leased Property.
 
3.           Further affiant saith not.
 
EXECUTED this ____ day of ____________, 20___.
 
 
By:
   
       
THE STATE OF _________ §        
COUNTY OF ___________  §        
 
This instrument was acknowledged before me on this the ___ day of ______________, 20___, by _________________, ____________________ of ________________, _________ of ____________________, a _______ _______________, on behalf of such ____________________.

       
   
Notary Public in and for the State of Kansas
 
 
Exhibit “C-1” – Tenant's Affidavit– Page 1 of 1
 
 
 
 
 
EXHIBIT “C-2”

GENERAL CONTRACTOR’S AFFIDAVIT AND LIEN WAIVER
 
 
STATE OF ______________  §
COUNTY OF ____________   §
 
BEFORE ME, the undersigned authority, personally appeared ____ ( Insert Name)    , who, being by me duly sworn, states as follows:
 
My name is _______________________, I am ( Title )   for __________________________________________ (hereinafter referred to as “Contractor”). _____________________________________________ (hereinafter referred to as “Tenant”) is a tenant under and by virtue of a Lease by and between ______________________ (“Landlord”) and Tenant, dated ________________ (the “Lease”), covering property known as ________ (Address)    located in __________________________________ (“Property”) in    ( City)       ,     (State) .
 
In consideration of the sum of $__________ which constitutes full payment to Contractor for all work done at the Leased Property, receipt of which is hereby acknowledged, Contractor does hereby waive and release any and all liens (and all rights to hereafter perfect any lien) on the Property and the improvements presently or hereafter erected thereon.  Further, as an inducement to Landlord to pay to Tenant the “Allowance” (if any) (as such term is defined under the Lease), I, duly authorized agent for Contractor, do hereby warrant and represent, for and on behalf of Contractor, that construction of the Leased Property has been fully completed in strict accordance with the Plans and Specifications and that Contractor and all subcontractors, laborers and material suppliers engaged in working, or supplying materials for such work, have been paid in full.
 
I further warrant and represent:  (1) that all subcontractors, laborers and material suppliers engaged in or supplying materials for such construction are shown on Schedule I attached hereto, (2) that the total amount due each is shown thereon, (3) that the amount due each has been fully paid, (4) that each has submitted a full and complete waiver of all rights to file any lien on the Property, and (5) that Contractor will fully indemnify and hold harmless both Tenant and Landlord from and against any loss arising out of any lien filed by any subcontractor, laborer or supplier of materials in any way relating to the work done by or at the request of Contractor.
 
EXECUTED this ____ day of ______________ 200__.
 
       
   
(Name of Individual)
 

STATE OF ______________  §
COUNTY OF ____________   §
 
BEFORE ME, the undersigned authority, on this day personally appeared  ___________________ of _________________ a _____________________ _________, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated and as the act and deed of said entity.
 
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this _______ day of _________ 20__.
 
       
   
Notary Public in and for the State of Kansas
 
 
Exhibit “C-2” – General Contractor's Affidavit and Lien Waiver – Page 1 of 2

 
 
 
 
EXHIBIT “C-2”

GENERAL CONTRACTOR'S AFFIDAVIT AND LIEN WAIVER

SCHEDULE I

(List of all Subcontractors, Laborers and Material Suppliers)

All subcontractors, laborers and suppliers paid in excess of five hundred dollars ($500) must initial beside paid amount to acknowledge their receipt of payment in full.
 
NAME OF SUBCONTRACTOR,
LABORER OR SUPPLIER
TYPE OF
WORK
AMOUNT PAID
INITIAL
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
 
Exhibit “C-2” – General Contractor’s Affidavit and Lien Waiver – Page 2 of 2
 
 
 
 
 
EXHIBIT “C-3”

SUBCONTRACTORS LIEN WAIVER

(Subcontractor to General Contractor)

The undersigned has heretofore provided (or contemplates hereafter providing) labor and/or materials for improvements at the real property located at _______________________ and being part of the “Property” known as ____________________________________.
 
By this instrument, the undersigned (being a subcontractor or supplier of material and/or labor for the construction of improvements on a portion of the above described real property) agrees to look for payment for all labor done or materials furnished prior to ____________, ______, solely to ___________________________________ (the general contractor for construction of improvements on said property) and does hereby waive and release any and all liens on such above described real property and all improvements presently or hereafter erected thereon and further waives and releases all rights to hereafter perfect any lien on such real property and/or improvements.
 
SIGNED this ___________ day of ____________________ 20__.
 
 
By:
   
  Name:    
   
Authorized Agent
 
 
STATE OF ______________  §
COUNTY OF ____________   §

BEFORE ME, the undersigned authority, on this day personally appeared  ______________________ of ____________________________ a _______________________
Corporation, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___ day of ______________ 20___.
 
       
   
Notary Public in and for the State of Kansas
 
 
Exhibit “C-3” – Subcontractor’s Lien Waiver – Page 1  of 1

 
 
 
 
EXHIBIT “D”
 
LANDLORD’S DEVELOPMENT EXPENSES
 
1.             In no event shall the aggregate amount expended for Development Expenses exceed nine million dollars ($9,000,000) plus any “Accumulated Return” as described below.
 
2.             Development Expense shall include expenditures of the following character or nature:
 
 
a)
Navegante Consulting Fees
 
 
b)
Pre-opening Staffing Costs
 
 
c)
Pre-opening Marketing Costs
 
 
d)
Floor and Operating Cash
 
 
e)
Management of Pre-opening Activities, Regulatory Requirements, Legislation Monitoring and Related Costs
 
 
f)
Amounts required to be paid to the Lottery Commission or other state agency
 
 
g)
Accumulated Return as defined below
 
Landlord and Tenant may agree on a budget for any one or more of the above categories or other limitations.  Landlord shall not be obligated to pay any costs or expenses unless specifically approved by Landlord.
 
3.             Accumulated Return equals a fifteen percent (15%) annualized return on each cash expenditure made by Landlord from and after the date paid through and including the Rent Commencement Date.
 
4.             Landlord shall provide an accounting to Tenant of all Development Expenses and the Accumulated Return upon request.
 
Exhibit “D” – Landlord’s Development Expenses – Page 1 of 1
 
 
 
 
 
EXHIBIT “E”
 
LETTER OF ACCEPTANCE BY TENANT
 
Date:  ______________, 20___
 
 
Re:
Lease dated ____________, 20___, between _______________________, a _______________________, as Landlord, and ________________________, as Tenant, covering Property located at ___________, __________ County, Kansas.
 
Ladies and Gentlemen:
 
This is to advise you that the undersigned, as Tenant, has inspected the improvements at the Property and confirms the following:

 
1.
Tenant has accepted possession of the Property.
 
 
2.
The Property has been tendered in the condition required under the Lease.  Tenant received keys to the Property on __________, 20__, the Tender Date.
 
 
3.
Landlord has fulfilled all of its duties under the Lease that were required to be fulfilled on or before the tender of possession of the Property.
 
 
4.
Attached hereto are copies of all insurance certificates for insurance on the Property as required by the Lease (originals of such certificates should be sent directly to Landlord by the insurance company).
 
 
5.
The Lease has not been amended or changed in anyway, except as follows: ___________.
 
 
6.
Tenant has not assigned, encumbered or pledged the Lease or any leasehold improvements.  Tenant has not sublet or granted any right to use or possession of the Property.
 
Sincerely,        
           
(Tenant Company Name)    
 
 
           
Signed:            
Print Name:           
Title:           
 
Exhibit “E” – Letter of Acceptance – Page 1 of 3
 
 
 
 
 
EXHIBIT “E”
 
RENT COMMENCEMENT DATE AGREEMENT
 

 
Date:  ______________, 20___
 
 
Re:
Lease dated ____________, 20___, between _______________________, as Landlord, and ________________________, as Tenant, covering Property located at ___________, __________ County, Kansas.
 
Ladies and Gentlemen:
 
This is to advise you that the undersigned, as Landlord and Tenant, confirm the following:

 
1.
Tenant has accepted possession of the Property and is open for business or will open for business within ____ days.
 
 
2.
The Property has been tendered in the condition required under the Lease.  Tenant received keys to the Property on __________, 20__, the Tender Date.
 
 
3.
Landlord has fulfilled all of its duties under the Lease that were required to be fulfilled on or before rent commencement under the Lease.
 
 
4.
The Lease has not been amended or changed in anyway, except as follows: __________________________________.
 
 
5.
There are no offsets or credits due against rent.  No rent has been prepaid, except as set forth in the Lease.
 
 
6.
Tenant has agreed to commence rent payments.  Rent has commenced to accrue or will commence on ______________ ___, 20___, the Rent Commencement Date.  The Termination Date under the Lease is _____________ ___, 20___.
 
 
7.
Tenant has not assigned, encumbered or pledged the Lease or any leasehold improvements.  Tenant has not sublet or granted any right to use or possession of the Leased Property.
 
 
8.
Tenant has received acceptable Lien Waivers from any and all general contractors, subcontractors, suppliers, materialmen, laborers and such for all work done on and to the Leased Property.  These Lien Waivers have been given to Landlord.
 
 
9.
Tenant has given Landlord copies of required insurance policies for the Leased Property.
 
Exhibit “E” – Letter of Acceptance – Page 2 of 3
 
 
 
 
 
EXHIBIT “E”
 
RENT COMMENCEMENT DATE AGREEMENT, CONTINUED
 
Sincerely,          
        Landlord:    
(Tenant Company Name)          
        By:     
Signed:         Name:    
Print Name:        Title:    
Title:             
 
Exhibit “E” – Letter of Acceptance – Page 3 of 3
 
 
 
 
 
EXHIBIT “F”
 
INSURANCE REQUIREMENTS
 
Tenant shall at all times maintain, or cause to be maintained, in effect (and shall furnish to Landlord copies of), insurance policies as required under the terms of the Lease and/or this Exhibit “E” (and in the event of conflict, the greater of such coverages), and shall furnish to Landlord proof of payment of all premiums for such insurance.  All insurance policies or certificates evidencing insurance coverages shall be written by insurers satisfactory to Landlord, licensed in the state of Kansas, and in amounts satisfactory to Landlord, consistent with the Contract and prepared in accordance with Landlord’s requirements.
 
1.
PROPERTY INSURANCE .
 
 
(a)
During Construction .  An ORIGINAL (or certified copy) Builder’s All-Risk, Completed Value, Non-Reporting Form POLICY naming Landlord as insured, reflecting coverage of 100% of the replacement cost of the Building, Improvements and Equipment, and written by a carrier approved by the Landlord with a current Best’s Insurance Guide rating of at least A-IX (which is authorized to do business in the state where the Project is located) that includes:
 
 
(1)
Mortgagee Clause (or equivalent) naming Landlord and/or Landlord’s lender.
 
 
(2)
30-day notice to Landlord and the Kansas Lottery in the event of cancellation, non-renewal or material change.
 
 
(3)
Replacement Cost Endorsement.
 
 
(4)
Stipulated Value/Agreed Amount Endorsement.
 
 
(5)
Flood Insurance (if applicable).
 
 
(6)
Collapse and Earthquake Coverage.
 
 
(7)
Vandalism and Malicious Mischief Coverage.
 
 
(b)
Upon Completion . An ORIGINAL (or certified copy) All-Risk Hazard (extended coverage) Insurance POLICY naming Landlord as an insured, reflecting coverage of 100% of the replacement cost of the Building, Improvements and Equipment, and written by a carrier approved by Landlord with a current Best’s Insurance Guide Rating of at least A-IX and a current Standard and Poor claims paying ability rating of AAA (which is authorized to do business in the state where the Property is located) that includes:
 
 
(1)
Landlord’s Loss Payable Endorsement with a Severability of Interest Clause.
 
 
(2)
30-day notice to Landlord and the Kansas Lottery in the event of cancellation, non-renewal or material change.
 
 
(3)
Replacement Cost Endorsement.
 
 
(4)
Stipulated Value/Agreed Amount Endorsement.
 
 
(5)
Boiler Explosion Coverage (if applicable).
 
 
(6)
Sprinkler Leakage Coverage.
 
 
(7)
Vandalism and Malicious Mischief Coverage.
 
 
(8)
Flood Insurance (if applicable).
 
 
(9)
Rental Value Insurance in an amount of not less than 100% of Twelve (12) month’s Rental Value of the Property.  “Rental Value” shall include:
 
Exhibit “F” – Insurance Requirements – Page 1 of 2
 
 
 
 
 
 
a.
the total projected gross rental income from tenant occupancy of the Property as set forth in the Lease; and
 
 
b.
the amount of all charges which are the legal obligation of tenant and which would otherwise be the obligation of Tenant.
 
 
(10)
Twelve 12 months business interruption insurance in an amount acceptable to Landlord.
 
2.
LIABILITY INSURANCE .  An ORIGINAL CERTIFICATE or other evidence (e.g. an ACORD 27 certificate) of General Comprehensive Public Liability Insurance naming Landlord as an insured, and written by a carrier approved by Landlord with a current Best’s Insurance Guide Rating of at least A-IX (which is authorized to do business in the state where the Project is located that includes:
 
 
(a)
$10 million combined single limit coverage.
 
 
(b)
Additional Insured Endorsement naming Landlord and the Kansas Lottery, State of Kansas and Lottery Commission.
 
 
(c)
30-day notice to Landlord and the Kansas Lottery in the event of cancellation, non-renewal or material change.
 
3.
WORKER’S COMPENSATION . An ORIGINAL CERTIFICATE of Worker’s Compensation coverage in the statutory amount, naming Landlord as owner of the Property, written by a carrier approved by Landlord, if applicable.
 
4.
OTHER REQUIREMENTS .
 
 
(a)
All insurance provided for in this Exhibit shall be effected under a valid and enforceable policy or policies of insurance in form and substance approved by Landlord, shall be issued by insurers of recognized responsibility, which are licensed to do business in the state where the Property is located, and which are acceptable to Landlord, and shall be satisfactory to Landlord in all other respects.
 
 
(b)
The certificates of insurance for property, liability and builder’s risk must comply with the following:
 
 
(1)
ACORD 25-S forms (titled “Certificate of Insurance”) for liability ARE UNACCEPTABLE unless modified to ( a) indicate that the insurance is in force and (b ) provide for 30 days written notice to the Landlord and the Kansas Lottery of intent to cancel the insurance.  This modification will occur in the bottom right of the form.  The Landlord and the Kansas Lottery does not accept standard ACORD 25-S forms as they are “issued as a matter of information only and confer no rights,” and do not certify the existence of the insurance and do not promise notice to the Landlord and the Kansas Lottery prior to cancellation.
 
 
(2)
An ACORD 27 (titled “Evidence of Property Insurance”) relates to property insurance and is acceptable (but see ( 4 ) , below).  Although an ACORD 27 is not on its face to be used to evidence policies of liability insurance, it is adaptable to that purpose, and is acceptable if so adapted.
 
 
(3)
An ACORD 28 (titled “Evidence of Commercial Property Insurance”) for property insurance is acceptable (but see ( 4 ) , below).
 
 
(4)
ON ALL CERTIFICATES, the Landlord and the Kansas Lottery must be designated as “additional insured,” “loss payee” and “mortgagee” and not “named insured.”
 
 
(5)
The Landlord and the Kansas Lottery request that it also be provided a copy of the endorsements to the policies which establish the Landlord as an additional insured.
 
 
(c)
All policies shall designate Landlord as a loss payee, with any/all proceeds from any claim to be paid directly to Landlord to cover costs and/or disburse to Tenant or contractors as appropriate.
 
 
(d)
All property policies must also designate the Kansas Lottery as a loss payee, to the extent of any interest therein.
 
Exhibit “F” – Insurance Requirements – Page 2  of 2
 
 
 
 
 
EXHIBIT “G”
 
BHCMC, L.L.C. Operating Agreement
 
 
Exhibit “G” – BHCMC, L.L.C. Operating Agreement – Page 1 of 1
 
 
 
Exhibit 10.2

EXHIBIT “B”

Legal Description:

(THE DESCRIPTION BELOW IS A TRACT OF LAND TO BE KNOWN AS LOT 1 IN A FUTURE REPLAT OF MARIAH CENTER)

A TRACT OF LAND OVER A PORTION OF LOT 1, BLOCK 1, MARIAH CENTER, A SUBDIVISION OF LAND IN SECTION 21, TOWNSHIP 26 SOUTH, RANGE 25 WEST AND SECTION 28, TOWNSHIP 26 SOUTH, RANGE 25 WEST OF THE SIXTH PRINCIPAL MERIDIAN, DODGE CITY, FORD COUNTY, KANSAS, ACCORDING TO THE RECORDED PLAT THEREOF AND MORE PARTICULARLY DESCRIBED AS FOLLOWS;

COMMENCING AT THE NORTHWEST CORNER OF THE SOUTHWEST QUARTER OF SECTION 21, TOWNSHIP 26 SOUTH, RANGE 25 WEST;  THENCE SOUTH 00 DEGREES 36 MINUTES 52 SECONDS WEST, ALONG THE WEST LINE OF THE SOUTHWEST QUARTER OF SAID SECTION 21, A DISTANCE OF 1050.07 FEET;  THENCE SOUTH 88 DEGREES 43 MINUTES 40 SECONDS EAST, A DISTANCE OF 1984.59 FEET;   TO THE POINT OF BEGINNING OF A TRACT OF LAND TO BE KNOWN AS LOT 1 OF THE FUTURE REPLAT OF MARIAH CENTER;

(THE FOLLOWING DESCRIBED COURSES ARE ALONG THE OUT BOUNDARY OF THE DESCRIBED TRACT OF LAND TO BE KNOWN AS LOT 1 OF THE FUTURE REPLAT OF MARIAH CENTER).

THENCE SOUTH 88 DEGREES 43 MINUTES 40 SECONDS EAST, A DISTANCE OF 656.15 FEET;  THENCE SOUTH 88 DEGREES 44 MINUTES 18 SECONDS EAST, A DISTANCE OF 1853.43 FEET, TO A POINT ON THE WEST RIGHT-OF-WAY LINE OF U.S. HIGHWAY 50, AS SAID HIGHWAY NOW EXISTS;  THENCE SOUTH 35 DEGREES 46 MINUTES 39 SECONDS WEST, ALONG SAID WEST RIGHT-OF-WAY LINE, A DISTANCE OF 1895.58 FEET;  THENCE WESTERLY AND SOUTHWESTERLY ALONG A NON TANGENT CURVE TO THE LEFT HAVING A RADIUS OF 710.00 FEET, A CHORD BEARING OF SOUTH 85 DEGREES 53 MINUTES 35 SECONDS WEST, A CHORD DISTANCE OF 815.32 FEET, FOR AN ARC LENGTH OF 868.46 FEET;  THENCE NORTH 35 DEGREES 33 MINUTES 18 SECONDS WEST, A DISTANCE OF 573.33 FEET;  THENCE NORTH 07 DEGREES 54 MINUTES 04 SECONDS WEST, A DISTANCE OF 143.62 FEET;  THENCE NORTH 54 DEGREES 28 MINUTES 17 SECONDS WEST, A DISTANCE OF 733.78 FEET;  THENCE NORTH 30 DEGREES 28 MINUTES 25 SECONDS EAST, A DISTANCE OF 715.35 FEET TO THE POINT OF BEGINNING OF THE HEREIN DESCRIBED TRACT OF LAND TO BE KNOWN AS LOT 1 IN A FUTURE REPLAT OF MARIAH CENTER.

CONTAINS 2,970,572 SQUARE FEET OR 68.19 ACRES MORE OR LESS.   SUBJECT TO ANY AND ALL EASEMENTS,   RESTRICTIONS AND OR COVENANTS RECORDED OR UNRECORDED.
 
 
Exhibit 10.3

EXHIBIT “B-1”

Legal Description:

(THE DESCRIPTION BELOW IS A TRACT OF LAND TO BE KNOWN AS LOT 2 IN A FUTURE REPLAT OF MARIAH CENTER)

A TRACT OF LAND OVER A PORTION OF LOT 1, BLOCK 1, MARIAH CENTER, A SUBDIVISION OF LAND IN SECTION 21, TOWNSHIP 26 SOUTH, RANGE 25 WEST AND SECTION 28, TOWNSHIP 26 SOUTH, RANGE 25 WEST OF THE SIXTH PRINCIPAL MERIDIAN, DODGE CITY, FORD COUNTY, KANSAS, ACCORDING TO THE RECORDED PLAT THEREOF AND MORE PARTICULARLY DESCRIBED AS FOLLOWS;
 
 
COMMENCING AT THE NORTHWEST CORNER OF THE SOUTHWEST QUARTER OF SECTION 21, TOWNSHIP 26 SOUTH, RANGE 25 WEST;  THENCE SOUTH 00 DEGREES 36 MINUTES 52 SECONDS WEST, ALONG THE WEST LINE OF THE SOUTHWEST QUARTER OF SAID SECTION 21, A DISTANCE OF 1050.07 FEET;  THENCE SOUTH 88 DEGREES 43 MINUTES 40 SECONDS EAST, A DISTANCE OF 1984.592 FEET;  THENCE SOUTH 30 DEGREES 28 MINUTES 25 SECONDS WEST, A DISTANCE OF 715.35 FEET, TO THE POINT OF BEGINNING OF A TRACT OF LAND TO BE KNOWN AS LOT 2 OF THE FUTURE REPLAT OF MARIAH CENTER;

(THE FOLLOWING DESCRIBED COURSES ARE ALONG THE OUT BOUNDARY OF THE DESCRIBED TRACT OF LAND TO BE KNOWN AS LOT 2 OF THE FUTURE REPLAT OF MARIAH CENTER).

THENCE SOUTH 30 DEGREES 28 MINUTES 25 SECONDS WEST, A DISTANCE OF 929.00 FEET;  THENCE SOUTHERLY ALONG A NON TANGENT CURVE TO THE RIGHT HAVING A RADIUS OF 1290.00 FEET, A CHORD BEARING OF SOUTH 14 DEGREES 00 MINUTES 28 SECONDS EAST, A CHORD DISTANCE OF 247.63 FEET, FOR AN ARC LENGTH OF 248.01 FEET;  THENCE SOUTH 8 DEGREES 30 MINUTES 00 SECONDS EAST, A DISTANCE OF 762.53 FEET;  THENCE NORTH 81 DEGREES 30 MINUTES 00 SECONDS EAST, A DISTANCE OF 453.14 FEET;  THENCE NORTHEASTERLY ALONG A TANGENT CURVE TO THE LEFT HAVING A CENTRAL ANGLE OF 50 DEGREES 04 MINUTES 14 SECONDS EAST, A RADIUS OF 700.00 FEET, FOR AN ARC LENGTH OF 611.72 FEET TO A POINT OF TANGENTCY; THENCE NORTH 31 DEGREES 25 MINUTES 46 SECONDS EAST, A DISTANCE OF 210.26 FEET; THENCE NORTHEASTERLY ALONG A TANGENT CURVE TO THE RIGHT HAVING A CENTRAL ANGLE OF 19 DETREES 25 MINUTES 20 SECONDS EAST, A RADIUS OF 710.00 FEET, FOR AN ARC LENGTH OF 240.68 FEET; THENCE NORTH 35 DEGREES 33 MINUTES 18 SECONDS WEST, A DISTANCE OF 573.33 FEET; THENCE NORTH 07 DEGREES 54 MINUTES 04 SECONDS WEST, A DISTANCE OF 143.62 FEET; THENCE NORTH 54 DEGREES 28 MINUTES 17 SECONDS WEST, A DISTANCE 733.78 FEET, TO THE POINT OF BEGINNING OF THE HEREIN DESCRIBED TRACT OF LAND TO BE KNOWN AS LOT 2 IN A FUTURE REPLAT OF MARIAH CENTER.

CONTAINS 1,593,374 SQUARE FEET OR 36.58 ACRES MORE OR LESS.   SUBJECT TO ANY AND ALL EASEMENTS, RESTRICTIONS AND OR COVENANTS RECORDED OR UNRECORDED.
 
 
Exhibit 31.1

CERTIFICATIONS

I, Clark D. Stewart, certify that:

1.
I have reviewed this quarterly report on Form 10-Q ended January 31, 2013 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: March 14, 2013
/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 January 31, 2013 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: March 14, 2013
/s/ Angela D. Shinabargar
 
 
Angela D. Shinabargar
 
Chief Financial Officer
 
 
EXHIBIT 32.1

CERTIFICATION PURSUANT 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 January 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (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
 
March 14, 2013

"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 PURSUANT 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 January 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (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
 
March 14, 2013

"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."