As filed with the Securities and Exchange Commission on December 19, 2013
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of The Securities Exchange Act of 1934
AP GAMING HOLDCO, INC.
(Exact name of registrant as specified in its charter)
Delaware | 46-3698600 | |
(State of incorporation) |
(I.R.S. Employer Identification Number) |
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6680 Amelia Earhart Court Las Vegas, NV |
89119 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number: (702) 722-6700
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered |
Name of each exchange on which
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Not Applicable | Not Applicable |
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | þ (Do not check if a smaller reporting company) | Smaller Reporting Company | ¨ |
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ITEM 1. |
BUSINESS | 3 | ||||
ITEM 1A. |
RISK FACTORS | 17 | ||||
ITEM 2. |
FINANCIAL INFORMATION | 30 | ||||
ITEM 3. |
PROPERTIES | 55 | ||||
ITEM 4. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 56 | ||||
ITEM 5. |
DIRECTORS AND EXECUTIVE OFFICERS | 56 | ||||
ITEM 6. |
EXECUTIVE COMPENSATION | 58 | ||||
ITEM 7. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 60 | ||||
ITEM 8. |
LEGAL PROCEEDINGS | 62 | ||||
ITEM 9. |
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED EQUITY HOLDER MATTERS | 62 | ||||
ITEM 10. |
RECENT SALES OF UNREGISTERED SECURITIES | 63 | ||||
ITEM 11. |
DESCRIPTION OF REGISTRANTS SECURITIES TO BE REGISTERED | 63 | ||||
ITEM 12. |
INDEMNIFICATION OF DIRECTORS AND OFFICERS | 63 | ||||
ITEM 13. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 64 | ||||
ITEM 14. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 64 | ||||
ITEM 15. |
FINANCIAL STATEMENTS AND EXHIBITS | 64 |
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EXPLANATORY NOTE
This registration statement on Form 10 ( Registration Statement ) is being filed by AP Gaming Holdco, Inc. ( AP Gaming ) in order to register its common stock, par value $0.01 per share ( Common Stock ), voluntarily pursuant to Section 12(g) under the Securities Exchange Act of 1934, as amended (the Exchange Act ). Unless otherwise noted or indicated by the context, the terms the Company , we , us and our refer to AP Gaming and AGS Capital, LLC ( AGS Capital ), together with its consolidated subsidiaries. The Company is not required to file this Registration Statement pursuant to the Securities Act of 1933, as amended (the Securities Act ).
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Registration Statement contains forward-looking statements. Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as may, might, will, would, should, could or the negatives thereof. Generally, the words anticipate, believe, continue, expect, intend, estimate, project, plan and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this Registration Statement in Item 1. Business, Item 1A. Risk Factors and Item 2. Financial InformationManagements Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. These forward-looking statements include statements that are not historical facts, including statements concerning our possible or assumed future actions and business strategies.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:
| our ability to develop and manage frequent introductions of innovative products; |
| changing economic conditions and other factors that adversely affect the casino industry, the play levels of our participation games, product sales and our ability to collect outstanding receivables from our customers; |
| the effect of our substantial indebtedness on our ability to raise additional capital to fund our operations, react to changes in the economy or our industry and make debt service payments; |
| the Acquisition (as defined herein) may not be completed within the anticipated timeframe or at all, which could adversely affect anticipated benefits of the Acquisition or our business, financial condition and results of operations; |
| changes in player and operator preferences in participation games, which may adversely affect demand for our products; |
| increased competition in the gaming industry; |
| changing regulations, new interpretations of existing laws, or delays in obtaining or maintaining required licenses or approvals, which may affect our ability to operate in existing markets or expand to new jurisdictions; |
| changes in the regulatory scheme governing tribal gaming impacting our games and Native American customers, which could adversely affect revenues; |
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| legal and regulatory uncertainties of gaming markets, including, without limitation, the ability to enforce contractual rights on Native American land; |
| decreases in our revenue share percentage in our participation agreements with customers; |
| slow growth in the establishment of new gaming jurisdictions, declines in the rate of replacement of existing gaming machines and ownership changes and consolidation in the casino industry; |
| our ability to realize satisfactory returns on money lent to new and existing customers to develop or expand gaming facilities or to acquire gaming routes; |
| adverse local economic, regulatory or licensing changes in Oklahoma, the state in which the majority of our revenue has been derived, or material decreases in our revenue with our largest customer, which comprised approximately 35% of our gaming revenue for the fiscal year ended December 31, 2012; |
| inability to protect or enforce our intellectual property; |
| future claims of litigation or intellectual property infringement or invalidity, and adverse outcomes of those claims; |
| failure to attract, retain and motivate key employees; |
| legislation in states and other jurisdictions which may amend or repeal existing gaming legislation; |
| the security and integrity of our systems and products; |
| losses due to technical problems or fraudulent activities related to our gaming machines and online operations; |
| current and future environmental, health and safety laws and regulations; |
| product defects which could damage our reputation and our results of operations; |
| quarterly fluctuation of our business; |
| certain restrictive open source licenses requiring us to make the source code of some of our products available to third parties and potentially granting third parties certain rights to the software; |
| recently introduced or proposed smoking bans on smoking at our facilities that may adversely affect our operations; |
| upon consummation of the Acquisition (as defined herein), the beneficial ownership of our equity by funds affiliated with Apollo (as defined herein) who will control us, may have conflicts of interest with us in the future, and may have interests that differ from your interests as a holder of our Common Stock; |
| failure of our suppliers to meet our performance and quality standards or requirements could result in additional costs or loss of customers; |
| risks related to casino operations which are conducted at the discretion of our customers; |
| risks related to operations in foreign countries and outside of traditional U.S. jurisdictions; and |
| the other factors discussed under Item 1A. Risk Factors. |
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements are made only as of the date of this Registration Statement. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments unless required by federal securities law. New factors emerge from time to time, and it is not possible for us to predict all such factors.
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ITEM 1. | BUSINESS. |
Overview
We are a leading designer and manufacturer of Class II gaming machines for the Native American gaming market with an emerging presence in a broad range of commercial markets in the United States. As of September 30, 2013, we had 8,135 gaming machines in 169 gaming facilities in 18 U.S. states, with 145 gaming facilities under revenue sharing agreements and 24 facilities under daily fixed fee agreements. The majority of our systems are used by Native American gaming operators in both Class II and Class III environments, with a recent expansion into the Illinois video gaming terminal, or VGT, market. Our products include electronic gaming machines, server-based systems and back-office systems that are used by casinos and other gaming locations. We believe our top titles are some of the most popular Class II games and among the highest grossing titles in our customers facilities.
We currently derive substantially all of our gaming revenues from lease agreements whereby we place gaming machines and systems at a customers facility in return for either a share of the revenues that these games and systems generate or a daily fee, which we collectively refer to as participation agreements and as our participation model. For the twelve months ended September 30, 2013, approximately 98% of our total revenue was recurring, generated from participation agreements and other licensing fees. Our participation model provides our customers with distinct advantages. By leasing our gaming machines to customers, we enable our customers to introduce new games in their facilities with minimal cost and financial risk. Additionally, the participation model directly aligns our interests with our customers through a shared dependence on the games performance. We successfully grew our domestic installed base of participation gaming machines every year from 2003 to September 30, 2013, and we remain highly focused on continuing to expand our domestic installed base of participation gaming machines in both our current and new markets. We have also substantially increased the number of markets in which we have participation gaming machines, from four U.S. states in 2006 to 18 U.S. states as of September 30, 2013. We also have historically generated revenue from the opportunistic sale of gaming machines and systems. We expect gaming machine sales and systems sales to continue to play a role in our business and complement our core participation model as we expand into new gaming markets.
Our focus has been in the Native American segment of the gaming market, particularly Class II gaming. With 5,648 Class II machines installed in over 97 facilities across eight states, we estimate that we are one of the top three suppliers of Class II games to Native American gaming operators. We also believe that we have a leading market position within Class II games in Oklahoma. The Oklahoma Native American gaming market is the third largest gaming market in the United States, with gaming revenues of approximately $3.8 billion in 2012. Since the signing of Oklahomas compact in 2004, which permitted Class III games, Oklahoma has experienced rapid unit growth, which expanded from 27,830 gaming machines to 64,786 in 2012, with a significant portion of the growth coming from new Class II machines. During this period, we nearly doubled our installed base of Class II machines and increased our Class II market share from 9.7% to 20.4%. Unlike Class III gaming, which requires a compact with the state, Native American tribes have the authority to operate an unlimited number of Class II games without executing a compact so long as the states permit bingo-style gaming. Class II games are an attractive option for Native American tribes because, among other things:
| revenue from Class II gaming is not shared with the state; |
| there are no limits on the number of Class II gaming machines that may be operated in any one facility; and |
| a strong Class II offering improves a tribes position when negotiating a Class III compact with the state. |
We have significant technical expertise in catering to local tastes within fragmented markets, and are thus uniquely positioned to be a leading supplier of Class III machines to Illinois recently regulated route-based market. In order to maximize operator and location revenue, we developed a new multi-game terminal called Gamblers Choice , which is offered with a portfolio of games that are well-suited to player preferences for the
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route operated segment. We are also working in conjunction with select route operators to acquire and consolidate undercapitalized routes across Illinois in exchange for long-term contractual rights to provide our gaming machines at a fixed daily fee of approximately $13.00. Based on the number of locations that our eight existing route operator relationships have to date, we estimate contracted placements of approximately 2,769 gaming machines, of which 1,975 placements are located in municipalities which have already opted in to permit route gaming and 794 placements are located in municipalities that have not yet opted in. As of September 30, 2013, we had 926 terminals operating in Illinois.
Class III markets represent a large untapped opportunity for us. Over the last three years, we have aggressively secured licenses in key commercial markets. As a result of our investments, we have more than tripled our addressable markets to 776 casinos and 614,000 gaming machines. We recently placed Class III units in Nevada and Louisiana and expect to commence placement of Class III gaming machines in New Jersey and Mississippi in the near term. Our key initiatives for the Class III market include (i) building a robust proprietary platform to enable us to develop customized product solutions and (ii) developing unique game concepts (such as the It Pays to Know series of games, pachinko-based topper games such as Caribbean Pearls , and engaging games with strong player appeal such as Blackbeards Treasure ). We intend to focus on niche placements (targeting six to ten units per location) of these and other premium games to drive growth. As of September 30, 2013, we have successfully placed our gaming machines in 23 casinos for an average of 57 games per location (excluding Oklahoma).
We have leveraged our leadership position in Class II content, our flexible technology platform that offers titles in both Class II and Class III formats, and our strong customer relationships to gain meaningful penetration in our core markets. Under our participation model, customers rely on us to select the mix of titles, maintain and service the equipment, and oversee promotional efforts for our titles. These dynamics foster strong long-term customer relationships as demonstrated by the fact that our top ten participation model customers have been with us for an average of over eight years. In addition, our customer location retention rate as of September 30, 2013 was 96%.
Within Native American and other segments of the gaming industry, we focus on providing content for the local player. We believe that locals-oriented markets have greater consistency and visibility in performance than larger destination markets and have strong growth characteristics. Based on our internal research, we believe local players visit casinos with high frequency and demonstrate strong loyalty to gaming titles. Locals-oriented markets have proven to be more resilient during economic downturns, and we believe we are well-positioned to benefit from gaming expansion as states with recently passed legislation such as Florida, Illinois, Maryland, Massachusetts, Ohio and Pennsylvania continue to legalize various forms of gaming. We believe our understanding of these locals-oriented markets, early focus on new market opportunities and market-specific strategies and products distinguish us from many of our competitors.
We have built a strong management team and increased our product development capability in order to capitalize on our attractive market position and growth opportunities in our current and new markets. In 2010, we hired several veteran industry executives, including our Chairman, CEO and President, Robert Miodunski, the former CEO of Alliance Gaming Corporation, or Alliance Gaming (n/k/a Bally Technologies, Inc.). In addition, we have significantly increased our pipeline of new titles through continued investment in internal content development capabilities and increased efforts on leveraging third-party developers. We believe our expanded content library consisting of our core and new titles will allow us to drive incremental revenue from our domestic installed base of 8,135 participation gaming machines, gain additional placements in our current markets, and penetrate new markets.
Business Strategy
We have invested and expect to continue to invest in new business strategies, products, services and technologies. We intend to pursue the following strategies as part of our overall business strategy:
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Continue to expand our library of proprietary content . We will continue our focused efforts to develop games, both internally and through partnerships with third parties, tailored to our target markets. |
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Investments in expanding our content have created a new title pipeline of 32 games we expect to release in 2013 (22 of which will have been developed internally), which exceeds the 28 titles we brought to market from 2002 to 2010 combined. We expect that our proprietary game library will grow from nine active titles in 2011 to 87 active titles at the end of 2013. |
| Improve yield on existing customer installed base by managing title mix. We believe that more effective management of the title mix across our domestic installed base of 8,135 participation gaming machines in 169 gaming facilities represents an opportunity to generate incremental EBITDA growth without requiring growth in our domestic installed base of participation gaming machines. In addition, we expect improved game performance will likely drive incremental gaming machine placements within our customers facilities. |
| Develop niche products for expansion into traditional gaming markets. With 979 casinos in 41 U.S. states as of December 31, 2012 and the replacement cycle on equipment at a cyclical low, we believe the market potential for new games is favorable. We will target the introduction of a small number of niche participation gaming machines to a large number of casinos. As of September 30, 2013, we are licensed to operate in 24 U.S. states, containing approximately 776 casinos in the aggregate. |
| Execute on contracted Illinois VGT rollout . We have significant technical expertise in catering to the local tastes within fragmented markets, and are uniquely positioned to be a leading supplier to Illinois recently regulated route gaming market. To target this nascent route-based market, we have developed new products and features, including games, titles and bonus features specifically for the Illinois VGT market and a statewide player reward program. |
| Continue expansion into Class III markets and increase penetration in Class II markets . We have a foothold of 1,561 Class III recurring revenue placements (excluding Illinois), and we plan to continue expanding in this market. Utilizing new recently issued gaming licenses, we expect to begin placing and selling Class III products in five new jurisdictions (Nevada, Mississippi, Louisiana, New Jersey and Connecticut). We also anticipate growing our presence in Class III markets where we currently operate, such as Oklahoma, Florida and California, by placing additional content from our expanding library of games in these states. In addition, we believe that our existing core Class II product offering is among the strongest in the industry today, and we believe that we possess three of the industrys top ten titles. We expect to continue gaining market share in existing Class II jurisdictions and are focused on penetrating newly licensed jurisdictions. |
Company History
In September 2005, AGS LLC, a wholly owned subsidiary of AGS Capital, LLC, acquired Clapper Enterprises, Inc. and Worldwide Game Technology Corp., collectively referred to as CEI. Prior to 2002, CEI focused on the Class II market, utilizing new game and system software provided through its partnership with Bluberi. CEIs primary market was Oklahoma, which was a non-compacted, Class II-only Native American market at this time. From 2002 to 2004, CEI grew their installed base of participation gaming machines from several hundred to approximately 3,000, of which approximately 89% were located in Oklahoma, with the remaining machines located in New York, Wyoming and Texas. See Item 2. Financial InformationManagements Discussion and Analysis of Financial Condition and Results of OperationsAcquisitions and Divestitures.
Our historical growth primarily has been accomplished by expanding our installed base of participation gaming machines through increased penetration of existing markets and the expansion into new markets. As of September 30, 2013, we had 8,135 gaming machines in 18 U.S. states. We added the game sale model in 2008 to complement our participation strategy. In 2010, we recruited a new CEO and several highly accomplished executives to our management team. In July 2010, we reorganized our business by reducing staff and consolidating our field service operations to our Oklahoma facility which led to the closure of our Canoga Park, California facility and the closure of our Simpsonville, South Carolina facility. In January 2012, we agreed to
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terminate our existing distribution agreement with Bluberi, which provided gaming content and software systems in exchange for certain royalties, and to acquire certain rights to gaming content and software systems covered thereunder.
The Acquisition
On September 16, 2013, AGS Holdings, LLC, AGS Capital and AP Gaming Acquisition, LLC ( AP Gaming Acquisition ), an indirect subsidiary of AP Gaming and an affiliate of Apollo Global Management, LLC ( Apollo ), entered into an Equity Purchase Agreement (as subsequently amended and restated on December 3, 2013, the Acquisition Agreement ). The Acquisition Agreement provides that AP Gaming Acquisition will purchase 100% of the equity of AGS Capital from AGS Holdings, LLC (the Acquisition ) for an aggregate purchase price of $215 million (subject to customary purchase price adjustments), in addition to a potential earnout payment of up to $35 million, which shall be comprised of (i) a $5.3 million cash payment, (ii) $2.2 million in seller notes to be issued by AP Gaming, Inc. (the Seller Notes ) and (iii) $24,000 in Seller Notes for each gaming machine under contract and placed by the Company in jurisdictions excluding Illinois between July 1, 2013 and December 31, 2013 in excess of 7,235, which is the number of gaming machines in such jurisdiction as of June 30, 2013. The Acquisition Agreement contains certain termination rights for both parties, and under specific circumstances each party might be required to pay the counterparty a termination fee. The Acquisition Agreement contains certain limitations on our operations during the period prior to the closing of the Acquisition.
Consummation of the Acquisition Agreement is subject to customary conditions, including without limitation (i) the expiration or early termination of the waiting period applicable to the consummation of the proposed Acquisition Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1974, as amended (the HSR Act ) (which waiting period expired as of 11:59 p.m. EDT on October 23, 2013 with no action by the Federal Trade Commission or the Department of Justice), (ii) the receipt of specified licenses, permits, and other approvals relating to AP Gaming Acquisition issued by certain governmental authorities, (iii) assignment of certain patents pursuant to the Acquisition Agreement, (iv) the absence of any law or order that is in effect and restrains, enjoins or otherwise prohibits the proposed Acquisition Agreement, (v) the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the Acquisition Agreement (subject to customary materiality qualifiers) and (vi) the absence of any change, effect, development or circumstance that, individually or in the aggregate, constitutes or is reasonably likely to constitute a Company Material Adverse Effect (as defined in the Acquisition Agreement). The Acquisition is being financed in part by the Senior Secured Credit Facilities (as defined herein), which are comprised of the $155 million Term Facility and the $25 million Revolving Facility (each, as defined herein). AP Gaming I, LLC, a wholly owned indirect subsidiary of AP Gaming, will be the borrower of the Senior Secured Credit Facilities, which will be guaranteed by AP Gaming Holdings, LLC, AP Gaming I, LLCs direct parent company, each of AP Gaming I, LLCs direct and indirect material wholly owned domestic subsidiaries and AP Gaming NV, LLC. See Item 2. Financial InformationManagements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources and Item 7. Certain Relationships and Related Transactions, and Director IndependenceRelated TransactionsTransactions Related to the Acquisition for a description of the Senior Secured Credit Facilities and other transactions related to the Acquisition that will occur prior to the closing thereof.
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The following chart summarizes our corporate structure upon the closing of the Acquisition:
(1) | Expected to be renamed APGam Canada ULC subsequent to the closing of the Acquisition. |
Apollo Overview
Founded in 1990, Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, Houston, London, Frankfurt, Luxembourg, Singapore, Hong Kong, and Mumbai, and a team of 691 employees, including 274 investment professionals. As of September 30, 2013, Apollo had total assets under management of $112.7 billion, including approximately $42.8 billion in private equity, $59.4 billion in credit and $9.3 billion in real estate.
Apollo has a long history of successfully investing in leisure and site-based entertainment. Investments include resorts, cruise lines, gaming, spas, golf and restaurants. Apollo has a deep understanding and significant experience in the development / construction, marketing and cross-selling activities for these assets, as well as a broad network of industry professionals.
Apollo is currently invested in Caesars Entertainment Corporation, the worlds largest and most diversified casino-entertainment provider and the most geographically diverse U.S. casino-entertainment company with
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61,900 slot machines, Gala Coral Group, one of Europes pre-eminent betting and gaming businesses with 7,082 slot machines and three cruise line companies, Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises, with approximately 2,950 slot machines in aggregate.
Our Operations
Under our participation agreements, we provide customers with gaming machines, systems software, computer hardware, signage, and other equipment for operation within their gaming facilities. In return we receive a share of the revenue generated by these gaming machines and systems or a daily fee. For our revenue share arrangements, we have historically shared between 15 20% of the revenues generated by the gaming machines. For our daily fee arrangements, the average daily fee for our current installed base is approximately $32.00 per day for non-Illinois markets and $13.00 per day for Illinois markets. Under our participation agreements, we participate in selecting the mix of titles, maintain and service the equipment, and oversee certain promotional efforts. In support of our business and operations, we employ a professional staff including field service technicians, production, sales, account management, marketing, technology and game development, licensing and compliance, finance and administration.
Our field service technicians are responsible for installing, maintaining and servicing our player terminals and systems. Our field service operation including our call center, which operates 24 hours a day, seven days a week, is managed out of our Oklahoma facility. We can also access most of our gaming machines and systems remotely from approved remote locations to provide software updates and routine maintenance. In addition, our gaming machine and system production facility is also located in and managed out of Oklahoma.
Sales, account management and marketing are managed through our Oklahoma, Las Vegas and Illinois locations. Sales and account management oversees the customer relationship both at the individual location and corporate level and are responsible for developing new customer relationships. Account management is in charge of running on-site promotions and corporate sponsorship programs. In addition, our marketing team is in charge of general corporate marketing, including advertisements and participation at industry trade shows.
Our technology and game development division operates primarily out of our Toronto location and secondarily out of our Las Vegas location. We employ game developers, software and system programmers, project managers and other development and administrative staff that oversee our internal game development efforts and manage third party relationships.
Our legal, licensing and compliance division operates out of our Las Vegas and Oklahoma locations. Our licensing and compliance division oversees the application and renewal of our corporate gaming licenses, findings of suitability for key officers and directors and certification of our gaming equipment and systems for specific jurisdictions, as well as coordinating gaming equipment and software shipping and onsite and remote service of our equipment with gaming authorities.
Our finance and administration division is located in our corporate headquarters in Las Vegas. Finance and administration oversees financial reporting, cash management, human resources and other administrative and corporate functions.
Products
We provide our customers with gaming machines, systems software, computer hardware, signage and other equipment for operation within their gaming facilities.
Roadrunner Platform
We received regulatory approval for the Roadrunner platform in 2012. The Roadrunner platform is one of the most advanced platforms in the industry and represents a substantial advancement from our legacy Encore platform, both in terms of user interface and platform architecture. We designed Roadrunner to be a superior
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Class II gaming platform with the capability to port Class III outcomes within a Class II construct with limited degradation in game play. Since Roadrunner is flexibility to run in both Class II and Class II formats, we are able to develop both Class II and Class III titles for the platform, and can also easily retrofit it to certain of our existing products.
Utilizing both in house and third party providers, we have created a sizable portfolio of new titles for the Roadrunner platform. Due to the modular and highly scalable design of Roadrunner, we believe we can increase the number of titles we produce each year using just our existing resources. The Roadrunner platform was designed with our revenue share model in mind, and title conversions can be executed by loading software off of a USB drive. Roadrunner is also compatible with downloadable conversions, however regulatory standards in most jurisdictions do not currently permit this technology.
Class II historically has suffered from diminished game play and functionality due to fewer outcomes compared to Class III games. We believe that the Roadrunner method for porting Class III outcomes to a Class II system will create a unique robust competitive Class II product, with the potential to grow the entire Class II market. This will give our Native American customers more flexibility in managing their casino floor, which represents a large opportunity as Native American gaming revenue (both Class II and Class III) constituted approximately 43% of total U.S. gambling revenue in 2012.
Gaming Titles
Prior to 2010, we relied solely on external content providers, and currently approximately 85% of our installed base runs on externally developed platforms. We have strategically shifted our focus to create new internal content, however, and our research and development program has been the largest contributor to our new titles over the past two years. As a result, we expect internally generated content to be a larger source of our installed base going forward.
We have four categories of gaming titles: Standard, Premium, Bluberi and Colossal. Our Standard and Premium products utilize internally produced content, while our Bluberi and Colossal products utilize externally produced content. We acquired rights to the Bluberi products and titles in 2012 and also signed an exclusive distribution agreement with Colossal Gaming in 2012 for the California, Oklahoma, Washington, Florida, New York and Texas markets.
Core Titles
We partnered with Bluberi beginning in 2002 to develop our initial set of Class II games for release in the Oklahoma market. Under this agreement, we paid Bluberi a licensing fee equal to a percentage of revenues earned on titles placed in casinos that operated on Bluberis proprietary platform. This collaboration resulted in the development of successful core titles, such as Royal Reels , Cool Catz and Liberty 7s , which are among the top ten Class II games in the market today. These titles have historically been the highest gross earners in our product portfolio, and as of September 30, 2013, represented 52% of our installed base and 61% of our total revenue. In May 2012, we negotiated a purchase agreement with Bluberi for the licensing and royalty rights to Royal Reels , Cool Catz and Liberty 7s , among others. We believe that there is significant value in these brands, and we plan to leverage them through developing title extensions on the Roadrunner platform.
Roadrunner Titles
We continue to launch our Premium titles in three primary formats: mechanical wheel top box, mechanical pachinko top box and 42 vertical slant top. These self-merchandising cabinet formats are Premium in nature and atheistically appealing to the casino customer. The variety of formats allows for an appropriate level of experimentation of unique selling propositions within our product.
We have entered into licensing agreements with a number of top brands and are developing a series of trivia-based games which will be marketed as the It Pays to Know series. The brands include Ripleys Believe it or Not! , Are You Smarter Than a 5th Grader? and Family Feud . For each brand, we intend to take to market at
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least two different products to maximize the potential of creating a hit franchise. In December 2012, we launched Blackbeards Treasure , a culmination of the unique bonus schemes, play mechanisms and game features developed for the Roadrunner platform. It represents the first game on the Roadrunner platform which will be featured in a Premium format.
Specialty Game Concepts
Our Diamond Lotto game has quickly become one of the leading grossing games in the state of Florida since its launch in 2009, averaging WPD of approximately $268. To build on Diamond Lotto s success and increase its presence in the Florida market, we will be launching the Lottomania Multi-Game in 2013, featuring line extensions that include Shamrock Lotto, Great West Lotto , Ruby Lotto and Jewel Lotto . We plan to replicate the success of Diamond Lotto in other Class III gaming markets where we have a smaller footprint.
We introduced our Gamblers Choice multi-game unit, designed specifically for the Illinois VGT market, in September 2012. This unit runs on our Roadrunner platform and enables us to offer up to 24 titles per terminal, including traditional reel games, classic card games and specialty poker products in order to maximize operator and location revenue. We researched the market intensively to carefully create a portfolio of games that are well suited to player preferences for a route operated market. The resulting mix is a collection that includes several of our highest grossing titles as well as external content that was specifically licensed for use in the Illinois market. Among the offerings is Cherry Master , a game that we in-licensed and recreated for the Illinois VGT market.
Third Party Content
Our product strategy also involves title development utilizing independent design studios to create content on the new Roadrunner platform. In November 2011, we entered into an exclusive rights agreement to license five titles, with an option to expand, from Gametech Internationals video lottery terminal library for use in the Illinois market. We are also implementing the first of three titles that we acquired from Design Works Gaming, an independent studio based in Phoenix. The first of these titles is Armadillo Artie , which was launched in the third quarter of 2013. In addition, we also intend to partner with developers that own their own platforms as an additional source of content.
In September 2012, we entered into an exclusive distribution agreement with Colossal Gaming to distribute Colossals Class II and Class III games in California, Florida, New York, Oklahoma, Texas and Washington. As part of the distribution agreement, we will provide sales and service for Colossal designed games. Colossals products offer a unique selling proposition with creatively designed oversized games. For example, the Big Red cabinet is over eight feet wide and we believe is one of the top games in both California and Oklahoma. More recently, we expanded our development agreement with Colossal to include three Colossal titles that will be developed on our GT5000 cabinet for sale or deployment in all jurisdictions where we are licensed.
Product Strategy
Our product strategy is to develop unique premium product offerings which will allow us to carve -out and own specific product categories and subcategories. We will also test various unique game play methods on our Standard series of games which will also be used to manage yield in the existing installed base. Our growing library of new Standard titles provides us with a broader selection to actively manage our title mix and keep our installed base fresh with new popular content.
For Premium games, we intend to dominate sub-categories wherever possible. For example, our It Pays to Know series of games will feature well-known brands such as Ripleys Believe it or Not! , Are You Smarter Than a Fifth Grader? and Family Feud . All games in the It Pays to Know series will also include a trivia bonus feature, which is unique to our games. This strategy will allow us to maintain our market leadership within our Class II base in existing markets and to expand into Class III casinos in other key jurisdictions.
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Manufacturing
We have a manufacturing agreement with Cole Kepro International, LLC ( Cole ) to build our gaming cabinets. We believe we have limited concentration risk with Cole, since we own the rights to our cabinet designs and thus have the ability to change manufacturers in the event of a dispute. Cole is based in Las Vegas, Nevada and is owned by Kepro International, a large international manufacturing company with multiple manufacturing facilities. We believe our gaming cabinets can easily be designed at another of Kepros plants in the event of an unforeseen interruption at Coles Las Vegas plant.
Our gaming machine and system production facility is also located in and managed out of Oklahoma. Production at this facility includes building and refurbishing gaming machines (excluding gaming cabinets) and servers, parts support and purchasing. Field service technicians are located in various jurisdictions throughout the U.S. and are dispatched from a central call center located in our Oklahoma facility. They are responsible for installing, maintaining and servicing the player terminals and systems.
Manufacturing commitments are generally based on expected quarterly sales orders from customers. Due to uneven order flow from customers, component parts common to all gaming machines are purchased and assembled into a partial product that are inventoried to be able to quickly fill final customer orders.
We generally warrant our new gaming machines sold in the United States for a period of 365 days, while we warrant our gaming machines sold internationally for a period of 180 days to one year. Our warranty costs have not been significant.
Customers
We believe the quality and breadth of our customer base is a strong testament to the effectiveness and quality of our product offerings, technological innovation and customer service. At the core of our relationship with our customers is our participation model, which aligns our financial incentives with those of our customers through a shared dependence on the games performance. The combination of our customer-aligned participation model, quality customer service and strong game performance has allowed us to develop long-term relationships with our tribal and commercial casino customers. We have a strong customer location renewal rate, which averaged 96% as of December 31, 2012. Our top ten participation customers have been with us for an average of over eight years, and we believe that we maintain long-term relationships with key customer decision-makers. The combination of our customer-aligned participation model, attentive customer service and superior game performance has allowed us to develop long-term relationships with our tribal and commercial casino customers. As of September 30, 2013, we had 8,135 gaming machines in 18 U.S. states.
Oklahoma is our largest market and our participation gaming machines in the state accounted for approximately 78% of our total revenue for the fiscal year ended December 31, 2012. Our largest customer is the Chickasaw Nation, a Native American gaming operator in Oklahoma, which accounted for approximately 35% of our gaming revenue for the fiscal year ended December 31, 2012. The revenues we earn from the Chickasaw Nation are derived from numerous agreements. One such agreement, which covers our leasing of 200 units for the Winstar project, is scheduled to expire May 11, 2014, while the other agreements are scheduled to expire between 2015 and 2018. We have historically offered select existing and prospective customers financing for casino development and expansion projects in exchange for exclusive rights to a percentage of their floor space. In addition to our long-term relationships and contractual arrangements, the consistent demand for our titles from the loyal, repeat players of our titles further ensures our strong presence on our customers casino floors.
Within the Native American market, we provide both Class II and Class III games. We also serve customers in commercial, video lottery terminal, charity bingo and route-based markets.
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Customer Contracts
We derive the majority of our gaming revenues from participation agreements whereby we place gaming machines and systems, along with our proprietary and other licensed game content, at a customers facility in return for a share of the revenues that these gaming machines and systems generate or a daily fee. We measure the performance of our domestic installed base of participation gaming machines on the net win per day per machine, often referred to as the win per day, or WPD. Under our participation agreements, we earn a percentage of the WPD of our domestic installed base of participation gaming machines. Our WPD has declined in recent years, but our domestic trailing twelve month WPD has stabilized since June 2010. For the fiscal year ended December 31, 2012, our average revenue share was 18.9% and the average WPD of our domestic installed base of participation gaming machines was $110 , which is a 2.8% increase compared to the prior year.
Our standard participation contracts run one to three years in duration and may contain auto-renewal provisions for an additional term. Our contracts generally specify the number of gaming machines and other equipment to be provided, revenue share, daily fee or other pricing, provisions regarding installation, training, service and removal of the machines, and other terms and conditions standard in the industry. In some circumstances, we enter into trial agreements with customer that provide a free or fee-based trial period during which the customer may use our gaming machines. Each trial agreement lays out the terms of payment should the customer decide to continue using our machines.
Our development or similar agreements in the Native American and other markets may involve both a loan or advance of funds and a gaming equipment lease agreement. These agreements are typically longer term contracts, ranging from four to ten years depending on the amount of financing provided, market and other factors. These contracts specify the amount and timing of the advances that we will provide, the uses of those funds, and target timing for the construction or remodeling of the gaming facility, if applicable. In addition, the contracts specify the repayment terms of the loans which vary by customer and agreement. Typical terms contained in these agreements include the percentage of the floor, minimum number of gaming machines, or percentage of the route operation allocated to us, the associated term or period of exclusivity for that allocation or number of gaming machines, minimum game performance thresholds, cure periods and resulting obligations, if any, and other general terms and conditions. Certain of these development agreements also contain a buyout option, which provides that upon written notice and payment of a buyout fee, the customer can terminate our floor space privileges. The IGRA states that a Native American tribe must have the sole proprietary interest in its gaming (25 U.S.C. § 2710(b)(2)(A)). To the extent that any of our agreements with Native American tribes are deemed by the NIGC to create an impermissible proprietary interest, such agreements would need to be amended in order to be valid. To our knowledge, none of our current agreements with Native American tribes create an impermissible proprietary interest in Indian gaming. As of September 30, 2013, these loans, in the aggregate, amounted to approximately $13.0 million in notes receivable, $11.8 million of which is related to loans to gaming operators in the Illinois VGT market. After September 30, 2013, in the normal course of business, total payments of approximately $3.0 million have been received on these notes receivable. Upon consummation of the Acquisition approximately $8.7 million of the notes receivable will remain with the Seller.
We generally make efforts to obtain waivers of sovereign immunity in our contracts with Native American customers. However, we do not always obtain these provisions and where we do they can be limited in scope. There is no guarantee that we will continue or improve our ability to get this term in future contracts. In the event that we enter into contracts with Native American customers in the future that do not contain a waiver of sovereign immunity, such contracts may be practically unenforceable.
Our game sale contracts are typical of those in the industry. They specify the general terms and conditions of the sale, equipment and services to be provided, as well as pricing and payment terms. In some cases, we provide the central server that is used to operate the purchased equipment on a lease and charge a fee per day based on the number of gaming machines connected to the server.
Research and Development
We conduct research and development through an internal team to develop new gaming systems and gaming content. Research and development costs consist primarily of salaries and benefits, travel and expenses and other
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professional services. We employ approximately 60 game developers, software and system programmers, project managers and other development and administrative staff that oversee internal game development efforts and manage third party relationships. The technology and game development division operates primarily out of our Toronto location as well as in Las Vegas.
Competition
We encounter intense competition from other designers, manufacturers and operators of electronic gaming machines and systems. Our competitors range from small, localized companies to large, multi-national corporations, several of which have substantial resources and market share.
Our competitors include, but are not limited to, International Game Technologies, or IGT, WMS Industries Inc., Bally Technologies, Inc., or Bally, Aristocrat Technologies Inc., or Aristocrat, Video Gaming Technologies, Inc., or VGT, Multimedia Games, Inc., or MGAM, Konami Co. Ltd., or Konami, and Cadillac Jack. Many of our competitors are large, well-established companies with substantially larger operating staffs and greater capital resources and have been engaged in the design, manufacture and operation of electronic gaming equipment business for many years. Some of these companies contain significant intellectual property including patents in gaming technology and hardware design, systems and game play and trademarks. In addition, the larger competitors contain significantly larger content portfolios and content development capability and resources, are licensed in markets throughout the United States, and have international distribution. Bally, IGT, Konami, and Aristocrat all have a presence in the back-office accounting and player tracking business which expands their relationship with casino customers. VGT, Cadillac Jack and MGAM are our primary competitors in the Class II market.
To compete effectively, we must, among other things, continue to develop high performing games for the Class II market, provide excellent service and support to our existing customers, effectively manage our installed base of participation gaming machines, expand our library of proprietary content, develop niche products with strong appeal to local players, be first to market in new non-traditional markets, implement effective marketing and sales functions, and offer competitive pricing and terms on our participation and sale agreements.
Intellectual Property
We have a combination of third-party intellectual property, patents and trademarks in addition to exclusive licensing agreements, all of which we believe maintain and enhance our competitive position and protect our products. We currently own or license several patents and have numerous trademark registrations and pending trademark applications in the United States and Canada. In addition, pursuant to our license agreements with third-party game developers, we license and distribute gaming software that may be covered by third-party patents, copyrights or trademarks.
Seasonality
See Item 2. Financial InformationManagements Discussion and Analysis of Financial Condition and Results of OperationsSignificant Accounting Policies and Critical EstimatesSeasonality.
Environmental Laws
We are subject to various federal, state and local laws and regulations that (i) regulate certain activities and operations that may have environmental or health and safety effects, such as the use of regulated materials in the manufacturing of our products by third parties or our disposal of materials or wastes, (ii) impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site, or other releases of hazardous materials or regulated substances, and (iii) regulate workplace safety. From time to time, our operations or products have resulted in, or may result in, non-compliance with, or liability pursuant to,
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environmental or health and safety laws or regulations. We believe that our operations and products are generally in compliance with environmental and health and safety regulatory requirements or that any non-compliance will not result in a material liability or cost to achieve compliance. Historically, the costs of achieving and maintaining compliance with environmental laws and regulations have not been material. However, we cannot assure you that future costs and expenses required for us to comply with any new or changes in existing environmental and health and safety laws and regulations or new or discovered environmental conditions will not have a material adverse effect on our business.
We have not been notified of and are otherwise currently not aware of any contamination at our currently or formerly operated facilities for which we could be liable under environmental laws or regulations for the investigation and remediation of such contamination and we currently are not undertaking any remediation or investigation activities in connection with any contamination conditions. There may however be environmental conditions currently unknown to us relating to our prior, existing or future sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired which could have a material adverse effect on our business. New laws, regulations or policies or changes in existing laws, regulations or policies or their enforcement, future spills or accidents or the discovery of currently unknown conditions or non-compliances may give rise to investigation and remediation liabilities, compliance costs, fines and penalties, or liability and claims for alleged personal injury or property damage due to substances or materials used in our operations or products; any of which may have a material adverse effect on our business, financial condition, operating results or cash flow.
Employees
We employ a professional staff, including field service technicians, production, sales, account management, marketing, technology and game development, licensing and compliance, finance and administration, to support our business and operations. As of September 30, 2013, we had 208 full-time employees in 11 different U.S. states and Toronto, Canada and no part-time employees. We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages in the past.
Regulation and Licensing
We operate in numerous gaming jurisdictions, and our operations are subject to applicable federal, state, tribal and foreign governmental regulations as applicable in each of the gaming jurisdictions in which we operate. A significant portion of our operations take place at facilities conducting gaming activities on the tribal lands of Native American tribes resulting in our operations being subject to tribal and/or federal and sometimes state regulations depending on the classification of gaming being conducted in each such case as defined in the Indian Gaming Regulatory Act, or IGRA. In states where commercial gaming has been legalized, our operations are conducted subject to the applicable law of each such state and applicable federal laws.
While the specific regulatory requirements of each state and tribal jurisdiction vary, gaming regulatory authorities typically require licenses, permits, findings of integrity and financial ability, and other forms of approval to conduct operations as a gaming equipment manufacturer and/or provider of gaming related services. It is common for regulators to require reporting and disclosure concerning our activities in other gaming jurisdictions, resulting in the possibility that business activities or disciplinary action against us in one jurisdiction could result in disciplinary action in other jurisdictions. In addition, our officers, key employees, directors, major stockholders and, in some cases, equity holders and lenders are also each subject to licensure and/or suitability findings in connection with our operations. If regulators in any jurisdiction in which we conduct business determine that any officer, key employee, director, major stockholder (or other person or entity affiliated with us and subject to regulatory scrutiny under the regulations of such jurisdiction) is unsuitable to participate in the gaming industry in such jurisdiction, then we could be required to terminate our relationship with such person. In addition, many jurisdictions require our products to be tested for compliance with the jurisdictions regulations prior to our being permitted to distribute our products.
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Our officers, key employees and operational entities have obtained or applied for all required government licenses, permits, registrations, findings of suitability, and approvals necessary to manufacture and distribute gaming products in all jurisdictions where we currently do business. In most jurisdictions, even once licensed or approved, we remain under the on-going obligation to keep the applicable gaming regulators informed of any material changes in the information provided to regulators as part of the licensing and approval process, and all licenses and approvals must be periodically renewed, in some cases as often as annually. In connection with any initial application or renewal of a gaming license or approval, we (and any individual required to submit to background review or licensure in connection with our application or renewal) are typically required to make broad and comprehensive disclosures concerning our business, including our finances, ownership and corporate structure, operations, compliance controls and business relationships. We must regularly report changes in our officers, key employees and other licensed positions to applicable gaming regulators. Gaming regulators typically have the right to disapprove any change in position by one of our officers, directors, or key employees, or require us to suspend or dismiss officers, directors, or other key employees and cause us to sever relationships with other persons or entities who refuse to file appropriate applications, or whom are found to be unsuitable.
Certain gaming jurisdictions in which we are licensed may prohibit us from making a public offering of our securities without their prior approval. Similarly, changes in control of a licensee through merger, consolidation, acquisition of assets or stock, management or any form of takeover typically cannot occur without the prior approval of applicable gaming regulators. Such regulators may also require controlling stockholders, officers, directors, and other persons or entities having a material relationship or involvement with the entity proposing to acquire control, to be investigated, and licensed as part of the approval process relating to the transaction.
Gaming regulators often have the power to investigate the holders of our debt or equity securities. If any holder of our debt or equity securities is found unsuitable by any gaming regulator in a jurisdiction in which we conduct business, our licensure or approval to conduct business in such jurisdiction could be subject to non-renewal, suspension or forfeiture.
Most gaming jurisdictions impose fees and taxes that are payable by us in connection with our application, maintenance and renewal of our licensure or our approval to conduct business.
Federal Registration
The Gambling Devices Act of 1962 makes it unlawful for a person to manufacture, transport, or receive gaming devices, or components across interstate lines unless that person has first registered with the Attorney General of the U.S. Department of Justice. This act also imposes gambling device identification and record keeping requirements. Violation of this act may result in seizure and forfeiture of the equipment, as well as other penalties. As an entity involved in the manufacture and transportation of gaming devices, we are required to register annually.
Native American Gaming
The rules for Native American gaming were established in 1988 under the IGRA. Under the IGRA, gaming activities conducted by federally recognized Native American tribes are segmented into three classes of gaming activities:
Class I. Class I gaming represents traditional forms of Native American gaming as part of, or in connection with, tribal ceremonies or celebrations (e.g., contests and games of skill) and social gaming for minimal prizes. Class I gaming is regulated only by individual Native American tribes. We do not participate in any Class I gaming activities.
Class II. Class II gaming involves the game of chance commonly known as bingo (whether or not electronic, computer, or other technological aids are used in connection therewith to facilitate play) and if played in the same location as the bingo, pull tabs, punch board, tip jars, instant bingo, and other games similar to bingo.
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Class II gaming also includes non-banked card games, that is, games that are played exclusively against other players rather than against the house or a player acting as a bank. However, the definition of Class II gaming specifically excludes slot machines or electronic facsimiles of Class III games. Class II gaming is regulated by the National Indian Gaming Commission (the NIGC ) and the laws of the Native American tribe conducting such gaming. Subject to the detailed requirements of the IGRA, federally recognized Native American tribes are typically permitted to conduct Class II gaming on Indian lands pursuant to tribal ordinances approved by the NIGC.
Class III. Class III gaming includes all other forms of gaming that are neither Class I nor Class II and includes a broad range of traditional casino games such as slot machines, blackjack, craps and roulette, as well as wagering games and electronic facsimiles of any game of chance. The IGRA generally permits Native American tribes to conduct Class III gaming activities on reservation lands subject to the detailed requirements of the IGRA, including NIGC approval of the Native American tribes gaming ordinance and the entering into of a compact between the Native American tribe and the state in which the Native American tribe intends to conduct Class III gaming activities on its trust lands.
The IGRA is administered by the NIGC and the Secretary of the U.S. Department of the Interior. The NIGC has authority to issue regulations related to tribal gaming activities, approve tribal ordinances for regulating gaming, approve management agreements for gaming facilities, conduct investigations and monitor tribal gaming generally. The IGRA is subject to interpretation by the NIGC and may be subject to judicial and legislative clarification or amendment. The gaming ordinance of each Native American tribe conducting gaming under the IGRA and the terms of any applicable tribal/state compact establish the regulatory requirements under which we must conduct business on Native American tribal lands.
Under the IGRA, the NIGCs authority to approve gaming related contracts is limited to management contracts and collateral agreements related to management contracts. A management contract includes any agreement between a Native American tribe and a contractor if such contract or agreement provides for the management of all or part of a gaming operation. To the extent that any of our agreements with Native American tribes are deemed to be management contracts, such agreements would require the approval of the NIGC in order to be valid. To our knowledge, none of our current agreements with Native American tribes qualify as management contracts under the IGRA.
In addition, as discussed above under CustomersCustomer Contracts, to the extent that any of our agreements with Native American tribes are deemed by the NIGC to create an impermissible proprietary interest, such agreements would need to be amended in order to be valid. To our knowledge, none of our current agreements with Native American tribes create an impermissible proprietary interest in Indian gaming.
International Regulation
Certain foreign countries permit the importation, sale, and operation of gaming equipment in casino and non-casino environments. Some countries prohibit or restrict the payout feature of the traditional slot machine or limit the operation and the number of slot machines to a controlled number of casinos or casino-like locations. Each gaming machine must comply with the individual countrys regulations. Certain jurisdictions do not require the licensing of gaming machine operators and manufacturers.
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ITEM 1A. | RISK FACTORS. |
The following risk factors should be considered carefully in addition to the other information contained in this Registration Statement. This Registration Statement contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in the forward-looking statements. Factors that may cause such differences include, but are not limited to, those discussed below as well as those discussed elsewhere in this Registration Statement. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.
Our success in the competitive gaming industry depends in large part on our ability to develop and manage frequent introductions of innovative products.
The gaming industry is characterized by dynamic customer demand and technological advances. As a result, we must continually introduce and successfully market new themes and technologies in order to remain competitive and effectively stimulate customer demand.
There is no assurance that our investments in research and development will lead to successful new technologies or timely new products. We invest heavily in product development in various disciplines from hardware, software and firmware engineering to game design, video, multimedia, graphics and sound. Because our newer products are generally more technologically sophisticated than those we have produced in the past, we must continually refine our production capabilities to meet the needs of our product innovation. If we cannot efficiently adapt our manufacturing infrastructure to meet the needs of our product innovations, or if we are unable to make upgrades in our production capacity in a timely manner, our business could be negatively impacted.
Our customers will generally accept a new product if it is likely to increase operator profits. The amount of operator profits primarily depends on consumer play levels, which are influenced by player demand for our products. There is no assurance that our new products will attain this market acceptance or that our competitors will not more effectively anticipate or respond to changing customer preferences. In addition, any delays by us in introducing new products on schedule could negatively impact our operating results by providing an opportunity for our competitors to introduce new products and gain market share ahead of us.
Our business is vulnerable to changing economic conditions and to other factors that adversely affect the casino industry, which have negatively impacted and could continue to negatively impact the play levels of our participation games, our product sales and our ability to collect outstanding receivables from our customers.
Demand for our products and services depends largely upon favorable conditions in the casino industry, which is highly sensitive to casino patrons disposable incomes and gaming activities. Discretionary spending on entertainment activities could further decline for reasons beyond our control, such as continued negative economic conditions, natural disasters, acts of war or terrorism or transportation disruptions, including as a result of adverse weather conditions. Any prolonged or significant decrease in consumer spending on entertainment activities could result in reduced play levels on our participation games, causing our cash flows and revenues from a large share of our recurring revenue products to decline. Unfavorable economic conditions have also resulted in a tightening in the credit markets, decreased liquidity in many financial markets, and significant volatility in the credit and equity markets.
Furthermore, the extended economic downturn has impacted and could continue to impact the ability of our customers to purchase new gaming equipment or make timely payments to us. We have incurred, and may continue to incur, additional provisions for bad debt related to credit concerns on certain receivables.
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Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.
After the consummation of the Acquisition, we will have a significant amount of outstanding indebtedness. As of September 30, 2013, after giving effect to the Acquisition, we would have had approximately $ 157.2 million of outstanding indebtedness.
Our substantial indebtedness could have significant effects on our business. For example, it could:
| make it more difficult for us to satisfy our financial obligations, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness; |
| increase our vulnerability to general adverse economic, industry and competitive conditions; |
| reduce the availability of our cash flow to fund working capital and capital expenditures, because we will be required to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness; |
| limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
| place us at a competitive disadvantage compared to our competitors that are less highly leveraged and that, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting; and |
| limit, along with the financial and other restrictive covenants in the agreements governing our indebtedness, among other things, our ability to borrow additional funds or dispose of assets. |
The Acquisition may not be completed within the anticipated timeframe or at all, which could adversely affect anticipated benefits of the Acquisition or our business, financial condition and results of operations.
On September 16, 2013, AGS Holdings, LLC, AGS Capital and AP Gaming Acquisition entered into the Acquisition Agreement, which provides that AP Gaming Acquisition will purchase 100% of the equity of AGS Capital from AGS Holdings, LLC. Consummation of the Acquisition Agreement is subject to customary conditions, including the receipt of specified licenses, permits and other approvals. There can be no assurance that the parties to the Acquisition Agreement will be able to satisfy all of the required conditions in a timely matter, if at all. In addition, the Acquisition subjects us to a number of additional risks, including the following:
| our estimate of the costs to complete the Acquisition may vary significantly from actual results; |
| both before and after the Acquisition, the attention of management may be diverted to the closing of the Acquisition rather than to current operations or the pursuit of other opportunities that could be beneficial to our business; and |
| the potential loss of key employees who may be uncertain about their future roles if and when the Acquisition is completed. |
The occurrence of any of these events, either individually or in combination, could have a material adverse effect on our business, financial condition and results of operations. See Item 1. BusinessThe Acquisition.
Demand for our products and the level of play of our products could be adversely affected by changes in player and operator preferences.
As a supplier of gaming machines, we must offer themes and products that appeal to gaming operators and players. Our revenues are dependent on the earning power and life span of our games. We therefore face
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continuous pressure to design and deploy new and successful game themes and technologically innovative products to maintain our revenue and remain competitive. If we are unable to anticipate or react timely to any significant changes in player preferences, the demand for our gaming products and the level of play of our gaming products could decline. Further, our products could suffer a loss of floor space to table games or other more technologically advanced games, we could fail to meet certain minimum performance levels, or operators may reduce revenue sharing arrangements with us, each of which could negatively impact our sales and financial results. In addition, general changes in consumer behavior, such as reduced travel activity or redirection of entertainment dollars to other venues, could result in reduced demand and reduced play levels for our gaming products.
The gaming industry is intensely competitive. If we are unable to compete effectively, our business could be negatively impacted.
Competition among manufacturers of electronic gaming equipment and systems is intense. Competition in our industry is primarily based on the amount of profit our products generate for our customers, together with cost savings, convenience and other benefits. We compete through the appeal of game content and features to the end player, the features and functionality of our hardware and software products, and the service and support we provide. Our competitors range from small, localized companies to large, multi-national corporations. Many of our competitors are large, well-established companies with substantially larger operating staffs and greater capital resources and have been engaged in the design, manufacture and operation of electronic gaming equipment business for many years. Some of these companies own significant intellectual property, including patents in gaming technology and hardware design, systems and game play and trademarks. In addition, our larger competitors may have significantly larger content portfolios and content development capability and resources, are licensed in markets throughout the United States, and have international distribution.
Obtaining space and favorable placement on casino gaming floors is also a competitive factor in our industry. In addition, the level of competition among equipment providers has increased significantly due to, among other factors, cutbacks in capital spending by casino operators resulting from the economic downturn and decreased player spend. In select instances, we may pay for the right to place gaming machines on a casinos floor and increased fee requirements from such casino operators may greatly reduce our profitability.
In addition, we face competition from other segments of the gaming industry, including internet gambling, which is currently illegal in the United States, and state lotteries. There can be no assurance that new technologies or markets, such as legalized internet gambling, will not emerge that will increase these competitive pressures.
Our ability to operate in our existing markets or expand into new jurisdictions could be adversely affected by changing regulations, new interpretations of existing laws, and difficulties or delays in obtaining or maintaining required licenses or approvals.
We operate only in jurisdictions where gaming is legal. The gaming industry is subject to extensive governmental regulation by U.S. federal, state and local governments, as well as Native American tribal governments, and foreign governments. While the regulatory requirements vary by jurisdiction, most require:
| licenses and/or permits; |
| documentation of qualifications, including evidence of financial stability; |
| other required approvals for companies who design, assemble, supply or distribute gaming equipment and services; and |
| individual suitability of officers, directors, major shareholders, key employees and business partners. |
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Any license, permit, approval or finding of suitability may be revoked, suspended or conditioned at any time. We may not be able to obtain or maintain all necessary registrations, licenses, permits or approvals, or could experience delays related to the licensing process which could adversely affect our operations and our ability to retain key employees.
To expand into new jurisdictions, in most cases we will need to be licensed, obtain approvals of our products and/or seek licensure of our officers, directors, major equity holders, key employees or business partners and potentially lenders. If we fail to obtain a license required in a particular jurisdiction for our games and gaming machines, hardware or software or have such license revoked, we will not be able to expand into, or continue doing business in, such jurisdiction. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing markets or into new jurisdictions can negatively affect our opportunities for growth. In addition, the failure of our officers, directors, key employees or business partners or lenders to obtain or receive licenses in one or more jurisdictions may require us to modify or terminate our relationship with such officers, directors, key employees or business partners or forego doing business in such jurisdiction.
Although we plan to develop procedures and policies to comply with the requirements of evolving laws, there can be no assurance that law enforcement or gaming regulatory authorities will not seek to restrict our business in their jurisdictions or institute enforcement proceedings if we are not compliant. Moreover, in addition to the risk of enforcement action, we are also at risk of loss of business reputation in the event of any potential legal or regulatory investigation whether or not we are ultimately accused of or found to have committed any violation. A negative regulatory finding or ruling in one jurisdiction could have adverse consequences in other jurisdictions, including with gaming regulators. Furthermore, the failure to become licensed, or the loss or conditioning of a license, in one market may have the adverse effect of preventing licensing in other markets or the revocation of licenses we already maintain.
Further, changes in existing gaming regulations or new interpretations of existing gaming laws may hinder or prevent us from continuing to operate in those jurisdictions where we currently do business, which would harm our operating results. In particular, the enactment of unfavorable legislation or government efforts affecting or directed at manufacturers or gaming operators, such as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on our operations.
Many jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage (typically 5% or more) of our equity securities and may require the same from our lenders. The failure of these beneficial owners or lenders to submit to such background checks and provide required disclosure could jeopardize our ability to obtain or maintain licensure in such jurisdictions.
Our revenues are vulnerable to the impact of changes to the Class II regulatory scheme.
Our Native American tribal customers that operate Class II games under the IGRA are subject to regulation by the NIGC. The NIGC is currently conducting consultations with industry participants regarding Native American gaming activities, including the clarification of regulations regarding Class II gaming machines. It is possible that any such changes in regulations, when finally enacted, could cause us to modify our Class II games to comply with the new regulations, which may result in our products becoming less competitive. Any required conversion of games pursuant to changing regulatory schemes could cause a disruption to our business. In addition, we could lose market share to competitors who offer games that do not appear to comply with published regulatory restrictions on Class II games and therefore offer features not available in our products.
Our ability to effectively compete in Native American gaming markets is vulnerable to legal and regulatory uncertainties, including the ability to enforce contractual rights on Native American land.
For the fiscal year ended December 31, 2012, we derived approximately 99.6% of our revenue from participation agreements with Native American gaming operators. Because federally recognized Native
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American tribes are independent governments with sovereign powers, subject to the IGRA, Native American tribes can enact their own laws and regulate gaming operations and contracts. Native American tribes maintain their own governmental systems and often their own judicial systems and have the right to tax persons and enterprises conducting business on Native American lands. Native American tribes also often have the right to require licenses and to impose other forms of regulation and regulatory fees on persons and businesses operating on their lands. In the absence of a specific grant of authority by Congress, U.S. states may regulate activities taking place on Native American lands only if the Native American tribe has a specific agreement or compact with the state. Our contracts with Native American tribal customers normally provide that only certain provisions, if any, will be subject to the governing law of the state in which a Native American tribe is located. However, these choice-of-law clauses may not always be enforceable.
Further, Native American tribes generally enjoy sovereign immunity from lawsuits similar to that of the individual U.S. states and the United States. Before we can sue or enforce contract rights with a Native American tribe, or an agency or instrumentality of a Native American tribe (for example, to collect revenue pursuant to our participation agreements or foreclose on financed gaming machines), the Native American tribe must effectively waive its sovereign immunity with respect to the matter in dispute, which we are not always able to obtain. Without a limited waiver of sovereign immunity, or if such waiver is held to be ineffective, we could be precluded from judicially enforcing any rights or remedies against a Native American tribe, including the right to enter Native American lands to retrieve our property in the event of a breach of contract by the tribe that is party to the disputed contract. Even if the waiver of sovereign immunity by a Native American tribe is deemed effective, there could be an issue as to the forum in which a lawsuit can be brought against the Native American tribe. Federal courts are courts of limited jurisdiction and generally do not have jurisdiction to hear civil cases relating to Native American tribes and we may be unable to enforce any arbitration decision effectively. In addition, courts have held that certain laws of general application, such as the United States patent, trademark and trade secret laws, are not binding on Native American tribes absent a binding waiver of sovereign immunity.
Our agreements with Native American tribes are often subject to review by regulatory authorities. For example, our development agreements may be subject to review by the NIGC and any such review could require substantial modifications to our agreements or result in the determination that we have a proprietary interest in a Native American tribes gaming activity, which could materially and adversely affect the terms on which we conduct our business. The NIGC may also reinterpret applicable laws and regulations, which could affect our agreements with Native American tribes.
Government enforcement, regulatory action, judicial decisions and proposed legislative action have in the past affected, and will likely continue to affect, our business, operating results and prospects. Regulatory action against our customers or equipment on Native American tribal lands or in other markets could result in machine seizures and significant revenue disruptions, among other adverse consequences. Moreover, Native American tribal policies and procedures, as well as tribal selection of gaming vendors, are subject to the political and governance environment within the Native American tribe. Changes in tribal leadership or tribal political pressure can affect our business relationships within Native American markets.
State compacts with our existing Native American tribal customers to allow Class III gaming could reduce demand for our Class II games and our entry into the Class III market may be difficult as we compete against larger companies in the tribal Class III market.
Certain of our Class II Native American tribal customers have entered into compacts with the states in which they operate to permit the operation of Class III games. While we seek to also provide Class III alternatives in these markets, we believe the number of our Class II game machine placements in those customers facilities could decline, and our operating results could be materially and adversely affected. As our Native American tribal customers continue to transition to gaming under compacts with the state, we continue to face significant uncertainty in the market that makes our business in these states difficult to manage and predict and we may be forced to compete with larger companies that specialize in Class III gaming. We believe the
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establishment of state compacts depends on a number of political, social, and economic factors that are inherently difficult to ascertain. Accordingly, although we attempt to closely monitor state legislative developments that could affect our business, we may not be able to timely predict if or when a compact could be entered into by one or more of our Native American tribal customers. For example, in Oklahoma, the continued introduction of Class III games since the passage of the tribal gaming compact in 2004 may put pressure our revenue and unit market share and our revenue share percentages and may result in a shift in the market from revenue share arrangements to a for sale model.
The percentage of gaming revenue we receive pursuant to our participation agreements with our Native American tribal customers has, on average, decreased in recent years and may continue to decrease in the future.
The percentage of gaming revenue we receive pursuant to our participation agreements, or our participation rates, with our Native American tribal customers has, on average, decreased in recent years, negatively affecting our profit margins. There can be no assurance that participation rates will not decrease further in the future. In addition, our Native American tribal customers may adopt policies or insist upon additional business terms during the renewal of our existing participation agreements that negatively affect the profitability of those relationships. In addition, any participation agreements we may enter into in the future with new customers or in new jurisdictions may not have terms as favorable as our existing participation agreements.
Slow growth in the development of new gaming jurisdictions or the number of new casinos, declines in the rate of replacement of existing gaming machines and ownership changes and consolidation in the casino industry could limit or reduce our future prospects.
Demand for our new participation gaming machine placements and game sales is partially driven by the development of new gaming jurisdictions, the addition of new casinos or expansion of existing casinos within existing gaming jurisdictions and the replacement of existing gaming machines. The establishment or expansion of gaming in any jurisdiction typically requires a public referendum or other legislative action. As a result, gaming continues to be the subject of public debate, and there are numerous active organizations that oppose gaming. There can be no assurances that new gaming jurisdictions will be established in the future or that existing jurisdictions will expand gaming and, to the extent states such as Illinois delay, reverse or alter planned expansions in gaming, our growth strategy could be negatively impacted.
To the extent new gaming jurisdictions are established or expanded, we cannot guarantee we will be successful penetrating such new jurisdictions or expanding our business in line with the growth of existing jurisdictions. As we enter into new markets, we may encounter legal and regulatory challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. If we are unable to effectively develop and operate within these new markets, then our business, operating results and financial condition would be impaired. Furthermore, as we attempt to generate new streams of revenue by placing our participation gaming machines with new customers we may have difficulty implementing an effective placement strategy for jurisdictional specific games. Our failure to successfully implement an effective placement strategy could cause our future operating results to vary materially from what management has forecast.
We are currently in the process of entering the emerging Illinois VGT market. The Illinois VGT market is still developing and operates pursuant to a unique regulatory structure. For example, while the state legislature in Illinois has passed laws permitting VGTs, municipalities and counties have the power to opt out of the VGT legislation and ban VGTs in their respective municipality or unincorporated areas within their respective county or repeal bans if they already exist to allow VGTs. As of the date of this Registration Statement, we believe approximately 151 municipalities and six counties have chosen to opt out of the VGT legislation and ban VGTs in their respective municipality or unincorporated areas within their respective county. Furthermore, the City of Chicago is required to affirmatively allow VGTs in order for establishments within Chicago to operate
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VGTs on their premises since its ordinances currently prohibit VGTs. As of the date of this Registration Statement, Chicago has not affirmatively allowed VGTs and establishments within Chicago are not permitted to operate VGTs on their premises. While we believe Chicago will allow VGTs in the future, we cannot guarantee this will happen or that other municipalities or counties will not choose to opt out of the VGT legislation and ban VGTs in their respective municipality or unincorporated areas within their respective county. We cannot guarantee that the Illinois VGT market will develop into a viable gaming market or that our business model will be as effective in the Illinois VGT market as we currently project or as effective as in other jurisdictions in which we operate. If the Illinois VGT market does not develop or our business model is not as effective as projected, we may not be able to capitalize on our investments in Illinois and our Illinois business may not be profitable.
In addition, the construction of new casinos or expansion of existing casinos fluctuates with demand, general economic conditions and the availability of financing. The rate of gaming growth in North America has decelerated and machine replacements are at historically low levels. Slow growth in the establishment of new gaming jurisdictions or delays in the opening of new or expanded casinos and continued declines in, or low levels of demand for, machine replacements could reduce the demand for our products and our future profits. Our business could be negatively affected if one or more of our customers is sold to or merges with another entity that utilizes more of the products and services of one of our competitors or that reduces spending on our products or causes downward pricing pressures. Such consolidations could lead to order cancellations, a slowing in the rate of gaming machine replacements, or require our current customers to switch to our competitors products, any of which could negatively impact our results of operations.
We may not realize satisfactory returns on money lent to new and existing customers to develop or expand gaming facilities or to acquire gaming routes.
We enter into agreements to provide financing for construction, expansion, or remodeling of gaming facilities, primarily in the State of Oklahoma, and also have agreements in other jurisdictions, such as Illinois, where we provide loans and advances to route operators to acquire location contracts and fund working capital. Under these agreements, we secure long-term contracts for game placements under either a revenue share or daily fee basis in exchange for the loans and advances. We may not, however, realize the anticipated benefits of any of these strategic relationships or financings as our success in these ventures is dependent upon the timely completion of the gaming facility, the placement of our player terminals, and a favorable regulatory environment.
These activities may result in unforeseen operating difficulties, financial risks, or required expenditures that could adversely affect our liquidity. In connection with one or more of these transactions, and to obtain the necessary funds to enter these agreements, we may need to extend secured and unsecured credit to potential or existing customers that may not be repaid, incur debt on terms unfavorable to us or that we are unable to repay, or incur other contingent liabilities.
The failure to maintain controls and processes related to billing and collecting accounts receivable or the deterioration of the financial condition of our customers could negatively impact our business. As a result of these agreements, the collection of notes receivable has become a matter of greater significance. While we believe the increased level of these specific receivables has allowed us to grow our business, it has also required direct, additional focus of and involvement by management. Further, and especially due to the current downturn in the economy, some of our customers may not pay the notes receivable when due.
For the fiscal year ended December 31, 2012, approximately 35% of our gaming revenue was derived from one customer and approximately 78% of our revenue was generated from gaming operations in the state of Oklahoma.
For the fiscal year ended December 31, 2012, approximately 78% of our total revenue was derived from gaming operations in Oklahoma, and approximately 35% of our gaming revenue was from one Native American gaming tribe in that state. The significant concentration of our revenue in Oklahoma means that local economic,
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regulatory and licensing changes in Oklahoma may adversely affect our business disproportionately to changes in national economic conditions, including adverse economic declines or slower economic recovery from prior declines. While we continue to seek to diversify the markets in which we operate, changes to our business, operations, game performance and customer relationships in Oklahoma, due to changing gaming regulations or licensing requirements, higher taxes, increased competition, declines in market revenue share percentages or otherwise, could have a material and adverse effect on or financial condition and results of operations. In addition, changes in our relationship with our largest customer, including a decrease in revenue share, removal of gaming machines or non-renewal of contracts, could have a material and adverse effect on our financial condition and results of operations.
Moreover, neighboring states such as Kansas, Texas and Arkansas have passed or could pass gaming legislation, which could take market share from Oklahoma gaming facilities or otherwise negatively impact the Oklahoma gaming market and, as a result, negatively impact our business.
We may be unable to protect or enforce our intellectual property.
Protection of our proprietary processes, methods and other technology is important to our business. We generally rely on the patent, trademark and trade secret laws of the United States and certain other countries in which our products are produced or sold, as well as licenses and nondisclosure and confidentiality agreements, to protect our intellectual property rights. The patent, trademark and trade secret laws of some countries may not protect our intellectual property rights to the same extent as the laws of the United States. At least one federal court has held that United States patent, trademark and trade secret laws of general application are not binding on Native American tribes absent a binding waiver of sovereign immunity.
A significant portion of our revenue is generated from products that use or incorporate certain intellectual property, and our operating results could be negatively impacted if we are unsuccessful in protecting these rights from infringement. In addition, some of our games and features are based on trademarks, patents and other intellectual property licensed from third parties. Our future success may depend upon our ability to develop, obtain, retain and/or expand licenses for popular products and underlying intellectual property rights on reasonable terms in a competitive market, which may not be available on terms acceptable to us, or may not be available at all. In the event that we cannot renew and/or expand existing licenses, we may be required to discontinue or limit our use of the games or gaming machines that use the licensed technology or bear the licensed marks.
Our success depends in part on our ability to obtain trademark protection for the names or symbols under which we market our products and to obtain patent protection for our proprietary content and technologies. We may not be able to build and maintain goodwill in our trademarks or obtain trademark or patent protection, and there can be no assurance that any trademark, copyright or issued patent will provide competitive advantages for us, or that our intellectual property will not be successfully challenged or circumvented by competitors. Additionally, any issued patents that cover our proprietary technology may not provide us with sufficient protection or be commercially beneficial to us. The issuance of a patent is not conclusive as to its validity or its enforceability. The U.S. federal courts or equivalent national courts or patent offices elsewhere may invalidate our patents or find them unenforceable. Competitors may also be able to design around our patents. If we are unable to protect our patented technologies, we may not be able to commercialize our technologies, products or services and our competitors could commercialize our technologies.
We also rely on trade secrets and proprietary know-how to protect certain proprietary knowledge and we generally enter into confidentiality agreements with certain of our employees and independent contractors regarding our trade secrets and proprietary information. However, there can be no guarantees that every employee and consultant will execute these agreements or that our employees and consultants will not breach these agreements. If these agreements are breached, it is unlikely that the remedies available to us will be sufficient to compensate us for the damages suffered. Additionally, despite various confidentiality agreements
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and other trade secret protections, our trade secrets and proprietary know-how could become known to, or independently developed by, competitors. Moreover, if our competitors independently develop equivalent knowledge, methods or know-how, it will be more difficult for us to enforce our rights and our business could be harmed.
We have a limited ability to prevent others from creating materially similar products. Despite our efforts to protect these proprietary rights, unauthorized parties may try to copy our gaming products, business models or systems, use certain of our confidential information to develop competing products, or develop independently or otherwise obtain and use our gaming products or technology, any of which could have a material adverse effect on our business.
We may be subject to claims of intellectual property infringement or invalidity and adverse outcomes of litigation could adversely affect our operating results.
Competitors and others may infringe on our intellectual property rights, or may allege that we have infringed on their intellectual property rights. Monitoring infringement and misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights. We may also incur significant litigation expenses protecting our intellectual property or defending third-party intellectual property claims. These expenses could have an adverse effect on our future cash flows and results of operations. Although we carry general liability insurance, our insurance does not cover potential claims of this type. If we are found to infringe on the rights of others we could be required to re-design or discontinue offering certain products or systems, to pay damages or to purchase a license to use the intellectual property in question from its owner, which may not be available on reasonable terms, or at all. Litigation can also distract management from the day-to-day operations of our business. There can be no assurances that certain of our products will not be determined to have infringed upon a third-party patent.
In addition, any of our current or future patents or patent applications, or those of our licensors, could face other challenges, such as interference proceedings, opposition proceedings and re-examination proceedings. Any such challenge, if successful, could result in the invalidation of, or in a narrowing of the scope of, any such current or future patents or patent applications. Any such challenges, regardless of their success, would likely be time-consuming and expensive to defend and resolve, and would divert management time and attention.
Failure to attract, retain and motivate key employees may adversely affect our ability to compete.
Our success depends largely on recruiting and retaining talented employees. The market for qualified, licensable executives and highly skilled, technical workers, such as content developers, is intensely competitive. The loss of key employees or an inability to hire a sufficient number of technical workers could limit our ability to develop successful products, cause delays in getting new products to market, cause disruptions to our customer relationships or otherwise adversely affect our business.
States and other jurisdictions may amend or repeal gaming enabling legislation which could materially impact our business.
States and other jurisdictions may amend or repeal gaming enabling legislation which could materially impact our business. Changes to gaming enabling legislation could increase our operating expenses and compliance costs or decrease the profitability of our operations. Repeal of gaming enabling legislation could result in losses of capital investments and revenue and limit future growth opportunities. For example, recently, charity gaming facilities in Alabama were forced to close due to regulatory uncertainties in the market pertaining to the legality of electronic bingo games which negatively impact our revenue and ability to collect on receivables. If any jurisdiction in which we operate were to repeal gaming enabling legislation, there could be no assurance that we could sufficiently increase our revenue in other markets to maintain operations or service our existing indebtedness.
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Our business competes on the basis of the security and integrity of our systems and products.
We believe that our success depends, in part, on providing secure products and systems to our vendors and customers. Attempts to penetrate security measures may come from various combinations of customers, retailers, vendors, employees and others. Our ability to monitor and ensure the quality of our products is periodically reviewed and enhanced. Similarly, we assess the adequacy of our security systems to protect against any material loss to any of our customers and the integrity of the product to end-users. There can be no assurance that our business will not be affected by a security breach or lapse, which could have a material adverse impact on our results of operations, business or prospects.
Our gaming machines may experience losses due to technical problems or fraudulent activities.
Our success depends on our ability to avoid, detect, replicate and correct software and hardware anomalies and fraudulent manipulation of our gaming machines. We incorporate security features into the design of our gaming machines and other systems, which are designed to prevent us, our customers and patrons of our gaming machines from being defrauded. We also monitor our software and hardware to avoid, detect and correct any technical errors. However, there can be no guarantee that our security features or technical efforts will continue to be effective in the future. If our security systems fail to prevent fraud or if we experience any significant technical difficulties, our operating results could be adversely affected. Additionally, if third parties breach our security systems and defraud patrons of our gaming machines, or if our hardware or software experiences any technical anomalies, our customers and the public may lose confidence in our gaming machines and operations, or we could become subject to legal claims by our customers or to investigation by gaming authorities.
Our gaming machines have experienced anomalies and fraudulent manipulation in the past. Games and gaming machines may be replaced by casinos and other gaming machine operators if they do not perform according to expectations, or may be shut down by regulators. The occurrence of anomalies in, or fraudulent manipulation of, our gaming machines may give rise to claims for lost revenues and related litigation by our customers and may subject us to investigation or other action by gaming regulatory authorities, including suspension or revocation of our gaming licenses or other disciplinary action.
Although our network is private, it is susceptible to outages due to fire, floods, power loss, break-ins, cyberattacks and similar events. We have multiple site back-up for our services in the event of any such occurrence. Despite our implementation of network security measures, our servers are vulnerable to computer viruses and break-ins. Similar disruptions from unauthorized tampering with our computer systems in any such event could have a material adverse effect on our business, operating results and financial condition. Adverse weather conditions, particularly flooding, tornadoes, heavy snowfall and other extreme weather conditions often deter our customers end users from traveling, or make it difficult for them to frequent the sites where our games are installed. If any of those sites experienced prolonged adverse weather conditions, or if the sites in Oklahoma, where a significant number of our games are installed, simultaneously experienced adverse weather conditions, our results of operations and financial condition would be materially and adversely affected.
We could face risks associated with, or arising out of, environmental, health and safety laws and regulations.
We are subject to various federal, state and local laws and regulations that (i) regulate certain activities and operations that may have environmental or health and safety effects, such as the use of regulated materials in the manufacture of our products by third parties or our disposal of materials, substances or wastes, (ii) impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site, or other releases of hazardous materials or regulated substances, and (iii) regulate workplace safety. Compliance with these laws and regulations could increase our and our third-party manufacturers costs and impact the availability of components required to manufacture our products. Violation of these laws may subject us to significant fines, penalties or disposal costs, which could negatively impact our results of operations, financial position or cash flows. We could be responsible for the investigation and remediation of environmental conditions at currently or formerly operated or leased sites, as well as for associated liabilities, including
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liabilities for natural resource damages, third party property damage or personal injury resulting from lawsuits that could be brought by the government or private litigants, relating to our operations, the operations of facilities or the land on which our facilities are located. We may be subject to these liabilities regardless of whether we lease or own the facility, and regardless of whether such environmental conditions were created by us or by a prior owner or tenant, or by a third party or a neighboring facility whose operations may have affected such facility or land. That is because liability for contamination under certain environmental laws can be imposed on current or past owners or operators of a site without regard to fault. We cannot assure you that environmental conditions relating to our prior, existing or future sites or those of predecessor companies whose liabilities we may have assumed or acquired will not have a material adverse affect on our business.
If our products contain defects, our reputation could be harmed and our results of operations adversely affected.
Some of our products are complex and may contain undetected defects. The occurrence of defects or malfunctions in one or more of our products could result in financial losses for our customers and in turn termination of leases, cancellation of orders, product returns and diversion of our resources. Any of these occurrences could also result in the loss of or delay in market acceptance of our products and loss of revenue.
Our business is subject to quarterly fluctuation.
Historically, our operating results have been highest during the first quarter and lowest in our third and fourth quarters, primarily due to the seasonality of player demand. Our quarterly operating results may vary based on the timing of the opening of new gaming jurisdictions, the opening or closing of casinos, the expansion or contraction of existing casinos, approval or denial of our products and corporate licenses under gaming regulations, the introduction of new products, the seasonality of customer capital budgets, the mix of domestic versus international sales and the mix of lease and royalty revenue versus sales and service revenue. As a result, our operating results could be volatile, particularly on a quarterly basis.
Some of our products contain open source software which may be subject to restrictive open source licenses, requiring us to make our source code available to third parties and potentially granting third parties certain rights to the software.
Some of our products contain open source software which may be subject to restrictive open source licenses. Some of these licenses may require that we make our source code governed by the open source software licenses available to third parties and/or license such software under the terms of a particular open source license, potentially granting third parties certain rights to our software. We may incur legal expenses in defending against claims that we did not abide by such licenses. If our defenses are unsuccessful, we may be enjoined from distributing products containing such open source software, be required to make the relevant source code available to third parties, be required to grant third parties certain rights to the software, be subject to potential damages or be required to remove the open source software from our products. Any of these outcomes could disrupt our distribution and sale of related products and adversely affect our business.
Recently introduced or proposed smoking bans at customer facilities may adversely impact our revenues.
Some U.S. jurisdictions have recently introduced or proposed smoking bans in public venues, including casinos, which may reduce player traffic in the facilities of our current and prospective customers, which may reduce revenues on our participation gaming machines or impair our future growth prospects and therefore may adversely impact our revenues in those jurisdictions. Other participants in the gaming industry have reported declines in gaming revenues following the introduction of a smoking ban in jurisdictions in which they operate and we cannot predict the magnitude or timing of any decrease in revenues resulting from the introduction of a smoking ban in any jurisdiction in which we operate.
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Apollo, which will beneficially own all of our equity and control us upon consummation of the Acquisition, may have conflicts of interest with us in the future and may have interests that differ from your interests as a holder of our Common Stock.
Upon consummation of the Acquisition, funds affiliated with Apollo will control us through their ownership of 100% of our voting equity. As a result, Apollo will have control over our decisions to enter into any corporate transaction and will have the ability to prevent any transaction that requires the approval of our members. In addition, Apollo may have an interest in pursuing dispositions, acquisitions, financings or other transactions that, in its judgment, could enhance its equity investments, even though such transactions might involve risks to us as a company including transactions in which we incur additional indebtedness.
Apollo may direct us to make significant changes to our business operations and strategy, including with respect to, among other things, new product and service offerings, sales of assets, employee headcount levels and initiatives to reduce costs and expenses. We cannot provide assurance that our future business operations will remain broadly in line with our existing operations or that significant assets will not be sold.
Apollo is also in the business of making investments for its own account in companies, and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Apollo may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as Apollo continues to own a significant amount of our voting equity, it will continue to be able to strongly influence or effectively control us and our decisions.
Upon becoming the sole holder of all of our equity, Apollo may have interests that differ from, and may be adverse to, the interests of holders of our Common Stock.
We are dependent on our suppliers and any failure of these parties to meet our performance and quality standards or requirements could cause us to incur additional costs or lose customers.
The manufacturing, assembling and designing of our electronic gaming machines depends upon a continuous supply of raw materials, such as source cabinets, which we currently source primarily from one supplier. If our current supplier is unable to deliver these items in the quantity required or in accordance with our standards of quality and we are unable to find an alternative supplier in a timely fashion or on reasonable terms, we may not be able to meet the demands of our customers or our contractual obligations, which would adversely affect our results of operations and business.
Casino operations are conducted at the discretion of our customers.
Our casino customers are responsible for the operations of their facilities and are not required to consult us or take our advice on their operations, marketing, facility layout, gaming floor configuration, or promotional initiatives. Further, our customers are solely responsible for safety and security at their facilities. Our customers have in the past, and will in the future, remodel and expand their facilities. Our operating and financial results could suffer if our machines are not a part of an optimized facility layout or gaming floor configuration, are not supported by effective marketing or promotional initiatives or are scheduled to be out of service during a facility remodeling, or our customers facilities are closed or not visited because of end-users concern for safety, a lack of amenities, or other factors.
The risks related to operations in foreign countries and outside of traditional U.S jurisdictions could negatively affect our results.
We operate in jurisdictions outside of the United States, principally in Canada and on tribal lands of Native American tribes. The developments noted below, among others, could adversely affect our financial condition and results of operations:
| social, political or economic instability; |
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| additional costs of compliance with international laws or unexpected changes in regulatory requirements; |
| tariffs and other trade barriers; |
| fluctuations in foreign exchange rates outside the United States; |
| adverse changes in the creditworthiness of parties with whom we have significant receivables or forward currency exchange contracts; |
| expropriation, nationalization and restrictions on repatriation of funds or assets; |
| difficulty protecting our intellectual property; |
| recessions in foreign economies; |
| difficulties in maintaining foreign operations; |
| changes in consumer tastes and trends; |
| acts of war or terrorism; and |
| U.S. government requirements for export. |
We are continuing to improve our internal controls over financial reporting.
In connection with the audit of our financial statements as of and for the year ended December 31, 2011, our independent accountants identified a significant deficiency in our internal controls over financial reporting. In connection with the audit of our financial statements as of and for the year ended December 31, 2010, our independent accountants identified a material weakness in our internal controls over financial reporting. Under standards established by the Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants, a material weakness is a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. Under standards established by the Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants, a significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting, that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of our financial reporting. The material weakness related to our not having adequate procedures and controls to ensure that accurate financial statements could be prepared and reviewed on a timely basis. During 2011, we undertook significant actions to remediate the material weakness. As a result of these actions, our independent accountants did not identify any material weaknesses in connection with the audit of our financial statements as of and for the year ended December 31, 2011. However, in connection with such audit our independent accountants did identify a significant deficiency in our internal controls relating to our procedures and processes for accounting for impairments of long lived assets. During 2012, we continued to undertake actions to remediate the significant deficiencies noted in the audit of our financial statements as of and for the year ended December 31, 2011. As a result of our actions, our independent accountants did not identify any significant deficiencies in connection with the audit of our financial statements as of and for the year ended December 31, 2012.
We intend to continue to improve our internal controls over financial reporting and ensure we are able to produce accurate and timely financial statements. However, no assurance can be given that our actions will be successful.
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ITEM 2. | FINANCIAL INFORMATION. |
Selected Financial Data
In the tables below, we provide selected historical consolidated financial data of AGS Capital, LLC as of and for the periods indicated. We prepared this information using audited financial statements for the fiscal years ended December 31, 2012, 2011 and 2010 and unaudited financial statements for the nine months ended September 30, 2013 and 2012. The unaudited Consolidated Balance Sheet Data as of September 30, 2012 has been extracted without material adjustment from our accounting records. When reading this selected historical financial data, it is important to read it in conjunction with the information and financial statements, including the notes related thereto, contained in Item 2. Financial InformationManagements Discussion and Analysis of Financial Condition and Results of Operations and Item 15. Financial Statements and Exhibits included in this Registration Statement.
Year Ended December 31, |
Nine Months ended
September 30, |
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(in thousands) | 2010 | 2011 | 2012 | 2012 | 2013 | |||||||||||||||
Consolidated Statements of Operations: |
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Gaming revenue |
$ | 55,021 | $ | 52,660 | $ | 54,029 | $ | 41,176 | $ | 41,957 | ||||||||||
Gaming revenueother |
3,804 | 4,270 | 3,763 | 2,927 | 800 | |||||||||||||||
Equipment sales |
2,979 | 2,716 | 763 | 697 | 1,226 | |||||||||||||||
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Total revenues |
61,804 | 59,646 | 58,555 | 44,800 | 43,983 | |||||||||||||||
Gaming operating expenses |
18,583 | 16,091 | 11,515 | 9,634 | 6,519 | |||||||||||||||
Cost of equipment sales |
1,505 | 1,061 | 395 | 281 | 777 | |||||||||||||||
Loss (gain) on disposition of assets |
(29 | ) | 176 | 451 | 464 | 775 | ||||||||||||||
General and administrative |
22,378 | 13,344 | 14,350 | 10,769 | 12,497 | |||||||||||||||
Selling and marketing |
4,136 | 3,346 | 3,443 | 2,544 | 2,538 | |||||||||||||||
Phantom unit compensation |
| 929 | 654 | 654 | 463 | |||||||||||||||
Impairment of long-lived assets |
| 804 | 2,711 | | 3,364 | |||||||||||||||
Impairment of intangibles |
| | 3,686 | | 1,391 | |||||||||||||||
Impairment of goodwill |
| | 18,679 | 18,679 | | |||||||||||||||
Depreciation and amortization |
22,844 | 23,644 | 29,454 | 21,332 | 21,716 | |||||||||||||||
Write downs and other charges |
| 2,249 | 3,664 | 3,586 | 202 | |||||||||||||||
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Total operating expenses |
69,417 | 61,644 | 89,002 | 67,943 | 50,242 | |||||||||||||||
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Loss from operations |
(7,613 | ) | (1,998 | ) | (30,447 | ) | (23,143 | ) | (6,259 | ) | ||||||||||
Interest expense |
5,861 | 5,833 | 10,270 | 5,989 | 13,168 | |||||||||||||||
Interest income |
(648 | ) | (512 | ) | (439 | ) | (307 | ) | (1,268 | ) | ||||||||||
Other expenses (income), net |
(168 | ) | 293 | (67 | ) | (174 | ) | (254 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss |
(12,658 | ) | (7,612 | ) | (40,211 | ) | (28,651 | ) | (17,905 | ) | ||||||||||
Foreign currency translation adjustment |
18 | (49 | ) | 56 | 55 | (23 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive loss |
$ | (12,640 | ) | $ | (7,661 | ) | $ | (40,155 | ) | $ | (28,596 | ) | $ | (17,928 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consolidated Statements of Cash Flows: |
||||||||||||||||||||
Net cash provided by operating activities |
$ | 21,765 | $ | 21,947 | $ | 18,850 | $ | 14,157 | $ | 14,833 | ||||||||||
Net cash used in investing activities |
(32,554 | ) | (26,205 | ) | (51,776 | ) | (39,181 | ) | (19,697 | ) | ||||||||||
Net cash provided by financing activities |
12,489 | 7,239 | 28,806 | 21,549 | 6,788 | |||||||||||||||
Capital expenditures of gaming equipment, vehicles and other equipment |
(12,411 | ) | (14,334 | ) | (21,086 | ) | (12,887 | ) | (11,954 | ) | ||||||||||
Consolidated Balance Sheets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 8,128 | $ | 10,787 | $ | 6,545 | $ | 7,136 | $ | 8,621 | ||||||||||
Gaming equipment, vehicles and other equipment |
33,863 | 36,887 | 40,267 | 36,508 | 37,255 | |||||||||||||||
Total assets |
124,700 | 128,603 | 125,567 | 128,548 | 115,623 | |||||||||||||||
Total liabilities |
153,301 | 151,077 | 127,508 | 118,916 | 135,492 | |||||||||||||||
Total members deficit |
(28,601 | ) | (22,474 | ) | (1,941 | ) | (127,579 | ) | (19,869 | ) |
30
Unaudited Pro Forma Consolidated Financial Data
The following Unaudited Pro Forma Consolidated Financial Data reflect adjustments to the historical consolidated financial statements of AGS Capital to give effect to the Acquisition and our anticipated post acquisition capital structure described in the notes to the Unaudited Pro Forma Consolidated Financial Data as of September 30, 2013 for the Unaudited Pro Forma Consolidated Balance Sheet and as of January 1, 2012, the first day of fiscal 2012, for the Unaudited Pro Forma Consolidated Statements of Operations presented for both the nine months ended September 30, 2013 and the year ended December 31, 2012.
The following Unaudited Pro Forma Consolidated Financial Data as of September 30, 2013, and for the year ended December 31, 2012 and the nine month period ended September 30, 2013, is presented to illustrate the effects of the Acquisition and the use of net proceeds.
The Unaudited Pro Forma Consolidated Financial Data shows the impact of the Acquisition on the consolidated balance sheets and the consolidated statements of operation under the acquisition method of accounting. Under this method of accounting, the assets and liabilities of AGS Capital are recorded at their estimated fair values as of the date the Acquisition is completed. In addition, as explained in more detail in the accompanying notes to the Unaudited Pro Forma Consolidated Financial Data, the amounts reflected in the Unaudited Pro Forma Consolidated Financial Data are subject to adjustment. The Unaudited Pro Forma business combination adjustments for the acquisition of AGS Capital include the expected business combination adjustments that will be recorded when AP Gaming Acquisition, LLC finalizes its accounting for the Acquisition based upon the fair value of the assets acquired and liabilities assumed. The business combination adjustments may be refined as additional information becomes available.
On November 19, 2013, AGS Capital created a wholly owned subsidiary, AP Gaming NV, LLC ( AP Gaming NV ). At the closing of the Acquisition, AGS Capital will sell all of the equity interest in AP Gaming NV to an officer of AGS Capital, pursuant to a purchase and option agreement (the P&O Agreement ). AGS Capital has a call option to repurchase the equity of AP Gaming NV. In addition, AGS Capital management holds management positions with AP Gaming NV and directs the operations of AP Gaming NV. As a result we determined that AP Gaming NV is a Variable Interest Entity and AGS Capital is the primary beneficiary and will therefore continue to consolidate AP Gaming NV after the Acquisition.
The Unaudited Pro Forma Consolidated Statement of Operations was prepared as if (i) the Acquisition had occurred on January 1, 2012, (ii) the estimated net proceeds of the Acquisition were received on January 1, 2012 and (iii) a portion of the existing bank borrowings was repaid on January 1, 2012.
The Unaudited Pro Forma Consolidated Balance Sheet was prepared as if (i) the Acquisition had occurred on September 30, 2013, (ii) the estimated net proceeds of the Acquisition were received on September 30, 2013 and (iii) a portion of the existing bank borrowings was repaid as of September 30, 2013.
The Unaudited Pro Forma Consolidated Financial Data are for informational purposes only and is not necessarily indicative of what our financial performance would have been had the transactions reflected therein been completed on the dates assumed. It may not reflect the financial performance that would have resulted had we been operating as an acquired company during those periods. In addition, it is not indicative of our future financial performance.
The Unaudited Pro Forma Consolidated Financial Data should be read in conjunction with Selected Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Item 1. Business and the unaudited and audited consolidated financial statements and the related notes thereto, included elsewhere in this Registration Statement.
The Unaudited Pro Forma Consolidated Financial Data are compiled in a manner consistent with the accounting policies that will be used by us in preparing our consolidated financial statements. All Pro Forma adjustments are directly attributable to the transactions, factually supportable and based on available information and assumptions that we believe are reasonable.
31
Unaudited Pro Forma Consolidated Statements of Operations
AGS Capital, LLC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED September 30, 2013
Historical AGS
Capital, LLC |
Total
Adjustments |
Pro Forma | ||||||||||||
Net revenues |
43,982,524 | | 43,982,524 | |||||||||||
Operating expenses: |
||||||||||||||
Gaming operating expenses |
6,518,510 | | 6,518,510 | |||||||||||
Cost of equipment sales |
777,145 | | 777,145 | |||||||||||
Loss on disposition of assets |
775,427 | | 775,427 | |||||||||||
General and administrative |
12,496,688 | | 12,496,688 | |||||||||||
Selling and marketing |
2,537,615 | | 2,537,615 | |||||||||||
Phantom unit plan compensation |
463,018 | | 463,018 | |||||||||||
Impairment of long lived assets |
3,364,090 | | 3,364,090 | |||||||||||
Impairment of intangibles |
1,390,500 | | 1,390,500 | |||||||||||
Depreciation and amortization |
21,715,919 | 444,585 | (H) | 22,160,504 | ||||||||||
Writedowns and other charges |
202,500 | | 202,500 | |||||||||||
|
|
|
|
|
|
|||||||||
Total operating expenses |
50,241,412 | 444,585 | 50,685,997 | |||||||||||
|
|
|
|
|
|
|||||||||
Loss from operations |
(6,258,888 | ) | (444,585 | ) | (6,703,473 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Interest expense |
13,167,623 | (1,003,790 | ) |
(B) |
12,163,833 | |||||||||
Interest income |
(1,268,241 | ) | 1,181,581 | (A) | (86,660 | ) | ||||||||
Other income |
(253,530 | ) | | (253,530 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Net loss before income tax benefit |
(17,904,740 | ) | (622,376 | ) | (18,527,116 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Income tax benefit |
| 6,484,491 |
(C) |
6,484,491 | ||||||||||
|
|
|
|
|
|
|||||||||
Net loss |
$ | (17,904,740 | ) | $ | 5,862,115 | $ | (12,042,625 | ) | ||||||
|
|
|
|
|
|
|||||||||
Loss per common share |
||||||||||||||
Basic |
$ | 0.59 | (D) | $ | (1.20 | ) | ||||||||
Diluted |
$ | 0.59 | (E) | $ | (1.20 | ) | ||||||||
Weighted average common shares outstanding (in thousands) |
||||||||||||||
Basic |
10,000 | (D) | 10,000 | |||||||||||
Diluted |
10,000 | (E) | 10,000 |
32
Unaudited Pro Forma Consolidated Statements of Operations
AGS Capital, LLC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED December 31, 2012
Historical AGS
Capital, LLC |
Total
Adjustments |
Pro Forma | ||||||||||
Net revenues |
$ | 58,555,107 | $ | | $ | 58,555,107 | ||||||
Operating expenses: |
||||||||||||
Gaming operating expenses |
11,515,204 | | 11,515,204 | |||||||||
Cost of equipment sales |
395,181 | | 395,181 | |||||||||
Loss on disposition of assets |
450,858 | | 450,858 | |||||||||
General and administrative |
14,349,749 | | 14,349,749 | |||||||||
Selling and marketing |
3,442,549 | | 3,442,549 | |||||||||
Phantom unit plan compensation |
653,596 | | 653,596 | |||||||||
Impairment of long lived assets |
2,711,412 | | 2,711,412 | |||||||||
Impairment of intangibles |
22,365,384 | | 22,365,384 | |||||||||
Depreciation and amortization |
29,454,038 | 1,011,537 | (H) | 30,465,575 | ||||||||
Writedowns and other charges |
3,663,886 | | 3,663,886 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
89,001,857 | 1,011,537 | 90,013,394 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(30,446,750 | ) | (1,011,537 | ) | (31,458,287 | ) | ||||||
|
|
|
|
|
|
|||||||
Interest expense |
10,269,667 | 5,948,777 | (B) | 16,218,444 | ||||||||
Interest income |
(439,140 | ) | 30,667 | (A) | (408,473 | ) | ||||||
Other income |
(66,292 | ) | | (66,292 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss before income taxes |
(40,210,985 | ) | (6,990,981 | ) | (47,201,966 | ) | ||||||
|
|
|
|
|
|
|||||||
Tax benefit |
| 16,520,688 | (C) | 16,520,688 | ||||||||
|
|
|
|
|
|
|||||||
Net loss |
$ | (40,210,985 | ) | $ | 9,529,707 | $ | (30,681,278 | ) | ||||
|
|
|
|
|
|
|||||||
Loss per common share |
||||||||||||
Basic |
$ | 0.95 | (D) | $ | (3.07 | ) | ||||||
Diluted |
$ | 0.95 | (E) | $ | (3.07 | ) | ||||||
Weighted average common shares outstanding (in thousands) |
||||||||||||
Basic |
10,000 | (D) | 10,000 | |||||||||
Diluted |
10,000 | (E) | 10,000 |
33
Unaudited Pro Forma Consolidated Balance Sheet
AGS Capital, LLC
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2013
34
Notes to the Unaudited Pro Forma Consolidated Financial Statements
(A) | Represents the elimination of interest income on note receivable balances which will remain with the seller of $1.2 million for the nine month period ended September 30, 2013 and $0.1 million for the year ended December 31, 2012. |
(B) | Represents adjustments to reflect: |
a. | removal of interest expense and amortization of debt discount, fees and expenses attributable to the Initial Term Loan with UBS Securities LLC; |
b. | recognition of interest expense attributable to borrowings of $157.2 million under our new credit facilities; |
c. | amortization of fees and expenses attributable to our new credit facilities; and |
d. | recognition of commitment fees on unused amounts attributable to our new revolving credit facility. |
The following table sets forth the assumed principal outstanding, interest rate and maturity for each component of our new credit facilities:
Principal |
Weighted
Average Interest Rate |
Weighted
Average Term of Debt |
||||||||||
Term Loan Facility |
$ | 155,000,000 | 9.25 | % | 7 Years | |||||||
Seller Note |
2,195,000 | 8.50 | % | 7.5 Years | ||||||||
Revolver Facility* |
| 9.25 | % | 5 Years | ||||||||
|
|
|||||||||||
Total |
$ | 157,195,000 | ||||||||||
|
|
* | Revolver Facility is $25,000,000 in total which will be undrawn at the date of Acquisition. |
The interest rate applicable for the Term Loan and Revolver Facility is a floating rate of LIBOR plus an applicable margin with a floor of 100 bps. For the purposes of the Unaudited Pro Forma Consolidated Statements of Operations, we have assumed that our outstanding borrowings bear interest at the floor of 100 bps plus an applicable margin of 8.25%.
For the purposes of the Unaudited Pro Forma Consolidated Statements of Operations, we have assumed that the commitment fee on our revolving credit facility, which is payable quarterly in arrears, is at a rate of 0.5% (based upon our expected debt rating at the time of acquisition) of the unused amounts.
The following table summarizes the adjustments in the Unaudited Pro Forma Consolidated Statements of Operations to reflect the adjustments to interest expense on third party debt:
Year Ended December 31, 2012 | ||||||||||||
Interest
Expense |
Deferred Loan
Costs Amortization |
Total | ||||||||||
New Term Loan Facility |
$ | 14,265,813 | $ | 1,324,476 | $ | 15,590,288 | ||||||
New Seller Note |
186,575 | 17,506 | 204,081 | |||||||||
Revolver facility unused commitment fee |
125,000 | 299,075 | 424,075 | |||||||||
Less: Initial Term Loan |
(8,649,105 | ) | (1,620,562 | ) | (10,269,667 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | 5,928,283 | $ | 20,495 | $ | 5,948,777 | ||||||
|
|
|
|
|
|
35
Period Ended September 30, 2013 | ||||||||||||
Interest
Expense |
Deferred Loan
Costs Amortization |
Total | ||||||||||
New Term Loan Facility |
$ | 10,699,359 | $ | 993,357 | $ | 11,692,716 | ||||||
New Seller Note |
139,931 | 13,129 | 153,061 | |||||||||
Revolver facility unused commitment fee |
93,750 | 224,306 | 318,056 | |||||||||
Less: Initial Term Loan |
(11,303,162 | ) | (1,864,461 | ) | (13,167,623 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | (370,121 | ) | $ | (633,669 | ) | $ | (1,003,790 | ) | |||
|
|
|
|
|
|
Pro forma interest charges on the term facility and revolver facilities were calculated at a rate of 9.25% reflecting the interest rate floor plus a margin of 8.25%. Fees and expenses attributable to the new credit facilities are amortized on an effective yield basis over the life of the related loan.
A change of one-eighth of 1.00% (12.5 basis points) in the interest rate associated with the floating rate borrowings would result in an additional annual interest expense of approximately $0.2 million (in the case of an increase to the rate) or an annual reduction of interest expense of approximately $0.2 million (in the case of a decrease in the rate).
(C) | For purposes of this Unaudited Pro Forma Consolidated Financial Data, the United States federal statutory tax rate of 35% has been used for all periods presented. This rate does not reflect AGS Capitals effective tax rate, which includes other tax items, such as state and foreign taxes, as well as other tax charges or benefits, and does not take into account any historical or possible future tax events that may impact the company. |
(D) | The number of shares used to compute pro forma earnings per share basic is 10,000,000, which is the number of shares of our common stock assumed to be outstanding on the acquisition date. |
(E) | The number of shares used to compute pro forma earnings per share diluted will be the number of basic shares referenced in note (D) above plus any potential dilution from stock-based awards granted under our stock-based compensation plans. There will be no potentially dilutive securities outstanding on acquisition date. In the ordinary course of business post acquisition, we expect to issue stock-based awards under our stock-based compensation plans which, when issued, will be dilutive in future periods. |
(F) | The Unaudited Pro Forma Consolidated Financial Data reflects the acquisition of AGS Capital and the payment of approximately $83.5 million in cash consideration and reclassification of the members equity to the stockholders equity. |
36
The computation of the estimated purchase price, excess of purchase price over the net tangible book value of net assets acquired and the resulting net adjustment to goodwill as of September 30, 2013 are as follows:
As of
September 30, 2013 |
||||
Book value of net assets |
$ | (19,868,741 | ) | |
Less: Assets remaining at seller |
(16,473,203 | ) | ||
|
|
|||
Net book value of net assets acquired |
(36,341,944 | ) | ||
Less: Goodwill acquired |
| |||
Less: Intangible assets acquired |
(31,331,542 | ) | ||
|
|
|||
Net Tangible book value of net assets acquired |
(67,673,486 | ) | ||
Estimate of consideration expected to be transferred: |
257,194,621 | |||
Less: Repayment of Phantom Unit Plan |
(2,045,754 | ) | ||
Less: Breakage Fees |
(267,638 | ) | ||
Less: Early repayment fees |
(6,175,000 | ) | ||
Less: Cash to the balance sheet |
(17,849,111 | ) | ||
Less: Transaction costs of the acquirer |
(15,350,000 | ) | ||
Less: Repayment Initial Term Loan |
(132,002,118 | ) | ||
|
|
|||
Adjusted estimate of consideration expected to be transferred: |
83,505,000 | |||
|
|
|||
Excess purchase price over net assets acquired |
151,178,486 | |||
Fair value adjustments: |
||||
Less: estimated value of identifiable intangible assets |
$ | (68,701,367 | ) | |
Total adjustments |
(68,701,367 | ) | ||
|
|
|||
Gross adjustment to goodwill |
82,477,119 | |||
Less: Goodwill acquired |
| |||
|
|
|||
Net adjustment to goodwill |
$ | 82,477,119 | ||
|
|
(G) | In connection with the acquisition, the following historical members equity balances as of September 30, 2013 are eliminated in the Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2013, as follows: |
Members capital |
$ | 136,672,633 | ||
Accumulated deficit |
$ | (157,043,126 | ) | |
Accumulated other comprehensive income |
$ | 501,752 |
(H) | Adjustment to recognize intangibles of $68.7 million and to eliminate AGS Capitals other identified intangibles of $31.3 million, and the related Unaudited Pro Forma Consolidated Statements of Operations impact resulting from the Acquisition. The Unaudited Pro Forma Consolidated Statements of Operations impact for the adjustment resulted in a net increase to the amortization expense of $1.0 million and $0.4 million, respectively, for the intangibles amortization for the year ended December 31, 2012 and the nine month period ended September 30, 2013. |
The estimate is preliminary, subject to change and could vary materially from the actual adjustment at the time of consummation of the acquisition. For each 10% increase in fair value adjustment to intangibles, the Company would expect an annual increase in amortization expense approximating $1.4 million, assuming a weighted-average life of approximately 4.8 years.
37
(I) | Represents adjustments in the Unaudited Pro Forma Consolidated Balance Sheet to cash and cash equivalents as of September 30, 2013, as follows: |
Proceeds from incurrence of new debt |
$ | 152,545,000 | ||
Proceeds from capital contribution |
100,000,000 | |||
Repayments of initial term loan and related fees |
(138,177,118 | ) | ||
Repayments of phantom unit plan |
(2,045,754 | ) | ||
Transaction expenses and deferred loan costs |
(15,350,000 | ) | ||
Breakage fees |
(267,638 | ) | ||
Cash purchase price for equity acquired |
(83,505,000 | ) | ||
|
|
|||
Total |
$ | 13,199,490 | ||
|
|
(J) | Represents adjustments to eliminate assets in the Unaudited Pro Forma Consolidated Balance Sheet not acquired by AP Gaming Acquisition, LLC and retained by AGS Holdings, LLC. |
(K) | The following table summarizes the adjustment in the Unaudited Pro Forma Consolidated Balance Sheet to long term debt as of September 30, 2013 as follows: |
New Term Loan Facility |
$ | 153,450,000 | ||
New Seller Note |
2,195,000 | |||
Less: Repayment of Initial Term Loan (non-current portion) |
(124,133,163 | ) | ||
Less: Debt discount |
(4,650,000 | ) | ||
|
|
|||
Long-term debt |
26,861,837 | |||
|
|
|||
New Term Loan Facility (current portion) |
1,550,000 | |||
Less: Repayment of Initial Term Loan (current portion) |
(1,625,000 | ) | ||
|
|
|||
Total |
$ | 26,786,837 | ||
|
|
In addition accrued interest on the Initial Term Loan of $2 million has been repaid.
(L) | Represents the adjustment in the Unaudited Pro Forma Consolidated Balance Sheet for the repayment of phantom unit plans previously sponsored by AGS Holdings, LLC. |
(M) | Represents the elimination in the Unaudited Pro Forma Consolidated Balance Sheet of deferred loan costs due to the repayment of the Initial Term Loan for an amount of $4.5 million and the recognition of deferred loan costs associated with the new loan facilities for $6.2 million. |
(N) | The following table summarizes the adjustment in the Unaudited Pro Forma Consolidated Balance Sheet to the accumulated deficit as of September 30, 2013, as follows: |
(O) | Represents the cash capital contribution made by the acquirer. |
38
Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in Item 15. Financial Statements and Exhibits. This discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in Cautionary Statement Regarding Forward-Looking Statements and Item 1A. Risk Factors in this Registration Statement. The following discussion and analysis is intended to enhance the readers understanding of our business environment.
Overview
We are a leading designer and manufacturer of Class II gaming machines for the Native American market, with an emerging presence in a broad range of commercial markets in the United States. As of September 30, 2013, we had 8,135 gaming machines in 18 U.S. states, with 145 gaming facilities under revenue sharing agreements and 24 facilities under fee per day agreements. The majority of our systems are used by Native American gaming operators in both Class II and Class III environments, with a recent expansion into the Illinois VGT Market. Our products include electronic gaming machines, server-based systems and back-office systems that are used by casinos and other gaming locations. We currently derive substantially all of our gaming revenues from lease agreements whereby we place gaming machines and systems at a customers facility in return for either a share of the revenues that these machines and systems generate or a daily fee, which we collectively refer to as participation agreements and as our participation model.
Business Outlook
During 2008 and 2009, and into 2010, the poor macro-economic environment had a negative impact on consumer discretionary spending. As a result, the U.S. gaming industry experienced its first ever year-over-year declines in gross gaming revenue in 2008 and 2009. While the recessionary pressures were felt in most markets, the core destination markets of the Las Vegas Strip and Atlantic City were among the hardest hit due to the negative effects of both the recession and increased regional competition, while other commercial markets and the Native American markets were not as adversely impacted. During 2010, we began to see improvements in regional commercial gaming jurisdictions, which have continued through the third quarter of 2013.
We believe the current economic environment presents multiple opportunities for our business. We believe the improving economy should lead to increases in consumer discretionary spending, which should in turn drive higher revenues in existing gaming locations. In addition, state budget deficits have ballooned and many states with fiscal difficulties are turning to gaming as a source of revenue enhancement, which we believe presents us with continued long-term growth opportunities.
We believe our participation model offers an attractive value proposition to casino and other facility operators; especially in the current economic environment. By leasing our gaming machines to customers, we enable our customers to introduce new games in their facilities with minimal cost and financial risk. In addition, our selective use of development agreements to secure incremental game placements under long-term contracts provides customers with additional capital to help expand their operations.
Key Drivers of Our Business
Our total revenues are impacted by the following key factors:
| the amount of money spent by consumers on our domestic revenue share installed base; |
| the amount of the daily fee on our participation gaming machines; |
| the selling price of our machines; |
| our revenue share percentage with customers; |
39
| the capital budgets of our customers; |
| the level of replacement of existing electronic gaming machines in existing casinos; |
| expansion of existing casinos; |
| development of new casinos; |
| opening of new gaming jurisdictions both in the United States and internationally; |
| our ability to obtain and maintain gaming licenses in various jurisdictions; |
| the relative competitiveness and popularity of our electronic gaming machines compared to competitive products offered in the same facilities; and |
| general macro-economic factors, including levels of and changes to consumer disposable income and personal consumption spending. |
Our expenses are impacted by the following key factors:
| fluctuations in the cost of labor relating to productivity; |
| overtime and training; |
| fluctuations in the price of components for gaming equipment; |
| fluctuations in energy prices; |
| changes in the cost of obtaining and maintaining gaming licenses; and |
| fluctuations in the level of maintenance expense required on gaming equipment. |
Variations in our selling, general and administrative expenses, or SG&A, are primarily due to changes in employment and salaries and related fringe benefits.
Basis of Presentation
Although formed on September 8, 2005, AGS Capital had no activity until September 20, 2005, the date AGS Capitals wholly owned subsidiary, AGS LLC, or AGS, acquired certain assets of Clapper Enterprises, Inc. and Worldwide Game Technology Corp., collectively referred to as CEI.
Our financial presentation also includes a number of other operating subsidiaries we own or have owned in the past. AGS Partners LLC, or Partners, was formed on June 22, 2006, and on June 29, 2006, Partners acquired certain assets of Aurora Gaming, Inc., Integrity Gaming, Inc. and Integrity Gaming Nevada, LLC, collectively referred to as Integrity. BOL Finance, LLC, or BOL, was formed by AGS Capital on August 8, 2008, to finance distributors operating in Louisiana. It was capitalized through a note payable to AGS Capital. American Gaming Systems Toronto, Ltd., or AGST, was formed on July 11, 2008, and capitalized through debt and equity contributions from AGS Capital. AGST acquired certain assets of Gametronics, Inc. and Phone-Sweeps, Inc., collectively referred to as Gametronics on November 10, 2008. AGS Illinois, LLLP, or AGSIL, was formed in April 2010 to be our operating subsidiary for operation in Illinois. AGS Financing Corp., or AGS Finance, was formed on March 17, 2011 for the purpose of acting as a co-obligor in certain financing transactions. Promotional Marketing LLC, or Promotional, was formed on August 22, 2008. As of January 19, 2011, BOL and Promotional were merged into AGS LLC. Additional information on our acquisitions and divestitures is included below in Acquisitions and Divestitures.
40
Acquisitions and Divestitures
AGS Acquisition
On September 20, 2005, AGS acquired certain assets of CEI for a purchase price of $67.8 million, which included approximately $2.4 million of acquisition costs. AGS accounted for the transaction as a purchase of a business in accordance with ASC Topic 805, Business Combinations, and, accordingly, the operating results have been included in the AGS consolidated financial statements since the date of acquisition.
The aggregate purchase price of the transaction was allocated to the identifiable intangible assets and tangible assets acquired, based on their estimated fair values at the date of acquisition, with any residual amount allocated to goodwill as follows:
Acquired assets: | Amount | |||
Gaming equipment |
$ | 8,462,000 | ||
Other fixed assets |
157,000 | |||
Inventories |
822,000 | |||
Note receivable |
2,843,000 | |||
Intangibles |
36,691,000 | |||
Goodwill |
18,678,970 | |||
Other |
146,030 | |||
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Total acquired assets |
$ | 67,800,000 | ||
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Integrity Acquisition
On June 29, 2006, we acquired certain assets of Integrity for a purchase price of approximately $11.4 million, which includes approximately $53,000 of acquisition costs. The transaction was accounted for as a purchase of a business in accordance with ASC Topic 805, Business Combinations, and, accordingly, the operating results have been included in our consolidated financial statements since the date of acquisition.
The aggregate purchase price of the transaction has been allocated to the identifiable intangible assets and tangible assets acquired, based on their estimated fair values at the date of acquisition, as follows:
Acquired assets: | Amount | |||
Gaming equipment |
$ | 2,302,150 | ||
Intangibles |
9,132,850 | |||
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Total acquired assets |
$ | 11,435,000 | ||
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Gametronics Acquisition
On November 10, 2008, we acquired certain assets, including certain intellectual property rights, of Gametronics for a purchase price of approximately $3.9 million, which includes approximately $427,000 of acquisition costs. The transaction was accounted for as a purchase of a business in accordance with ASC Topic 805, Business Combinations, and, accordingly, the operating results have been included in our consolidated financial statements since the date of acquisition.
The aggregate purchase price of the transaction has been allocated to the identifiable intangible assets and tangible assets acquired, based on their estimated fair values at the date of acquisition, as follows:
Acquired assets: | Amount | |||
Gaming equipment |
$ | 979,000 | ||
Intangibles |
2,953,000 | |||
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Total acquired assets |
$ | 3,932,000 | ||
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We had previously capitalized software development costs totaling approximately $2.0 million and $600,000 paid to Gametronics during the years ended December 31, 2008 and 2007, respectively.
During 2009, we sold certain equipment acquired in connection with this transaction to the previous owner of Gametronics in exchange for a licensing agreement, under which we will earn licensing fees for providing our software. The licensing agreement has a specified duration of 10 years unless terminated earlier under certain provisions of the agreement. Licensing fee revenue earned is included in gaming revenueother.
Bluberi Transaction
On January 9, 2012, we entered into a definitive agreement (the Definitive Agreement ) with Bluberi Gaming Technologies, Inc., or Bluberi, pursuant to which the we agreed to terminate our existing distribution agreement with Bluberi (the Existing Distribution Agreement ) and to purchase all of Bluberis right, title and interest in certain game titles covered by the Existing Distribution Agreement (the Bluberi Transaction ). In connection therewith, we agreed to pay $22.8 million to Bluberi and to enter into a five-year service agreement with Bluberi for which we will pay Bluberi a $2.0 million servicing fee paid ratably over the term of the service agreement and a one-time $1.0 million performance-based bonus. According to the Definitive Agreement, $3.5 million was due to Bluberi upon execution of the Definitive Agreement and $19.3 million was due no later than February 28, 2012 subject to certain restrictions as defined. At our option, payment of the $19.3 million could be extended one month by paying $2.5 million no later than February 28, 2012 and could be extended an additional month by paying $2.5 million no later than March 31, 2012, with both payments applying to the $19.3 million balance. On March 27, 2012, an addendum to the Definitive Agreement was executed which eliminated the payment due on March 31, 2012 and replaced it with payments of $500,000 due March 30, 2012, April 6, 2012, April 13, 2012, April 20, 2012, and April 27, 2012. On May 11, 2012, we made our final payment in accordance with the Definitive Agreement and its addendum.
Proposed Acquisition by AP Gaming Acquisition, LLC
On September 16, 2013, we entered into an Equity Purchase Agreement (as subsequently amended and restated on December 3, 2013, the Acquisition Agreement ) with AP Gaming Acquisition, LLC ( AP Gaming Acquisition ), an affiliate of Apollo for $215 million, in addition to a potential earnout payment of up to $35 million. The Acquisition Agreement provides that funds affiliated with Apollo will purchase 100% of the equity of AGS Capital, LLC from AGS Holdings, LLC. The Acquisition Agreement contains certain termination rights for both parties, and under specific circumstances each party might be required to pay the counterparty a termination fee. The Acquisition Agreement contains certain limitations on our operations during the period prior to the close of the Acquisition. See Item 1. BusinessThe Acquisition.
Long-Term Debt
On August 15, 2012, we entered into a $130 million senior secured credit agreement with UBS Securities, LLC (the Term Loans ). Under this credit agreement, we borrowed $115 million as an Initial Term Loan and utilized the proceeds to repay all amounts outstanding under the May 14, 2007 credit agreement and fund operations. The agreement also includes a $15 million Delayed Draw Term Loan commitment, of which $7.5 million is freely available to us and was drawn on October 25, 2012, with the remaining $7.5 million draw subject to certain criteria. The Term Loans accrue interest at LIBOR or base rate, at our election, subject to an interest rate floor plus an applicable margin rate. Aggregate principal amounts of the Term Loans shall be payable in quarterly installments equal to 1.25% of the outstanding balance beginning September 30, 2014, with the final installment payable at August 15, 2016. The Term Loans are subject to certain financial covenants and other covenants including a total leverage ratio and an interest coverage ratio, as well as limits on capital expenditures. We were in compliance with all covenants as of September 30, 2013.
On April 16, 2013, we entered into the first amendment to the Term Loans which, among other items, revised the financial covenant requirements, beginning with the first quarter of 2013 extending through the term of the agreement.
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In October 2013, we entered into financing agreements to purchase 450 gaming machines from various third party suppliers for lease to a company that operates and service slot routes in Illinois. The agreements require monthly payments of interest and principle and have terms ranging from 24 to 36 months and carry an interest rate from 8.0% to 8.5%.
Results of Operations
The following tables set forth certain selected audited and unaudited condensed consolidated financial data for the periods indicated:
Year Ended December 31, |
Nine Months ended
September 30, |
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(in thousands) | 2010 | 2011 | 2012 | 2012 | 2013 | |||||||||||||||
Consolidated Statements of Operations: |
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Gaming revenue |
$ | 55,021 | $ | 52,660 | $ | 54,029 | $ | 41,176 | $ | 41,957 | ||||||||||
Gaming revenueother |
3,804 | 4,270 | 3,763 | 2,927 | 800 | |||||||||||||||
Equipment sales |
2,979 | 2,716 | 763 | 697 | 1,226 | |||||||||||||||
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Total revenues |
61,804 | 59,646 | 58,555 | 44,800 | 43,983 | |||||||||||||||
Gaming operating expenses |
18,583 | 16,091 | 11,515 | 9,634 | 6,519 | |||||||||||||||
Cost of equipment sales |
1,505 | 1,061 | 395 | 281 | 777 | |||||||||||||||
(Gain) loss on disposition of assets |
(29 | ) | 176 | 451 | 464 | 775 | ||||||||||||||
General and administrative |
22,378 | 13,344 | 14,350 | 10,769 | 12,497 | |||||||||||||||
Selling and marketing |
4,136 | 3,346 | 3,443 | 2,544 | 2,538 | |||||||||||||||
Phantom unit compensation |
| 929 | 654 | 654 | 463 | |||||||||||||||
Impairment of long lived assets |
| 804 | 2,711 | | 3,364 | |||||||||||||||
Impairment of intangibles |
| | 3,686 | | 1,391 | |||||||||||||||
Impairment of goodwill |
| | 18,679 | 18,679 | | |||||||||||||||
Depreciation and amortization |
22,844 | 23,644 | 29,454 | 21,332 | 21,716 | |||||||||||||||
Write downs and other charges |
| 2,249 | 3,664 | 3,586 | 202 | |||||||||||||||
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Total operating expenses |
69,417 | 61,644 | 89,002 | 67,943 | 50,242 | |||||||||||||||
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Loss from operations |
(7,613 | ) | (1,998 | ) | (30,447 | ) | (23,143 | ) | (6,259 | ) | ||||||||||
Interest expense |
5,861 | 5,833 | 10,270 | 5,989 | 13,168 | |||||||||||||||
Interest income |
(648 | ) | (512 | ) | (439 | ) | (307 | ) | (1,268 | ) | ||||||||||
Other (income) expenses, net |
(168 | ) | 293 | (67 | ) | (174 | ) | (254 | ) | |||||||||||
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Net loss |
$ | (12,658 | ) | $ | (7,612 | ) | $ | (40,211 | ) | $ | (28,651 | ) | $ | (17,905 | ) | |||||
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Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012
Revenues
Total revenues were $44.0 million for the nine months ended September 30, 2013 compared to $44.8 million for the nine months ended September 30, 2012, which represents a decrease of $0.8 million, or 1.8%. Gaming revenues were $42.0 million for the nine months ended September 30, 2013 compared to $41.2 million for the nine months ended September 30, 2012, which represents an increase of $0.8 million, or 1.9%. The decrease in total revenue was primarily a result of the termination of a software license agreement on March 29, 2013, offset by the increase in gaming revenues and equipment sales. The increase in gaming revenue was primarily a result of transitioning from predominantly participation based revenue to more lease based revenue, including the addition of an entirely new lease market. During this transition, participation revenue decreased $3.1 million while lease revenue increased $3.7 million.
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Operating Expenses
Gaming operating expenses . Total gaming operating expenses were $6.5 million for the nine months ended September 30, 2013 compared to $9.6 million for the nine months ended September 30, 2012, which represents a decrease of $3.1 million, or 35.0%. The decrease in gaming operating expenses was primarily a result of the consummation of the Bluberi transaction in May 2012, which reduced Bluberi commissions by approximately $3.1 million, capitalization of certain production costs during 2013 that did not occur in 2012 and $0.2 million in non-recurring charges in 2012; partially offset by an increase facility specific fees and third party servicing fees.
Cost of equipment sales . Cost of equipment sales was $0.8 million for the nine months ended September 30, 2013 compared to $0.3 million for the nine months ended September 30, 2012, which represents an increase of $0.5 million, or 166.7%. The increase is due to an increase in games sales.
Loss (gain) on disposition of assets . Loss on disposition of assets was $0.8 million for the nine months ended September 30, 2013 compared to $0.5 million for the nine months ended September 30, 2012, which represents an increase of $0.3 million, or 60%. The increase in the loss on disposition of assets was primarily a result of a loss event regarding old gaming devices from our Oklahoma warehouse.
General and administrative . General and administrative costs were $12.5 million for the nine months ended September 30, 2013 compared to $10.8 million for the nine months ended September 30, 2012, which represents an increase of $1.7 million, or 15.7%. The increase is due to legal fees of $1.2 million related to an arbitration proceeding with a customer, legal fees of $0.5 million related to the Acquisition, as well an increase in general and research and development payroll costs; partially offset by a decrease in bonus expense, and a decrease in licensing fees related to initial licensing of new jurisdictions expensed in 2012.
Selling and marketing . Selling and marketing costs were relatively consistent at $2.5 million for both the nine months ended September 30, 2013 and 2012.
Phantom unit compensation . Phantom unit compensation expense was $0.5 million for the nine months ended September 30, 2013 compared to $0.7 million for nine months ended September 30, 2012, which represents a decrease of $0.2 million, or 29.2%. The expense represents the recognition of the change in the fair value of the phantom units that vested during the two periods.
Impairment of long lived assets . Impairment of long-lived assets represents an impairment loss for obsolete gaming machines. The impairment charge was $3.4 million for the nine months ended September 30, 2013. We did not record an impairment charge in the nine months ended September 30, 2012.
Impairment of intangibles . Impairment of intangibles was $1.4 million for the nine months ended September 30, 2013. The amount relates to a lease incentive associated with a long-term lease with a gaming operator in Illinois entered into in 2010 for which the lease was amended in September 2013. We did not record an impairment charge in the nine months ended September 30, 2012.
Impairment of goodwill . Impairment of goodwill was $0 and $18.7 million for the nine months ended September 30, 2013 and 2012 respectively. The 2012 impairment, which accounted for the entire balance, was a result of the combination of an increase in our weighted average cost of capital primarily related to the increased interest rate related to the 2012 UBS debt and reduced revenue with in our long-term operating plan.
Depreciation and amortization . Depreciation and amortization was $21.7 million for the nine months ended September 30, 2013 compared to a $21.3 million for the nine months ended September 30, 2012, which represents an increase of $0.4 million, or 1.9%.
Other Expense (Income)
Interest expense . Interest expense was $13.2 million for the nine months ended September 30, 2013 and $6.0 million for the nine months ended September 30, 2012, which represents an increase of $7.2 million, or 120.0%. The increase in interest expense was primarily due to the increased interest rate for the new credit agreement entered into in August 2012.
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Interest income . Interest income was $1.3 million for the nine months ended September 30, 2013 compared to $0.3 million for the nine months ended September 30, 2012. The increase in interest income was primarily the result of additional interest recognized on the loans to the gaming operators in the Illinois VGT market partially offset by a decrease in the outstanding principal amount of our other development agreement notes receivable generating interest income. Of the $13.0 million of notes receivable as of September 30, 2013, $11.8 million is related to loans to gaming operators in the Illinois VGT market. Of the $11.8 million for Illinois we are recognizing interest income on $7.8 million which is a percentage basis of live units to expected total deployments.
Other . We recorded other income of $0.3 million for the nine months ended September 30, 2013 and $0.2 million of income for the nine months ended September 30, 2012. The nine months ended September 30, 2013 includes $0.4 million of income related to the de-recognition of a customer liability. The remainder for 2013 and 2012 relates to the change in foreign currency exchange.
Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011
Revenues
Total revenues were $58.6 million for 2012 compared to $59.6 million for 2011, which represents a decrease of $1.0 million, or 1.7%. Gaming revenues were $54.0 million for 2012 compared to $52.7 million for 2011, which represents an increase of $1.3 million, or 2.5%. The increase in gaming revenue was primarily a result of an increase in the install base of leased games, which yielded a higher fee per day compared to participation games. Equipment sales were $0.8 million for 2012 compared to $2.7 million for 2011, which represents a decrease of $1.9 million, or 71.9%. The decrease in equipment sales was primarily due to our decision to focus on the recurring revenue portion of our business rather than game sales, which resulted in fewer units being sold in 2012 compared to 2011.
Operating Expenses
Gaming operating expenses . Total gaming operating expenses were $11.5 million for 2012 compared to $16.1 million for 2011, which represents a decrease of $4.6 million, or 28.6%. The decrease in gaming operating expenses was primarily a result of the consummation of the Bluberi transaction in May 2012. Bluberi commissions were $3.2 million in 2012 compared to $7.8 million in 2011.
Cost of equipment sales . Cost of equipment sales were $0.4 million for 2012 compared to $1.1 million for 2011, which represents a decrease of $0.7 million, or 62.7%. The decrease in cost of equipment sales was primarily a result of fewer equipment sales as described above.
Loss (gain) on disposition of assets . Loss on disposition of assets was $0.5 million for 2012 compared to $0.2 million for 2011, which represents an increase of $0.3 million, or 156.7%. The loss for 2012 represents two material dispositions, while the 2011 loss was primarily a result of a loss on the sale of gaming equipment in the fourth quarter of 2011 and the loss on written off gaming equipment in Mexico partially offset by the return of gaming equipment by the state of Alabama which was previously written off.
General and administrative . General and administrative costs were $14.4 million for 2012 compared to $13.3 million for 2011, which represents a increase of $1.1 million, or 7.5%. The increase in general and administrative costs for 2012 was due primarily to an increase in research and development and payroll costs.
Selling and marketing . Selling and marketing costs were $3.4 million for 2012 compared to $3.3 million for 2011, which represents an increase of $0.1 million, or 2.9%. The increase in selling and marketing costs was primarily a result of higher commission expense partially offset by lower general selling costs.
Phantom unit compensation . Phantom unit compensation expense was $0.7 million for 2012 compared to $0.9 million for 2011, which represents a decrease of $0.2 million or 29.7%. The 2012 costs represent the recognition of the change in the fair value of the phantom units that vested during 2012.
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Impairment of long lived assets . Impairment of long-lived assets represents an impairment loss for obsolete gaming machines. The impairment was $2.7 million for 2012 compared to $0.8 million for 2011, which represents an increase of $1.9 million, or 237.4%. The increase is primarily due to a greater number of gaming machine we do not expect to use for future deployments resulting from our decision to focus on newer cabinet models.
Impairment of intangibles . Impairment of intangibles was $3.7 million for 2012, $2.9 million of which related to adjusting our net carrying value of the cashless gaming system licenses required to operate certain gaming machines. The remaining amount related to customer agreements and internally developed software associated with a licensing agreement held by AGS Toronto, which we terminated in March 2013. There was no impairment for intangibles in 2011.
Impairment of goodwill . Impairment of goodwill was $18.7 million for 2012. The impairment is a result of the combination of an increase in our weighted average cost of capital primarily related to the increased interest rate related to our Term Loans and reduced revenue with in our long-term operating plan. There was no impairment for goodwill in 2011.
Write downs and other charges . Write downs and other charges were $3.7 million for 2012 compared to $2.2 million for 2011, which represents an increase of $1.5 million, or 68.2%. The amounts for 2012 consist of $3.5 million of debt-related costs related to our prior credit facility, which was paid off with the proceeds of the Term Loans, and other costs incurred for unsuccessful financing transactions, and $0.2 million for consulting fees paid to a related party. The 2011 costs solely relate to unsuccessful financial transactions.
Depreciation and amortization . Depreciation and amortization expense was $29.5 million for 2012 compared to $23.6 million for 2011, which represents an increase of $5.9 million, or 25.0%. The increase in depreciation was primary related to additional costs for new gaming machines including the new deployments for Illinois VGT market. The increased amortization expense was primarily a result of the amortization of the intangible associated with the Bluberi transaction that was completed in May 2012 as well as an increase in internally developed software, partially offset by certain intangibles that were fully amortized in 2012.
Other (Income) Expenses
Interest expense . Interest expense was $10.3 million for 2012 compared to $5.8 for 2011, which represents an increase of $4.5 million, or 76.1%. The increase in interest expense was primarily related to the increased interest rate for the Term Loans, which we entered into in August 2012.
Interest income . Interest income was $0.4 million for 2012 compared to $0.5 million for 2011, which represents a decrease of $0.1 million. The decrease in interest income was primarily the result of a decrease in the outstanding principal amount of our development agreement notes receivable generating interest income. Of the $12.4 million of notes receivable as of December 31, 2012, $10.1 million is related to loans to gaming operators in the Illinois VGT market. Of the $10.1 million for Illinois we are recognizing interest income on $0.8 million which is a percentage basis of live units to expected total deployments.
Other . We recorded other income of $0.1 million for 2012 compared to other expenses of $0.3 million for 2011, primarily as a result of a change in foreign currency exchange.
Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010
Revenues
Total revenues were $59.6 million for 2011 compared to $61.8 million for 2010, which represents a decrease of $2.2 million, or 3.6%. Gaming revenues were $52.7 million for 2011 compared to $55.0 million for 2010, which represents a decrease of $2.3 million, or 4.2%. The decrease in gaming revenue was primarily a
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result of a decrease in average game count along with adverse weather in Oklahoma in the first quarter of 2011, which caused several casino closures where our games are located. Equipment sales were $2.7 million for 2011 compared to $3.0 million for 2010, which represents a decrease of $0.3 million, or 10.0%. The decrease in equipment sales was primarily a result of a relatively flat number of units sold during 2011 compared to 2010 at a lower average selling price. In addition, there was a decrease in parts sales in 2011 compared to 2010.
Operating Expenses
Gaming operating expenses . Total gaming operating expenses were $16.1 million for 2011 compared to $18.6 million for 2010, which represents a decrease of $2.5 million, or 13.4%. The decrease in gaming operating expenses was primarily a result of the amended agreement signed in May 2010 with Bluberi, which lowered their commission rate from 30% to 20% of revenue.
Cost of equipment sales . Cost of equipment sales was $1.1 million for 2011 compared to $1.5 million for 2010, which represents a decrease of $0.4 million, or 29.5%. The decrease in cost of equipment sales was primarily a result of equipment sales at a lower average selling price as described above.
Loss (gain) on disposition of assets . Loss on disposition of assets was $0.2 million for 2011 compared to an immaterial gain for 2010. The loss on disposition of assets was primarily a result of a loss on the sale of gaming equipment in the fourth quarter of 2011 and the loss on written off gaming equipment in Mexico offset by the return of gaming equipment by the state of Alabama which was previously written off.
General and administrative . General and administrative costs were $13.3 million for 2011 compared to $22.4 million for 2010, which represents a decrease of $9.1 million, or 40.6%. The decrease in general and administrative costs for 2011 was due primarily to a reduction in bad debt expense compared to 2010. General and administrative costs in 2010 included $8.1 million in bad debt expense relating to sales from 2008 and 2009.
Selling and marketing . Selling and marketing costs were $3.3 million for 2011 compared to $4.1 million for 2010, which represents a decrease of $0.8 million, or 19.1%. The decrease in selling and marketing costs was primarily a result of a reduction in sales payroll expense.
Phantom unit compensation . Phantom unit compensation for 2011 represents the recognition of the change in the fair value of the phantom units that vested during 2011. There was no phantom unit compensation in 2010.
Impairment of long-lived assets . Impairment of long-lived assets for 2011 represents the recognition of an impairment loss for obsolete gaming machines. There was no impairment loss in 2010.
Depreciation and amortization . Depreciation and amortization expense was $23.6 million for 2011 compared to $22.8 million for 2010, which represents an increase of $0.8 million, or 3.5%. The increase in depreciation and amortization expense was primarily a result of a full year of amortization of licenses with Bluberi in 2011 as well as an increase in internally developed capitalized software in 2011.
Write downs and other charges . Write downs and other charges included $2.2 million of costs related to a cancelled bond offering in 2011.
Other Expenses (Income)
Interest expense . Interest expense was relatively flat at $5.8 million for 2011 compared to $5.9 million for 2010.
Interest income . Interest income was $0.5 million for 2011 compared to $0.6 million for 2010, which represents a decrease of $0.1 million. The decrease in interest income was primarily the result of a decrease in the outstanding principal amount of our development agreement notes receivable generating interest income. Of
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the $9.6 million of notes receivable as of December 31, 2011, we have deferred recognizing interest income on $3.3 million of that balance, which relate to loans to potential gaming operators in the Illinois VGT market, until collectability of the interest income is reasonably assured.
Other . We recorded other expenses of $0.3 million for 2011 compared to other income of $0.2 million for 2010, primarily as a result of increased foreign currency exchange expense.
Liquidity and Capital Resources
We expect that primary ongoing liquidity requirements will be for capital expenditures, working capital, other debt service, game development and other customer acquisition activities. We expect to finance these liquidity requirements through a combination of cash on hand and cash flows from operating activities. In October 2013, we entered into financing agreements to purchase 450 gaming machines from various third party suppliers for lease to a company that operates and service slot routes in Illinois. The agreements require monthly payments of interest and principle and have terms ranging from 24 to 36 months and carry an interest rate from 8.0% to 8.5%.
As of September 30, 2013, we had $8.6 million in cash and cash equivalents and $130.1 million of outstanding indebtedness (not including the discount), under our existing credit facility. As of December 31, 2012, we had $6.5 million in cash and cash equivalents and $122.9 million of outstanding indebtedness (not including the discount), which consisted of $122.5 million of outstanding indebtedness under our existing credit facility, and a $0.4 million note payable to Aristocrat.
On September 16, 2013, AP Gaming Acquisition entered into a commitment letter with Citigroup Markets Inc., Credit Suisse AG, Deutsche Bank AG, Nomura Securities International, Inc. and their respective affiliates in respect of certain senior secured credit facilities consisting of a $155 million term loan facility (the Term Facility ) and a $25 million revolving credit facility (the Revolving Facility and, together with the Term Facility, the Senior Secured Credit Facilities ).
AP Gaming I, LLC, a wholly owned indirect subsidiary of AP Gaming (the Borrower ), is expected to close the Senior Secured Credit Facilities substantially concurrently with the consummation of the Acquisition. All borrowings under the Senior Secured Credit Facilities are subject to the satisfaction (or waiver by lenders) of certain customary conditions on or prior to the date of the consummation of the Acquisition (such date, the Closing Date ). The proceeds of the Term Facility on the Closing Date will be used by the Borrower, together with the proceeds of the equity contribution and other sources of funds, to pay the consideration for the Acquisition, to refinance the Companys existing credit facilities and to pay the costs and expenses of the Acquisition and other related transactions. The proceeds of the Revolving Facility will be used by the Borrower from time to time on or after the Closing Date for general corporate purposes and other purposes agreed to with the lenders.
The Term Facility, which may at the Borrowers request be increased up to $167.5 million before the Closing Date, will mature on the seventh anniversary of the Closing Date, and the Revolving Facility will mature on the fifth anniversary of the Closing Date. The Term Facility requires scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the Senior Secured Credit Facilities are expected to bear interest at a rate equal to, at the Borrowers option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. In addition, on a quarterly basis, the Borrower is required to pay each lender under the Revolving Facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.
The Senior Secured Credit Facilities will be guaranteed by AP Gaming Holdings, the Borrowers material, wholly owned domestic subsidiaries (subject to certain exceptions) and AP Gaming NV, LLC, and will be secured by a pledge by AP Gaming Holdings of the Borrowers equity interest directly held by AP Gaming Holdings and a pledge of substantially all of the existing and future property and assets of the Borrower and the
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subsidiary guarantors and AP Gaming NV, LLC, subject to certain exceptions. The Senior Secured Credit Facilities are expected to require that the Borrower maintain a maximum net first lien leverage ratio set at a level to be agreed. The Senior Secured Credit Facilities will also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments.
Based on our current business plan, we believe that our existing cash balances and cash generated from operations will be sufficient to meet our anticipated cash needs for at least the next twelve months. However, our future cash requirements could be higher than we currently expect as a result of various factors. Our ability to meet our liquidity needs could be adversely affected if we suffer adverse results of operations, or if we violate the covenants and restrictions to which we are subject under the credit facility. Additionally, our ability to generate sufficient cash from our operating activities is subject to general economic, political, regulatory, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our existing credit facility in an amount sufficient to enable us to pay our service or repay our indebtedness or to fund our other liquidity needs, and we may be required to seek additional financing through credit facilities with other lenders or institutions or seek additional capital through private placements or public offerings of equity or debt securities.
Net cash provided by operating activities
Net cash provided by operating activities was $14.8 million for the nine months ended September 30, 2013 compared to $14.2 million for the nine months ended September 30, 2012, representing an increase of $0.6 million. The increase is primarily due to an increase in income from operating activities excluding non-cash expenses of approximately $2.8 million, a $7.5 million increase due to changes in working capital during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, offset by an increase in cash paid for interest of approximately $8.0 million.
Net cash provided by operating activities was $18.8 million for 2012 compared to $21.9 million for 2011, representing a decrease of $3.1 million primarily due to a decrease in working capital and an increase in cash paid for interest in 2012 compared to 2011.
Net cash provided by operating activities was $21.9 million for 2011 compared to $21.8 million for 2010, representing an increase of $0.1 million primarily due to an increase in working capital in 2011 compared to 2010.
Net cash used in investing activities
Net cash used in investing activities was $19.7 million during the nine months ended September 30, 2013 compared to $39.2 million during the nine months ended September 30, 2012, representing a decrease of $19.5 million. The decrease is primarily due to a decrease in purchases of intangible assets of $19.6 million as $19.9 million was spend last year on the Bluberi transaction, a reduction in advances to customers of $2.7 million, a decrease in collections under note receivables of $1.7 million, a decrease in capital expenditure of $0.9 million and no collections related to the Canadian payroll credit, partially offset by a $0.3 million increase in software development during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.
Net cash used in investing activities was $51.8 million in 2012, compared to $26.2 million in 2011, representing an increase of $25.6 million. $16.1 million of the increase is due to an increase in intangible assets where we spent $22.9 million in 2012 compared to $6.9 million in 2011. Of the 2012 amount, $19.9 million was related to the Bluberi transaction. The remaining increase is from a $1.4 million increase in software development, $3.2 million increase in notes receivables, a $6.8 million increase in capital expenditures primary related to the Illinois VGT market and a $1.5 million decrease in our Canadian payroll tax receivable and a decrease of $0.8 million of collections on notes receivables as well as $1.2 million collected towards the Canadian payroll tax receivable.
49
Net cash used in investing activities was $26.2 million in 2011, compared to $32.6 million in 2010, representing a decrease of $6.4 million. The decrease in net cash used in investing activities was primarily related to our acquisition of Bluberi license rights for an aggregate of $7.5 million during 2010 offset by a $1.9 million increase in capital expenditures in 2011, $2.8 million increase in notes receivable in 2011, and a $1.8 million increase in collections on notes receivable in 2011.
Net cash provided by financing activities
Net cash provided by financing activities was $6.8 million during the nine months ended September 30, 2013 compared to $21.5 million provided by financing activities during the nine months ended September 30, 2012, representing a decrease of $14.7 million. The decrease in net cash provided by financing activities was primarily due to a single borrowing of $7.5 million in 2013 compared to a $109.8 million borrowing for the 2012 UBS debt and a $130.6 million repayment of the 2007 UBS debt in 2012 and a $7.6 million decrease in deferred financing fees, partially offset by a decrease in member contributions of $50.7 million related to our refinancing activities during the nine months ended September 30, 2012.
Net cash provided by financing activities was $28.8 million for 2012 compared to $7.2 million for 2011, representing an increase of $21.6 million. The increase in net cash provided by financing activities was primarily due to a $36.9 million increase in member contributions, partially offset by $9.6 million net change in debt related to the repayment of our previous credit facility with the proceeds from the Term Loans and a $5.4 million increase in deferred financing fees related to our refinancing activities.
Net cash provided by financing activities was $7.2 million for 2011 compared to $12.5 million for 2010, representing a decrease of $5.3 million. The decrease in net cash provided by financing activities was primarily due to a net $2.6 million increase in repayments under our then-existing credit facility, an increase of $0.3 million in deferred financing costs, an increase of $0.2 million in payments on the Aristocrat note payable, offset by a $1.1 million increase in net contributions from members.
Significant Accounting Policies and Critical Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make decisions based upon estimates, assumptions and factors we consider relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.
We believe that the following critical accounting policies and underlying estimates and judgments involve a higher degree of complexity than others do:
Revenue Recognition
The majority of our gaming revenue is recurring and generated under participation agreements whereby we provide electronic gaming machines and systems in return for a percentage these machines and systems generate or a daily licensing fee. Under these arrangements, we generally retain ownership of the gaming equipment installed at customer facilities and are responsible for providing ongoing maintenance and support of the equipment. Certain arrangements require a portion of the revenue generated by our equipment to be set aside to be used to fund facility-specific marketing, advertising, promotions and service. These amounts are offset against revenue. We record revenue from our participation agreements based on the revenue generated by our machines during the reporting period factoring in the specified revenue share percentage for each customer. We record revenue from daily fee agreements based on the number of operating machine days during the reporting period multiplied by the specified daily fee per gaming unit or other denominator specified in the contracts.
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Revenues from the stand-alone product sales or separate accounting units are recorded when:
| persuasive evidence of an arrangement exists; |
| the sales price is fixed and determinable; |
| delivery has occurred and services have been rendered; and |
| collectability is probable. |
Notes Receivable and Development Agreements
We enter into development agreements to provide financing for the construction of new gaming facilities or the expansion of existing facilities. In return, the customer generally allocates to us a certain percentage of the floor or specified number of electronic gaming machines to be placed by us in the facility under a long-term equipment lease agreement whereby we receive a share of the revenues generated by our games or a fixed daily fee per game. Certain agreements contain performance standards for our gaming terminals that could allow the facility to reduce a portion of our guaranteed floor space. Terms regarding repayment of our loans or advances vary by agreement. In some agreements, we are repaid out of the incremental facility revenue or profit generated by the expansion in proportion to the amount of the overall funding we provided. It is also typical to have agreements where our loans or advances are repaid based on fixed monthly payments or other amortization schedule. Amounts advanced in excess of the initial fair value of the notes receivable are allocated to intangible assets and amortized over the life of the contract.
Generally, we utilize the term of a contract to amortize the intangible assets associated with development agreements. We review the carrying value of these contract rights at least annually, or whenever changes in circumstances indicate the carrying value of these assets may not be recoverable. While we believe that our estimates and assumptions used in evaluating the carrying value of these assets are reasonable, different assumptions could materially affect either the carrying value or the estimated useful lives of the contract rights.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts related to our accounts receivable and notes receivable that have been deemed to have a high risk of collectability. We review our accounts receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. We analyze historical collection trends and changes in our customers payment patterns, customer concentration and credit worthiness when evaluating the adequacy of our allowance for doubtful accounts. A large percentage of receivables are with Native American tribes that have their casinos and gaming operations in the state of Oklahoma, and we have concentrations of credit risk with several tribes. Despite the industry, geographic and customer concentrations related to our receivables, due to our historical experience with receivable collections, management considers credit risk to be minimal with respect to accounts receivable. We include any receivable balances that are determined to be uncollectible in our overall allowance for doubtful accounts. Changes in our assumptions or estimates reflecting the collectability of certain accounts could materially affect our allowance for both trade and notes receivable.
Inventories
Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment, as well as gaming equipment under construction or held for sale. Inventories are stated at the lower of cost or market. Cost of inventories is determined using the first-in, first-out (FIFO) method for all components of inventory. We regularly review inventory quantities and update estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of our inventories, the current and projected sales levels for such
51
products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in our assumptions or estimates could materially affect our inventory carrying value.
Gaming Equipment, Vehicles and Other Equipment
The cost of gaming equipment consisting of gaming machines, servers and other support equipment as well as vehicles and other equipment, are depreciated over their estimated useful lives, generally using the straight-line method for financial reporting. We annually evaluate the estimated lives used to depreciate assets. We measure recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. Our policy is to provide reserves, when necessary, for excess or obsolete gaming machines on hand that we do not expect to be used. Reserves are based upon several factors, including estimated forecast of gaming terminal demand for placement into casinos. While we believe that our estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on our results of operations and financial condition.
Long Lived and Intangible Assets
We review our long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for long-lived assets and identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount.
Goodwill
We are required to perform an annual goodwill impairment review, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. Goodwill is reviewed for possible impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, or a loss of key personnel.
Accounting for Income Taxes
We are a limited liability company treated as a disregarded entity for federal and state income tax purposes. As a result, any federal (and most state) items of income or loss, and any income tax credits, are passed through to our ultimate owner for inclusion in its individual income tax returns. We previously were a partnership for federal and state income tax purposes. Accordingly, no provision for income taxes is included in our consolidated financial statements.
Our tax returns are subject to examination by U.S. federal and state authorities. If such examinations occur and result in changes with respect to any partnership qualifications or changes to distributable income or loss, the tax liability of the members may be changed accordingly.
Costs of Computer Software
Internally developed gaming software is accounted for under FASB ASC Topic 985-20, Costs of Software to Be Sold, Leased or Marketed , and is stated at cost, which is amortized over the estimated useful lives of the software, generally using the straight-line method. Software development costs are capitalized once technological
52
feasibility has been established and are amortized when the software is placed into service. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made.
Research and Development
We conduct research and development activities primarily to develop new gaming platforms and gaming content. These research and development costs consist primarily of salaries and benefits and are expensed as incurred. Once the technological feasibility of a project has been established, capitalization of development costs begins until the product is available for general release.
Contingencies
We assess our exposures to loss contingencies, including claims and legal proceedings, and accrue a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from our estimate, there could be a material impact on our results of operations or financial position. Operating expenses associated with contingencies, including legal fees, are expensed when incurred.
Seasonality
Historically, our operating results have been highest during the first quarter and lowest in our third and fourth quarters, primarily due to the seasonality of player demand. Our quarterly operating results may vary based on the timing of the opening of new gaming jurisdictions, the opening or closing of casinos, the expansion or contraction of existing casinos, approval or denial of our products and corporate licenses under gaming regulations, the introduction of new products, the seasonality of customer capital budgets, the mix of domestic versus international sales and the mix of lease and royalty revenue versus sales and service revenue.
Inflation
Our operations have not been, nor are they expected to be in the future, materially affected by inflation. However, our operational expansion is affected by the cost of hardware components, which are not considered to be inflation sensitive, but rather, sensitive to changes in technology and competition in the hardware markets. In addition, we expect to continue to incur increased legal and other similar costs associated with regulatory compliance requirements and the uncertainties present in the operating environment in which we conduct our business.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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Contractual Obligations
The following table contains information on our contractual obligations and commitments as of December 31, 2012.
Payments Due by Period | ||||||||||||||||||||
(in thousands) | Total |
Less
than 1 year |
2-3 years | 4-5 years |
More than
5 years |
|||||||||||||||
Long term debt |
$ | 130,000 | $ | | $ | 9,750 | $ | 120,250 | $ | | ||||||||||
Estimated interest payment |
54,277 | 14,950 | 29,900 | 9,427 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 184,277 | $ | 14,950 | $ | 39,650 | $ | 129,677 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table contains information on our contractual obligations and commitments as of December 31, 2012, giving pro forma effect to the Acquisition and the Senior Secured Credit Facilities.
Payments Due by Period | ||||||||||||||||||||
(in thousands) | Total |
Less
than 1 year |
2-3 years | 4-5 years |
More than
5 years |
|||||||||||||||
Long term debt |
$ | 157,273 | $ | 1,628 | $ | 3,100 | $ | 3,100 | $ | 149,445 | ||||||||||
Estimated interest payments |
$ | 99,637 | 14,391 | 28,352 | 27,778 | 29,117 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 256,910 | $ | 16,019 | $ | 31,452 | $ | 30,878 | $ | 178,562 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Recently Issued Accounting Standards
In July 2012, the Financial Accounting Standards Board (the FASB ) issued Accounting Standards Update 2012-02, IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, ( ASU 2012-02 ). ASU 2012-02 amends the guidance in Accounting Standards Codification 350-302 on testing indefinite-lived intangible assets, other than goodwill, for impairment by allowing an entity to perform a qualitative impairment assessment before proceeding to the two-step impairment test. If the entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than not (i.e., a likelihood of more than 50 percent) impaired, the entity would not need to calculate the fair value of the asset. In addition, ASU 2012-02 does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances; however, it does revise the examples of events and circumstances that an entity should consider in interim periods. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption being permitted. The adoption of this standard will not have a material effect on our financial position or results of operations.
In June 2011, FASB issued an ASU on presentation of comprehensive income to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This update changes the requirements for the presentation of other comprehensive income, eliminating the option to present components of other comprehensive income as part of the statement of stockholders equity, among other items. The guidance requires that all non-owner changes in stockholders equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments are effective for fiscal years ending after December 15, 2012 for the Company. This pronouncement did not have a material effect on our financial statements.
In September 2011, the FASB amended ASC 350, IntangiblesGoodwill and Others, to simplify the assessment of goodwill impairment and will become effective for the Company for fiscal years beginning after December 15, 2011, however early adoption is allowed. The amended guidance allows us to do an initial qualitative assessment of relative events and circumstances to determine if fair value of a reporting unit is more
54
likely than not less than its carrying value, prior to performing the two-step quantitative goodwill impairment test. We adopted the amended guidance for its September 30, 2011 measurement date and it did not have a material effect on its financial statements.
Industry and Market Data
This Registration Statement includes market and industry data that we obtained from our research, studies conducted by third party sources that we believe to be reliable and industry and general publications published by third parties and, in some cases, management estimates based on industry and other knowledge. We have not independently verified any of the data from third party sources, and we make no representation as to the accuracy of such information. While we believe internal company estimates are reliable and market definitions are appropriate, they have not been verified by any independent sources, and we make no representations as to the accuracy of such estimates.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rates. Our primary exposure to market risk is interest rate risk associated with our long-term debt, which accrues interest at variable rates. The Term Loans accrue and the Senior Secured Credit Facilities will accrue interest at LIBOR or the base rate, at our election, subject to an interest rate floor plus an applicable margin rate.
In connection with the development agreements we enter into with some of our customers, we provide financing for the construction of new gaming facilities or the expansion of existing facilities, which are generally required to be repaid. As a result of these notes receivable, we are subject to market risk with respect to interest rate fluctuations.
Any material increase in prevailing interest rates could cause us to incur significantly higher interest expense. These factors have not increased significantly, therefore no significant changes have been made in our strategies to manage any of these exposures. We evaluate our exposure to market risk by monitoring interest rates in the market place.
ITEM 3. | PROPERTIES. |
We currently lease the following properties:
Location |
Size | |||
727 Overhead Drive, Oklahoma City, Oklahoma |
60,000 sq. ft. | |||
6680 Amelia Earhart Court, Las Vegas, Nevada |
23,153 sq. ft. | |||
905 Irving Park Road, Itasca, Illinois |
20,680 sq. ft. | |||
8820 Jane Street, Building B, Concord, Ontario, Canada |
8,500 sq. ft. | |||
1200 NW 63rd Street, Suite 300, Oklahoma City, Oklahoma |
3,750 sq. ft. | |||
2555 Marshall Road, Suite E, Biloxi, Mississippi |
350 sq. ft. |
Our lease for our facility in Concord, Ontario is scheduled to expire in December 2013, and our leases for our facilities in Itasca, Illinois and at 727 Overhead Drive in Oklahoma City, Oklahoma are set to expire by the end of 2015. In addition, our facilities in Biloxi, Mississippi and at 1200 NW 63rd Street in Oklahoma City, Oklahoma are currently operating under month-to-month leases. We currently do not own any real property.
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ITEM 4. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. |
As of December 19, 2013, we had 100 shares of Common Stock issued and outstanding. All of our shares of Common Stock are owned by Apollo Gaming Holdings, L.P. The address of Apollo Gaming Holdings, L.P. is c/o Apollo Management, L.P., 9 West 57th Street, 43rd Floor, New York, NY, 10019. Apollo Gaming Holdings, L.P. is an affiliate of Apollo Management, L.P.
ITEM 5. | DIRECTORS AND EXECUTIVE OFFICERS. |
Set forth below are the names, ages, positions, and biographical information of the executive officers of AGS Capital and the director of AP Gaming.
Name |
Age |
Position |
||
Robert Miodunski |
62 | Chairman, Chief Executive Officer and President | ||
Curt Mayer |
45 | Chief Financial Officer | ||
Ken Bossingham |
49 | Chief Operating Officer | ||
Paul Lofgren |
52 | Vice President of Business Development | ||
Victor Gallo |
47 | General Counsel, Compliance Officer and Vice President, Regulatory Affairs | ||
Olaf Vancura |
46 | Vice President of Game Development | ||
David Sambur |
33 | Director |
The following are brief biographies describing the backgrounds of the executive officers of AGS Capital and our director.
Robert Miodunski. Mr. Miodunski has served as the Chairman, Chief Executive Officer and President of AGS Capital since July 2010. He previously served as President and Chief Executive Officer of Alliance Gaming (nka Bally Technologies, Inc.) from 1999 to 2004. From fiscal year 2000 through 2004, Alliance Gaming grew its revenue from continuing operations from $184.0 million to $476.6 million and operating income from $5.8 million to $88.8 million. Prior to his tenure at Bally, Mr. Miodunski was President of United Coin Machine Co., a subsidiary of Bally Technologies, Inc. Mr. Miodunskis previous experience also includes service as President of Mulholland Harper, a national sign company, several vice president positions with Federal Sign, a subsidiary of Federal Signal, and a number of managerial positions within the semiconductor industry. Mr. Miodunski received a Bachelor of Science degree from the University of Missouri and an MBA from the University of Dallas.
Curt Mayer. Mr. Mayer has served as our Chief Financial Officer since July 2011. From February 2011 to July 2011, he served as Chief Financial Officer of Skywire Media, Inc., a startup in the mobile technology sector. From May 2007 to November 2010, Mr. Mayer served as Corporate Vice-President of Finance for Station Casinos, Inc. Prior to his tenure at Station Casinos, Mr. Mayer served as Chief Financial Officer for Black Gaming, LLC from May 2002 to May 2007. From July 1992 to May 2002, Mr. Mayer was employed by the accounting firm of Arthur Andersen, LLP, most recently as a Senior Audit Manager. From 1995 to 2002, Mr. Mayer worked in the firms Las Vegas office providing audit services to the hospitality and gaming industry. Mr. Mayer obtained his CPA license in the state of Pennsylvania.
Ken Bossingham. Mr. Bossingham has served as our Chief Operating Officer since January 2013. He previously spent 12 years with Atronic Americas, LLC as Senior Vice President of Sales and Chief Operating Officer, leading them through the GTECH acquisition in 2008. After the acquisition, Mr. Bossingham served as Vice President and General Manager North American Casino for GTECH/Spielo until his departure in 2013. Mr. Bossingham has also held senior management positions in the gaming space with JCM Global and Aristocrat Technologies. He holds a Bachelor of Science degree from Moorhead State University and an MBA from Idaho State University.
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Paul Lofgren. Mr. Lofgren has served as our Vice President of Business Development since October 2010. He is the founder and President of Redhorse Advisory Group, which provides expertise and resources to gaming clients seeking to introduce new products, enter new markets or improve performance. Previously, he was Executive Vice President of Bally Technologies, Inc. where he led the Gaming Division and Worldwide Business Development of the company. In this position, Mr. Lofgren managed over 800 employees with operations in over 250 jurisdictions. Mr. Lofgren received his Bachelor of Business Administration degree in Accounting from the University of San Diego.
Victor Gallo. Mr. Gallo joined us in February 2010 as Vice President, Licensing and Compliance and Compliance Officer and currently serves as our General Counsel, Compliance Officer and Vice President, Regulatory Affairs. Previously, Mr. Gallo was General Counsel and Vice President of Business Development for Youbet.com, and Vice President of Legal and Compliance and Corporate Counsel for Konami Gaming. Mr. Gallo has also worked as an attorney in private practice, and as an active duty captain in the Air Force Judge Advocate General Corps. Mr. Gallo received his Bachelor of Science degree in Aerospace Engineering from the University of Southern California and a Juris Doctor from the University of the Pacific.
Olaf Vancura. Dr. Vancura has served as our Vice President for Game Development since October 2010. Previously, Dr. Vancura was Vice President of Game Development and Chief Creative Officer of Mikohn Gaming. Dr. Vancura is the chief architect of the popular strategy-based Yahtzee and Battleship lines of casino games, as well as the trivia-based Ripleys Believe It or Not! casino games. He has also acquired and created unique casino game content for national brands such as Garfield, Monopoly, Clue, Trivial Pursuit and Wink Martindale . On multiple occasions, Dr. Vancuras games have received game-design Most Innovative awards and been featured on the covers of major gaming publications and two of Dr. Vancuras gaming machine titles were voted #1 and #3 Most Innovative Games of the Year by readers of Strictly Slots magazine. He was the named inventor on over 60 national (and additional international) patents related to gaming. Dr. Vancura holds a Ph.D in physics from Johns Hopkins University, served a post-doctoral fellowship at Harvard University and was a member of the Harvard-Smithsonian Center for Astrophysics.
David Sambur. Mr. Sambur has served as a member of the Board of AP Gaming since November 2013. He also serves as Chief Executive Officer, President, Secretary and Treasurer of AP Gaming. Mr. Sambur is a Partner of Apollo, having joined in 2004. Mr. Sambur has experience in financing, analyzing, investing in and/or advising public and private companies and their board of directors. Prior to joining Apollo, Mr. Sambur was a member of the Leveraged Finance Group of Salomon Smith Barney Inc. from 2002 to 2004. Mr. Sambur serves on the board of directors of Caesars Entertainment, Verso Paper Corp., Verso Paper, Inc., Verso Paper Holdings LLC, Momentive Performance Materials Holdings LLC, Momentive Performance Materials Inc. and Momentive Specialty Chemicals Inc. Mr. Sambur graduated summa cum laude and Phi Beta Kappa from Emory University with a BA in Economics. Mr. Samburs executive leadership experience, including his service on the board of several companies, and financial expertise is a valuable asset to the Board.
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ITEM 6. | EXECUTIVE COMPENSATION. |
Summary Compensation Table
The following table discloses compensation for our fiscal year ending December 31, 2012 ( Fiscal 2012 ) received by Messrs. Miodunski, Mayer and Lofgren, each of whom was a named executive officer during Fiscal 2012.
Name and Principal Position |
Year | Salary ($) | Bonus ($) |
Stock
Awards ($) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($) |
All Other
Compensation ($)(1) |
Total ($) | ||||||||||||||||||||||||
Robert Miodunski, President and Chief Executive Officer |
2012 | 450,000 | | | | 172,275 | | 622,275 | ||||||||||||||||||||||||
Curt Mayer, Chief Financial Officer |
2012 | 275,000 | | | | 75,000 | 10,418 | 360,418 | ||||||||||||||||||||||||
Paul Lofgren Vice President, Business Development and Sales |
2012 | 275,000 | | | | 73,129 | 8,592 | 356,721 |
(1) | Amounts represent the Companys matching contribution under our 401(k) Plan. |
Grants of Plan-Based Awards for Fiscal 2012
The following Grants of Plan-Based Awards table provides information concerning awards granted in Fiscal 2012 to our named executive officers. No equity awards were granted to our named executive officers during Fiscal 2012.
Name |
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards (1) |
|||||||||||
Threshold ($) |
Target ($) |
Maximum ($) |
||||||||||
Robert Miodunski |
| 225,000 | 450,000 | |||||||||
Curt Mayer |
| 137,500 | 275,000 | |||||||||
Paul Lofgren |
| 137,500 | 275,000 |
(1) | This reflects the target and maximum payouts to our named executive officers pursuant to the 2012 Managerial Incentive Plan with respect to services performed for the Company during Fiscal 2012. |
Employment Agreements with Named Executive Officers
Robert Miodunski
On June 2, 2010, we entered into an employment agreement with Mr. Robert Miodunski, pursuant to which he was appointed Chairman of the Advisory Board and Interim President / Chief Executive Officer of AGS. Mr. Miodunskis employment agreement was amended November 28, 2011 and again on March 21, 2013 to change his position to President/Chief Executive Officer of AGS and Chairman of the Advisory Board until the earlier of his four-year anniversary with AGS, the hiring of a new President/CEO (at which time he would remain as Chairman) or a change in control of ownership of AGS. Mr. Miodunskis annual base salary is $450,000 and he is eligible for an annual bonus to be paid in cash based on our attainment of financial results and earnings targets. Mr. Miodunski also received a one-time signing bonus of $100,000, to be credited against his bonuses earned, if any, in either 2010 or 2011. In accordance with his employment agreement, Mr. Miodunski was granted phantom equity units. Effective April 1, 2013, Mr. Miodunski adopted a three-day work schedule, and his base salary was pro-rated accordingly to $300,000 per year. His annual performance bonus potential was also reduced pro rata by 60%.
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Curt Mayer
On June 23, 2011, we entered into an employment agreement with Mr. Curt Mayer, pursuant to which he was appointed Chief Financial Officer. Mr. Mayers employment agreement was amended on March 18, 2013 to, among other things, increase his severance to nine months base salary. Mr. Mayers annual base salary is $275,000 and he is eligible for an annual bonus to be paid in cash based on our attainment of financial results and earnings targets. In accordance with his employment agreement, Mr. Mayer was granted profits interests that represent a percentage of the gains in equity value of the Company in the event of a sale.
Paul Lofgren
On September 28, 2010, we entered into an employment agreement with Mr. Paul Lofgren, pursuant to which he was appointed Vice President of Business Development. Mr. Lofgrens base salary is $275,000 and he is eligible for an annual commission bonus to be paid in cash based on sales and game placements signed after Mr. Lofgrens employment commences. Mr. Lofgren also received a one-time signing bonus of $50,000. In accordance with his employment agreement, Mr. Lofgren was granted profits interests that represent a percentage of the gains in equity value of the Company in the event of a sale.
Outstanding Equity Awards as of Fiscal Year End 2012
Name |
Number of
Securities Underlying Unexercised Options/SARs (#) Exercisable |
Number of
Securities Underlying Unexercised Options/SARs (#)(1) Unexercisable |
Option/SAR
Exercise Price ($)(2) |
Option/SAR
Expiration Date (3) |
||||||||||||||
June 6, 2010 November 28, 2011 |
Robert Miodunski |
|
129.17
54.17 |
|
|
70.83
145.83 |
|
$
$ |
90 million
90 million |
|
|
2/28/2015
2/28/2015 |
|
|||||
June 23, 2011 |
Curt Mayer |
37.5 | 62.5 | $ | 90 million | 2/28/2015 | ||||||||||||
September 28, 2010 |
Paul Lofgren |
56.25 | 43.75 | $ | 90 million | 2/28/2015 |
The equity awards represent phantom units granted under the AGS Holdings, LLC Phantom Unit Plan (the Phantom Unit Plan). The phantom units represent a contractual right to receive a percentage of the equity value of the Company in excess of the strike price, in the event of a change in control. Each phantom unit represents a 0.01% percentage interest in the transaction proceeds payable in respect of a change in control.
(1) | The remaining phantom units vest monthly over the remaining 17 and 35 months in the case of Mr. Miodunski; provided, that the second grant to Mr. Miodunski shall cease vesting upon the hiring of a new President/CEO, 30 months in the case of Mr. Mayer, and 21 months in the case of Mr. Lofgren. If the named executive officer is still employed by the company on the date of a change in control, all outstanding unvested phantom units shall immediately vest. |
(2) | The exercise price will increase to $115 million if a change in control has not occurred prior to January 1, 2014. |
(3) | The phantom units will be cancelled if a change in control has not occurred by February 28, 2015. |
No phantom units were exercised or triggered during Fiscal 2012.
Pension Benefits
We do not maintain any defined benefit pension plan for the benefit of our named executive officers.
Nonqualified Deferred Compensation
We do not maintain any nonqualified deferred compensation plan for the benefit of our named executive officers.
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Payments Upon Termination and Change of Control
Pursuant to each named executive officers employment agreement, upon the termination of his employment by the Company without Cause, the Company would provide cash severance equal to six months base salary to Mr. Miodunski, nine months base salary to Mr. Mayer and 12 months base salary to Mr. Lofgren. Cause in the employment agreements with each of Messrs. Miodunski, Mayer and Lofgren includes (i) failure to correct underperformance after written notification from, in the case of Mr. Miodunski, the Chairman of the Board or his designee, or, in the case of Messrs. Mayer and Lofgren, the CEO or the Board, (ii) illegal fraudulent conduct, (iii) conviction of a felony, (iv) a determination that Messrs. Miodunski, Mayer or Lofgrens involvement with the Company would have a negative impact on our ability to receive or retain any licenses, (v) willful or material misrepresentation to the Company, CEO or Board relating to the business, assets, prospects or operation of the Company, or (vi) refusal to take any action as reasonably directed by the Board or any individual acting on behalf or at the direction of the Board. In addition, Cause in Mr. Miodunskis employment agreement also includes EBITDA of the Company falling below $25 million during any twelve month period. Each of Messrs. Miodunski, Mayer and Lofgren must sign a standard release of claims before we will make any severance payment.
If the employment of each of our named executive officers had been terminated by us without Cause as of December 31, 2012, Messrs. Miodunski, Mayer and Lofgren would have been entitled to receive cash severance payments in the amount of $225,000, $206,250 and $275,000, respectively. Each of our named executive officers has agreed in his employment agreement to post-termination noncompetition and nonsolicitation covenants for 12 months following termination of employment; provided that in the case of Mr. Miodunski (a) the nonsolicitation covenant applies for 24 months and (b) the noncompetition covenant only applies for six months following termination of employment by us without Cause unless the Company pays him an additional six months of severance.
In addition, upon a change in control of the Company, all unvested phantom units will become fully vested subject to the named executive officers continued employment through the date of the change in control. If a change in control of the Company had occurred on December 31, 2012, the value of the previously unvested phantom units held by Messrs. Miodunski, Mayer and Lofgren that would have become vested on December 31, 2012 (based on an estimated per unit value as of December 31, 2012 of $1,612.67 is approximately $295,667, $60,475 and $90,713, respectively).
Director Compensation
David Sambur, an affiliate of Apollo, is the sole member of our Board of Directors and does not receive any compensation from the Company for his services on the Board.
ITEM 7. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Related Transactions
Transactions Related to the Acquisition
On November 19, 2013, AGS Capital created a wholly owned subsidiary, AP Gaming NV, LLC ( AP Gaming NV ). Prior to the closing of the Acquisition, certain of AGS Capitals assets and interests in Nevada will be transferred, assigned or otherwise contributed to AP Gaming NV. At the closing of the Acquisition, AGS Capital will sell all of the equity interest in AP Gaming NV to Curt Mayer, who was recently licensed by the Nevada Gaming Commission as the chief financial officer of AGS, LLC, pursuant to a purchase and option agreement (the P&O Agreement ). Also at the closing of the Acquisition, AGS Capital and AGS Gaming NV will enter into a services and license agreement (the Services and License Agreement ), pursuant to which AP Gaming NV will receive operational and administrative services from AGS Capital and AGS Capitals employees which, together with assets transferred, assigned and contributed to AP Gaming NV by AGS Capital, will permit AP Gaming NV to continue the Nevada operations on a seamless basis from and after the closing of
60
the Acquisition. In addition, at the closing of the Acquisition, AGS Capital will enter into a revolving credit facility (the Revolving Facility ) with AP Gaming NV to provide AP Gaming NV with sufficient liquidity to fund its operations.
Pursuant to the P&O Agreement, AGS Capital, the sole member of AP Gaming NV will sell all of its equity interests in AP Gaming NV to Curt Mayer. AGS Capital will retain an option to reacquire the equity interests from Curt Mayer (the Option ), which will be exercisable on or prior to the tenth anniversary of the closing of the Acquisition. Conditions required by the P&O Agreement include (a) the execution of and delivery by AP Gaming NV of a guarantee agreement in respect of the Senior Secured Credit Facilities and (b) the entry by AP Gaming NV into a collateral agreement to be executed in connection with the Senior Secured Credit Facilities in its capacity as a Pledgor.
Pursuant to the Services and License Agreement, AP Gaming NV will receive operational and administrative services from AGS Capital and AGS Capitals employees that, together with assets transferred, assigned and contributed to AP Gaming NV by AGS Capital, will permit AP Gaming NV to continue the Nevada operations on a seamless basis from and after the closing of the Acquisition. The agreement will also provide for the grant by AGS Capital and AGS LLC to AP Gaming NV of a non-exclusive, non-transferable, worldwide, fully paid-up, royalty-free, non-assignable license of all intellectual property of AGS Capital and AGS, LLC. In addition, AP Gaming NV will be entitled during the term of the agreement to use and access space at certain of the Companys facilities, and will be entitled to use the equipment located at such facilities pursuant to a limited license. The Services and License Agreement has a ten-year term.
The Revolving Facility, to be entered into, between AGS Capital and AP Gaming NV provides for $ 1.0 million of maximum commitments. Loans under the Revolving Facility will bear fixed interest at a rate equal to 5.0% per annum, payable quarterly in arrears. AP Gaming NV, in its discretion, may opt to pay the quarterly interest in kind by adding any accrued and unpaid interest to the outstanding principal of the loans. The Revolving Facility is scheduled to mature on the tenth anniversary of the facility. Among other customary terms, the Revolving Facility will contain the following Events of Default: failure of Curt Mayer to own 100% of AP Gaming NVs equity interests other than as a result of transfer to AGS Capital (or its designee), default or breach by AP Gaming NV of its obligations under the P&O Agreement or its operating agreement, or the expiry of AGS Capitals Option under the P&O Agreement.
In connection with the consummation of the Acquisition, we intend to enter into a management agreement with an affiliate of Apollo, which we refer to as the Apollo Entity, pursuant to which we will agree, among other things, to pay the Apollo Entity a customary annual management fee and to reimburse the Apollo Entity for its reasonable costs and expenses incurred in connection with providing its management activities under this agreement. We will also agree to indemnify the Apollo Entity and its affiliate for losses arising out of its management activities.
Exclusive License and Distribution Agreements with Dr. Olaf Vancura
We have an exclusive license and distribution arrangement with Dr. Olaf Vancura, our Vice President of Game Development, Game Ingenuity, LLC ( Game Ingenuity ), an entity in which Dr. Vancura is the managing member and Advanced Gaming Solutions, Inc. ( Advanced ), an unaffiliated entity .
Pursuant to the exclusive license agreement, Dr. Vancura and Game Ingenuity have agreed to exclusively license certain intellectual property rights to us during the period of Dr. Vancuras employment and any non-compete period that follows his employment. Upon termination of Dr. Vancuras employment and following the end of any non-compete period thereafter, our exclusive license automatically converts to a non-exclusive, perpetual right and license to use the intellectual property rights, as specified in the exclusive license agreement. We pay Dr. Vancura and Game Ingenuity royalties on the revenues we earn from or placement of select products that utilize the licensed intellectual property rights. For the year ended December 31, 2012, we have incurred no expense pursuant to this license arrangement.
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Pursuant to the exclusive distribution agreement, Game Ingenuity and Advanced have granted us the exclusive rights to promote, place and/or sell certain game titles in North America for a period of one year, which may be extended subject to agreement among the parties. In exchange for this distribution right, we pay Game Ingenuity and Advanced royalties on the collections we receive from end-users using the gaming titles. For the year ended December 31, 2012, we have incurred $35,239 in expense pursuant to this distribution arrangement.
Additionally, we co-own certain patents with Dr. Vancura which, by agreement, results in payments to Dr. Vancura during his employment with us for use of those patents.
Other Related Transactions
During 2012, AGS Holdings, LLC, as the member of AGS Capital, contributed capital totaling $60.7 million to AGS Capital. Approximately $50.7 million of the contributed capital was utilized to cure debt covenant violations, repay current debt obligations, finance the final payment of the Definitive Agreement with Bluberi and to provide working capital to AGS Capital. The remaining $10.0 million was a forgiveness of long-term debt to a related party that occurred in August 2012 associated with the Term Loans.
On October 25, 2012, AGS Illinois, LLLP, a subsidiary of AGS Capital, assumed all rights and obligations of Alpine AGS, LLC ( Alpine AGS ), AGS Capitals indirect parent prior to the Acquisition, to a loan agreement held by Alpine AGS for $1,864,500. Interest on the loan is payable at a rate of 15% per year on the outstanding balance of the loan, which matures on March 9, 2016. Repayment of the principal and any accrued and outstanding interest is in monthly installments, beginning April 9, 2013.
Policies and Procedures for Related Person Transactions
Although we do not yet have any policies or procedures for the review, approval or ratification of transactions with related persons, we intend to implement such policies and procedures following the effectiveness of this Registration Statement.
Director Independence
We intend to form committees of our Board of Directors and satisfy the independence requirements applicable to us following the effectiveness of this Registration Statement.
ITEM 8. | LEGAL PROCEEDINGS. |
We are party to various claims and legal actions that arise in the ordinary course of business. We do not believe the outcome of such disputes or legal actions will have a material adverse effect on our financial condition, results of operations, liquidity or capital resources.
ITEM 9. | MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED EQUITY HOLDER MATTERS. |
Market Information
We have not yet issued any shares of Common Stock. Therefore, there is currently no established public trading market for our Common Stock, and there are no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in our Common Stock.
Holders
Please see Item 4. Security Ownership of Certain Beneficial Owners and Management for disclosure regarding the holders of our Common Stock.
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Distributions
We do not make, and do not anticipate making in the foreseeable future, any distributions on our Common Stock. The agreements that govern our outstanding indebtedness, including the Senior Secured Credit Facilities, restrict our ability to declare or make distributions on our Common Stock.
ITEM 10. | RECENT SALES OF UNREGISTERED SECURITIES. |
We have not yet issued any securities.
ITEM 11. | DESCRIPTION OF REGISTRANTS SECURITIES TO BE REGISTERED. |
The securities to be registered are shares of Common Stock of the Company, referred to in this Registration Statement as Common Stock. The rights of the Common Stock are set forth in the articles of incorporation and by-laws of the Company. The following description of the rights of holders of Common Stock is a summary and is qualified in its entirety by reference to the Companys articles of incorporation and by-laws.
Voting
Each share of Common Stock shall have one vote, and the Common Stock shall vote together as a single class. The Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, except as otherwise provided by law or by Board resolutions. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided in the articles of incorporation or the laws of the State of Delaware.
Dividends
The Board may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the Common Stock of the Company as and when they deem appropriate. Before declaring any dividend, there may be set apart out of any funds of the Company available for dividends, such sum or sums as the Board from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board shall deem conducive to the interests of the Company.
Amendments to the By-laws
The by-laws of the Company may be amended at any annual or special meeting of the stockholders by the affirmative vote of the holders of shares constituting a majority of Common Stock. The Board may also, by majority vote of those directors present at any meeting at which a quorum is present or by written consent, amend the by-laws of the Company or enact such other by-laws as in their judgment may be advisable for the regulation and conduct of the affairs of the Company.
Preferred Stock
The articles of incorporation of the Company authorize the Board to issue one or more series of preferred stock from time to time. The Board is authorized to fix the voting rights, if any, designations, powers, preferences and the relative, participation, optional or other rights, if any, and the qualification, limitations or restrictions thereof, of any unissued series of preferred stock, and to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series. We currently do not have any shares of preferred stock issued and outstanding.
63
ITEM 12. | INDEMNIFICATION OF DIRECTORS AND OFFICERS. |
The articles of incorporation provides that the Company shall indemnify and hold harmless present and former directors or officers of the Company and persons serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, from and against all expense, liability and loss reasonably incurred or suffered by such person in connection with any action, suit or proceeding such person was or is made a party to or is threatened to be made a party to or is involved in, whether civil, criminal, administrative or investigative, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Company shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the Board of the Company.
This right to indemnification includes the right of the expenses incurred by an indemnified party in defending any such proceeding in advance of its final disposition to be paid by the Company. If a claim is not pain in full by the Company within 30 days after the Company receives a written claim, the indemnified party may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, if successful in whole or in part, the indemnified party shall be entitled to be paid also the expense of prosecuting such claim.
The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another company, corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss.
ITEM 13. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
See Item 15. Financial Statements and Exhibits.
ITEM 14. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 15. | FINANCIAL STATEMENTS AND EXHIBITS. |
(a) | Financial Statements: |
A. AGS Capital, LLC Audited Consolidated Financial Statements |
||||
F-1 | ||||
Consolidated Balance Sheets as of December 31, 2012 and 2011 |
F-3 | |||
F-4 | ||||
Consolidated Statements of Members Deficit for the years ended December 31, 2012, 2011 and 2010 |
F-5 | |||
Consolidated Statements of Cash Flows for years ended December 31, 2012, 2011 and 2010 |
F-6 | |||
F-7 | ||||
B. AGS Capital, LLC Unaudited Interim Consolidated Financial Statements |
||||
Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 |
F-25 | |||
F-26 | ||||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 |
F-27 | |||
F-28 |
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(b) | Exhibits: |
Exhibit Number |
Exhibit Description |
|
2.1 | Amended and Restated Equity Purchase Agreement by and among AGS Capital, LLC, AGS Holdings, LLC and AP Gaming Acquisition, LLC, dated December 3, 2013. | |
3.1 | Articles of Incorporation of AP Gaming Holdco, Inc. | |
3.2 | Bylaws of AP Gaming Holdco, Inc. | |
10.1 | 2011 Managerial Bonus Plan. | |
10.2 | 2012 Managerial Incentive Plan. | |
10.3 | 2013 Managerial Incentive Plan. | |
10.4 | AGS Holdings, LLC Phantom Units Plan. | |
10.5 | Employment Agreement between American Gaming Systems, LLC and Robert Miodunski, dated June 2, 2010. | |
10.6 | First Amendment to June 2, 2010 Employment Agreement between American Gaming Systems, LLC and Robert Miodunski, dated November 28, 2011. | |
10.7 | Second Amendment to June 2, 2010 Employment Agreement between American Gaming Systems, LLC and Robert Miodunski, dated March 21, 2013. | |
10.8 | Non-Disclosure, Non-Solicitation and Covenant Not to Compete Agreement between AGS LLC and Robert Miodunski, dated June 24, 2010. | |
10.9 | Phantom Units Certificate between AGS Holdings, LLC and Robert Miodunski, dated August 16, 2012. | |
10.10 | First Amendment to Phantom Units Grant between AGS Holdings, LLC and Robert Miodunski, dated April 1, 2013. | |
10.11 | Employment Agreement between American Gaming Systems, LLC and Curt Mayer, dated June 23, 2011. | |
10.12 | First Amendment to June 23, 2011 Employment Agreement between American Gaming Systems, LLC and Curt Mayer, dated March 18, 2013. | |
10.13 | Non-Disclosure, Non-Solicitation and Covenant Not to Compete Agreement between AGS LLC and Curt Mayer, dated June 23, 2011. | |
10.14 | Phantom Units Certificate between AGS Holding, LLC and Curt Mayer, dated August 16, 2012. | |
10.15 | Employment Agreement between AGS LLC and Paul Lofgren, dated September 28, 2010. | |
10.16 | Phantom Units Certificate between AGS Holdings, LLC and Paul Lofgren, dated August 16, 2012. | |
10.17 | First Amendment to Phantom Units Grant between AGS Holdings, LLC and Paul Lofgren, dated April 1, 2013. | |
10.18 | Credit Agreement dated as of August 15, 2012, by and among AGS LLC, as Borrower, AGS Capital, LLC, AGS Partners, LLC and the other guarantors party hereto, as Guarantors, the lenders party hereto, UBS Securities LLC, as Arranger, Bookmanager and Syndication Agent and UBS AG, Stamford Branch, as Administrative Agent and Collateral Agent. |
65
Exhibit Number |
Exhibit Description |
|
10.19 | First Amendment to Credit Agreement dated as of April 16, 2013, by and among AGS LLC, as Borrower, AGS Capital, LLC, AGS Partners, LLC and the other guarantors party hereto, as Guarantors, the lenders party hereto, UBS Securities LLC, as Arranger, Bookmanager and Syndication Agent and UBS AG, Stamford Branch, as Administrative Agent and Collateral Agent. | |
21.1 | Subsidiaries of AP Gaming Holdco, Inc. |
66
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: December 19, 2013
AP GAMING HOLDCO, INC. | ||
By: | /s/ David Sambur | |
Name: David Sambur | ||
Title: Chief Executive Officer |
Report of Independent Registered Public Accounting Firm
The Board of Managers of
AGS Capital, LLC
We have audited the accompanying consolidated balance sheet of AGS Capital, LLC (Company) as of December 31, 2012, and the related consolidated statements of operations and comprehensive loss, members deficit and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AGS Capital, LLC at December 31, 2012, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Las Vegas, Nevada
December 17, 2013
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Managers of AGS Capital, LLC:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, of members deficit and of cash flows present fairly, in all material respects, the financial position of AGS Capital, LLC and its subsidiaries at December 31, 2011, and the results of their operations and their cash flows for the years ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP |
Las Vegas, Nevada |
May 25, 2012 |
F-2
AGS Capital, LLC
(A limited liability company)
As of | ||||||||
December 31,
2012 |
December 31,
2011 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 6,545,282 | $ | 10,786,609 | ||||
Restricted cash |
200,000 | 200,000 | ||||||
Trade accounts receivable, net of allowance of $.5 million and $1.7 million, respectively |
7,949,287 | 6,769,592 | ||||||
Notes receivablecurrent portion |
2,394,149 | 2,760,694 | ||||||
Inventories, net |
5,376,581 | 2,650,802 | ||||||
Prepaid expenses |
874,575 | 903,608 | ||||||
Deposits and other |
1,837,437 | 882,139 | ||||||
|
|
|
|
|||||
Total current assets |
25,177,311 | 24,953,444 | ||||||
|
|
|
|
|||||
Gaming equipment, vehicles and other equipment, net |
40,267,363 | 36,887,386 | ||||||
Notes receivable, net of current portion, less allowance for doubtful accounts of $.4 million and $8.9 million, respectively |
10,047,966 | 6,825,744 | ||||||
Deferred loan costs, net |
5,391,841 | 1,435,496 | ||||||
Goodwill |
| 18,678,970 | ||||||
Intangible assets |
39,644,021 | 35,359,043 | ||||||
Canadian tax receivable |
3,369,905 | 3,511,212 | ||||||
Other assets |
1,668,279 | 951,890 | ||||||
|
|
|
|
|||||
Total other assets |
60,122,012 | 66,762,355 | ||||||
|
|
|
|
|||||
Total assets |
$ | 125,566,686 | $ | 128,603,185 | ||||
|
|
|
|
|||||
Liabilities and Members Deficit |
||||||||
Current liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 5,269,033 | $ | 8,051,928 | ||||
Due to related party |
66,436 | | ||||||
Accrued interest |
2,016,597 | | ||||||
Customer deposits on gaming machine leases |
421,565 | 421,565 | ||||||
Current maturities of long-term debt |
382,972 | 35,391,339 | ||||||
|
|
|
|
|||||
Total current liabilities |
8,156,603 | 43,864,832 | ||||||
|
|
|
|
|||||
Phantom unit-plan liability |
1,582,736 | 929,140 | ||||||
Long-term debt payable to a related party |
| 10,000,000 | ||||||
Long-term debt |
117,768,326 | 96,283,203 | ||||||
|
|
|
|
|||||
Total liabilities |
127,507,665 | 151,077,175 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Members deficit |
||||||||
Members capital |
136,672,633 | 75,985,115 | ||||||
Accumulated deficit |
(139,138,386 | ) | (98,927,401 | ) | ||||
Accumulated other comprehensive income |
524,774 | 468,296 | ||||||
|
|
|
|
|||||
Total members deficit |
(1,940,979 | ) | (22,473,990 | ) | ||||
|
|
|
|
|||||
Total liabilities and members deficit |
$ | 125,566,686 | $ | 128,603,185 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
AGS Capital, LLC
Consolidated Statements of Operations and Comprehensive Loss
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Revenues |
||||||||||||
Gaming revenue |
$ | 54,029,397 | $ | 52,659,644 | $ | 55,021,164 | ||||||
Gaming revenueother |
3,762,752 | 4,270,598 | 3,803,705 | |||||||||
Equipment sales |
762,958 | 2,715,580 | 2,978,754 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
58,555,107 | 59,645,822 | 61,803,623 | |||||||||
|
|
|
|
|
|
|||||||
Operating expenses |
||||||||||||
Gaming operating expenses |
11,515,204 | 16,091,095 | 18,583,022 | |||||||||
Cost of equipment sales |
395,181 | 1,060,693 | 1,504,550 | |||||||||
Loss (gain) on disposition of assets |
450,858 | 175,626 | (29,237 | ) | ||||||||
General and administrative |
14,349,749 | 13,345,198 | 22,378,391 | |||||||||
Phantom unit compensation |
653,596 | 929,140 | | |||||||||
Selling and marketing |
3,442,549 | 3,345,540 | 4,135,531 | |||||||||
Impairment of long lived assets |
2,711,412 | 803,506 | | |||||||||
Impairment of intangibles |
3,686,414 | | | |||||||||
Impairment of goodwill |
18,678,970 | | | |||||||||
Write downs and other charges |
3,663,886 | 2,249,436 | | |||||||||
Depreciation and amortization |
29,454,038 | 23,643,662 | 22,844,087 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
89,001,857 | 61,643,896 | 69,416,344 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(30,446,750 | ) | (1,998,074 | ) | (7,612,721 | ) | ||||||
Other expense (income) |
||||||||||||
Interest expense |
10,269,667 | 5,832,937 | 5,860,549 | |||||||||
Interest income |
(439,140 | ) | (512,299 | ) | (648,129 | ) | ||||||
Other (income) expense |
(66,292 | ) | 293,730 | (167,000 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(40,210,985 | ) | (7,612,442 | ) | (12,658,141 | ) | ||||||
Foreign currency translation adjustment |
56,478 | (48,496 | ) | 18,220 | ||||||||
|
|
|
|
|
|
|||||||
Total comprehensive loss |
$ | (40,154,507 | ) | $ | (7,660,938 | ) | $ | (12,639,921 | ) | |||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
AGS Capital, LLC
(A limited liability company)
Consolidated Statements of Members Deficit
For the years ended December 31, 2012 and 2011
Members
Capital |
Receivable
from Member |
Accumulated
Deficit |
Accumulated
Other Comprehensive Income |
Total
Members Deficit |
||||||||||||||||
Balance at January 1, 2010 |
$ | 50,301,913 | $ | | $ | (78,656,818 | ) | $ | 498,572 | $ | (27,856,333 | ) | ||||||||
Capital contributions |
16,699,266 | | | | 16,699,266 | |||||||||||||||
Receivable from member |
| (1,988,759 | ) | | | (1,988,759 | ) | |||||||||||||
Repurchase of member interest |
(2,815,000 | ) | | | | (2,815,000 | ) | |||||||||||||
Comprehensive loss |
||||||||||||||||||||
Net loss |
| | (12,658,141 | ) | | (12,658,141 | ) | |||||||||||||
Foreign currency translation adjustment |
| | | 18,220 | 18,220 | |||||||||||||||
|
|
|||||||||||||||||||
Total comprehensive loss |
| | | | (12,639,921 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2010 |
64,186,179 | (1,988,759 | ) | (91,314,959 | ) | 516,792 | (28,600,747 | ) | ||||||||||||
Cancellation of receivable from member |
(1,988,759 | ) | 1,988,759 | | | | ||||||||||||||
Capital contributions |
13,787,695 | | | | 13,787,695 | |||||||||||||||
Comprehensive loss |
||||||||||||||||||||
Net loss |
| | (7,612,442 | ) | | (7,612,442 | ) | |||||||||||||
Foreign currency translation adjustment |
| | | (48,496 | ) | (48,496 | ) | |||||||||||||
|
|
|||||||||||||||||||
Total comprehensive loss |
| | | | (7,660,938 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2011 |
75,985,115 | | (98,927,401 | ) | 468,296 | (22,473,990 | ) | |||||||||||||
Capital contributions |
60,687,518 | | | | 60,687,518 | |||||||||||||||
Comprehensive loss |
||||||||||||||||||||
Net loss |
| | (40,210,985 | ) | | (40,210,985 | ) | |||||||||||||
Foreign currency translation adjustment |
| | | 56,478 | 56,478 | |||||||||||||||
|
|
|||||||||||||||||||
Total comprehensive loss |
| | | | (40,154,507 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2012 |
$ | 136,672,633 | $ | | $ | (139,138,386 | ) | $ | 524,774 | $ | (1,940,979 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
AGS Capital, LLC
(A limited liability company)
Consolidated Statements of Cash Flows
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net loss |
$ | (40,210,985 | ) | $ | (7,612,442 | ) | $ | (12,658,141 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities |
||||||||||||
Depreciation and amortization |
29,454,038 | 23,643,662 | 22,844,087 | |||||||||
Accretion of contract rights under development agreements and customer agreements |
3,932,851 | 4,296,329 | 2,987,910 | |||||||||
Amortization of deferred loan costs and discount |
1,620,562 | 796,962 | 796,962 | |||||||||
Provision for bad debts |
265,273 | 320,656 | 9,458,134 | |||||||||
Interest income from imputed interest |
(331,006 | ) | (367,160 | ) | (377,563 | ) | ||||||
Loss (gain) on sale of capital assets |
450,858 | 175,626 | (29,237 | ) | ||||||||
Impairment of long lived assets |
2,711,412 | 803,506 | | |||||||||
Impairment of intangible assets |
3,686,414 | | | |||||||||
Impairment of goodwill |
18,678,970 | | | |||||||||
Phantom unit plan compensation |
653,596 | 929,140 | | |||||||||
Write off of deferred loan costs |
3,013,886 | 2,249,436 | | |||||||||
Non-cash contract rights under development agreements |
(108,243 | ) | (1,168,293 | ) | | |||||||
Changes in assets and liabilities that relate to operations |
||||||||||||
(Increase) decrease in trade accounts receivable and notes receivable |
338,699 | 1,709,788 | (2,108,638 | ) | ||||||||
Decrease in accounts and notes receivablerelated parties |
| | 2,428,592 | |||||||||
Increase in note receivablerelated party |
| | (141,317 | ) | ||||||||
(Increase) decrease in inventories, net |
(2,725,779 | ) | 862,961 | 1,838,726 | ||||||||
(Increase) decrease in prepaid expenses |
(203,594 | ) | 131,684 | (376,294 | ) | |||||||
(Increase) decrease in deposits and other |
(955,298 | ) | (764,763 | ) | 12,566 | |||||||
Increase in other assets, non-current |
(718,133 | ) | (951,890 | ) | | |||||||
Decrease in accounts payable and accrued liabilities |
(2,787,046 | ) | (2,937,772 | ) | (2,794,622 | ) | ||||||
Decrease in accounts payablerelated parties |
| | (116,574 | ) | ||||||||
Increase in due to related party |
66,436 | | | |||||||||
Increase in accrued interest |
2,016,597 | | | |||||||||
Decrease in customer deposits on gaming machine leases |
| (170,000 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
18,849,508 | 21,947,430 | 21,764,591 | |||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities |
||||||||||||
Advances under notes receivable |
(7,488,468 | ) | (4,245,867 | ) | (1,455,250 | ) | ||||||
Collections under notes receivable |
3,196,142 | 4,037,949 | 2,189,815 | |||||||||
Increase in Canadian tax receivable |
(958,832 | ) | (2,427,184 | ) | (1,180,147 | ) | ||||||
Payments received for Canadian tax refund |
1,180,856 | | | |||||||||
Purchases of intangible assets |
(22,927,268 | ) | (6,870,097 | ) | (13,199,318 | ) | ||||||
Software development and other |
(3,834,392 | ) | (2,483,132 | ) | (6,536,584 | ) | ||||||
Proceeds from sale of assets |
141,427 | 116,636 | 39,237 | |||||||||
Purchases of gaming equipment, vehicles and other equipment |
(21,085,605 | ) | (14,333,803 | ) | (12,411,275 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(51,776,140 | ) | (26,205,498 | ) | (32,553,522 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities |
||||||||||||
Member contributions |
50,687,518 | 13,787,695 | 16,699,265 | |||||||||
Repurchase of members interest |
| | (2,815,000 | ) | ||||||||
Increase in receivable from member |
| | (1,242,824 | ) | ||||||||
Payments under notes payable |
(600,680 | ) | (230,738 | ) | | |||||||
Borrowings under bank credit facility |
117,300,000 | 3,800,000 | 6,000,000 | |||||||||
Repayments on bank credit facility |
(130,625,738 | ) | (7,529,169 | ) | (6,152,529 | ) | ||||||
Payment of deferred loan costs |
(7,954,726 | ) | (2,589,110 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
28,806,374 | 7,238,678 | 12,488,912 | |||||||||
Effect of exchange rates on cash and cash equivalents |
(121,069 | ) | (322,146 | ) | 3,368 | |||||||
|
|
|
|
|
|
|||||||
(Decrease) increase in cash and cash equivalents |
(4,241,327 | ) | 2,658,464 | 1,703,349 | ||||||||
Cash and cash equivalents, beginning of period |
10,786,609 | 8,128,145 | 6,424,796 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 6,545,282 | $ | 10,786,609 | $ | 8,128,145 | ||||||
|
|
|
|
|
|
|||||||
Supplemental cash flow informationCash paid during the period for interest |
$ | 6,632,508 | $ | 5,020,088 | $ | 5,043,319 | ||||||
|
|
|
|
|
|
|||||||
Non-cash investing and financing activities: |
||||||||||||
Extinguishment of related party debt |
$ | (10,000,000 | ) | $ | | $ | | |||||
Financed purchase of equipment |
$ | | $ | 1,279,540 | $ | | ||||||
Acquisition of purchased software in accrued liabilities |
$ | | $ | 1,750,000 | $ | | ||||||
Capital expenditures in accrued liabilities |
$ | | $ | 832,806 | $ | | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
1. Organization and Business
AGS Capital, LLC (the Company) was formed in Delaware on September 8, 2005. The Company is a limited liability company with the following owned subsidiaries, AGS LLC (AGS), AGS Partners, LLC (Partners), AGS Financing Corp. (Financing), AGS Illinois LLLP (AGS IL) and American Gaming Systems Toronto, Ltd., f/k/a GTNA Solutions Corp. (collectively, AGS Toronto). The Company is a subsidiary of AGS Holdings, LLC which is a subsidiary of Alpine AGS, LLC. Although formed on September 8, 2005, the Company had no activity until September 20, 2005, the date Companys wholly owned subsidiary, AGS LLC, acquired assets of Clapper Enterprises, Inc. and Worldwide Game Technology Corp. The Company operates in a single business segment and is a designer, manufacturer, distributor and operator of Class II and Class III gaming machines located in Native American and other gaming facilities. Capitals gaming systems are typically provided to customers under revenue-sharing arrangements, but are also sold outright directly to customers. The Company offers content for its gaming systems that has been designed and developed by the Company, as well as game themes it has licensed from others. Partners was formed on June 22, 2006, and on June 29, 2006, Partners acquired certain assets of Aurora Gaming, Inc., Integrity Gaming, Inc. and Integrity Gaming Nevada, LLC (Integrity). BOL Finance, LLC (BOL) was formed by the Company on August 8, 2008, to finance distributors operating in Louisiana. It was capitalized through a note payable to the Company. AGS Toronto was formed on July 11, 2008, and capitalized through debt and equity contributions from the Company. AGS Toronto acquired certain assets of Gametronics, Inc. and Phone-Sweeps, Inc. on November 10, 2008. BOL was dissolved during 2011.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of AGS Capital, LLC and its wholly owned subsidiaries, AGS, Partners, BOL and GTNA. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.
Revenue Recognition
The majority of the Companys gaming revenue is of a recurring nature and is generated by providing customers with gaming terminals, gaming terminal content licenses and back-office equipment, which are collectively referred to as gaming equipment, under participation arrangements. Under these arrangements, the Company retains ownership of the gaming equipment installed at customer facilities, and receives revenue based on a percentage of the win per day generated by the gaming equipment. Certain arrangements require a portion of the facilities win per day to be set aside to be used to fund facility-specific marketing, advertising, promotions and service. These amounts are offset against revenue. Licensing revenue generated from the use of the Companys software is recognized when earned and reported.
F-7
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Revenues from the stand-alone product sales or separate accounting units are recorded when:
| Persuasive evidence of an arrangement exists; |
| The sales price is fixed and determinable; |
| Delivery has occurred and services have been rendered; and |
| Collectability is probable. |
Cash and Cash Equivalents
Cash and equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of 90 days or less.
Restricted Cash
Restricted cash amounts represent funds held in escrow as collateral for the Companys surety bonds for various gaming authorities.
Notes Receivable and Development Agreements
The Company enters into development agreements to provide financing for new tribal gaming facilities, or for the expansion of existing facilities. In return, the customer commits to a fixed number of gaming terminal placements in the facility, and the Company receives a fixed percentage of those gaming terminals win per day over the term of the agreement or a daily fee per gaming terminal. Certain agreements contain performance standards for the gaming terminals that could allow the facility to reduce a portion of the guaranteed floor space. The agreements typically provide for a portion of the amounts retained by the gaming facility for their share of the win to be used for repayment of some or all of the advances. Amounts advanced in excess of those reimbursed by the customer for real property and land improvements are allocated to intangible assets and amortized over the life of the contract. Interest income related to notes receivable is recorded as interest income in the Consolidated Statement of Operations and Comprehensive Loss.
Generally, the Company utilizes the term of a contract to amortize the intangible assets associated with development agreements. The Company reviews the carrying value of these contract rights at least annually, or whenever changes in circumstances indicate the carrying value of these assets may not be recoverable. While management believes that the estimates and assumptions used in evaluating the carrying value of these assets are reasonable, different assumptions could materially affect either the carrying value or the estimated useful lives of the contract rights.
The Company assesses the impairment of notes and development agreements receivables whenever events or changes in circumstances indicate the carry value may not be realized. Impairment is measured based on the present value of the expected future cashflows and is recorded as bad debt expense in the period of assessment. The Company has not recorded any impairment for notes or development agreements for the years end December 31, 2012, 2011 and 2010, respectively.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts related to the accounts receivable and notes receivable that have been deemed to have a high risk of collectability. The Company reviews the accounts
F-8
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes that have their reservations and gaming operations in the state of Oklahoma, and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for both trade and notes receivable.
Inventories
Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment. Inventories are stated at the lower of cost or market. Cost of inventories is determined using the first-in, first-out (FIFO) method for all components of inventory. The Company regularly reviews inventory quantities and update estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value.
Gaming Equipment, Vehicles and Other Equipment
The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as vehicles and other equipment, is depreciated over their estimated useful lives, generally using the straight-line method for financial reporting. Repairs and maintenance costs are expensed as incurred. The Company annually evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:
Gaming equipment deployed |
4 to 5 years | |||
Vehicles and other equipment |
3 to 7 years |
The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Companys policy is to provide reserves, when necessary, for excess or obsolete gaming terminals on hand that it does not expect to be used. Reserves are based upon several factors, including estimated forecast of gaming terminal demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition. The Company recognized an impairment charge for obsolete gaming terminals since the carrying amount was greater than fair value of $2,711,412, $803,506, and $0 for the years ending December 31, 2012, 2011, and 2010, respectively.
Intangible Assets
The Company reviews its long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for long-lived assets and identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets
F-9
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The Company recognized an impairment charge of $3,686,414 for the year end December 31, 2012. Of this total, $2,859,330 related to adjusting the net carrying value of the cashless gaming system licenses required to operate certain gaming machines. The remaining amount related to customer agreements and internally developed software associated with a licensing agreement held by AGS Toronto which the Company terminated in March 2013. These assets have no future value and were written off accordingly.
Goodwill
The Company is required to perform an annual goodwill impairment review, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. Goodwill is reviewed for possible impairment annually on September 30 of each year or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, or a loss of key personnel. During the Companys impairment testing for the year ended December 31, 2012, the Company recorded an impairment charge of $18,678,970 which amounted to the entire balance of goodwill. The impairment is a result of the combination of an increase in our weighted average cost of capital primarily related to the increased interest rate related to the 2012 UBS debt and reduced projected revenue within our long-term operating plan.
Deferred Loan Costs
Deferred loan costs consist of various debt issuance costs and are being amortized on the effective-interest method over the life of the related loans. Loan cost amortization expense of $1,620,562, $796,962, and $796,962 is included in interest expense in the Companys statement of operations and comprehensive loss for the years ended December 31, 2012, 2011, and 2010, respectively.
Customer Deposits on Gaming Machine Leases
The Company held deposits totaling $421,565 at December 31, 2012 and 2011 from third- party distributors as deposits on gaming machines leases.
Accounting for Income Taxes
The Company is a limited liability company treated as a disregarded entity for federal and state income tax purposes. As a result, any federal (and most state) items of income or loss, and any income tax credits, are passed through to our ultimate owner for inclusion in its individual income tax returns. Prior to March 2010, the Company was a partnership for federal and state income tax purposes. Accordingly, no provision for federal or state income taxes is included in the consolidated financial statements. However, the Company is subject to certain foreign income taxes incurred by its Canadian subsidiary.
The Companys tax returns are subject to examination by federal and state authorities. If such examinations occur and result in changes with respect to any partnership qualifications or changes to distributable income or loss, the tax liability of the members may be changed accordingly.
Costs of Computer Software
Internally developed gaming software is accounted for under FASB ASC Topic 985-20, Costs of Software to Be Sold, Leased or Marketed , and is stated at cost, which is amortized over the estimated useful lives of the
F-10
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
software, generally using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made.
Research and Development
The Company conducts research and development activities primarily to develop new gaming platforms and gaming content. These research and development costs consist primarily of salaries and benefits and are expensed as incurred. Once the technological feasibility of a project has been established, capitalization of development costs begins until the product is available for general release. Research and development expenses were $1,199,248, $681,434, and $353,252 for the years ended December 31, 2012, 2011, and 2010, respectively and is included as a component of general and administrative expense.
Contingencies
The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from managements estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, trade receivables and note receivable. Cash equivalents are investment-grade, short-term debt instruments consisting of treasury bills which are maintained with high credit quality financial institutions under repurchase agreements. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits.
The Companys gaming revenue customers are concentrated in the Class II gaming and casino industry and are located primarily in Oklahoma. Certain Native American tribes or their gaming enterprise and certain commercial locations comprise a significant component of the Companys total gaming revenue or trade receivables. However, the Company also conducts business through distributor relationships, some of which act as a collection agent. The following gaming revenue and trade receivable concentrations existed at December 31, 2012 and 2011:
2012 | 2011 | |||||||
Gaming revenue |
||||||||
Customer A |
35 | % | 34 | % | ||||
Customer B |
9 | % | 9 | % | ||||
Trade receivable |
||||||||
Customer A |
10 | % | 16 | % | ||||
Customer B |
7 | % | 8 | % | ||||
Customer C |
1 | % | 1 | % | ||||
Customer D |
1 | % | 1 | % | ||||
Customer E |
2 | % | 4 | % | ||||
Customer F |
8 | % | 0 | % | ||||
Customer G |
7 | % | 4 | % |
F-11
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Supplier Dependence
The Companys gaming equipment operates primarily on software developed by Bluberi Gaming Technologies, Inc. (formerly Labtronix Group Inc.) (Bluberi). Bluberi provides PC boards for the Companys manufactured gaming machines featuring Bluberi software content, as well as server hardware for each customer location with gaming machines operating on Bluberi software. Up until May 2012, the Company paid Bluberi a licensing fee equal to 20% of revenue earned related to games placed in casinos which operate with Bluberi software content, which gives the Company the rights to operate select game titles and related PC boards and server hardware. On January 9, 2012, the Company entered into a definitive agreement with Bluberi to purchase all of Bluberis right, title and interest in certain game titles (see note 5). The Gametronics acquisition in 2008 enables the Company to develop software if Bluberi were unable to fulfill its duties under this arrangement. Although the Company believes that it could locate a substitute software developer, any such replacement would involve some delay and the Company may not be able to maintain operation of its terminals without significant interruption. Any failure of the Company to maintain operation of its gaming terminals could have a material adverse effect on its business, results of operations and financial condition.
Foreign Currency Translation
The financial statements of the Companys Canadian subsidiary are translated into U.S. dollars at the year-end rate of exchange for asset and liability accounts and the average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in members deficit.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for 2012, 2011, and 2010 were $252,632, $350,862, and $199,000, respectively.
Recently Issued Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update 2012-02, IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, (ASU 2012-02). ASU 2012-02 amends the guidance in Accounting Standards Codification 350-302 on testing indefinite-lived intangible assets, other than goodwill, for impairment by allowing an entity to perform a qualitative impairment assessment before proceeding to the two-step impairment test. If the entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than not (i.e., a likelihood of more than 50 percent) impaired, the entity would not need to calculate the fair value of the asset. In addition, ASU 2012-02 does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances; however, it does revise the examples of events and circumstances that an entity should consider in interim periods. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption being permitted. The adoption of this standard will not have a material effect on the Companys financial position or results of operations.
In June 2011, FASB issued an ASU on presentation of comprehensive income to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This update changes the requirements for the presentation of other comprehensive income, eliminating the option to present components of other comprehensive income as part of the statement of
F-12
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
stockholders equity, among other items. The guidance requires that all non-owner changes in stockholders equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments are effective for fiscal years ending after December 15, 2012 for the Company. This pronouncement did not have a material effect on the Companys financial statements.
In September 2011, the FASB amended ASC 350, IntangiblesGoodwill and Others, to simplify the assessment of goodwill impairment and became effective for the Company for fiscal years beginning after December 15, 2011. The amended guidance allows the Company to do an initial qualitative assessment of relative events and circumstances to determine if fair value of a reporting unit is more likely than not less than its carrying value, prior to performing the two-step quantitative goodwill impairment test. The Company adopted the amended guidance for its September 30, 2011 measurement date and it did not have a material effect on its financial statements.
3. Notes Receivable
At December 31, 2012 and 2011, notes receivable consisted of the following:
2012 | 2011 | |||||||
Note A |
$ | 671,032 | $ | 2,483,511 | ||||
Note B |
1,059,907 | 1,332,072 | ||||||
Note C |
8,932,000 | 2,250,000 | ||||||
Note D |
1,049,869 | 1,043,400 | ||||||
Other, net |
729,307 | 2,477,455 | ||||||
|
|
|
|
|||||
Total notes receivable, net |
12,442,115 | 9,586,438 | ||||||
Less: Current portion |
(2,394,149 | ) | (2,760,694 | ) | ||||
|
|
|
|
|||||
Notes receivablelong term |
$ | 10,047,966 | $ | 6,825,744 | ||||
|
|
|
|
Note A
On June 14, 2007, the Company committed to a significant, existing tribal customer to provide $18,750,000 for part of the funding for a facility expansion. In return, the Company received the right to approximately 10% of the additional 4,000 gaming units expected to be placed in the expanded facility. The agreement allows the customer to buy out the Companys right to floor space after the note has been repaid. The Company advanced its total commitment of $18,750,000 in 2007. On September 4, 2008, the agreement was amended to reduce the development funding from $18,750,000 to $9,375,000 in return for a reduction in the number of gaming units to be placed in the facility, from 10% of total expected units to 5%. The Company paid $150,000 to modify the agreement and was repaid $9,375,000 in 2008. In addition, the Company recorded a $532,980 loss in 2008 on restructuring of the note receivable that was due primarily from the difference in value between the unamortized intangible asset and the unearned discount for the receivable at the time that the agreement was restructured. The amended development agreement specifies that the note receivable will be repaid out of net profits, as defined in the agreement, in excess of $9,000,000 per month. As the collections on the note are received and the expected timing of the payments is re-evaluated, the imputed interest rate earned is evaluated and may change. Based upon the trend of collections to date and expected future collection, the imputed interest rate approximates 20.6% at December 31, 2012. The Company recorded $238,577, $283,000, and $359,000 of imputed interest during the years ended December 31, 2012, 2011, and 2010, respectively. As of December 31, 2012 and 2011, the balance of the note receivable has been reduced by an unamortized discount of $45,726 and $284,303, respectively.
F-13
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Note B
On September 20, 2010, the Company entered into a development agreement and committed $1,455,250 to an existing tribal customer to provide part of the funding for the development and construction of a gaming facility in Oklahoma. In return, the Company received the right to approximately 20% of the new square footage of all Available Gaming Floor Space in the Project, as defined, provided that in no event the Company will have no more or less than 50 gaming units for a period of six years and eleven months subject to certain performance criteria, as defined. The agreement allows the customer to buy out the Companys right to floor space after the note has been repaid. The amended development agreement specifies that the note receivable will be repaid out of the Net Profits, as defined in the agreement, in excess of $500,000 per month. As the collections on the note are received and the expected timing of the payments is re-evaluated, the imputed interest rate earned is evaluated and may change. Based upon the trend of collections to date and expected future collection, the imputed interest rate approximates 4.5%. The Company recorded $72,918, $17,292 and $0 of imputed interest during the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012 and 2011, the balance of the note receivable has been reduced by an unamortized discount of $50,261 and $123,178, respectively.
Note C
On December 15, 2010 and further amended on November 17, 2011 and December 8, 2011, the Company entered into an agreement to loan funds not to exceed $2,250,000 with a company that intends to operate and service slot routes in Illinois. As of December 31, 2011, the Company has fully funded the loan under this agreement. Full funding of the loan was predicated on the route operator acquiring the rights to place VGTs at a minimum of 135 locations pursuant to Use Agreements, as defined. On March 6, 2012, the Company executed an Amended and Restated Loan Agreement (Restated Loan) with the holder of Note C. The Restated Loan provides for a Route Acquisition Tranche of $4,650,000 and an operational tranche of $750,000. The Restated Loan was amended July 25, 2012 to increase the operational tranche to $950,000. On October 25, 2012 the Company assumed a loan agreement of $1,864,500 from a related party. On December 20, 2012, the Company extended a second operational tranche for $1,417,500 and as well as the Vault Promissory Note for $467,500 for funds to acquire certain route equipment.
Interest is payable at a rate of 13% or 15% for various notes, on the outstanding balance until the note matures on dates ranging from March 9, 2016 to December 31, 2016. Repayment of the note principal and interest will be in monthly installments and will begin at various dates. The Company is recognizing interest income on percentage basis of live units to expected total deployments.
Note D
On January 12, 2011 and March 10, 2011, the Company loaned $864,000 and $197,400, respectively, in exchange for promissory notes to an entity. Interest on the notes accrues at a rate of 5% until the date that routine gaming operations commence at which point the interest rate will increase to 10% and the entity will be required to commence 60 monthly principal and interest installments. All accrued and unpaid interest prior to the first payment of principal must be paid on this day as well. The Company is recognizing interest income on percentage basis of live units to expected total deployments. The Company retains a claim on the general assets of the entity as collateral.
F-14
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
On March 30, 2012, the holder of Note C entered into a management agreement with the holder of Note D to manage the routes acquired by the holder of Note D. As part of that agreement, the holder of Note C assumed the holder of Note Ds obligation to the Company through the execution of a Loan Assumption and Release Agreement dated March 30, 2012.
Other Notes Receivable
Other notes receivable represent arrangements with other customers related to the Companys advances for the construction and development of casino expansions or the Companys financing of the sale of gaming machines to customers. Interest rates and maturities of the notes vary as do principal and interest payments. The Company assesses collectability under these agreements and reserves for estimated uncollectible amounts.
4. Contract rights under development agreements and customer agreements
The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are not reimbursed. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. For the years ended December 31, 2012, 2011 and 2010, $3,932,851, $4,296,329 and $2,987,910, respectively were recorded as a reduction of revenue as accretion of contract rights under development agreements and customer agreements.
The following amounts related to development agreements and placement fee agreements are including in the following balance sheet items:
As of
December 31, 2012 |
As of
December 31, 2011 |
|||||||
Notes receivable, net |
$ | 11,782,808 | $ | 7,428,168 | ||||
Contract rights under development agreements and customer agreements, net |
$ | 11,973,298 | $ | 15,075,714 |
5. Gaming Equipment, Vehicles and Other Equipment
Gaming equipment, vehicles and other equipment consist of the following at December 31, 2012 and 2011:
As of
December 31, 2012 |
As of
December 31, 2011 |
|||||||
Gaming equipment |
$ | 77,559,874 | $ | 71,638,235 | ||||
Vehicles and other equipment |
12,988,667 | 12,036,706 | ||||||
Less: Accumulated depreciation |
(50,281,178 | ) | (46,787,555 | ) | ||||
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$ | 40,267,363 | $ | 36,887,386 | |||||
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Gaming equipment, vehicles and other equipment are depreciated over the respective useful lives of the assets ranging from three to seven years. Depreciation expense was $14,420,255, $12,366,061, and $11,006,700 for the years ended December 31, 2012, 2011, and 2010, respectively.
F-15
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
6. Goodwill and Intangibles
As of December 31, 2012 and 2011, the Companys intangible assets consisted of the following:
As of
December 31, 2012 |
As of
December 31, 2011 |
|||||||||||||||||||||||
Gross
Value |
Accumulated
Amortization |
Net
Carrying Value |
Gross
Value |
Accumulated
Amortization |
Net
Carrying Value |
|||||||||||||||||||
Contract rights under development agreements |
$ | 20,188,400 | $ | (14,462,485 | ) | $ | 5,725,915 | $ | 20,031,328 | $ | (11,813,466 | ) | $ | 8,217,862 | ||||||||||
Customer relationships |
32,222,850 | (31,634,026 | ) | 588,824 | 32,222,850 | (27,840,060 | ) | 4,382,790 | ||||||||||||||||
Customer agreement |
9,837,300 | (3,589,917 | ) | 6,247,383 | 9,292,770 | (2,434,918 | ) | 6,857,852 | ||||||||||||||||
Covenants not to compete |
525,745 | (524,692 | ) | 1,053 | 525,613 | (523,462 | ) | 2,151 | ||||||||||||||||
Third party licenses |
28,818,500 | (7,818,902 | ) | 20,999,598 | 8,500,000 | (2,375,000 | ) | 6,125,000 | ||||||||||||||||
Internally developed gaming software |
18,547,767 | (14,640,132 | ) | 3,907,635 | 15,027,870 | (11,459,441 | ) | 3,568,429 | ||||||||||||||||
Purchased software |
9,658,842 | (7,485,229 | ) | 2,173,613 | 11,024,588 | (4,819,629 | ) | 6,204,959 | ||||||||||||||||
Goodwill |
| | | 18,678,970 | | 18,678,970 | ||||||||||||||||||
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$ | 119,799,404 | $ | (80,155,383 | ) | $ | 39,644,021 | $ | 115,303,989 | $ | (61,265,976 | ) | $ | 54,038,013 | |||||||||||
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On January 9, 2012, the Company entered into a definitive agreement (the Definitive Agreement) with Bluberi Gaming Technologies, Inc. (Bluberi) pursuant to which the Company agreed to terminate its existing distribution agreement with Bluberi (the Existing Distribution Agreement) and to purchase all of Bluberis right, title and interest in certain game titles covered by the Existing Distribution Agreement (the Bluberi Transaction). In connection therewith, the Company agreed to pay $22.8 million to Bluberi and to enter into a five-year service agreement with Bluberi for which the Company would pay Bluberi a $2.0 million servicing fee paid ratably over the term of the service agreement and a one-time $1.0 million performance-based bonus. According to the Definitive Agreement, $3.5 million was due to Bluberi upon execution of the Definitive Agreement and $19.3 million (the Balance) was due no later than February 28, 2012 subject to certain restrictions as defined. At the Companys option, payment of the $19.3 million could be extended one month by paying $2.5 million (the First Option Payment) no later than February 28, 2012 and could be extended an additional month by paying $2.5 million (the Second Option Payment) no later than March 31, 2012 with both payments applying to the Balance. On March 27, 2012, an addendum to the Definitive Agreement was executed which eliminated the Second Option Payment and replaced it with payments of $500,000 due March 30, 2012, April 6, 2012, April 13, 2012, April 20, 2012 and April 27, 2012. On May 11, 2012, the Company made its final payment in accordance with the Definitive Agreement and its addendum using proceeds from the capital contribution (see Note 10).
On April 2, 2012, the Company entered into a Letter of Intent to purchase the assets of a video lottery terminal business for a total cash consideration of $5.0 million dollars. $1.8 million of the purchase price would be paid upon the execution of an asset purchase agreement and $3,000,000 would be paid at closing. On April 5, 2012, the Company paid a $200,000 (the Lock-up Fee) to secure a 60-day exclusivity period, to perform due diligence related to the acquisition. The Company also received a license for a game title as consideration for the Lock-up Fee. The payment of the Lock-up Fee is included as part of purchased software on the Companys consolidated financial statements. On May 31, 2012, the Company terminated its Letter of Intent for the acquisition and received a license for an additional game title.
F-16
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
On July 13, 2012, the Company entered into a contract rights under development agreement with a new tribal customer for the right to place 64 Class II games in exchange for a single up-front payment of $640,000. The amount will be amortized over the life of the agreement.
On October 31, 2011 AGS entered into a license agreement with GameTech International, Inc., a supplier of video gaming products. Under the terms of the agreement, AGS will have the exclusive right to market, sell, lease or sublicense five GameTech game titles in licensed establishments across the Illinois territory as defined in the Illinois Video Gaming Act. As consideration for these titles, AGS paid GameTech a non-refundable royalty fee of $1 million on November 9, 2011. In addition to the five titles, AGS will have the option to purchase more titles for a one-time royalty fee of $200,000 per title. This agreement will continue in perpetuity unless properly terminated by one or more of the parties involved pursuant to the terms of the agreement.
On January 24, 2011, the Company extended its revenue sharing agreement with a key customer. Under the agreement the Company paid $2,800,000 for and in consideration of extending the term of the agreement through May 1, 2016. In addition to the amount paid to the key customer, the Company also paid an outside consultant $600,000 toward obtaining the extension on the existing revenue sharing agreement.
On January 1, 2011, the Company modified three separate revenue sharing arrangements with a customer and consolidated them into a Joint Amendment to Agreements (Joint Amendment). Under the Joint Amendment, the Company will pay the customer up to $1,250,000 and extend the term under the Joint Amendment to December 31, 2014. As of December 31, 2011, the Company had paid approximately $1.2 million to the customer under the Joint Amendment.
Intangibles are amortized over the respective useful lives of the assets ranging from two to ten years. Amortization expense related to intangibles, inclusive of accretion of contract rights under development agreements and customer agreements, was $18,966,634, $15,573,930 and $14,825,297 for the years ended December 31, 2012, 2011 and 2010, respectively.
Amortization expense related to contract rights under development agreements and customer agreements, or accretion of contract rights under development agreements and customer agreements, is netted against gaming revenue in the accompanying statements of operation and other comprehensive loss.
The estimated amortization expense on software development, purchased software and intangible assets for each of the next five years and thereafter is as follows:
Years ended December 31, |
||||
2013 |
$ | 17,261,284 | ||
2014 |
13,337,055 | |||
2015 |
6,552,883 | |||
2016 |
1,243,361 | |||
2017 |
269,472 | |||
Thereafter |
979,966 |
F-17
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
7. Canadian Payroll Tax Receivable
Certain Company expenditures incurred through its subsidiary AGS Toronto are eligible for the Ontario Interactive Digital Media Tax Credit (OIDMTC). The OIDMTC is a refundable payroll tax credit paid to corporations that develop interactive digital media products within Ontario. The OIDMTC is based upon the Ontario labor expenditures and eligible marketing and distribution expenditures claimed by a qualifying corporation with respect to eligible products. For a certified game developer, eligible expenses include Ontario salaries and wages. The developer must incur at least $1 million of Ontario labor expenses per year developing eligible interactive digital media games to qualify. The Company has recognized a Canadian Payroll Tax Receivable related to the OIDMTC of $3,369,905 and $3,511,212 as of December 31, 2012 and 2011, respectively. In September 2012, the Company collected $1,180,856 for the 2009 application and continues to pursue the receivable for later years.
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 31, 2012 and 2011 are as follows:
2012 | 2011 | |||||||
Trade accounts payable |
$ | 512,100 | $ | 2,431,797 | ||||
Salary and payroll tax accrual |
1,277,822 | 1,194,848 | ||||||
Accrued commission |
212,803 | 1,236,613 | ||||||
Accrued other |
3,266,308 | 3,188,670 | ||||||
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$ | 5,269,033 | $ | 8,051,928 | |||||
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9. Long-term Debt
Long-term debt consisted of the following at December 31, 2012 and 2011:
2012 | 2011 | |||||||
$115 million Initial Term Loan, interest above LIBOR or base rate (11.50% at December 31, 2012), net of unamortized discount of $4.7 million |
$ | 110,203,176 | $ | | ||||
$15 million Delayed Draw Term Loan, interest above LIBOR or base rate (11.50% at December 31, 2012). |
7,500,000 | | ||||||
$125 million Initial Term Loan, interest based upon, at the election of the borrower, (a) LIBOR plus 3.0% or (b) the higher of (1) federal funds plus 0.50% or (2) the Administrators Base Rate. The interest rate was 3.24% at June 30, 2012. |
| 96,682,717 | ||||||
$30 million Delayed Draw Term Loan, interest based upon, at the election of the borrower, (a) LIBOR plus 3.0% or (b) the higher of (1) federal funds plus 0.50% or (2) the Administrators Base Rate. The interest rate was 3.24% at June 30, 2012. |
| 14,532,023 | ||||||
$20 million Revolving Loan, interest based upon, at the election of the borrower, (a) LIBOR plus 3.0% or (b) the higher of (1) federal funds plus 0.50% or (2) the Administrators Base Rate |
| 19,411,000 | ||||||
Aristocrat long-term note payable |
448,122 | 1,048,802 | ||||||
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Total debt |
118,151,298 | 131,674,542 | ||||||
LessAmounts due within one year |
(382,972 | ) | (35,391,339 | ) | ||||
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Long-term debt |
$ | 117,768,326 | $ | 96,283,203 | ||||
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F-18
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
On August 15, 2012, the Company entered into a $130 million senior secured credit agreement with UBS Securities, LLC (UBS). Under this credit agreement the Company borrowed $115 million as an Initial Term Loan and utilized the proceeds to repay all amounts outstanding under the May 14, 2007 UBS credit agreement and fund operations. The agreement includes a $15 million Delayed Draw Term Loan commitment, of which $7.5 million was freely available to the Company and drawn on October 25, 2012 with the remaining $7.5 million draw subject to certain criteria. The Initial Term Loan and the Delayed Draw Term Loans, collectively the Term Loans, accrue interest at LIBOR or base rate, at the borrowers election, subject to an interest rate floor plus an applicable margin rate. Aggregate principal amounts of the Term Loans are payable in quarterly installments equal to 1.25% of the outstanding balance beginning September 30, 2014 with the final installment payable at August 15, 2016. The Term Loans are subject to certain financial covenants and other covenants including a total leverage ratio and an interest coverage ratio, as well as limits on capital expenditures. The Company was in compliance with all covenants as of December 31, 2012.
On May 14, 2007, the Company entered into a $175 million senior secured credit agreement with UBS Securities, LLC (UBS). Under this credit agreement, the Company borrowed $125 million under an Initial Term Loan. The Company used the proceeds from this loan to repay the notes payable under a senior secured credit agreement with Morgan Stanley. Aggregate principal amounts of the Initial Term Loan was payable in quarterly installments of $312,500 with the final installment payable at May 14, 2013, in an amount sufficient to repay the aggregate outstanding principal of the Initial Term Loan. In May 2012, the Company repaid $11.7 million of the Initial Term Loan in accordance with the Credit Agreement as it relates to the $13.4 million equity cure utilized in May 2011. In addition, approximately $445,000 of the annual Excess Cash Flow paid in May was applied to the loan. All amounts under this facility were repaid as a result of entering into the Initial Term Loan.
The Delayed Draw Term Loan commitment of up to $30 million provides the ability to finance development agreements. This commitment expired on May 14, 2008. The aggregate outstanding principal amount of the Delayed Draw Term Loan was payable in quarterly installments equal to 1.0% of the aggregate original principal balance thereof, with the final installment payable at May 14, 2013. In May 2012, the Company repaid $1.7 million of the Delayed Draw Term Loan in accordance with the Credit Agreement as it relates to the $13.4 million equity cure utilized in May 2011. In addition, approximately $67,000 of the annual Excess Cash Flow paid in May was applied to the loan. All amounts under this facility were repaid as a result of entering into the Initial Term Loan.
The Revolving Loan facility provided up to $20 million for working capital and other needs. The Revolving Loan was repaid in full in May 2012.
As of March 31, 2011, the Companys debt to EBITDA leverage ratio exceeded the maximum permissible ratio covenant. However, on May 24, 2011, the member of the Company exercised the equity cure right under the senior secured credit agreement by making an equity contribution to the Company of $13.4 million, which enabled the Company to maintain compliance with the debt to EBITDA leverage ratio covenant for the measurement dates in 2011. The Company utilized $3.4 million of the equity contribution to pay down a portion of the outstanding indebtedness under the senior secured credit facility. The debt associated with these payments was classified as current in the accompanying consolidated financial statements as of December 31, 2011. As of March 31, 2012, the Companys debt to EBITDA leverage ratio exceeded the maximum permissible ratio covenant. However, on May 11, 2012 and May 23, 2012, the member of the Company contributed a total of $50.6 million to the Company, of which $9.9 million was designated as an equity cure under the senior secured credit agreement which enabled the Company to maintain compliance with the debt to EBITDA leverage ratio
F-19
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
covenant. On May 14, 2012, the Company utilized $19.4 million to pay the maturing amount on the Revolving Loan and on May 24, 2012 utilized $13.4 million of the member contribution to pay a portion of the outstanding indebtedness under the senior secured credit facility.
Aggregate contractual future principal payments (excluding the effects of repayments for excess cash flow) of long-term debt for the years following December 31, 2012, are as follows:
December 31, 2013 |
$ | 382,972 | ||
December 31, 2014 |
3,127,650 | |||
December 31, 2015 |
6,125,000 | |||
December 31, 2016 |
113,312,500 | |||
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Total |
$ | 122,948,122 | ||
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10. Related Party Transactions
On June 1, 2009, the Company sold 150 gaming machines and related gaming equipment to the former Chief Executive Officer of the Company, through a $655,060 promissory note, which bears interest at a rate of 8.5% per year, with all interest and principal payable upon maturity at June 1, 2011. Effective November 1, 2011, amounts outstanding under this obligation will be paid through the assigned proceeds from certain game positions currently placed in a Native American casino. Amounts due under this note receivable were $562,146 and $776,377 as of December 31, 2012 and 2011, respectively.
The Company had other receivables from related parties totaling $1,988,759 at December 31, 2010 which was presented as a contra-equity item within the accompanying consolidated statement of members deficit. The receivable was cancelled in 2011.
During 2010, the Company entered into a separate exclusive distributor agreement with Game Ingenuity (in which a related party is a principal) to place or sell games developed utilizing Game Ingenuity intellectual property into all markets where the Company is licensed or will be licensed within one year from the placement of the first game, or as otherwise mutually agreed between the parties. During 2012 and 2011 the Company has not incurred any expense as part of this agreement.
During 2012 and 2011, the Companys member contributed capital totaling $60.7 million and $13.8 million respectively, to the Company. Approximately $50.7 million of the 2012 contributed capital was utilized to cure debt covenant violations, repay the current obligations of debt (See Note 8), finance the final payment of the Definitive Agreement (See Note 5) and to provide working capital for the Company. $10.0 million of the 2012 contributed capital was a forgiveness of long-term debt to a related party that occurred in August 2012 associated with the Company entering the Initial Term Loan. The entire 2011 contributed capital was utilized to cure debt covenant violations and provide working capital for the Company (See Note 8)
For the years ended December 31, 2012 and 2011, we paid Alpine Management Services, III LLC $150,000 and $0, respectively, for consulting services.
On October 25, 2012 the Company assumed a note receivable which was held by Alpine AGS, LLC in the amount of $1,864,500, as further described in Note 3 for note receivable C.
F-20
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
11. Write Downs and Other Charges
The consolidated statements of operation and comprehensive loss include various non-routine transactions or related party consulting fees. For the year end December 31, 2012, the Company had $3,663,886 in write downs and other charges that consisted of $3,513,886 of costs related to the write off of debt issue costs related to the 2007 UBS debt agreement and other costs incurred in conjunction with an unsuccessful financing transaction as well as $150,000 for consulting fees paid to a related party. For the year ended December 31, 2011, the Company had $2,249,436 of costs related to a failed debt offering.
12. Benefit Plans
The Company has implemented the AGS Holdings Inc. Phantom Units Plan (the Plan) which is intended to reinforce and encourage the continued attention and dedication of certain Covered Executives (as defined) to their assigned duties to the Company until a Change in Control (as defined) has occurred. Units of the Plan have been issued as a percentage and in terms of number of units within the Plan at a strike price of $56,000,000 and vest over a period of up to four years. The value of the units is determined as the product of the percentage held in the Plan and the summation of the enterprise value of the Company less the net debt of the Company less the strike price. The liability associated with the Plan will ultimately be settled for cash; therefore the Company will adjust the liability to its estimated fair value each reporting period through phantom unit compensation in the accompanying consolidated statement of operations. As of December 31, 2012, 905 phantom units were granted which represents 9.05% of the equity value of the Company that exceeds $56,000,000 plus membership contributions as define by the Plan. For the year ended December 31, 2012, the Company recognized an increase in the value of the plan of $653,596.
The Company has established a 401(k) defined contribution plan (the Plan) for its employees. The Plan allows employees to contribute up to 15% of their pretax earnings, and the Company may match a percentage of the contributions on a discretionary basis. The expense associated with the Plan for 2012, 2011, and 2010 was $182,464, $116,094, and $117,893, respectively.
13. Income Taxes
The Company did not record a current provision for state or foreign tax purposes for the years ended December 31, 2012, 2011 and 2010. The Company has experienced cumulative losses from its foreign subsidiary and does not incur current foreign income taxes. There are also no material entity level state taxes. As a pass-through entity for domestic federal income tax purposes, income or loss flows through to the limited liability company members who are taxed in their individual capacities on their distributive shares of partnership taxable income.
The reconciliation of income tax at the federal statutory rate to the actual effective income tax rate is as follows:
Year Ended
December 31, 2012 |
Year Ended
December 31, 2011 |
Year Ended
December 31, 2010 |
||||||||||
Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Non-taxable entities |
(34.5 | ) | (44.5 | ) | (28.9 | ) | ||||||
Foreign rate differential |
(0.1 | ) | 2.3 | (1.5 | ) | |||||||
Valuation Allowance |
(0.4 | ) | 7.2 | (4.6 | ) | |||||||
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F-21
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
The components of the deferred tax assets and liabilities consist of the following:
December 31,
2012 |
December 31,
2011 |
|||||||
Foreign deferred income tax assets: |
||||||||
Net operating loss carryforwards |
$ | 197,555 | $ | 287,294 | ||||
Property and equipment |
31,369 | 6,841 | ||||||
Intangible assets |
356,972 | 125,765 | ||||||
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|||||
Total foreign deferred income tax assets |
585,896 | 419,900 | ||||||
|
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|
|||||
Valuation allowance |
(585,896 | ) | (419,900 | ) | ||||
|
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Net foreign deferred income tax assets |
$ | | $ | | ||||
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In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. We assess the realizability of deferred tax assets on a quarterly basis and have concluded that it is not more likely than not to recognize certain deferred tax assets. As a result, a valuation allowance was recorded against our deferred tax assets.
Accounting standards for accounting for uncertain tax positions require that tax positions be assessed using a two-step process. A tax position is recognized if it meets a more likely than not threshold, as is measured at the largest amount of benefit that is greater than 50% likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. It is the policy of the Company to recognize penalties and interest related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2012 and 2011, we have not recorded a reserve for uncertain tax positions or penalties and interest nor do we anticipate a significant change to the reserve for uncertain tax positions in the next 12 months.
The Company is not under audit by any federal, state or foreign jurisdiction for income taxes. The Companys federal and state income tax filings since inception are open to examination. The Companys international subsidiary is located in Canada, and the earliest tax year open to examination is 2008. The Company does not have U.S federal or state net operating loss carryforwards. The Company does have foreign net operating losses of $745,491 at December 31, 2012 which will begin to expire in tax years beginning after 2028.
14. Commitments and Contingencies
Leases
The Company leases administrative and warehouse facilities and certain equipment under non-cancelable operating leases. Rent expense was $686,002 and $600,452, $707,000 during the years ended December 31, 2012, 2011 and 2010, respectively.
F-22
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Future minimum lease payments under these leases as of December 31, 2012, are as follows:
For the year ended December 31, |
Amount | |||
2013 |
$ | 555,452 | ||
2014 |
440,815 | |||
2015 |
310,311 | |||
2016 |
179,740 | |||
2017 |
| |||
|
|
|||
$ | 1,486,318 | |||
|
|
The Company is subject to federal, state and Native American laws and regulations that affect both its general commercial relationships with its Native American tribal customers, as well as the products and services provided to them. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to their pending claims and litigation and may revise their estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial condition.
On October 11, 2011, the Company entered into a licensing agreement with Ripleys Entertainment to develop casino games based in the Ripleys Believe it or Not brand. The licensing agreement which, guarantees Ripleys Entertainment $600,000 in royalties, commenced upon the execution of the agreement and will expire on September 30, 2014 subject to one year renewals at the option of the Company. The Company paid a prepaid royalty of $200,000 upon execution of the agreement and in October 2012 an additional $200,000 was advanced under the terms of the agreement.
On May 14, 2012, the Company entered into a licensing agreement with One Three Television, LLC (One Three) to develop casino games based in the Are You Smarter than a 5 th Grader brand. The licensing agreement which, guarantees One Three $400,000 in royalties, will commence May 8, 2012 and expires on December 1, 2017 subject to a two year renewal at the option of the Company. The Company paid a prepaid royalty of $200,000 upon execution of the agreement and in December 2012 an additional $100,000 was advanced under the terms of the agreement.
On October 5, 2012, the Company entered into a licensing agreement with Freemantle Media North America, Inc. (Freemantle) to develop casino games based in the Family Feud brand. The licensing agreement which, guarantees Freemantle $650,000 in royalties, will commence October 5, 2012 and expires on December 31, 2017 subject to a three year renewal at the option of the Company. The Company paid a prepaid royalty of $200,000 upon execution of the agreement.
15. Subsequent Events
In connection with the preparation of its consolidated financial statements as of and for the year ended December 31, 2012, the Company has evaluated events that occurred between January 1, 2013 and April 17, 2013, to determine whether any of these events required recognition or disclosure in the 2012 financial statements, as required by FASB ASC Topic 855, Subsequent Events .
F-23
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
In January 2013, the Company advanced $0.4 million in regards to Note C mentioned above.
On February 15, 2013, the Company drew the Second Delayed Draw Term Loan of $7.5 million to fund operations.
On February 22, 2013, the Company paid a contract renewal fee of $550,000 to extend the lease agreement with its second largest customer. These costs will be capitalized as an intangible and amortized over the life of the agreement.
On February 28, 2013, the Company paid a placement fee of $400,000 to renew the agreement with an existing customer. These costs will be capitalized as an intangible and amortized over the life of the agreement.
On March 29, 2013, the Company terminated its software license and option agreement with Pong Marketing and Promotions Inc. due to use of the software outside the scope of the uses permitted for in the agreement. All intangibles related to the license and agreement, were fully impaired for the year ended December 31, 2012 as discussed in the intangibles section of note 2.
On April 16, 2013, the Company entered into the first amendment to the 2012 UBS credit agreement which, among other items, changed the financial covenant requirements beginning with the first quarter of 2013 extending through the term of the agreement.
In October 2013, the Company entered into financing agreements to purchase 450 gaming machines from various third party suppliers for lease to a company that operates and service slot routes in Illinois. The agreements require monthly payments of interest and principle and have terms ranging from 24 to 36 months and carry an interest rate from 8.0% to 8.5%.
On November 22, 2013, the route operator referenced in Note C, completed a permanent financing agreement with a third party. As a condition of the financing, the Company received a principal payment of approximately $3 million as payment in full for specific loans. The Company waived all outstanding interest due on these loans through the date of the financing and will record the amount as a lease incentive and amortize the amount over the remaining length of the lease. The remaining notes have been consolidated into a single loan and will accrue interest at 13%. Interest payments will be in kind until such time as the third party debt is paid in full; however monthly amortization payments paid in cash will begin May 2015 and continue through the maturity of the loan.
F-24
AGS Capital, LLC
(A limited liability company)
As of | ||||||||
September 30,
2013 |
December 31,
2012 |
|||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 8,620,709 | $ | 6,545,282 | ||||
Restricted cash |
100,000 | 200,000 | ||||||
Trade accounts receivable, net of allowance of $0.3 million and $0.5 million, respectively |
6,532,917 | 7,949,287 | ||||||
Notes receivablecurrent portion |
1,158,685 | 2,394,149 | ||||||
Inventories, net |
4,708,324 | 5,376,581 | ||||||
Prepaid expenses |
624,902 | 874,575 | ||||||
Deposits and other |
2,582,904 | 1,837,437 | ||||||
|
|
|
|
|||||
Total current assets |
24,328,441 | 25,177,311 | ||||||
|
|
|
|
|||||
Gaming equipment, vehicles and other equipment, net |
37,255,438 | 40,267,363 | ||||||
Notes receivable, net of current portion, less allowance for doubtful accounts of $0 and $0.4 million, respectively |
11,817,723 | 10,047,966 | ||||||
Interest receivable |
786,734 | | ||||||
Deferred loan costs, net |
4,500,564 | 5,391,841 | ||||||
Intangible assets |
31,331,542 | 39,644,021 | ||||||
Canadian tax receivable |
3,974,398 | 3,369,905 | ||||||
Other assets |
1,627,962 | 1,668,279 | ||||||
|
|
|
|
|||||
Total other assets |
54,038,923 | 60,122,012 | ||||||
|
|
|
|
|||||
Total assets |
$ | 115,622,802 | $ | 125,566,686 | ||||
|
|
|
|
|||||
Liabilities and Members Deficit |
||||||||
Current liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 5,607,328 | $ | 5,269,033 | ||||
Due to related party |
| 66,436 | ||||||
Accrued interest |
2,002,118 | 2,016,597 | ||||||
Customer deposits on gaming machine leases |
| 421,565 | ||||||
Current maturities of long-term debt |
1,703,180 | 382,972 | ||||||
|
|
|
|
|||||
Total current liabilities |
9,312,626 | 8,156,603 | ||||||
|
|
|
|
|||||
Phantom unit-plan liability |
2,045,754 | 1,582,736 | ||||||
Long-term debt |
124,133,163 | 117,768,326 | ||||||
|
|
|
|
|||||
Total liabilities |
135,491,543 | 127,507,665 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Members deficit |
||||||||
Members capital |
136,672,633 | 136,672,633 | ||||||
Accumulated deficit |
(157,043,126 | ) | (139,138,386 | ) | ||||
Accumulated other comprehensive income |
501,752 | 524,774 | ||||||
|
|
|
|
|||||
Total members deficit |
(19,868,741 | ) | (1,940,979 | ) | ||||
|
|
|
|
|||||
Total liabilities and members deficit |
$ | 115,622,802 | $ | 125,566,686 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-25
AGS Capital, LLC
(A limited liability company)
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Nine Months Ended
September 30, |
||||||||
2013 | 2012 | |||||||
Revenues |
||||||||
Gaming revenue |
$ | 41,956,943 | $ | 41,175,810 | ||||
Gaming revenueother |
799,384 | 2,927,393 | ||||||
Equipment sales |
1,226,197 | 696,713 | ||||||
|
|
|
|
|||||
Total revenues |
43,982,524 | 44,799,916 | ||||||
|
|
|
|
|||||
Operating expenses |
||||||||
Gaming operating expenses |
6,518,510 | 9,634,630 | ||||||
Cost of equipment sales |
777,145 | 281,465 | ||||||
Loss on disposition of assets |
775,427 | 463,984 | ||||||
General and administrative |
12,496,688 | 10,768,040 | ||||||
Selling and marketing |
2,537,615 | 2,544,003 | ||||||
Phantom unit compensation |
463,018 | 653,596 | ||||||
Impairment of long lived assets |
3,364,090 | | ||||||
Impairment of intangibles |
1,390,500 | | ||||||
Impairment of goodwill |
| 18,678,970 | ||||||
Write downs and other charges |
202,500 | 3,585,939 | ||||||
Depreciation and amortization |
21,715,919 | 21,332,495 | ||||||
|
|
|
|
|||||
Total operating expenses |
50,241,412 | 67,943,122 | ||||||
|
|
|
|
|||||
Loss from operations |
(6,258,888 | ) | (23,143,206 | ) | ||||
Other expense (income) |
||||||||
Interest expense |
13,167,623 | 5,988,973 | ||||||
Interest income |
(1,268,241 | ) | (307,448 | ) | ||||
Other income |
(253,530 | ) | (173,534 | ) | ||||
|
|
|
|
|||||
Net loss |
(17,904,740 | ) | (28,651,197 | ) | ||||
Foreign currency translation adjustment |
(23,022 | ) | 55,117 | |||||
|
|
|
|
|||||
Total comprehensive loss |
$ | (17,927,762 | ) | $ | (28,596,080 | ) | ||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-26
AGS Capital, LLC
(A limited liability company)
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30, |
||||||||
2013 | 2012 | |||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (17,904,740 | ) | $ | (28,651,197 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities |
||||||||
Depreciation and amortization |
21,715,919 | 21,332,495 | ||||||
Accretion of contract rights under development agreements and customer agreements |
2,968,198 | 3,034,971 | ||||||
Amortization of deferred loan costs and discount |
1,864,461 | 1,005,423 | ||||||
Provision for bad debts |
(173,605 | ) | (95,572 | ) | ||||
Payment in kind for interest on development loan |
(426,003 | ) | | |||||
Interest income from imputed interest |
(78,290 | ) | (266,057 | ) | ||||
Loss on disposition of assets |
775,427 | 463,984 | ||||||
Impairment of long lived assets |
3,364,090 | | ||||||
Impairment of intangibles |
1,390,500 | | ||||||
Impairment of goodwill |
| 18,678,970 | ||||||
Non-cash contract rights under development agreements |
(152,631 | ) | (81,707 | ) | ||||
Write off of deferred loan costs |
| 3,010,939 | ||||||
Phantom unit plan compensation |
463,018 | 653,596 | ||||||
Changes in assets and liabilities that relate to operations |
||||||||
Decrease in restricted cash |
100,000 | | ||||||
Decrease in trade accounts receivable and notes receivable |
951,311 | 1,086,559 | ||||||
Decrease (increase) in inventories, net |
668,257 | (2,569,539 | ) | |||||
Decrease (increase) in prepaid expenses |
172,949 | (626,717 | ) | |||||
Increase in deposits and other |
(745,467 | ) | (1,147,010 | ) | ||||
Decrease in other assets, non-current |
35,085 | | ||||||
Increase (decrease) increase in accounts payable and accrued liabilities |
346,576 | (3,402,646 | ) | |||||
Decrease in due to related party |
(66,436 | ) | | |||||
(Decrease) increase in accrued interest |
(14,479 | ) | 1,730,764 | |||||
Decrease in customer deposits on gaming machine leases |
(421,565 | ) | | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
14,832,575 | 14,157,256 | ||||||
|
|
|
|
|||||
Cash flows from investing activities |
||||||||
Advances under notes receivable |
(1,460,165 | ) | (4,150,000 | ) | ||||
Collections under notes receivable |
1,061,515 | 2,796,803 | ||||||
Increase in interest receivable |
(786,734 | ) | | |||||
Increase in Canadian tax receivable |
(717,984 | ) | (825,998 | ) | ||||
Payments received for Canadian tax receivable |
| 1,180,384 | ||||||
Purchases of intangible assets |
(2,451,218 | ) | (22,032,382 | ) | ||||
Software development and other |
(3,559,722 | ) | (3,342,310 | ) | ||||
Proceeds from disposition of assets |
171,404 | 78,899 | ||||||
Purchases of gaming equipment, vehicles and other equipment |
(11,954,225 | ) | (12,886,598 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(19,697,129 | ) | (39,181,202 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities |
||||||||
Member contributions |
| 50,687,518 | ||||||
Payments under notes payable |
(369,943 | ) | (443,995 | ) | ||||
Borrowings under bank credit facility |
7,500,000 | 109,800,000 | ||||||
Repayments on bank credit facility |
| (130,625,738 | ) | |||||
Payment of deferred loan costs |
(341,965 | ) | (7,868,393 | ) | ||||
|
|
|
|
|||||
Net cash provided by financing activities |
6,788,092 | 21,549,392 | ||||||
Effect of exchange rates on cash and cash equivalents |
151,889 | (176,402 | ) | |||||
|
|
|
|
|||||
Increase (decrease) in cash and cash equivalents |
2,075,427 | (3,650,956 | ) | |||||
Cash and cash equivalents, beginning of period |
6,545,282 | 10,786,609 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 8,620,709 | $ | 7,135,653 | ||||
|
|
|
|
|||||
Supplemental cash flow informationCash paid during the period for interest |
$ | 11,290,625 | $ | 3,252,786 | ||||
|
|
|
|
|||||
Supplemental schedule of noncash investing and financing activities |
||||||||
Capital expenditures funded by settlement of customer receivable |
$ | 844,035 | | |||||
Lease incentive intangible related to discounted notes receivable |
$ | 155,965 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-27
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
1. Organization and Business
AGS Capital, LLC (the Company) was formed in Delaware on September 8, 2005. The Company is a limited liability company with the following owned subsidiaries, AGS LLC (AGS), AGS Partners, LLC (Partners), AGS Financing Corp. (Financing), AGS Illinois LLLP (AGS IL) and American Gaming Systems Toronto, Ltd., f/k/a GTNA Solutions Corp. (collectively, AGS Toronto). The Company is a subsidiary of AGS Holdings, LLC which is a subsidiary of Alpine AGS, LLC. Although formed on September 8, 2005, the Company had no activity until September 20, 2005, the date Companys wholly owned subsidiary, AGS LLC, acquired assets of Clapper Enterprises, Inc. and Worldwide Game Technology Corp. The Company operates in a single business segment and is a designer, manufacturer, distributor and operator of Class II and Class III gaming machines located in Native American and other gaming facilities. Capitals gaming systems are typically provided to customers under revenue-sharing arrangements, but are also sold outright directly to customers. The Company offers content for its gaming systems that has been designed and developed by the Company, as well as game themes it has licensed from others. Partners was formed on June 22, 2006, and on June 29, 2006, Partners acquired certain assets of Aurora Gaming, Inc., Integrity Gaming, Inc. and Integrity Gaming Nevada, LLC (Integrity). BOL Finance, LLC (BOL) was formed by the Company on August 8, 2008, to finance distributors operating in Louisiana. It was capitalized through a note payable to the Company. AGS Toronto was formed on July 11, 2008, and capitalized through debt and equity contributions from the Company. AGS Toronto acquired certain assets of Gametronics, Inc. and Phone-Sweeps, Inc. on November 10, 2008. BOL was dissolved during 2011.
Proposed Acquisition by AP Gaming Acquisition, LLC
On September 16, 2013, the Company entered into an Equity Purchase Agreement (the Acquisition Agreement) by and among the Company and AP Gaming Acquisition, LLC, an affiliate of Apollo Management VIII, L.P. (Apollo) for $215 million in addition to a potential purchase price adjustment of up to $35 million, as defined. The Acquisition Agreement provides that Apollo will purchase 100% of the equity of AGS Capital, LLC from AGS Holdings, LLC.
The Agreement contains certain termination rights for both parties and under specific circumstances each party might be required to pay the counterparty a termination fee. The Agreement contains certain limitations on the operations of the Company during the period prior to the close of the transaction.
Consummation of the Acquisition Agreement is subject to customary conditions, including without limitation (i) the expiration or early termination of the waiting period applicable to the consummation of the proposed Acquisition Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1974, as amended (the HSR Act) (which waiting period expired as of 11:59 p.m. EDT on October 23, 2013 with no action by the Federal Trade Commission or the Department of Justice), (ii) the receipt of specified licenses, permits, and other approvals relating to AP Gaming Acquisition, LLC issued by certain governmental authorities, (iii) the successful financing by AP Gaming Acquisition, LLC and its affiliates to consummate the Acquisition Agreement, (iv) the absence of any law or order that is in effect and restrains, enjoins or otherwise prohibits the proposed Acquisition Agreement, (v) the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the Acquisition Agreement (subject to customary materiality qualifiers) and (vi) the absence of any change, effect, development or circumstance that, individually or in the aggregate, constitutes or is reasonably likely to constitute a Company Material Adverse Effect (as defined in the Acquisition Agreement).
F-28
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
During the nine months ended September 30, 2013, the Company incurred approximately $0.5 million of expenses related to the Acquisition Agreement. These expenses consisted primarily of payments to financial advisors and consultation with legal counsel, and were recorded in general and administrative expense.
No assurance can be given that the Agreement will be completed; however the transaction is anticipated to close in late 2013 or early 2014 depending on timing of various regulatory approvals required throughout the United States necessary to close the transactions and satisfaction of other closing conditions. The expectation is that the current $130 million senior secured credit agreement entered into on August 15, 2012 and further amended on April 16, 2013 will be repaid in full upon the close of the transaction.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of AGS Capital, LLC and its wholly owned subsidiaries, AGS, Partners, BOL and GTNA. All significant intercompany transactions and balances have been eliminated in the consolidation. In managements opinion, all adjustments (which include normal recurring adjustments) necessary for the fair presentation of the results of operations, financial position and cash flows for the periods presented have been made.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.
Revenue Recognition
The majority of the Companys gaming revenue is of a recurring nature and is generated by providing customers with gaming terminals, gaming terminal content licenses and back-office equipment, which are collectively referred to as gaming equipment, under participation arrangements. Under these arrangements, the Company retains ownership of the gaming equipment installed at customer facilities, and receives revenue based on a percentage of the win per day generated by the gaming equipment. Certain arrangements require a portion of the facilities win per day to be set aside to be used to fund facility-specific marketing, advertising, promotions and service. These amounts are offset against revenue. Licensing revenue generated from the use of the Companys software is recognized when earned and reported.
Revenues from the stand-alone product sales or separate accounting units are recorded when:
| Persuasive evidence of an arrangement exists; |
| The sales price is fixed and determinable; |
| Delivery has occurred and services have been rendered; and |
| Collectability is probable. |
F-29
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
Cash and Cash Equivalents
Cash and equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of 90 days or less.
Restricted Cash
Restricted cash amounts represent funds held in escrow as collateral for the Companys surety bonds for various gaming authorities.
Notes Receivable and Development Agreements
The Company enters into development agreements to provide financing for new tribal gaming facilities, or for the expansion of existing facilities. In return, the customer commits to a fixed number of gaming terminal placements in the facility, and the Company receives a fixed percentage of those gaming terminals win per day over the term of the agreement or a daily fee per gaming terminal. Certain agreements contain performance standards for the gaming terminals that could allow the facility to reduce a portion of the guaranteed floor space. The agreements typically provide for a portion of the amounts retained by the gaming facility for their share of the win to be used for repayment of some or all of the advances. Amounts advanced in excess of those reimbursed by the customer for real property and land improvements are allocated to intangible assets and amortized over the life of the contract. Interest income related to notes receivables is recorded as interest income in the statement of operations and comprehensive loss.
Generally, the Company utilizes the term of a contract to amortize the intangible assets associated with development agreements. The Company reviews the carrying value of these contract rights at least annually, or whenever changes in circumstances indicate the carrying value of these assets may not be recoverable. While management believes that the estimates and assumptions used in evaluating the carrying value of these assets are reasonable, different assumptions could materially affect either the carrying value or the estimated useful lives of the contract rights.
The Company assesses the impairment of notes and development agreements receivables whenever events or changes in circumstances indicate the carry value may not be realized. Impairment is measured based on the present value of the expected future cashflows and is recorded as bad debt expense in the period of assessment.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts related to the accounts receivable and notes receivable that have been deemed to have a high risk of collectability. The Company reviews the accounts receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes that have their reservations and gaming operations in the state of Oklahoma, and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for both trade and notes receivable.
F-30
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
Inventories
Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment. Inventories are stated at the lower of cost or market. Cost of inventories is determined using the first-in, first-out (FIFO) method for all components of inventory. The Company regularly reviews inventory quantities and update estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value.
Gaming Equipment, Vehicles and Other Equipment
The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as vehicles and other equipment, is depreciated over their estimated useful lives, generally using the straight-line method for financial reporting. Repairs and maintenance costs are expensed as incurred. The Company annually evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:
Gaming equipment deployed | 4 to 5 years | |
Vehicles and other equipment | 3 to 7 years |
The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Companys policy is to provide reserves, when necessary, for excess or obsolete gaming terminals on hand that it does not expect to be used. Reserves are based upon several factors, including estimated forecast of gaming terminal demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition. The Company recognized an impairment charge for obsolete gaming terminals of $3,364,090 and $0 for the nine months ending September 30, 2013 and 2012, respectively.
Intangible Assets
The Company reviews its identifiable definite-lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for long-lived assets and identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount.
The Company recognized an impairment charge of $1,390,500 for the nine months ended September 30, 2013. The amount relates to a lease incentive associated with a long-term lease with a gaming operator in Illinois entered into in 2010 for which the lease was amended in September 2013. We did not record an impairment charge in the nine months ended September 30, 2012.
F-31
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
Goodwill
The Company is required to perform an annual goodwill impairment review, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. Goodwill is reviewed for possible impairment annually on September 30 of each year or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, or a loss of key personnel. During the Companys impairment testing for the nine months ended September 30, 2012, the Company recorded an impairment charge of $18,678,970 which amounted to the entire balance of goodwill. The impairment is a result of the combination of an increase in our weighted average cost of capital primarily related to the increased interest rate related to the 2012 UBS debt and reduced projected revenue within our long-term operating plan. No impairment was recorded for the nine months ending September 30, 2013.
Customer Deposits on Gaming Machine Leases
The Company held deposits totaling $0 and $421,565 at September 30, 2013 and December 31, 2012, respectively from third- party distributors as deposits on gaming machines leases. In September 2013, the Company recognized the remainder of the deposit as other income.
Accounting for Income Taxes
The Company is a limited liability company treated as a disregarded entity for federal and state income tax purposes. As a result, any federal (and most state) items of income or loss, and any income tax credits, are passed through to our ultimate owner for inclusion in its individual income tax returns. Prior to March 2010, the Company was a partnership for federal and state income tax purposes. Accordingly, no provision for federal or state income taxes is included in the consolidated financial statements. However, the Company is subject to certain foreign income taxes incurred by its Canadian subsidiary.
The Companys tax returns are subject to examination by federal and state authorities. If such examinations occur and result in changes with respect to any partnership qualifications or changes to distributable income or loss, the tax liability of the members may be changed accordingly.
Costs of Computer Software
Internally developed gaming software is accounted for under FASB ASC Topic 985-20, Costs of Software to Be Sold, Leased or Marketed, and is stated at cost, which is amortized over the estimated useful lives of the software, generally using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made.
Research and Development
The Company conducts research and development activities primarily to develop new gaming platforms and gaming content. These research and development costs consist primarily of salaries and benefits and are expensed as incurred. Once the technological feasibility of a project has been established, capitalization of development costs begins until the product is available for general release.
F-32
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
Contingencies
The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from managements estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.
Foreign Currency Translation
The financial statements of the Companys Canadian subsidiary are translated into U.S. dollars at the year-end rate of exchange for asset and liability accounts and the average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in members deficit.
New Accounting Standards
On January 1, 2013, we adopted Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . This ASU requires the disclosure of changes to accumulated other comprehensive income to be presented by component on the face of the financial statements or in a separate note to the financial statements. This ASU also requires the disclosure of significant items reclassified out of accumulated other comprehensive income to net income during the period either on the face of the financial statements or in a separate note to the financial statements. See Note 13.
2. Notes Receivable
At September 30, 2013 and December 31, 2012, notes receivable consisted of the following:
2013 | 2012 | |||||||
Note A |
$ | | $ | 671,032 | ||||
Note B |
760,839 | 1,059,907 | ||||||
Note C |
9,818,168 | 8,932,000 | ||||||
Note D |
1,049,869 | 1,049,869 | ||||||
Note E |
844,035 | | ||||||
Other, net |
503,497 | 729,307 | ||||||
|
|
|
|
|||||
Total notes receivable, net |
12,976,408 | 12,442,115 | ||||||
Less: Current portion |
(1,158,685 | ) | (2,394,149 | ) | ||||
|
|
|
|
|||||
Notes receivablelong term |
$ | 11,817,723 | $ | 10,047,966 | ||||
|
|
|
|
Note A
On June 14, 2007, the Company committed to a significant, existing tribal customer to provide $18,750,000 for part of the funding for a facility expansion. In return, the Company received the right to approximately 10%
F-33
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
of the additional 4,000 gaming units expected to be placed in the expanded facility. The agreement allows the customer to buy out the Companys right to floor space after the note has been repaid. The Company advanced its total commitment of $18,750,000 in 2007. On September 4, 2008, the agreement was amended to reduce the development funding from $18,750,000 to $9,375,000 in return for a reduction in the number of gaming units to be placed in the facility, from 10% of total expected units to 5%. The Company paid $150,000 to modify the agreement and was repaid $9,375,000 in 2008. In addition, the Company recorded a $532,980 loss in 2008 on restructuring of the note receivable that was due primarily from the difference in value between the unamortized intangible asset and the unearned discount for the receivable at the time that the agreement was restructured. The amended development agreement specifies that the note receivable will be repaid out of net profits, as defined in the agreement, in excess of $9,000,000 per month. As the collections on the note are received and the expected timing of the payments is re-evaluated, the imputed interest rate earned is evaluated and may change. As of May 2013 the note has been repaid in full. The Company recorded $45,726 and $185,485 of imputed interest during the nine months ended September 30, 2013 and September 30, 2012, respectively. As of September 30, 2013 and December 31 2012, the balance of the note receivable has been reduced by an unamortized discount of $0 and $45,726, respectively.
Note B
On September 20, 2010, the Company entered into a development agreement and committed $1,455,250 to an existing tribal customer to provide part of the funding for the development and construction of a gaming facility in Oklahoma. In return, the Company received the right to approximately 20% of the new square footage of all Available Gaming Floor Space in the Project, as defined, provided that in no event the Company will have no more or less than 50 gaming units for a period of six years and eleven months subject to certain performance criteria, as defined. The agreement allows the customer to buy out the Companys right to floor space after the note has been repaid. The amended development agreement specifies that the note receivable will be repaid out of the Net Profits, as defined in the agreement, in excess of $500,000 per month. As the collections on the note are received and the expected timing of the payments is re-evaluated, the imputed interest rate earned is evaluated and may change. Based upon the trend of collections to date and expected future collection, the imputed interest rate approximates 4.65%. The Company recorded $32,564 and $58,601 of imputed interest during the nine month ended September 30, 2013 and September 30, 2012, respectively. As of September 30, 2013 and December 31, 2012, the balance of the note receivable has been reduced by an unamortized discount of $17,696 and $50,261, respectively.
Note C
On December 15, 2010 and further amended on November 17, 2011 and December 8, 2011, the Company entered into an agreement to loan funds not to exceed $2,250,000 with a company that operates and services slot routes in Illinois. As of December 31, 2011, the Company has fully funded the loan under this agreement. Full funding of the loan was predicated on the route operator acquiring the rights to place VGTs at a minimum of 135 locations pursuant to Use Agreements, as defined. On March 6, 2012, the Company executed an Amended and Restated Loan Agreement (Restated Loan) with the holder of Note C. The Restated Loan provides for a Route Acquisition Tranche of $4,650,000 and an operational tranche of $750,000. The Restated Loan was amended July 25, 2012 to increase the operational tranche to $950,000. On October 25, 2012 the Company assumed a loan agreement of $1,864,500 from a related party. On December 20, 2012, the Company extended a second operational tranche for $1,417,500 and as well as the Vault Promissory Note for $467,500, which was amended on March 6, 2013 and increased to $510,165, for funds to acquire certain route equipment.
F-34
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
Interest is payable at a rate of 13% or 15% for various notes, on the outstanding balance until the note matures on dates ranging from March 9, 2016 to December 31, 2016. Repayment of the note principal and interest will be in monthly installments and will begin at various dates. The Company is recognizing interest income on percentage basis of live units to expected total deployments.
On February 1, 2013 the Company entered into an intercreditor agreement that subordinates all principal amounts owed under each note to a third party as well as requires all interest payments are made in-kind until the first lien obligation is paid in full, which currently can be a maximum amount of $6,000,000.
As of September 30, 2013 the Company determined that the loan assumed from a third party for $1,864,500 was impaired due to a decrease in the original interest rate from 15% to 13% and recorded a $130,303 allowance against the loan balance. See Note 14 for more information on the change to the notes.
Note D
On January 12, 2011 and March 10, 2011, the Company loaned $864,000 and $185,869, respectively, in exchange for promissory notes to an entity. Interest is payable at a rate of 13%. Repayment of principal and interest is based on excess operational cash flow of the borrower and begins the month after the first game was available for public use. All accrued and unpaid interest prior to the first payment of principal must be paid on this day as well. The Company is recognizing interest income on percentage basis of live units to expected total deployments. The Company retains a claim on the general assets of the entity as collateral.
On March 30, 2012, the holder of Note C entered into a management agreement with the holder of Note D to manage the routes acquired by the holder of Note D. As part of that agreement, the holder of Note C assumed the holder of Note Ds obligation to the Company through the execution of a Loan Assumption and Release Agreement dated March 30, 2012.
On February 1, 2013 the Company entered into an intercreditor agreement that subordinates all principal amounts owed under each note to a third party as well as requires all interest payments are made in-kind until the first lien obligation is paid in full, which currently can be a maximum amount of $6,000,000.
Note E
On September 27, 2013 the Company loaned $1,000,000 to a company that operates and service slot routes in Illinois in part to pay off 100 gaming machines that were financed with third parties, with the remainder utilized to fund a cash payment to settle current receivables to the Company. The gaming machines were in turn transferred to the Company as partial settlement of outstanding receivables in conjunction with amended lease and equipment agreements. The note carries a 2% per annum simple interest rate and has monthly payments of principal and interest in equal amounts amortized over the 36 month life of the loan. The note is collateralized by a $1,000,000 letter of credit issued by a bank. As of September 30, 2013, the balance of the note receivable has been reduced by an unamortized discount of $155,965.
Other Notes Receivable
Other notes receivable represent arrangements with other customers related to the Companys advances for the construction and development of casino expansions or the Companys financing of the sale of gaming machines to customers. Interest rates and maturities of the notes vary as do principal and interest payments. The Company assesses collectability under these agreements and reserves for estimated uncollectible amounts.
F-35
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
3. Contract rights under development agreements and customer agreements
The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are not reimbursed. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. For the nine months ended September 30, 2013 and 2012, $2,968,198 and $3,034,971, respectively, were recorded as a reduction of revenue as accretion of contract rights under development agreements and customer agreements.
The following amounts related to development agreements and placement fee agreements are including in the following balance sheet items:
As of
September 30, 2013 |
As of
December 31, 2012 |
|||||||
Notes receivable, net |
$ | 12,529,785 | $ | 11,782,808 | ||||
Contract rights under development agreements and customer agreements, net |
$ | 10,658,297 | $ | 11,973,298 |
4. Gaming Equipment, Vehicles and Other Equipment
Gaming equipment, vehicles and other equipment consist of the following at September 30, 2013 and December 31, 2012:
2013 | 2012 | |||||||
Gaming equipment |
$ | 82,878,511 | $ | 77,559,874 | ||||
Vehicles and other equipment |
14,057,381 | 12,988,667 | ||||||
Less: Accumulated depreciation |
(59,680,454 | ) | (50,281,178 | ) | ||||
|
|
|
|
|||||
$ | 37,255,438 | $ | 40,267,363 | |||||
|
|
|
|
In September 2013, the Company reached an agreement with a company that operates and service slot routes in Illinois to settle outstanding lease fees owed. As a condition of the agreement, 100 gaming machines were transferred to the Company as a partial settlement of the receivable. The Company has estimated the value of the machines at $844,035, pending a third party appraisal, which is reflected in the amounts presented above.
In September 2013, the Company recognized an impairment charge for obsolete gaming terminals of $3,364,090.
Gaming equipment, vehicles and other equipment are depreciated over the respective useful lives of the assets ranging from three to seven years. Depreciation expense was $11,505,379 and $9,827,534 for the nine months ended September 30, 2013 and September 30, 2012, respectively.
F-36
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
5. Goodwill and Intangibles
As of September 30, 2013 and December 31, 2012, the Companys intangible assets consisted of the following:
2013 | 2012 | |||||||||||||||||||||||
Gross
Value |
Accumulated
Amortization |
Net
Carrying Value |
Gross
Value |
Accumulated
Amortization |
Net
Carrying Value |
|||||||||||||||||||
Contract rights under development agreements |
$ | 20,498,476 | $ | (16,054,782 | ) | $ | 4,443,694 | $ | 20,188,400 | $ | (14,462,485 | ) | $ | 5,725,915 | ||||||||||
Customer relationships |
32,222,850 | (32,222,850 | ) | | 32,222,850 | (31,634,026 | ) | 588,824 | ||||||||||||||||
Customer agreement |
9,813,933 | (4,989,830 | ) | 4,824,103 | 9,837,300 | (3,589,917 | ) | 6,247,383 | ||||||||||||||||
Covenants not to compete |
525,559 | (525,374 | ) | 185 | 525,745 | (524,692 | ) | 1,053 | ||||||||||||||||
Third party licenses |
28,818,500 | (14,274,984 | ) | 14,543,516 | 28,818,500 | (7,818,902 | ) | 20,999,598 | ||||||||||||||||
Internally developed gaming software |
21,746,366 | (16,897,744 | ) | 4,848,622 | 18,547,767 | (14,640,132 | ) | 3,907,635 | ||||||||||||||||
Purchased software |
10,480,066 | (7,808,644 | ) | 2,671,422 | 9,658,842 | (7,485,229 | ) | 2,173,613 | ||||||||||||||||
Goodwill |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 124,105,750 | $ | (92,774,208 | ) | $ | 31,331,542 | $ | 119,799,404 | $ | (80,155,383 | ) | $ | 39,644,021 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
On January 9, 2012, the Company entered into a definitive agreement (the Definitive Agreement) with Bluberi Gaming Technologies, Inc. (Bluberi) pursuant to which the Company agreed to terminate its existing distribution agreement with Bluberi (the Existing Distribution Agreement) and to purchase all of Bluberis right, title and interest in certain game titles covered by the Existing Distribution Agreement (the Bluberi Transaction). In connection therewith, the Company agreed to pay $22.8 million to Bluberi and to enter into a five-year service agreement with Bluberi for which the Company would pay Bluberi a $2.0 million servicing fee paid ratably over the term of the service agreement and a one-time $1.0 million performance-based bonus. According to the Definitive Agreement, $3.5 million was due to Bluberi upon execution of the Definitive Agreement and $19.3 million (the Balance) was due no later than February 28, 2012 subject to certain restrictions as defined. At the Companys option, payment of the $19.3 million could be extended one month by paying $2.5 million (the First Option Payment) no later than February 28, 2012 and could be extended an additional month by paying $2.5 million (the Second Option Payment) no later than March 31, 2012 with both payments applying to the Balance. On March 27, 2012, an addendum to the Definitive Agreement was executed which eliminated the Second Option Payment and replaced it with payments of $500,000 due March 30, 2012, April 6, 2012, April 13, 2012, April 20, 2012 and April 27, 2012. On May 11, 2012, the Company made its final payment in accordance with the Definitive Agreement and its addendum using proceeds from the capital contribution (see Note 9).
On April 2, 2012, the Company entered into a Letter of Intent to purchase the assets of a video lottery terminal business for a total cash consideration of $5.0 million dollars. $1.8 million of the purchase price would be paid upon the execution of an asset purchase agreement and $3,000,000 would be paid at closing. On April 5, 2012, the Company paid a $200,000 (the Lock-up Fee) to secure a 60-day exclusivity period, to perform due diligence related to the acquisition. The Company also received a license for a game title as consideration for the
F-37
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
Lock-up Fee. The payment of the Lock-up Fee is included as part of purchased software on the Companys consolidated financial statements. On May 31, 2012, the Company terminated its Letter of Intent for the acquisition and received a license for an additional game title.
On July 13, 2012, the Company entered into a contract rights under development agreement with a new tribal customer for the right to place Class II games in exchange for a single up-front payment of $640,000. The amount will be amortized over the life of the agreement.
On February 22, 2013, the Company paid a contract renewal fee of $550,000 to extend the lease agreement with its second largest customer. These costs were capitalized as an intangible and amortized over the life of the agreement.
On February 28, 2013, the Company paid a placement fee of $400,000 to renew the agreement with an existing customer. These costs were capitalized as an intangible and amortized over the life of the agreement.
During 2013, the Company has entered into multiple development agreements with various third parties to provide new content or update current content for new markets. Payments are due when certain targets are reached in the development process.
In September 2013, the Company recognized an impairment charge for an intangible related to a lease incentive paid to a company that operates and services slot routes in Illinois of $1,390,500.
Intangibles are amortized over the respective useful lives of the assets ranging from two to ten years. Amortization expense related to intangibles, inclusive of accretion of contract rights under development agreements and customer agreements, was $13,173,505 and $14,539,932 for the nine months ended September 30, 2013 and 2012, respectively.
Amortization expense related to contract rights under development agreements and customer agreements, or accretion of contract rights under development agreements and customer agreements, is netted against gaming revenue in the accompanying statements of operation and other comprehensive loss.
6. Canadian Tax Receivable
Certain Company expenditures incurred through its subsidiary AGS Toronto are eligible for the Ontario Interactive Digital Media Tax Credit (OIDMTC). The OIDMTC is a refundable payroll tax credit paid to corporations that develop interactive digital media products within Ontario. The OIDMTC is based upon the Ontario labor expenditures and eligible marketing and distribution expenditures claimed by a qualifying corporation with respect to eligible products. For a certified game developer, eligible expenses include Ontario salaries and wages. The developer must incur at least $1 million of Ontario labor expenses per year developing eligible interactive digital media games to qualify. The Company has recognized a Canadian Tax Receivable related to the OIDMTC of $3,974,398 and $3,369,905 as of September 30, 2013 and December 31, 2012, respectively. In September 2012, the Company collected $1,180,856 for the 2009 application and filed applications for 2010 and 2011 in May 2013. The application for 2012 was filed in October 2013.
F-38
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 30, 2013 and December 31, 2012 are as follows:
2013 | 2012 | |||||||
Trade accounts payable |
$ | 1,436,900 | $ | 512,100 | ||||
Salary and payroll tax accrual |
1,436,814 | 1,277,822 | ||||||
Accrued commission |
269,810 | 212,803 | ||||||
Accrued other |
2,463,804 | 3,266,308 | ||||||
|
|
|
|
|||||
$ | 5,607,328 | $ | 5,269,033 | |||||
|
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|
|
8. Long-term Debt
Long-term debt consisted of the following at September 2013 and December 31, 2012:
2013 | 2012 | |||||||
$115 million Initial Term Loan, interest above LIBOR or base rate (11.50% at September 30, 2013), net of unamortized discount of $4.2 million |
$ | 110,758,163 | $ | 110,203,176 | ||||
$15 million Delayed Draw Term Loan, interest above LIBOR or base rate (11.50% at September 30, 2013). |
15,000,000 | 7,500,000 | ||||||
Aristocrat long-term note payable |
78,180 | 448,122 | ||||||
|
|
|
|
|||||
Total debt |
125,836,343 | 118,151,298 | ||||||
LessAmounts due within one year |
(1,703,180 | ) | (382,972 | ) | ||||
|
|
|
|
|||||
Long-term debt |
$ | 124,133,163 | $ | 117,768,326 | ||||
|
|
|
|
On August 15, 2012, the Company entered into a $130 million senior secured credit agreement with UBS Securities, LLC (UBS). Under this credit agreement the Company borrowed $115 million as an Initial Term Loan and utilized the proceeds to repay all amounts outstanding under the May 14, 2007 UBS credit agreement and fund operations. The agreement includes a $15 million Delayed Draw Term Loan commitment, which was fully drawn as of February 15, 2013. The Initial Term Loan and the Delayed Draw Term Loans, collectively the Term Loans, accrue interest at LIBOR or base rate, at the borrowers election, subject to an interest rate floor plus an applicable margin rate. Aggregate principal amounts of the Term Loans are payable in quarterly installments equal to 1.25% of the outstanding balance beginning September 30, 2014 with the final installment payable at August 15, 2016. The Term Loans are subject to certain financial covenants and other covenants including a total leverage ratio and an interest coverage ratio, as well as limits on capital expenditures. The Company was in compliance with all covenants as of September 30, 2013.
On April 16, 2013, the Company entered into the first amendment to the 2012 UBS credit agreement which, among other items, revised the financial covenant requirements beginning with the first quarter of 2013 extending through the term of the agreement.
F-39
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
9. Related Party Transactions
On June 1, 2009, the Company sold 150 gaming machines and related gaming equipment to the former Chief Executive Officer of the Company, through a $655,060 promissory note, which bears interest at a rate of 8.5% per year, with all interest and principal payable upon maturity at June 1, 2011. Effective November 1, 2011, amounts outstanding under this obligation will be paid through the assigned proceeds from certain game positions currently placed in a Native American casino. Amounts due under this note receivable were $446,623 and $562,146 as of September 30, 2013 and December 31, 2012, respectively.
The Company had other receivables from related parties totaling $1,988,759 at December 31, 2010 which was presented as a contra-equity item within the accompanying consolidated statement of members deficit. The receivable was cancelled in 2011.
During 2010, the Company entered into a separate exclusive distributor agreement with Game Ingenuity (in which a related party is a principal) to place or sell games developed utilizing Game Ingenuity intellectual property into all markets where the Company is licensed or will be licensed within one year from the placement of the first game, or as otherwise mutually agreed between the parties. During 2012 and 2011 the Company has not incurred any expense as part of this agreement.
During 2012 and 2011, the Companys member contributed capital totaling $60.7 million and $13.8 million respectively, to the Company. Approximately $50.7 million of the 2012 contributed capital was utilized to cure debt covenant violations, repay the current obligations of debt (See Note 8), finance the final payment of the Definitive Agreement (See Note 5) and to provide working capital for the Company. $10.0 million of the 2012 contributed capital was a forgiveness of long-term debt to a related party that occurred in August 2012 associated with the Company entering the Initial Term Loan. The entire 2011 contributed capital was utilized to cure debt covenant violations and provide working capital for the Company (See Note 8)
On October 25, 2012 the Company assumed a note receivable which was held by Alpine AGS, LLC in the amount of $1,864,500, as further described in Note 3 for note receivable C.
10. Write Downs and Other Charges
The consolidated statements of operation and comprehensive loss include various non-routine transactions and related party consulting fees. For nine months ended September 30, 2013 write downs and other charges consisted of $202,500, for consulting fees paid to a related party for 2013 offset by a $22,500 refund of debt costs related to the 2007 UBS debt paid in 2012. For the nine months ended September 30, 2012 write downs and other charges consisted of $3,585,939 of costs related to the write off of debt issues costs related to the 2007 UBS debt agreement and other costs in conjunction with an unsuccessful financing transaction as well as $75,000 for consulting fees paid to a related party.
11. Benefit Plans
The Company has implemented the AGS Holdings Inc. Phantom Units Plan (the Plan) which is intended to reinforce and encourage the continued attention and dedication of certain Covered Executives (as defined) to their assigned duties to the Company until a Change in Control (as defined) has occurred. Units of the Plan have been issued as a percentage and in terms of number of units within the Plan at a strike price of $56,000,000 and vest over a period of up to four years. The value of the units is determined as the product of the percentage held
F-40
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
in the Plan and the summation of the enterprise value of the Company less the net debt of the Company less the strike price. The liability associated with the Plan will ultimately be settled for cash; therefore the Company will adjust the liability to its estimated fair value each reporting period through phantom unit compensation in the accompanying consolidated statement of operations. As of September 30, 2013 and 2012, 1055 and 905, respectively, of phantom units were granted which represents 10.55% and 9.05% of the equity value of the Company that exceeds $56,000,000 plus membership contributions as define by the Plan. For the nine months ended September 30, 2013, the Company has assessed the liability of the plan based on estimated purchase price as indicated in the Acquisition Agreement and recorded an expense of $463,018 and $653,596, respectively, which was included in general administrative expense.
On April 1, 2013 the Plan was amended to increase the strike price to $90,000,000 until January 1, 2014 at which time it shall increase to $115,000,000.
12. Commitments and Contingencies
On October 11, 2011, the Company entered into a licensing agreement with Ripleys Entertainment to develop casino games based in the Ripleys Believe it or Not brand. The licensing agreement which, guarantees Ripleys Entertainment $600,000 in royalties, commenced upon the execution of the agreement and will expire on September 30, 2014 subject to one year renewals at the option of the Company. The Company paid a prepaid royalty of $200,000 upon execution of the agreement and in October 2012 an additional $200,000 was advanced under the terms of the agreement.
On May 14, 2012, the Company entered into a licensing agreement with One Three Television, LLC (One Three) to develop casino games based in the Are You Smarter than a 5 th Grader brand. The licensing agreement which, guarantees One Three $400,000 in royalties, will commence May 8, 2012 and expires on December 1, 2017 subject to a two year renewal at the option of the Company. The Company paid a prepaid royalty of $200,000 upon execution of the agreement and in December 2012 an additional $100,000 was advanced under the terms of the agreement.
On October 5, 2012, the Company entered into a licensing agreement with Freemantle Media North America, Inc. (Freemantle) to develop casino games based in the Family Feud brand. The licensing agreement which, guarantees Freemantle $650,000 in royalties, will commence October 5, 2012 and expires on December 31, 2017 subject to a three year renewal at the option of the Company. The Company paid a prepaid royalty of $200,000 upon execution of the agreement.
On February 28, 2013, the Company entered into a licensing and security interest agreement with Pay it Again Poker, LLC to purchase all rights, title and interest in and to Pay it Again Pokers SuperChance Poker trademark and patents. The Company prepaid a $100,000, nonrefundable royalty payment due 15 days after execution of the agreement, with a final non-refundable, minimum royalty payment of $400,000 due on or before December 1, 2013. The trademark and patents are subject to an exclusive license back for all internet rights and other non-slot machine applications.
During 2013, the Company has entered into multiple development agreements with various third parties to provide new content or update current content for new markets. Payments are due when certain targets are reached in the development process.
F-41
AGS Capital, LLC
(A limited liability company)
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2013 and 2012
13. Supplemental Accumulated Other Comprehensive Income Information
Changes in the balance of accumulated other comprehensive income, by component, are presented below:
Currency
Translation Adjustments |
Total | |||||||
At December 31, 2012 |
$ | 524,774 | $ | 524,774 | ||||
Other comprehensive loss |
(23,022 | ) | (23,022 | ) | ||||
|
|
|
|
|||||
At September 30, 2013 |
$ | 501,752 | $ | 501,752 | ||||
|
|
|
|
14. Subsequent Events
In October 2013, the Company entered into financing agreements to purchase 450 gaming machines from various third party suppliers for lease to a company that operates and service slot routes in Illinois. The agreements require monthly payments of interest and principle and have terms ranging from 24 to 36 months and carry an interest rate from 8.0% to 8.5%.
On November 22, 2013, the route operator referenced in Note C, completed a permanent financing agreement with a third party. As a condition of the financing, the Company received a principal payment of approximately $3 million as payment in full for specific loans. The Company waived all outstanding interest due on these loans through the date of the financing and will record the amount as a lease incentive and amortize the amount over the remaining length of the lease. The remaining notes have been consolidated into a single loan and will accrue interest at 13%. Interest payments will be in kind until such time as the third party debt is paid in full; however monthly amortization payments paid in cash will begin May 2015 and continue through the maturity of the loan.
F-42
Exhibit 2.1
AMENDED AND RESTATED EQUITY PURCHASE AGREEMENT
by and among
AGS CAPITAL, LLC,
AGS HOLDINGS, LLC
and
AP GAMING ACQUISITION, LLC
December 3, 2013
This document is not intended to create nor will it be deemed to create
a legally binding or enforceable offer or agreement of any type or nature,
unless and until agreed to and executed by the parties.
Table of Contents
Page | ||||||
ARTICLE I PURCHASE AND SALE OF THE SECURITIES | 1 | |||||
1.01 |
Basic Transaction | 1 | ||||
1.02 |
Purchase Price | 1 | ||||
1.03 |
The Closing | 2 | ||||
1.04 |
The Closing Transactions | 3 | ||||
1.05 |
Closing Purchase Price. | 3 | ||||
1.06 |
Post-Closing Adjustment Payment | 6 | ||||
1.07 |
U.S. Federal Income Tax Treatment; Allocation of Purchase Price | 7 | ||||
1.08 |
Withholding | 7 | ||||
ARTICLE II CONDITIONS TO CLOSING | 8 | |||||
2.01 |
Conditions to the Purchasers Obligations | 8 | ||||
2.02 |
Conditions to the Sellers Obligations | 10 | ||||
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER | 11 | |||||
3.01 |
Organization and Authority | 11 | ||||
3.02 |
Title to Securities | 11 | ||||
3.03 |
No Violation | 11 | ||||
3.04 |
No Other Notices, Reports or Filings | 11 | ||||
3.05 |
No Other Representations or Warranties | 12 | ||||
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY | 12 | |||||
4.01 |
Organization and Corporate Power | 12 | ||||
4.02 |
Authorization; No Breach; Valid and Binding Agreement | 13 | ||||
4.03 |
Capitalization | 13 | ||||
4.04 |
Subsidiaries | 14 | ||||
4.05 |
Financial Statements | 14 | ||||
4.06 |
Absence of Certain Developments | 15 | ||||
4.07 |
Title to Properties | 16 | ||||
4.08 |
Tax Matters | 16 | ||||
4.09 |
Contracts and Commitments | 18 | ||||
4.10 |
Intellectual Property | 20 | ||||
4.11 |
Litigation | 20 | ||||
4.12 |
Governmental Consents, etc. | 20 | ||||
4.13 |
Gaming Approvals | 20 | ||||
4.14 |
Employee Benefit Plans | 20 | ||||
4.15 |
Insurance | 22 | ||||
4.16 |
Compliance with Laws | 23 | ||||
4.17 |
Environmental Compliance and Conditions | 23 | ||||
4.18 |
Affiliated Transactions | 24 | ||||
4.19 |
Employees | 24 | ||||
4.20 |
Undisclosed Liabilities | 24 |
i
4.21 |
Brokerage |
24 | ||||
4.22 |
Customers |
24 | ||||
4.23 |
Installed Units |
25 | ||||
4.24 |
Route Management System |
25 | ||||
4.25 |
NO OTHER REPRESENTATIONS AND WARRANTIES |
25 | ||||
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER |
26 | |||||
5.01 |
Organization and Corporate Power |
26 | ||||
5.02 |
Authorization |
26 | ||||
5.03 |
No Violation |
26 | ||||
5.04 |
Governmental Entities; Consents |
26 | ||||
5.05 |
Litigation |
26 | ||||
5.06 |
Brokerage |
27 | ||||
5.07 |
Investment Representation |
27 | ||||
5.08 |
Financing |
27 | ||||
5.09 |
Gaming Approvals and Licensing Matters |
28 | ||||
5.10 |
Solvency |
28 | ||||
ARTICLE VI COVENANTS OF THE SELLER AND THE COMPANY |
28 | |||||
6.01 |
Conduct of the Business |
28 | ||||
6.02 |
Access to Books and Records |
31 | ||||
6.03 |
Section 280G Member Approval |
32 | ||||
6.04 |
Notification |
32 | ||||
6.05 |
No Solicitation |
32 | ||||
6.06 |
Financing Cooperation |
32 | ||||
ARTICLE VII COVENANTS OF THE PURCHASER AND THE COMPANY |
36 | |||||
7.01 |
Access to Books and Records |
36 | ||||
7.02 |
Notification |
36 | ||||
7.03 |
Director and Officer Liability and Indemnification |
36 | ||||
7.04 |
Employment and Benefit Arrangements |
37 | ||||
7.05 |
Financing |
38 | ||||
7.06 |
Note Receivables |
38 | ||||
ARTICLE VIII COVENANTS OF THE PURCHASER, SELLER AND COMPANY |
39 | |||||
8.01 |
Antitrust Filings |
39 | ||||
ARTICLE IX INDEMNIFICATION |
41 | |||||
9.01 |
Survival of Representations, Warranties, Covenants, Agreements and Other Provisions |
41 | ||||
9.02 |
Indemnification by the Seller for the Benefit of the Purchaser |
41 | ||||
9.03 |
Indemnification by the Purchaser for the Benefit of the Seller |
43 | ||||
9.04 |
Mitigation |
44 | ||||
9.05 |
Defense of Third-Party Claims |
44 | ||||
9.06 |
Determination of Loss Amount |
45 | ||||
9.07 |
Acknowledgment of the Purchaser |
45 | ||||
9.08 |
Availability and Release of Indemnity Escrow Amount |
46 |
ii
ARTICLE X TERMINATION |
47 | |||||
10.01 |
Termination |
47 | ||||
10.02 |
Termination Fee |
48 | ||||
10.03 |
Effect of Termination |
49 | ||||
ARTICLE XI ADDITIONAL COVENANTS |
49 | |||||
11.01 |
Tax Matters |
49 | ||||
11.02 |
Further Assurances |
54 | ||||
11.03 |
Disclosure Generally |
54 | ||||
11.04 |
Resignations |
54 | ||||
11.05 |
No Control of the Companys Business |
55 | ||||
11.06 |
Conflicts; Privileges |
55 | ||||
11.07 |
Specific Enforcement |
55 | ||||
ARTICLE XII DEFINITIONS |
56 | |||||
12.01 |
Definitions |
56 | ||||
12.02 |
Other Definitional Provisions |
68 | ||||
12.03 |
Cross-Reference of Other Definitions |
68 | ||||
ARTICLE XIII MISCELLANEOUS |
70 | |||||
13.01 |
Press Releases and Communications |
70 | ||||
13.02 |
Expenses; Attorneys Fees |
70 | ||||
13.03 |
Notices |
71 | ||||
13.04 |
Assignment |
72 | ||||
13.05 |
Severability |
72 | ||||
13.06 |
References |
73 | ||||
13.07 |
Construction |
73 | ||||
13.08 |
Amendment and Waiver |
74 | ||||
13.09 |
Complete Agreement |
74 | ||||
13.10 |
Third-Party Beneficiaries |
74 | ||||
13.11 |
Waiver of Trial by Jury |
74 | ||||
13.12 |
Delivery by Facsimile or PDF |
74 | ||||
13.13 |
Counterparts |
75 | ||||
13.14 |
Governing Law; Forum |
75 | ||||
13.15 |
No Recourse |
75 |
SCHEDULE A | Securities Owned |
iii
EXHIBITS
Exhibit A |
Form of Closing Certificate of the Seller | |
Exhibit B |
Form of Closing Certificate of the Company | |
Exhibit C |
Form of Closing Certificate of the Purchaser | |
Exhibit D |
Debt Commitment Letters | |
Exhibit E |
Equity Commitment Letter | |
Exhibit F |
Form of Escrow Agreement | |
Exhibit G |
Form of Seller Note | |
Exhibit H |
Form of Accel Second Amendment to Equipment Agreement |
iv
EQUITY PURCHASE AGREEMENT
THIS AMENDED AND RESTATED EQUITY PURCHASE AGREEMENT (this Agreement ), dated as of December 3, 2013, is made by and among AGS CAPITAL, LLC, a Delaware limited liability company (the Company ), AGS HOLDINGS, LLC, a Delaware limited liability company (the Seller ), and AP GAMING ACQUISITION, LLC, a Delaware limited liability company (the Purchaser ). Capitalized terms used and not otherwise defined herein have the meanings set forth in Article XII below.
This Agreement amends and restates and replaces the Equity Purchase Agreement, dated as of September 16, 2013, by and among the Company, the Seller and the Purchaser (the Original Agreement ), in its entirety. All references herein to the the date of this Agreement or the date hereof shall be deemed to be references to September 16, 2013, the date of the Original Agreement, unless this Agreement specifically states otherwise.
WHEREAS, the parties have determined that it is in the best interest of their respective companies to consummate the transactions provided for in the Original Agreement;
WHEREAS, the parties have engaged in various discussions and communications concerning the simplification of the Closing Purchase Price calculation and the post-closing adjustments to the Closing Purchase Price; and
WHEREAS, the Purchaser desires to acquire all of the issued and outstanding membership interests of the Company (the Securities ), and the Seller desires to sell all of the Securities, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SECURITIES
1.01 Basic Transaction . On and subject to the terms and conditions of this Agreement, at the Closing, the Purchaser agrees to purchase from the Seller, and the Seller agrees to sell to the Purchaser, all of the Securities for the consideration specified below in this Article I .
1.02 Purchase Price . As consideration for all of the Securities, the Purchaser shall pay to the Seller the following items identified in this Section 1.02 (collectively, the Purchase Price ).
(a) At the Closing, the Purchaser agrees to pay to the Seller an aggregate amount (the Closing Purchase Price ) equal to (i) Two Hundred Fifteen Million and 00/100 Dollars ($215,000,000.00) in cash, plus (ii) the amount (if any) by which the Estimated Net Working Capital exceeds the Target Working Capital, minus (iii) the amount (if any) by which
the Estimated Net Working Capital is less than the Target Working Capital, minus (iv) the amount (if any) by which the Estimated Indebtedness exceeds the Target Indebtedness, plus (v) the Estimated 2014 Capex Overspend Amount, if applicable, minus (vi) the Accel Settlement Amount, if applicable, minus (vii) the amount (if any) by which the Estimated Cash is less than the Minimum Operating Cash, plus (viii) the Settled Earnout Amount and plus (ix) only if the Closing shall occur on or after January 15, 2014, an amount equal to the Second-Half Non-Illinois Machine Placement Adjustment; provided that 100% of any amounts owed pursuant to clause (ix) of this Section 1.02(a) shall be paid in the form a Seller Note, the principal amount of which shall equal 100% of such amounts owed pursuant to clause (ix) of this Section 1.02(a) (which shall not be netted against or added to the cash payments due pursuant to this Section 1.02(a) ). For the avoidance of doubt, the Closing Purchase Price shall only include the Second-Half Non-Illinois Machine Placement Adjustment if the Closing occurs on or after January 15, 2014.
(b) In the event that the Closing shall occur prior to January 15, 2014, then no later than January 15, 2014, the Purchaser shall send the Seller a written notice with reasonable supporting detail setting forth the Second-Half Non-Illinois Machine Placement Adjustment and the number of Second-Half Non-Illinois Placed Machines and the Purchaser shall substantially concurrently pay to the Seller an amount equal to the Second-Half Non-Illinois Machine Placement Adjustment; provided that 100% of any amounts owed pursuant to this Section 1.02(b) shall be paid in the form of a Seller Note, the principal amount of which shall equal 100% of such amounts owed pursuant to this Section 1.02(b) . For the avoidance of doubt, if the Closing shall occur prior to January 15, 2014, the Second-Half Non-Illinois Machine Placement Adjustment shall be paid to the Seller after the Closing but in no event later than January 15, 2014; if the Closing shall occur on or after January 15, 2014, the Second-Half Non-Illinois Machine Placement Adjustment shall be paid to the Seller at the Closing pursuant to Section 1.02(a) .
(c) Notwithstanding the foregoing, in no event shall the sum of the Second-Half Non-Illinois Machine Placement Adjustment and the Settled Earnout Amount exceed Thirty-Five Million and 00/100 Dollars ($35,000,000.00) in the aggregate, whether such payments have been made in the form of Cash or one or more Seller Note(s), and, for the avoidance of doubt, the maximum value of the Second-Half Non-Illinois Machine Placement Adjustment shall be Twenty-Seven Million Five Hundred and Five Thousand and 00/100 Dollars ($27,505,000.00). Once $35,000,000.00 shall have been paid to the Seller in respect of the Settled Earnout Amount and all or any part of the Second-Half Non-Illinois Machine Placement Adjustment, then no further amounts shall be payable to Seller in respect of any such adjustments. Any dispute regarding the Second-Half Non-Illinois Machine Placement Adjustment shall be handled in accordance with the dispute resolution provisions of Section 1.05(b) , mutatis mutandis.
1.03 The Closing . The closing of the transactions contemplated by this Agreement (the Closing ) shall take place at (a) the offices of Duane Morris LLP located at 190 South LaSalle Street, Suite 3700, Chicago, Illinois at 10:00 a.m. (Central time) on the later of (i) the third (3rd) business day following the satisfaction or waiver of all of the closing conditions set forth in Article II hereof (other than those to be satisfied at the Closing) and (ii) if applicable, the earlier of (A) a date during the Marketing Period to be specified by the Purchaser on no fewer than two (2) Business Days notice to the Company and (B) the third (3rd) Business Day after the
end of the Marketing Period, or (b) at such other place, time or date (or by facsimile or electronic mail transmission) as is mutually agreeable to the Purchaser and the Seller. The date and time of the Closing are referred to herein as the Closing Date .
1.04 The Closing Transactions . Subject to the terms and conditions set forth in this Agreement, the parties hereto shall consummate the following transactions on the Closing Date:
(a) the Seller shall deliver to the Purchaser all of the certificates evidencing the Securities duly endorsed for transfer or accompanied by duly executed security transfer powers or other form of assignment and transfer;
(b) the Purchaser shall deliver to the Seller the Closing Purchase Price less the Escrow Amount by (i) wire transfer of immediately available funds to the account(s) designated by the Seller and (ii) to the extent applicable, by one or more Seller Note(s) as provided in Section 1.02(a) ;
(c) the Purchaser shall deliver to the Escrow Agent the Escrow Amount by wire transfer of immediately available funds to the accounts designated by the Escrow Agent;
(d) the Purchaser shall, at the direction of the Seller, cause to be repaid in full out of the Closing Purchase Price, on behalf of the Company and its Subsidiaries, all of the Closing Indebtedness by wire transfer of immediately available funds to the account(s) designated by the holders of such Closing Indebtedness on terms and conditions acceptable to the Seller;
(e) the Seller shall deliver to the Purchaser evidence satisfactory to the Purchaser (including customary payoff letters and UCC termination statements) that all Liens on the Securities and/or the Companys assets securing Closing Indebtedness (in each case, other than Permitted Liens) shall be released upon the payment of these in full;
(f) the Company and the Seller shall each deliver to the other a counterpart to an assignment agreement, in a form to be mutually reasonably agreed, assigning the Assignable Notes to the Seller (or an affiliate thereof); and
(g) the Purchaser and the Seller shall make such other deliveries as are required by Article II hereof.
1.05 Closing Purchase Price .
(a) No less than seven (7) days prior to the anticipated Closing Date, the Seller shall deliver to the Purchaser a good faith estimate of the Closing Purchase Price, which shall include the Settled Earnout Amount, the Second-Half Non-Illinois Machine Placement Adjustment only if the Closing occurs on or after January 15, 2014, and individual estimates for each of Net Working Capital (the Estimated Net Working Capital ), Indebtedness (the Estimated Indebtedness ), Cash (the Estimated Cash ), and the 2014 Capex Overspend Amount (the Estimated 2014 Capex Overspend Amount and together with the Estimated Indebtedness, the Estimated Net Working Capital and the Estimated Cash, the Estimated Amounts ) as of the anticipated Closing Date in a notice (the Closing Notice ) that sets forth Sellers calculations of the
Estimated Amounts and the Closing Purchase Price. The Closing Notice shall be in the form set forth on Schedule 1.05(a) and shall contain reasonable supporting detail. Not less than three (3) Business Days prior to the anticipated Closing Date, the Purchaser shall notify the Seller in the event that it disputes any aspect of the Estimated Amounts or the Closing Purchase Price or the calculations thereof. Prior to the Closing Date, the Purchaser and the Seller shall negotiate in good faith to resolve such dispute (or any aspect thereof). The amount so agreed following such negotiations (or as otherwise so agreed) shall be the Estimated Amounts and the Closing Purchase Price for purposes of the Closing. If the Purchaser and the Seller are unable to resolve such dispute, the Estimated Amounts and the Closing Purchase Price set forth in the Closing Notice shall be the Estimated Amounts and Closing Purchase Price for the purposes of the Closing.
(b) As promptly as possible, but in any event within sixty (60) days after the Closing Date, the Purchaser shall deliver to the Seller a consolidated balance sheet of the Company as of the close of business on the day immediately preceding the Closing Date (the Closing Balance Sheet ) and a statement (in the form set forth on Schedule 1.05(a) ) showing Purchasers calculation of the actual Indebtedness, the Net Working Capital, Cash, and, to the extent applicable, the actual 2014 Capex Overspend Amount, and the resulting Closing Purchase Price derived from the Closing Balance Sheet (together with the Closing Balance Sheet, the Preliminary Statement ). The Closing Balance Sheet shall be prepared and the Net Working Capital, Cash and Indebtedness shall be determined on a consolidated year-end basis in accordance with (i) U.S. GAAP applicable to the Business on a stand-alone basis and (ii) subject to clause (i), on a consistent basis and measured and calculated using the same accounting methods, policies, principles, practices and procedures, with consistent classifications, judgments and estimation methodology, as were used in preparation of the audited consolidated balance sheet of the Company, as of the fiscal year ended December 31, 2012, contained within the 2012 Financial Statements (the 2012 Balance Sheet ), or, to the extent applicable, in accordance with any changes to such accounting methods, policies, principles, practices and procedures or as otherwise set forth on Schedule 1.05(b) (collectively, the Transaction Accounting Principles ). The parties agree that the purpose of preparing the Closing Balance Sheet and determining the Indebtedness, the Cash, the Net Working Capital and the related purchase price adjustment contemplated by this Section 1.05 is to measure changes in the Indebtedness, the Cash and Net Working Capital so as to ensure compliance with U.S. GAAP and such changes resulting only from the operation of the Business and that such changes can be measured properly only if the calculation is done in accordance with the Transaction Accounting Principles, and such processes are not intended to permit the introduction of different judgments, accounting methods, policies, principles, practices, procedures, classifications or estimation methodologies for the purpose of preparing the Closing Balance Sheet or determining the Indebtedness, the Cash and the Net Working Capital. After delivery of the Preliminary Statement, the Purchaser shall give the Seller and its accountants reasonable access during the 30-day period after delivery of the Preliminary Statement to review the work papers, schedules, memoranda and other documents prepared or reviewed by the Purchaser and its accountants in connection with the preparation of the Preliminary Statement. The Seller and its accountants may make reasonable inquiries of the Purchaser, the Company and their respective accountants regarding questions concerning, or disagreements with, the Preliminary Statement arising in the course of its review thereof, and the Purchaser shall use its commercially reasonable efforts to cause its accountants to cooperate with and respond to such inquiries. If the Seller has any objections to the Preliminary Statement, the Seller shall deliver to the Purchaser a statement setting forth its objections thereto (an Objections Statement ). If an Objections
Statement is not delivered to the Purchaser within thirty (30) days after delivery of the Preliminary Statement, the Preliminary Statement shall be final, binding and non-appealable by the parties hereto. The Seller and the Purchaser shall negotiate in good faith to resolve any such objections, but if they do not reach a final resolution within fifteen (15) days after the delivery of the Objections Statement, the Seller and the Purchaser shall submit such dispute to a mutually acceptable independent certified public accountant (the Independent Accounting Firm ) or if the Seller and the Purchaser are unable to agree upon such person within such fifteen (15) Business Days, then, within an additional ten (10) Business Days, the Seller and the Purchaser shall each select one such person and those two persons shall within five (5) Business Days after such persons have been selected select a third such person, in which event Independent Accounting Firm shall mean such third person. Each of the Purchaser, on the one hand, and the Seller, on the other hand, shall submit an affidavit to the other evidencing no conflict or other meaningful professional relationship with the Independent Accounting Firm, and the Independent Accounting Firm shall so certify in writing to the Purchaser and the Seller that no such conflicts or other meaningful professional relationships exist. Any further submissions to the Independent Accounting Firm must be written and delivered to each party to the dispute. The Independent Accounting Firm shall consider only those items and amounts that are identified in the Objections Statement as being items that the Seller and the Purchaser are unable to resolve. The Independent Accounting Firms determination will be based solely on the definitions of Net Working Capital, Indebtedness, Cash, and to the extent applicable, the 2014 Capex Overspend Amount contained herein. The Seller and the Purchaser shall use their commercially reasonable efforts to cause the Independent Accounting Firm to resolve all disagreements as soon as practicable and in any event within twenty (20) days after the submission of any dispute. The resolution of the dispute by the Independent Accounting Firm shall be final, binding and non-appealable on the parties hereto. The costs and expenses of the Independent Accounting Firm shall be borne in the same proportion that the aggregate dollar amount of such remaining disputed items so submitted to the Independent Accounting Firm that are unsuccessfully disputed by Purchaser, on the one hand, and the Seller, on the other hand, as finally determined by the Independent Accounting Firm, bears to the total dollar amount of such remaining disputed items so submitted. For the avoidance of doubt, but subject to Section 9.02(f) , the fact that a matter may be subject to the indemnification provisions of this Agreement shall not preclude consideration of such matter in connection with the calculation of the Estimated Amounts.
(c) If the Net Working Capital as finally determined pursuant to Section 1.05(b) is greater than the Estimated Net Working Capital, the Purchaser shall promptly pay to the Seller such excess amount by wire transfer of immediately available funds. If the Net Working Capital as finally determined pursuant to Section 1.05(b) is less than the Estimated Net Working Capital, the Seller shall promptly pay to the Purchaser such shortfall amount (i) first, pursuant to the terms of the Escrow Agreement from the Net Working Capital Escrow Account, and (ii) second, if the aggregate amount available from the Net Working Capital Escrow Account pursuant to the terms of the Escrow Agreement is insufficient to satisfy such amount, by wire transfer of immediately available funds. Notwithstanding the foregoing, if Purchaser is unable to recover any amounts pursuant to the foregoing clause (ii) within the time period specified in the second sentence of Section 1.06 , Purchaser may, at its option, cause funds to be released from the Indemnity Escrow Account in an amount equal to the remaining unpaid portion of the adjustment owed to Purchaser.
(d) If the Indebtedness as finally determined pursuant to Section 1.05(b) is less than the Estimated Indebtedness, the Purchaser shall promptly pay to the Seller such shortfall amount by wire transfer of immediately available funds. If the Indebtedness as finally determined pursuant to Section 1.05(b) is greater than the Estimated Indebtedness, the Seller shall promptly pay to the Purchaser such excess amount by wire transfer of immediately available funds. Notwithstanding the foregoing, if Purchaser is unable to recover any amounts within the time period specified in the second sentence of Section 1.06 , Purchaser may, at its option, cause funds to be released, if there are funds then remaining in the Net Working Capital Escrow Account, from the Net Working Capital Escrow Account and once exhausted, from the Indemnity Escrow Account, in an amount equal to the remaining unpaid portion of the adjustment owed to Purchaser.
(e) If the 2014 Capex Overspend Amount, if applicable, as finally determined pursuant to Section 1.05(b) is greater than the Estimated 2014 Capex Overspend Amount, the Purchaser shall promptly pay to the Seller such excess amount by wire transfer of immediately available funds. If the 2014 Capex Overspend Amount as finally determined pursuant to Section 1.05(b) is less than the Estimated 2014 Capex Overspend Amount, the Seller shall promptly pay to the Purchaser such shortfall amount by wire transfer of immediately available funds. Notwithstanding the foregoing, if Purchaser is unable to recover any amounts within the time period specified in the second sentence of Section 1.06 , Purchaser may, at its option, cause funds to be released, if there are funds then remaining in the Net Working Capital Escrow Account, from the Net Working Capital Escrow Account and once exhausted, from the Indemnity Escrow Account, in an amount equal to the remaining unpaid portion of the adjustment owed to Purchaser.
(f) If the Cash as finally determined pursuant to Section 1.05(b) is less than the Estimated Cash, the Seller shall promptly pay to the Purchaser such shortfall amount by wire transfer of immediately available funds. Notwithstanding the foregoing, if Purchaser is unable to recover any amounts within the time period specified in the second sentence of Section 1.06 , Purchaser may, at its option, cause funds to be released, if there are funds then remaining in the Net Working Capital Escrow Account, from the Net Working Capital Escrow Account and once exhausted, from the Indemnity Escrow Account, in an amount equal to the remaining unpaid portion of the adjustment owed to Purchaser.
(g) Amounts due from the Seller to the Purchaser or from the Purchaser to the Seller, as the case may be, pursuant to Sections 1.05(c), (d) , (e) , and/or (f ) shall be netted against or added to each other, as the case may be, and the amount representing the result of such netting or adding shall be paid by the Seller or the Purchaser, as applicable, in accordance with this Section 1.05 and Section 1.06 .
1.06 Post-Closing Adjustment Payment .
(a) The Purchaser shall promptly (but in any event within three (3) Business Days) deliver to the Seller any amounts determined pursuant to Section 1.05(g) to be due by the Purchaser by wire transfer of immediately available funds to the account(s) designated by the Seller. The Seller shall promptly (but in any event within three (3) Business Days) deliver to the Purchaser any amounts determined pursuant to Section 1.05(g) to be due by the Seller by wire transfer of immediately available funds, as applicable, to an account or accounts designated by the Purchaser, or to the extent required or permitted pursuant to Section 1.05, from the Escrow Accounts.
(b) If the Closing shall occur prior to January 15, 2014, then the Second-Half Non-Illinois Machine Placement Adjustment shall be paid to the Seller post-Closing and shall take the form of a Seller Note, the principal amount of which shall equal 100% of such amount owed. If the Closing shall occur on or after January 15, 2014, then the Second-Half Non-Illinois Machine Placement Adjustment shall be paid at the Closing and shall take the form of a Seller Note, the principal amount of which shall equal 100% of such amount owed.
1.07 U.S. Federal Income Tax Treatment; Allocation of Purchase Price .
(a) The Seller and the Purchaser agree to treat, for U.S. federal income tax purposes (and applicable state and local tax purposes), the sale of Securities by the Seller to the Purchaser as if the Seller sold to the Purchaser all of the assets of the Company and its Subsidiaries, including for this purpose the assets of American Gaming Systems Toronto, Ltd. ( AGST ) (such assets collectively, the Tax Purchased Assets ), in exchange for the Purchase Price (as finally adjusted determined pursuant to Section 1.05 ) and the assumption of the liabilities of the Company and its Subsidiaries and any other amounts treated as consideration for U.S. federal income tax purposes (such treatment, the Transaction Tax Treatment ).
(b) The Purchaser and the Seller shall allocate the Purchase Price (as finally determined pursuant to Section 1.05 ), the liabilities of the Company and its Subsidiaries deemed assumed by the Purchaser and any other amounts treated as consideration for U.S. federal income tax purposes among the Tax Purchased Assets (the Allocation ) in the manner required by Section 1060 of the Code and the Treasury Regulations promulgated thereunder in accordance with Schedule 1.07(b) . The parties shall (and shall cause their respective Affiliates to) prepare and file all Tax Returns in a manner consistent with the Transaction Tax Treatment and the Allocation. None of the parties shall (and the parties shall cause their Affiliates not to) take any position in any Tax Proceeding inconsistent with the Transaction Tax Treatment or the Allocation, except to the extent otherwise required pursuant to a determination within the meaning of Section 1313(a) of the Code (or any similar provision of state, local or foreign Law). Notwithstanding the other provisions of this Section 1.07(b) or Schedule 1.07(b) , the parties agree that, to the extent relating to the Tax Purchased Assets of AGST, the Allocation shall apply solely for U.S. federal income tax purposes and the parties shall have the right to prepare Tax Returns and take positions in any Tax Proceeding, in each case for Canadian tax purposes, in a manner that is inconsistent with the Allocation.
1.08 Withholding . Purchaser shall be entitled to deduct and withhold from any amounts otherwise payable by Purchaser pursuant to this Agreement such amounts as Purchaser is required to deduct and withhold with respect to the making of such payment under the Code or any other applicable Tax Law. To the extent that any amounts are so deducted and withheld by Purchaser and are remitted to the appropriate Governmental Entity in accordance with applicable Law, such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction or withholding was made.
ARTICLE II
CONDITIONS TO CLOSING
2.01 Conditions to the Purchasers Obligations . The obligations of the Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by the Purchaser in writing) of the following conditions as of the Closing Date:
(a) (i) the representations and warranties of the Seller contained in Sections 3.01 (Organization and Authority) and 3.02 (Title to Securities) and the representations and warranties of the Company contained in Sections 4.01(a) (Organization and Corporate Power), 4.02 (Authorization; No Breach; Valid and Binding Agreement); 4.03 (Capitalization), 4.04 (Subsidiaries), the second sentence of Section 4.05 (Financial Statements), 4.06(ii) (Absence of Certain Developments), 4.18 (Affiliated Transactions), and 4.21 (Brokerage) shall be true and correct in all respects at and as of the date of this Agreement and the time of the Closing and as if made on the Closing Date and the Closing Date were substituted for the date of this Agreement throughout such representations and warranties, except for those representations and warranties that address matters as of any other particular date (in which case such representations and warranties shall have been true and correct as of such particular date) and (ii) the remaining representations and warranties of the Seller contained in Article III hereof and the remaining representations and warranties of the Company contained in Article IV hereof will be true and correct at and as of the date of this Agreement and time of the Closing and as if made on the Closing Date and the Closing Date were substituted for the date of this Agreement throughout such representations and warranties, without giving effect to any qualifications as to knowledge or materiality or a Material Adverse Effect or other qualifications contained therein (except to the extent expressly made as of an earlier date, in which case such representations and warranties shall have been true and correct as of such particular date), except in the case of this clause (ii) for such failures to be true and correct as would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
(b) the Seller and the Company shall each have performed in all material respects all of the covenants and agreements required to be performed by it under this Agreement at or prior to the Closing;
(c) since the date of this Agreement, there shall not have occurred any change, effect, development or circumstance that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect;
(d) the waiting periods (or extensions thereof) applicable to the consummation of the transactions contemplated under this Agreement under the HSR Act shall have expired or early termination thereof shall have been granted;
(e) the Purchaser shall have received all Required Gaming Approvals set forth on Schedule 2.01(e) ;
(f) no judgment, decree or order shall have been entered which would prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause such transactions to be rescinded;
(g) the Seller and the Company, as appropriate, shall have delivered to the Purchaser each of the following:
(i) a certificate of the Seller in the form set forth in Exhibit A , dated as of the Closing Date, stating that the preconditions specified in subsections (a) and (b) above have been satisfied;
(ii) a certificate of the Company in the form set forth in Exhibit B , dated as of the Closing Date, stating that the preconditions specified in subsections (a) and (b) above, as it relates to the Company, have been satisfied;
(iii) a certified copy of the certificate of formation of the Seller;
(iv) certified copies of the resolutions duly adopted by the Sellers board of managers (or similar governing body) authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby, and the consummation of all transactions contemplated hereby and thereby;
(v) a duly executed copy of the Escrow Agreement; and
(vi) a duly executed certificate or certificates, in form and substance reasonably satisfactory to the Purchaser, to the effect that the Purchaser is not required to withhold under section 1445 of the Code ( Section 1445 ), from any of the consideration to be paid hereunder, or establishing the basis for calculating the amount of such required withholding, it being understood that the sole result of the failure of the Seller to provide such a certificate or certificates shall be that the Purchaser may withhold from the Purchase Price in accordance with Section 1445 but that the Purchaser may not withhold or delay the Closing as a result of such failure. If the Closing occurs, all closing conditions set forth in this Section 2.01 which have not been fully satisfied as of the Closing shall be deemed to have been waived by the Purchaser; provided that the foregoing waiver shall be without any prejudice or other impact on any indemnification claims by Purchaser under this Agreement;
(h) provided that the Purchaser has given the Seller written notice at least fourteen (14) days prior to the Purchasers good faith anticipated Closing Date, then no later than seven (7) days prior to the Closing Date (the Conversion Date ), Seller shall have caused (i) AGST to convert, and AGST shall have been converted, to an Unlimited Liability Company under the laws of the Canadian provinces of Nova Scotia, Alberta or British Columbia, at the Purchasers election (including by continuing AGST into such jurisdictions and taking any other action required for such conversion) and (ii) AGST to file, and AGST shall have filed, an election pursuant to Treasury Regulation Section 301.7701-3 to be classified as a disregarded entity for U.S. federal income tax purposes effective as of the Conversion Date (together with clause (i), the NSULC Conversion ); and
(i) the Seller shall have delivered to the Purchaser written and fully executed assignment agreements in form and substance reasonably satisfactory to the Purchaser providing that the inventors of the patent applications listed on Schedule 2.01(i) (the Applicable Patents ) acknowledge that they have sold, assigned, transferred and set over, and do sell, assign, transfer and set over to AGS, LLC, its successors, legal representatives and assigns, the entire right, title, and interest throughout the world in and to the Applicable Patents, the inventions therein, and all divisions, renewals and continuations thereof, and all Patents of the United States which may be granted thereon and all reissues and extensions thereof.
2.02 Conditions to the Sellers Obligations . The obligation of the Seller to consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver of the following conditions as of the Closing Date:
(a) the representations and warranties of the Purchaser contained in Article V hereof will be true and correct in all material respects at and as of the time of the Closing as if made on the Closing Date and the Closing Date were substituted for the date of this Agreement throughout such representations and warranties, except (i) for changes contemplated by this Agreement, and (ii) for those representations and warranties that address matters as of any other particular date (in which case such representations and warranties shall have been true and correct in all material respects as of such particular date);
(b) the Purchaser shall have performed in all material respects all of the covenants and agreements required to be performed by it under this Agreement at or prior to the Closing;
(c) the waiting periods (or extensions thereof) applicable to the consummation of the transactions contemplated under this Agreement under the HSR Act shall have expired or early termination thereof shall have been granted;
(d) no judgment, decree or order shall have been entered which would prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause such transactions to be rescinded;
(e) All Required Gaming Approvals set forth on Schedule 2.01(e) shall have been received; and
(f) the Purchaser shall have delivered to the Seller each of the following:
(i) a certificate in the form set forth as Exhibit C , dated as of the Closing Date, stating that the preconditions specified in subsections (a) and (b) above have been satisfied;
(ii) a certified copy of the charter and a true and correct copy of the bylaws (or equivalent organizational documents if the Purchaser is not a corporation) of the Purchaser;
(iii) if applicable, a duly executed copy of any Seller Note(s) due at Closing pursuant to Section 1.02(a) of this Agreement;
(iv) a duly executed copy of the Escrow Agreement; and
(v) certified copies of the resolutions duly adopted by the Purchasers board of directors (or its equivalent governing body) authorizing the execution, delivery and performance of this Agreement.
If the Closing occurs, all closing conditions set forth in this Section 2.02 which have not been fully satisfied as of the Closing shall be deemed to have been waived by the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser as set forth below.
3.01 Organization and Authority . The Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, with full limited liability company power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement have been duly and validly authorized by all requisite limited liability company action on the part of the Seller. This Agreement has been duly and validly executed and delivered by the Seller and, assuming the due execution and delivery of this Agreement by the other parties hereto, constitutes the valid and binding legal obligation of the Seller, enforceable against the Seller in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights in general and subject to general principles of equity and the discretion of courts in granting equitable remedies.
3.02 Title to Securities . The Seller owns, beneficially and of record, those of the Securities as set forth on Schedule A , free and clear of all Liens, except for Permitted Liens, and the Securities set forth on Schedule A represent all the outstanding equity interests of the Company.
3.03 No Violation . The execution, delivery and performance by the Seller of this Agreement, and the Sellers performance of the transactions contemplated hereby, do not violate any applicable Law, do not and will not conflict with or result in any violation of, or constitute a breach of or default under (whether with or without notice or a lapse of time or both) any provision of the certificate of formation, operating agreement or other similar organization document of the Seller, or of any other agreement or obligation to which the Seller is a party, the breach of which would impair the Sellers ability to consummate such transactions.
3.04 No Other Notices, Reports or Filings . Except for compliance with, and the filing of a premerger notification and report form by an Affiliate of the Seller under the HSR Act, the Seller is not required to submit or cause to be submitted any notice, report or other filing with any Governmental Entity in connection with the execution, delivery or performance by it of
this Agreement or the consummation of the transactions contemplated hereby, and no consent, approval or authorization of any Governmental Entity or any other party or Person is required to be obtained by the Seller in connection with its execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby.
3.05 No Other Representations or Warranties . Except for the representations and warranties contained in this Article III , the Seller makes no other express or implied representations or warranties on behalf of itself or the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as set forth below, subject to the schedules accompanying this Agreement (each a Schedule and, collectively, the Disclosure Schedules ). The Disclosure Schedules have been arranged for purposes of convenience in separately titled sections corresponding to the sections of this Article IV ; however, each section of the Disclosure Schedules shall be deemed to incorporate by reference all information disclosed in any other section of the Disclosure Schedules if it is reasonably apparent on its face that such disclosure may be applicable to such other section of the Disclosure Schedules. Capitalized terms used in the Disclosure Schedules and not otherwise defined therein have the meanings given to them in this Agreement.
4.01 Organization and Corporate Power .
(a) The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and the Company has all requisite limited liability power and authority and all authorizations, licenses and permits necessary to own and operate its properties and to carry on its businesses as now conducted, except where the failure to hold such authorizations, licenses and permits would not have or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries. The Company has made available to the Purchaser complete and correct copies of the governing organizational documents of the Company as in effect on the date hereof. Neither the Company nor any of its Subsidiaries, directly or indirectly, own any interest in any Person other than the Companys Subsidiaries.
(b) Except as set forth on Schedule 4.01(b) , the Company and its Subsidiaries are in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders necessary for the Company and its Subsidiaries to carry on their respective businesses as it is now being conducted (including under any Gaming Laws) (the Company Permits ), except where the failure to have, or the suspension or cancellation of, any of the Company Permits would not have or would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. Except as set forth on Schedule 4.01(b) , since December 31, 2010, there has occurred no violation of, suspension, reconsideration, imposition of penalties or fines, imposition of additional conditions or requirements or default (with or without notice or lapse of time or both) under, or event giving rise to any right of termination, amendment, suspension, revocation,
nonrenewal, adverse modification or cancellation of, with or without notice or lapse of time or both, any such permit other than expirations of permits in the ordinary course of business and those such occurrences or matters which are not and would not have or would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. To the Knowledge of the Company, none of the Company or its Subsidiaries is in default or violation of any Company Permit, except for any default or violation that would not have or would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole.
4.02 Authorization; No Breach; Valid and Binding Agreement .
(a) The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby have been duly and validly authorized by all requisite limited liability company action, and no other proceedings on its part are necessary to authorize the execution, delivery or performance of this Agreement.
(b) Except as set forth on Schedule 4.02(b) , the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby do not conflict with or violate any provisions of the Companys certificate of formation or by-laws or other similar governing documents of any of the Companys Subsidiaries.
(c) Except (i) as set forth on Schedule 4.02(c) or (ii) where the failure of any of the following to be true would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby do not conflict with or result in any material breach of, constitute a material default under, result in a material violation of, result in the creation of any material Lien upon any material assets of the Company or any of its Subsidiaries under, or require any material authorization, consent, approval, exemption or other action by or notice to any Governmental Entity under, the provisions of any material indenture, mortgage, lease, loan agreement or other material agreement or instrument to which the Company or any of its Subsidiaries is bound, or any law, statute, rule or regulation or order, judgment or decree to which the Company or any of its Subsidiaries is subject. Assuming that this Agreement is a valid and binding obligation of the other parties hereto, this Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors rights and general principles of equity affecting the availability of specific performance and other equitable remedies.
4.03 Capitalization . As of the date hereof, the outstanding equity interests of the Company consist exclusively of the Securities. The Seller is the sole record owner of all of the outstanding equity securities of the Company and owns the Securities free and clear of all Liens (other than Liens, if any, arising in connection with the outstanding Indebtedness which will be paid off at Closing and Liens pursuant to applicable securities laws). Except as set forth on Schedule 4.03 , the Company does not have any equity securities or securities containing any equity features authorized, issued or outstanding, and there are no agreements, options, warrants or other rights or arrangements existing or outstanding which provide for the sale or issuance of any of the foregoing by the Company. Except as set forth on Schedule 4.03 , there are no rights,
subscriptions, warrants, options, conversion rights or agreements of any kind outstanding to purchase or otherwise acquire any equity securities of any kind of the Company. Except as set forth on Schedule 4.03 , there are no agreements or other obligations (contingent or otherwise) which require the Company to repurchase or otherwise acquire any equity securities of the Company. As of the date hereof, no bonds, debentures, notes or other indebtedness of the Company or any of its Subsidiaries having the right to vote (or convertible into securities having the right to vote) on any matters on which members of the Company may vote were issued and outstanding.
4.04 Subsidiaries . Schedule 4.04 sets forth a true, correct and complete list of each Subsidiary of the Company as of the date hereof. Except as set forth on Schedule 4.04 , each Subsidiary of the Company is duly organized, validly existing and, where applicable, in good standing under the laws of its jurisdiction of formation, has all requisite limited liability company or partnership power and authority and all authorizations, licenses and permits necessary to own and operate its properties and to carry on its businesses as now conducted, except where the failure to hold such authorizations, licenses and permits would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company is the sole record owner of all of the outstanding equity securities of each Subsidiary and the Company owns the equity interests free and clear of all Liens (other than Permitted Liens, Liens, if any, arising in connection with the outstanding Indebtedness which will be paid off at Closing and Liens pursuant to applicable securities laws). Except as set forth on Schedule 4.04 , no Subsidiary of the Company has any equity securities or securities containing any equity features authorized, issued or outstanding, and there are no agreements, options, warrants or other rights or arrangements existing or outstanding which provide for the sale or issuance of any of the foregoing by any Subsidiary of the Company. Except as set forth on Schedule 4.04 , there are no rights, subscriptions, warrants, options, conversion rights or agreements of any kind outstanding to purchase or otherwise acquire any equity securities of any kind of any Subsidiary of the Company. Except as set forth on Schedule 4.04 , there are no agreements or other obligations (contingent or otherwise) which require the Company or one of its Subsidiaries to repurchase or otherwise acquire any equity securities of a Subsidiary of the Company.
4.05 Financial Statements . Schedule 4.05 consists of: (a) the Companys unaudited consolidated balance sheet as of June 30, 2013 (the Latest Balance Sheet ) and related statements of operations and comprehensive loss, and statements of cash flows as of and for the six months ended June 30, 2012 and 2013 and related disclosures (collectively, the Latest Financial Statements ), and (b) the audited consolidated balance sheet and statements of operations and comprehensive loss and cash flows for the year ended December 31, 2012 of the Company (the 2012 Financial Statements and, together with the Latest Financial Statements, the Financial Statements ). Except as set forth on Schedule 4.05 , the Financial Statements have been based upon the information contained in the Companys books and records, have been prepared in accordance with GAAP, consistently applied throughout the periods indicated, and present fairly in all material respects the financial condition and results of operations of the Company and its Subsidiaries (taken as a whole) as of the times and for the periods referred to therein, subject in the case of the unaudited financial statements to the absence of footnote disclosures and other presentation items. Except as disclosed on Schedule 4.05 and as set forth on the Financial Statements, there are no off-balance sheet arrangements. Based on its most recently completed fiscal year, the Companys sales and revenue figures are below the thresholds that would require a pre-merger notification filing in Canada under the Competition Act and the Notifiable
Transactions Regulations thereunder. Except as disclosed on Schedule 4.05 , in its most recently completed fiscal year, the Company derived no revenue from sales to customers located outside of the United States and Canada and hold no assets located outside the United States and Canada.
4.06 Absence of Certain Developments . Since the date of the Latest Balance Sheet and through the date hereof, (i) the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice and (ii) there has not been any change, effect or circumstance that has had, or would be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. Without limiting the foregoing, except as set forth on the attached Schedule 4.06 , since the date of the Latest Balance Sheet and through the date hereof, neither the Company nor any of its Subsidiaries have:
(a) borrowed any amount or incurred or become subject to any liabilities (other than liabilities incurred in the ordinary course of business, liabilities under contracts entered into in the ordinary course of business or disclosed on the Disclosure Schedules and borrowings from banks (or similar financial institutions) necessary to meet ordinary course working capital requirements);
(b) mortgaged, pledged or subjected to any material lien, charge or other encumbrance, any of its assets, except Permitted Liens;
(c) sold, assigned or transferred any portion of its tangible assets, except in the ordinary course of business;
(d) sold, assigned or transferred any Intellectual Property;
(e) issued, sold or transferred any of its equity securities, securities convertible into its equity securities or warrants, options or other rights to acquire its capital stock or other equity securities, or any bonds or debt;
(f) made any capital investment in, or any loan to, any other Person (other than a Subsidiary of the Company);
(g) made any Capex or commitments therefor, except in the ordinary course of business;
(h) made any loan to, or entered into any other material transaction with, any of its directors, officers, and employees outside the ordinary course of business;
(i) entered into any employment contract with any person providing for annual compensation exceeding $200,000 per year or any collective bargaining agreement, or modified the terms of any such existing contract or agreement; or
(j) made any other material change in employment terms (including compensation) for any of its directors or officers or for any employees having employment contracts with annual payments exceeding $200,000 per year.
4.07 Title to Properties .
(a) Except as set forth on Schedule 4.07 , the Company or one of its Subsidiaries owns good title to, or holds pursuant to valid, binding and enforceable leases, all of the personal property shown to be owned or leased by it on the Latest Balance Sheet, free and clear of all Liens, except for Permitted Liens.
(b) The real property demised by the leases described on Schedule 4.07(b) (the Leased Real Property ) constitutes all of the real property leased by the Company or its Subsidiaries. Except as set forth on Schedule 4.07(b) , the Leased Real Property leases are in full force and effect, and the Company or one of its Subsidiaries holds a valid and enforceable leasehold interest under each such lease, subject to proper authorization and execution of such lease by the other party and the application of any bankruptcy or creditors rights laws. The Company has delivered or made available to the Purchaser complete and accurate copies of each of the leases described on Schedule 4.07(b) , and none of such leases have been modified in any material respect, except to the extent that such modifications are disclosed by the copies delivered or made available to the Purchaser. To the Companys Knowledge, neither the Company nor any of its Subsidiaries is in default in any material respect under any of such leases. Neither the Company nor any of its Subsidiaries owns any real property.
4.08 Tax Matters . Except as set forth on Schedule 4.08 :
(a) Since the date of its formation, the Company and each of its Subsidiaries (other than AGST) (i) has been classified as and properly treated as a disregarded entity for U.S. federal income tax purposes and applicable provisions of state and local law, except that the Company was treated as a partnership for such purposes prior to 2010, and (ii) has never made any election to be treated as a corporation for U.S. federal, state or local income tax purposes. Since the date of its formation and up to the Conversion Date, AGST has been classified as and properly treated as a corporation for U.S. federal income tax purposes and, immediately prior to the Conversion Date, AGST was a controlled foreign corporation within the meaning of Section 957(a) of the Code. Since the Conversion Date, AGST has been classified as and properly treated as a disregarded entity for U.S. federal income tax purposes and applicable provisions of state and local law.
(b) All Tax Returns filed by the Company and each of its Subsidiaries during the previous three (3) years are listed on Schedule 4.08 . All material Tax Returns required to be filed by or with respect to the Company or any of its Subsidiaries have been timely filed and such Tax Returns are true, correct and complete in all material respects. All material Taxes due and owing by the Company and each of its Subsidiaries have been fully and properly paid, withheld or accrued. Each of the Company and each of its Subsidiaries (i) has properly withheld, deducted and collected all amounts required to be withheld, deducted and collected with respect to Taxes under all applicable Laws and, to the extent required by applicable Laws, has properly remitted such amounts to the appropriate Governmental Entities or caused such amounts to be set aside in segregated accounts properly established for such purpose and (ii) has otherwise complied, in all material respects, with all applicable Laws (including information reporting requirements) relating to the withholding, collection and remittance of Taxes with respect to any payments made to or received from any employee, independent contractor, customer, or other third party.
(c) There are no audits, disputes, examinations, claims or other proceedings with respect to Taxes or Tax Returns (each, a Tax Proceeding ) pending or threatened in writing regarding any material Tax or Tax Return of the Company or any of its Subsidiaries. No jurisdiction in which the Company or any of its Subsidiaries, respectively, does not file Tax Returns has made a claim in writing that the Company or such Subsidiary is required to file Tax Returns or may be subject to taxation in such jurisdiction. There are no Liens for Taxes upon the assets of the Company or any of its Subsidiaries except for Permitted Liens.
(d) Neither the Company nor any of its Subsidiaries have waived any statute of limitations in respect of any material Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency.
(e) None of the Company or any of its Subsidiaries will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any Post-Closing Period as a result of any (i) adjustment required by reason of a change in method of accounting under Section 481(c) of the Code (or any similar provision of state, local or foreign Tax Law) prior to the Closing, (ii) closing agreement within the meaning of Section 7121 of the Code (or any similar provision of state, local or foreign Tax Law), (iii) installment sale, intercompany transaction or open transaction made or entered into prior to the Closing, (iv) prepaid amount received prior to the Closing or (v) election pursuant to Section 108(i) of the Code (or any similar provision of state, local or foreign Tax Law).
(f) None of the Company or any of its Subsidiaries (i) is a party to, bound by, or obligated under any Tax sharing, allocation, indemnity or similar agreement or arrangement (other than any agreement or arrangement solely among the Company and/or any of its Subsidiaries), (ii) is or was a member of any consolidated, combined, unitary or affiliated group for Tax purposes (other than any group of which the Company is or was the common parent), (iii) has any Liability for Taxes of any other Person under applicable Law, as a transferee or successor, by contract or otherwise, except for contracts entered into in the ordinary course of business and not primarily relating to Taxes (e.g., leases), or (iv) constituted either a distributing corporation or a controlled corporation (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code within two (2) years prior to the date of this Agreement or otherwise pursuant to a plan (or series of related transactions) (within the meaning of Section 355(e) of the Code) of which the transaction contemplated pursuant to this Agreement is also a part. Sections 4.03 and 4.04 are incorporated in this Section 4.08 by reference.
(g) None of the Company or any of its Subsidiaries has participated in any listed transaction within the meaning of Treasury Regulation Section 1.6011-4 (or any similar provision of state, local or foreign tax law).
(h) The Company and its Subsidiaries have complied in all material respects with all applicable Laws regarding transfer pricing (including, without limitation, Section 482 of the Code and the Treasury Regulations promulgated thereunder) and all transfer pricing arrangements entered into by the Company and its Subsidiaries are at arms length.
(i) Neither the Company nor any Subsidiary of the Company owns any equity interest in any Person for U.S. federal income tax purposes (other than, as of the date hereof, but not as of any time following the Conversion Date, AGST).
(j) Since the date of the Latest Balance Sheet, neither the Company nor any Subsidiary has taken any action that would constitute a breach of Section 6.01(u) determined as if Section 6.01(u) applied during such period.
4.09 Contracts and Commitments .
(a) Except as set forth on Schedule 4.09 (each item disclosed on Schedule 4.09 , a Company Material Contract ), neither the Company nor any of its Subsidiaries are party to any of the following as of the date hereof (the following being referred to collectively as Company Material Contracts ):
(i) collective bargaining agreement or contract with any labor union with respect to employees of the Company or any of its Subsidiaries;
(ii) written bonus, pension, profit sharing, retirement or other form of deferred compensation plan with respect to employees of the Company or any of its Subsidiaries, other than as described in Section 4.14 or the Disclosure Schedules relating thereto;
(iii) contract or agreement for the employment of any officer, individual employee or other person on a full-time or consulting basis providing for fixed compensation in excess of $200,000 per annum with respect to employees of the Company or any of its Subsidiaries;
(iv) agreement or indenture relating to the borrowing of money or to mortgaging, pledging or otherwise placing a Lien on any material portion of the assets of the Company or any of its Subsidiaries;
(v) guaranty of any obligation for borrowed money or other material guaranty;
(vi) lease or agreement under which it is lessee of, or holds or operates any personal property owned by any other party, for which the annual rental exceeds $200,000;
(vii) contract or agreement for the purchase or sale of products or services which provides for annual payments or, with respect to the Companys sales, annual revenues, in excess of $250,000 during the trailing twelve (12)-month period ending on the date of the Latest Balance Sheet, or any or group of related contracts or agreements with the same party for the purchase or sale of products or services which provide for annual payments or, with respect to the Companys sales, annual revenues, in excess of $500,000 during the trailing twelve (12)-month period ending on the date of the Latest Balance Sheet;
(viii) contract or agreement relating to any completed business acquisition by the Company or any of its Subsidiaries within the last two (2) years;
(ix) contract or agreement that creates or governs the operation of a joint venture, alliance or partnership;
(x) contract or agreement that obligates the Company or any of its Subsidiaries to make any Capex in excess of $500,000, or group of related contracts or agreements that obligates the Company or any of its Subsidiaries to make any Capex in excess of $750,000;
(xi) material license or agreement pursuant to which the Company or any of its Subsidiaries obtains rights to use any third party Intellectual Property (excluding licenses granting the Company or any of its Subsidiaries rights to use readily available commercial software that is generally available on nondiscriminatory pricing terms);
(xii) any acquisition agreement, asset purchase agreement, stock purchase agreement or other similar agreement ((x) which has not yet been consummated, (y) which provides for additional payments, incentives or earn-outs by the Company or any of its subsidiaries or (z) which obligates the Company or any of its Subsidiaries to provide indemnification or a guarantee that would reasonably be expected to result in payments in excess of $200,000;
(xiii) contract or agreement that is material to the Company and its Subsidiaries, taken as a whole, and would require any consent or approval of a counterparty as a result of the entering into this Agreement or consummation of the transactions contemplated by this Agreement;
(xiv) contract or agreement which limits or prohibits the Company or any of its Subsidiaries from freely engaging in business anywhere in the world; or
(xv) any non-compete, exclusivity or other contract (other than this Agreement) that would bind, restrict or otherwise impact (or purport to do so) the Purchaser or any Affiliate of the Purchaser (other than the Company and its Subsidiaries).
(b) The Purchaser has been given access to, a true and correct copy of all written Company Material Contracts, together with all material amendments, waivers or other changes thereto in the data room no less than 48 hours prior to the date hereof.
(c) Neither the Company nor any of its Subsidiaries are in default under any Company Material Contract, except (i) as disclosed on Schedule 4.09(c) or (ii) for any de minimus default under such Company Material Contract. Except as otherwise described in the Disclosure Schedules, all Company Material Contracts are valid and in full force and effect and constitute legal, valid and binding obligations of the Company or one of its Subsidiaries and are enforceable against the Company or one of its Subsidiaries as applicable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors rights and general principles of equity affecting the availability of specific performance and other equitable remedies.
4.10 Intellectual Property . Schedule 4.10 sets forth, for any Company Intellectual Property, a complete and accurate (in all material respects) list of all (i) patents and patent applications; (ii) trademark registrations and applications; (iii) Internet domain name registrations; and (iv) copyright registrations and applications. Except as would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or as set forth in Schedule 4.10 , the registrations set forth in Schedule 4.10 are in effect and subsisting, and the Company or one of its Subsidiaries is the sole and exclusive beneficial and record owner(s) of all of the Company Intellectual Property items set forth in Schedule 4.10 . Except as would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the conduct of the Business does not infringe or otherwise violate any Persons Intellectual Property rights, and there is no such claim pending or threatened against the Company or any of its Subsidiaries, and to the Companys Knowledge, no Person is infringing or otherwise violating any of the Company Intellectual Property, and no such claims are pending or threatened against any Person by the Company or any of its Subsidiaries. This Section 4.10 constitutes the sole and exclusive representations and warranties of the Company with respect to any Intellectual Property matters.
4.11 Litigation . Schedule 4.11 contains a true, correct and complete list of all actions, suits or proceedings to which the Company or any of its Subsidiaries is a party as of the date of this Agreement. Except as set forth on Schedule 4.11 , there are no actions, suits or proceedings pending or, to the Companys Knowledge, threatened against the Company or any of its Subsidiaries, at law or in equity, or before or by any Governmental Entity, which if determined adversely to the Company or any of its Subsidiaries could result in a Liability to the Company and its Subsidiaries in excess of $125,000, individually or in the aggregate, or that would reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its Subsidiaries are subject to any outstanding judgment, order or decree of any Governmental Entity.
4.12 Governmental Consents, etc . Except as set forth on the attached Schedule 4.12 , no material permit, consent, approval or authorization of, or declaration to or filing with, any Governmental Entity is required in connection with any of the execution, delivery or performance of this Agreement by the Company or the consummation by the Company and its Subsidiaries of any other transaction contemplated hereby.
4.13 Gaming Approvals . Except as set forth in Schedule 4.13 , (i) there have been no adversarial proceedings to rescind or suspend the Companys, or any of its Subsidiarys, gaming licenses, approvals, or related findings of suitability since December 31, 2010, and (ii) to the Knowledge of the Company, (x) no Gaming Authority is investigating the Company or any of its Subsidiaries other than in connection with ordinary course, routine or periodic investigations and (y) no Gaming Authority has concluded that the Company or any of its Subsidiaries has violated, breached or is otherwise not in compliance with any applicable Gaming Law.
4.14 Employee Benefit Plans .
(a) Schedule 4.14(a) lists the name of each Plan (other than any employment agreement providing for fixed compensation in an amount less than $200,000 per annum with respect to employees of the Company or any of its Subsidiaries, except that any employment agreement or employment letter that provides for severance or noncompetition payments (regardless of the level of fixed compensation) shall be on Schedule 4.14(a)) . Each Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service or is a prototype plan that is entitled to rely on an opinion letter issued by the Internal Revenue Service to the prototype plan sponsor regarding qualification of the form of the prototype plan, and, to the Knowledge of the Company, nothing has occurred since the date of such determination or opinion letter that would adversely affect such qualification or tax-exempt status. Each Plan complies in form and in operation in all material respects with the terms of the applicable Plan and applicable Law, including the Code and ERISA, except where any failure to comply would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) With respect to the Plans, all required contributions have been made or properly accrued, except where the failure to make or accrue for such contributions would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(c) The Company has made available to the Purchaser true and complete copies of (i) each Plan and any material amendments thereto (or a written plan description if no such plan document exists), (ii) the most recent summary plan description for each Plan for which a summary plan description is required by applicable Law and all related summaries of material modifications, (iii) the most recent determination letter received from the Internal Revenue Service regarding the Plans, if any, and (iv) the latest Form 5500 annual report for each Plan for which a Form 5500 annual report is required by applicable Law.
(d) Except as set forth on Schedule 4.14(d) : (i) none of the Company, any of its Subsidiaries or any other Person that, together with the Company or any of its Subsidiaries, is or was treated as a single employer under Section 414(b), (c), (m) or (o) of the Code, maintains, sponsors, contributes to or has any Liability with respect to or has at any time maintained, sponsored, contributed to or had any Liability with respect to, (A) any employee benefit plan that is subject to Title IV of ERISA, (B) any Multiemployer Plan, (C) a multiple employer welfare arrangement (within the meaning of Section 3(40) of ERISA), or (D) a multiple employer plan (within the meaning of Section 413(c) of the Code) and (ii) neither the Company nor any of its Subsidiaries have any obligation to provide post-employment health, life or other welfare benefits other than as required under Section 4980B of the Code or any similar applicable law and at no expense to the Company or any of its Subsidiaries.
(e) Except as set forth on Schedule 4.14(e) , neither the execution by the Company of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or upon occurrence of any additional or subsequent events) (i) entitle any current or former employee, consultant or director of the Company or any of its Subsidiaries or any group of such employees, consultants or directors to any payment of compensation; (ii) increase the amount of compensation or benefits due to any such employee, consultant or director; (iii) accelerate the vesting, funding or time of payment of any compensation, equity award or other benefit,
including, but not limited to, the acceleration of the vesting and exercisability of any equity awards, whether or not contingent; (iv) result in any limitation on the right of the Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Plan or related trust; or (v) require the funding of any trust or other funding vehicle. No amount paid or payable (whether in cash, in property, or in the form of benefits) in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an excess parachute payment within the meaning of Section 280G of the Code.
(f) There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted, or to the Knowledge of the Company, no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against the Plans, any fiduciaries thereof with respect to their duties to the Plans or the assets of any of the trusts under any of the Plans which could reasonably be expected to result in a material Liability of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries have taken any action to take corrective action or make a filing under any voluntary correction program of any Governmental Entity with respect to any Plan.
(g) With respect to any Plan that constitutes a nonqualified deferred compensation plan (as defined in Section 409A(d)(1) of the Code) (i) such Plan has been operated in good faith compliance with Section 409A of the Code and the guidance issued thereunder, (ii) such plan complies in all material respects in form with Section 409A of the Code and the guidance issued thereunder and (iii) the transactions contemplated by this Agreement will not result in Section 409A of the Code imposing any adverse tax consequences to the participants in such Plan (including the inclusion in income of deferred amounts or any additional tax pursuant to Section 409A(a)(1)(B) of the Code). The Company has not been required to report to any Governmental Entity any corrections made or taxes due as a result of a failure to comply with Section 409A of the Code.
(h) Each Plan that is primarily maintained and administered outside of the United States has been maintained, funded and administered in all material respects in accordance with applicable Laws and the requirements of such Plans governing documents and any applicable collective bargaining agreements. No Plan is a registered pension plan, as that term is defined in the Income Tax Act (Canada), or a supplementary pension plan, neither the Company nor any of its Subsidiaries have ever established, maintained, sponsored or contributed to a registered pension plan or supplementary pension plan, and no Plan has any unfunded or underfunded Liabilities.
(i) This Section 4.14 constitutes the sole and exclusive representations and warranties of the Company with respect to any employee benefit plans or other similar matters.
4.15 Insurance . All policies of insurance or fidelity bonds maintained by the Company and its Subsidiaries are in full force and effect and, to the Knowledge of the Company, neither the Company nor any of its Subsidiaries are in material default with respect to its payment obligations under any such policies. The Company maintains insurance coverage with reputable insurers in such amounts and covering such risks in accordance with normal industry practice. Schedule 4.15 contains a true, complete and correct list of all material insurance policies
and bonds currently held by the Company, including those covering its properties, buildings, equipment, fixtures, employees and operations (each, a Company Insurance Policy ). Such list specifies with respect to each such policy the policy number, premium, insurer(s), policy limits and deductibles and policy period. The Company and its Subsidiaries have paid, or caused to be paid, all premiums due under such policies and have not received written notice that they are in default with respect to any obligations under such policies. Neither the Company nor any of its Subsidiaries has received any written notice of cancellation or termination with respect to any existing material insurance policy that is held by, or for the benefit of, any of the Company or any of its Subsidiaries. To the Knowledge of the Company, each proceeding with respect to any claim covered by any Company Insurance Policy has been properly reported and accepted by the applicable insurance carrier.
4.16 Compliance with Laws . The Company and its Subsidiaries are, and since December 31, 2010 have been, in material compliance with all applicable laws and regulations of all Governmental Entities that are necessary for the operation of the Business, including all applicable Gaming Laws.
4.17 Environmental Compliance and Conditions . Except as set forth on Schedule 4.17 :
(a) The Company and its Subsidiaries have obtained and possess all material permits, licenses and other authorizations required under federal, state and local laws and regulations concerning occupational health and safety, pollution or protection of the environment that were enacted and in effect on or prior to the Closing Date, including all such laws and regulations relating to the emission, discharge, release or threatened release of any chemicals, petroleum, pollutants, contaminants or hazardous or toxic materials, substances or wastes into ambient air, surface water, groundwater or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any chemicals, petroleum, pollutants, contaminants or hazardous or toxic materials, substances or waste or relating to pollution, contamination, cleanup, preservation, reclamation or protection of human health or the environment ( Environmental and Safety Requirements ), except where the failure to possess such licenses, permits and authorizations would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) The Company and its Subsidiaries are in compliance with all terms and conditions of such permits, licenses and authorizations and are also in compliance with all other Environmental and Safety Requirements or any written notice or demand letter issued, entered, promulgated or approved thereunder, except where the failure to comply would not have or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries have received, within the two (2) years prior to the date hereof, any written notice of violations or liabilities arising under Environmental and Safety Requirements, including any investigatory, remedial or corrective obligation, relating to the Company, its Subsidiaries or their respective facilities and arising under Environmental and Safety Requirements, the subject of which is unresolved and which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(d) This Section 4.17 constitutes the sole and exclusive representations and warranties of the Company with respect to any environmental, health or safety matters, including without limitation any arising under Environmental and Safety Requirements.
4.18 Affiliated Transactions . Except as set forth on Schedule 4.18 , to the Companys Knowledge, no officer, member of the board of managers, director or Affiliate of the Company or any of its Subsidiaries or any individual in such officers or directors immediate family is a party to any agreement, contract, commitment or transaction with the Company or any of its Subsidiaries or has any interest in any property used by the Company or any of its Subsidiaries.
4.19 Employees . Except as set forth on Schedule 4.19 , neither the Company nor any of its Subsidiaries have experienced any strike or material grievance, claim of unfair labor practices, or other collective bargaining dispute within the past two (2) years. Neither the Company nor any of its Subsidiaries has committed any unfair labor practice. Except as set forth on Schedule 4.19 , to the Companys Knowledge, no organizational effort is presently being made or threatened by or on behalf of any labor union with respect to employees of the Company or any of its Subsidiaries. Except as set forth on Schedule 4.19 , the Company has not received any written notification of any material grievances, complaints or charges that have been filed against the Company or any of its Subsidiaries under any dispute resolution procedure (including, but not limited to, any proceedings under any dispute resolution procedure under any collective bargaining agreement) that have not been dismissed. Except as set forth on Schedule 4.19 , no collective bargaining agreements are in effect or are currently being negotiated by the Company or any of its Subsidiaries. The Company and its Subsidiaries are in compliance in all material respects with all applicable Laws in respect of employment, employment practices, labor, terms and conditions of employment, classification of employees and independent contractors, and wages and hours and the Company and its Subsidiaries are and have been in material compliance with all notice and other requirements under the Worker Adjustment and Retraining Notification Act of 1988 or any similar foreign, state or local law.
4.20 Undisclosed Liabilities . Except for Liabilities, (a) set forth on Schedule 4.20 , or (b) under the executory portion of any contract, agreement, sales or purchase order, commitment or other instrument of any kind, whether written or oral, to which the Company or any of its Subsidiaries is a party (but excluding any Liability for breach, penalty or default thereof), or (c) incurred in the usual and ordinary course of business subsequent to the date of the Latest Balance Sheet, or (d) that, individually or in the aggregate, would not have or would not reasonably be expected to be material to the Company and its Subsidiaries (taken as a whole), neither the Company nor any of its Subsidiaries has incurred any Liabilities of any nature.
4.21 Brokerage . Except for the fees and expenses of Macquarie Capital (USA) Inc., which are the sole responsibility of the Seller, there are no claims for brokerage commissions, finders fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of the Company or any of its Subsidiaries.
4.22 Customers .
(a) Schedule 4.22 sets forth the names of the ten (10) largest customers of the Company or its Subsidiaries, taken as a whole, as measured by the revenues with respect to such customers for the last twelve (12) months ended July 31, 2013 (the Core Customers ) and a list of the revenues for each such Core Customer for the last twelve (12) months ended July 31, 2013.
(b) To the Knowledge of the Company, as of the date of this Agreement no Core Customer intends to (i) terminate the handling of business by the Company and its Subsidiaries or (ii) reduce in any significant respect the handling of business by the Company and its Subsidiaries.
4.23 Installed Units . Schedule 4.23 contains a true, correct and complete list of all installed units of the Company and its Subsidiaries by customer as of each of June 30, 2013 and July 31, 2013. As of June 30, 2013, there were 790 installed units of the Company and its Subsidiaries in the State of Illinois and 7,235 installed units of the Company and its Subsidiaries outside the State of Illinois and as of July 31, 2013, there were 835 installed units of the Company and its Subsidiaries in the State of Illinois and 7,133 installed units of the Company and its Subsidiaries outside the State of Illinois.
4.24 Route Management System . Schedule 4.24 sets forth a complete list of all contracts pursuant to which the Company or its Subsidiaries will be obligated to provide the Route Management System ( RMS ) upon approval of such system by the Illinois Gaming Board; provided , that pursuant to the express terms of such contracts, the Company and/or its Subsidiaries are not required to seek approval from the Illinois Gaming Board for the RMS and in the event that the Illinois Gaming Board denies approval of the RMS, none of the express terms of the contracts listed on Schedule 4.24 requires the Company and/or its Subsidiaries to provide the RMS to any customers.
4.25 NO OTHER REPRESENTATIONS AND WARRANTIES . EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE IV (INCLUDING THE DISCLOSURE SCHEDULES), THE COMPANY MAKES NO EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY, AND THE COMPANY HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY WITH RESPECT TO THE COMPANY, ITS SUBSIDIARIES, THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE CONDITION OF THE ASSETS OF THE COMPANY AND ITS SUBSIDIARIES SHALL BE AS IS AND WHERE IS. THE COMPANY IS NOT, DIRECTLY OR INDIRECTLY, MAKING ANY REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) TO THE PURCHASER WITH RESPECT TO ANY PRO FORMA FINANCIAL INFORMATION, FINANCIAL PROJECTIONS OR OTHER FORWARD-LOOKING STATEMENTS OF THE COMPANY OR WITH RESPECT TO ANY INFORMATION OR DOCUMENTS (FINANCIAL OR OTHERWISE) THAT THIRD PARTIES PROVIDED TO THE PURCHASER OR ITS COUNSEL, ACCOUNTANTS OR OTHER ADVISORS WITH RESPECT TO THE COMPANY OR THE BUSINESS.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller that:
5.01 Organization and Corporate Power . The Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to enter into this Agreement and perform its obligations hereunder. The Purchaser is an indirect wholly-owned Subsidiary of AP Gaming Holdco, Inc., a Delaware corporation, which is directly or indirectly owned by the Equity Financing Sources.
5.02 Authorization . The execution, delivery and performance of this Agreement by the Purchaser and the consummation of the transactions contemplated hereby have been duly and validly authorized by all requisite action, and no other proceedings on its part are necessary to authorize the execution, delivery or performance of this Agreement. This Agreement has been duly executed and delivered by the Purchaser and assuming that this Agreement is a valid and binding obligation of the Seller, this Agreement constitutes a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors rights and general principles of equity effecting the availability of specific performance and other equitable remedies.
5.03 No Violation . The Purchaser is not subject to or obligated under its certificate or articles of incorporation, its bylaws (or similar organizational documents), any applicable law, or rule or regulation of any Governmental Entity, or any material agreement or instrument, or any license, franchise or permit, or subject to any order, writ, injunction or decree, which would be breached or violated in any material respect by the Purchasers execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby.
5.04 Governmental Entities; Consents . Except (a) as set forth on Schedule 5.04 (which shall include any required Gaming Approvals) and (b) for compliance with, and the filing of a premerger notification and report form by the Purchaser under the HSR Act, the Purchaser is not required to submit any notice, report or other filing with any Governmental Entity in connection with the execution, delivery or performance by it of this Agreement or the consummation of the transactions contemplated hereby, and no consent, approval or authorization of any Governmental Entity or any other party or Person is required to be obtained by the Purchaser in connection with its execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby.
5.05 Litigation . To the Knowledge of the Purchaser, there are no actions, suits or proceedings pending or threatened against the Purchaser at law or in equity, or before or by any Governmental Entity, which would adversely affect the Purchasers performance under this Agreement or the consummation of the transactions contemplated hereby. The Purchaser is not subject to any outstanding judgment, order or decree of any Governmental Entity.
5.06 Brokerage . There are no claims for brokerage commissions, finders fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of the Purchaser.
5.07 Investment Representation . The Purchaser is acquiring the Securities for its own account with the present intention of holding such securities for investment purposes and not with a view to, or for sale in connection with, any distribution of such securities in violation of any federal or state securities laws. The Purchaser acknowledges that it is informed as to the risks of the transactions contemplated hereby and of ownership of the Securities. The Purchaser acknowledges that the Securities have not been registered under the Securities Act of 1933, as amended, or any state or foreign securities laws and that the Securities may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of unless such transfer, sale, assignment, pledge, hypothecation or other disposition is pursuant to the terms of an effective registration statement under the Securities Act of 1933, as amended, and the Securities are registered under any applicable state or foreign securities laws or sold pursuant to an exemption from registration under the Securities Act of 1933, as amended, and any applicable state or foreign securities laws.
5.08 Financing . The Purchaser has delivered to the Company (i) binding debt financing commitment letters from financial institutions and lenders (collectively, the Lenders ) providing for, subject to the terms and conditions set forth therein, commitments to provide the amounts set forth therein to the Purchaser for the purpose of funding the transactions contemplated by this Agreement (the Debt Financing ), the complete, accurate and fully executed copies of which letters are attached hereto as Exhibit D (the Debt Commitment Letters ), and (ii) a binding equity financing commitment letter from Apollo Investment Fund VIII, L.P., Apollo Overseas Partners (Delaware) VIII, L.P., Apollo Overseas Partners (Delaware 892) VIII, L.P. and Apollo Overseas Partners VIII, L.P. (the Equity Financing Sources and, together with the Debt Financing Sources, the Financing Sources ) providing for, subject to the terms and conditions set forth therein, commitments to invest the amount set forth therein for the purpose of financing the transactions contemplated by this Agreement (the Equity Financing and, together with the Debt Financing, the Financing ), the complete, accurate and fully executed copies of which letters are attached hereto as Exhibit E (the Equity Commitment Letter and together with the Debt Commitment Letters, the Commitment Letters ). As of the date hereof, the Debt Commitment Letters (together with the ancillary documents referenced therein or delivered to the Companys counsel) constitute all of the agreements entered into between the respective Financing Sources and/or its Affiliates and the Purchaser and its Affiliates with respect to the financing arrangements contemplated thereby. The Commitment Letters, in the forms provided to the Company by the Purchaser (except to the extent amended, restated or replaced after the date hereof in accordance with the terms of this Agreement), are in full force and effect and, as of the date of this Agreement, have not been modified or amended in any respect and no such modification or amendment is contemplated as of the date of this Agreement. Based upon facts and events known by the Purchaser as of the date of this Agreement, and assuming the satisfaction of the conditions set forth in clauses (a) , (b) and (c) of Section 2.01 , the Purchaser has no reason to believe that (x) such debt and equity commitments shall not be funded or (y) there are any conditions to the funding of such commitments or the drawing of such credit facilities in respect of such commitments which cannot be satisfied by the Purchaser as of the date hereof and as of the Closing Date. As of the date hereof, the Purchaser has not made any material misrepresentation
or omitted to state any material fact with respect to the Purchaser in connection with obtaining such Commitment Letters commitments. Assuming the Financing is funded in accordance with the Financing Commitments and the satisfaction of the conditions set forth in clauses (a) , (b) and (c) of Section 2.01 , the aggregate proceeds from the Financing, together with any available cash of the Purchaser, constitute all of the financing required for the consummation of the transactions contemplated by this Agreement and are sufficient in amount to provide the Purchaser with the funds necessary for it to pay the cash portion of the Closing Purchase Price (the Required Payment Amount ).
5.09 Gaming Approvals and Licensing Matters . Neither the Purchaser nor, to the knowledge of the Purchaser, any of its officers, directors or controlled Affiliates or any beneficial owner of five percent (5%) or more of the voting capital stock of the Purchaser, in each case who or which will be required to be licensed or found suitable under applicable Gaming Laws in connection with the consummation of the transactions contemplated by this Agreement, have ever been denied a gaming license, approval, or related finding of suitability by any Gaming Authority, or had any gaming license or approval revoked or suspended. As of the date hereof, to the knowledge of the Purchaser, there are no facts or circumstances with respect to the Purchaser or any of its Affiliates (insofar as such Affiliate-owned interest would be attributable to the Purchaser under any applicable Gaming Law) that would prevent or materially delay receipt of any Gaming Approvals.
5.10 Solvency . Assuming the satisfaction of the conditions set forth in Sections 2.01(a) , (b) and (c) and that the representations and warranties of the Seller and the Company are true and correct as of the Closing Date, immediately after giving effect to the transactions contemplated by this Agreement, the Purchaser, the Company and its Subsidiaries, on a consolidated basis, shall be Solvent. For the purposes of this Agreement, the term Solvent means that, as of any date of determination and with respect to any Person: (a) the sum of the debt (including contingent liabilities) of such Person and its Subsidiaries, taken as a whole, does not exceed the present fair saleable value of the present assets of such Person and its Subsidiaries, taken as a whole; (b) the capital of such Person and its Subsidiaries, taken as a whole, is not unreasonably small in relation to the business of such Person and its Subsidiaries, taken as a whole; and (c) such Person and its Subsidiaries, taken as a whole, do not have debts, including current obligations, beyond their ability to pay or refinance such debts as they mature in the ordinary course of business.
ARTICLE VI
COVENANTS OF THE SELLER AND THE COMPANY
6.01 Conduct of the Business . From the date hereof until the earlier of the Closing Date and the termination of this Agreement, except (i) as expressly required hereunder, (ii) as required or restricted by applicable Law, (iii) unless the Purchaser shall have previously consented in writing (which consent will not be unreasonably withheld, conditioned or delayed) or (iv) as set forth on Schedule 6.01 , the Seller and the Company shall, and shall cause each of its respective Subsidiaries to, carry on its business in all material respects in the ordinary course of business and to the extent consistent therewith, use commercially reasonable efforts to preserve substantially intact its current business organizations and to preserve the goodwill of and maintain satisfactory relationships with those Persons having material business relationships with the Company or any of its Subsidiaries; without limiting the foregoing, the Company shall not, and shall not permit any of its Subsidiaries, to:
(a) issue, sell or deliver any equity securities of the Company or any of its Subsidiaries or issue or sell any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe for, any equity securities of the Company or any of its Subsidiaries;
(b) declare, authorize, make, pay or effect any recapitalization, reclassification, stock dividend, stock split or like change of the Companys capitalization or the capitalization of any Subsidiary of the Company or other distribution, payable in stock or property (exclusive of cash), with respect to the Companys or any of its Subsidiaries equity interests;
(c) except as otherwise required to consummate the transactions contemplated hereby, amend the Companys or any of the Companys Subsidiaries certificate of formation or by-laws (or equivalent organizational document);
(d) sell, assign, transfer, dispose of, lease, license, mortgage, pledge or encumber any assets of the Company or its Subsidiaries (taken as a whole) (such actions, Asset Sales , except for (i) dispositions of inventory, (ii) dispositions of assets that are obsolete, unmerchantable or otherwise unsalable or unusable, (iii) sales, leases and subleases of gaming machines, serves, bases, chairs and similar equipment related thereto, (iv) for other Asset Sales not to exceed $50,000 individually or $250,000 in the aggregate and (v) Permitted Liens; in the case of each of the foregoing (i) (iii), in the ordinary course of business, and in the case of each of the foregoing (i) (iv), for consideration at least equal to fair market value;
(e) acquire (including by merger, consolidation, or acquisition of stock or assets) any corporation, partnership, limited liability company, other business organization or any division or substantially all of the assets thereof or equity interests therein, except with respect to such acquisitions with purchase prices (including assumed indebtedness for borrowed money) not exceeding $125,000 individually or in the aggregate;
(f) except as permitted clause (g) immediately below, make any capital investment in, or any loan to, any other Person (other than a wholly owned Subsidiary);
(g) make or agree to make any Capex or commitments therefor, except for (i) Capex or commitments therefor in connection with building new machines to fulfill additional customer orders in the ordinary course of business, or (ii) otherwise in the ordinary course of business;
(h) fail to make or cause to be made Capex in the ordinary course of business;
(i) incur, create or assume any Indebtedness, except for Indebtedness (i) incurred under the Credit Facility, (ii) incurred under letters of credit in the ordinary course of business, or (iii) for borrowed money incurred pursuant to agreements in effect prior to the execution of this Agreement, in the case of the foregoing (i) (iii), that will be repaid in full as part of the Closing Indebtedness pursuant to Section 1.04(d) or as otherwise permitted pursuant to subsection (j) immediately below;
(j) except for wholly owned Subsidiaries of the Company, assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person;
(k) mortgage, pledge or otherwise encumber any of its material assets (tangible or intangible), including capital stock of Subsidiaries, or create, assume or suffer to exist any Liens thereon, except in each case for Liens existing as of the date hereof and other Permitted Liens;
(l) materially modify, amend, cancel or terminate or waive, release or assign any material rights or claims with respect to, any Company Material Contract, or enter into any contract which, if entered into prior to the date hereof, would be a Company Material Contract;
(m) (i) loan, advance, invest or make a capital contribution to or in any Person, other than a Subsidiary of the Company (other than customer financing in the ordinary course of business not to exceed $250,000 individually or $1,000,000 in the aggregate), or (ii) enter into any new line of business outside of its existing business or engage in the conduct of business that would require the receipt of any additional Gaming Approvals or consents or approvals of a Governmental Entity in connection with the consummation of the transactions contemplated hereby;
(n) make any material change in financial accounting in effect at December 31, 2012, except (i) as required by GAAP, Regulation S-X under the Securities Exchange Act of 1934, as amended, or a Governmental Entity or quasi-Governmental Entity (including the Financial Accounting Standards Board or any similar organization) or (ii) as required by a change in applicable Law;
(o) waive, release, assign, settle or compromise any (i) governmental complaint, investigation or proceeding or (ii) claims, liabilities or obligations arising out of, related to or in connection with litigation (other than litigation arising in connection with this Agreement or the transactions contemplated hereby) or other proceedings other than in the case of the foregoing clause (ii), settlements of, or compromises (A) that do not impose equitable relief on, or involve the admission of wrongdoing by, the Company or any of its Subsidiaries or any of its officers, managers or directors and (B) where the amounts paid or to be paid are less than $125,000 individually or in the aggregate;
(p) adopt or enter into a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization;
(q) incur, pay or commit or become obligated to pay fees, expenses or commissions to be paid to financial, legal and other advisors in connection with consummation of the transactions contemplated by this Agreement to the extent the Company or any of its Subsidiaries would have any liability therefor following the Closing;
(r) except (x) to the extent required by applicable Law or the existing terms of any Plan or (y) in order to comply with the terms of this Agreement, (i) increase in any manner the amount, rate or terms of compensation of any of the Companys directors or employees, except for ordinary course merit-based increases in the base salary of employees (other than directors
or executive officers) consistent with past practice and not to exceed 3% (annualized) for any employee; (ii) enter into, adopt, become a party to, terminate, amend, commence participation in, terminate or commit itself to the adoption of any Plan or plan that would be a Plan if in effect as of the date hereof; (iii) accelerate the vesting or payment of any compensation or benefits payable under any existing Plan; (iv) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any Plan; (v) terminate the employment or services of any employee with annual compensation (including bonus) in excess of $130,000 other than for cause; or (vi) hire any officer, employee, independent contractor or consultant for annual compensation (including bonus) in excess of $130,000, other than in connection with the replacement of a substantially similar officer, employee, independent contractor or consultant who is no longer providing service to the Company or its Subsidiaries;
(s) except (x) to the extent required by applicable Law or the existing terms of any Plan or (y) in order to comply with the terms of this Agreement, grant, amend, confer or award, or accelerate the vesting or settlement of, options, convertible securities, restricted stock, restricted stock units, unrestricted stock or stock units, or other rights to acquire any capital stock of the Company or any of its Subsidiaries or any equity-based award based in whole or in part on the capital stock of the Company or any of its Subsidiaries, whether settled in cash, securities or other property, or take any action not otherwise contemplated by this Agreement to cause to be exercisable any otherwise unexercisable option under any Plan;
(t) make any material loan to, or enter into any other material transaction with, any of directors, officers, and employees of the Company outside the ordinary course of business;
(u) fail to maintain all Cash held in escrow as collateral on the Companys surety bonds of $200,000 as of June 30, 2013; or
(v) (A) make, change or revoke any material Tax election or method of Tax accounting, (B) amend any material Tax Return or file a material claim for refund of Taxes or file any material Tax Return in a manner not consistent with past practice, (C) settle or compromise any Tax Proceeding with respect to a material amount of Taxes, or (D) enter into any closing agreement within the meaning of Section 7121 of the Code (or any similar provision of state, local or foreign Law) or file any request for rulings with any Governmental Entity.
Notwithstanding anything to the contrary contained in this Section 6.01 , subject to maintaining Minimum Operating Cash, the Seller and/or the Company may use all available Cash to (A) repay any Indebtedness prior to the Closing, (B) declare and pay any dividends with respect to the Companys equity interests or (C) redeem any of the Companys outstanding equity securities.
6.02 Access to Books and Records . From the date hereof until the earlier of the Closing Date and the termination of this Agreement, the Company shall provide the Purchaser and its authorized representatives (the Purchasers Representatives ) with reasonable access during normal business hours and upon reasonable prior notice to the offices, properties, books and records of the Company and its Subsidiaries, in order for the Purchaser to have the opportunity to make such investigation as it shall reasonably desire to make of the affairs of the Business and the Company; provided that such access shall not unreasonably interfere with the conduct of the
business of the Company and its Subsidiaries. The Purchaser acknowledges that it remains bound by the Confidentiality and Non-Disclosure Agreement, dated May 20, 2013 (the Confidentiality Agreement ). Reasonably promptly after the last day of each month between the date hereof and the Closing, the Company shall send a notice (which may be via e-mail) to the Purchaser with the number of installed units of the Company and its Subsidiaries in the State of Illinois and outside the State of Illinois.
6.03 Section 280G Member Approval . Prior to the Closing Date, the Seller shall submit to a vote of the members of the Seller for their determination all payments or benefits that in the absence of such a vote could reasonably be viewed as parachute payments (within the meaning of Section 280G of the Code and the regulations thereunder), made to any individuals that are disqualified individuals (within the meaning of Section 280G(c) of the Code and the regulations thereunder). Such member vote shall meet the requirements of Section 280G(b)(5)(B) of the Code and the regulations thereunder, and shall be in a form reasonably satisfactory to the Purchaser.
6.04 Notification . From the date hereof until the Closing Date, the Seller and the Company, respectively, shall disclose to the Purchaser in writing (in the form of updated Disclosure Schedules) any material variances from the representations, warranties and covenants made by the Seller or the Company herein. For the avoidance of doubt, such disclosures shall amend and supplement the appropriate Disclosure Schedules delivered on the date hereof for information purposes only, and the delivery of any such updated Disclosure Schedules will not be deemed to have cured in any way any misrepresentation or breach of warranty that otherwise exists hereunder by reason of such variance or inaccuracy and the Purchaser shall retain full rights regarding any claims (whether for indemnification or otherwise) against the Seller, the Company or any other Person for any such variance or inaccuracy.
6.05 No Solicitation . From the date of this Agreement until the Closing or, if earlier, the termination of this Agreement in accordance with its terms, the Seller shall not, and shall cause the Company and its Subsidiaries and Representatives not to, directly or indirectly, (i) initiate, solicit or knowingly facilitate or encourage (including by way of providing information) the submission of any requests, proposals or offers that constitute or would reasonably be expected to lead to the making of any Acquisition Proposal or (ii) engage in negotiations or discussions with, or furnish any information to, any third party relating to an Acquisition Proposal or otherwise cooperate with or assist or participate in, or knowingly facilitate any such requests, proposals, offers, discussions or negotiations. The Seller and the Company shall immediately cease and cause its and their Subsidiaries and Representatives to immediately terminate any solicitation, encouragement, discussion or negotiation or cooperation with or assistance or participation in, or facilitation of any such inquiries, proposals, discussions or negotiations with, any Persons conducted by the Seller, the Company, its Subsidiaries, or any of their respective Representatives with respect to any Acquisition Proposal and instruct to be returned or destroyed all nonpublic information provided by or on behalf of the Company or any of its Subsidiaries to such Person.
6.06 Financing Cooperation .
(a) Subject to Section 7.05 , prior to the Closing, the Company shall use its reasonable best efforts to, and shall cause its Subsidiaries to use their respective reasonable best efforts to, and shall use reasonable best efforts to cause their respective Representatives to, reasonably cooperate, and take such actions as the Purchaser may reasonably request, in connection with the arrangement of the Debt Financing, which cooperation by the Company will consist of the following (in each case, all at the Purchasers sole cost and expense):
(i) as promptly as practicable, (x) furnishing the Purchaser, the Lenders and their respective Representatives with the Required Information contemplated by the debt Commitment Letter, including all information required by clauses (3) and (4) of Exhibit B to the Debt Commitment Letter, and reasonably cooperating with the Purchaser in furnishing the Purchaser, the Lenders and their respective Representatives with any other Required Information; provided , that the Company shall only be required to reasonably cooperate in furnishing pro forma financial statements or forecasts if the Purchaser has provided the Company with information relating to the proposed debt and equity capitalization that is required for such pro forma financial information in financial reports, and (y) informing the Purchaser if there is any fact to the Knowledge of the Company that would be reasonably expected to require the restatement of any such financial statements to comply with GAAP;
(ii) using commercially reasonable efforts to cooperate with the marketing efforts of the Purchaser and its Debt Financing Sources for all or any portion of the Debt Financing, including causing its senior officers to be available, during normal business hours and upon reasonable advance notice, to participate in a reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies in connection with the Financing and assisting the Purchaser in obtaining ratings as contemplated by the Financing;
(iii) using commercially reasonable efforts to assist with the preparation of materials for rating agency presentations, bank confidential information memoranda and similar documents reasonably required in connection with debt financings, including the execution and delivery of customary representation letters in connection with bank confidential information memoranda; provided , that any such materials shall contain disclosure and pro forma financial statements, if required, reflecting the Purchaser and/or its Subsidiaries as the obligor;
(iv) furnishing the Purchaser and its Lenders with documents or other information required by bank regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including the U.S.A. Patriot Act of 2011;
(v) using commercially reasonable efforts to (A) obtain accountants consents to the use of such accountants audit reports relating to the Company and its Subsidiaries and (B) cause such accountants to provide, on customary terms and consistent with such accountants customary practice, reasonable assistance in the preparation of pro forma financial statements and reasonable assistance and cooperation to the Purchaser, including attending accounting due diligence sessions;
(vi) providing audited annual financial statements within ninety (90) days following the end of each fiscal year prior to the Closing Date and unaudited quarterly financial statements within forty-five (45) days following the end of each fiscal quarter prior to the Closing Date and using reasonable best efforts to provide monthly financial statements (excluding footnotes) within thirty (30) days following the end of each month prior to the Closing Date;
(vii) executing and delivering customary pledge and security documents, and otherwise granting liens on the assets of the Company or any of its Subsidiaries pursuant to such agreements as may be reasonably requested ( provided , that no obligation of the Company or any of its Subsidiaries under any such agreement, pledge or grant shall be effective until the Closing has occurred), and executing and delivering other definitive financing documents, or certificates, or documents as may be reasonably requested by the Purchaser (including a customary certificate of the chief financial officer of the Company or any of its Subsidiaries (in such persons capacity solely as an officer and in no event in such persons individual capacity) with respect to solvency matters in the form set forth as an exhibit to the Debt Commitment Letter and otherwise facilitating the pledging of collateral and obtaining surveys and title insurance and estoppel letters as reasonably requested by the Purchaser);
(viii) delivering notices of prepayment or termination within the time periods required by the relevant agreements governing indebtedness, including the Credit Facility, and obtaining customary and otherwise mutually acceptable payoff letters, lien terminations and instruments of discharge or releases to be delivered at the Closing;
(ix) assisting the Purchaser in obtaining customary waivers, consents, estoppels and approvals from other parties to material licenses, leases, encumbrances and other material contracts to which the Company or any of its Subsidiary is a party and, if reasonably deemed necessary by the Purchaser) to arrange mutually convenient discussions among the Purchaser, its Lenders and their respective Representatives with other parties to material leases, encumbrances and contracts as of the Closing;
(x) taking all commercially reasonable actions necessary to (A) permit the Lenders and the prospective lenders involved in the Debt Financing (through any Lender) to evaluate the Companys and its Subsidiaries current assets, cash management and accounting systems, policies and procedures relating thereto for the purposes of establishing collateral arrangements as of the Closing and to assist with other collateral audits and due diligence examinations reasonable and customary for financings at mutually arranged times and (B) establish bank and other accounts and blocked account agreements and lock-box arrangements to the extent necessary in connection with the Debt Financing; and
(xi) taking all corporate actions (including signing resolutions or taking similar actions approving the Debt Financing), subject to the occurrence of the Closing, reasonably requested by the Purchaser and within the control of the Company and its Subsidiaries that are necessary or customary to permit the consummation of the Debt Financing.
(b) Notwithstanding anything to the contrary contained in this Agreement, neither the Company nor any of its Subsidiaries shall be required to (A) pay any commitment or other similar fee prior to the Closing, (B) incur any liability of any kind (or cause their respective Representatives to incur any liability of any kind) in connection with the Financing prior to the Closing, (C) enter into any agreement or commitment in connection with the Debt Financing that is not conditioned on the occurrence of the Closing and does not terminate without liability to the Company or any of its Subsidiaries upon failure of the Closing to occur in accordance with this Agreement, or (D) take any action that would (1) unreasonably interfere with the ongoing operations of the Company and its Subsidiaries, (2) cause any representation or warranty in this Agreement to be breached, (3) cause any director, manager, agent, officer or employee of the Company or any of its Subsidiaries to incur any personal liability or (4) require the Company to provide access to or disclose information that the Company determines would jeopardize any attorney-client privilege of the Company or any of its Subsidiaries; provided , that the Company shall give notice to the Purchaser of the fact that it is withholding cooperation due to any such circumstance contemplated by this sentence based on its reasonable determination and thereafter the Company and the Purchaser shall use their reasonable best efforts to cause such cooperation rendered in a manner that cures, or would not reasonably be expected to result in, such circumstance.
(c) If the Closing does not occur, the Company, its Subsidiaries and their respective Representatives (collectively, the 6.06 Indemnitees ) shall be indemnified and held harmless by the Purchaser for and against any and all out of pocket costs incurred in connection with complying with the covenants imposed upon the Company and its Subsidiaries pursuant to Section 6.06(a) , all Liabilities, losses, damages, claims, costs, expenses, fees (including, without limitation, reasonable and documented attorneys fees), interest, awards, judgments, fines and penalties suffered or incurred by the 6.06 Indemnitees in connection with the arrangement of the Financing and/or any information utilized in connection therewith (other than historical information relating to the Company or its Subsidiaries and other than information provided by the Company, any of its Affiliates or any of their respective Representatives for use in connection therewith) or the Companys or its Subsidiaries cooperation with respect thereto (including, without limitation, as identified in this Section 6.06(c) ), in each case, other than to the extent any of the foregoing arises from the bad faith, negligence or misconduct of, or breach of this Agreement by, any 6.06 Indemnitee. All non-public or other confidential information regarding the Company or any of its Subsidiaries obtained by the Purchaser or its Representatives pursuant to this Section 6.06 shall be kept confidential in accordance with the Confidentiality Agreement; provided , that the Purchaser may share non-public or otherwise confidential information with the Financing Sources in connection with the arrangement of the Financing pursuant to the confidentiality provisions contemplated by the applicable Financing Commitments.
(d) The Company hereby consents to the use of its and its Subsidiaries logos in connection with the obtainment (including arrangement, marketing and syndication) of the Debt Financing; provided , that such logos are used solely in a manner that is reasonable and customary for such purposes and that is not intended to or reasonably likely to harm or disparage the Company or any of its Subsidiaries or the reputation or goodwill of the Company or any of its Subsidiaries or any of their respective products, services, offerings or intellectual property rights.
(e) The Company shall, and shall cause its Subsidiaries to, use reasonable best efforts to periodically update any Required Information provided to the Purchaser as may be necessary so that such Required Information is (i) Compliant, (ii) meets the applicable requirements set forth in the definition of Required Information and (iii) would not, after giving effect to such update(s), result in the Marketing Period to cease to be deemed to have commenced. For the avoidance of doubt, the Purchaser may, to most effectively access the financing markets, require the reasonable cooperation of the Company under this Section 6.06 at any time, and from time to time and on multiple occasions (upon reasonable advance notice and, for meetings and discussions, at mutually convenient times), between the date hereof and the Closing.
ARTICLE VII
COVENANTS OF THE PURCHASER AND THE COMPANY
7.01 Access to Books and Records . From and after the Closing, the Purchaser shall, and shall cause the Company and its Subsidiaries to, provide (subject to a customary confidentiality agreement) the Seller and its authorized Representatives with reasonable access (for the purpose of examining and copying), during normal business hours, to the books and records of the Company and its Subsidiaries in connection with any matter relating to or arising out of this Agreement or the transactions contemplated hereby or with respect to periods or occurrences prior to or on the Closing Date. Unless otherwise consented to in writing by the Seller, the Purchaser shall not, and shall not permit the Company or its Subsidiaries to, for a period of seven (7) years following the Closing Date, destroy, alter or otherwise dispose of any of the books and records of the Company or its Subsidiaries for any period prior to the Closing Date without first giving reasonable prior notice to the Seller and offering to surrender to the Seller such books and records or any portion thereof which the Purchaser, the Company or its Subsidiaries may intend to destroy, alter or dispose of as the Seller may reasonably request.
7.02 Notification . From the date hereof until the Closing Date, the Purchaser shall disclose to the Seller in writing any material variances from the representations, warranties and covenants made by the Purchaser herein, in each case, promptly upon discovery thereof.
7.03 Director and Officer Liability and Indemnification . For a period of six (6) years after the Closing Date, the Purchaser shall not, and shall not permit the Company or its Subsidiaries to, amend, repeal or modify any provision in the Companys or its Subsidiaries governing documents relating to the exculpation or indemnification of any current or former employee, officer, manager or director (unless required by law), it being the intent of the parties that the employees, officers, managers and directors of the Company and its Subsidiaries shall continue to be entitled to such exculpation and indemnification to the full extent of the law. The Purchaser shall cause the Company and its Subsidiaries to maintain their existing officers and directors Liability insurance, or other Liability insurance that covers events occurring prior to the Closing on terms and in amounts no less favorable to its employees, officers, managers and directors than its existing officers and directors Liability insurance for a period of six years after the Closing. If the Purchaser, the Company or its Subsidiaries or any of their respective successors or assigns (i) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any Person, then, and in each such case, proper
provisions shall be made so that the successors and assigns of the Purchaser, the Company and its Subsidiaries shall assume all of the obligations set forth in this Section 7.03 . The provisions of this Section 7.03 are intended for the benefit of, and will be enforceable by, each current and former employee, officer, manager and director of the Company and its Subsidiaries and his or her heirs and Representatives, and are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have had by contract or otherwise.
7.04 Employment and Benefit Arrangements .
(a) From and after the Closing Date, the Purchaser shall cause the Company and its Subsidiaries to honor each Plan, including all employment, severance, termination, consulting, retirement and other compensation and benefit plans, arrangements and agreements set forth on Schedule 4.14(a) to which the Company or such Subsidiary is a party with respect to employees of the Company or such Subsidiary, as applicable, as such plans, arrangements and agreements are in effect on the date hereof (it being understood that this Section 7.04 shall not be deemed to prohibit the Purchaser or the Company or its Subsidiaries from amending, modifying, replacing or terminating such arrangements in accordance with their terms). During the twelve (12)-month period following the Closing, Purchaser shall take all actions required so that the employees of the Company and its Subsidiaries (determined as of the Closing Date) who continue to be employed by Purchaser, the Company or any of its Subsidiaries following the Closing Date (i) receive base salary and annual cash bonus opportunities (for the avoidance of doubt, excluding any phantom equity arrangements) that are no less favorable in the aggregate than provided by the Company immediately prior to the Closing Date and (ii) receive, in the event of a termination without cause (and subject to the execution and nonrevocation of a release of claims in a form reasonably satisfactory to Purchaser), severance pay that is no less than the severance pay that would have been payable under the severance policy in effect immediately prior to the Closing Date had such employee terminated employment immediately prior to the Closing Date.
(b) The Purchaser and the Seller shall use their reasonable best efforts to (i) treat the Purchaser and the Company as a successor employer and the Company as a predecessor, within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to Company employees to be employed by Company for purposes of Taxes imposed under the United States Federal Unemployment Tax Act or the United States Federal Insurance Contributions Act and (ii) cooperate with each other to avoid the filing of more than one IRS Form W-2 with respect to each such employee for the calendar year in which the Closing occurs.
(c) The Seller shall be solely responsible for the settlement of, and any Liabilities associated with, the phantom units granted pursuant to the Sellers Phantom Units Plan or obligations pursuant to the Sellers Special Management Earn Out Retention Plan and none of the Purchaser, the Company nor any of their respective Subsidiaries shall have any Liabilities associated with (i) the Sellers Phantom Units Plan or any phantom units granted pursuant to such plan and (ii) the Sellers Special Management Earn Out Retention Plan or any payments or obligations relating to such plan.
(d) This Section 7.04 shall be binding upon and inure solely to the benefit of each of the parties to this Agreement, and nothing in this Section 7.04 , express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Section 7.04 , or shall constitute or be construed as an amendment to or modification of the Plans or any other employee benefit plan or arrangement of the Company, the Purchaser or any of their respective Affiliates or limit in any way the right of the Company, the Purchaser or any of their respective Affiliates to amend, modify or terminate any Plan or any other employee benefit plans or arrangements. Nothing in this Section 7.04 shall limit the right of the Purchaser, the Company or any of their Subsidiaries to terminate the employment of any employee at any time following the Effective Time.
7.05 Financing . The Purchaser shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and obtain the proceeds of the financing described in Section 5.08 on the terms and conditions, taken as a whole, described in the applicable Commitment Letters, including executing and delivering all such documents and instruments as may be reasonably required there-under. The Purchaser shall not amend, modify, restate or replace (or agree to any of the foregoing with respect to) any of the Commitment Letters without the prior written consent of the Seller, if such amendment, modification, restatement or replacement would or would reasonably be expected to (i) reduce the aggregate amount of the Equity Financing or Debt Financing unless the Debt Financing or Equity Financing is increased by an aggregate amount not less than such reduction, from the lesser of (A) the aggregate amount of Financing contemplated by the Commitment Letters delivered as of the date hereof and (B) the Required Payment Amount required to be paid at the Closing or (ii) impose new or additional conditions or otherwise expand, amend or modify any of the conditions to the receipt of the Financing, in each case, in a manner that would delay or otherwise adversely impact in any material respect the ability of the Purchaser to obtain the Financing (it being understood that the Purchaser may (A) amend the Debt Commitment Letter to add or replace lenders, lead arrangers, bookrunners, syndication agents or similar entities or (B) otherwise restate, replace, modify or amend the Debt Commitment Letter so long as such action would not reasonably be expected to prevent or materially delay its ability to consummate the Closing). Promptly following any amendment, modification, restatement or replacement of any Financing Commitments in accordance with this Section 7.05 , the Purchaser shall deliver a copy thereof to the Company and references herein to Debt Commitment Letters and Equity Commitment Letter (or defined terms that use such phrases) shall include such documents as amended, restated or replaced in compliance with this Section 7.05 and references to Debt Financing and Equity Financing (or defined terms that use such phrases) shall include the financing contemplated by the Debt Commitment Letters and Equity Commitment Letter, respectively, as amended, modified, restated or replaced in compliance with this Section 7.05 . Notwithstanding anything to the contrary in this Agreement, nothing contained in this Section 7.05 shall require, and in no event shall the reasonable best efforts of the Purchaser be deemed or construed to require, the Purchaser or any of its Affiliate to (i) seek the Equity Financing from any source other than those counterparty to, or in any amount in excess of that contemplated by, the Equity Commitment Letter, or (ii) pay any fees in excess of those contemplated by the Financing Commitments.
7.06 Note Receivables . For twelve (12) months following the Closing, the Company shall undertake reasonable efforts to collect all amounts owed, when owed pursuant to the terms of such Note Receivables, to the Company under all Note Receivables, except for the Assignable Notes; provided that the Company shall have no liability to Seller for any failure to collect any such amounts absent gross negligence or willful misconduct on the part of the Company.
From and after the date that is twelve (12) months following the Closing, (a) the Seller may undertake any and all collection measures as it deems appropriate with respect to any remaining amounts owed under all Notes Receivables then outstanding and (b) the Company and Seller shall confer in good faith to promptly enter into a mutually agreeable arrangement to permit the Seller to undertake such collection activities (including, without limitation, instituting litigation against one or more of the makers of such Note Receivables) for Sellers own account which may include, without limitation, assigning the applicable Note Receivables to the Seller or assigning all of the rights to proceeds therefor. In addition, at any time (whether before or after the twelve (12) month anniversary of the Closing), upon Sellers reasonable request, the Company shall amend, extend, restate otherwise modify one or more of the Note Receivables. Seller shall indemnify and hold harmless the Company and its Affiliates from and against any and all Losses incurred from such actions requested or taken. The Company shall promptly pay over to the Seller all amounts collected (regardless of when received) in respect of such Note Receivables, less any out of pocket costs and expenses or other Losses incurred by the Company in seeking to collect such amounts (such Note Receivables being held by the Company as nominee for the benefit of the Seller, the Company holding bare legal title). If the Seller requests that the Company undertake any specific collection activities with respect to any amounts owed to the Company under any such Note Receivables that the Company, in its sole discretion, does not desire to undertake, the Seller and the Company shall confer in good faith to enter into a mutually agreeable arrangement to permit the Seller to undertake such collection activities for its own account which may include, without limitation, assigning the applicable Note Receivables to the Seller or assigning the rights to proceeds therefor.
ARTICLE VIII
COVENANTS OF THE PURCHASER, SELLER AND COMPANY
8.01 Antitrust Filings .
(a) The Purchaser and the Seller shall each (A) file or cause to be filed all premerger notification and report forms ( Filings ) required of the Purchaser (or Affiliates thereof) and the Company (or Affiliates thereof) under the HSR Act with respect to the transactions contemplated hereby as promptly as practicable, and in any event within five (5) business days after the date of this Agreement and (B) comply promptly with any request under the HSR Act for additional information, documents or other materials from the Federal Trade Commission or the Antitrust Division of the United States Department of Justice ( Antitrust Agencies ). Each of the Purchaser, the Seller and the Company agrees to or to cause its Affiliates to act in good faith and reasonably cooperate with the other parties in connection with any such Filing (including furnishing to the other parties legal counsel all information reasonably necessary for the other partys Filing) and in connection with resolving any investigation or other inquiry with respect to any such Filing. Each party will promptly inform the other parties of any substantive oral or written communication received by such party from, or given by such party to any Antitrust Agency and of any substantive written or oral communication received or given in connection with any antitrust legal proceeding by a private party, in each case regarding any of the transactions contemplated this agreement, and will permit the other parties to review any communication given by it to, and consult with each other in advance of any response to, or meeting or conference with, any such Antitrust Agency or, in connection with any antitrust legal proceeding by
a private party, with such other Person. Where practicable, each party shall give the other parties reasonable prior notice of any substantive written or oral communication with, and any material proposed understanding, undertaking or agreement with, any Antitrust Agency regarding any such Filings or any such transaction. No party shall independently participate in any substantive meeting, or engage in any substantive conversation, with any Antitrust Agency in respect of any such Filings, investigation or other inquiry without, to the extent practicable, giving the other party prior notice of the meeting and, to the extent permitted by such Antitrust Agency, the opportunity to attend and/or participate. Each party will consult and cooperate with the other party in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of a party in connection with proceedings under or relating to the HSR Act.
(b) Subject to Section 8.01(c) , the Purchaser and the Seller shall each use its reasonable best efforts to resolve such objections, if any, as may be asserted by any Governmental Entity with respect to the transactions contemplated by this Agreement under the HSR Act. The Purchaser and the Seller shall each use reasonable best efforts to take such action as may be required to cause the expiration of the waiting periods under the HSR Act with respect to such transactions as promptly as possible after the execution of this Agreement, including requesting a grant of early termination and, with respect to the Purchaser, all actions (A) to propose, negotiate or commit to, make arrangements for, consent or agree to, or effect the sale, other disposition, divestiture, license, discontinuance of or any limitation with respect to (or the holding separate of, including pursuant to arrangements which restrict, limit or prohibit access to the Purchaser or any of its Subsidiaries) any assets or businesses of (or any interests in such assets or businesses of) the Purchaser or any of its Subsidiaries and (B) to otherwise propose, negotiate or commit to, make arrangements for, consent or agree to, or effect any conditions relating to, or changes or restrictions in, or other limitations on the freedom of action with respect to, the ownership or operations of any such assets or businesses (or interests in such assets or businesses); provided that under no circumstances shall the Purchaser or any of its Affiliates be required to commence or defend any litigation, arbitration or other similar process with any Antitrust Agency or Person.
(c) The Purchaser agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the Seller and the Company in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including in connection with (A) obtaining all other necessary actions or non-actions, waivers, consents, licenses, permits, authorizations, orders and approvals from Governmental Entities (including Gaming Authorities) and the making of all other necessary registrations and Filings (including other filings or registrations with Governmental Entities, if any, and obtaining all Gaming Approvals), (B) obtaining all waivers, consents, licenses, permits, authorizations, orders and approvals from third parties related to or required in connection with the transactions contemplated by this Agreement, (C) executing and delivering any additional instruments reasonably necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement and (D) providing all such information concerning the Purchaser, its Subsidiaries, its Affiliates and its Subsidiaries and Affiliates officers, directors, employees and partners as may be reasonably requested in connection with any of the foregoing; provided that under no circumstances shall the Purchaser or any of its Affiliates be required to commence or defend any litigation, arbitration or other similar process. In no event shall the Company or any of its Subsidiaries be required to agree to take or enter into any action that is not conditioned upon the consummation of the transactions contemplated by this Agreement.
ARTICLE IX
INDEMNIFICATION
9.01 Survival of Representations, Warranties, Covenants, Agreements and Other Provisions . Except to the extent a different period is expressly set forth herein, the representations, warranties, covenants, agreements and other provisions in this Agreement shall survive the Closing and shall terminate on the date which is twelve (12) months after the Closing Date (the Survival Period Termination Date ); provided , however , that the representations and warranties set forth in Sections 3.01 , 3.02 , 4.01(a) , 4.02(a) , 4.03 , 4.08 , 4.17 , 5.01 , 5.02 , 5.07 , 9.02(a)(iii) , 10.01 and 10.02 and Article VI , and the covenants, agreements and other provisions in this Agreement with respect to Tax matters (including, for the avoidance of doubt, Section 9.02(a)(iii) and Section 11.01 ) (such covenants, agreements and other provisions in this Agreement, collectively, the Tax Covenants ), in each case, together with any right to indemnification for breach thereof, shall survive the Closing until the expiration of the applicable statute of limitations. No Person shall be liable for any claim for indemnification under this Article IX unless written notice specifying in reasonable detail the nature of the claim for indemnification is delivered by the Person seeking indemnification to the Person from whom indemnification is sought prior to the applicable Survival Period Termination Date, in which case the representation, warranty, covenant or agreement which is the subject of such claim shall survive, to the extent of such claim only, until such claim is finally resolved, whether or not the amount of the Losses resulting from such breach has been finally determined at the time the notice is given, if, but only if, (i) in the case of a claim made by reason of a third-party claim, the written notice is accompanied by a copy of the written notice of the third-party claimant and (ii) in the case of any claim made other than by reason of a third-party claim, some Losses shall have been incurred in good faith at or prior to the date of such notice.
9.02 Indemnification by the Seller for the Benefit of the Purchaser .
(a) From and after the Closing, if Purchaser and its Affiliates, and its and their respective officers, directors, partners, members, employees, agents, Representatives, successors and permitted assigns (collectively, the Purchaser Indemnified Parties ), actually incur any Losses as a result of:
(i) any nonfulfillment or breach of any representation or warranty made by the Seller in Article III or any covenant, agreement or other provision set forth herein by the Seller or in any certificate delivered by the Seller hereunder, without giving effect to any limitation as to materiality or Material Adverse Effect or knowledge or Knowledge of the Company set forth therein;
(ii) any nonfulfillment or breach of any representation, warranty, covenant, agreement or other provision set forth herein by the Company or in any certificate delivered by the Company hereunder, without giving effect to any limitation as to materiality or Material Adverse Effect or knowledge or Knowledge of the Company set forth therein (except, solely with respect to the knowledge qualification contained therein, solely as set forth in Section 4.22(b) ); or
(iii) any Excluded Taxes,
then, subject to the provisions of this Article IX , such Purchaser Indemnified Party shall be entitled to be reimbursed the full amount of such Losses from the Seller; provided that, except with respect to breaches of, or inaccuracies in, the representations or warranties made in Sections 3.01 , 3.02 , 3.03 , 4.01(a) , 4.02(a) , 4.03 and 4.08 , claims asserted under Section 9.02(a)(iii) and claims with respect to a breach or failure to perform or comply with any Tax Covenant, no claims shall be so asserted under this Section 9.02(a) unless and until the aggregate amount of Losses that would otherwise be payable hereunder exceeds on a cumulative basis an amount equal to $2,325,000.00 (the Deductible ), and then only to the extent that such Losses exceed the Deductible; provided , further , that, no individual claim by the Purchaser Indemnified Parties shall be so asserted unless the amount of Losses that would be payable pursuant to any such individual claim exceeds an amount equal to $25,000.00 or any series of related claims with substantially similar underlying facts exceeds an amount equal to $35,000.00 (the Mini-Deductible ) (it being understood that any such individual claims or series of related claims with substantially similar underlying facts for amounts less than the Mini-Deductible shall be ignored in determining whether the Deductible has been exceeded and thereafter and in no event shall any individual claims be aggregated with other individual claims (unless such claims are related and have substantially similar underlying facts) for purposes of determining whether the Mini-Deductible has been met); provided , further , that except with respect to breaches of, or inaccuracies in, the representations or warranties made in Sections 3.01 , 3.02 , 3.03 , 4.01(a) , 4.02(a) , 4.03 and 4.08 , in no event shall the aggregate Liability of the Seller for indemnification payable hereunder with respect to any claims under Section 9.02(a)(i) exceed the aggregate amount of funds then outstanding in the Indemnity Escrow Account.
(b) Subject to Sections 10.02(b) and 11.07 , the indemnification provided by Section 9.02(a) shall be the sole and exclusive remedy for any Loss, Liability, demand, claim, action, cause of action, cost, judgment, damage, deficiency, Tax, penalty, fine or expense, whether or not arising out of third-party claims (including, without limitation, interest, penalties, reasonable attorneys fees and expenses, court costs and all reasonable amounts paid in investigation, defense or settlement of any of the foregoing) of the Purchaser Indemnified Parties or the Company with respect to any misrepresentation or inaccuracy in, or breach of, any representations or warranties or any breach or failure in performance prior to Closing of any covenants or agreements made by the Seller in this Agreement or in any exhibit or schedules hereto or any certificate delivered hereunder.
(c) No claim shall be brought or maintained by the Purchaser Indemnified Parties or the Company or their respective successors or permitted assigns against any agent, equityholder, partner, officer, member of the board of managers, director, employee (present or former) or Affiliate of any party hereto which is not otherwise expressly identified as a party hereto, and no recourse shall be brought or granted against any of them, by virtue of or based upon any alleged misrepresentation or inaccuracy in or breach of any of the representations, warranties or covenants of any party hereto set forth or contained in this Agreement or any exhibit or schedule hereto or any certificate delivered hereunder.
(d) The Purchaser Indemnified Parties may not avoid the limitations on Liability set forth in this Article IX by seeking damages for breach of contract, tort or pursuant to any other theory of Liability and after the Closing, to the fullest extent permitted under applicable law.
(e) Any indemnification of the Purchaser pursuant to this Section 9.02 shall be effected (i) first, pursuant to the terms of the Escrow Agreement from the Indemnity Escrow Account, and (ii) second, if the aggregate amount available from the Indemnity Escrow Account pursuant to the terms of the Escrow Agreement is insufficient to satisfy such amount, subject to the last sentence of Section 9.02(a) , by wire transfer of immediately available funds to an account designated by the Purchaser within five (5) days after the determination thereof, provided, that any indemnification of the Purchaser pursuant to the Tax Indemnity Provisions shall be effected first from the Refund Escrow Account and then in the manner set forth in clause (i) and (ii) of this Section 9.02(e) (it being agreed and understood that any refunds described in Section 11.01(c) that are not deposited into the Tax Refund Escrow may be used to satisfy any indemnification of the Purchaser pursuant to the Tax Indemnity Provisions as set forth in and in accordance with Section 11.01(c)) .
(f) Notwithstanding anything herein to the contrary, the Purchaser shall have no right to any indemnification under this Article IX for any Losses as and to the extent (i) such Loss was specifically reflected as a Liability in the calculations of either the Net Working Capital, as calculated with respect to the Closing Balance Sheet and the Closing Balance Sheet specifically took such item into account and the Purchaser did not dispute the treatment of such item in the Closing Balance Sheet, or the dispute as to the treatment of such item was resolved pursuant to Section 1.05 or (ii) the Net Working Capital, as calculated with respect to the Closing Balance Sheet, was not adjusted for such item, the Purchaser disputed the treatment of such item, and the dispute was resolved in favor of the Seller pursuant to Section 1.05 .
9.03 Indemnification by the Purchaser for the Benefit of the Seller .
(a) The Purchaser shall indemnify the Seller and its Affiliates, and their respective officers, managers, directors, partners, members, employees, agents, Representatives, successors and permitted assigns (collectively, the Seller Indemnified Parties ) and hold them harmless against any Losses which the Seller Indemnified Parties actually incur, as a result of any breach or nonfulfillment of any representation, warranty, covenant, agreement or other provision of or by the Purchaser under this Agreement or any claim or suit brought against any of the Seller Indemnified Parties at any time on or after the Closing Date relating to actions taken by the Purchaser or the Company or any of its Subsidiaries after the Closing Date.
(b) Any indemnification of the Seller pursuant to this Section 9.03 shall be effected by wire transfer of immediately available funds to an account designated by the Seller within five (5) days after the determination thereof.
(c) Subject to Sections 10.02(b) and 11.07 , the indemnification provided by Section 9.03(a) shall be the sole and exclusive remedy for any Loss, Liability, demand, claim, action, cause of action, cost, judgment, damage, deficiency, Tax, penalty, fine or expense, whether or not arising out of third-party claims (including, without limitation, interest, penalties,
reasonable attorneys fees and expenses, court costs and all reasonable amounts paid in investigation, defense or settlement of any of the foregoing) of the Seller Indemnified Parties with respect to any misrepresentation or inaccuracy in, or breach of, any representations or warranties or any breach or failure in performance of any covenants or agreements made by the Purchaser in this Agreement or in any exhibit or schedules hereto or any certificate delivered hereunder. For the avoidance of doubt, title claims shall not be limited to the indemnification provided by Section 9.02(a) .
9.04 Mitigation . Each Person entitled to indemnification hereunder shall take commercially reasonable steps to mitigate all losses, costs, expenses and damages after becoming aware of any event which could reasonably be expected to give rise to any losses, costs, expenses and damages that are indemnifiable or recoverable hereunder or in connection herewith.
9.05 Defense of Third-Party Claims . Any Person making a claim for indemnification under Section 9.02 or Section 9.03 (an Indemnitee ) shall notify the indemnifying party (an Indemnitor ) of the claim in writing promptly after receiving written notice of any action, lawsuit, proceeding, investigation or other claim against it (if by a third party), describing the claim, the amount thereof (if known and quantifiable) and the basis thereof; provided that the failure to so notify the Indemnitor shall not affect the indemnification hereunder except to the extent that the defense of such claim is actually prejudiced by such failure. Any Indemnitor shall be entitled to participate in the defense of such action, lawsuit, proceeding, investigation or other claim giving rise to an Indemnitees claim for indemnification at such Indemnitors expense, and at its option shall be entitled to assume the defense thereof by appointing a reputable counsel reasonably acceptable to the Indemnitee to be the lead counsel in connection with such defense. No Indemnitor shall be liable to any Indemnitee for any legal fees or expenses subsequently incurred by such Indemnitee following the assumption of such claim by the Indemnitor; provided that if the Indemnitor and the Indemnitee are both named parties to the proceedings and, in the reasonable opinion of counsel to the Indemnitee, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the applicable Indemnified Parties shall be entitled to participate in any such defense with one separate counsel (and one additional separate local counsel) at the expense of the Indemnitor. If the Indemnitor shall control the defense of any such claim, then the Indemnitor shall be entitled to settle such claim; provided that, the Indemnitor shall obtain the prior written consent of the Indemnitee (which consent shall not be unreasonably withheld, conditioned, or delayed) before entering into any settlement of a claim or ceasing to defend such claim if, pursuant to or as a result of such settlement or cessation, injunctive or other equitable relief will be imposed against the Indemnitee or if such settlement does not expressly and unconditionally release the Indemnitee from all liabilities and obligations with respect to such claim. If (A) the Indemnitor elects not to assume the defense, (B) after commencing or undertaking any such defense, the Indemnitor fails to prosecute or withdraws from such defense or (C) the Indemnitor is not entitled to assume the defense of a claim pursuant to this Section 9.05 , then the Indemnitee shall have the right to undertake and assume control of the defense or settlement thereof; provided , however , that such Indemnitee shall not consent to the entry of any judgment or settlement agreement providing for the settlement of such claim without the prior written consent of the Indemnitor (which consent shall not be unreasonably withheld, conditioned or delayed). The above provisions of this Section 9.05 shall not apply to any claim with respect to Taxes or any Tax Proceeding.
9.06 Determination of Loss Amount . The amount of any Loss subject to indemnification under Section 9.02 or 9.03 shall be calculated (A) net of (i) any Tax Benefit actually realized in cash (by reduction in Taxes actually payable) by the Indemnitee or any of their Affiliates on account of such Loss and (ii) any insurance proceeds (net of direct collection expenses) or any indemnity, contribution or other similar payment actually received by the Indemnitee from any third party with respect thereto and (B) taking into account any additional Taxes actually incurred by the Indemnitee in connection with such indemnification (a Tax Cost ). If the Indemnitee actually realizes a Tax Benefit in cash (by reduction in Taxes actually payable) on account of any Loss within twelve (12) months following the Closing Date (for the avoidance of doubt, other than any Tax Benefit taken into account pursuant to subsection (A)(i) of this Section 9.06 ), the Indemnitee shall promptly pay to the Indemnitor the amount of such Tax Benefit at such time or times as and to the extent that such Tax Benefit is so actually realized by the Indemnitee by reduction in Taxes actually payable. If the Indemnitee incurs a Tax Cost on account of any Loss or indemnification payment within twelve (12) months following the Closing Date (for the avoidance of doubt, other than any Tax Cost taken into account pursuant to subsection (B) of this Section 9.06 ), the Indemnitor shall promptly pay to the Indemnitee the amount of such Tax Cost at such time or times as and to the extent that such Tax Cost is so actually paid. For purposes hereof, Tax Benefit shall mean any refund of Taxes paid or credit against or reduction in the amount of Taxes which otherwise would have been paid (calculated on a with and without basis and taking into account any additional Taxes required to be paid by the Indemnitee as a result of any reduction in the basis of any assets resulting from such indemnification payment or tax treatment thereof). The Indemnitee shall seek full recovery under all insurance policies covering any Loss to the same extent as they would if such Loss were not subject to indemnification hereunder. In the event that an insurance or other recovery is actually received by any Indemnitee with respect to any Loss for which any such Person has been previously indemnified hereunder, then a refund equal to the aggregate amount of the recovery shall be made promptly to the Indemnitor. The Indemnitors shall be subrogated to all rights of the Indemnitees and their affiliates in respect of any Losses indemnified by the Indemnitors.
9.07 Acknowledgment of the Purchaser . The Purchaser acknowledges that it has conducted to its satisfaction, an independent investigation and verification of the financial condition, results of operations, assets, liabilities, properties and projected operations of the Company and its Subsidiaries. In making its determination to proceed with the transactions contemplated by this Agreement, the Purchaser has relied on the results of its own independent investigation and verification and the representations and warranties of the Seller and the Company expressly and specifically set forth in this Agreement. Such representations and warranties by the Seller and the Company constitute the sole and exclusive representations and warranties of the Seller and the Company to the Purchaser in connection with the transactions contemplated hereby, and the Purchaser understands, acknowledges and agrees that all other representations and warranties of any kind or nature expressed or implied (including, but not limited to, any relating to the future or historical financial condition, results of operations, assets or liabilities of the Company and its Subsidiaries, or the quality, quantity or condition of the Companys and its Subsidiaries assets) are specifically disclaimed by the Seller, the Company and its Subsidiaries. In connection with the Purchasers investigation of the Company and its Subsidiaries, the Purchaser has received certain projections, including projected statements of operating revenues and income from operations of the Company and its Subsidiaries and certain business plan information. The Purchaser acknowledges that there are uncertainties inherent in attempting to make
such estimates, projections and other forecasts and plans, that the Purchaser is familiar with such uncertainties and that the Purchaser is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections and other forecasts and plans so furnished to it, including, without limitation, the reasonableness of the assumptions underlying such estimates, projections and forecasts. Accordingly, the Purchaser hereby acknowledges that none of the Seller, the Company, its Subsidiaries or any other Person is making any representation or warranty with respect to such estimates, projections and other forecasts and plans, including, without limitation, the reasonableness of the assumptions underlying such estimates, projections and forecasts. The Purchaser further agrees that none of the Seller, the Company, its Subsidiaries or any other Person will have or be subject to any Liability to the Purchaser or any other Person resulting from the distribution to the Purchaser, or the Purchasers use of, any such information, including the Confidential Information Memorandum, dated May 2013, prepared by Macquarie Capital (USA) Inc., the Seller and the Company, and any information, document or material made available to the Purchaser or its Affiliates in certain data rooms, management presentations or any other form in expectation of the transactions contemplated by this Agreement.
9.08 Availability and Release of Indemnity Escrow Amount .
(a) On the Closing Date, the Purchaser shall deliver to the Escrow Agent the Indemnity Escrow Amount, to be held in escrow for a total of twelve (12) months from the Closing Date, for the purpose of securing the indemnification obligations of the Seller as set forth in this Agreement. Subject to and in accordance with the terms of the Escrow Agreement and Section 9.08(b) hereof, within five (5) Business Days after the expiration of the 12-month period following the Closing Date, the Escrow Agent shall transfer an amount equal to the remaining funds of the Indemnity Escrow Amount less such amount, if any, equal to the Projected Indemnity Amount at the time of such final Indemnity Escrow Amount Expiration Date to an account designated by the Seller (the foregoing expiration deadline being referred to as the Indemnity Escrow Amount Expiration Date ).
(b) No later than the first (1st) Business Day preceding the Indemnity Escrow Amount Expiration Date, Purchaser shall provide to the Seller (x) a written notice of its reasonable and good faith determination of the Projected Indemnity Amount (as defined herein), together with reasonable supporting calculations and documentation, and (y) a written notice duly executed by Purchaser instructing the Escrow Agent to release an amount of cash from the Indemnity Escrow Amount in accordance with Section 9.08(a) hereof (such notice, an Expiration Date Release Notice ). The Seller shall promptly execute the Expiration Date Release Notice following receipt and delivery of the same to the Escrow Agent, whereupon the Escrow Agent will release the relevant funds from the Indemnity Escrow Account. Promptly following the resolution of each claim for indemnification for which a Projected Indemnity Amount was reserved in the Indemnity Escrow Account as of the Indemnity Escrow Amount Expiration Date, the Seller and Purchaser shall jointly instruct the Escrow Agent to release from the Indemnity Escrow Account an amount of cash to either the Seller or the Purchaser, as applicable, in accordance with the resolution of the claim. The term Projected Indemnity Amount means the maximum aggregate amount of actual or reasonably expected Losses that, as of the Indemnity Escrow Amount Expiration Date, would reasonably be expected to be indemnified by the Indemnity Escrow Amount pursuant to Sections 9.02 and 9.06 and this Article IX in respect of claims that have been timely asserted but not finally resolved by such date.
(c) No later than the first (1st) Business Day preceding the Refund Escrow Expiration Date, Purchaser shall provide to the Seller (x) a written notice of its reasonable and good faith determination of the Projected Tax Indemnity Amount (as defined herein), together with reasonable supporting calculations and documentation, and (y) a written notice duly executed by Purchaser instructing the Escrow Agent to release an amount of cash from the Refund Escrow Account in accordance with Section 11.01(c) hereof (such notice, a Refund Expiration Date Release Notice ). The Seller shall promptly execute the Refund Expiration Date Release Notice following receipt and delivery of the same to the Escrow Agent, whereupon the Escrow Agent will release the relevant funds from the Refund Escrow Account. Promptly following the resolution of each claim for indemnification for which a Projected Tax Indemnity Amount was reserved in the Refund Escrow Account as of the Refund Escrow Expiration Date, the Seller and Purchaser shall jointly instruct the Escrow Agent to release from the Refund Escrow Account an amount of cash to either the Seller or the Purchaser, as applicable, in accordance with the resolution of the claim.
ARTICLE X
TERMINATION
10.01 Termination . Notwithstanding anything to the contrary contained in this Agreement, this Agreement may be terminated at any time prior to the Closing:
(a) by the mutual written consent of the Purchaser and the Seller;
(b) by either Purchaser or the Seller, if the Closing shall have not been consummated on or before such date that is nine (9) months from the date hereof (such date, the End Date ); provided that the right to terminate this Agreement pursuant to this Section 10.01(b) shall not be available to either party if its action or failure to act constitutes a material breach or violation of any of its covenants, agreements or other obligations hereunder and such material breach or violation has been the principal cause of or directly resulted in the failure to satisfy the conditions to the obligations of the terminating party to consummate the transactions contemplated hereby prior to the End Date; or
(c) by the Purchaser, if the Company or the Seller shall have breached or failed to perform any of its representations, warranties, covenants or other agreements set forth in this Agreement, which breach or failure to perform (x) would give rise to the failure of any condition set forth in Section 2.01(a) , (b) or (c) and (y) (A) is not capable of being cured prior to the End Date or (B) is not cured by the Company on or before the date that is ten (10) days following the receipt by the Seller of written notice from Purchaser of such breach or failure;
(d) by the Seller, if the Purchaser shall have breached or failed to perform any of its representations, warranties, covenants or other agreements set forth in this Agreement, which breach or failure to perform (x) would give rise to the failure of any condition set forth in Section 2.02(a) or (b) and (y) (A) is not capable of being cured prior to the End Date or (B) is not cured by the Purchaser on or before date that is ten (10) days following the receipt by the Purchaser of written notice from the Seller of such breach or failure; or
(e) The party desiring to terminate this Agreement pursuant to clauses (b), (c), or (d) of this Section 10.01 shall give written notice of such termination to the other parties hereto.
10.02 Termination Fee .
(a) If, but only if, this Agreement is terminated by (i) either party pursuant to Section 10.01(b) and, at the time of such termination, either of the conditions set forth in Sections 2.01(d) or (e) has not been satisfied, (ii) by Seller if all of the conditions set forth in Section 2.01 to the Purchasers obligation to close have been satisfied or waived, as applicable (other than those conditions that by their nature cannot be satisfied until the Closing, each of which is capable of being satisfied at the Closing) but the Purchaser has failed to effect the Closing within the period provided for in Section 1.03 , or (iii) the Seller pursuant to Section 10.01(d) , then the Purchaser shall pay, or cause to be paid, to the Seller an amount equal to (x) in the case of termination pursuant to the foregoing clauses (i), (ii) (in any case other than as a result of a Financing Failure) or (iii) above, Thirteen Million Nine Hundred Fifty Thousand and 00/100 Dollars ($13,950,000.00) or (y) in the case of termination pursuant to the foregoing clause (ii) as a result of a Financing Failure, Sixteen Million Two Hundred Seventy Five Thousand and 00/100 Dollars ($16,275,000.00) (either such amount, the Purchaser Termination Fee ) by wire transfer of immediately available funds (to an account specified by the Seller) not later than the second (2nd) business day following such termination. The Purchaser acknowledges that its obligation to pay the Purchaser Termination Fee has been guaranteed by and pursuant to the Apollo Guaranty.
(b) Notwithstanding anything to the contrary contained in this Agreement, in no event shall the Purchaser be required to pay the Purchaser Termination Fee on more than one occasion (or shall the Seller be entitled to collect more than an amount equal to the sum of the Purchaser Termination Fee and One Million and 00/100 Dollars ($1,000,000.00) pursuant to this Agreement or the Apollo Guaranty). Notwithstanding anything to the contrary contained in this Agreement, but subject to an order of specific performance as and to the extent permitted by Section 11.07 , the Sellers right to receive payment from Purchaser of the Purchaser Termination Fee pursuant to Section 10.02(a) (including, if applicable, pursuant to the Apollo Guaranty) shall constitute the sole and exclusive remedy of the Seller, the Company and its subsidiaries against Purchaser and its Affiliates and Subsidiaries, and any of their respective former, current or future direct or indirect equity holders, controlling persons, general or limited partners, shareholders, members, managers, directors, officers, employees, agents, Affiliates, or assignees or any Financing Sources (collectively, the Purchaser Related Parties ) for any and all breaches, Losses and damages suffered as a result of the failure of the transactions contemplated by this Agreement to be consummated or, to the extent the Closing does not occur, for a breach (whether willful, intentional, unintentional or otherwise) or failure to perform hereunder or otherwise (whether at law, in equity, in contract, in tort or otherwise), and, subject to an order of specific performance as and to the extent permitted by Section 11.07 , upon payment of such amounts, none of the Purchaser Related Parties shall have any further Liability or obligation relating to or arising out of this Agreement (including any breach of this Agreement) or the transactions contemplated hereby (whether at law, in equity, in contract, in tort or otherwise) to the extent the Closing does not occur.
(c) Each of the parties hereto acknowledges that (x) the agreements contained in this Section 10.02 are an integral part of the transactions contemplated by this Agreement, (y) the Purchaser Termination Fee is not a penalty, but rather is liquidated damages in a reasonable amount that will compensate the Seller in the circumstances in which such termination fee is payable for the efforts and resources expended and opportunities foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the transactions contemplated hereby, which amount would otherwise be impossible to calculate with precision and (z) without these agreements, the parties would not enter into this Agreement. The Purchaser acknowledges and irrevocably and unconditionally agrees that it shall not, and shall cause its Affiliates to not, in any way challenge or dispute the legality of the Purchaser Termination Fee (including, without limitation, the amount or payment thereof), but fully reserves the right, and in no event waives its right to challenge or dispute, whether or not the Purchaser Termination Fee is payable pursuant to the terms of this Agreement. If the Purchaser fails to pay the Purchaser Termination Fee pursuant to this Section 10.02 when due (or if the Purchaser Termination Fee is not otherwise paid when due pursuant to the Apollo Guaranty), and, in order to obtain such payment, the Seller commences a lawsuit that results in a judgment against the Purchaser (or the guarantor under and pursuant to the Apollo Guaranty) for the Purchaser Termination Fee (or results in a written settlement mutually acceptable to Purchaser and Seller), the Purchaser shall pay to the Seller (x) the Sellers costs and expenses (including, without limitation, reasonable attorneys fees and court costs) in connection with such lawsuit (and/or settlement) and (y) interest on the amount of the Purchaser Termination Fee from the date such payment was required to be made until the date of payment at an interest rate equal to five percent (5.0%) per annum.
10.03 Effect of Termination . If this Agreement is terminated by either the Purchaser or the Seller as provided above, the provisions of this Agreement shall immediately become void and of no further force and effect (other than Section 10.02 , this Section 10.03 and Article XIII hereof, which shall survive the termination of this Agreement), and there shall be no further Liability on the part of any party hereto to one another, except for willful and intentional breaches of this Agreement prior to the time of such termination.
ARTICLE XI
ADDITIONAL COVENANTS
11.01 Tax Matters .
(a) Tax Returns .
(i) The Seller shall prepare or cause to be prepared all income and franchise Tax Returns of the Company and its Subsidiaries for any taxable period ending on or before the Closing Date that are due after the Closing Date (each, a Seller Tax Return ) and all such Seller Tax Returns shall be prepared in a manner consistent with past practice of the Company or the relevant Subsidiary of the Company, as applicable, unless
otherwise clearly required under applicable Law. The Seller shall provide a copy of each Seller Tax Return (along with supporting tax workpapers) no later than thirty (30) days prior to the due date (taking into account extensions) of such Seller Tax Returns to the Purchaser for its review and comment. The Seller shall reasonably and in good faith consider any comments or revisions to any Seller Tax Return as are requested by the Purchaser. In the event that a dispute concerning a Seller Tax Return is not resolved by mutual agreement of the Seller and the Purchaser within fifteen (15) days prior to the due date for filing such Seller Tax Return (taking into account extensions), the dispute shall be resolved by the Independent Accounting Firm. The resolution of the disputed items by the Independent Accounting Firm shall be consistent with the terms of this Agreement and shall be final and binding on the parties. The costs, fees and expenses of the Independent Accounting Firm shall be borne equally by the Seller and the Purchaser. In the event that the Independent Accounting Firm does not resolve a dispute concerning a Seller Tax Return at least three (3) days prior to the due date for filing such Seller Tax Return (taking into account extensions), such Seller Tax Return shall be filed as prepared by the Seller; provided , that (A) the Purchaser shall not be required to file any Seller Tax Return that is not prepared in accordance with applicable Law and (B) any such Seller Tax Return so filed by Seller or Purchaser shall be subject to subsequent amendment as may be required to reflect the final decision of the Independent Accounting Firm or mutual agreement of the Seller and the Purchaser, as the case may be. The Seller shall pay any Taxes shown as due and payable on any Seller Tax Return to the appropriate Governmental Entity except to the extent that such Taxes were reflected as a liability in the calculation of Net Working Capital as finally determined pursuant to Section 1.05(b) .
(ii) The Purchaser shall prepare or cause to be prepared (1) all Tax Returns of the Company and its Subsidiaries for any taxable period ending on or before the Closing Date that are due after the Closing Date other than any such Tax Returns that are Seller Tax Returns and (2) all Tax Returns of the Company and its Subsidiaries for any Straddle Period (any Tax Return described in clause (1) or (2), a Purchaser Tax Return ) and all Purchaser Tax Returns shall be prepared in a manner consistent with past practice, unless otherwise clearly required under applicable Law. The Purchaser shall provide a copy of each Purchaser Tax Return (along with supporting tax workpapers) to the Seller for its review and comment, in the case of a Purchaser Tax Return that is an Income Tax Return (a Purchaser Income Tax Return ) no later than thirty (30) days prior to the due date for filing such Purchaser Income Tax Return (taking into account extensions), and, in the case of a Purchaser Tax Return that is not an Income Tax Return (a Purchaser Non-Income Tax Return ) as soon as reasonably practicable after the preparation of such Purchaser Non-Income Tax Return. The Purchaser shall reasonably and in good faith consider any comments or revisions to any Purchaser Tax Return as are requested by the Seller. In the event that a dispute concerning a Purchaser Tax Return is not resolved by mutual agreement of the Seller and the Purchaser, in the case of a Purchaser Income Tax Return, within fifteen (15) days prior to the due date for filing such Purchaser Tax Return (taking into account extensions) and, in the case of a Purchaser Non-Income Tax Return, within fifteen (15) days after the delivery by Purchaser of a copy of such Purchaser Non-Income Tax Return to Seller, the dispute shall be resolved by the Independent Accounting Firm. The resolution of the disputed items by the Independent Accounting Firm shall be consistent with the terms of this Agreement and shall be final and binding on the parties.
The costs, fees and expenses of the Independent Accounting Firm shall be borne equally by the Seller and the Purchaser. In the event that a dispute with respect to a Purchaser Tax Return is not resolved by mutual agreement of the Seller and the Purchaser or by the Independent Accounting Firm, as applicable, at least three (3) days prior to the due date for filing such Purchaser Tax Return (taking into account extensions), such Tax Return shall be filed as prepared by the Purchaser, subject to subsequent amendment as may be required to reflect the final decision of the Independent Accounting Firm or mutual agreement of the Seller and the Purchaser, as the case may be. The Seller shall pay any Excluded Taxes relating to any Purchaser Tax Return (except to the extent such Excluded Taxes were reflected as a liability in the calculation of Net Working Capital as finally determined pursuant to Section 1.05(b) ) to the Purchaser no later than two (2) days prior to the due date for filing such Purchaser Tax Return.
(iii) For purposes of this Agreement, in the case of any Taxes that are imposed with respect to a Straddle Period, (i) Property Taxes allocable to the Pre-Closing Period shall be equal to the amount of such Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days during the Straddle Period that are in the portion of such Straddle Period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period, and (ii) Taxes (other than Property Taxes) allocable to the Pre-Closing Period shall be computed as if such taxable period ended on and included the Closing Date; provided that exemptions, allowances or deductions that are calculated on an annual basis shall be allocated between the portion of the Straddle Period ending on the Closing Date and the portion of the Straddle Period ending after the Closing Date in proportion to the number of days in each such period. For the avoidance of doubt, any Taxes imposed on or with respect to AGST shall be allocated between the Pre-Closing Period and the Post-Closing Period as if the taxable year of AGST ended on (and included) the Closing Date. Transactions outside the ordinary course of business entered into at the direction of the Purchaser by the Company or any of its Subsidiaries after the Closing but prior to the end of the Closing Date and not contemplated by or consummated pursuant to this Agreement shall be allocated to the portion of the Straddle Period beginning after the Closing Date.
(b) Tax Sharing Agreements . Any tax-sharing agreement between the Seller, on the one hand, and the Company and its Subsidiaries, on the other hand, is terminated as of the Closing Date and shall have no further effect for any taxable year (whether the current year, a future year, or a past year).
(c) Tax Refunds . If, after the Closing Date, the Company or any of its Subsidiaries receives a refund of any Tax that is attributable or allocable to a Pre-Closing Period of the Company or any of its Subsidiaries other than any such refund (1) to the extent such refund was reflected as an asset in the calculation of Net Working Capital as finally determined pursuant to Section 1.05(b) or results from a carryback or utilization of any loss or other item arising in a Post-Closing Period, (2) of any such Tax that was paid by the Company, any of its Subsidiaries, the Purchaser or any of its Affiliates after the Closing and which Tax is either not subject to indemnification under Section 9.02 or was not paid or reimbursed by Seller pursuant to its indemnification obligation under Section 9.02 , or (3) that does not exceed an amount equal to Twenty-Five Thousand and 00/100 ($25,000.00) other than, in the case of this clause (3), a refund
in respect of the Ontario Interactive Digital Media Tax Credit, then the Purchaser shall promptly pay to the Seller as additional Purchase Price the amount of such refund, together with any interest thereon, but net of any Taxes (calculated without regard to any Post-Closing Period losses or other Tax attributes) imposed on the Company, any of its Subsidiaries, the Purchaser or any of its Affiliates in connection with the receipt of such Tax refund and, in the case of any such Tax refund received by any Subsidiary of the Company, net of any withholding Taxes imposed or that would reasonably be expected to be imposed in connection with the distribution of the amount of such Tax refund by such Subsidiary to the Company; provided , that the Purchaser shall be entitled to and may elect, at its sole discretion, to (x) place all or any portion of any such refund received on or prior to the Refund Escrow Expiration Date up to an aggregate amount equal to Two Million Six Hundred Thousand and 00/100 Dollars $2,600,000 (the Refund Escrow Amount ) into the Refund Escrow Account for a period ending on the date (the Refund Escrow Expiration Date ) that is thirty (30) months after the Closing Date, (y) pursuant to the terms of an escrow agreement (the form of which shall be reasonably agreed to by the Purchaser and the Seller and shall be generally consistent with the applicable terms of the Escrow Agreement), satisfy from the Refund Escrow Account all or any portion of any outstanding indemnification obligation due and owing to any Purchaser Indemnified Party pursuant to Section 9.02(a)(ii) (in respect of a breach of any representation or warranty set forth in Section 4.08 ), Section 9.02(a)(i) or (ii) (in respect of a breach or failure to perform or comply with any Tax Covenant) or Section 9.02(a)(iii) (collectively, the Tax Indemnity Provisions ) and (z) in the case of any such refund received after the Refund Escrow Expiration Date (or otherwise not deposited into the Refund Escrow Account), satisfy from such refund all or any portion of any outstanding indemnification obligation due and owing to any Purchaser Indemnified Party pursuant to the Tax Indemnity Provisions. Within five (5) Business Days after the Refund Escrow Expiration Date, and subject to Section 9.08(c) , the Escrow Agent shall transfer to an account designated by the Seller an amount equal to the excess, if any, of the amount remaining in the Refund Escrow Account less the maximum aggregate amount, if any, that is due and owing or that would, as of the Refund Escrow Expiration Date, reasonably be estimated and expected to become due and owing (but that has not been finally resolved) to any Purchaser Indemnified Party in respect of any outstanding claims made pursuant to any of the Tax Indemnity Provisions (the Projected Tax Indemnity Amount ). For this purpose, a Tax refund attributable to a Pre-Closing Period will include the Ontario Interactive Digital Media Tax Credit of AGST allocable to the Pre-Closing Period to the extent that such Ontario Interactive Digital Media Tax Credit is either (i) credited against any Tax liability of AGST (or any successor) and reduces Taxes actually payable in cash for a Post-Closing Period or (ii) refunded in cash in a Post-Closing Period, except for the absence of doubt to the extent described in clause (1) or (2). The Purchaser and the Seller will reasonably cooperate with the Company and its Subsidiaries in promptly obtaining such refunds, including through the filing of amended Tax Returns or refund claims.
(d) Transfer Taxes . Purchaser, on the one hand, and Seller, on the other hand, will each pay and be responsible for fifty percent (50%) of any real property transfer Tax, stamp Tax, stock transfer Tax, or other similar Tax imposed on the sale of the Securities to Buyer pursuant to this Agreement (collectively, Transfer Taxes ). The Seller agrees to cooperate with the Purchaser in the filing of any returns with respect to the Transfer Taxes, including promptly supplying any information in its possession that is reasonably necessary to complete such returns.
(e) Bulk Sales Laws . Each party hereto hereby waives compliance by the Company, its Subsidiaries and the Seller with the provisions of the bulk sales, bulk transfer and similar laws of any state or political subdivision.
(f) Tax Cooperation . The Purchaser and the Seller agree to furnish or cause to be furnished to each other, upon request, as promptly as practicable, such information and assistance relating to the Company (including access to books and records) as is reasonably necessary for the filing of all Tax Returns, the making of any election relating to Taxes, the preparation for any audit by any taxing authority, the prosecution or defense of any claims, suits or proceedings relating to any Tax and the determination of any Liability for Taxes pursuant to this Agreement. Any expenses incurred in furnishing such information or assistance shall be borne by the party requesting it.
(g) Tax Proceedings .
(i) If any Governmental Entity asserts a Tax Claim, then the party hereto first receiving notice of such Tax Claim promptly shall provide written notice thereof to the other party or parties hereto describing the claim, the amount thereof (if known or quantifiable) and the basis thereof; provided , however , that the failure to provide such notice shall not release the other party from any of its obligations under this Section 11.01 or Article IX except to the extent that such other party is actually prejudiced by such failure.
(ii) Purchaser shall have the right to control any Tax Proceeding in respect of the Company or any of its Subsidiaries; provided , that in the case of any such Tax Proceeding that is with respect to a taxable period ending on or before the Closing Date or a Straddle Period of the Company or any of its Subsidiaries, (1) the Purchaser shall provide the Seller with a timely and reasonably detailed account of each phase of such Tax Proceeding, (2) the Purchaser shall consult with the Seller before taking any significant action in connection with such Tax Proceeding, (3) the Purchaser shall consult with the Seller and offer the Seller an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Proceeding, (4) the Purchaser shall defend such Tax Proceeding diligently and in good faith, (5) the Seller shall be entitled to participate in such Tax Proceeding, at its own expense, and receive copies of any written materials relating to such Tax Proceeding received from the relevant Taxing Authority and (6) the Purchaser shall not consent to the entry of any judgment or settlement agreement providing for the settlement of such Tax Proceeding without the prior written consent of the Seller (which consent shall not be unreasonably withheld, conditioned or delayed).
(iii) Notwithstanding anything in this Agreement to the contrary, the Purchaser shall have the exclusive right to control (1) any Tax Proceeding in respect of the Company or any of its Subsidiaries that is not described in the proviso set forth in Section 11.01(g)(ii) , and (2) any Tax Proceeding in respect of the Company or any of its Subsidiaries described in the proviso set forth in Section 11.01(g)(ii) if (A) the amount remaining in the Indemnity Escrow Account (less an amount equal to the sum of any amounts subject to any other outstanding claims made by any Purchaser Indemnified Party
pursuant to Article IX ), if any, plus the amount remaining in the Refund Escrow Account (less an amount equal to the sum of any amounts subject to any other outstanding claims made by any Purchaser Indemnified Party pursuant to the Tax Indemnity Provisions), if any, is less than fifty percent (50%) of the Tax reasonably expected to be at issue or (B) the Purchaser is otherwise not entitled to indemnification from the Seller with respect to such Tax Proceeding (it being agreed and understood that in the case of Tax Proceedings described in this clause (2), the proviso set forth in Section 11.01(g)(ii) shall not apply, except that in the case of any Tax Proceeding described in clause (2)(A) of this Section 11.01(g)(iii) , Section 11.01(g)(ii)(6) shall apply if any amount remaining in the Indemnity Escrow Account would be used to satisfy any or part of the Tax at issue).
(iv) For the avoidance of doubt, any Tax Proceeding in respect of the Seller or any direct or indirect owner of the Seller shall not be considered a Tax Proceeding in respect of the Company or any of its Subsidiaries.
(h) Amendments of Tax Returns . Except as otherwise required under applicable Law, in connection with a Tax Proceeding or as otherwise required or permitted pursuant to this Agreement, none of the Purchaser, the Company, any of its Subsidiaries or any of their respective Affiliates shall amend any Tax Return of the Company or any of its Subsidiaries for a taxable period ending on or before the Closing Date or a Straddle Period.
(i) [Reserved.]
(j) Tax Treatment of Certain Payments . Except to the extent otherwise required pursuant to a determination within the meaning of Section 1313(a) of the Code (or any similar provision of state, local or foreign Law), the parties shall (and shall cause their respective Affiliates to) treat any payments pursuant to Section 1.06 , the payment of the Second-Half Non-Illinois Machine Placement Adjustment and any indemnification payments made pursuant to this Agreement as an adjustment to the Purchase Price for all Tax purposes, except for any amount treated as interest under Section 483 of the Code.
11.02 Further Assurances . From time to time, as and when requested by any party hereto and at such partys expense, any other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such requesting party may reasonably deem necessary or desirable to evidence and effectuate the transactions contemplated by this Agreement.
11.03 Disclosure Generally . All Disclosure Schedules attached hereto are incorporated herein and expressly made a part of this Agreement as though completely set forth herein. All references to this Agreement herein or in any of the Disclosure Schedules shall be deemed to refer to this entire Agreement, including all Disclosure Schedules.
11.04 Resignations . On the Closing Date, the Seller shall cause to be delivered to the Purchaser duly signed resignations from the applicable members of the board of managers (or equivalent governing bodies) of the Company and its Subsidiaries, effective immediately upon Closing, and shall take such other action as is necessary to accomplish the foregoing.
11.05 No Control of the Companys Business . Nothing contained in this Agreement is intended to give the Purchaser, directly or indirectly, the right to control or direct the Companys or its Subsidiaries operations prior to the Closing. Prior to the Closing, the Company shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries operations.
11.06 Conflicts; Privileges . It is acknowledged by each of the parties that the Company and the Seller have retained Duane Morris LLP ( DM ) to act as its counsel in connection with the transactions contemplated hereby and that DM has not acted as counsel for any other Person in connection with the transactions contemplated hereby and that no other party or Person has the status of a client of DM for conflict of interest or any other purposes as a result thereof. The Purchaser hereby agrees that, in the event that a dispute arises between the Purchaser or any of its Affiliates (including, after the Closing, the Company or any of its Subsidiaries) and the Seller or any of its Affiliates (including, prior to the Closing, the Company and its Subsidiaries), DM may represent the Seller or any such Affiliate in such dispute even though the interests of the Seller or such Affiliate may be directly adverse to the Purchaser or any of its Affiliates (including, after the Closing, the Company and its Subsidiaries), and even though DM may have represented the Company or its Subsidiaries in a matter substantially related to such dispute, or may be handling ongoing matters for the Purchaser or the Company (and its Subsidiaries), and the Purchaser and the Company hereby (i) waive, on behalf of themselves and each of their Affiliates, any claim they have or may have that DM has a conflict of interest in connection with or is otherwise prohibited from engaging in such representation, (ii) agree that, in the event that a dispute arises after the Closing between the Purchaser or any of its Affiliates (including, after the Closing, the Company and its Subsidiaries) and the Company (or its Subsidiaries) or the Seller or any of their Affiliates, DM may represent any such party if retained in such dispute even though the interest of any such party may be directly adverse to the Purchaser or any of its Affiliates (including, after the Closing, the Company and its Subsidiaries) or the Company and even though DM may have represented the Company (or its Subsidiaries) in a matter substantially related to such dispute, or may be handling ongoing matters for the Purchaser or the Company (or its Subsidiaries). The Purchaser further agrees that, as to all communications among DM, the Company, its Subsidiaries and the Seller or any of their Affiliates that relate in any way to the transactions contemplated by this Agreement, the attorney-client privilege, the expectation of client confidence and all other rights to any evidentiary privilege belong to the Seller and may be controlled by the Seller and shall not pass to or be claimed by the Purchaser or the Company (or any of its Subsidiaries). The Purchaser agrees to take, and to cause its Affiliates to take, all steps reasonably necessary to implement the intent of this Section 11.06 . The Seller, the Company and the Purchaser further agree that DM is a third-party beneficiary of this Section 11.06 .
11.07 Specific Enforcement . The parties agree that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that the parties hereto do not perform the provisions of this Agreement (including failing to take such actions as are required of it hereunder to consummate the transactions contemplated by this Agreement) in accordance with its specified terms or otherwise breach such provisions. Accordingly, the parties acknowledge and agree that the parties hereto shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity; provided , however , that the right of the Seller to
obtain an injunction, specific performance or other equitable relief ordering Purchaser to cause the Equity Financing to be funded shall be subject to the terms and conditions set forth in the penultimate sentence of this Section 11.07 . Each of the parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that any other party has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or in equity. Any party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement or the Apollo Guaranty shall not be required to provide any bond or other security in connection with any such order or injunction. Notwithstanding the foregoing, it is explicitly agreed that the Seller shall be entitled to obtain an injunction, or other appropriate form of equitable relief, to cause the Purchaser to cause, or for the Seller to directly cause, the Equity Financing to be funded at any time if, and only if, each of the following conditions has been satisfied: (i) with respect to any funding of the Equity Financing to occur at the Closing, all of the conditions in Sections 2.01 and 2.02 would have been satisfied if the Closing were to have occurred at such time (other than those conditions that by their nature cannot be satisfied until the Closing, each of which is capable of being satisfied at the Closing), (ii) the Debt Financing has been funded or will be funded at the Closing, as applicable, if the Equity Financing were funded at the Closing, as applicable, and (iii) with respect to any funding of the Equity Financing to occur at the Closing, the Seller has irrevocably confirmed that if specific performance is granted and the Equity Financing and Debt Financing are funded, then it would take such actions that are within its control to cause the Closing to occur. The election of the Seller to pursue an injunction or specific performance shall not restrict, impair or otherwise limit the Seller from subsequently seeking to terminate this Agreement and seeking to collect the Purchaser Termination Fee pursuant to Section 10.02(a) ; provided , however , that under no circumstances shall the Seller be permitted or entitled to receive both a grant of specific performance of the consummation of the transactions contemplated hereby pursuant to this Section 11.07 and the payment of the Purchaser Termination Fee, unless the transactions contemplated by this Agreement hereby fail to close, despite such grant of specific performance.
ARTICLE XII
DEFINITIONS
12.01 Definitions . For purposes hereof, the following terms when used herein shall have the respective meanings set forth below:
2014 Base Capex Amount means an aggregate equal to the product of (x) One Million Dollars and 00/100 ($1,000,000.00) and (y) the number of whole months from and after January 1, 2014 through and including the Closing Date, prorated for the month in which the Closing occurs if the Closing does not occur on the final day of such month.
2014 Capex Overspend Amount means, if the Closing occurs after December 31, 2013, an amount equal to one-half of the Capex Overspend.
Accel Settlement means (i) the Amendment to the Equipment Agreement, made as of September 10, 2013, by and among AGS Illinois, LLLP, an Illinois limited liability limited partnership, AGS, LLC, a Delaware limited liability company, and Accel Entertainment Gaming, LLC, an Illinois limited liability company ( First Accel Amendment ), and (ii) the Second Amendment to the Equipment Agreement, by and among the same parties to the First Accel Amendment, in the form set forth in Exhibit H .
Accel Settlement Amount means, if as of the Closing AGS LLC, the Company or any of the Companys Subsidiaries has not yet fully paid for any third party games which any of them may be required to purchase pursuant to the First Accel Amendment, an amount equal to the product of (1) the number of such third party games pursuant to Sections 11(c) and (d) of the First Accel Amendment not yet fully paid for and (2) Fifteen Thousand Five Hundred and 00/100 Dollars ($15,500.00); provided that fully paid for shall not include any games for which any of AGS LLC, the Company or any of the Companys Subsidiaries have leased, rented or otherwise acquired from a third party without fully paying the purchase price therefore, and subsequently provided to Accel, and in such event, an amount equal to the full payment stream associated with any such third party leases, rentals or otherwise acquired on a delayed payment basis shall be considered Closing Indebtedness.
Acquisition Proposal means, other than the transactions contemplated by this Agreement, any inquiry, proposal or offer (other than a proposal or offer by Purchaser or any of its Subsidiaries) from a third party relating to (i) a merger, reorganization, sale of assets, share exchange, consolidation, business combination, recapitalization, dissolution, liquidation, joint venture or similar transaction involving the Seller, the Company or any of its Subsidiaries; (ii) the acquisition (whether by merger, consolidation, equity investment, joint venture or otherwise) by any Person of ten percent (10%) or more of the assets of the Company and its Subsidiaries, taken as a whole (based on fair market value, as determined in good faith by the Seller); (iii) the acquisition in any manner, directly or indirectly, by any Person any of the issued and outstanding equity of the Company.
Affiliate of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where control means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise.
Applicable Persons means each of (i) the Company, (ii) all of the Companys Subsidiaries, (iii) the Purchaser, (iv) all of the Purchasers Affiliates, control Persons and Subsidiaries and (v) all required individuals.
Apollo Guaranty means the Limited Guarantee dated as of September 16, 2013, made by each of Apollo Investment Fund VIII, L.P., Apollo Overseas Partners (Delaware) VIII, L.P., Apollo Overseas Partners (Delaware 892) VIII, L.P. and Apollo Overseas Partners VIII, L.P., in favor of the Seller, as the same may be amended or modified in accordance with its terms.
Assignable Notes means the series of note receivables listed on Schedule 12.01(b) .
Business means the business of the Company and its Subsidiaries as conducted on the date hereof.
Capex means capital expenditures.
Capex Overspend means the aggregate amount of Capex spent by the Company and its Subsidiaries during the period from and after January 1, 2014 through and including the Closing Date in excess of the 2014 Base Capex Amount.
Cash means cash and cash equivalents held in the bank accounts of the Company and its Subsidiaries as of the Closing, but shall not include any Restricted Cash.
Closing Indebtedness means the aggregate amount of Indebtedness of the Company and its Subsidiaries outstanding as of the opening of business on the Closing Date.
Code means the Internal Revenue Code of 1986, as amended.
Company Intellectual Property means any Intellectual Property owned by the Company or its Subsidiaries.
Compliant means, with respect to (i) Required Information contemplated by the Debt Commitment Letter, including all information required by clauses (3) and (4) of Exhibit B thereof, and (ii) other material Required Information, that (x) such Required Information constituting written factual information, when taken as a whole, is or will be, when furnished, correct in all material respects and does not or will not, when furnished, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make such Required Information not materially misleading in light of the circumstances under which it was furnished and (y) such Required Information constituting projections and other forward looking information has been or will be prepared in good faith based upon reasonable assumptions; it being understood that such projections are as to future events and are not to be viewed as facts, are subject to significant uncertainties and contingencies; provided , actual results during the period or periods covered by any such projections may differ significantly from the projected results, and no assurance can be given that the projected results will be realized.
Credit Facility means the Credit Agreement dated as of August 15, 2012 among AGS LLC, as borrower, the Company, AGS Partners, LLC and the other guarantors party thereto, the lenders party thereto from time to time, and UBS AG, Stamford Branch, as administrative agent and collateral agent, as amended, supplemented or otherwise modified from time to time to the date hereof.
Debt Financing Source means the Persons (other than the Company or any of its Subsidiaries or any of their respective Affiliates or controlling persons but including each Lender) that have committed to provide or have otherwise entered into agreements (including any Debt Commitment Letter), in each case, in connection with the Debt Financing or any other debt financing in connection with the transactions contemplated hereby, and any joinder agreements, indentures or credit agreements entered into pursuant thereto, including the Lenders, together with their respective former, current or future general or limited partners, direct or indirect shareholders, managers, members, Affiliates, officers, directors, employees, agents, representatives,
successors and assigns and any former, current or future general or limited partner, direct or indirect shareholder, manager, member, Affiliate, officer, director, employee, agent, representative, successor or assign of any of the foregoing; it being understood that the Purchaser and its Affiliates shall not be Debt Financing Sources for any purposes hereunder.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Escrow Agent means Citibank, N.A.
Escrow Agreement means the escrow agreement substantially in the form attached hereto as Exhibit F .
Escrow Amount means Twenty-Five Million Five Hundred Seventy-Five Thousand and 00/100 Dollars ($25,575,000.00), being the sum of the Net Working Capital Escrow Amount and the Indemnity Escrow Amount.
Excluded Taxes means any Liability, obligation or commitment, whether or not accrued, assessed or currently due and payable for (i) any Taxes of the Seller, (ii) any Taxes of any direct or indirect owner of the Seller for any taxable period to the extent such Taxes are imposed as a result of being a direct or indirect owner of the Seller or in connection with such ownership, (iii) any Taxes of or imposed on or with respect to the Company or any of its Subsidiaries for a Pre-Closing Period, (iv) any Taxes for which the Company or any of its Subsidiaries is liable under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), by reason of such entity having been a member of any consolidated, combined, unitary, or affiliated Tax group at any time prior to the Closing, as a transferee or successor, by contract or otherwise (which transferee or successor status or contract existed at any time prior to the Closing), (v) any obligation or other Liability of the Company or any of its Subsidiaries to indemnify any other Person (other than the Company or any of its Subsidiaries) in respect of or relating to Taxes or to pay an amount pursuant to any Tax sharing, allocation, indemnity or similar agreement or arrangement (other than any such agreement or arrangement entered into by such entity in the ordinary course of business and not primarily relating to Taxes (e.g., leases) or after the Closing), (vi) any Taxes resulting from or imposed with respect to the NSULC Conversion; (vii) any Transfer Taxes for which Seller is responsible under Section 11.01(d) , and (viii) any Taxes resulting from any action described in Sections 1.04(f) or 7.06.
Filing Date means, with respect to any Prior Notice Jurisdiction, the date on which such required filing is made with respect to such jurisdiction and such filing is complete in accordance with applicable Gaming Laws, it being understood that if multiple filings are required to complete such filing, Filing Date shall mean the date of the last filing.
Financing Failure means that Purchaser is unable to effect the Closing when required pursuant to Section 1.03 because of a failure to receive the proceeds from the Debt Financing.
GAAP means United States generally accepted accounting principles applied in a manner consistent from period to period.
Gaming Approvals means the consents, registrations, declarations, notices or filings required to be made or obtained under Gaming Laws.
Gaming Authority means any commission, panel, board or similar body or organization of any Governmental Entity, including any Indian Tribe, with authority to regulate Indian Tribe gambling or other games of chance or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations in a jurisdiction.
Gaming Laws means all Laws, including any rules, regulations, judgments, injunctions, orders, decrees or other restrictions of any Gaming Authority, applicable to the gaming industry or Indian Tribes or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations.
Governmental Entity means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, including any governing authority of any Indian Tribe, or any agency, department, commission, board, bureau, instrumentality or authority thereof, or any court, arbitrator or mediator (public or private).
HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.
Income Tax Return means any Tax Return relating to any federal, state, local or foreign Tax based upon or measured by net income of the Company and/or any of its Subsidiaries.
Indebtedness means, with respect to any Person, without duplication and as of any particular time, (i) the unpaid principal amount of, and accrued interest on, all indebtedness for borrowed money of the Company or its Subsidiaries, (ii) any indebtedness evidenced by bonds, notes, debentures, letters of credit or similar instruments, (iii) any capital lease obligations ( provided that capital lease obligations shall also include any differences between the amount of gross payments (principal, interest and purchase options) on any capital leases and the amount(s) reflected as capital lease obligation(s) on the applicable balance sheet), (iv) any net obligations in respect of interest rate, currency or commodity swaps, collars, caps, hedges, futures contract, forward contract, option or other derivative instruments or arrangements, (v) any requirement to pay early payment, break or other termination fees with respect to any of the foregoing types of obligations, (vi) any obligations to guarantee any of the foregoing types of obligations on behalf of any Person, (vii) any customer deposits on gaming machines, (viii) any unpaid obligations (including litigation/arbitration costs) relating to the Accel Settlement and the dispute related thereto (but excluding the Accel Settlement Amount), (ix) any unpaid management, management consulting or sponsorship fees, and (x) any unpaid costs of the Company and its Subsidiaries relating to this Agreement and the transactions contemplated hereby, including, without limitation, any costs related to employee compensation, bonuses or other payments, awards, costs or expenses that are triggered by virtue of the transactions contemplated hereby that are not fully paid
by the Sellers and that would therefore become obligations of the Company or any of its Subsidiaries; provided , however , that Indebtedness, with respect to the Company, shall not include any intercompany Indebtedness solely among the Company and its Subsidiaries not involving any third parties.
Indemnity Escrow Account means the escrow account set up to hold the Indemnity Escrow Amount.
Indemnity Escrow Amount means Twenty Million Nine Hundred Twenty-Five Thousand and 00/100 Dollars ($20,925,000.00).
Indian Tribe means any United States Native American Indian tribe, band, nation or other organized group or community recognized by the Secretary of the Interior of the United States of America as being eligible for special status as Indians and recognized as possessing powers of self-government.
Intellectual Property means all intellectual property rights, including all U.S. and foreign (i) patents, patent applications, patent disclosures, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, and extensions thereof, (ii) trademarks, service marks, trade names, logos, slogans, trade dress, and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing, (iii) copyrights (including in computer programs and computer software) and copyrightable works, (iv) trade secrets and all other confidential information, know-how, inventions, proprietary processes, formulae, models and methodologies and (v) all applications and registrations for the foregoing.
Knowledge of the Company or other similar phrases shall mean the actual knowledge of Robert Miodunski, Curt Mayer, Vic Gallo, Ken Bossingham, Olaf Vancura, and Paul Lofgren and the knowledge such person would reasonably be expected to obtain in the course of diligently performing his or her duties for the Company and its Subsidiaries, as applicable.
Law means any law, rule, regulations, judgment, injunction, order, decree or other restriction of any Governmental Entity.
Liabilities means all obligations and Liability (including accounts payable), absolute or contingent, known or unknown, liquidated or unliquidated, whether due or to become due and regardless of when or by whom asserted.
Liens means liens, security interests, charges or encumbrances.
Loss(es) means all losses, claims, damages, Liabilities, fees and expenses (including reasonable legal fees and expenses) judgments, Taxes, fines and amounts paid in settlement, but excluding, in each case, incidental, consequential, indirect or punitive losses and any losses, damages or expenses for lost profits or diminution in value or any multiple of profits, multiple of cash flow or similar valuation methodology used in calculating the amount to Losses, except to the extent payable to a third party).
Marketing Period means the first period of thirty (30) consecutive days after the date hereof throughout which Purchaser shall have (and the Financing Sources and their respective Representatives shall have been provided access to by the Company) the Required Information and such Required Information is Compliant; provided , that if the Company shall in good faith reasonably believe it has delivered the Required Information, it may deliver to the Purchaser a written notice to that effect (stating when it believes it completed such delivery), in which case the Required Information shall be deemed to have been delivered on the date of such notice unless the Purchaser in good faith reasonably believes the Company has not completed delivery of the Required Information and, within five (5) Business Days after the delivery of such notice by the Company, delivers a written notice to the Company to that effect (stating with specificity which Required Information the Company has not delivered), and the Company shall thereafter be entitled to deliver one or more additional written notices if it in good faith reasonably believes it has delivered the missing Required Information (stating when it believes it completed such delivery) in which case the missing Required Information shall be deemed to have been delivered on the date of such subsequent notice(s) unless the Purchaser in good faith reasonably believes the Company has not completed delivery of the missing Required Information and, within five (5) Business Days after the delivery of such additional notices by the Company, delivers a written notice to the Company to that effect (stating with specificity which missing Required Information the Company has not delivered); provided , further , that throughout and at the end of such period the conditions set forth in Section 2.01 shall be satisfied (other than those conditions that by their nature can only be satisfied at the Closing; provided that such conditions are capable of being satisfied) or waived and nothing has occurred and no condition exists that would cause any of the conditions set forth in Section 2.01 to fail to be satisfied assuming the Closing were to be scheduled for any time during such thirty (30) consecutive day period; provided , further , that such period shall (1) exclude the period from and including November 28, 2013 through December 1, 2013 and (2) either end on or prior to December 20, 2013, or if such period has not ended on or prior to December 20, 2013, then such period shall commence no earlier than January 2, 2014; provided , further , that the Marketing Period shall not be deemed to have commenced if, prior to the completion of such thirty (30) consecutive day period, (A) the Companys auditor shall have withdrawn its audit opinion with respect to any financial statements included in the Required Information, in which case the Marketing Period shall not be deemed to commence unless and until, at the earliest, a new unqualified audit opinion is issued with respect to such financial statements of the Company for the applicable periods by the applicable independent accountants or another independent public accounting firm reasonably acceptable to the Purchaser, (B) the Company or any of its Subsidiaries shall have determined that it must, restate any financial statements or other financial information included in the Required Information or any such restatement is under consideration or may be a possibility, in which case the Marketing Period shall not commence unless and until such restatement has been completed and the applicable Required Information has been amended and updated or the Company has informed the Purchaser that it has concluded that no restatement shall be required, or (C) any Required Information would not be Compliant on the first day, throughout and on the last day of such thirty (30) consecutive calendar day period or otherwise does not include the Required Information as defined, in which case a new thirty (30) consecutive calendar day period shall commence upon the Purchaser and the Lenders receiving updated Required Information that would be Compliant or contain the Required Information, as applicable (it being understood that if any Required Information provided at the commencement of the Marketing Period ceases to be Compliant during such thirty (30) consecutive calendar day period, then the Marketing Period shall be deemed not to have occurred).
Material Adverse Effect means any change, effect, event, occurrence, state of facts or development that, individually or in the aggregate, has resulted in, or would reasonably be expected to result in a material adverse effect on the business, assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole; provided , however , that none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect, except (other than in the case of clauses (i) and (ii) below) to the extent such events, changes, effects, developments, conditions, occurrences or circumstances have a disproportionate effect on the Company and its Subsidiaries, taken as a whole, when compared to other companies operating in the same industries in which the Company or its Subsidiaries operate: any adverse change, effect, event, occurrence, state of facts or development attributable to (i) the announcement or pendency of the transactions contemplated by this Agreement, including the identity of the Purchaser or any of its Affiliates ( provided , however , that this clause (i) shall not diminish the effect of, and shall be disregarded for purposes of, the representations and warranties relating to required consents, approvals (including by any Gaming Authority), change in control provisions or similar rights of acceleration, termination, modification or waiver based upon the entering into of this Agreement or consummation of the transactions); (ii) any action taken at the written request of the Purchaser or required by this Agreement; (iii) any change in applicable Laws or the interpretation thereof; (iv) actions required to be taken under applicable Laws; (v) any change in GAAP or other accounting requirements or principles; and (vi) the commencement, continuation or escalation of a war, material armed hostilities or other material international or national calamity or act of terrorism directly or indirectly involving the United States of America, or any acts of God, natural disasters, earthquakes, tornados or hurricanes; provided , however , that any prospective loss of at least Twenty-Two Million and 00/100 Dollars ($22,000,000.00) in the 12-month period following the date of determination from revenues derived from customers in the 12 months immediately preceding the date of determination shall be deemed a Material Adverse Effect under this Agreement and provided, further, that the underlying causes of any such change or loss of business may, if they are not otherwise excluded from the definition of Company Material Adverse Effect, be taken into account in determining whether a Company Material Adverse Effect has occurred.
Minimum Operating Cash means Three Million and 00/100 Dollars ($3,000,000.00) in Cash.
Multiemployer Plan shall mean any multiemployer plan within the meaning of Section 3(37) of ERISA.
Net Working Capital means (as finally determined under Section 1.05 ) (i) the aggregate net book value of all trade accounts receivable, inventories, prepaid expenses, deposits and other current assets of the Company and its Subsidiaries (excluding Cash, any note receivables, deposits paid for Interceptor boards related to RMS, RMS controllers included in inventory, deposits paid on dispensers for Gaming Electronic Machines (GEMs), and excluding any assets in respect of Taxes other than any assets in respect of prepaid Taxes), minus (ii) the aggregate net book value of all accounts payable and accrued liabilities (including accrued liabilities in respect
of Taxes) and other current liabilities of the Company and its Subsidiaries as of such time (other than Indebtedness of the Company and its Subsidiaries, accrued interest on such Indebtedness, and accounts payable and accrued liabilities to Affiliates of the Company and its Subsidiaries), in each case as of the opening of business on the Closing Date as reported by the Seller using accounting policies and procedures consistent with the 2012 Balance Sheet, or, to the extent applicable, in accordance with the Transaction Accounting Principles ; provided , that Net Working Capital shall exclude any deferred Tax assets or deferred Tax Liability. Schedule 12.01(a) sets forth an illustrative Net Working Capital calculation.
Net Working Capital Escrow Account means the account set up to hold the Net Working Capital Escrow Amount.
Net Working Capital Escrow Amount means Four Million Six Hundred Fifty Thousand and 00/100 Dollars ($4,650,000.00).
Note Receivables means all note receivables of the Company and its Subsidiaries set forth on Schedule 12.01(b) , except for the Assignable Notes, as defined on such Schedule.
Permitted Liens means (i) statutory liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings by the Company or its Subsidiaries and for which appropriate reserves have been established in accordance with GAAP; (ii) mechanics, carriers, workers, repairers and similar statutory liens arising or incurred in the ordinary course of business for amounts which are not delinquent and which are not, individually or in the aggregate, significant; (iii) zoning, entitlement, building and other land use regulations imposed by Governmental Entities having jurisdiction over the Leased Real Property which are not violated by the current use and operation of the Leased Real Property; (iv) covenants, conditions, restrictions, easements and other similar matters of record affecting title to the Leased Real Property which do not materially impair the occupancy or use of the Leased Real Property for the purposes for which it is currently used in connection with the Business; (v) public roads and highways; (vi) liens arising under workers compensation, unemployment insurance, social security, retirement and similar legislation; (vii) liens on goods in transit incurred pursuant to documentary letters of credit; (viii) purchase money liens and liens securing rental payments under capital lease arrangements; (ix) other liens arising in the ordinary course of business and not incurred in connection with the borrowing of money; (x) licenses or other grants of rights to use Intellectual Property; (xi) liens, the existence of which would not have or would not reasonably be expected to be material to the Company and its Subsidiaries; and (xii) Liens set forth on Schedule 12.01(c): Permitted Liens .
Person means an individual, a (general or limited) partnership, a corporation, a limited Liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a Governmental Entity, or other legal entity or organization.
Plan shall mean each employee pension benefit plan (as defined in Section 3(2) of ERISA), each employee welfare benefit plan (as defined in Section 3(1) of ERISA), and each other plan, program, agreement, arrangement or policy relating to stock options, restricted stock, restricted stock units, phantom shares, stock purchases or other equity or equity-based compensation, deferred compensation, bonus, severance, change-in-control, retention,
fringe benefits or other compensation or employment terms or employee benefits, including individual employment, consulting, change-in-control and severance agreements, whether or not subject to ERISA, whether written or unwritten, in each case maintained or contributed to, or required to be maintained or contributed to, by the Company or its Subsidiaries or otherwise providing for payments or benefits for or to any current or former employees, directors, officers or consultants of the Company or any of its Subsidiaries and/or their dependents, including, for purposes of clarification, the Plans, but other than any Multiemployer Plan and excluding any statutorily required plans contributed to by the Company or any of its Subsidiaries that are maintained by any Governmental Entity outside of the United States.
Post-Closing Period means any taxable period (or portion thereof) beginning after the Closing Date.
Pre-Closing Period means any taxable period (or portion thereof) ending on or before the Closing Date.
Prior Notice means, with respect to any Prior Notice Jurisdiction, all filings or notices required to be made pursuant to applicable Gaming Law prior to the completion of the transactions contemplated hereby.
Property Taxes means real, personal and intangible ad valorem property Taxes.
Refund Escrow Account means the escrow account set up with the Escrow Agent to hold the Refund Escrow Amount.
Related Party shall mean, with respect to any Person, any current or former director, officer, shareholder, partner, member, employee, Affiliate or immediate family member of such Person.
Relevant Persons means each of (i) the Company, (ii) all of the Companys Affiliates, control Persons and Subsidiaries, (iii) the Purchaser, (iv) all of Purchasers Affiliates, control Persons and Subsidiaries and (v) all required individuals.
Representatives shall mean, with respect to any Person, any Subsidiary of such Person and such Persons and each of its respective Subsidiaries directors (in their capacity as such), officers, managers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives.
Required Gaming Approvals means (i) with respect to each Prior Approval Jurisdiction (as set forth on Schedule 2.01(e) ), the granting of all regulatory approvals (including, where applicable, conditional approvals or waivers or other like allowances) by such jurisdiction with respect to the Purchaser, any other entities or individuals required to file applications, as well as with respect to the completion of the transactions contemplated hereby, in each case such that the transactions contemplated hereby may be completed in accordance with all applicable Gaming Laws; (ii) with respect to each Prior Notice Jurisdiction (as set forth on Schedule 2.01(e) ), Prior Notice shall have been given and no less than sixty (60) days shall have passed since the Filing Date with respect to such jurisdiction, and none of the Relevant Persons shall have received any written or oral communication, or otherwise been made aware, that there is a
possibility that such jurisdiction may take an adverse action with respect to any of the Applicable Persons or the Business if the Closing were to take place; (iii) with respect to each Post-Closing Notice Jurisdiction (as set forth on Schedule 2.01(e) ), none of the Relevant Persons shall have received any written or oral communication, or otherwise been made aware, that there is a possibility that such jurisdiction may take an adverse action with respect to any of the Applicable Persons or the Business if the Closing were to take place and (iv) with respect to each Unknown Jurisdiction (as set forth on Schedule 2.01(e) ), none of the Relevant Persons shall have received any written or oral communication, or otherwise been made aware, that there is a possibility that such jurisdiction may take an adverse action with respect to any of the Applicable Persons or the Business if the Closing were to take place; provided that if subsequent to the date hereof it is determined that such Unknown Jurisdiction should properly be considered a Prior Approval Jurisdiction, Prior Notice Jurisdiction or Post-Closing Notice Jurisdiction, the parties shall amend Schedule 2.01(e) accordingly.
Required Information means all financial and other information regarding the Company or any of its Subsidiaries of the type and form customarily included in marketing documents used to syndicate credit facilities of the type to be included in the Debt Financing, or as may be reasonably requested in writing by the Purchaser, to consummate the syndication of credit facilities contemplated by the Debt Commitment Letters, including all information required by clause (3) and clause (4) of Exhibit B to the Debt Commitment Letter, financial statements prepared in accordance with GAAP, pro forma financial statements, projections and audit reports, in each case assuming that such syndication of credit facilities were consummated at the same time during the Companys fiscal year as such syndication will be made or as otherwise reasonably required in connection with the Debt Financing and the transactions contemplated by this Agreement. Notwithstanding the foregoing, in no event shall any information that is solely in control of the Purchaser and its Affiliates for which the Purchaser is solely responsible to provide to the Debt Financing Sources (e.g., Purchaser prepared models) be deemed to constitute Required Information hereunder.
Restricted Cash means all Cash that is not freely useable by the Company because it is subject to restrictions or limitations on use or distribution by Tax or other law, contract or otherwise, including, without limitation, restrictions on dividends and repatriations as well as all funds held in escrow as collateral for the Companys surety bonds for various gaming authorities.
Second-Half Non-Illinois Machine Placement Adjustment means an amount equal to the lesser of (a) Thirty-Five Million and 00/100 Dollars ($35,000,000.00) minus the Settled Earnout Amount and (b) Twenty-Four Thousand and 00/100 Dollars ($24,000.00) multiplied by the Second-Half Non-Illinois Placed Machines.
Second-Half Non-Illinois Placed Machines shall mean the net increase to the installed base of machines under contract and placed by the Company and its Subsidiaries, or machines for which the Company has provided notice to the relevant Gaming Authority to install and such machines have actually been installed, with customers outside the State of Illinois between July 1, 2013 and December 31, 2013. The parties acknowledge and agree that as of June 30, 2013 the Company and its Subsidiaries had placed 7,235 units with customers outside the State of Illinois. No later than fifteen (15) days after the last day of each month between the date
hereof and the Closing, the Company shall send a notice (which may be via e-mail) to the Purchaser stating the number of machines the Company has placed and under contract, or for which the Company has provided notice to the relevant Gaming Authority to install and such machines have actually been installed, with customers outside the State of Illinois as of such date. At least three (3) days prior to the Closing (or earlier if reasonably available), the Seller shall send a notice (which may be via e-mail) to the Purchaser stating the number of machines the Company has placed and under contract with customers outside the State of Illinois as of December 31, 2013.
Seller Note means a seller note, substantially in the form attached hereto as Exhibit G , issued by a parent company of Purchaser in favor of the Seller.
Settled Earnout Amount means Seven Million Four Hundred Ninety-Five Thousand and 00/100 Dollars ($7,495,000.00), composed of Five Million Three Hundred Thousand and 00/100 Dollars ($5,300,000.00) in cash and a Seller Note with a principal amount of Two Million One Hundred Ninety-Five Thousand and 00/100 Dollars ($2,195,000.00).
Straddle Period means any taxable period beginning on or before and ending after the Closing Date.
Subsidiary means, with respect to any Person, any corporation of which a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof, or any partnership, association or other business entity of which a majority of the partnership or other similar ownership interest is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of such Person or a combination thereof. For purposes of this definition, a Person is deemed to have a majority ownership interest in a partnership, association or other business entity if such Person is allocated a majority of the gains or losses of such partnership, association or other business entity or is or controls the managing director or general partner of such partnership, association or other business entity.
Target Indebtedness means $0.
Target Working Capital means Ten Million Four Hundred Ninety Thousand and 00/100 Dollars ($10,490,000.00). Schedule 12.01(a) sets forth the methodology and the accounts (including trial balance numbers and account names) that are included in the Target Working Capital.
Tax or Taxes means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, real property gains, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, special assessment, personal property, capital stock, escheat, unclaimed property, value added, goods and services, margin, franchise, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax of any kind whatsoever and any similar charge, fee, levy, impost or duty, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing.
Tax Claim means any Tax Proceeding with respect to Taxes that, if pursued successfully, would reasonably be expected to serve as a basis for a claim for indemnification under Article IX .
Tax Returns means any return, report, information return or other document (including schedules or any related or supporting information) filed or required to be filed with any Governmental Entity in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax, including any attachment thereto and any amendment thereof.
12.02 Other Definitional Provisions .
(a) Accounting Terms . Accounting terms which are not otherwise defined in this Agreement have the meanings given to them under GAAP. To the extent that the definition of an accounting term defined in this Agreement is inconsistent with the meaning of such term under GAAP, the definition set forth in this Agreement will control.
(b) Successor Laws . Any reference to any particular Code section or any other law or regulation will be interpreted to include any revision of or successor to that section regardless of how it is numbered or classified.
12.03 Cross-Reference of Other Definitions . Each capitalized term listed below is defined in the corresponding Section of this Agreement:
Term |
Section No. |
|
6.06 Indemnitees |
6.06(c) | |
2012 Balance Sheet |
1.05(b) | |
2012 Financial Statements |
4.05 | |
Agreement |
Preamble | |
AGST |
1.07(a) | |
Allocation |
1.07(b) | |
Antitrust Agencies |
8.01(a) | |
Applicable Patents |
2.01(i) | |
Asset Sales |
6.01(d) | |
Closing |
1.03 | |
Closing Balance Sheet |
1.05(b) | |
Closing Date |
1.03 | |
Closing Notice |
1.05(a) | |
Closing Purchase Price |
1.02(a) | |
Commitment Letters |
5.08 | |
Company |
Preamble | |
Company Insurance Policy |
4.15 | |
Company Material Contract(s) |
4.09(a) | |
Company Permits |
4.01(b) |
Conversion Date |
2.01(h) | |
Confidentiality Agreement |
6.02 | |
Core Customers |
4.22(a) | |
Debt Commitment Letters |
5.08 | |
Debt Financing |
5.08 | |
Deductible |
9.02(a)(iii) | |
Disclosure Schedules |
Article IV | |
DM |
11.06 | |
End Date |
10.01(b) | |
Environmental and Safety Requirements |
4.17(a) | |
Equity Commitment Letter |
5.08 | |
Equity Financing |
5.08 | |
Equity Financing Sources |
5.08 | |
Estimated Amounts |
1.05(a) | |
Estimated Cash |
1.05(a) | |
Estimated 2014 Capex Overspend Amount |
1.05(a) | |
Estimated Indebtedness |
1.05(a) | |
Estimated Net Working Capital |
1.05(a) | |
Expiration Date Release Notice |
9.08(b) | |
Filings |
8.01(a) | |
Financial Statements |
4.05 | |
Financing |
5.08 | |
Financing Sources |
5.08 | |
First Accel Amendment |
Definition of Accel Settlement | |
Indemnitee |
9.05 | |
Indemnitor |
9.05 | |
Indemnity Escrow Amount Expiration Date |
9.08(a) | |
Independent Accounting Firm |
1.05(b) | |
Latest Balance Sheet |
4.05 | |
Latest Financial Statements |
4.05 | |
Leased Real Property |
4.07(b) | |
Lenders |
5.08 | |
NSULC Conversion |
2.01(h) | |
Mini-Deductible |
9.02(a) | |
Objections Statement |
1.05(b) | |
Original Agreement |
Preamble | |
Preliminary Statement |
1.05(b) | |
Projected Tax Indemnity Amount |
11.01(c) | |
Projected Indemnity Amount |
9.08(b) | |
Purchase Price |
1.02 | |
Purchaser |
Preamble | |
Purchaser Income Tax Return |
11.01(a)(ii) | |
Purchaser Indemnified Parties |
9.02(a) | |
Purchaser Non-Income Tax Return |
11.01(a)(ii) | |
Purchaser Related Parties |
10.02(b) |
Purchaser Tax Return |
11.01(a)(ii) | |
Purchaser Termination Fee |
10.02(a) | |
Purchasers Representatives |
6.02 | |
Refund Escrow Amount |
11.01(c) | |
Refund Escrow Expiration Date |
11.01(c) | |
Refund Expiration Date Release Notice |
9.08(c) | |
Required Payment Amount |
5.08 | |
RMS |
4.24 | |
Schedule |
Article IV | |
Securities |
Recitals | |
Seller |
Preamble | |
Seller Indemnified Parties |
9.03(a) | |
Seller Tax Return |
11.01(a)(ii) | |
Solvent |
5.10 | |
Survival Period Termination Date |
9.01 | |
Tax Benefit |
9.06 | |
Tax Cost |
9.06 | |
Tax Covenants |
9.01 | |
Tax Indemnity Provisions |
11.01(c) | |
Tax Proceeding |
4.08(c) | |
Tax Purchased Assets |
1.07(a) | |
Transaction Accounting Principles |
1.05(b) | |
Transaction Tax Treatment |
1.07(a) | |
Transfer Taxes |
10.02(d) |
ARTICLE XIII
MISCELLANEOUS
13.01 Press Releases and Communications . No press release or public announcement related to this Agreement or the transactions contemplated herein or any other announcement or communication to the employees, customers or suppliers of the Company or its Subsidiaries shall be issued or made by any party hereto without the joint approval of the Purchaser and the Seller unless required by law (in the reasonable opinion of counsel), in which case the Purchaser and the Seller shall have the right to review such press release, announcement or communication prior to issuance, distribution or publication.
13.02 Expenses; Attorneys Fees . Except as otherwise expressly provided herein, the Seller, on the one hand, and the Purchaser, on the other hand, shall pay all of their own expenses (including attorneys and accountants fees and expenses) in connection with the negotiation of this Agreement, the performance of their obligations hereunder and the consummation of the transactions contemplated by this Agreement. In any action at law or suit in equity to enforce this Agreement or the rights of any of the parties hereunder, the prevailing party in such action or suit shall be entitled to receive reimbursement for all reasonable costs and expenses (including reasonable attorneys fees) actually incurred in such action or suit.
13.03 Notices . All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (a) when personally delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (c) the day following the day (except if not a business day then the next business day) on which the same has been delivered prepaid to a reputable national overnight air courier service, (d) the third (3rd) business day following the day on which the same is sent by certified or registered mail, postage prepaid or (e) the day on which the same is sent via e-mail and has been confirmed via telephone. Notices, demands and communications, in each case to the respective parties, shall be sent to the applicable address set forth below, unless another address has been previously specified in writing:
Notices to the Purchaser:
c/o Apollo Management VII, L.P.
9 West 57th Street, 43rd Floor
New York, New York 10019
Attention: David Sambur
Facsimile No.: (646) 390-1501
Telephone No.: (212) 515-3439
E-mail: sambur@apollolp.com
with a copy to (which copy shall not constitute notice hereunder):
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew J. Nussbaum and Benjamin M. Roth
Facsimile No.: (212) 403-2000
Telephone No.: (212) 403-1000
E-mail: AJNussbaum@wlrk.com and BMRoth@wlrk.com
Notices to the Seller:
AGS Holdings, LLC
c/o Alpine Investors
Three Embarcadero Center
Suite 2330
San Francisco, California 94111
Attention: Billy Maguy and Mark Strauch
Facsimile No.: (415) 392-9101
E-mail: bmaguy@alpine-investors.com and
mstrauch@alpine-investors.com
with a copy to (which copy shall not constitute notice hereunder):
Duane Morris LLP
190 South LaSalle Street, Suite 3700
Chicago, Illinois 60603
Attention: Brian P. Kerwin, Esq.
Facsimile No.: (312) 499-6701
E-mail: BPKerwin@duanemorris.com
Notices to the Company:
AGS Capital, LLC
6680 Amelia Earhart Court
Las Vegas, Nevada 89119
Attention: Vic Gallo, Esq.
Facsimile No.: (702) 722-6705
E-mail: V.Gallo@AmericanGamingSystems.com
with a copy to:
Duane Morris LLP
190 South LaSalle Street, Suite 3700
Chicago, Illinois 60603
Attention: Brian P. Kerwin, Esq.
Facsimile No.: (312) 499-6701
E-mail: BPKerwin@duanemorris.com
13.04 Assignment . This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned or delegated by either the Purchaser or the Seller without the prior written consent of the other party; provided that the Purchaser may assign this Agreement (in whole or in part) to any of its Affiliates or Subsidiaries without the prior written consent of Seller unless such assignment would reasonably be expected to materially delay the Closing; provided that no such assignment shall relieve the Purchaser of its obligations hereunder. In the event of any assignment by the Purchaser, all representations, warranties and covenants or, if assigned in part, the applicable representations, warranties and covenants, shall be deemed to be those of such assignee. Notwithstanding the foregoing, the Seller may assign this Agreement (in whole or in part) only with the prior written consent of Purchaser, which consent will not be unreasonably withheld, conditioned or delayed and it being understood that (a) Purchaser shall not be deemed to be unreasonably withholding such consent to the extent that any such assignment would or would be reasonably likely to adversely impact the Purchaser, the Company or the business or operations of the Company and/or its Subsidiaries and (b) Purchaser shall not be deemed to be unreasonably delaying its consent to the extent Purchaser still shall be in good faith considering the potential consequences of such assignment.
13.05 Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable Law in a mutually acceptable manner in order that the transactions contemplated hereby are fulfilled as originally contemplated to the fullest extent possible.
13.06 References . The table of contents and the section and other headings and subheadings contained in this Agreement and the exhibits hereto are solely for the purpose of reference, are not part of the agreement of the parties hereto, and shall not in any way affect the meaning or interpretation of this Agreement or any exhibit hereto. All references to days or months shall be deemed references to calendar days or months. All references to $ shall be deemed references to United States dollars. Unless the context otherwise requires, any reference to a Section, Exhibit, Disclosure Schedule or Schedule shall be deemed to refer to a section of this Agreement, exhibit to this Agreement or a schedule to this Agreement, as applicable. The words hereof, herein and hereunder and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. English shall be the governing language of this Agreement. The word including shall mean including, without limitation.
13.07 Construction . The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any Person. Consequently, if an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. The inclusion of any item on the Disclosure Schedules shall not be deemed to be an admission or evidence of materiality of such item, nor shall it establish any standard of materiality for any purpose whatsoever. The specification of any dollar amount or the inclusion of any item in the representations and warranties contained in this Agreement or the Disclosure Schedules or Exhibits attached hereto is not intended to imply that the amounts, or higher or lower amounts, or the items so included, or other items, are or are not required to be disclosed (including, without limitation, whether such amounts or items are required to be disclosed as material or threatened) or are within or outside of the ordinary course of business, and no party shall use the fact of the setting of the amounts or the fact of the inclusion of any item in this Agreement or the Disclosure Schedules or Exhibits in any dispute or controversy between the parties as to whether any obligation, item or matter not described or included in this Agreement or in any Schedule or Exhibit is or is not required to be disclosed (including whether the amount or items are required to be disclosed as material or threatened) or is within or outside of the ordinary course of business for purposes of this Agreement. The information contained in this Agreement and in the Disclosure Schedules and Exhibits hereto is disclosed solely for purposes of this Agreement, and no information contained herein or therein shall be deemed to be an admission by any party hereto to any third party of any matter whatsoever (including, without limitation, any violation of law or breach of contract). Whenever this Agreement requires a Subsidiary of the Company to take any action, such requirement shall be deemed to include an undertaking on the part of the Company to cause such Subsidiary to take such action. When used in reference to the Company or its Subsidiaries, the term material shall be
measured against the Company and its Subsidiaries, taken as a whole. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall limit the Liability of any party for fraud or willful misconduct.
13.08 Amendment and Waiver . Any provision of this Agreement or the Disclosure Schedules (except as contemplated by Section 6.04 ) or Exhibits hereto may be amended or waived only in a writing signed by the Purchaser and the Seller; provided , that notwithstanding anything to the contrary set forth herein, Section 10.02(a) , Section 10.02(b) , this Section 13.08 , Section 13.10 , Section 13.11 and Section 13.14 (in each case, together with any related definitions and other provisions of this Agreement solely to the extent a modification or termination would serve to modify the substance or provisions of such Sections) may not be amended, modified, waived or terminated in a manner that is adverse to the Debt Financing Sources without the prior written consent of the parties to the Debt Commitment Letters. No waiver of any provision hereunder or any breach or default thereof shall extend to or affect in any way any other provision or prior or subsequent breach or default.
13.09 Complete Agreement . This Agreement and the documents referred to herein (including, without limitation, the Confidentiality Agreement, the Apollo Guaranty) as well as that certain letter agreement by and among Alpine Investors, the Company and the Purchaser, dated as of September 16, 2013, and, upon execution by the Purchaser and the Seller, the Escrow Agreement, contain the complete agreement among the parties hereto and supersede any prior understandings, agreements or representations, including the Original Agreement, by or between the among, written or oral, that may have related to the subject matter hereof in any way.
13.10 Third-Party Beneficiaries . Except with respect to (i) Article IX and (ii) with respect to the Debt Financing Sources, Section 10.02(a) , Section 10.02(b) , Section 13.08 , this Section 13.10 , Section 13.11 and Section 13.14 , nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement.
13.11 Waiver of Trial by Jury . THE PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING UNDER THIS AGREEMENT OR ANY ACTION OR PROCEEDING ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR PROCEEDING (INCLUDING ANY PROCEEDING INVOLVING THE FINANCING SOURCES UNDER THE DEBT COMMITMENT LETTERS OR ANY FINANCING SOURCE UNDER THE EQUITY COMMITMENT LETTERS AND THEIR RESPECTIVE REPRESENTATIVES AND AFFILIATES).
13.12 Delivery by Facsimile or PDF . This Agreement and any signed agreement entered into in connection herewith or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or electronically transmitted portable document format, shall be treated in all manner and respects as an original contract and shall be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such contract, each other party hereto or thereto shall re-execute original forms thereof and deliver them
to all other parties. No party hereto or to any such contract shall raise the use of a facsimile machine or electronic transmission in portable document format to deliver a signature or the fact that any signature or contract was transmitted or communicated through the use of facsimile machine or electronic transmission in portable document format as a defense to the formation of a contract and each such party forever waives any such defense.
13.13 Counterparts . This Agreement may be executed in multiple counterparts, any one of which need not contain the signature of more than one party, but all such counterparts taken together shall constitute one and the same instrument.
13.14 Governing Law; Forum . All issues and questions concerning the construction, validity, interpretation, negotiation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Each party to this Agreement hereby irrevocably agrees that any legal action or proceeding arising out of or relating to the construction, validity, interpretation, negotiation and enforceability of this Agreement or any agreements or transactions contemplated hereby shall be brought exclusively in the United States District Court for the District of Delaware and hereby expressly submits to the personal jurisdiction and venue of such court for the purposes thereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum. Each party hereby irrevocably consents to the service of process of any of the aforementioned court in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the address set forth or referred to in Section 13.03 . Notwithstanding the foregoing, each of the parties hereto hereby agrees that it will not bring or support any action, cause of action, claim, cross-claim or third-party claim of any kind or description, whether in law or in equity, whether in contract or in tort or otherwise, against the Financing Sources in any way relating to this Agreement or any of the transactions contemplated by this Agreement, including any dispute arising out of or relating in any way to the Debt Financing or the performance thereof, in any forum other than a court of competent jurisdiction located within the County of New York, New York, whether a state or Federal court, and that the provisions of Section 13.11 relating to the waiver of jury trial shall apply to any such action, cause of action, claim, cross-claim or third-party claim.
13.15 No Recourse . Notwithstanding anything to the contrary set forth in this Agreement (except as otherwise provided in the Apollo Guaranty), no Purchaser Related Party or Related Party of any Purchaser Related Party, in each case other than the Purchaser or any of its assignees under this Agreement, shall have any Liability, personal or otherwise, or obligation relating to or arising out of this Agreement, the Transactions contemplated by this Agreement or the exploration or negotiation thereof for any breach or damages suffered (i) as a result of the failure of the Closing or any of the Transactions to be consummated or (ii) as a result of, or under, this Agreement and the transactions contemplated by this Agreement (or in respect of any representations made or alleged to be made in connection herewith or therewith).
* * * *
IN WITNESS WHEREOF, the parties hereto have duly executed this Equity Purchase Agreement as of the day and year first above written.
Company: | AGS CAPITAL, LLC | |||||||
By: | AGS Holdings, LLC, | |||||||
its Sole Member | ||||||||
By: | Alpine AGS, LLC, | |||||||
its Sole Member | ||||||||
By: |
|
|||||||
Name: | Graham Weaver | |||||||
Title: | Executive Director |
[Signature page to A&R EPA]
Seller: | AGS HOLDINGS, LLC | |||||||
By: | Alpine AGS, LLC, | |||||||
its Sole Member | ||||||||
By: |
|
|||||||
Name: | Graham Weaver | |||||||
Title: | Manager |
[Signature page to A&R EPA]
Purchaser: | AP GAMING ACQUISITION, LLC | |||||||
By: | AP Gaming I, LLC, | |||||||
its Sole Member and Manager | ||||||||
By: |
|
|||||||
|
||||||||
Name: | David B. Sambur | |||||||
Title: | Chief Executive Officer, President, Treasurer and Secretary |
[Signature Page to A&R EPA]
SCHEDULE A
Securities Owned
Name of Member |
Units |
|
AGS Holdings, LLC | 100% of LLC Membership Interest |
EXHIBIT A
SELLERS
CLOSING CERTIFICATE
Reference is made to the Amended and Restated Equity Purchase Agreement dated as of December [ ], 2013 (the Agreement ), by and among AP Gaming Acquisition, LLC, a Delaware limited liability company, AGS Holdings, LLC, a Delaware limited liability company ( Seller ) and AGS Capital, LLC, a Delaware limited liability company.
Seller hereby certifies that the preconditions specified in Sections 2.01(a) and (b) of the Agreement have been satisfied as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Closing Certificate as of this [ ] day of [ ], 2013.
AGS HOLDINGS, LLC | ||
By: |
|
|
Name: |
|
|
Its: |
|
EXHIBIT B
COMPANYS
CLOSING CERTIFICATE
Reference is made to the Amended and Restated Equity Purchase Agreement dated as of December [ ], 2013 (the Agreement ), by and among AP Gaming Acquisition, LLC, a Delaware limited liability company, AGS Holdings, LLC, a Delaware limited liability company and AGS Capital, LLC, a Delaware limited liability company (the Company ).
The Company hereby certifies that the preconditions specified in Section 2.01(a) and Section 2.01(b) of the Agreement, as such preconditions relate to the Company, have been satisfied as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Closing Certificate as of this [ ] day of [ ], 2013.
AGS CAPITAL, LLC | ||
By: |
|
|
Name: |
|
|
Its: |
|
EXHIBIT C
PURCHASERS
CLOSING CERTIFICATE
Reference is made to the Amended and Restated Equity Purchase Agreement dated as of December [ ], 2013 (the Agreement ), by and among AGS Holdings, LLC, a Dela-ware limited liability company, AGS Capital, LLC, a Delaware limited liability company and AP Gaming Acquisition, LLC, a Delaware limited liability company (the Purchaser ).
The Purchaser hereby certifies that the preconditions specified in Section 2.02(a) and (b) of the Agreement have been satisfied as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Closing Certificate as of this [ ] day of [ ], 2013.
AP GAMING ACQUISITION, LLC | ||
By: |
|
|
Name: |
|
|
Its: |
|
EXHIBIT H
SECOND AMENDMENT TO
EQUIPMENT AGREEMENT
THIS SECOND AMENDMENT TO EQUIPMENT AGREEMENT (this Second Amendment) is made as of December , 2013 to that certain Equipment Agreement dated as of August 21, 2012 (the Original Agreement) by and between AGS Illinois, LLLP, an Illinois limited liability limited partnership, and AGS, LLC, a Delaware limited liability company (collectively, AGS), and Accel Entertainment Gaming, LLC, an Illinois limited liability company (Accel), as amended by that certain Amendment to Equipment Agreement dated as of September 10, 2013 (the First Amendment). The Original Agreement, as amended by the First Amendment, is referred to herein as the Equipment Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Equipment Agreement.
The parties hereby agree to further amend the Equipment Agreement on the terms and subject to the conditions set forth herein:
1. Amendment to Section 11(b) . Section 11(b) is deleted in its entirety and the Equipment Agreement is amended to add the following new Section 11(b) in its place, which such new section is hereby adopted and in full force and effect:
One hundred and fifty (150) of the AGS Units that are currently installed in Accels locations ( Required AGS Units ). The term of such leases commenced on August 31, 2013 and continues for a total of 62 months, 20 days. AGS will purchase and lease to Accel, in replacement of all of Required AGS Units, a number of new Non-AGS Leased VGTs (Replaced VGT Units) equal to the number of Required AGS Units. All Replaced VGT Units shall be the IGT G23. The existing term of the leases for all Required AGS Units shall continue in effect with respect to all Replaced VGT Units. In addition to the duration, except as provided in the immediately following sentence, all of terms and conditions of the lease with respect to all Replaced VGT Units shall be the same as was applicable to all Required AGS Units (except for such lease changes which are applicable to Non-AGS Leased VGTs shall be applicable to the Replaced VGT Units, including the terms of Section 13, which shall be applicable). All Replaced VGT Units will be delivered to Accel by March 15, 2014.
2. Return of Required AGS Units . Accel, at its expense, agrees to return all Required AGS Units to AGSs office in Itasca, Illinois no later than May 31, 2014. All Required AGS Units that are returned to AGS shall include all components thereof and equipment related thereto (including all items described on Exhibit B of the Equipment Agreement with the exception of chairs, bases and locks, which shall be returned by Accel) and shall be returned to AGS in the same condition in which it was delivered except for ordinary wear and tear.
3. Complete Understanding . This Second Amendment and the Equipment Agreement, along with the documents described herein and in the Equipment Agreement, embody the complete agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. This Second Amendment shall inure to the benefit of and be binding upon the parties hereto, and their successors and permitted assigns. Nothing in this Second Amendment, express or implied, is intended to confer on any person, entity or governmental authority, other than the parties hereto and their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Second Amendment.
4. Other Amendments . Notwithstanding anything in the Equipment Agreement or any Lease to the contrary:
(a) Sections 17 and 18 of the Equipment Agreement (specifically, in the First Amendment) are hereby deleted in their entirety, and Section 3 of each Lease for AGS Units (in the form of Exhibit B-1 attached to the First Amendment) is hereby deleted in its entirety.
(b) Regulatory Compliance . Section 6 of the Equipment Agreement and Section 22 of each Lease (in the form of Exhibit B-1 attached to the First Amendment) are hereby deleted in their entirety and each of the Equipment Agreement and each Lease is amended to add the following new Section 6 and Section 22, respectively, in its place, which such new section is hereby adopted and in full force and effect:
Regulatory Compliance . As businesses involved in the gaming industry, each party recognizes that the other conducts business in a highly regulated industry and must operate under privileged licenses issued by gaming regulatory authorities both domestic and international. Each party recognizes that the other maintains respective compliance programs that have been established to protect and preserve their names, reputations, integrity, and goodwill and monitor compliance with the requirements established by gaming regulatory authorities in various jurisdictions around the world. If, during the term of this Agreement, (a) a party or its affiliate is notified by any regulatory agency, other government agency or its compliance committee/officer that conducting business with the other party may jeopardize any gaming license required by the compliant party to operate its business or the ability to be licensed to conduct its gaming business or (b) a party or its affiliate loses or has its license suspended from the IGB or the State of Illinois, then the compliant party shall have the right to terminate this Agreement, provided that under both clauses (a) and (b), the compliant party has first sent written notice to the noncompliant party and the noncompliant party failed to cure (if susceptible of cure) within 30 days thereof (it being understood that if the terminating partys license or ability to be licensed ceases to be in jeopardy or the noncompliant partys license is reinstated or otherwise ceases to be suspended, then the noncompliant party shall be deemed to have cured such matter, and it being further understood that if the noncompliant party assigns (subject to IGB written approval,, if Accel reasonably determines such approval is necessary by the IGB ) this Agreement and/or any Lease to a licensed manufacturer or distributor, then the noncompliant party shall be deemed to have cured such matter).
5. Release and Waiver .
(a) Release by Accel .
(i) Accel, on behalf of itself and each of its affiliates and their respective officers, directors, managers, stockholders, members, partners, employees, agents, representatives, successors and assigns (collectively, the Accel Related Persons ), hereby expressly, irrevocably and unconditionally releases and forever discharges AGS and its affiliates and their respective officers, directors, managers, stockholders, members, partners, employees, agents, representatives, successors and assigns (collectively, the AGS Released Parties ), from any and all claims, demands, rights, proceedings, causes
H-2
of action, court orders, arbitration awards, obligations, contracts, agreements (express or implied), promises, debts, damages, losses, costs, expenses and liabilities of any nature whatsoever, whether known or unknown, fixed or contingent, including but not limited to those which Accel and/or any Accel Related Person now has, or may hereafter have against any of the AGS Released Parties based upon, arising out of, or related to the Equipment Agreement, the transactions contemplated thereby, any matter, circumstance, event, action, inaction, omission, breach, violation, failure, cause or thing whatsoever occurring or arising on or prior to the date hereof and/or any shutdown or disablement of AGS Units following the date hereof , including, without limitation, any claim with respect to fraud, misrepresentation, willful misconduct, intentional tort or the like and/or any regulatory violation, disciplinary action, fine or otherwise (collectively, Accel Claims ).
(ii) Accel hereby irrevocably covenants to, and to cause the Accel Related Persons to, refrain from, directly or indirectly, asserting any Accel Claim, or commencing, instituting or causing to be commenced, any Accel Claim of any nature whatsoever based upon any matter covered by this Section 5(a).
(iii) Accel acknowledges and agrees that it may hereafter discover facts different from, or in addition to, those which it now knows or believes to be true, and agrees that this Section 5(a) will remain in effect notwithstanding any discovery of such different or additional facts after the date hereof. Accel further acknowledges and agrees that the releases set forth herein will deprive Accel and each of the Accel Related Persons of each such unknown claim or cause of action.
(iv) Accel hereby expressly waives any rights it may have under any statute, law, rule or regulation applicable to the Accel Claims released hereby. Accel assumes the risk of the subsequent discovery or understanding of any matter, fact or law which, if known or understood, would in any respect have affected the releases and waivers made herein. Accel acknowledges that the foregoing waiver was bargained for separately.
(v) Accel represents and warrants to AGS that it has not assigned or transferred to any Person any of the matters released under this Section 5(a).
(b) Accel hereby irrevocably waives any and all rights it may have to terminate, in whole or in part, the Equipment Agreement and/or any Lease, or take any other action or exercise any right under or with respect to the Equipment Agreement and/or any Lease that may be adverse to AGS or its Affiliates, based upon, arising out of, or related to any matter, circumstance, event, action, inaction, omission, breach, violation, failure, cause or thing whatsoever occurring or arising on or prior to the date hereof and/or any shutdown or disablement of AGS Units following the date hereof, including, without limitation, any regulatory violation, disciplinary action, fine or otherwise. Neither this Second Amendment nor any negotiations leading up to it are intended to be, or shall be construed as, an admission of fault or liability by AGS, or an acknowledgment of any rights of Accel to terminate the Equipment Agreement or any Lease.
(c) Notwithstanding anything expressed or implied in the Equipment Agreement, in any Lease or herein to the contrary, except as set forth in Section 1 hereof, on and following the date hereof, neither AGS nor any of its Affiliates has any further obligations or liabilities with respect to or related to AGS Units (whether under the Equipment Agreement, any Lease or otherwise), and Accel has no further rights, entitlements, benefits or the like (under the Equipment Agreement, any Lease or otherwise) with respect to or related to any AGS Units.
H-3
6. Release by AGS .
(a) AGS, on behalf of itself and each of its affiliates and their respective officers, directors, managers, stockholders, members, partners, employees, agents, representatives, successors and assigns (collectively, the AGS Related Persons ), hereby expressly, irrevocably and unconditionally releases and forever discharges Accel and its affiliates and their respective officers, directors, managers, stockholders, members, partners, employees, agents, representatives, successors and assigns (collectively, the Accel Released Parties ), from any and all claims, demands, rights, proceedings, causes of action, court orders, arbitration awards, obligations, contracts, agreements (express or implied), promises, debts, damages, losses, costs, expenses and liabilities of any nature whatsoever, whether known or unknown, fixed or contingent, including but not limited to those which AGS and/or any AGS Related Person now has, or may hereafter have against any of the Accel Released Parties based upon, arising out of, or related to the Equipment Agreement, the transactions contemplated thereby, any matter, circumstance, event, action, inaction, omission, breach, violation, failure, cause or thing whatsoever occurring or arising on or prior to the date hereof and/or any shutdown or disablement of AGS Units following the date hereof, including, without limitation, any claim with respect to fraud, misrepresentation, willful misconduct, intentional tort or the like and/or any regulatory violation, disciplinary action, fine or otherwise (collectively, AGS Claims ); provided , however , nothing in this Section 6 shall release Accel or any other person or entity of any liability or obligation of any nature whatsoever under the Equipment Agreement, any Lease, the Promissory Note, the LC or any bill of sale (it being understood that AGS Claims shall not include any liability or obligation of Accel under the Equipment Agreement, any Lease, the Promissory Note, the LC or any bill of sale).
(b) AGS hereby irrevocably covenants to, and to cause the AGS Related Persons to, refrain from, directly or indirectly, asserting any AGS Claim, or commencing, instituting or causing to be commenced, any AGS Claim of any nature whatsoever based upon any matter covered by this Section 6.
(c) AGS acknowledges and agrees that it may hereafter discover facts different from, or in addition to, those which it now knows or believes to be true, and agrees that this Section 6 will remain in effect notwithstanding any discovery of such different or additional facts after the date hereof. AGS further acknowledges and agrees that the releases set forth herein will deprive AGS and each of the AGS Related Persons of each such unknown claim or cause of action.
(d) AGS hereby expressly waives any rights it may have under any statute, law, rule or regulation applicable to the AGS Claims released hereby. AGS assumes the risk of the subsequent discovery or understanding of any matter, fact or law which, if known or understood, would in any respect have affected the releases and waivers made herein. AGS acknowledges that the foregoing waiver was bargained for separately.
(e) AGS represents and warrants to Accel that it has not assigned or transferred to any Person any of the matters released under this Section 6.
7. Miscellaneous .
(a) This Second Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(b) This Second Amendment may be executed through the exchange of facsimile or pdf e-mail signature pages, which shall have the same legal effect as original signatures.
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(c) The parties hereto jointly participated in the negotiation and drafting of this Second Amendment. The language used in this Second Amendment shall be deemed to be the language chosen by the parties hereto to express their collective mutual intent, this Second Amendment shall be construed as if drafted jointly by the parties hereto, and no rule of strict construction shall be applied against any party.
(d) Except as modified by this Second Amendment, the Equipment Agreement shall remain in full force and effect.
(e) All references to the Equipment Agreement shall mean the Equipment Agreement, as modified by this Second Amendment.
(f) The Parties will promptly submit this Second Amendment to the IGB, for their review and approval, if such approval is required.
8. Affirmation . In all other respects, the remainder of the provisions of the Equipment Agreement are hereby affirmed, accepted and remain in full force and effect.
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The undersigned represent that they are duly authorized and empowered to execute this Second Amendment to the Equipment Agreement this day of December, 2013.
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ACCEL ENTERTAINMENT GAMING, LLC | ||
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
AP GAMING HOLDCO, INC.
I, the undersigned, for the purpose of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware, do hereby execute this Certificate of Incorporation and do hereby certify as follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the Corporation ) is: AP Gaming Holdco, Inc.
ARTICLE II
The address of the Corporations registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County of New Castle, The name of the Corporations registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized and incorporated under the General Corporation Law of the State of Delaware.
ARTICLE IV
Section 1. Capital Stock . The Corporation shall be authorized to issue 100 shares of capital stock, of which 100 shares shall be shares of Common Stock, par value $0.01 per share ( Common Stock ).
Section 2. Preferred Stock . Shares of Preferred Stock may be issued from time to time in one or more series ( Preferred Stock ). The Board of Directors of the Corporation (the Board ) is hereby authorized to fix the voting rights, if any, designations, powers, preferences and the relative, participation, optional or other rights, if any, and the qualification, limitations or restrictions thereof, of any unissued series of Preferred Stock, and to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding).
Section 3. Voting . Except as otherwise provided by law, or by the resolution or resolutions adopted by the Board designating the rights, powers and preferences of any series of Preferred Stock, the Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes. Each share of Common Stock shall have one vote, and the Common Stock shall vote together as a single class.
ARTICLE V
Unless and except to the extent that the By-Laws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.
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ARTICLE VI
In furtherance and not in limitation of the powers conferred by law, the Board is expressly authorized and empowered to make, alter and repeal the By-Laws of the Corporation by a majority vote at any regular or special meeting of the Board or by written consent, subject to the power of the stockholders of the Corporation to alter or repeal any By-Laws made by the Board.
ARTICLE VII
The Corporation reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and any other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article.
ARTICLE VIII
Section 1. Elimination of Certain Liability of Directors . A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended.
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Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such repeal or modification.
Section 2. Indemnification and Insurance .
(a) Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a proceeding), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, to the fullest extent permitted by law, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys fees, judgments, fines, amounts paid or to be paid in settlement, and excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided , however , that,
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except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of the Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit . If a claim under paragraph (a) of this Section is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and. if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards
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of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights . The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise.
(d) Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.
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ARTICLE IX
The name and mailing address of the incorporator is Stephanie H. Lee, c/o Wachtell, Lipton, Rosen & Katz, 51 W. 52 nd Street, New York, NY 10019.
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IN WITNESS WHEREOF, I, the undersigned, being the incorporator hereinbefore named, do hereby further certify that the facts hereinabove stated are truly set forth and, accordingly, I have hereunto set my hand this 30th day of August, 2013.
/s/ Stephanie H. Lee |
Stephanie H. Lee Incorporator |
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Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
AP GAMING HOLDCO, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE The registered office of AP Gaming Holdco, Inc. (the Corporation ) shall be established and maintained at the office of 2711 Centerville Road, Suite 400, Wilmington, DE 19808, County of New Castle, and Corporation Service Company shall be the registered agent of the Corporation in charge thereof.
SECTION 2. OTHER OFFICES The Corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time select or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS Annual meetings of stockholders for the election of directors, and for such other business as may be stated in the notice of the meeting, shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. If the Board of Directors fails so to determine the time, date and place of meeting, the annual meeting of stockholders shall be held at the registered office of the Corporation on the first Tuesday in April. If the date of the annual meeting shall fall upon a legal holiday, the meeting shall be held on the next succeeding business day. At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and they may transact such other corporate business as shall be stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS Special meetings of the stockholders for any purpose or purposes may be called by the Chief Executive Officer, the President or the Secretary, or by resolution of the Board of Directors.
SECTION 3. VOTING - Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation of the Corporation and these By-Laws may vote in person or by proxy, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order,
with the address of each, and the number of shares held by each, 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 entitled to be present.
SECTION 4. QUORUM Except as otherwise required by law, by the Certificate of Incorporation of the Corporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding shares constituting a majority of the voting power of the Corporation shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted that might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof.
SECTION 5. NOTICE OF MEETINGS Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat, at his or her address as it appears on the records of the Corporation, not less than ten nor more than sixty days before the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat.
SECTION 6. ACTION WITHOUT MEETING Unless otherwise provided by the Certificate of Incorporation of the Corporation, any action required or permitted to be taken at any annual or special meeting of 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 the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM The business and affairs of the Corporation shall be managed under the direction of a Board of Directors which shall consist of not less than one person. The exact number of directors shall initially be one and may thereafter be fixed from time to time by the Board of Directors. Directors shall be elected at the annual meeting of stockholders and each director shall be elected to serve until his or her successor shall
be elected and shall qualify. A director need not be a stockholder. For so long as Apollo Investment Fund VIII, L.P. ( Apollo ), holds a direct or indirect interest in the Corporation (and/or any successor or assign), Apollo shall have the right to appoint at least one member of the Board of Directors. Apollo hereby appoints David B. Sambur as such director.
SECTION 2. RESIGNATIONS Any director may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. The acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES If the office of any director becomes vacant, the remaining directors in the office, though less than a quorum, by a majority vote, may appoint any qualified person to fill such vacancy, who shall hold office for the unexpired term and until his or her successor shall be duly chosen. If the office of any director becomes vacant and there are no remaining directors, the stockholders, by the affirmative vote of the holders of shares constituting a majority of the voting power of the Corporation, at a special meeting called for such purpose, may appoint any qualified person to fill such vacancy.
SECTION 4. REMOVAL Except as hereinafter provided, any director or directors may be removed either for or without cause at any time by the affirmative vote of the holders of a majority of the voting power entitled to vote for the election of directors, at an annual meeting or a special meeting called for the purpose, and the vacancy thus created may be filled, at such meeting, by the affirmative vote of holders of shares constituting a majority of the voting power of the Corporation.
SECTION 5. COMMITTEES The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more directors of the Corporation.
Any such committee, to the extent provided in the resolution of the Board of Directors, or in these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors 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.
SECTION 6. MEETINGS The newly elected directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may be fixed by consent of all the Directors.
Regular meetings of the Board of Directors may be held without notice at such places and times as shall be determined from time to time by resolution of the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President, or by the Secretary on the written request of any director, on at least one days notice to each director (except that notice to any director may be waived in writing by such director) and shall be held at such place or places as may be determined by the Board of Directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation of the Corporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in any meeting of the Board of Directors or any committee thereof by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
SECTION 7. QUORUM A majority of the Directors shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. The vote of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the Certificate of Incorporation of the Corporation or these By-Laws shall require the vote of a greater number.
SECTION 8. COMPENSATION Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the Board of Directors a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 9. ACTION WITHOUT MEETING 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 a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS The officers of the Corporation shall be a Chief Executive Officer, a President, a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors and shall hold office until their successors are duly elected and qualified. In addition, the Board of Directors may elect a Chairman of the Board as well as such Executive Vice Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers as they may deem proper. Any number of the above offices may be held by the same person. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD The Chairman of the Board, if elected by the Board of Directors, shall have such powers and duties as may be prescribed by the Board of Directors. Such officer shall preside at all meetings of the Board of Directors.
SECTION 3. CHIEF EXECUTIVE OFFICER The Chief Executive Officer shall have the general powers and duties of supervision and management usually vested in the office of Chief Executive Officer of a corporation and perform such other duties as may be assigned to him or her by the Board of Directors. The Chief Executive Officer shall have the power to execute bonds, mortgages and other contracts on behalf of the Corporation, and to cause the seal of the Corporation to be affixed to any instrument requiring it, and when so affixed the seal shall be attested to by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 4. PRESIDENT The President shall be the Chief Operating Officer of the Corporation. He or she shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. The President shall have the power to execute bonds, mortgages and other contracts on behalf of the Corporation, and to cause the seal to be affixed to any instrument requiring it, and when so affixed the seal shall be attested to by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. EXECUTIVE VICE PRESIDENTS Each Executive Vice President, if elected by the Board of Directors, shall have such powers and shall perform such duties as shall be assigned to him or her by the Chief Executive Officer, President or Board of Directors.
SECTION 6. VICE PRESIDENTS Each Vice President, if elected by the Board of Directors, shall have such powers and shall perform such duties as shall be assigned to him or her by the Chief Executive Officer, President, an Executive Vice President or Board of Directors.
SECTION 7. TREASURER The Treasurer shall be the Chief Financial Officer of the Corporation. He or she shall have the custody of the Corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation. He or she shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chief Executive Officer or the President, taking proper vouchers for such disbursements. He or she shall render to the Chief Executive Officer, the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he or she shall give the Corporation a bond for the faithful discharge of his or her duties in such amount and with such surety as the Board of Directors shall prescribe.
SECTION 8. SECRETARY The Secretary shall give, or cause to be given, notice of all meetings of stockholders and of the Board of Directors and all other notices required
by law or by these By-Laws, and in case of his or her absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the Chief Executive Officer or the President, or by the Board of Directors, upon whose request the meeting is called as provided in these By-Laws. He or she shall record all the proceedings of the meetings of the Board of Directors, any committees thereof and the stockholders of the Corporation in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. He or she shall have the custody of the seal of the Corporation and shall affix the same to all instruments requiring it, when authorized by the Board of Directors, the Chief Executive Officer or the President, and attest to the same.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK A certificate of stock shall be issued to each stockholder certifying the number of shares owned by such stockholder in the Corporation. Certificates of stock of the Corporation shall be of such form and device as the Board of Directors may from time to time determine.
SECTION 2. LOST CERTIFICATES A new certificate of stock may be issued in the place of any certificate theretofore issued by the Corporation, alleged to have been lost or destroyed, and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or such owners legal representatives, to give the Corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES The shares of stock of the Corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the Corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the Board of Directors may designate, by whom they shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE 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 a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty days prior to such 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 of the Board of Directors is required by law, shall be the first day on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; 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 of Directors 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 of Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS Subject to the provisions of the Certificate of Incorporation of the Corporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon stock of the Corporation as and when they deem appropriate. Before declaring any dividend there may be set apart out of any funds of the Corporation available for dividends, such sum or sums as the Board of Directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation.
SECTION 6. SEAL The corporate seal of the Corporation shall be in such form as shall be determined by resolution of the Board of Directors. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 7. FISCAL YEAR The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.
SECTION 8. CHECKS All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, or agent or agents, of the Corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE Whenever any notice is required to be given under these By-Laws, personal notice is not required unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his or her address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by law. Whenever any notice is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the Corporation or of these By-Laws, a waiver thereof, in writing and signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to such required notice.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed at any annual meeting of the stockholders (or at any special meeting thereof if notice of such proposed alteration, amendment or repeal to be considered is contained in the notice of such special meeting) by the affirmative vote of the holders of shares constituting a majority of the voting power of the Corporation. Except as otherwise provided in the Certificate of Incorporation of the Corporation, the Board of Directors may by majority vote of those present at any meeting at which a quorum is present alter, amend or repeal these By-Laws, or enact such other By-Laws as in their judgment may be advisable for the regulation and conduct of the affairs of the Corporation.
Exhibit 10.1
American Gaming Systems
2011 AGS Managerial Bonus Plan
It is the intention of American Gaming Systems to provide executive compensation programs that create an environment that motivates the executive team to achieve both short term financial objectives as well as longer term objectives. AGS compensation plan for its management team members focuses on three basic forms of compensation: base salary, annual bonus incentives, and in some cases longer term equity ownership.
Depending on your position within the company your focus may be on the companys overall performance, or you may have a specific area of assignment that is measurable and meaningful for the basis of compensation. In some cases your plan may consist of both companywide performance objectives and a divisional or subset of the total company performance that is measurable, quantifiable, and within the bounds of your executive control. In all cases the bonus plans will be measurable and quantifiable and mostly objective in nature.
The basis for bonus plans for 2011 will be somewhat embryonic in nature due to the fact that the Company has a new accounting system being implemented this year and prior year results were not detailed down to the same level as we will have this year. Therefore, comparisons to 2010 will be difficult in many cases; however, the comparisons to the 2011 budget that you may have participated in generating will be the continuous focus throughout the year.
The primary measurement element at all levels in the 2011 bonus plans will be Ebitda. Ebitda in some cases may not be the classic GAAP definition, but will be Ebitda as defined in the respective portion of your business plan and as outlined in the bonus grid provided to you as part of this plan.
Some important notes associated with this plan:
1. | Incentive payments will be calculated following the close of the 2011 fiscal year end and will be communicated after the audit is complete and financial performance finalized. |
2. | Minimum company performance is necessary before any incentive is made available to participants. |
3. | Participants in the Plan are discretionary at the nomination of the CEO. Title and position alone do not make an employee automatically eligible. Consideration is given as to responsibility level and span of control. The CEO shall determine and be the final say as to eligibility and level of participation. |
4. | New entrants into the Plan joining prior to July 1,2011, will participate on a pro rata basis. Participants who join the Company after July 1, 2011, will not participate in the current fiscal year. |
5. | Current participants who are transferred or promoted into another position which carries a different incentive plan will have incentive payments calculated on a pro rata basis as of the date of change. |
6. | Like any other form of compensation, the details of your specific participation are to be kept confidential. |
7. | The Company currently intends to continue offering incentive compensation to supplement base pay and other forms of compensation with the mindset that our plans are generally performance driven. However, bonus payments and other forms of incentive compensation are not guaranteed and are provided at the sole discretion of management. Based on changing business and economic conditions, the company may elect to modify, amend, or eliminate the plan as it deems necessary. Participation in the Plan in any given year does not ensure that an employee will participate in any future incentive plans. |
There are three basic levels of target bonus compensation based on base salary:
Base Salary Multiples | ||||||||||||
Minimum | Target | Maximum | ||||||||||
President/Vice- President level |
0 | 50 | % | 100 | % | |||||||
Director Level |
0 | 15 | % | 30 | % | |||||||
Manager Level |
0 | 7.5 | % | 15 | % |
The basic metric of measurement in the 2011 plan will be Ebitda.
Ebitda Target | ||||||
Minimum Bonus level | 85% of Plan | $ | 28,356,394 | |||
Targeted Bonus Level | 100% of Plan | $ | 33,360,464 | |||
Maximum Bonus Level | 120% of Plan | $ | 40,032,557 |
Bonuses begin to be earned once annual Ebitda reaches 85% of Plan and bonus amounts shall be determined based on an interpolation of Ebitda Target and Plan Attainment and corresponding Base Salary Multiples.
Exhibit 10.2
2012 Managerial Incentive Plan (MIP)
It is the intent of American Gaming Systems to provide managerial compensation programs that create an environment that motivates the management team to achieve both short term financial objectives, as well as longer term objectives.
The primary measurement element at all levels in the 2012 bonus plans will be Ebitda. Ebitda in some cases may not be the classic GAAP definition, but will be Ebitda as defined in the respective portion of your business plan and as outlined in the bonus grid provided to you as part of this plan.
Some important notes associated with this plan:
| Incentive payments will be calculated following the close of the 2012 fiscal year end and will be communicated after the audit is complete and financial performance finalized. |
| Minimum company performance is necessary before any incentive is made available to participants. |
| Participants in the Plan are discretionary at the nomination of the CEO. Title and position alone do not make an employee automatically eligible. Consideration is given as to responsibility level and span of control. The CEO shall determine and be the final say as to eligibility and level of participation. |
| If, in this calendar year, you are transferred or promoted into another position which carries a different incentive plan, you will have incentive payments calculated on a pro rata basis as of the date of change. |
| The details of your participation are to be kept confidential. |
| Bonus payments and other forms of incentive compensation are not guaranteed and are provided at the sole discretion of management. Based on changing business and economic conditions, the company may elect to modify, amend, or eliminate the plan as it deems necessary. Participation in the Plan in any given year does not ensure that an employee will participate in any future incentive plans. |
| Individual employment agreements that exist will and can modify certain terms of this plan accordingly. |
6680 Amelia Earhart Court Las Vegas, Nevada 89119 702-722-6700
The three basic levels of target bonus compensation will be calculated using the following base salary multiples:
Minimum | Target | Maximum | ||||||||||
President/Vice- President level |
0 | 50 | % | 100 | % | |||||||
Director Level |
0 | 15 | % | 30 | % | |||||||
Manager Level |
0 | 7.5 | % | 15 | % |
The basic metric of measurement in the 2011 plan will be Ebitda.
Ebitda Target | AGS | Oklahoma | Natl Sales | Illinois | ||||||||||||||
Minimum |
85% of Plan | $ | 33,132,022 | $ | 33,046,549 | $ | 8,189,108 | $ | 447,925 | |||||||||
Target |
100% of Plan | $ | 38,978,849 | $ | 38,878,293 | $ | 9,634,245 | $ | 526,970 | |||||||||
Maximum |
120% of Plan | $ | 46,774,619 | $ | 46,653,952 | $ | 11,561,094 | $ | 632,364 |
Bonuses begin to be earned once annual Ebitda reaches 85% of Plan and bonus amounts shall be determined based on an interpolation of Ebitda Target and Plan Attainment and corresponding Base Salary Multiples.
For the plan year 2012, your bonus will be based XX% on the performance of AGS overall, and XX% on the performance of Oklahoma (Natl Sales, or Illinois). We look forward to working together with you to exceed all goals.
6680 Amelia Earhart Court Las Vegas, Nevada 89119 702-722-6700
Exhibit 10.3
2013 Managerial Incentive Plan (MIP)
It is the intent of American Gaming Systems to provide managerial compensation programs that create an environment that motivates the management team to achieve both short term financial objectives, as well as longer term objectives.
The primary measurement element at all levels in the 2013 bonus plans will be Ebitda. Ebitda in some cases may not be the classic GAAP definition, but will be Ebitda as defined in the respective portion of your business plan and as outlined in the bonus grid provided to you as part of this plan.
Some important notes associated with this plan:
| Incentive payments will be calculated following the close of the 2013 fiscal year end and will be communicated after the audit is complete and financial performance finalized. |
| Minimum company performance is necessary before any incentive is made available to participants. |
| Participants in the Plan are discretionary at the nomination of the CEO. Title and position alone do not make an employee automatically eligible. Consideration is given as to responsibility level and span of control. The CEO shall determine and be the final say as to eligibility and level of participation. |
| If, in this calendar year, you are transferred or promoted into another position which carries a different incentive plan, you will have incentive payments calculated on a pro rata basis as of the date of change. |
| The details of your participation are to be kept confidential. |
| Bonus payments and other forms of incentive compensation are not guaranteed and are provided at the sole discretion of management. Based on changing business and economic conditions, the company may elect to modify, amend, or eliminate the plan as it deems necessary. Participation in the Plan in any given year does not ensure that an employee will participate in any future incentive plans. |
| Individual employment agreements that exist will and can modify certain terms of this plan accordingly. |
6680 Amelia Earhart Court Las Vegas, Nevada 89119 702-722-6700
The three basic levels of target bonus compensation will be calculated using the following base salary multiples:
Minimum | Target | Maximum | ||||||||||
President/Vice- President level |
0 | 50 | % | 100 | % | |||||||
Director Level |
0 | 15 | % | 30 | % | |||||||
Manager Level |
0 | 7.5 | % | 15 | % |
The basic metric of measurement in the 2013 plan will be Ebitda.
Ebitda Target |
AGS | Oklahoma | Natl Sales | Illinois | ||||||||||||||
Minimum |
85% of Plan | $ | 36,375,486 | $ | 35,291,140 | $ | 8,529,237 | $ | 3,081,732 | |||||||||
Target |
100% of Plan | $ | 42,794,690 | $ | 41,518,989 | $ | 10,034,396 | $ | 3,625,567 | |||||||||
Maximum |
120% of Plan | $ | 51,353,628 | $ | 49,822,786 | $ | 12,041,275 | $ | 4,350,680 |
Bonuses begin to be earned once annual Ebitda reaches 85% of Plan and bonus amounts shall be determined based on an interpolation of Ebitda Target and Plan Attainment and corresponding Base Salary Multiples.
For the plan year 2013, your bonus will be based XX% on the performance of AGS overall, and XX% on the performance of Oklahoma (Natl Sales, or Illinois). We look forward to working together with you to exceed all goals.
6680 Amelia Earhart Court Las Vegas, Nevada 89119 702-722-6700
Exhibit 10.4
AGS HOLDINGS, LLC
PHANTOM UNITS PLAN
1. Purpose
This Phantom Units Plan (the Plan) is intended to reinforce and encourage the continued attention and dedication of certain Covered Executives (as defined below) to their assigned duties to AGS LLC or its Subsidiaries (collectively, AGS) until a Change in Control (defined below) of AGS Holdings, LLC, a Delaware limited liability company (the Company) and the ultimate parent of AGS. The Plan is for the benefit of Covered Executives.
2. Definitions
For purposes of this Plan:
(a) AGS Units shall mean the units of the Company in the Companys Second Amended and Restated Limited Liability Agreement, as the same may be further amended or restated from time to time.
(b) Alpine Investors shall mean Alpine Investors II, LP, and each of its affiliates, successors and assigns.
(c) Board shall mean the Board of Managers of the Company or the sole member of the Company if no Board of Managers then exists.
(d) Cause means either (i) the definition of Cause in any employment agreement or offer letter with such Covered Executive or (ii) if no such definition exists with a Covered Executive, then Cause shall mean the termination of such Covered Executive for any of the following reasons: (a) the Covered Executives failure to correct underperformance after written notification from the AGS Chief Executive Officer or the Board, (ii) the Covered Executives illegal fraudulent conduct, (iii) the Covered Executives conviction of a felony, (iv) a determination by the Board that the Covered Executives involvement with AGS or the Company would have a negative impact on AGS ability to receive or retain any licenses, (v) the Covered Executives willful or material misrepresentation to AGS, AGS Chief Executive Officer or the Board relating to the business, assets, prospects, or operations of AGS, or (vi) the Covered Executives refusal to take any action as reasonably directed by the Board or any individual acting on behalf or at the direction of the Board.
(e) a Change in Control shall be deemed to have occurred upon the occurrence of any one of the following events:
(i) any person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Act) (other than Alpine Investors or its affiliates (including its limited partners and their affiliates), any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together
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with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of membership interests of the Company representing 50 percent or more of the combined voting power of the Companys then outstanding membership interests having the right to vote in an election of the Board (Voting Securities) (in such case other than as a result of an acquisition of membership interests directly from the Company); or
(ii) the consummation of (A) any consolidation or merger of the Company where the members of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, membership interests or shares representing in the aggregate more than 50 percent of the voting membership interests or shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (B) any sale or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company.
(f) Holdback Proceeds shall mean any portion of the Transaction Proceeds payable to holders of Outstanding AGS Units generally after the Closing Date that is not paid in cash or marketable securities, including (i) consideration held in an escrow fund or otherwise held back for indemnification or other claims (such Holdback Proceeds to be calculated by reference to the value of the units of the Company); (ii) promissory notes; or (iii) rollover or retained equity not publicly tradeable.
(g) Net Individual Transaction Proceeds shall mean for each individual holder of Phantom Units, an amount equal to the difference between (i) the Transaction Proceeds and (ii) such holders applicable Strike Price Value.
(h) Outstanding AGS Units shall mean the 3,901,824 AGS Units issued and outstanding on April 30, 2010, as adjusted for any splits, units dividends, combinations, recapitalizations, reorganizations or other similar events following the date hereof. Outstanding AGS Units shall not include any additional AGS Units issued and sold by the Company after April 30, 2010. As a result, in the event that the Outstanding AGS Units represent only 75% of the total AGS Units then outstanding, then the percentage payable to the Phantom Units (net of the applicable Strike Price Values) shall be applied against the 75% (not 100%) of the actual transaction proceeds from the Change in Control that are applicable to the Outstanding AGS Units.
(i) Phantom Unit Certificate has the meaning set forth in Section 5(b) hereof.
(j) Phantom Units shall mean the number of Phantom Units held by a Covered Executive under the Plan as set forth for such Covered Executive in such Covered Executives individual Phantom Unit Certificate. The maximum number of Phantom Units is set forth on Exhibit A which Exhibit A also provides the maximum percentage of Transaction Proceeds available to the Phantom Units; as updated from time to time.
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(k) Phantom Unit Proceeds shall mean, for each individual holder of Phantom Units, the product of (i) such holders Net Individual Transaction Proceeds and (ii) the vested percentage amount applicable to such holders Phantom Units as set forth in such holders Phantom Unit Certificate.
(1) Separation from Service or Separates from Service occurs when the Company and the Covered Executive reasonably anticipate that no further services would be performed by the Covered Executive for the Company or any affiliates of the Company after a certain date, that the level of bona fide services the Covered Executive would perform for the Company after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than 20 percent of the average level of bona fide services performed by the Covered Executive for the Company over the immediately preceding 36-month period (or period of employment, if less than 36 months). For purposes hereof, the term Company includes any other entity that is part of a controlled group that includes AGS as defined in Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended (the Code), except that in applying Section 1563(a)(1), (2) and (3) of the Code, the language at least 50 percent is used instead of at least 80 percent. A transfer from one AGS affiliate to another is not considered a Separation from Service.
(m) Strike Price Value shall mean the amount set forth for each individual Covered Executive set forth in his individual Phantom Unit Certificate, as adjusted therein.
(n) Transaction Proceeds shall mean an amount equal to the aggregate value of cash and/or property (e.g., securities, notes, etc.) actually paid or payable on the Outstanding AGS Units in cash or marketable securities in connection with Change in Control (all as determined by the Board in good faith). Transaction Proceeds shall include any Holdback Proceeds; provided that Holdback Proceeds shall only be paid to a Covered Executive when and if such Holdback Proceeds are otherwise payable in cash or marketable securities to or on behalf of the holders of the Outstanding AGS Units Notwithstanding any provision of this Plan or any Phantom Unit Certificate issued hereunder, no payments from the Holdback Proceeds shall be paid later than five years after the Change in Control.
3. Covered Executives
The Board may select certain key members of management (the Covered Executives) to be eligible to receive grants of Phantom Units hereunder.
4. Administration
The Board shall have the sole discretion and authority to administer and interpret the Plan.
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5. Determination of Payments on Phantom Units
(a) In connection with the consummation of a Change in Control of the Company that is effective on or prior to February 27, 2015, the Company shall establish the amount of payments, if any, to the Phantom Units from Transaction Proceeds. The amount of Phantom Unit Proceeds on each set of vested Phantom Units shall be determined based on the product of (i) the vested percentage represented by a holders then vested Phantom Units (as set forth in such holders Phantom Unit Certificate) and (ii) such holders applicable Net Individual Transaction Proceeds.
(b) In connection with each Covered Executives participation in the Plan, the Covered Executive shall receive a certificate in the form provided to him (the Phantom Unit Certificate). The Phantom Unit Certificate shall specify such Covered Executives Phantom Units. A Covered Executives Phantom Unit Certificate may include other terms and conditions applicable to such Covered Executive, as determined in the discretion of the Board, that are not inconsistent with the provisions of this Plan.
(c) The Company shall pay each Covered Executive, subject to terms of such Covered Executives Phantom Unit Certificate, an amount equal to such Covered Executives Phantom Unit Proceeds (other than Holdback Proceeds) upon a Change in Control. Each Covered Executives Phantom Units Proceeds and all Holdback Proceeds, if any, shall be paid to each Covered Executive on the same schedule and under the same terms and conditions as apply to payments to the Outstanding AGS Units. Alpine AGS LLC, as the current owner of all of the Outstanding AGS Units, hereby authorizes the Company to pay such proceeds otherwise due to it or its successors and assigns in connection with this Plan Notwithstanding any provision of this Plan or any Phantom Unit Certificate issued hereunder, no payments from the Holdback Proceeds shall be paid later than five years after the Change in Control.
(d) To the extent set forth in a Covered Executives Phantom Unit Certificate, a Covered Executive shall be entitled to receive payments for his Phantom Units upon his Separation from Service at such time as provided in his Phantom Unit Certificate.
6. Confidentiality of Plan and Phantom Units
A Covered Executive may not disclose any information regarding the Plan, including the Covered Executives selection to participate in the Plan and the Covered Executives Phantom Unit, to any other person, other than to immediate family members, or to the Participants accountants, financial advisers, or attorneys, or as may be required by law.
7. Section 409A
(a) The Company intend that this Agreement will be administered in accordance with Section 409A (Section 409A) of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A. The Company may amend this Plan and any Phantom Unit Certificate granted hereunder as may be necessary to fully comply with Section 409A and all related rules and regulations in order to preserve the payments and benefits provided hereunder. Subject to Section 7(b) below, any amendments made under this Section 7(a) or for any other reason under this Plan and any Phantom Unit Certificate shall be made so that payments hereunder are not subject to the 20% tax under Section 409A.
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(b) The Company makes no representation or warranty and shall have no liability to any Covered Executive or any other person if any payments under any provisions of this Plan or any Phantom Unit Certificate are determined to constitute deferred compensation under Section 409A that are subject to the 20% tax under Section 409A.
8. Miscellaneous
(a) Amendment and Termination . The Company reserves the right to amend or terminate the Plan at any time in its sole discretion but only with the prior written consent of a majority of the holders of Phantom Units under the Plan. This Plan, and all rights granted hereunder, shall terminate on the earlier of (x) the date all amounts to be paid to Covered Executives hereunder are paid following a Change in Control and (y) February 28, 2015. Notwithstanding the foregoing, if the effective date of a Change in Control occurs prior to February 28, 2015, this Plan and all rights granted hereunder shall terminate on the date all amounts to be paid to Covered Executives hereunder are paid following such Change in Control.
(b) No Contract for Continuing Services . This Plan and any Phantom Unit Certificate granted hereunder shall not be construed as creating any contract for continued services between the Company or any of its subsidiaries and any Covered Executive and nothing herein contained shall give any Covered Executive the right to be retained as an employee of the Company or any of its subsidiaries.
(c) No Transfers . A Covered Executives rights in an interest under the Plan or the Phantom Units issued thereunder may not be assigned or transferred; except it may be transferred upon his or her death to his or her estate.
(d) Unfunded Plan . The Plan shall be unfunded and shall not create (or be construed to create) a trust or separate fund. Likewise, the Plan shall not establish any fiduciary relationship between the Company or any of subsidiaries or affiliates and any Covered Executive. To the extent that any Covered Executive holds any rights by virtue of an award of Phantom Units under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company or any of its subsidiaries.
(e) Governing Law . The Plan and each Phantom Unit Certificate awarded under the Plan shall be construed in accordance with and governed the laws of the State of Delaware, without regard to principles of conflict of laws of such state.
(f) Tax Withholding . The Company shall have the right to deduct from all payments hereunder any taxes required by law to be withheld with respect to such cash payments.
(g) Effect on Other Plans . Nothing in this Plan shall be construed to limit the rights of Covered Executives under the Companys benefit plans, programs or policies.
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(h) No Rights as a Member . No Covered Executive shall be deemed for any purpose to be a stockholder, partner, member or other equityholder of the Company or any subsidiary and the existence of the Plan shall not affect the right or power of the Company or any subsidiary to accomplish any act.
(i) Effective Date . The Plan shall be effective on the date hereof.
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EXHIBIT A
CALCULATION OF TOTAL PHANTOM UNITS
The Plan may grant up to 1250 Phantom Units, representing 12.5% of Transaction Proceeds, less the applicable individual Strike Price Values, for all outstanding Phantom Units.
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Exhibit 10.5
June 2nd, 2010
Bob Miodunski
Dear Bob:
We are thrilled to make you the following offer to join AGS LLC (AGS or the Company). I speak for everyone at Alpine and AGS when I say that we think very highly of you, and we are confident that you will be successful at AGS. On a personal note, I am very excited to work together.
Position . You will be the Chairman of the Advisory Board and Interim President / Chief Executive Officer of AGS (until you find the right permanent CEO to replace yourself) and will report directly to me (or my designee). The expectation is that you will work in a full-time capacity for eighteen (18) to twenty-four (24) months after which time you would remain an active Advisory Board member until your four (4) year anniversary with AGS and thereafter as mutually agreed upon. As Interim President / Chief Executive Officer your primary responsibilities will include building an outstanding management team, creating a performance oriented culture, developing and deploying market-leading content, delivering would-class customer service and support and developing and executing strategic plans in conjunction with the other members of the Advisory Board all while ensuring strict adherence to all legal and regulatory requirements. In addition, you will oversee all of the Companys functions including Sales, Marketing, Business Development, Operations, Accounting, Finance, Content Development, Licensing and Compliance. You will assume full accountability for the financial performance of the business against the Advisory Board approved budget and have full hiring, firing and capital allocation responsibility. You shall serve as the interface between the other members of the Advisory Board and Company personnel. Your geographic focus will initially be North America with the expectation that AGS will persue international opportunities over time.
As Chairman of the Advisory Board your responsibilities will include identifying, hiring (with input from the other members of the Advisory Board) and mentoring the permanent CEO, helping to set the strategic direction of the Company, ensuring the right management team is in place to maximize the success of the Company, clarifying Board and management responsibilities, planning and managing Board and Board committee meetings and working to develop the effectiveness of the Board which may include the addition of new Board members.
This offer is contingent no your starting on later than 30 days after the execution of this offer letter (Start Date) and earlier if possible.
Position Location: You will be based out of Las Vegas, NV (travelling as necessary) with the understanding that you will spend up to one (1) week per month working out of your home in [REDACTED]
Salary & Bonus Plan . You will be paid a base compensation at the annual rate of $450,000, payable in 26 installments in accordance with the Companys standard payroll practices for salaried employees. This salary will not be subject to adjustment through 2011 so long as you are still working on a full-time basis. Your 2010 salary will be prorated based on your Start Date. Once you move from full-time to part-time the salary then in effect shall be adjusted in pro-proportion to the level of your ongoing time commitment. For example, If you moved from a full-time commitment to a half-time commitment your base compensation would be adjusted to an annual rate of $225,000.
You shall also receive a bonus paid in cash upon completion of the Companys annual audit based on the bonus plan as outlined in Exhibit I. Your 2010 bonus will be prorated based on your Start Date. This bonus program shall be in place through 2011 (assuming you are still employed with AGS) after which you and I (or my designee) shall determine an appropriate bonus plan based on objectives and your time commitment at that time. Similar to your base salary, upon making the move from full-time to part-time your bonus plan potential will be proportional to your time commitment to AGS. The bonus plan through 2011 is based on a full-time commitment to AGS.
Confidential | AGS LLC | 1 |
Signing Bonus. You shall receive a $100,000 signing bonus contingent upon execution of this offer letter, the successful completion of your background check and a positive reference check with Dick Haddrill. The signing bonus will be credited against bonuses earned (if any) either in 2010 or 2011 per Exhibit 1.
Phantom Equity. In conjunction with this employment offer, you will be entitled to a percentage of the gains in equity value of AGS in a sale (Phantom Equity). Phantum Equity and pertinent financial information are documented in Exhibit 2.
Performance Reviews / Quarterly goals. Each quarter, you and I (or my designee) will outline/update your portions of the annual plan and your quarterly goals. You will receive an annual performance-based review, or more frequently at the discretion of the other members of the Advisory Board.
Benefits & Vacation. The Company will pay the premiums on your existing medical plan up to the amount of what your premiums would have been under the AGS sponsored medical plan. While working for AGS on a full-time basis you will receive four (4) weeks paid vacation annually. Vacation will accrue on a monthly basis commencing on your Start Date while you are working in a full-time capacity. Availability of and/or participation in any of the referenced plans is subject to adjustment pursuant to the Companys policies and plans in effect and which may change from time to time.
Reimbursement of Expenses. In accordance with established policies and procedures of the Company in effect from time to time, the Company shall pay to or reimburse you for all reasonable and actual out-of-pocket expenses including but not limited to travel, hotel, and similar expenses, incurred by you from time to time in performing your job responsibilities for the Company. Such expenses shall not exceed $25,000 annually without my approval.
Other Benefits. While serving as Chairman of the Advisory Board & Interim President / Chief Executive Officer you will be provided a cell phone (at you discretion), disability insurance and life insurance which shall be paid for by the Company.
Non-competition, Non-Disclosure and Non-Solicit Agreement. You will be required to sign the Companys Non-competition, Non-Disclosure and Non-Solicit Agreement, a copy of which must be signed and returned prior to your Start Date, as a condition precedent to your employment with the Company. The Non-Competition portion of this Agreement shall remain in effect for twelve (12) months and the Non-Solicit portion of this Agreement shall remain in effect for twenty-four (24) months following your departure from the Company. If you are terminated without cause the Non-Competition portion of this Agreement shall terminate after six (6) months unless the Company continues to pay your base salary (per the normal Company payroll cycle) for six (6) months past the date of termination in exchange for an additional six (6) month extension of the Non-compete.
Trade Secrets/Intellectual Property. The trade secrets and intellectual property developed by you or the Company while you are at AGS shall remain property of AGS.
Period of Employment. Your employment with the Company will be at will, meaning that either you or the Company will be entitled to terminate your employment at any time and for any reason, with or without cause. Any contrary representations that may have been made to you are superseded by this offer. Although your job duties, title, compensation and benefits, as well as the Companys personnel policies and procedures, may change from time to time, the at will nature of your employment may only be changed in an express written agreement signed by you and I (or my designee).
Outside Activities. While you render services to the Company, you will not engage in any other gainful employment, business or activity without the written consent of the Company.
Confidential | AGS LLC | 2 |
Withholding Taxes . All forms of compensation referred to in this letter are subject to reduction to reflect applicable withholding and payroll taxes.
Entire Agreement . This letter and the Non-competition, Non-Disclosure and Non-Solicit Agreement contain all of the terms of your employment with the Company and supersede any prior understandings or agreements, whether oral or written, between you and the Company.
Severance . The Company will provide six (6) months severance in the event you are terminated without cause. No severance will be paid if you are terminated for Cause which shall include failure to correct under performance after written notification from me (or my designee), illegal fraudulent conduct, conviction of felony, a determination that your involvement with the company would have a negative impact on the Companys ability to receive or retain any licenses, willful or material misrepresentation to the Company or other members of the Advisory Board relating to the business, assets, prospects, or operations of the Company, EBITDA of the Company falling below $25,000,000 during any twelve month period, or refusal to take any action as reasonably directed by the Advisory Board or any individual acting on behalf or at the direction of the Advisory Board. You must sign a standard release before the company will make any severance payment.
Contingent offer . This offer is contingent upon the successful completion of a background check and speaking with Dick Haddrill.
Amendment and Governing Law . This agreement may not be amended or modified except by an express written agreement signed by you and me (or my designee). The terms of this letter agreement and the resolution of any disputes will be governed by Nevada law
You may indicate your agreement with these terms and accept this offer by signing and dating the original of this letter, as well as the Non-competition, Non-Disclosure and Non-Solicit Agreement, and returning the in to me by fax or email. As required by law, your employment with the Company is also contingent upon your providing legal proof of your identity and authorization to work in the United States. We would like to have this completed by June 15th, 2010.
Bob, we are very excited to have you join our team. We look forward to continuing to build a great company together.
Very truly yours,
Graham Weaver AGS, LLC |
I have read and accept this employment offer. | |||||||
/s/ Graham Weaver | /s/ Bob Miodunski | |||||||
By: | Graham Weaver, Chairman | By: | Bob Miodunski | |||||
Dated: | Dated: | June 3, 2010 |
Confidential | AGS LLC | 3 |
Exhibit 1
EBITDA Targets ($000s)
Year |
Plan | 110% of Plan | 120% of plan | |||||||||
2010 |
$ | 32,000 | $ | 35,200 | $ | 38,400 | ||||||
2011 |
$ | 42,000 | $ | 46,200 | $ | 50,400 |
Bonus Payouts ($000s) (2)
Year |
Plan | 110% of Plan | 120% of plan | |||||||||
2010(1) |
$ | 400 | $ | 440 | $ | 480 | ||||||
2011 |
$ | 420 | $ | 462 | $ | 504 |
(1) | Prorated based on start date |
(2) | Based on full-time commitment to AGS |
The EBITDA Targets shall be subject to upward modification as determined by me (or my designee ) to the extent additional capital is invested into AGS at anytime after your Start Date.
Confidential | AGS LLC | 4 |
Exhibit 2
In conjunction with this employment offer, you will be allocated 2.0% of the gains in equity value of AGS in a sale (Phantom Equity). The strike price of the Phantom Equity is based on a $56,000,000 equity valuation equating to a 5.5x multiple of 2009 EBITDA (see calculation below). The Phantom Equity will vest 6.25% per quarter with full vesting at the end of four years; all of the Phantom Equity shall be awarded based on tenure. You must be employed for the Phantom Equity to vest. If you are fired without cause you shall retain any vested and unvested Phantom Equity. If you are fired for cause you shall forfeit any vested and unvested Phantom Equity is subject to dilution any additional units issued after your Start Date. If AGS is sold, 100% of the unvested Phantom Equity will automatically vest. The Phantom Equity will be documented in a separate agreement to be executed within ninety days of your Start Date.
2009 Approximate P&L ($000s)
Revenue |
||||
Recurring |
$ | 62,000 | ||
Game Sales |
$ | 18,000 | ||
|
|
|||
Total Revenue |
$ | 80,000 | ||
EBITDA |
$ | 33,800 | ||
* | ||||
Multiple |
5.5x | |||
- | ||||
Net Debt |
$ | 129,900 | ||
= | ||||
Strike Price |
$ | 56,000 |
2009 Approximate Game Data
Number of Games |
7,700 | |||
Hold-Per Day |
$ | 115-$120 |
In a sale of AGS, the following will determine the value of your Phantom Equity:
(Enterprise Value Net Debt Strike Price) * 2.0% = Phantom Equity value.
Confidential | AGS LLC | 5 |
Exhibit 10.6
November 28, 2011
Bob Miodunski
Dear Bob,
Further to my letter to you dated June 2 nd , 2010, and as we have discussed, I would like to amend your employment as Indicated in your offer letter (attached) as follows:
| You will continue as full-time President/Chief Executive Officer of AGS until your four (4) year anniversary with AGS and thereafter as mutually agreed upon. |
| You will continue as part-time Chairman of AGS until your six (6) year anniversary with AGS and thereafter as mutually agreed upon, |
| Your Phantom equity allocation will increase from 2% (or 200 units) to 4% (or 400 units). |
This First Amendment shall be deemed to be an amendment to the offer of employment attached, and the offer of employment as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the offer of employment In any other document, instrument, agreement or writing shall hereafter be deemed to refer to the offer of employment as amended hereby. This First Amendment is limited as specified and shall not constitute a modification or waiver of any other provision of the Employment Agreement.
This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. This First Amendment may be executed via facsimile or other electronic transmissions.
THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA WITHOUT REGARD TO THE CONFLICT OF LAWS RULES THEREOF.
[signature page follows]
IN WITNESS WHEREOF, each of the undersigned parties hereto has caused a counterpart of this First Amendment to be duly executed and delivered as of the date first above written.
AMERICAN GAMING SYSTEMS, LLC | ||
By: | /s/ GRAHAM WEAVER | |
GRAHAM WEAVER INDIRECT SOLE MEMBER |
ROBERT MIODUNSKI |
/s/ ROBERT MIODUNSKI |
ROBERT MIODUNSKI PRESIDENT/CEO |
Exhibit 10.7
March 21, 2013
Robert Miodunski
Ref: Employment Letters dated November 28, 2011 and June 2, 2010
Dear Bob:
The purpose of this letter is to amend your employment agreement with AGS and shall be referred to hereafter as the Second Amendment. This Second Amendment shall be deemed to be an amendment to both the offer of employment dated June 6, 2010 and the First Amendment dated November 28, 2011, both of which are attached here for reference.
The amendments are as follows;
You will continue in your role as Chairman of the Advisory Board and President/CEO until the earlier of your four year anniversary, the hiring of a new President/CEO at which time you would remain as Chairman, or a change in control of ownership of AGS.
The Board recognizes your desire to reduce the time commitment that you devote to the Company and agrees to adopt the following general schedule of commitment. Starting April 1, 2013, you will adopt a 3 day work schedule (60% of a full work week) flexing based on activities that require your personal attention. The Board and you both acknowledge the need to flex depending on demand and will rely on you to manage your time accordingly. It is also understood that if a sale process of the Company occurs that the demands on your time may have peaks and that you will manage your time accordingly and that Alpine will provide substantial assistance to manage the process accordingly. The Board also asks that you inform an Alpine contact, Mark Strauch, and your staff of your schedule several weeks in advance as best you can for purposes of planning and general coordination of meetings, etc.
Your base salary shall be reduced from $450,000 to $300,000 per year commencing April 1, 2013. Your annual performance bonus potential shall also be reduced pro-rata by 60% from $450,000 to $270,000.
Your initial equity grant of 2% remains intact. Your subsequent equity grant of 2% shall remain intact and cease vesting once a new President/CEO is hired.
This Second Amendment shall be deemed to be an amendment to the attached June 6, 2010 Offer of Employment letter and the subsequent First Amendment letter dated November 28, 2011, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the offer of employment in any other document, instrument, agreement or writing shall hereafter be
deemed to refer to the offer of employment as amended by this Amendment. This Second Amendment is limited as specified and shall not constitute one and the same instrument. This Second Amendment may be executed via facsimile or other electronic transmission.
THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA WITHOUT REGARD TO THE CONFLICT OF LAWS OR RULES THEREOF.
IN WITNESS WHEREOF, each of the undersigned parties hereto has caused a counterpart of this Second Amendment to be duly executed and delivered as of the date first above written,
AMERICAN GAMING SYSTEMS, LLC | ||
By: | /s/ Graham Weaver | |
Graham Weaver, Indirect Sole Member |
ROBERT MIODUNSKI
/s/ ROBERT MIODUNSKI |
ROBERT MIODUNSKI, PRESIDENT/CEO |
Exhibit 10.8
NON-DISCLOSURE, NON-SOLICITATION AND COVENANT NOT TO COMPETE
AGREEMENT
THIS NON-DISCLOSURE, NON-SOLICITATION AND COVENANT NOT TO COMPETE AGREEMENT ( Agreement) is entered into on the 24 th day of June, 2010, by and between AGS LLC , a Delaware Corporation ( Company ), and Bob Miodunski ( Employee ).
In consideration of the Company employing. Employee and the compensation to be paid to Employee during the course of his/her employment, Employee hereby agrees as follows:
1. Effective Date-Affiliates .
(a) This Agreement shall be effective as of the first day of employment with the Company.
(b) All references to Affiliates shall include American Gaming Systems, AGS Partners LLC, AGS Capital, LLC, AGS Holdings, LLC, GTNA Solutions, Corporation or any other entity acquired or organized by the Company during the course of the Employees employment with the Company.
2. Non-Disclosure, Non-Solicitation and Covenant Not to Compete .
(a) Non-Disclosure . Employee understands and acknowledges that Confidential Information (as defined herein), constitutes a valuable asset of Company and its Affiliates, and may not be converted to Employees own use. During the course of employment and thereafter, Employee shall hold in a fiduciary capacity for the benefit of Company all secret or confidential information, knowledge or data relating to Company or its Affiliates , and their respective businesses, that shall not be public knowledge (other than information which becomes public as a result of acts of Employee or his representatives in violation of this Agreement ), including, without limitation, its products, programs, projects, promotions, marketing, business plans or practices, business operations, employees, research and development, intellectual property, customer/client information, matters subject to litigation, and technology or financial information of Company or its Affiliates (collectively referred to as Confidential Information ), without the prior written consent of Company . In the event Employee is required by law or court order to disclose any Confidential Information , Employee shall promptly notify Company of such requirement and provide Company with a copy of any court order or of any law that requires such disclosure and, if Company so elects, to the extent permitted by law, provide Company an adequate opportunity, at its own expense, to contest such law or court order, prior to any such required disclosure by Employee .
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(b) Non-Solicitation Employees . During the course of employment and for a two (2) year period thereafter, Employee shall not, for himself or any third party, alone or as a member of a partnership or limited liability company, or as an officer, director, shareholder or otherwise, directly or indirectly, solicit or contact any employee of Company or any Affiliate of Company , with a view to inducing or encouraging such employee to leave the employ of Company or its Affiliates , for the purpose of being employed at a company employing Employee , a employer affiliated with Company or any competitor of Company or any affiliate thereof.
(c) Covenant Not to Compete . As a material inducement for Company to enter into this Agreement , during the course of employment and during a one (1) year period thereafter, Employee shall not directly or indirectly engage or participate in any way in nor accept any such position or affiliation with, nor render any such services on behalf of, any Competing Business, notwithstanding the job title given to Employee by any Competing Business . For purposes of this Agreement a Competing Business shall mean any person or business engaged in the manufacturing and/or distribution of Class II and/or Class III electronic gaming devices and/or casino back office systems. During this period Employee shall not, on behalf of Employee or on behalf of any other individual, association or entity, call on any of the clients or customers of the Company or any affiliate of the Company for the purpose of soliciting or inducing any of such customers to acquire (or providing to any of such customers) any product or service provided by the Company or an affiliate of the Company, nor will Employee in any way, directly or indirectly, as agent or otherwise, in any other manner solicit, influence or encourage such customers to take away or to divert or direct their business to Employee or any other person or entity by or with which Employee is employed, associated, affiliated or otherwise related. If you are terminated without Cause as defined in your offer letter the Covenant Not to Compete portion of this Agreement shall terminate after six (6) months unless the Company continues to pay your base salary (per the normal Company payroll cycle) for six (6) months past the date of termination in exchange for an additional six (6) month extension of the Covenant Not to Compete.
(d) Acknowledgement. The parties acknowledge that Company would not have entered into this Agreement in the absence of the preceding reasonable restrictions in this Section 2 , and Employee confirms that these restrictions do not and will not unduly impair his ability to make a living after the termination of his/her employment with Company , the purpose of which is to protect the goodwill and other legitimate business interests of Company . Employee acknowledges that the provisions of this Section 2 are reasonable and necessary for the protection of Company and that Company will be irrevocably damaged if such provisions are not specifically enforced. Accordingly, Employee agrees that, in addition to any other relief to which Company may be entitled in the form of actual or punitive damages, Company shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction (without posting a bond therefore) for the purpose of restraining Employee from any actual or threatened breach of such provisions. The provisions of this Section 2 shall survive the term of employment.
-2-
3. Prior Commitments . Employee has no other agreements, relationships, or commitments to any other person or entity that conflict with Employees obligations to the Company under this Agreement.
4. Proprietary Information or Trade Secrets of Others . Employee will not disclose to the Company or its Affiliates, or use, or induce the Company to use, any proprietary information or trade secrets of others. Employee represents and warrants that he/she has returned all property and Confidential Information belonging to all prior employers.
5. Delivery of Documents and Data Upon Termination . In the event of termination of Employees employment with the Company for any reason whatsoever, Employee agrees, promptly and without request, to deliver, to and inform the Company of all documents and data pertaining to his/her employment, and the Confidential Information of the Company, whether prepared by Employee or otherwise coming into his/her possession or control. Employee will not retain any written or other tangible material, or copies thereof, containing any information concerning or disclosing any of the Confidential Information of the Company. Employee recognizes that such unauthorized taking of the Companys trade secrets can result in criminal penalties and civil liability under the Uniform Trade Secrets Act; and that willful misappropriation may result in lines and an award against Employee for damages as well as the Companys attorneys fees in collecting such damages, which shall be in addition to, and shall not supersede, the Companys available remedies pursuant to state and federal law.
6. Equitable Remedies . Employee recognizes and agrees that the violation, breach or threatened violation or breach of any term, provision, or condition of this Agreement may cause irreparable damage to the Company which is difficult to calculate, and that the award of any sum or damages may not be adequate relief to the Company. Employee therefore agrees that, in addition to all of the remedies available in the event of any actual or threatened violation or breach of this Agreement, the Company shall have the right to injunctive and other equitable relief. However, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver of or prohibition against the pursuit of other legal or equitable remedies in the event of the actual or threatened violation or breach of a provision of this Agreement.
7. Cumulative Remedies . Each and all of the several rights and remedies provided for in this Agreement shall be cumulative. No one right or remedy shall be exclusive of the others, or of any right or remedy allowed in law or in equity. No waiver or indulgence by the Company of any failure by Employee to keep or perform any promise or condition of this Agreement shall be a waiver of any preceding or succeeding breach of the same, or any other promise or condition. No waiver by the Company of any right shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.
8. Attorneys Fees . If any action is necessary to enforce this Agreement, the prevailing party shall be entitled to recover its attorneys fees, costs, and expenses.
-3-
9. Material Condition of Employment . Employee acknowledges and agrees that the protections set forth in this Agreement are a material condition to his/her employment with and compensation by the Company .
10. Amendment and Binding Effect . This Agreement may not be amended except by an instrument in writing signed by both parties. This Agreement shall be binding on the heirs, executors, administrators, and other legal representatives and assigns of Employee , and is for the benefit of the Company and its successors and assigns.
11. Governing Law . The laws of the State of Nevada (without giving effect to choice of law or conflict of law principles) shall govern the validity, construction, performance and effect of this Agreement , except to the extent governed by federal law, irrespective of the fact that one or more of the parities now is, or may become, a resident or citizen of a different state or country. The parties hereby expressly submit to the personal jurisdiction of the court or arbitral forum located in Clark County, State of Nevada, and waive any objection or defense based on personal jurisdiction or venue that might otherwise be asserted to proceeding in such forum(s).
12. Entire Understanding . This Agreement expresses the entire understanding of the parties about the described subject matter.
13. Severability . If a court of competent jurisdiction holds any provision of this Agreement to be illegal, unenforceable, or invalid, in whole or in part, for any reason whatsoever, the validity and enforceability of the remaining provisions, or portions of them, will not be affected.
14. Employment at Will . Employment and compensation can be terminated, with or without cause, and with or without notice, at any time, at the option of the Company or the Employee . Nothing contained in this Confidentiality Agreement shall limit or otherwise alter the foregoing.
15. Headings . The headings in this Agreement are inserted for convenience only and are in no way intended to describe, define or limit the scope, intent or interpretation of this Agreement .
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AGS LLC | ||
By: | /s/ AGS LLC | |
Company | ||
/s/ Bob Miodunski |
||
( Signature of Employee) | ||
Bob Miodunski |
||
Employee |
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Exhibit 10.9
AGS HOLDINGS, LLC
August 16, 2012
ROBERT MIODUNSKI
American Gaming Systems
6680 Amelia Earhart Court
Las Vegas, Nevada 89119
Dear BOB:
The Board of Managers of AGS Holdings, LLC (the Company) has selected you to participate as a Covered Executive in the Companys Phantom Units Plan, as amended (the Plan). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Plan and this Phantom Units Certificate shall be subject to and governed by all the terms and conditions of the Plan. A copy of the Plan is attached as Exhibit A to this Phantom Units Certificate.
1. Phantom Units Grant
Your Strike Price Value is $56,000,000. The Strike Price Value shall be adjusted from time to time as follows: (i) the Strike Price Value shall be increased by any additional capital contributions made on the Outstanding AGS Units by the holders thereof after April 30, 2010 and (ii) the Strike Price Value shall be reduced by any distributions or redemption payments made on the Outstanding AGS Units (other than tax distributions as determined by the Board) prior to a Change in Control.
Your number of Phantom Units is 400, which represents 4% of all Transaction Proceeds on the Outstanding AGS Units, after deducting your Strike Price Value.
2. Vesting of Phantom Units
(a) Time Vested Phantom Units . Your Phantom Units shall vest over time. The number of Phantom Units which are then vested (Vested Phantom Units) shall equal the product of (i) 100 and (ii) the following percentage based on your number of years of service to the Company and/or AGS from the date you became an employee of AGS (the Start Date), provided that all additional vesting shall cease on the date on which you Separate from Service from AGS (the Termination Date):
200 (or 2%) of the Phantom Units vest From the Start Date until the first quarter anniversary thereof |
0 | % | ||
At the first quarter anniversary of the Start Date |
6.25 | % | ||
Each full quarter thereafter |
an additional 6.25 | % | ||
Fourth anniversary of the Start Date |
100 | % |
PHANTOM UNITS CERTIFICATE
Page 1 of 4
200 (or 2%) of the Phantom Units vest From the November 28, 2011 until the first quarter anniversary thereof |
0 | % | ||
At the first quarter anniversary of November 28, 2011 |
9.68 | % | ||
Each full quarter thereafter |
9.68 | % | ||
Fourth anniversary of the Start Date |
100 | % |
In the event that you have been terminated by the Company for Cause prior to the date of a Change in Control, then the number of Vested Phantom Units shall be 0%. All Phantom Units which are not Vested Phantom Units on your Termination Date shall be forfeited.
Notwithstanding the foregoing, in the event you are still an employee of the Company upon the date of a Change in Control, then the number of Vested Phantom Units shall be equal to the sum of (i) the number of Vested Phantom Units as of the date of the Change in Control and (ii) 100% of the unvested Phantom Units as of the date of the Change in Control.
3. Purchase of Vested Phantom Units Upon the Termination Date
(a) Payment for Vested Phantom Units . If a Termination Date occurs prior to the occurrence of a Change in Control, then all of your Vested Phantom Units shall be paid out at the price determined in accordance with the provisions of Section 4 hereof (the Repurchase ).
4. Purchase Price for Vested Phantom Units
(a) Net Individual Transaction Proceeds or Repurchase Price .
(i) In the event you are still an employee of the Company upon the date of a Change of Control, the Net Individual Transaction Proceeds to be calculated for your Vested Phantom Units shall be equal to the positive difference between the sale price at the time of a Change of Control minus (i) all outstanding funded indebtedness of AGS as of the Change of Control, plus (ii) all cash and cash equivalents of AGS as of the Change of Control, and minus (iii) the Strike Price. Then the Purchase Price for your Phantom Units is the product of the percentage value of your Phantom Units and the Net Individual Transaction Proceeds. For example, if the Company is sold for $200 million and it has $102 million in debt and $2 million in cash, then the purchase price will be $200 million minus $100 million ($102 million - $2 million)). With a Strike Price Value of $56 million, your Net Individual Transaction Proceeds are $44 million ($100 million less $56 million). Assuming your 100 Phantom Units or 1% of the Net Individual Transaction Proceeds are fully vested, that leaves you with a payment of $440,000 (1% of $44 million); or
(ii) The Repurchase amount to be paid for your Vested Phantom Units pursuant to Section 3 shall be equal to the positive difference between (A) the product of (1) AGS earnings before interest, income taxes, depreciation and amortization (EBITDA) for the prior 12 months for which financial statements are available as of the Termination Date, and (2) five and one half (5.5) and (B) all outstanding funded indebtedness of AGS as of the Termination Date plus all cash and cash equivalents of
PHANTOM UNITS CERTIFICATE
Page 2 of 4
AGS as of the Termination Date multiplied by your Phantom Unit interest expressed as a percentage. For example, if the Companys prior 12 months EBITDA is $40 million and it has $102 million in debt and $2 million in cash, then the Repurchase Price will be $220 million (5.5 x $40 million) - $100 million ($102 million - $2 million) or $120 million less the Strike Price times your Phantom Unit percentage. With a Strike Price of $56 million, and assuming you had 100 Phantom Units or 1% vested, the Repurchase Price for your Phantom Units would be $640,000 (1% of $64 million ($120 million - $56 million)). However, if a Change of Control occurs within 18 months of your Termination Date, then the Repurchase amount will be equal to the amount calculated in Section 4(a)(i).
(b) Timing of Payment . The Repurchase amount for the Vested Phantom Units shall be paid at the option of the Company on the earlier to occur of (A) within five years of your Termination Date or (B) within 30 days after a Change of Control in a lump sum. If your Phantom Units were Repurchased within 18 months of a Change of Control and the amount you were paid is less than the amount that would have been calculated in Section 4(a)(i) then a catch up payment will be paid to you to bring you up to the amount that would have been paid in Section 4(a)(i) when such funds become available through any escrow or transaction contingency. In the event you are still an employee upon the date of a Change of Control, you will be paid the Purchase Price within 30 days of said Change of Control. Such amount shall be fixed and shall not be affected by any change in future value of the Company. All amounts payable to you shall be net of all required tax withholding.
5. General
(a) This Phantom Units Certificate together with the Plan (the terms of which are hereby incorporated by reference) are intended to be a final expression of the agreement between you and the Company and are intended to be a complete and exclusive statement of the agreement and understanding between you and the Company with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings relating to such subject matter other than those referred to herein and in the Plan.
(b) This Phantom Units Certificate shall not be construed as creating any contract for continued services between you and the Company or any of its subsidiaries and nothing herein contained shall give you the right to be retained as an employee of the Company or any of its subsidiaries.
(c) Any Phantom Unit Proceeds you may be eligible to receive under the Plan on account of a Change in Control shall be paid to you pursuant to Section 5 of the Plan.
THIS AGREEMENT SUPERSEDES ALL PREVIOUS AGREEMENTS, WRITTEN OR
ORAL, RELATING TO THE ABOVE SUBJECT MATTER, AND SHALL NOT BE
CHANGED ORALLY.
PHANTOM UNITS CERTIFICATE
Page 3 of 4
If this Phantom Units Certificate correctly states your understanding of the agreement between you and the Company, please countersign in the space provided below. If you have any questions regarding the Plan or this Phantom Units Certificate, please contact the Legal Department.
AGS HOLDINGS, LLC | ||
By: | /s/ ROBERT MIODUNSKI | |
ROBERT MIODUNSKI PRESIDENT |
AGREED TO AND ACCEPTED |
/s/ ROBERT MIODUNSKI |
Name: ROBERT MIODUNSKI |
ALPINE AGS, LLC | ||
By: | /s/ Graham Weaver | |
Graham Weaver An Authorized Signatory |
PHANTOM UNITS CERTIFICATE
Page 4 of 4
Exhibit 10.10
FIRST AMENDMENT TO PHANTOM UNITS GRANT
FIRST AMENDMENT TO PHANTOM UNITS GRANT (this First Amendment ), dated as of April 1, 2013 , by and between EMPLOYEE and AGS Holdings, LLC, Delaware limited liability company with a place of business located at 6680 Amelia Earhart Court, Las Vegas, NV 89119 (AGS).
RECIIALS :
WHEREAS, AGS previously granted certain Phantom Units to EMPLOYEE; and
WHEREAS, AGS and EMPLOYEE wish to amend the Phantom Units Grant on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Phantom Units Grant Strike Price Amendment
(a) Your Strike Price Value is $90,000,000 until January 1, 2014, at which time it shall increase to $115,000,000. The Strike Price Value shall be adjusted from time to time as follows: (i) the Strike Price Value shall be increased by any additional capital contributions made on the Outstanding AGS Units by the holders thereof after January 1, 2014 and (ii) the Strike Price Value shall be reduced by any distributions or redemption payments made on the Outstanding AGS Units (other than tax distributions as determined by the Board) prior to a Change in Control.
(b) This First Amendment is limited as specified and shall not constitute a modification or waiver of any other provision of the Phantom Units Grant or the Plan.
2. Counterparts: Facsimile . This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. This First Amendment may be executed via facsimile or other electronic transmissions.
IN WITNESS WHEREOF, each of the undersigned parties hereto has caused a counterpart of this First Amendment to be duly executed and delivered as of the date first above written.
AGS, LLC | EMPLOYEE | |||||||
SIGNED : |
/s/ ROBERT MIODUNSKI |
SIGNED: |
/s/ ROBERT MIODUNSKI |
|||||
ROBERT MIODUNSKI | PRINTED NAME: ROBERT MIODUNSKI | |||||||
CEO |
ALPINE AGS, LLC FOR AGS HOLDINGS, LLC |
||
By: | /s/ Graham Weaver | |
Graham Weaver An Authorized Signatory |
Exhibit 10.11
June 23,2011 |
|
Mr. Curt Mayer
Dear Curt:
We are pleased to make you the following offer to join American Gaming Systems (AGS or the Company). I am excited to work directly with you and hopefully create significant value for AGS and for you.
Position. You will be the Chief Financial Officer (CFO) and will report directly to the CEO. In this position you will be responsible for managing the Finance, Accounting, Human Resources, Information Technology, and Administrative functions for AGS. Primary responsibilities will include managing lender relationships; ensuring ongoing covenant compliance; proactively preparing business and financial analyses and budgets; developing and implementing a timely financial reporting process; managing HR and Administrative functions in a way that minimizes personnel risk; identifying, tracking and holding department managers accountable for meeting key operating metrics; working alongside the Operations team to implement and maintain the appropriate operational controls. The Finance, Accounting, HR, IT and Administrative teams will report to you along with other personnel as the business develops. This position is based in Las Vegas. This offer is contingent upon your start date no later than July 25, 2011 (Start Date).
Salary and Bonus. You will be paid a base salary at the annual rate of $275,000.00 payable in 26 installments in accordance with the Companys standard payroll practices for salaried employees. This salary and payment schedule will be subject to adjustment pursuant to the Companys employee compensation policies in effect from time to time.
You shall also receive a cash bonus of up to 100% of base salary based on the attainment of financial results and earnings targets to be determined for fiscal 2011 and subsequent years. The driver behind this plan will be Ebitda and other financial metrics to be determined that are significant to AGS future success. A copy of the 2011 Managerial Bonus Plan is attached.
Profits Interest. In conjunction with this employment offer, you will be entitled to a percentage of the gains in equity value of AGS in the event of a sale (Profits Interest). Profits Interest and pertinent financial information are documented in Exhibit 1.
Benefits and Vacations. You will be eligible to participate in the Companys medical plan. The Company provides basic medical insurance for all of Its employees and family. You also will be eligible for participation in the Companys 401k plan. Eligibility for the medical and 401-k plans will commence sixty (60) days after your Start Date. You will receive three weeks paid vacation annually. Vacation will accrue on a monthly basis. Availability of and /or participation in any of the referenced plans is subject to adjustment pursuant to the Companys policies and plans in effect and which may change from time to time.
2470 Saint Rose Parkway, Suite 210, Henderson, Nevada 89074 Phone: 702-722-6700 Fax: 702-722-6705
Non-Competition, Non-Disclosure and Non-Solicit Agreement. You will be required to sign the Companys non-Competition, Non-Disclosure and Non-Solicit Agreement, a copy of which must be signed and returned prior to your Start Date, as a condition precedent to your employment with the Company. The Non-competition portion of this Agreement shall remain in force for the same number of months of service up to a maximum of twelve months and the Non-solicit portion of the agreement shall remain in effect for 12 months following your departure from the Company.
Trade Secrets/Intellectual Property. The trade secrets and intellectual property developed by you or the Company while you are employed at AGS shall remain property of AGS.
Period of Employment. Your employment with the Company will be at will, meaning that either you or the Company will be entitled to terminate your employment at any time and for any reason, with or without cause. Any contrary representation that may have been made to you are superseded by this offer. Although your job duties, title, compensation and benefits as well as the Companys personnel policies and procedures may change from time to time, the at will nature of your employment may only be changed in an express written agreement signed by you and a duly authorized officer of the Company.
Outside Activities. While you render services to the Company, you will not engage in any other gainful employment, business or activity without the written consent of the Company.
Withholding Taxes. All forms of compensation referred to in this letter are subject to reduction to reflect applicable withholding and payroll taxes.
Entire Agreement. This letter and the Non-Competition, Non-Disclosure and Non-Solicit Agreement contain all of the terms of your employment with the Company and supersede any prior understanding or agreements, whether oral or written, between you and the Company.
Severance. The Company will provide six months of severance pay in the event you are terminated without cause Cause includes failure to correct underperformance after written notification from the CEO or Board, illegal fraudulent conduct, conviction of felony, a determination that your involvement with the Company would have a negative impact on the Companys ability to receive or retain any licenses, willful or material misrepresentation to the Company, CEO or Board relating to the business, assets, prospects, operation of the Company, or refusal to take any action as reasonably directed by the Board or any individual acting on behalf or at the direction of the Board. You must sign a standard release before the Company will make any severance payment.
Amendment and Governing Law. This agreement may not be amended or modified except by an express written agreement signed by you and a duly authorized officer of the Company. The terms of this letter agreement and the resolution of any disputes will be governed by Nevada law. You may indicate your agreement with these terms and accept this offer by signing and dating the original of this letter, as well as the Non-Competition, Non-Disclosure and Non-Solicit Agreement, and returning them to me by fax or email. As required by law, your employment with the Company is also contingent upon your providing legal proof of your identity and authorization to work in the United States. Additionally, your employment with the Company is contingent upon the successful completion of a standard background check to be initiated immediately upon your acceptance of this offer.
Curt, we are excited to have you join the AGS team. We look forward to continuing to build a great company.
Truly yours; | I have read and I accept this offer. | |||||
/s/ Bob Miodunski | /s/ Curt Mayer | |||||
Bob Miodunski | Curt Mayer | |||||
CEO | Date: | June 30, 2011 |
American Gaming Systems
Exhibit 1
In conjunction with this employment offer, you will be allocated 1% of the gain in equity value of AGS in a sale (Profits Interest). The strike price of the Profits Interest is based on a $56,000,000 equity valuation equating to a 5.5x multiple of 2009 EBITDA (see calculation below). The Profits Interest will vest 25% per year over four years; all of the Profits Interest shall be awarded based on tenure. You must be employed for the Profits Interest to vest If you are fired without cause you shall retain any vested Profits Interest If you are fired for cause you shall forfeit any vested Profits Interest. The strike price will be adjusted upward dollar-for-dollar for any new capital contributions. Profits Interest is subject to dilution. If AGS is sold, 100% of the unvested Profits Interest will automatically vest. The Profits Interest will be documented in a separate agreement to be executed within ninety days of your Start Date.
2009 Approximate P&L ($000s) |
||||
Revenue |
||||
Recurring |
$ | 62,000 | ||
Game Sales |
$ | 18,000 | ||
|
|
|||
Total Revenue |
$ | 80,000 | ||
EBITDA |
$ | 33,800 | ||
* | ||||
Multiple |
5.5x | |||
- | ||||
Net Debt |
$ | 129,900 | ||
= | ||||
Strike Price |
$ | 56,000 | ||
2009 Approximate Game Data |
||||
Number of Games |
7,700 | |||
Hold-Per Day |
$ | 115 - $120 |
In a sale of AGS, the following will determine the value of your Profits Interest:
(Enterprise Value Net Debt Strike Price) * 1.0% = Profits Interest
If AGS grows EBITDA to $50 million and sells at a 7x multiple in 3 years and retires debt to $50 million, Profits interest = [$50 mm * 7-$50 mm]*.01 =$3.0 million or $1.0 million per year.
Exhibit 10.12
FIRST AMENDMENT TO JUNE 23, 2011 EMPLOYMENT AGREEMENT
FIRST AMENDMENT TO THE JUNE 23, 2011 EMPLOYMENT AGREEMENT (this First Amendment ), dated as of March 18, 2013, by and between AGS Holdings, LLC, and AGS, LLC Delaware limited liability companies with a place of business located at 6680 Amelia Earhart Court, Las Vegas, NV 89119 (AGS) and Mr. Curt Mayer, an individual with an address of [REDACTED] (Mayer).
R E C I T A L S :
WHEREAS, AGS and Mayer entered into an Employment Agreement dated as of June 23, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the Employment Agreement ); and
WHEREAS, AGS and Mayer wish to amend the Employment Agreement on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Severance. Severance is hereby amended and increased to nine (9) months base monthly salary.
2. Phantom Units GrantStrike Price Amendment
(a) Your Strike Price Value is $90,000,000 until January 1, 2014, at which time it shall increase to $115,000,000. The Strike Price Value shall be adjusted from time to time as follows: (i) the Strike Price Value shall be increased by any additional capital contributions made on the Outstanding AGS Units by the holders thereof after January 1, 2014 and (ii) the Strike Price Value shall be reduced by any distributions or redemption payments made on the Outstanding AGS Units (other than tax distributions as determined by the Board) prior to a Change in Control.
3. Reaffirmation of Employment Agreement . This First Amendment shall be deemed to be an amendment to the Employment Agreement, and the Employment Agreement as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Employment Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Employment Agreement as amended hereby. This First Amendment is limited as specified and shall not constitute a modification or waiver of any other provision of the Employment Agreement.
4. Counterparts; Facsimile . This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. This First Amendment may be executed via facsimile or other electronic transmissions.
5. Governing Law . THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA WITHOUT REGARD TO THE CONFLICT OF LAWS RULES THEREOF.
IN WITNESS WHEREOF, each of the undersigned parties hereto has caused a counterpart of this First Amendment to be duly executed and delivered as of the date first above written.
AGS, LLC | ||
By: | /s/ ROBERT MIODUNSKI | |
ROBERT MIODUNSKI | ||
CEO |
||
CURT MAYER |
||
/s/ CURT MAYER |
||
CURT MAYER |
ALPINE AGS, LLC FOR AGS HOLDINGS, LLC |
||
By: | /s/ Graham Weaver | |
Graham Weaver An Authorized Signatory |
Exhibit 10.13
NON-DISCLOSURE, NON-SOLICITATION AND COVENANT NOT TO COMPETE
AGREEMENT
THIS NON-DISCLOSURE, NON-SOLICITATION AND COVENANT NOT TO COMPETE AGREEMENT (Agreement) is entered into on the day of October, 2010, by and between AGS LLC a Delaware Corporation (Company), and Curt Mayer (Employee).
Employee and Company have entered into a separate employment agreement of the same date and that agreement contains language in certain paragraphs that may be different than that contained in this document. In the event of any controversy in interpretation of either agreement, the language in the employment agreement shall supersede any language in this agreement.
In consideration of the Company employing Employee and the compensation to be paid to Employee during the course of his/her employment, Employee hereby agrees as follows:
1. Effective Date-Affiliates .
(a) This Agreement shall be effective as of the first day of employment with the Company.
(b) All references to Affiliates shall include American Gaming Systems, AGS Partners LLC , AGS Capital, LLC, AGS Holdings, LLC, GTNA Solutions, Corporation or any other entity acquired or organized by the Company during the course of the Employees employment with the Company.
2. Non-Disclosure, Non-Solicitation and Covenant Not to Compete .
(a) Non-Disclosure. Employee understands and acknowledges that Confidential Information (as defined herein), constitutes a valuable asset of Company and its Affiliates, and may not be converted to Employees own use. During the course of employment and thereafter, Employee shall hold in a fiduciary capacity for the benefit of Company all secret or confidential information, knowledge or data relating to Company or its Affiliates, and their respective businesses, that shall not be public knowledge (other than information which becomes public as a result of acts of Employee or his representatives in violation of this Agreement), including, without limitation, its products, programs, projects, promotions, marketing, business plans or practices, business operations, employees, research and development, intellectual property, customer/client information, matters subject to litigation, and technology or financial information of Company or its Affiliates (collectively referred to as Confidential Information), without the prior written consent of Company. In the event Employee is required by law or court order to disclose any Confidential Information, Employee shall promptly notify Company of such requirement and provide Company with a copy of any court order or of any law that requires such disclosure and, if Company so elects, to the extent permitted by law, provide Company an adequate opportunity, at its own expense, to contest such law or court order, prior to any such required disclosure by Employee.
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(b) Non-Solicitation.
(1) Employees. During the course of employment and for a two (2) year period thereafter, Employee shall not, for himself or any third party, alone or as a member of a partnership or limited liability company, or as an officer, director, shareholder or otherwise, directly or indirectly, solicit or contact any employee of Company or any Affiliate of Company, with a view to inducing or encouraging such employee to leave the employ of Company or its Affiliates, for the purpose of being employed at a company employing Employee, a employer affiliated with Company or any competitor of Company or any affiliate thereof.
(2) Client and Customers. Employee agrees that for a period of one (1) year after the termination of employment with the Company for any reason whatsoever, Employee shall not, on behalf of Employee or on behalf of any other individual, association or entity, call on any of the clients or customers of the Company or any affiliate of the Company for the purpose of soliciting or inducing any of such customers to acquire (or providing to any of such customers) any product or service provided by the Company or an affiliate of the Company, nor will Employee in any way, directly or indirectly, as agent or otherwise, in any other manner solicit, influence or encourage such customers to take away or to divert or direct their business to Employee or any other person or entity by or with which Employee is employed, associated, affiliated or otherwise related.
(c) Covenant Not to Compete. As a material inducement for Company to enter into this Agreement, during the course of employment and during a one (1) year period thereafter, Employee shall not directly or indirectly, engage or participate in any way in nor accept any such position or affiliation with, nor render any such services on behalf of, any Competing Business, notwithstanding the job title given to Employee by any Competing Business. For purposes of this Agreement a Competing Business shall mean any person or business engaged in the manufacturing and/or distribution of Class II and/or Class III electronic gaming devices and/or casino back office systems. If you are terminated without Cause as defined in your offer letter the Covenant Not to Compete portion of this Agreement shall terminate after six (6) months unless the Company continues to pay your base salary (per the normal Company payroll cycle) for six (6) months past the date of termination in exchange for an additional six (6) month extension of the Covenant Not to Compete.
(d) Acknowledgement. The parties acknowledge that Company would not have entered into this Agreement in the absence of the preceding reasonable restrictions in this Section 2, and Employee confirms that these restrictions do not and will not unduly impair his ability to make a living after the termination of his/her employment with Company, the purpose of which is to protect the goodwill and other legitimate business interests of Company. Employee acknowledges that the provisions of this Section 2 are reasonable and necessary for the
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protection of Company and that Company will be irrevocably damaged if such provisions are not specifically enforced. Accordingly, Employee agrees that, in addition to any other relief to which Company may be entitled in the form of actual or punitive damages, Company shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction (without posting a bond therefore) for the purpose of restraining Employee from any actual or threatened breach of such provisions. The provisions of this Section 2 shall survive the term of employment.
3. Prior Commitments . Employee has no other agreements, relationships, or commitments to any other person or entity that conflict with Employees obligations to the Company under this Agreement.
4. Proprietary Information or Trade Secrets of Others . Employee will not disclose to the Company or its Affiliates, or use, or induce the Company to use, any proprietary information or trade secrets of others. Employee represents and warrants that he/she has returned all property and Confidential Information belonging to all prior employers.
5. Delivery of Documents and Data Upon Termination . In the event of termination of Employees employment with the Company for any reason whatsoever, Employee agrees, promptly and without request, to deliver to and inform the Company of all documents and data pertaining to his/her employment, and the Confidential Information of the Company, whether prepared by Employee or otherwise coming into his/her possession or control. Employee will not retain any written or other tangible material, or copies thereof, containing any information concerning or disclosing any of the Confidential Information of the Company. Employee recognizes that such unauthorized taking of the Companys trade secrets can result in criminal penalties and civil liability under the Uniform Trade Secrets Act; and that willful misappropriation may result in fines and an award against Employee for damages as well as the Companys attorneys fees in collecting such damages, which shall be in addition to, and shall not supersede, the Companys available remedies pursuant to state and federal law.
6. Equitable Remedies . Employee recognizes and agrees that the violation, breach or threatened violation or breach of any term, provision, or condition of this Agreement may cause irreparable damage to the Company which is difficult to calculate, and that the award of any sum or damages may not be adequate relief to the Company. Employee therefore agrees that, in addition to all of the remedies available in the event of any actual or threatened violation or breach of this Agreement, the Company shall have the right to injunctive and other equitable relief. However, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver of or prohibition against the pursuit of other legal or equitable remedies in the event of the actual or threatened violation or breach of a provision of this Agreement.
7. Cumulative Remedies . Each and all of the several rights and remedies provided for in this Agreement shall be cumulative. No one right or remedy shall be exclusive of the others, or of any right or remedy allowed in law or in equity. No waiver or indulgence by the Company of any failure by Employee to keep or perform any promise or condition of this
-3-
Agreement shall be a waiver of any preceding or succeeding breach of the same, or any other promise or condition. No waiver by the Company of any right shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.
8. Attorneys Fees . If any action is necessary to enforce this Agreement, the prevailing party shall be entitled to recover its attorneys fees, costs, and expenses.
9. Material Condition of Employment . Employee acknowledges and agrees that the protections set forth in this Agreement are a material condition to his/her employment with and compensation by the Company.
10. Amendment and Binding Effect . This Agreement may not be amended except by an instrument in writing signed by both parties. This Agreement shall be binding on the heirs, executors, administrators, and other legal representatives and assigns of Employee, and is for the benefit of the Company and its successors and assigns.
11. Governing Law . The laws of the State of Nevada (without giving effect to choice of law or conflict of law principles) shall govern the validity, construction, performance and effect of this Agreement, except to the extent governed by federal law, irrespective of the fact that one or more of the parities now is, or may become, a resident or citizen of a different state or country. The parties hereby expressly submit to the personal jurisdiction of the court or arbitral forum located in Clark County, State of Nevada, and waive any objection or defense based on personal jurisdiction or venue that might otherwise be asserted to proceeding in such forum(s).
12. Entire Understanding . This Agreement expresses the entire understanding of the parties about the described subject matter.
13. Severability . If a court of competent jurisdiction holds any provision of this Agreement to be illegal, unenforceable, or invalid, in whole or in part, for any reason whatsoever, the validity and enforceability of the remaining provisions, or portions of them, will not be affected.
14. Employment at Will . Employment and compensation can be terminated, with or without cause, and with or without notice, at any time, at the option of the Company or the Employee. Nothing contained in this Confidentiality Agreement shall limit or otherwise alter the foregoing.
15. Headings . The headings in this Agreement are inserted for convenience only and are in no way intended to describe, define or limit the scope, intent or interpretation of this Agreement.
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AGS LLC | ||
By: | /s/ Robert Miodunski | |
Company | ||
/s/ Curt Mayer |
||
(Signature of Employee ) | ||
Curt Mayer |
||
Employee |
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Exhibit 10.14
AGS HOLDINGS, LLC
August 16, 2012
CURT MAYER
American Gaming Systems
6680 Amelia Earhart Court
Las Vegas, Nevada 89119
Dear CURT:
The Board of Managers of AGS Holdings, LLC (the Company ) has selected you to participate as a Covered Executive in the Companys Phantom Units Plan, as amended (the Plan ). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Plan and this Phantom Units Certificate shall be subject to and governed by all the terms and conditions of the Plan. A copy of the Plan is attached as Exhibit A to this Phantom Units Certificate.
1. Phantom Units Grant
Your Strike Price Value is $56,000,000. The Strike Price Value shall be adjusted from time to time as follows: (i) the Strike Price Value shall be increased by any additional capital contributions made on the Outstanding AGS Units by the holders thereof after April 30, 2010 and (ii) the Strike Price Value shall be reduced by any distributions or redemption payments made on the Outstanding AGS Units (other than tax distributions as determined by the Board) prior to a Change in Control.
Your number of Phantom Units is 100, which represents 1% of all Transaction Proceeds on the Outstanding AGS Units, after deducting your Strike Price Value.
2. Vesting of Phantom Units
(a) Time Vested Phantom Units . Your Phantom Units shall vest over time. The number of Phantom Units which are then vested ( Vested Phantom Units ) shall equal the product of (i) 100 and (ii) the following percentage based on your number of years of service to the Company and/or AGS from the date you became an employee of AGS (the Start Date ), provided that all additional vesting shall cease on the date on which you Separate from Service from AGS (the Termination Date ):
From the Start Date until the first quarter anniversary thereof |
0 | % | ||
At the first quarter anniversary of the Start Date |
6.25 | % | ||
Each full quarter thereafter |
an additional 6.25 | % | ||
Fourth anniversary |
100 | % |
In the event that you have been terminated by the Company for Cause prior to the date of a Change in Control, then the number of Vested Phantom Units shall be 0%.
PHANTOM UNITS CERTIFICATE
Page 1 of 4
All Phantom Units which are not Vested Phantom Units on your Termination Date shall be forfeited.
Notwithstanding the foregoing, in the event you are still an employee of the Company upon the date of a Change in Control, then the number of Vested Phantom Units shall be equal to the sum of (i) the number of Vested Phantom Units as of the date of the Change in Control and (ii) 100% of the unvested Phantom Units as of the date of the Change in Control.
3. Purchase of Vested Phantom Units Upon the Termination Date
(a) Payment for Vested Phantom Units . If a Termination Date occurs prior to the occurrence of a Change in Control, then all of your Vested Phantom Units shall be paid out at the price determined in accordance with the provisions of Section 4 hereof (the Repurchase ).
4. Purchase Price for Vested Phantom Units
(a) Net Individual Transaction Proceeds or Repurchase Price .
(i) In the event you are still an employee of the Company upon the date of a Change of Control, the Net Individual Transaction Proceeds to be calculated for your Vested Phantom Units shall be equal to the positive difference between the sale price at the time of a Change of Control minus (i) all outstanding funded indebtedness of AGS as of the Change of Control, plus (ii) all cash and cash equivalents of AGS as of the Change of Control, and minus (iii) the Strike Price. Then the Purchase Price for your Phantom Units is the product of the percentage value of your Phantom Units and the Net Individual Transaction Proceeds. For example, if the Company is sold for $200 million and it has $102 million in debt and $2 million in cash, then the purchase price will be $200 million minus $100 million ($102 million$2 million)). With a Strike Price Value of $56 million, your Net Individual Transaction Proceeds are $44 million ($100 million less $56 million). Assuming your 100 Phantom Units or 1% of the Net Individual Transaction Proceeds are fully vested, that leaves you with a payment of $440,000 (1% of $44 million); or
(ii) The Repurchase amount to be paid for your Vested Phantom Units pursuant to Section 3 shall be equal to the positive difference between (A) the product of (1) AGS earnings before interest, income taxes, depreciation and amortization (EBITDA) for the prior 12 months for which financial statements are available as of the Termination Date, and (2) five and one half (5.5) and (B) all outstanding funded indebtedness of AGS as of the Termination Date plus all cash and cash equivalents of AGS as of the Termination Date multiplied by your Phantom Unit interest expressed as a percentage. For example, if the Companys prior 12 months EBITDA is $40 million and it has $102 million in debt and $2 million in cash, then the Repurchase Price will be $220 million (5.5 x $40 million)$100 million ($102 million$2 million) or $120 million less the Strike Price times your Phantom Unit percentage. With a Strike Price of $56 million, and assuming you had 100 Phantom Units or 1% vested, the Repurchase Price for your Phantom Units would be $640,000 (1% of $64 million ($120 million$56 million)). However, if a Change of Control occurs within 18 months of your Termination Date, then the Repurchase amount will be equal to the amount calculated in Section 4(a)(i).
PHANTOM UNITS CERTIFICATE
Page 2 of 4
(b) Timing of Payment . The Repurchase amount for the Vested Phantom Units shall be paid at the option of the Company on the earlier to occur of (A) within five years of your Termination Date or (B) within 30 days after a Change of Control in a lump sum. If your Phantom Units were Repurchased within 18 months of a Change of Control and the amount you were paid is less than the amount that would have been calculated in Section 4(a)(i) then a catch up payment will be paid to you to bring you up to the amount that would have been paid in Section 4(a)(i) when such funds become available through any escrow or transaction contingency. In the event you are still an employee upon the date of a Change of Control, you will be paid the Purchase Price within 30 days of said Change of Control. Such amount shall be fixed and shall not be affected by any change in future value of the Company. All amounts payable to you shall be net of all required tax withholding.
5. General
(a) This Phantom Units Certificate together with the Plan (the terms of which are hereby incorporated by reference) are intended to be a final expression of the agreement between you and the Company and are intended to be a complete and exclusive statement of the agreement and understanding between you and the Company with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings relating to such subject matter other than those referred to herein and in the Plan.
(b) This Phantom Units Certificate shall not be construed as creating any contract for continued services between you and the Company or any of its subsidiaries and nothing herein contained shall give you the right to be retained as an employee of the Company or any of its subsidiaries.
(c) Any Phantom Unit Proceeds you may be eligible to receive under the Plan on account of a Change in Control shall be paid to you pursuant to Section 5 of the Plan.
THIS AGREEMENT SUPERSEDES ALL PREVIOUS AGREEMENTS, WRITTEN OR
ORAL, RELATING TO THE ABOVE SUBJECT MATTER, AND SHALL NOT BE
CHANGED ORALLY.
If this Phantom Units Certificate correctly states your understanding of the agreement between you and the Company, please countersign in the space provided below. If you have any questions regarding the Plan or this Phantom Units Certificate, please contact the Legal Department.
PHANTOM UNITS CERTIFICATE
Page 3 of 4
AGS HOLDINGS, LLC | ||
By: | /s/ ROBERT MIODUNSKI | |
ROBERT MIODUNSKI PRESIDENT |
AGREED TO AND ACCEPTED | ||
/s/ CURT MAYER | ||
Name: CURT MAYER |
ALPINE AGS, LLC | ||
By: | /s/ Graham Weaver | |
Graham Weaver An Authorized Signatory |
PHANTOM UNITS CERTIFICATE
Page 4 of 4
Exhibit 10.15
September 28,2010
Dear Paul:
We are thrilled to make you the following offer to join AGS LLC (AGS or the Company). I speak for everyone at Alpine and AGS when I say that we think very highly of you, and we are confident that you will be successful at AGS. On a personal note, Im very excited to work with you again and hopefully create the same value that we did in our former assignment.
Position . You will be the Vice President of Business Development and will report directly to the CEO. Primary responsibilities will include optimizing AGS sales organization (building the team, prioritizing markets, assigning territories, developing quotas, implementing sales systems and commission plans), developing AGS existing markets (maximizing HPD and return on capital), prioritizing and opening new markets, communicating with customers, managing all promotion activities, developing content direction based on market data and customer feedback, prioritizing content, working closely with developers and giving insight on customer buying habits and end user usage habits, developing strategic alliances and investigating potential merger and acquisition opportunities. Your geographic focus will be North America initially and expand to the international markets as our product line and organization develops. This offer is contingent on your starting no later than October 4, 2010 (Start Date).
Salary & Commission . You will be paid a base compensation at the annual rate of $275,000 payable in 26 installments in accordance with the Companys standard payroll practices for salaried employees. This salary and payment schedule will be subject to adjustment pursuant to the Companys employee compensation policies in effect from time to time. Your 2010 salary will be prorated based on your Start Date.
You shall also receive a commission paid in cash based on the bonus plan as outlined in Exhibit I. Your 2010 commission bonus will be paid based on sales signed after your Start Date. This bonus program shall be in place through 2011 (assuming you are still employed with AGS) after which you, the Chairman, and CEO shall determine an appropriate bonus plan based on objectives at that time.
In addition, you will receive a one-time signing bonus of $50,000 payable within 10 days of your start date assuming you commence employment on or before October 4, 2010. In the event that your employment with the Company ceases for any reason prior to October 3, 2011, for reasons other than death or long term disability, the signing bonus amount of $50,000 shall be due and recoverable from any amounts owed to you by the Company and any residual shall be due and payable by you to the Company within 30 days of your termination date.
Profits Interest . In conjunction with this employment offer, you will be entitled to a percentage of the gains in equity value of AGS in a sale (Profits Interest). Profits Interest and pertinent financial information are documented in Exhibit 2.
Performance Reviews / Quarterly goals . Each quarter, you and the CEO will outline/update your portions of the annual plan and your quarterly goals. You will receive an annual performance-based review, or more frequently at the discretion of the CEO.
Benefits & Vacation . You will be eligible to participate in the Companys medical plan. The Company provides basic medical insurance for all of its employees and family. You also will be eligible for participation in the Companys 401-K plan. Eligibility for the medical and 401-K plans will commence sixty (60) days after your Start Date. You will receive three weeks paid vacation annually. Vacation will accrue on a monthly basis. Availability of and/or participation in any of the referenced plans is subject to adjustment pursuant to the Companys policies and plans in effect and which may change from time to time.
Non-Competition, Non-Disclosure and Non-Solicit Agreement . You will be required to sign the Companys Non-Competition, Non-Disclosure and Non-Solicit Agreement, a copy of which must be signed and returned prior to your Start Date, as a condition precedent to your employment with the Company. The Non-competition and Non-Solicit portions of this Agreement shall remain in effect for 12 months following your departure from the Company.
Confidential | AGS LLC | 1 |
Trade Secrets/Intellectual Property . The trade secrets and intellectual property developed by you or the Company while you are at AGS shall remain property of AGS.
Period of Employment . Your employment with the Company will be at will, meaning that either you or the Company will be entitled to terminate your employment at any time and for any reason, with or without cause. Any contrary representations that may have been made to you are superseded by this offer. Although your job duties, title, compensation and benefits, as well as the Companys personnel policies and procedures, may change from time to time, the at will nature of your employment may only be changed in an express written agreement signed by you and a duly authorized officer of the Company.
Outside Activities . While you render services to the Company, you will not engage in any other gainful employment, business or activity without the written consent of the Company.
Withholding Taxes . All forms of compensation referred to in this letter are subject to reduction to reflect applicable withholding and payroll taxes.
Entire Agreement . This letter and the Non-competition, Non-Disclosure and Non-Solicit Agreement contain all of the terms of your employment with the Company and supersede any prior understandings or agreements, whether oral or written, between you and the Company.
Severance . The Company will provide one year severance in the event you are terminated without cause. Cause includes failure to correct underperformance after written notification from the CEO or Board, illegal fraudulent conduct, conviction of felony, a determination that your involvement with the company would have a negative impact on the Companys ability to receive or retain any licenses, willful or material misrepresentation to the Company, CEO or Board relating to the business, assets, prospects, or operations of the Company, or refusal to take any action as reasonably directed by the Board or any individual acting on behalf or at the direction of the Board. Company can defer severance payment if payment of such severance would cause an event of default under the companys credit facilities. You must sign a standard release before the company will make any severance payment.
Amendment and Governing Law . This agreement may not be amended or modified except by an express written agreement signed by you and a duly authorized officer of the Company. The terms of this letter agreement and the resolution of any disputes will be governed by Illinois law.
You may indicate your agreement with these terms and accept this offer by signing and dating the original of this letter, as well as the Non-Competition, Non-Disclosure and Non-Solicit Agreement, and returning them to me by fax or email. As required by law, your employment with the Company is also contingent upon your providing legal proof of your identity and authorization to work in the United States. We would like to have this completed by September 24, 2010.
Paul, we are very excited to have you join our team. We look forward to continuing to build a great company together.
Very truly yours, | I have read and accept this offer. | |||
/s/ Bob Miodunski | By: | /s/ Paul Lofgren | ||
Bob Miodunski | Paul Lofgren | |||
Chairman and Interim CEO AGS, LLC |
Dated: 9/30/10 |
Confidential | AGS LLC | 2 |
Exhibit 1
Your annual commission bonus will be additive based on the 3 components outlined below. Your 2010 commission bonus will be paid based on sales and game placements signed after your Start Date. Your total cash compensation including base salary and commissions/bonuses will be capped at $1,000,000 per year, subject to the CEOs discretion, with the 2010 cap prorated based on your Start Date.
Commission #1 (excluding OK and IL VLT markets) = (Game Sale Gross Profit + Recurring Revenue Games Gross ProfitCost of Salesforce) * X%
Game Sale Gross Profit = Net revenuecost of goods sold (i.e. machine, servers, peripherals, etc.)
Recurring Revenue Games Gross Profit = Recurring revenue1/5 machine cost
Cost of Sales Force = (Salary of sales personnel and your base salary) + (all 3rd party sales commissions) + (travel, entertainment, advertising and promotional expense). OK and IL sales force costs shall be excluded for purposes of this calculation. Your commissions/bonuses and sales commissions for your staff are excluded as well.
Bonus Amount = 0.25% of Gross Profit up to $7,500,000
1.0% of Gross Profit from $7,500,000 to $11,750,000
2.5% of Gross Profit from $11,750,000 to $15,750,000
3.5% of Gross Profit above $15,750,000
Your 2010 plan will be based on a flat $200 per game based on the above criteria.
Commission #2 - 2011AGS Executive Bonus Plan- You will be eligible to participate in the AGS Executive Bonus Plan. This plan will be in place prior to the commencement of 2011 and will have a target of $50,000 at plan, a strike point of 80% of plan and a max bonus amount of $100,000 at a multiple of plan to be determined. All direct reports to the CEO will be on this plan. The driver behind this plan will be Ebitda and one other financial metric to be determined that is significant to AGS future success.
Commission #3 Business Development- You will be eligible to receive up to $50,000 based on the CEOs subjective evaluation of your performance in developing new markets, developing strategic alliances, identifying strategic acquisitions, and identifying other opportunities that contribute to the overall value of AGS. In addition, at the discretion of the CEO, individual initiatives that occur as a result of your efforts might be subject to incremental bonus amounts depending solely on the CEOs assessment of your contribution and the ultimate impact on AGS value.
All bonus amounts to be paid within two weeks of receipt of audited statements for the fiscal year.
Confidential | AGS LLC | 3 |
Exhibit 1 (cont.)
Confidential | AGS LLC | 4 |
Exhibit 2
In conjunction with this employment offer, you will be allocated 1% of the gain in equity value of AGS in a sale (Profits Interest). The strike price of the Profits Interest is based on a $56,000,000 equity valuation equating to a 5.5x multiple of 2009 EBITDA (see calculation below). The Profits Interest will vest 25% per year over four years; all of the Profits Interest shall be awarded based on tenure. You must be employed for the Profits Interest to vest. If you are fired without cause you shall retain any vested Profits Interest. If you are fired for cause you shall forfeit any vested Profits Interest The strike price will be adjusted upward dollar-for-dollar for any new capital contributions. Profits Interest is subject to dilution. If AGS is sold, 100% of the unvested Profits Interest will automatically vest. The Profits Interest will be documented in a separate agreement to be executed within ninety days of your Start Date.
2009 Approximate P&L ($000s) |
||||
Revenue Recurring |
$ | 62,000 | ||
Game Sales |
$ | 18,000 | ||
Total Revenue |
$ | 80,000 | ||
EBITDA |
$ | 33,800 | ||
* | ||||
Multiple |
5.5x | |||
- | ||||
Net Debt |
$ | 129,900 | ||
= | ||||
Strike Price |
$ | 56,000 | ||
2009 Approximate Game Data |
||||
Number of Games |
7,700 | |||
Hold-Per Day |
$ | 115 - $120 |
In a sale of AGS, the following will determine the value of your Profits Interest:
(Enterprise Value Net Debt Strike Price) * 1,0% = Profits Interest
If AGS grows EBITDA to $50 million and sells at a 7x multiple in 3 years and retires debt to $50 million, Profits interest = [$50 mm * 7 - $50 mm]*.01 = $3.0 million or $1.0 million per year.
Confidential | AGS LLC | 5 |
Exhibit 10.16
AGS HOLDINGS, LLC
August 16, 2012
PAUL LOFGREN
American Gaming Systems
6680 Amelia Earhart Court
Las Vegas, Nevada 89119
Dear PAUL:
The Board of Managers of AGS Holdings, LLC (the Company) has selected you to participate as a Covered Executive in the Companys Phantom Units Plan, as amended (the Plan) . Capitalized terms used but not defined herein shall have the meanings given to such terms in the Plan and this Phantom Units Certificate shall be subject to and governed by all the terms and conditions of the Plan. A copy of the Plan is attached as Exhibit A to this Phantom Units Certificate.
1. Phantom Units Grant
Your Strike Price Value is $56,000,000. The Strike Price Value shall be adjusted from time to time as follows: (i) the Strike Price Value shall be increased by any additional capital contributions made on the Outstanding AGS Units by the holders thereof after April 30, 2010 and (ii) the Strike Price Value shall be reduced by any distributions or redemption payments made on the Outstanding AGS Units (other than tax distributions as determined by the Board) prior to a Change in Control.
Your number of Phantom Units is 100, which represents 1% of all Transaction Proceeds on the Outstanding AGS Units, after deducting your Strike Price Value.
2. Vesting of Phantom Units
(a) Time Vested Phantom Units . Your Phantom Units shall vest over time. The number of Phantom Units which are then vested (Vested Phantom Units) shall equal the product of (i) 100 and (ii) the following percentage based on your number of years of service to the Company and/or AGS from the date you became an employee of AGS (the Start Date), provided that all additional vesting shall cease on the date on which you Separate from Service from AGS (the Termination Date):
From the Start Date until the first quarter anniversary thereof |
0 | % | ||
At the first quarter anniversary of the Start Date |
6.25 | % | ||
Each full quarter thereafter |
an additional 6.25 | % | ||
Fourth anniversary |
100 | % |
In the event that you have been terminated by the Company for Cause prior to the date of a Change in Control, then the number of Vested Phantom Units shall be 0%.
PHANTOM UNITS CERTIFICATE
Page 1 of 4
All Phantom Units which are not Vested Phantom Units on your Termination Date shall be forfeited.
Notwithstanding the foregoing, in the event you are still an employee of the Company upon the date of a Change in Control, then the number of Vested Phantom Units shall be equal to the sum of (i) the number of Vested Phantom Units as of the date of the Change in Control and (ii) 100% of the unvested Phantom Units as of the date of the Change in Control.
3. Purchase of Vested Phantom Units Upon the Termination Date
(a) Payment for Vested Phantom Units . If a Termination Date occurs prior to the occurrence of a Change in Control, then all of your Vested Phantom Units shall be paid out at the price determined in accordance with the provisions of Section 4 hereof (the Repurchase).
4. Purchase Price for Vested Phantom Units
(a) Net Individual Transaction Proceeds or Repurchase Price .
(i) In the event you are still an employee of the Company upon the date of a Change of Control, the Net Individual Transaction Proceeds to be calculated for your Vested Phantom Units shall be equal to the positive difference between the sale price at the time of a Change of Control minus (i) all outstanding funded indebtedness of AGS as of the Change of Control, plus (ii) all cash and cash equivalents of AGS as of the Change of Control, and minus (iii) the Strike Price. Then the Purchase Price for your Phantom Units is the product of the percentage value of your Phantom Units and the Net Individual Transaction Proceeds. For example, if the Company is sold for $200 million and it has $102 million in debt and $2 million in cash, then the purchase price will be $200 million minus $100 million ($102 million$2 million)). With a Strike Price Value of $56 million, your Net Individual Transaction Proceeds are $44 million ($100 million less $56 million). Assuming your 100 Phantom Units or 1% of the Net Individual Transaction Proceeds are fully vested, that leaves you with a payment of $440,000 (1% of $44 million); or
(ii) The Repurchase amount to be paid for your Vested Phantom Units pursuant to Section 3 shall be equal to the positive difference between (A) the product of (1) AGS earnings before interest, income taxes, depreciation and amortization (EBITDA) for the prior 12 months for which financial statements are available as of the Termination Date, and (2) five and one half (5.5) and (B) all outstanding funded indebtedness of AGS as of the Termination Date plus all cash and cash equivalents of AGS as of the Termination Date multiplied by your Phantom Unit interest expressed as a percentage. For example, if the Companys prior 12 months EBITDA is $40 million and it has $102 million in debt and $2 million in cash, then the Repurchase Price will be $220 million (5.5 x $40 million) - $100 million ($102 million - $2 million) or $120 million less the Strike Price times your Phantom Unit percentage. With a Strike Price of $56 million, and assuming you had 100 Phantom Units or 1% vested, the Repurchase Price for your Phantom Units would be $640,000 (1% of $64 million ($120 million - $56 million)). However, if a Change of Control occurs within 18 months of your Termination Date, then the Repurchase amount will be equal to the amount calculated in Section 4(a)(i).
PHANTOM UNITS CERTIFICATE
Page 2 of 4
(b) Timing of Payment . The Repurchase amount for the Vested Phantom Units shall be paid at the option of the Company on the earlier to occur of (A) within five years of your Termination Date or (B) within 30 days after a Change of Control in a lump sum. If your Phantom Units were Repurchased within 18 months of a Change of Control and the amount you were paid is less than the amount that would have been calculated in Section 4(a)(i) then a catch up payment will be paid to you to bring you up to the amount that would have been paid in Section 4(a)(i) when such funds become available through any escrow or transaction contingency. In the event you are still an employee upon the date of a Change of Control, you will be paid the Purchase Price within 30 days of said Change of Control. Such amount shall be fixed and shall not be affected by any change in future value of the Company. All amounts payable to you shall be net of all required tax withholding.
5. General
(a) This Phantom Units Certificate together with the Plan (the terms of which are hereby incorporated by reference) are intended to be a final expression of the agreement between you and the Company and are intended to be a complete and exclusive statement of the agreement and understanding between you and the Company with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings relating to such subject matter other than those referred to herein and in the Plan.
(b) This Phantom Units Certificate shall not be construed as creating any contract for continued services between you and the Company or any of its subsidiaries and nothing herein contained shall give you the right to be retained as an employee of the Company or any of its subsidiaries.
(c) Any Phantom Unit Proceeds you may be eligible to receive under the Plan on account of a Change in Control shall be paid to you pursuant to Section 5 of the Plan.
THIS AGREEMENT SUPERSEDES ALL PREVIOUS AGREEMENTS, WRITTEN OR
ORAL, RELATING TO THE ABOVE SUBJECT MATTER, AND SHALL NOT BE
CHANGED ORALLY.
If this Phantom Units Certificate correctly states your understanding of the agreement between you and the Company, please countersign in the space provided below. If you have any questions regarding the Plan or this Phantom Units Certificate, please contact the Legal Department.
PHANTOM UNITS CERTIFICATE
Page 3 of 4
AGS HOLDINGS, LLC | ||
By: | /s/ ROBERT MIODUNSKI | |
ROBERT MIODUNSKI PRESIDENT |
AGREED TO AND ACCEPTED | ||
/s/ PAUL LOFGREN | ||
Name: PAUL LOFGREN |
ALPINE AGS, LLC | ||
By: | /s/ Graham Weaver | |
Graham Weaver An Authorized Signatory |
PHANTOM UNITS CERTIFICATE
Page 4 of 4
Exhibit 10.17
FIRST AMENDMENT TO PHANTOM UNITS GRANT
FIRST AMENDMENT TO PHANTOM UNITS GRANT (this First Amendment ), dated as of April 1, 2013, by and between EMPLOYEE and AGS Holdings, LLC, Delaware limited liability company with a place of business located at 6680 Amelia Earhart Court, Las Vegas, NV 89119 (AGS).
RECITALS:
WHEREAS, AGS previously granted certain Phantom Units to EMPLOYEE; and
WHEREAS, AGS and EMPLOYEE wish to amend the Phantom Units Grant on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Phantom Units Grant - Strike Price Amendment
(a) Your Strike Price Value is $90,000,000 until January 1, 2014, at which time it shall increase to $115,000,000. The Strike Price Value shall be adjusted from time to time as follows: (i) the Strike Price Value shall be increased by any additional capital contributions made on the Outstanding AGS Units by the holders thereof after January 1, 2014 and (ii) the Strike Price Value shall be reduced by any distributions or redemption payments made on the Outstanding AGS Units (other than tax distributions as determined by the Board) prior to a Change In Control.
(b) This First Amendment is limited as specified and shall not constitute a modification or waiver of any other provision of the Phantom Units Grant or the Plan.
2. Counterparts: Facsimile . This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. This First Amendment may be executed via facsimile or other electronic transmissions.
IN WITNESS WHEREOF, each of the undersigned parties hereto has caused a counterpart of this First Amendment to be duly executed and delivered as of the date first above written.
AGS, LLC |
EMPLOYEE Paul Lofgren | |
SIGNED: /s/ ROBERT MIODUNSKI |
SIGNED: /s/ Paul Lofgren | |
ROBERT MIODUNSKI |
PRINTED NAME: Paul Lofgren | |
CEO |
ALPINE AGS, LLC FOR AGS HOLDINGS, LLC |
||
By: |
/s/ GrahamWeaver | |
GrahamWeaver | ||
An Authorized Signatory |
Exhibit 10.18
$130,000,000
CREDIT AGREEMENT
dated as of August 15, 2012
among
AGS LLC,
as Borrower,
AGS CAPITAL, LLC,
AGS PARTNERS, LLC,
and
THE OTHER GUARANTORS PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO
and
UBS SECURITIES LLC,
as Arranger, Bookmanager and Syndication Agent,
and
UBS AG, STAMFORD BRANCH,
as Administrative Agent and Collateral Agent
TABLE OF CONTENTS
Section |
Page | |||||
ARTICLE I |
|
|||||
DEFINITIONS |
|
|||||
SECTION 1.01 |
Defined Terms | 1 | ||||
SECTION 1.02 |
Classification of Term Loans and Borrowings | 35 | ||||
SECTION 1.03 |
Terms Generally | 35 | ||||
SECTION 1.04 |
Accounting Terms; GAAP | 35 | ||||
SECTION 1.05 |
Resolution of Drafting Ambiguities | 35 | ||||
ARTICLE II |
|
|||||
THE CREDITS |
|
|||||
SECTION 2.01 |
Commitments | 36 | ||||
SECTION 2.02 |
Term Loans | 36 | ||||
SECTION 2.03 |
Borrowing Procedure | 37 | ||||
SECTION 2.04 |
Evidence of Debt; Repayment of Term Loans | 38 | ||||
SECTION 2.05 |
Fees | 38 | ||||
SECTION 2.06 |
Interest on Term Loans | 39 | ||||
SECTION 2.07 |
Termination and Reduction of Commitments | 40 | ||||
SECTION 2.08 |
Interest Elections | 40 | ||||
SECTION 2.09 |
Amortization of Term Borrowings | 41 | ||||
SECTION 2.10 |
Optional and Mandatory Prepayments of Term Loans | 41 | ||||
SECTION 2.11 |
Alternate Rate of Interest | 45 | ||||
SECTION 2.12 |
Yield Protection | 45 | ||||
SECTION 2.13 |
Breakage Payments | 46 | ||||
SECTION 2.14 |
Payments Generally; Pro Rata Treatment; Sharing of Setoffs | 46 | ||||
SECTION 2.15 |
Taxes | 48 | ||||
SECTION 2.16 |
Mitigation Obligations; Replacement of Lenders | 50 | ||||
SECTION 2.17 |
Defaulting Lenders | 51 | ||||
ARTICLE III |
|
|||||
REPRESENTATIONS AND WARRANTIES |
|
|||||
SECTION 3.01 |
Organization; Powers | 52 | ||||
SECTION 3.02 |
Authorization; Enforceability | 53 | ||||
SECTION 3.03 |
No Conflicts | 53 | ||||
SECTION 3.04 |
Financial Statements; Projections | 53 | ||||
SECTION 3.05 |
Properties | 54 | ||||
SECTION 3.06 |
Intellectual Property | 55 | ||||
SECTION 3.07 |
Equity Interests and Subsidiaries | 55 | ||||
SECTION 3.08 |
Litigation; Compliance with Laws | 56 | ||||
SECTION 3.09 |
Agreements | 56 |
-i-
Section |
Page | |||||
SECTION 3.10 |
Federal Reserve Regulations | 56 | ||||
SECTION 3.11 |
Investment Company Act | 56 | ||||
SECTION 3.12 |
Use of Proceeds | 57 | ||||
SECTION 3.13 |
Taxes | 57 | ||||
SECTION 3.14 |
No Material Misstatements | 57 | ||||
SECTION 3.15 |
Labor Matters | 57 | ||||
SECTION 3.16 |
Solvency | 57 | ||||
SECTION 3.17 |
Employee Benefit Plans | 58 | ||||
SECTION 3.18 |
Environmental Matters | 58 | ||||
SECTION 3.19 |
Insurance | 59 | ||||
SECTION 3.20 |
Security Documents | 60 | ||||
SECTION 3.21 |
Anti-Terrorism Law | 61 | ||||
SECTION 3.22 |
Anti-Corruption | 61 | ||||
ARTICLE IV |
|
|||||
CONDITIONS TO CREDIT EXTENSIONS |
|
|||||
SECTION 4.01 |
Conditions to Initial Credit Extension | 61 | ||||
SECTION 4.02 |
Conditions to Extensions of Delayed Draw Term Loans | 65 | ||||
SECTION 4.03 |
Conditions to All Credit Extensions | 65 | ||||
ARTICLE V |
|
|||||
AFFIRMATIVE COVENANTS |
|
|||||
SECTION 5.01 |
Financial Statements, Reports, etc. | 66 | ||||
SECTION 5.02 |
Litigation and Other Notices | 69 | ||||
SECTION 5.03 |
Existence; Businesses and Properties | 69 | ||||
SECTION 5.04 |
Insurance | 70 | ||||
SECTION 5.05 |
Obligations and Taxes | 71 | ||||
SECTION 5.06 |
Employee Benefits | 72 | ||||
SECTION 5.07 |
Maintaining Records; Access to Properties and Inspections; Annual Meetings | 72 | ||||
SECTION 5.08 |
Use of Proceeds | 72 | ||||
SECTION 5.09 |
Compliance with Environmental Laws; Environmental Reports | 72 | ||||
SECTION 5.10 |
Maintenance of Ratings | 73 | ||||
SECTION 5.11 |
Additional Collateral; Additional Guarantors | 73 | ||||
SECTION 5.12 |
Security Interests; Further Assurances | 74 | ||||
SECTION 5.13 |
Information Regarding Collateral | 75 | ||||
SECTION 5.14 |
Affirmative Covenants with Respect to Leases | 75 | ||||
SECTION 5.15 |
Nevada Gaming Approvals | 76 | ||||
ARTICLE VI |
|
|||||
NEGATIVE COVENANTS |
|
|||||
SECTION 6.01 |
Indebtedness | 76 | ||||
SECTION 6.02 |
Liens | 77 |
-ii-
Section |
Page | |||||
SECTION 6.03 |
Sale and Leaseback Transactions | 80 | ||||
SECTION 6.04 |
Investment, Loan and Advances | 80 | ||||
SECTION 6.05 |
Mergers and Consolidations | 81 | ||||
SECTION 6.06 |
Asset Sales | 82 | ||||
SECTION 6.07 |
Acquisitions | 82 | ||||
SECTION 6.08 |
Dividends | 83 | ||||
SECTION 6.09 |
Transactions with Affiliates | 83 | ||||
SECTION 6.10 |
Financial Covenants | 85 | ||||
SECTION 6.11 |
Prepayments of Other Indebtedness; Modifications of Organizational Documents and Other Documents, etc. | 86 | ||||
SECTION 6.12 |
Limitation on Certain Restrictions on Subsidiaries | 87 | ||||
SECTION 6.13 |
Limitation on Issuance of Capital Stock | 88 | ||||
SECTION 6.14 |
Limitation on Creation of Subsidiaries | 88 | ||||
SECTION 6.15 |
Business | 88 | ||||
SECTION 6.16 |
Limitation on Accounting Changes | 88 | ||||
SECTION 6.17 |
Fiscal Year | 89 | ||||
SECTION 6.18 |
No Further Negative Pledge | 89 | ||||
SECTION 6.19 |
Anti-Terrorism Law; Anti-Money Laundering | 89 | ||||
SECTION 6.20 |
Embargoed Person | 89 | ||||
SECTION 6.21 |
Use of Proceeds | 90 | ||||
SECTION 6.22 |
Anti-Bribery | 90 | ||||
SECTION 6.23 |
Borrower Equity Interests | 90 | ||||
ARTICLE VII |
|
|||||
GUARANTEE |
|
|||||
SECTION 7.01 |
The Guarantee | 90 | ||||
SECTION 7.02 |
Obligations Unconditional | 91 | ||||
SECTION 7.03 |
Reinstatement | 92 | ||||
SECTION 7.04 |
Subrogation; Subordination | 92 | ||||
SECTION 7.05 |
Remedies | 92 | ||||
SECTION 7.06 |
Instrument for the Payment of Money | 92 | ||||
SECTION 7.07 |
Continuing Guarantee | 92 | ||||
SECTION 7.08 |
General Limitation on Guarantee Obligations | 92 | ||||
SECTION 7.09 |
Release of Guarantors | 93 | ||||
SECTION 7.10 |
Right of Contribution | 93 | ||||
ARTICLE VIII |
|
|||||
EVENTS OF DEFAULT |
|
|||||
SECTION 8.01 |
Events of Default | 93 | ||||
SECTION 8.02 |
Application of Proceeds | 96 |
-iii-
Section |
Page | |||||
ARTICLE IX |
|
|||||
ADMINISTRATIVE AGENT AND COLLATERAL AGENT |
|
|||||
SECTION 9.01 |
Appointment and Authority | 97 | ||||
SECTION 9.02 |
Rights as a Lender | 97 | ||||
SECTION 9.03 |
Exculpatory Provisions | 97 | ||||
SECTION 9.04 |
Reliance by Agent | 98 | ||||
SECTION 9.05 |
Delegation of Duties | 98 | ||||
SECTION 9.06 |
Resignation of Agent | 98 | ||||
SECTION 9.07 |
Non-Reliance on Agent and Other Lenders | 99 | ||||
SECTION 9.08 |
No Other Duties, etc. | 99 | ||||
ARTICLE X |
|
|||||
MISCELLANEOUS |
|
|||||
SECTION 10.01 |
Notices | 99 | ||||
SECTION 10.02 |
Waivers; Amendment | 102 | ||||
SECTION 10.03 |
Expenses; Indemnity; Damage Waiver | 105 | ||||
SECTION 10.04 |
Successors and Assigns | 106 | ||||
SECTION 10.05 |
Survival of Agreement | 109 | ||||
SECTION 10.06 |
Counterparts; Integration; Effectiveness | 110 | ||||
SECTION 10.07 |
Severability | 110 | ||||
SECTION 10.08 |
Right of Setoff | 110 | ||||
SECTION 10.09 |
Governing Law; Jurisdiction; Consent to Service of Process | 110 | ||||
SECTION 10.10 |
Waiver of Jury Trial | 111 | ||||
SECTION 10.11 |
Headings | 111 | ||||
SECTION 10.12 |
Treatment of Certain Information; Confidentiality | 111 | ||||
SECTION 10.13 |
USA PATRIOT Act Notice | 112 | ||||
SECTION 10.14 |
Interest Rate Limitation | 112 | ||||
SECTION 10.15 |
Lender Addendum | 112 | ||||
SECTION 10.16 |
Obligations Absolute | 112 | ||||
SECTION 10.17 |
Compliance with Gaming Laws | 113 |
ANNEXES |
||
Annex I |
Amortization Table | |
SCHEDULES |
||
Schedule 1.01 |
Subsidiary Guarantors | |
Schedule 3.03 |
Governmental Approvals; Compliance with Laws | |
Schedule 3.06(c) |
Violations or Proceedings | |
Schedule 3.09 |
Material Agreements | |
Schedule 3.18 |
Environmental Matters | |
Schedule 3.22 |
Anti-Corruption Policy | |
Schedule 3.19 |
Insurance | |
Schedule 4.01(n)(vi) |
Landlord Access Agreements |
-iv-
Schedule 6.01(b) |
Existing Indebtedness | |
Schedule 6.02(c) |
Existing Liens | |
Schedule 6.04(b) |
Existing Investments | |
Schedule 6.09 |
Transactions with Affiliates | |
EXHIBITS |
||
Exhibit A |
Form of Administrative Questionnaire | |
Exhibit B |
Form of Assignment and Assumption | |
Exhibit C |
Form of Borrowing Request | |
Exhibit D |
Form of Compliance Certificate | |
Exhibit E |
Form of Interest Election Request | |
Exhibit F |
Form of Joinder Agreement | |
Exhibit G |
Form of Landlord Access Agreement | |
Exhibit H |
Reserved | |
Exhibit I |
Form of Lender Addendum | |
Exhibit J |
Reserved | |
Exhibit K |
Form of Term Note | |
Exhibit L-1 |
Form of Perfection Certificate | |
Exhibit L-2 |
Form of Perfection Certificate Supplement | |
Exhibit M |
Form of Security Agreement | |
Exhibit N |
Reserved | |
Exhibit O |
Form of Solvency Certificate | |
Exhibit P |
Form of Intercompany Note | |
Exhibit Q-1 |
Form of Non-Bank Certificate | |
Exhibit Q-2 |
Tax Compliance Certificate Non Beneficial Owner | |
Exhibit Q-3 |
Tax Compliance Certificate Partnership |
-v-
CREDIT AGREEMENT
This CREDIT AGREEMENT (this Agreement ) dated as of August 15, 2012, among AGS LLC, a Delaware limited liability company ( Borrower ), AGS Capital, LLC, a Delaware limited liability company ( AGS Capital ), AGS Partners, LLC, a Delaware limited liability company ( AGS Partners ), the other Subsidiary Guarantors (such term and each other capitalized term used but not defined herein having the meaning given to it in Article I ), the Lenders, UBS SECURITIES LLC, as lead arranger (in such capacity, Arranger ) and as syndication agent (in such capacity, Syndication Agent ), and UBS AG, STAMFORD BRANCH, as administrative agent (in such capacity, Administrative Agent ) for the Lenders and as collateral agent (in such capacity, Collateral Agent ) for the Secured Parties.
WITNESSETH:
WHEREAS, Borrower has requested the Lenders to extend credit in the form of (a) term loans on the Closing Date, in an aggregate principal amount not in excess of $115,000,000 and (b) delayed draw senior secured term loans, in an aggregate principal amount not in excess of $15,000,000.
WHEREAS, the proceeds of the Term Loans are to be used in accordance with Section 3.12 .
NOW, THEREFORE, the Lenders are willing to extend such credit to Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings specified below:
ABR Borrowing shall mean a Borrowing comprised of ABR Term Loans.
ABR Term Loan shall mean any Term Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II .
Acquisition Consideration shall mean the aggregate purchase consideration for, as part of or in connection with any Permitted Acquisition, whether paid in cash or by exchange of Equity Interests or properties or otherwise and whether payable at or prior to the consummation of such Permitted Acquisition or deferred for payment at any future time, whether or not any such future payment is subject to the occurrence of any contingency, and includes any and all payments representing the purchase price and any assumptions of Indebtedness, earn-outs and other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any person or business; provided that any such future payment that is subject to a contingency shall be considered Acquisition Consideration only to the extent of the reserve, if any, required under GAAP at the time of such sale to be established in respect thereof by AGS Capital or any of its Subsidiaries.
Additional Basket Amount shall mean (A) the sum of (i) the aggregate amount of Specified Equity Issuances (other than any portion of any Specified Equity Issuance that is required to be used to repay the Term Loans in accordance with Section 2.10(e) ) plus (ii) the aggregate amount of Permitted Subordinated Loans, minus (B) the the aggregate amount of Specified Equity Issuances and Permitted Subordinated Loans that have been used for a Permitted Additional Basket Amount Usage.
Adjusted LIBOR Rate shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the greater of (a)(i) an interest rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) determined by Administrative Agent to be equal to the LIBOR Rate for such Eurodollar Borrowing in effect for such Interest Period divided by (ii) 1 minus the Statutory Reserves (if any) for such Eurodollar Borrowing for such Interest Period and (b) 1.50% per annum.
Administrative Agent shall have the meaning assigned to such term in the preamble hereto and includes each other person appointed as the successor pursuant to Article X .
Administrative Agent Fees shall have the meaning assigned to such term in Section 2.05(b) .
Administrative Questionnaire shall mean an Administrative Questionnaire in substantially the form of Exhibit A .
Affiliate shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified; provided , however , that, for purposes of Section 6.09 , the term Affiliate shall also include any person that directly or indirectly owns more than 10% of any class of Equity Interests of the person specified.
Agent Fee Letter shall mean the confidential fee letter, dated August 15, 2012, between Borrower and the Administrative Agent.
Agents shall mean Administrative Agent and Collateral Agent; and Agent shall mean any of them.
Agreement shall have the meaning assigned to such term in the preamble hereto.
AGS Capital shall have the meaning assigned to such term in the preamble hereto.
AGS Partners shall mean AGS Partners, LLC, a Delaware limited liability company.
Alternate Base Rate shall mean, for any day, a rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the greater of (a) the Base Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 0.50% and (c) the Adjusted LIBOR Rate for an Interest Period of one-month beginning on such day (or if such day is not a Business Day, on the immediately preceding Business Day) plus 100 basis points; provided that the Alternate Base Rate shall be deemed to be not less than 2.50% per annum. If Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Base Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Base Rate or the Federal Funds Effective Rate, respectively.
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Anti-Corruption Laws shall have the meaning assigned to such term in Section 6.21(b) .
Anti-Corruption Prohibited Activity shall mean the offering, payment, promise to pay, authorization or the payment of any money or the offer, promise to give, giving, or authorized giving of anything of value, to any Government Official or to any person under the circumstances where a Loan Party or an Affiliate or representative of any Loan Party knew or had reason to know that all or a portion of such money or thing of value would be offered, given or promised, directly or indirectly, to any Government Official, for the purpose of (i) influencing any act or decision of such Government Official in his or her official capacity, (ii) inducing such Government Official to do or omit to do any act in relation to his or her lawful duty, (iii) securing any improper advantage, or (iv) inducing such Government Official to influence or affect any act or decision of any Governmental Authority, in each case, in order to assist such Loan Party or Affiliate of such Loan Party in obtaining or retaining business for or with, or in directing business to, any person.
Anti-Money Laundering Laws shall have the meaning assigned to such term in Section 3.23 .
Anti-Terrorism Laws shall have the meaning assigned to such term in Section 3.21 .
Applicable Margin shall mean:
(a) for any day prior to the nine month anniversary of the Closing Date, (i) with respect to Eurodollar Term Loans, 10.00%, and (ii) with respect to ABR Term Loans, 9.00%; and
(b) for any day from and after the nine month anniversary of the Closing Date,
(i) | to the extent the Loan Parties have not obtained the Nevada Gaming Authorities Approval, from the nine month anniversary of the Closing Date up to but not including the date that the Loan Parties have obtained the Nevada Gaming Authorities Approval, (x) with respect to Eurodollar Term Loans, 12.50%, and (y) with respect to ABR Term Loans, 11.50%; or |
(ii) | to the extent the Loan Parties have obtained the Nevada Gaming Authorities Approval, from and after the date that the Loan Parties have obtained the Nevada Gaming Authorities Approval, (x) with respect to Eurodollar Term Loans, 10.00%, and (y) with respect to ABR Term Loans, 9.00%; |
provided that, if after the nine month anniversary of the Closing Date the Administrative Agent receives a written notice from the Nevada Gaming Authorities (or the Loan Parties receive a written notice from the Nevada Gaming Authorities and provide such written notice to the Administrative Agent) requesting modifications or amendments to the Loan Documents as a condition to the ability of the Loan Parties to obtain the Nevada Gaming Authorities Approval and such modifications and amendments are not effectuated within ten (10) Business Days following receipt by the Administrative Agent of such written notice, the Applicable Margin shall mean, for any day after such ten (10) Business Day period, (i) with respect to Eurodollar Term Loans, 10.00%, and (ii) with respect to ABR Term Loans, 9.00%.
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Approved Fund shall mean any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Arranger shall have the meaning assigned to such term in the preamble hereto.
Asset Sale shall mean (a) any conveyance, sale, lease or sublease (other than operating leases entered into in the ordinary course of business), assignment, transfer or other disposition (including by way of merger or consolidation and including any Sale and Leaseback Transaction) of any property excluding sales, leases and subleases of Gaming Related Equipment or inventory and dispositions of cash and cash equivalents, in each case, in the ordinary course of business, by AGS Capital or any of its Subsidiaries and (b) any issuance or sale of any Equity Interests of any Subsidiary of AGS Capital, in each case, to any person other than (i) AGS Capital, (ii) Borrower, (iii) any Subsidiary Guarantor or (iv) other than for purposes of Section 6.06 , any other Subsidiary. For the avoidance of doubt, no Equity Issuance of the Equity Interests of AGS Capital shall be considered an Asset Sale for any purpose under this Agreement.
Assignment and Assumption shall mean an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.04(b) ), and accepted by Administrative Agent, in substantially the form of Exhibit B , or any other form approved by Administrative Agent.
Attributable Indebtedness shall mean, when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at a rate equivalent to Borrowers then-current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such Sale and Leaseback Transaction.
Bailee Letter shall have the meaning assigned thereto in the Security Agreement.
Base Rate shall mean, for any day, a rate per annum that is equal to the corporate base rate of interest established by Administrative Agent from time to time; each change in the Base Rate shall be effective on the date such change is effective. The corporate base rate is not necessarily the lowest rate charged by Administrative Agent to its customers.
Board shall mean the Board of Governors of the Federal Reserve System of the United States.
Board of Directors shall mean, with respect to any person, (i) in the case of any corporation, the board of directors of such person, (ii) in the case of any limited liability company, the managers, board of managers or managing member of such person, (iii) in the case of any partnership, the Board of Directors (or functional equivalent) of the general partner of such person and (iv) in any other case, the functional equivalent of the foregoing.
Borrower shall have the meaning assigned to such term in the preamble hereto.
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Borrowing shall mean Term Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Term Loans, as to which a single Interest Period is in effect.
Borrowing Request shall mean a request by Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C , or such other form as shall be approved by Administrative Agent.
Business Day shall mean any day other than a Saturday, Sunday or other day on which banks in New York City are authorized or required by law to close; provided , however , that when used in connection with a Eurodollar Term Loan, the term Business Day shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
Canadian Payroll Tax Credit Net Amount shall mean, with respect to any fiscal year, an amount (which may be positive or negative) equal to the net increase (or decrease) in the amount of the Canadian payroll tax credit available to AGS Capital or its Subsidiaries, which amount shall be determined by reference to the amount of such Canadian payroll tax credit as of December 31 of the immediately preceding fiscal year (the Prior Fiscal Year ) against the amount of such Canadian payroll tax credit as of December 31 of the fiscal year immediately preceding the Prior Fiscal Year.
Capital Assets shall mean, with respect to any person, all equipment, fixed assets and Real Property or improvements of such person, or replacements or substitutions therefor or additions thereto, that, in accordance with GAAP, have been or should be reflected as additions to property, plant or equipment on the balance sheet of such person.
Capital and Intangible Expenditures shall mean, for any period, without duplication, all expenditures made directly or indirectly by AGS Capital and its Subsidiaries during such period pursant to one or more Permitted Development Loans or for Capital Assets and/or intangible assets (including, without limitation, with respect to capitalized salaries) (whether paid in cash or other consideration, financed by the incurrence of Indebtedness or accrued as a liability), but excluding (i) expenditures made in connection with the replacement, substitution or restoration of property pursuant to Section 2.10(f), (ii) any portion of such increase attributable solely to acquisitions of fixed and intangible assets in Permitted Acquisitions, (iii) the purchase of Capital Assets to the extent financed with the proceeds of Asset Sales that are not required to prepay the Term Loans pursuant to Section 2.10(c) , (iv) expenditures that are accounted for as Capital and Intangible Expenditures by AGS Capital or any of its Subsidiaries and that actually are paid for or reimbursed by another person for which neither AGS Capital nor any of its Subsidiaries has provided or is required to provide or incur any consideration or obligation (other than rent) in respect of such expenditures and (v) expenditures relating to the construction, acquisition, replacement, reconstruction, development, refurbishment, renovation or improvement of any property (other than Gaming Related Equipment) that has been transferred to a person other than AGS Capital or any of its Subsidiaries during the same fiscal year in which such expenditures were made pursuant to a Sale and Leaseback Transaction permitted under Section 6.03 to the extent of the cash proceeds received in connection therewith. For purposes of this definition, the purchase price of equipment or other fixed or intangible assets that are purchased simultaneously with the concurrent sale or trade-in of existing assets or with insurance proceeds shall be included in Capital and Intangible Expenditures only to the extent of the gross amount by which such purchase price exceeds the credit granted by the seller of such assets for the assets being traded in at such time or the amount of such insurance proceeds, as the case may be.
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Capital Lease Obligations of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
Cash Equivalents shall mean, as to any person, (a) securities issued, or directly, unconditionally and fully guaranteed or insured, by the United States or any agency or instrumentality thereof ( provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition by such person; (b) time deposits and certificates of deposit of any Lender or any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof or the District of Columbia having, capital and surplus aggregating in excess of $500,000,000 and a rating of A (or such other similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) with maturities of not more than one year from the date of acquisition by such person; (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (b) above, which repurchase obligations are secured by a valid perfected security interest in the underlying securities; (d) commercial paper issued by any person incorporated in the United States rated at least A-1 or the equivalent thereof by Standard & Poors Rating Service or at least P-1 or the equivalent thereof by Moodys Investors Service Inc., and in each case maturing not more than one year after the date of acquisition by such person; (e) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (a) through (d) above; and (f) demand deposit accounts maintained in the ordinary course of business.
Cash Interest Expense shall mean, for any period, Consolidated Interest Expense for such period, less the sum of (a) interest on any debt paid by the increase in the principal amount of such debt including by issuance of additional debt of such kind, (b) items described in clause (c) or, other than to the extent paid in cash, clause (g) of the definition of Consolidated Interest Expense and (c) the NGAA Interest Expense Increase. Notwithstanding anything to the contrary contained herein, for purposes of determining Cash Interest Expense for any period that would otherwise start before the Closing Date, such period shall instead start on the Closing Date and Cash Interest Expense shall be an amount equal to Cash Interest Expense from the Closing Date through the last day of such period multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days from the Closing Date through the last day of such period.
Casualty Event shall mean any involuntary loss of title, any involuntary loss of, damage to or any destruction of, or any condemnation or other taking (including by any Governmental Authority) of, any property of AGS Capital or any of its Subsidiaries. Casualty Event shall include but not be limited to any taking of all or any part of any Real Property of any person or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any Requirement of Law, or by reason of the temporary requisition of the use or occupancy of all or any part of any Real Property of any person or any part thereof by any Governmental Authority, civil or military, or any settlement in lieu thereof.
CERCLA shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq. and all implementing regulations.
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A Change in Control shall be deemed to have occurred if:
(a) AGS Capital at any time ceases to own 100% of the Equity Interests of Borrower;
(b) (i) Alpine Investors II, LP, together with certain Affiliates of Alpine Investors II, LP identified in writing to the Administrative Agent on or prior to the Closing Date, sell or transfer to a person that is not an Affiliate of Alpine Investors II, LP more than 25% of the total economic interests in AGS Capital collectively held, directly or indirectly, by Alpine Investors II, LP and such Affiliates as of the Closing Date, (ii) Graham Weaver and one or more designees of Sponsor, collectively, cease to have the power to vote or direct the voting of Voting Stock of AGS Capital representing more than 66 2/3% of the voting power of the total outstanding Voting Stock of AGS Capital or (iii) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Sponsor, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause such person or group shall be deemed to have beneficial ownership of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of Voting Stock of AGS Capital representing more than 30% of the voting power of the total outstanding Voting Stock of AGS Capital; or
(c) upon and following an IPO, during any period of four consecutive quarters, individuals who at the beginning of such period constituted the Board of Directors of AGS Capital (together with any new directors whose election to such Board of Directors or whose nomination for election was approved by a vote of a majority of the members of the Board of Directors of AGS Capital, which members comprising such majority are then still in office and were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of AGS Capital.
For purposes of this definition, a person shall not be deemed to have beneficial ownership of Equity Interests subject to a stock purchase agreement, merger agreement or similar agreement until the consummation of the transactions contemplated by such agreement.
Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking into effect of any law, treaty, order, policy, rule or regulation, (b) any change in any law, treaty, order, policy, rule or regulation or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law, regardless of the date enacted, adopted or issued.
Charges shall have the meaning assigned to such term in Section 10.14 .
Class , when used in reference to any Term Loan or Borrowing, refers to whether such Term Loan, or the Term Loans comprising such Borrowing, are Initial Term Loans, Initial Delayed Draw Term Loans or Secondary Delayed Draw Term Loans and, when used in reference to any Commitment, refers to whether such Commitment is an Initial Term Loan Commitment, Initial Delayed Draw Term Loan Commitment or Secondary Delayed Draw Term Loan Commitment, in each case, under this Agreement, of which such Term Loan, Borrowing or Commitment shall be a part.
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Closing Date shall mean the date of the initial Credit Extension hereunder.
Code shall mean the Internal Revenue Code of 1986, as amended.
Collateral shall mean, collectively, all of the Security Agreement Collateral, the Mortgaged Property and all other property of whatever kind and nature subject or purported to be subject from time to time to a Lien under any Security Document.
Collateral Agent shall have the meaning assigned to such term in the preamble hereto.
Commitment shall mean, with respect to any Lender, such Lenders Initial Term Loan Commitment, Initial Delayed Draw Term Loan Commitment or Secondary Delayed Draw Term Loan Commitment.
Commitment Fee shall have the meaning assigned to such term in Section 2.05(c) .
Compact shall mean any Tribal-State Compact (as defined in the IGRA) or procedures issued by the U.S. Secretary of Interior in lieu of a Compact and any amendments or modifications thereto, entered into between any Indian Tribe and any State to govern Gaming on such Indian Tribes Indian Land.
Companies shall mean AGS Capital and its Subsidiaries; and Company shall mean any one of them.
Compliance Certificate shall mean a certificate of a Financial Officer substantially in the form of Exhibit D .
Consolidated Amortization Expense shall mean, for any period, the amortization expense of AGS Capital and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
Consolidated Depreciation Expense shall mean, for any period, the depreciation expense of AGS Capital and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
Consolidated EBITDA shall mean, for any period, Consolidated Net Income for such period, adjusted by (x) adding thereto , in each case only to the extent (and in the same proportion) deducted in determining such Consolidated Net Income and without duplication (and with respect to the portion of Consolidated Net Income attributable to any Subsidiary of AGS Capital only if a corresponding amount would be permitted at the date of determination to be distributed to AGS Capital by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its Organizational Documents and all agreements, instruments and Requirements of Law applicable to such Subsidiary or its equityholders):
(a) Consolidated Interest Expense for such period;
(b) Consolidated Amortization Expense for such period;
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(c) Consolidated Depreciation Expense for such period;
(d) Consolidated Tax Expense and Permitted Tax Distributions pursuant to Section 6.08(d) for such period;
(e) net losses attributable to Asset Sales;
(f) the amount of (x) any expense to the extent that a corresponding amount is received in cash by such person from a person under any agreement providing for reimbursement of expense, provided that such reimbursement is received not later than the last day of the first fiscal quarter commencing after the incurrence of the related expense, or (y) any expense with respect to liability or casualty events, business interruptions or product recalls, to the extent covered by insurance;
(g) the aggregate amount of all other non-cash expenses or charges reducing Consolidated Net Income (including any phantom unit, stock option, equity incentive or similar plan of any Loan Party, but excluding any other non-cash charge that results in an accrual of a reserve for cash charges in any future period) for such period;
(h) rent expenses associated with Attributable Indebtedness for such period that is treated as interest in accordance with GAAP;
(i) expenses or charges related to any Equity Issuance, Investment, acquisition, disposition, recapitalization or issuance, repayment, refinancing, amendment or modification of Indebtedness (including amortization or write offs of debt issuance or deferred financing costs, premiums and prepayment penalties) for such period, in each case, whether or not successful, in each case, excluding amounts added back pursuant to clause (l) below;
(j) fees paid to an Affiliate of Alpine Investors II, LP for such period in accordance with Section 6.09(k) ;
(k) non-recurring losses for such period in a maximum aggregate amount not to exceed $500,000 in any fiscal year;
(l) fees, expenses and other one-time charges relating to the Transactions in a maximum aggregate amount not to exceed $14,000,000;
(m) Specified EBITDA Addbacks for the applicable fiscal quarters set forth in the definition thereof; and
(y) subtracting therefrom (a) the amount of any cash received by such person as reimbursement for any expense included as an adjustment to Consolidated EBITDA pursuant to clause (f) above for any prior period, (b) net gains attributable to Asset Sales, (c) non-recurring gains for such period in a maximum aggregate amount not to exceed $500,000 in any fiscal year and (d) the aggregate amount of all non-cash items increasing Consolidated Net Income (other than the accrual of revenue or recording of receivables in the ordinary course of business), for such period.
Consolidated EBITDA shall be calculated on a Pro Forma Basis to give effect to any Permitted Acquisition and Asset Sales (other than any dispositions in the ordinary course of business) consummated at any time on or after the first day of the Test Period thereof as if each such Permitted Acquisition had been effected on the first day of such period and as if each such Asset Sale had been consummated on the day prior to the first day of such period.
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Consolidated Indebtedness shall mean, as at any date of determination, the sum of all Indebtedness of AGS Capital and its Subsidiaries set forth in items (a), (b), (c), (g), (h) and (i) of the definition of Indebtedness, in each case determined on a consolidated basis and in accordance with GAAP.
Consolidated Interest Coverage Ratio shall mean, for any Test Period, the ratio of (x) Consolidated EBITDA for such Test Period to (y) Cash Interest Expense for such Test Period.
Consolidated Interest Expense shall mean, for any period, the total consolidated interest expense of AGS Capital and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP plus , without duplication:
(a) imputed interest on Capital Lease Obligations and Attributable Indebtedness of AGS Capital and its Subsidiaries for such period;
(b) commissions, discounts and other fees and charges owed by AGS Capital or any of its Subsidiaries with respect to letters of credit securing financial obligations, bankers acceptance financing and receivables financings for such period;
(c) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by AGS Capital or any of its Subsidiaries for such period;
(d) cash contributions to any employee stock ownership plan or similar trust made by AGS Capital or any of its Subsidiaries to the extent such contributions are used by such plan or trust to pay interest or fees to any person (other than AGS Capital or a Wholly Owned Subsidiary of AGS Capital) in connection with Indebtedness incurred by such plan or trust for such period;
(e) all interest paid or payable with respect to discontinued operations of AGS Capital or any of its Subsidiaries for such period;
(f) the interest portion of any deferred payment obligations of AGS Capital or any of its Subsidiaries for such period;
(g) all interest on any Indebtedness of AGS Capital or any of its Subsidiaries of the type described in clause (f) or (k) of the definition of Indebtedness for such period;
provided that (a) to the extent directly related to the Transactions, debt issuance costs, debt discount or premium and other financing fees and expenses shall be excluded from the calculation of Consolidated Interest Expense and (b) Consolidated Interest Expense shall be calculated after giving effect to Hedging Agreements related to interest rates (including associated costs), but excluding unrealized gains and losses with respect to Hedging Agreements related to interest rates.
Consolidated Interest Expense shall be calculated on a Pro Forma Basis to give effect to any Indebtedness incurred, assumed or permanently repaid or extinguished during the relevant Test Period in connection with any Permitted Acquisitions and Asset Sales (other than any dispositions in the ordinary course of business) as if such incurrence, assumption, repayment or extinguishing had been effected on the first day of such period.
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Notwithstanding anything to the contrary contained herein, for purposes of determining Consolidated Interest Expense for any period that would otherwise start before the Closing Date, such period shall instead start on the Closing Date and Consolidated Interest Expense shall be an amount equal to Consolidated Interest Expense from the Closing Date through the last day of such period multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days from the Closing Date through the last day of such period.
Consolidated Net Income shall mean, for any period, the consolidated net income (or loss) of AGS Capital and its Subsidiaries determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein), without duplication:
(a) the net income (or loss) of any person (other than a Subsidiary of AGS Capital) in which any person other than AGS Capital and its Subsidiaries has an ownership interest, except to the extent that cash in an amount equal to any such income has actually been received by AGS Capital or (subject to clause (b) below) any of its Subsidiaries during such period;
(b) the net income of any Subsidiary of AGS Capital during such period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of that income is not permitted by operation of the terms of its Organizational Documents or any agreement, instrument or Requirement of Law applicable to that Subsidiary during such period, except that AGS Capitals equity in net loss of any such Subsidiary for such period shall be included in determining Consolidated Net Income;
(c) any gain (or loss), together with any related provisions for taxes on any such gain (or the tax effect of any such loss), realized during such period by AGS Capital or any of its Subsidiaries upon any Asset Sale (other than any dispositions in the ordinary course of business) by AGS Capital or any of its Subsidiaries;
(d) gains and losses due solely to fluctuations in currency values and the related tax effects determined in accordance with GAAP for such period;
(e) earnings resulting from any reappraisal, revaluation or write-up of assets;
(f) unrealized gains and losses with respect to Hedging Obligations for such period;
(g) any extraordinary gain (or extraordinary loss), together with any related provision for taxes on any such gain (or the tax effect of any such loss), recorded or recognized by AGS Capital or any of its Subsidiaries during such period; and
(h) the cumulative effect of a change in accounting principles during such period to the extent included in Consolidated Net Income.
For purposes of this definition of Consolidated Net Income, Consolidated Net Income shall be reduced (to the extent not already reduced thereby) by the amount of any payments to or on behalf of AGS Capital made pursuant to Section 6.08(d) .
Consolidated Tax Expense shall mean, for any period, the tax expense of AGS Capital and its Subsidiaries, for such period, determined on a consolidated basis in accordance with GAAP.
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Consulting Agreement shall mean that certain agreement dated as of August 15, 2012, by and between an affiliate of Alpine Investors II, LP and AGS Capital, as amended from time to time (so long as any such amendment is not, as a whole, less favorable to the Lenders in any respect than such agreement as in effect on the Closing Date).
Consulting Agreement Amount shall have the meaning assigned to such term in Section 6.09(k)
Contested Collateral Lien Conditions shall mean, with respect to any Permitted Lien of the type described in clauses (a), (b), (e) and (f) of Section 6.02 , the following conditions:
(a) AGS Capital or any Subsidiary shall cause any proceeding instituted contesting such Lien to stay the sale or forfeiture of any portion of the Collateral on account of such Lien; and
(b) at the option and at the request of Administrative Agent, to the extent such Lien is in an amount in excess of $250,000, the appropriate Loan Party shall maintain cash reserves in an amount sufficient to pay and discharge such Lien and Administrative Agents reasonable estimate of all interest and penalties related thereto.
Contingent Obligation shall mean, as to any person, any obligation, agreement, understanding or arrangement of such person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ( primary obligations ) of any other person (the primary obligor ) in any manner, whether directly or indirectly, including any obligation of such person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; (d) with respect to bankers acceptances, letters of credit and similar credit arrangements, until a reimbursement obligation arises (which reimbursement obligation shall constitute Indebtedness); or (e) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided , however , that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business or any product warranties. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such person may be liable, whether singly or jointly, pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder) as determined by such person in good faith.
Control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms Controlling and Controlled shall have meanings correlative thereto.
Control Agreement shall have the meaning assigned to such term in the Security Agreement.
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Controlled Investment Affiliate shall mean, as to any person, any other person which directly or indirectly is in Control of, is Controlled by, or is under common Control with, such person and is organized by such person (or any person Controlling such person) primarily for making equity or debt investments in AGS Capital or other portfolio companies.
Credit Extension shall mean the making of a Term Loan by a Lender.
Debt Issuance shall mean the incurrence by AGS Capital or any of its Subsidiaries of any Indebtedness after the Closing Date (other than as permitted by Section 6.01 ).
Debtor Relief Laws means Title 11 of the United States Code entitled Bankruptcy, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Default shall mean any event, occurrence or condition which is, or upon notice, lapse of time or both would constitute, an Event of Default.
Defaulting Lender shall mean, subject to Section 2.17(b) , any Lender that (a) has failed to (i) fund all or any portion of its Term Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies Administrative Agent and Borrower in writing that such failure is the result of such Lenders determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two (2) Business Days of the date when due, (b) has notified Borrower or Administrative Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lenders obligation to fund a Term Loan hereunder and states that such position is based on such Lenders determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after written request by Administrative Agent or Borrower, to confirm in writing to Administrative Agent and Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by Administrative Agent and Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.17(b) ) upon delivery of written notice of such determination to Borrower and each Lender.
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Default Rate shall have the meaning assigned to such term in Section 2.06(c) .
Delayed Draw Term Loan shall mean the Initial Delayed Draw Term Loan and the Secondary Delayed Draw Term Loan.
Delayed Draw Term Loan Commitment shall mean the Initial Delayed Draw Term Loan Commitment and the Secondary Delayed Draw Term Loan Commitment.
Delayed Draw Term Loan Lender shall mean an Initial Delayed Draw Term Loan Lender and/or a Secondary Delayed Draw Term Loan Lender, as the context may require.
Disqualification means, with respect to any Lender:
(a) the failure of that Lender timely to file pursuant to applicable Gaming Laws (i) any application requested of that Lender by any Gaming Authority in connection with any licensing required of that Lender as a lender to Borrower or (ii) any required application or other papers in connection with a determination of the suitability of that Lender as a lender to Borrower;
(b) the withdrawal by that Lender (except where requested or permitted by any Gaming Authority without prejudice) of any such application or other required papers; or
(c) any final determination by a Gaming Authority pursuant to applicable Gaming Laws (i) that such Lender is unsuitable as a lender to Borrower, (ii) that such person shall be disqualified as a lender to Borrower or (iii) denying the issuance to that Lender of any license or finding of suitability or other approval required under applicable Gaming Laws to be held by such Lender.
Disqualified Capital Stock shall mean any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the first anniversary of the Term Loan Maturity Date, (b) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for (i) debt securities or (ii) any Equity Interests referred to in (a) above, in each case at any time on or prior to the first anniversary of the Term Loan Maturity Date, (c) contains any repurchase obligation which may come into effect prior to payment in full of all Obligations or (d) contains any mandatory payment obligations, including dividends mandatorily payable, arising on or prior to the first anniversary of the Term Loan Maturity Date; provided , however , that any Equity Interests that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof (or the holders of any security into or for which such Equity Interests is convertible, exchangeable or exercisable) the right to require the issuer thereof to redeem such Equity Interests upon the occurrence of a change in control or an asset sale occurring prior to the first anniversary of the Term Loan Maturity Date shall not constitute Disqualified Capital Stock if such Equity Interests provide that the issuer thereof will not redeem any such Equity Interests pursuant to such provisions prior to the repayment in full of the Obligations.
Dividend with respect to any person shall mean that such person has declared or paid a dividend or returned any equity capital to the holders of its Equity Interests or authorized or made any other distribution, payment or delivery of property (other than Qualified Capital Stock of such person) or cash to the holders of its Equity Interests as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for consideration any of its Equity Interests outstanding (or any options or warrants
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issued by such person with respect to its Equity Interests), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for consideration any of the Equity Interests of such person outstanding (or any options or warrants issued by such person with respect to its Equity Interests). Without limiting the foregoing, Dividends with respect to any person shall also include all payments made or required to be made by such person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes.
dollars or $ shall mean lawful money of the United States.
Domestic Subsidiary shall mean any Subsidiary that is organized or existing under the laws of the United States, any state thereof or the District of Columbia.
Eligible Assignee shall mean (i) any Lender, (ii) an Affiliate of any Lender, (iii) an Approved Fund and (iv) any other person approved by Administrative Agent (such approval not to be unreasonably withheld or delayed); provided that Eligible Assignee shall not include AGS Capital or any of its Subsidiaries, any Affiliates of AGS Capital or any of its Subsidiaries or any natural person, or any person that is subject to Disqualification (such determination to be made by Borrower in its reasonable discretion, it being agreed by each of the parties hereto that no Agent shall be under any duty to monitor or otherwise make any determinations with respect to the foregoing and neither any Agent nor any Lender (including any assigning Lender) shall be liable for any losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever incurred or suffered by any person (including the Loan Parties) in connection with any compliance or non-compliance with the foregoing).
Embargoed Person shall have the meaning assigned to such term in Section 6.20 .
Environment shall mean ambient air, indoor air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources, the workplace or as otherwise defined in any Environmental Law.
Environmental Claim shall mean any written claim, notice, demand, order, action, suit, proceeding or other written communication alleging liability for or obligation with respect to any investigation, remediation, removal, cleanup, response, corrective action, damages to natural resources, personal injury, property damage, fines, penalties or other costs resulting from, related to or arising out of (i) the presence, Release or threatened Release in or into the Environment of Hazardous Material at any location or (ii) any violation or alleged violation of any Environmental Law, and shall include any claim seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from, related to or arising out of the presence, Release or threatened Release of Hazardous Material or alleged injury or threat of injury to health, safety or the Environment.
Environmental Law shall mean any and all present and future treaties, laws, statutes, ordinances, regulations, rules, decrees, orders, judgments, consent orders, consent decrees, Indian Tribe law or regulation, code, or other binding requirements, and the common law, relating to protection of public health or the Environment, the Release or threatened Release of Hazardous Material, natural resources or natural resource damages, or occupational safety or health, and any and all Environmental Permits.
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Environmental Permit shall mean any permit, license, approval, registration, notification, exemption, consent or other authorization required by or from a Governmental Authority under Environmental Law.
Equipment shall have the meaning assigned to such term in the Security Agreement.
Equity Interest shall mean, with respect to any person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or nonvoting), of equity of such person, including, if such person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of property of, such partnership, whether outstanding on the date hereof or issued after the Closing Date, but excluding debt securities convertible or exchangeable into such equity.
Equity Issuance shall mean, without duplication, (i) any issuance or sale by AGS Capital after the Closing Date of any Equity Interests in AGS Capital (including any Equity Interests issued upon exercise of any warrant or option) or any warrants or options to purchase Equity Interests or (ii) any contribution to the capital of AGS Capital; provided , however , that an Equity Issuance shall not include (x) any issuance of Disqualified Capital Stock or Debt Issuance, (y) any such sale or issuance by AGS Capital of not more than an aggregate amount of 5.0% of its Equity Interests (including its Equity Interests issued upon exercise of any warrant or option or warrants or options to purchase its Equity Interests but excluding Disqualified Capital Stock), in each case, to directors, officers or employees of any Company.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.
ERISA Affiliate shall mean, with respect to any person, any trade or business (whether or not incorporated) that, together with such person, is treated as a single employer under Section 414 of the Code.
ERISA Event shall mean (a) any reportable event, as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice period is waived by regulation); (b) the existence with respect to any Plan of an accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the failure to make by its due date a required installment under Section 412(m) of the Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence by any Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (f) the receipt by any Company or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (g) the incurrence by any Company or any of its ERISA Affiliates of any liability with respect to the withdrawal from any Plan or Multiemployer Plan; (h) the receipt by any Company or its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (i) the substantial cessation of operations within the meaning of Section 4062(e) of ERISA with respect
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to a Plan; (j) the making of any amendment to any Plan which could result in the imposition of a lien or the posting of a bond or other security; and (k) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could reasonably be expected to result in material liability to any Company.
Eurodollar Borrowing shall mean a Borrowing comprised of Eurodollar Term Loans.
Eurodollar Term Loan shall mean any Term Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate in accordance with the provisions of Article II .
Event of Default shall have the meaning assigned to such term in Section 8.01 .
Excess Amount shall have the meaning assigned to such term in Section 2.10(h) .
Excess Cash shall mean, for any Excess Cash Period, (i) the aggregate amount of cash and Cash Equivalents of the Loan Parties included in the cash accounts listed on the consolidated balance sheet of AGS Capital and its Subsidiaries as of the last day of such Excess Cash Period (excluding cash and Cash Equivalents constituting proceeds of Specified Equity Issuances) minus (ii) $10,000,000. For the avoidance of doubt, Excess Cash shall never be less than zero.
Excess Cash Period shall mean each fiscal year of AGS Capital and its Subsidiaries, beginning with the fiscal year ending December 31, 2013.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Excluded Taxes shall mean, with respect to Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), franchise taxes imposed on it (in lieu of net income taxes) and branch profits taxes imposed on it, by a jurisdiction (or any political subdivision thereof) as a result of the recipient being organized or having its principal office or, in the case of any Lender, its applicable lending office in such jurisdiction; (b) in the case of a Lender, any United States federal withholding tax that (i) is imposed on amounts payable to such Lender at the time such Lender becomes a party hereto (or designates a new lending office), except (x) to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from Borrower with respect to such withholding tax pursuant to Section 2.15(a) or (y) if such Lender is an assignee pursuant to a request by Borrower under Section 2.16 ; provided that this subclause (b)(i) shall not apply to any Tax imposed on a Lender in connection with an interest or participation in any Term Loan or other obligation that such Lender was required to acquire pursuant to Section 2.14(d) , or (ii) is attributable to such Lenders failure to comply with Section 2.15(e) ; and (c) any United States federal withholding taxes imposed under FATCA.
Executive Order shall have the meaning assigned to such term in Section 3.21 .
Existing Lien shall have the meaning assigned to such term in Section 6.02(c) .
FATCA shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
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FCPA shall have the meaning assigned to such term in Section 6.21(a) .
Federal Funds Effective Rate shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System of the United States arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by Administrative Agent from three federal funds brokers of recognized standing selected by it.
Fees shall mean the Commitment Fees, the Upfront Fees, the Specified Consent Fees and the Administrative Agent Fees.
Financial Officer of any person shall mean the chief executive officer, chief financial officer, principal accounting officer, treasurer or controller of such person.
FIRREA shall mean the Federal Institutions Reform, Recovery and Enforcement Act of 1989, as amended.
Foreign Lender shall mean any Lender that is not, for United States federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation, partnership or other entity treated as a corporation or partnership created or organized in or under the laws of the United States, or any political subdivision thereof, (iii) an estate whose income is subject to United States federal income taxation regardless of its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons have the authority to control all substantial decisions of such trust.
Foreign Subsidiary shall mean (i) a Subsidiary that is organized under the laws of a jurisdiction other than the United States or any state thereof or the District of Columbia that is treated as a controlled foreign corporation for federal income tax purposes or (ii) a Subsidiary that (x) is a disregarded entity for U.S. federal income tax purposes and (y) substantially all of the assets of which are directly or indirectly Equity Interests in Subsidiaries described in clause (i).
Fund shall mean any person that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
GAAP shall mean generally accepted accounting principles in the United States applied on a consistent basis.
Gaming shall mean any and all lawful gaming activities including those activities that are or were defined as Class I, Class II or Class III gaming under the IGRA or any gaming activity authorized under any state law or regulation.
Gaming Authorities shall mean those national, state, tribal, local and other Governmental Authorities responsible for or involved in the regulation of Gaming or gaming activities in any applicable jurisdiction and, within the State of Nevada, the Nevada Gaming Authorities.
Gaming Laws shall mean all Requirements of Law pursuant to which any Gaming Authority possesses regulatory, licensing or permit authority over Gaming within any applicable jurisdiction and, within the State of Nevada, specifically, the Nevada Gaming Control Act, as codified in the Nevada Revised Statutes Chapter 463 and the regulations promulgated thereunder.
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Gaming Machine Operator shall mean a person that possesses all required Gaming licenses under all applicable Gaming Laws for the conduct of such persons business in the manner contemplated by the financing arrangements proposed to be entered into with such person or, in the good faith judgment of AGS Capital, is expected to possess such Gaming licenses.
Gaming Related Equipment shall mean Gaming machines, servers, bases, chairs and similar equipment related thereto.
Governmental Authority shall mean the government of the United States or any other nation or government (including any federally recognized Indian Tribe) or of any political subdivision thereof, whether state, provincial or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including, without limitation, the Gaming Authorities, the bureau of Indian Affairs and the National Indian Gaming Commission and any supranational bodies such as the European Union or the European Central Bank).
Governmental Real Property Disclosure Requirements shall mean any Requirement of Law of any Governmental Authority requiring notification of the buyer, lessee, mortgagee, assignee or other transferee of any Real Property, facility, establishment or business, or notification, registration or filing to or with any Governmental Authority, in connection with the sale, lease, mortgage, assignment or other transfer (including any transfer of control) of any Real Property, facility, establishment or business, of the actual or threatened presence or Release in or into the Environment, or the use, disposal or handling of Hazardous Material on, at, under or near the Real Property, facility, establishment or business to be sold, leased, mortgaged, assigned or transferred.
Government Official shall have the meaning assigned to such term in Section 6.21(a) .
Guaranteed Obligations shall have the meaning assigned to such term in Section 7.01 .
Guarantees shall mean the guarantees issued pursuant to Article VII by AGS Capital and the Subsidiary Guarantors.
Guarantors shall mean AGS Capital and the Subsidiary Guarantors.
Hazardous Materials shall mean the following: hazardous substances; hazardous wastes; polychlorinated biphenyls ( PCBs ) or any substance or compound containing PCBs; asbestos or any asbestos-containing materials in any form or condition; radon or any other radioactive materials including any source, special nuclear or by-product material; petroleum, crude oil or any fraction thereof; and any other pollutant or contaminant or chemicals, wastes, materials, compounds, constituents or substances, subject to regulation or which can give rise to liability under any Environmental Laws.
Hedging Agreement shall mean any swap, cap, collar, forward purchase or similar agreements or arrangements dealing with interest rates, currency exchange rates or commodity prices, either generally or under specific contingencies.
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Hedging Obligations shall mean obligations under or with respect to Hedging Agreements in respect of any obligations of any Loan Party at any time (giving effect to any netting agreements) that such Loan Party would be required to pay if the related Hedging Agreement were terminated at such time.
IGRA shall mean the Indian Gaming Regulatory Act of 1988, Pub. L. No. 100-497, 25 U.S.C. §2701 et seq . as it may be amended from time to time.
Illinois Video Gaming Terminals shall mean video gaming terminals permitted under the Illinois Video Gaming Act (230 ILCS 40/).
Indebtedness of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or advances; (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments; (c) all obligations of such person upon which interest charges are customarily paid or accrued; (d) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person; (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business on normal trade terms and not overdue by more than 90 days); (f) all Indebtedness of others secured by any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, but limited to the fair market value of such property; (g) all Capital Lease Obligations, Purchase Money Obligations and synthetic lease obligations of such person; (h) all Hedging Obligations (other than Hedging Obligations with respect to Indebtedness) to the extent required to be reflected on a balance sheet of such person; (i) all Attributable Indebtedness of such person; (j) all obligations of such person for the reimbursement of any obligor in respect of letters of credit, letters of guaranty, bankers acceptances and similar credit transactions; and (k) all Contingent Obligations of such person in respect of Indebtedness or obligations of others of the kinds referred to in clauses (a) through (j) above. The Indebtedness of any person shall include the Indebtedness of any other entity (including any partnership in which such person is a general partner) to the extent such person is liable therefor as a result of such persons ownership interest in such entity, except (other than in the case of general partner liability) to the extent that terms of such Indebtedness expressly provide that such person is not liable therefor.
Indemnified Taxes shall mean (a) Taxes other than Excluded Taxes imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
Indemnitee shall have the meaning assigned to such term in Section 10.03(b) .
Indian Land shall have the meaning set forth in IGRA, 25 U.S.C. §2703(4).
Indian Tribe shall have the meaning set forth in IGRA, 25 U.S.C. §2703(5).
Information shall have the meaning assigned to such term in Section 10.12 .
Initial Delayed Draw Term Loan shall mean the term loans made by the Lenders to Borrower pursuant to Section 2.01(b) . Each Initial Delayed Draw Term Loan shall be either an ABR Term Loan or a Eurodollar Term Loan.
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Initial Delayed Draw Term Loan Commitment shall mean, with respect to each Lender, the commitment, if any, of such Lender to make an Initial Delayed Draw Term Loan hereunder in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Lender, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Initial Delayed Draw Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04 . The initial aggregate amount of the Lenders Initial Delayed Draw Term Loan Commitments is $7,500,000.
Initial Delayed Draw Term Loan Commitment Period shall have the meaning assigned to such term in Section 2.01 (b) .
Initial Delayed Draw Term Loan Lender shall mean a Lender with an Initial Delayed Draw Term Loan Commitment or an outstanding Initial Delayed Draw Term Loan.
Initial Term Loan shall mean the term loans made by the Lenders to Borrower pursuant to Section 2.01(a) . Each Initial Term Loan shall be either an ABR Term Loan or a Eurodollar Term Loan.
Initial Term Loan Commitment shall mean, with respect to each Lender, the commitment, if any, of such Lender to make an Initial Term Loan hereunder on the Closing Date in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Lender, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Initial Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04 . The initial aggregate amount of the Lenders Initial Term Loan Commitments is $115,000,000.
Initial Term Loan Lender shall mean a Lender with a Initial Term Loan Commitment or an outstanding Initial Term Loan.
Insurance Policies shall mean the insurance policies and coverages required to be maintained by each Loan Party which is an owner of Mortgaged Property with respect to the applicable Mortgaged Property pursuant to Section 5.04 and all renewals and extensions thereof.
Insurance Requirements shall mean, collectively, all provisions of the Insurance Policies, all requirements of the issuer of any of the Insurance Policies and all orders, rules, regulations and any other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon each Loan Party which is an owner of Mortgaged Property and applicable to the Mortgaged Property or any use or condition thereof.
Intellectual Property shall have the meaning assigned to such term in Section 3.06(a) .
Intercompany Note shall mean a promissory note substantially in the form of Exhibit P .
Interest Election Request shall mean a request by Borrower to convert or continue a Term Borrowing in accordance with Section 2.08(b) , substantially in the form of Exhibit E .
Interest Payment Date shall mean (a) with respect to any ABR Term Loan, the last Business Day of each March, June, September and December to occur during any period in which such Term Loan is outstanding, (b) with respect to any Eurodollar Term Loan, the last day of the Interest Period
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applicable to the Borrowing of which such Term Loan is a part and, in the case of a Eurodollar Term Loan with an Interest Period of more than three months duration, each day prior to the last day of such Interest Period that occurs at intervals of three months duration after the first day of such Interest Period and (c) the Term Loan Maturity Date.
Interest Period shall mean, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, if each affected Lender so agrees, nine or twelve months) thereafter, as Borrower may elect; provided that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
Investments shall have the meaning assigned to such term in Section 6.04 .
IPO shall mean the first underwritten public offering by AGS Capital of its Equity Interests after the Closing Date pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act.
IRS shall mean the United States Internal Revenue Service.
Joinder Agreement shall mean a joinder agreement substantially in the form of Exhibit F .
Landlord Access Agreement shall mean a Landlord Access Agreement, substantially in the form of Exhibit G , or such other form as may reasonably be acceptable to Administrative Agent.
Leases shall mean any and all leases, subleases, tenancies, options, concession agreements, rental agreements, occupancy agreements, franchise agreements, access agreements and any other agreements (including all amendments, extensions, replacements, renewals, modifications and/or guarantees thereof), whether or not of record and whether now in existence or hereafter entered into, affecting the use or occupancy of all or any portion of any Real Property.
Lender Addendum shall mean with respect to any Lender on the Closing Date, a lender addendum in the form of Exhibit I , to be executed and delivered by such Lender on the Closing Date as provided in Section 10.15 .
Lender Fee Letter shall mean the confidential fee letter, dated August 15, 2012, among Borrower and the Lenders.
Lenders shall mean (a) the financial institutions that have become a party hereto pursuant to a Lender Addendum and (b) any financial institution that has become a party hereto pursuant to an Assignment and Assumption, other than, in each case, any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Assumption.
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LIBOR Rate shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate per annum determined by Administrative Agent to be the arithmetic mean of the offered rates for deposits in dollars with a term comparable to such Interest Period that appears on the Telerate British Bankers Assoc. Interest Settlement Rates Page (as defined below) at approximately 11:00 a.m., London, England time, on the second full Business Day preceding the first day of such Interest Period; provided , however , that (i) if no comparable term for an Interest Period is available, the LIBOR Rate shall be determined using the weighted average of the offered rates for the two terms most nearly corresponding to such Interest Period and (ii) if there shall at any time no longer exist a Telerate British Bankers Assoc. Interest Settlement Rates Page, LIBOR Rate shall mean, with respect to each day during each Interest Period pertaining to Eurodollar Borrowings comprising part of the same Borrowing, the rate per annum equal to the rate at which Administrative Agent is offered deposits in dollars at approximately 11:00 a.m., London, England time, two Business Days prior to the first day of such Interest Period in the London interbank market for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to its portion of the amount of such Eurodollar Borrowing to be outstanding during such Interest Period. Telerate British Bankers Assoc. Interest Settlement Rates Page shall mean the display designated as Page 3750 on the Telerate System Incorporated Service (or such other page as may replace such page on such service for the purpose of displaying the rates at which dollar deposits are offered by leading banks in the London interbank deposit market).
Lien shall mean, with respect to any property, (a) any mortgage, deed of trust, lien, pledge, encumbrance, claim, charge, assignment, hypothecation, security interest or encumbrance of any kind or any arrangement to provide priority or preference or any filing of any financing statement under the UCC or any other similar notice of lien under any similar notice or recording statute of any Governmental Authority, including any easement, right-of-way or other encumbrance on title to Real Property, in each of the foregoing cases whether voluntary or imposed by law, and any agreement to give any of the foregoing; (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such property; and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
Liquidity shall mean the aggregate amount of unrestricted cash and Cash Equivalents of the Loan Parties included in the cash accounts listed on the consolidated balance sheet of AGS Capital and its Subsidiaries as of such date in which the Collateral Agent has a perfected security interest by way of a Control Agreement; provided that, for the avoidance of doubt, Liquidity shall not include amounts available under any Delayed Draw Term Loan Commitment or funds from a Delayed Draw Term Loan made to the Borrower hereunder.
Loan Documents shall mean this Agreement, the Notes (if any), the Post Closing Agreement and the Security Documents and, solely for purposes of paragraph (e) of Section 8.01 , the Agent Fee Letter and the Lender Fee Letter.
Loan Parties shall mean AGS Capital, Borrower and the Subsidiary Guarantors, including AGS Partners.
Margin Stock shall have the meaning assigned to such term in Regulation U.
Material Adverse Effect shall mean (a) a material adverse effect on the business, assets and liabilities, results of operations or condition (financial or otherwise), of AGS Capital and its Subsidiaries, taken as a whole; (b) material impairment of the ability of the Loan Parties to fully and timely
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perform any of their obligations under any Loan Document; (c) material impairment of the rights of or benefits or remedies available to the Lenders or any Agent under any Loan Document; or (d) a material adverse effect on a significant portion of the Collateral or the Liens in favor of Collateral Agent (for its benefit and for the benefit of the other Secured Parties) on the Collateral or the priority of such Liens.
Material Indebtedness shall mean (a) Indebtedness under the Loan Documents and (b) any other Indebtedness (other than the Term Loans) or Hedging Obligations of AGS Capital or any of its Subsidiaries in an aggregate outstanding principal amount exceeding $2,500,000. For purposes of determining Material Indebtedness, the principal amount in respect of any Hedging Obligations of any Loan Party at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Loan Party would be required to pay if the related Hedging Agreement were terminated at such time.
Maximum Rate shall have the meaning assigned to such term in Section 10.14 .
Mortgage shall mean an agreement, including, but not limited to, a mortgage, deed of trust or any other document, creating and evidencing a Lien on a Mortgaged Property, which shall be in a form reasonably satisfactory to Collateral Agent, in each case, with such schedules and including such provisions as shall be necessary to conform such document to applicable local or foreign law or as shall be customary under applicable local or foreign law.
Mortgaged Property shall mean (a) each Real Property identified as a Mortgaged Property on Schedule 8(a) to the Perfection Certificate dated the Closing Date and (b) each Real Property, if any, which shall be subject to a Mortgage delivered after the Closing Date pursuant to Section 5.11(c) .
Multiemployer Plan shall mean a multiemployer plan within the meaning of Section 4001(a)(3) or Section 3(37) of ERISA (a) to which any Company or any ERISA Affiliate is then making or accruing an obligation to make contributions; (b) to which any Company or any ERISA Affiliate has within the preceding five plan years made contributions; or (c) with respect to which any Company could incur liability.
Net Cash Proceeds shall mean:
(a) with respect to any Asset Sale (other than any issuance or sale of Equity Interests), the cash proceeds received by AGS Capital or any of its Subsidiaries (including cash proceeds subsequently received (as and when received by AGS Capital or any of its Subsidiaries) in respect of non-cash consideration initially received) net of (i) selling expenses (including reasonable brokers fees or commissions, legal, accounting and other professional and transactional fees, transfer and similar taxes and Borrowers good faith estimate of income taxes paid or payable by the members of AGS Capital in connection with such sale); (ii) amounts provided as a reserve, in accordance with GAAP, against (x) any liabilities under any indemnification obligations associated with such Asset Sale or (y) any other liabilities retained by AGS Capital or any of its Subsidiaries associated with the properties sold in such Asset Sale ( provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds); (iii) Borrowers good faith estimate of payments required to be made with respect to unassumed liabilities relating to the properties sold within 90 days of such Asset Sale ( provided that, to the extent such cash proceeds are not used to make payments in respect of such unassumed liabilities within 90 days of such Asset Sale, such cash proceeds shall constitute Net Cash Proceeds); and (iv) the principal amount, premium or penalty, if any, interest and other
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amounts on any Indebtedness for borrowed money which is secured by a Lien on the properties sold in such Asset Sale (so long as such Lien was permitted to encumber such properties under the Loan Documents at the time of such sale) and which is repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such properties);
(b) with respect to any Debt Issuance, any Equity Issuance or any other issuance or sale of Equity Interests of any of AGS Capitals Subsidiaries, the cash proceeds thereof, net of customary fees, commissions, costs and other expenses (including taxes, if any, paid or payable by members of AGS Capital in connection with any such amounts) incurred in connection therewith; and
(c) with respect to any Casualty Event, the cash insurance proceeds, condemnation awards and other compensation received in respect thereof, net of all reasonable costs and expenses (including taxes, if any, paid or payable by members of AGS Capital in connection with any such amounts) incurred in connection with the collection of such proceeds, awards or other compensation in respect of such Casualty Event.
Nevada Gaming Authorities shall mean the Nevada Gaming Commission and the Nevada State Gaming Control Board.
Nevada Gaming Authorities Approval shall mean the approval of the Nevada Gaming Authorities to the pledge of the Equity Interests of Borrower pursuant to the Security Agreement in favor of Collateral Agent.
N GAA Interest Expense Increase shall mean that portion of the interest payable under this Agreement, if any, that results from an increase in the Applicable Margin (i) with respect to Eurodollar Term Loans, from 10.00% to 12.50%, and (ii) with respect to ABR Term Loans, from 9.00% to 11.50%, in each case, as a result of the failure of the Loan Parties to obtain the Nevada Gaming Authories Approval.
Notes shall mean any notes evidencing the Term Loans issued pursuant to this Agreement, if any, substantially in the form of Exhibit K .
Obligations shall mean (a) obligations of Borrower and the other Loan Parties from time to time arising under or in respect of the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Term Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of Borrower and the other Loan Parties under this Agreement and the other Loan Documents, and (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of Borrower and the other Loan Parties under or pursuant to this Agreement and the other Loan Documents.
OFAC shall have the meaning assigned to such term in Section 3.21 .
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Officers Certificate shall mean a certificate executed by the chairman of the Board of Directors (if an officer), the chief executive officer or the president and one of the Financial Officers, each in his or her official (and not individual) capacity.
Organizational Documents shall mean, with respect to any person, (i) in the case of any corporation, the certificate of incorporation and by-laws (or similar documents) of such person, (ii) in the case of any limited liability company, the certificate of formation and operating agreement (or similar documents) of such person, (iii) in the case of any limited partnership, the certificate of formation and limited partnership agreement (or similar documents) of such person, (iv) in the case of any general partnership, the partnership agreement (or similar document) of such person and (v) in any other case, the functional equivalent of the foregoing.
Other Taxes shall mean all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document except any such Taxes that are imposed with respect to an assignment (other than an assignment made pursuant to Section 2.16).
Participant shall have the meaning assigned to such term in Section 10.04(d) .
Participant Register shall have the meaning assigned to such term in Section 10.04(d) .
PBGC shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
Perfection Certificate shall mean a certificate in the form of Exhibit L-1 or any other form approved by Collateral Agent, as the same shall be supplemented from time to time by a Perfection Certificate Supplement or otherwise.
Perfection Certificate Supplement shall mean a certificate supplement in the form of Exhibit L-2 or any other form approved by Collateral Agent.
Permitted Acquisition shall mean any transaction or series of related transactions for the direct or indirect (a) acquisition of all or substantially all of the property of any person, or of any business or division of any person (including the purchase of contracts and/or contract rights for the placement of Gaming Related Equipment, provided that the amounts in clause (ix) shall be increased by $3,000,000, solely with respect to purchases of contracts and/or contract rights for the placement of Gaming Related Equipment); (b) acquisition of in excess of 50% of the Equity Interests of any person, and otherwise causing such person to become a Subsidiary of such person; or (c) merger or consolidation or any other combination with any person, if each of the following conditions is met:
(i) no Default then exists or would result therefrom;
(ii) after giving effect to such transaction on a Pro Forma Basis, AGS Capital shall be in compliance with all covenants set forth in Section 6.10 as of the most recent Test Period (assuming, for purposes of Section 6.10 , that such transaction, and all other Permitted Acquisitions consummated since the first day of the relevant Test Period for each of the financial covenants set forth in Section 6.10 ending on or prior to the date of such transaction, had occurred on the first day of such relevant Test Period);
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(iii) no Company shall, in connection with any such transaction, assume or remain liable with respect to any Indebtedness or other liability (including any material tax or ERISA liability) of the related seller or the business, person or properties acquired, except (A) to the extent permitted under Section 6.01 and (B) obligations not constituting Indebtedness incurred in the ordinary course of business and necessary or desirable to the continued operation of the underlying properties, and any other such liabilities or obligations not permitted to be assumed or otherwise supported by any Company hereunder shall be paid in full or released as to the business, persons or properties being so acquired on or before the consummation of such acquisition;
(iv) the person or business to be acquired shall be, or shall be engaged in, a business of the type, or directly connected to the type, that any Company is permitted to be engaged in under Section 6.15 and the property acquired in connection with any such transaction shall be made subject to the Lien of the Security Documents (to the extent required under Section 5.11(b)) and shall be free and clear of any Liens, other than Permitted Liens;
(v) the Board of Directors of the person to be acquired shall not have indicated publicly its opposition to the consummation of such acquisition (which opposition has not been publicly withdrawn);
(vi) all transactions in connection therewith shall be consummated in accordance with all applicable Requirements of Law;
(vii) with respect to any transaction involving Acquisition Consideration of more than $2,000,000, unless Administrative Agent shall otherwise agree, Borrower shall have provided Administrative Agent and the Lenders with (A) historical financial statements for the last three fiscal years (or, if less, the number of years since formation) of the person or business to be acquired (audited if available without undue cost or delay) and unaudited financial statements thereof for the most recent interim period which are available, (B) reasonably detailed projections for the succeeding five years pertaining to the person or business to be acquired and updated projections for Borrower after giving effect to such transaction, (C) a reasonably detailed description of all material information relating thereto and copies of all material documentation pertaining to such transaction, and (D) all such other information and data relating to such transaction or the person or business to be acquired as may be reasonably requested by Administrative Agent or the Required Lenders;
(viii) at least 10 Business Days prior to the proposed date of consummation of the transaction, Borrower shall have delivered to the Agents and the Lenders an Officers Certificate certifying that (A) such transaction complies with this definition (which shall have attached thereto reasonably detailed backup data and calculations showing such compliance), and (B) such transaction could not reasonably be expected to result in a Material Adverse Effect; and
(ix) the Acquisition Consideration for such acquisition shall not exceed $4,000,000 plus the Additional Basket Amount, and the aggregate amount of the Acquisition Consideration for all Permitted Acquisitions since the Closing Date shall not exceed $8,000,000 plus the Additional Basket Amount; provided that (x) any Equity Interests constituting all or a portion of such Acquisition Consideration shall not have a cash dividend requirement on or prior to the Term Loan Maturity Date and (y) the Acquisition Consideration for all such acquisitions of Foreign Subsidiaries that do not become Guarantors and assets which are not made subject to the perfected security interests of the Collateral Agent following the Closing Date shall not in the aggregate exceed $4,000,000.
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Permitted Additional Basket Amount Usage shall mean (i) an Investment made pursuant to Section 6.04(f) using the Additional Basket Amount, (ii) a Permitted Acquisition made pursuant to Section 6.07(l) using the Additional Basket Amount and (iii) a Capital and Intangible Expenditure made pursuant to Section 6.10(c) using the Additional Basket Amount.
Permitted Development Agreement shall mean any agreement to which one or more Subsidiaries of AGS Capital is a party providing for Permitted Development Loans.
Permitted Development Agreement Net Amount shall mean, for any fiscal year, the aggregate amount of cash received by AGS Capital or its Subsidiaries under Permitted Development Agreements during such fiscal year.
Permitted Development Loans shall mean loans made by one or more Subsidiaries of AGS Capital in the ordinary course of business to finance the operations of one or more Gaming Machine Operators.
Permitted Liens shall have the meaning assigned to such term in Section 6.02 .
Permitted Subordinated Loans shall mean unsecured Indebtedness incurred by any Loan Party that is expressly subordinated in right of payment to the Obligations on terms and conditions satisfactory to the Administrative Agent in its reasonable discretion.
Permitted Tax Distributions shall mean payments, dividends or distributions (i) by Borrower, its Subsidiaries, or any Wholly Owned Subsidiary of AGS Capital ( Distributor ) on its Equity Interests to AGS Capital during any tax period (or portion thereof) in which any of the Distributors is treated as a disregarded entity or partnership for United States federal or state income tax purposes in an amount not to exceed the amount equal to the product of (x) the amount of aggregate net taxable income of the Distributors allocated to AGS Capital for such period and (y) the Presumed Tax Rate for such period, and (ii) by AGS Capital on its Equity Interests to its members with respect to any tax period (or portion thereof) of AGS Capital during which AGS Capital is treated as a disregarded entity or partnership for United States federal or state income tax purposes not to exceed the amount equal to the product of (x) the amount of aggregate net taxable income of AGS Capital and its Subsidiaries for such period and (y) the Presumed Tax Rate for such period.
person shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Plan shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA which is maintained or contributed to by any Company or its ERISA Affiliate or with respect to which any Company could incur liability (including under Section 4069 of ERISA).
Post Closing Agreement shall mean that certain Post Closing Agreement dated as of the Closing Date among Borrower, Adminstrative Agent and Collateral Agent.
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Preferred Stock shall mean, with respect to any person, any and all preferred or preference Equity Interests (however designated) of such person whether now outstanding or issued after the Closing Date.
Preferred Stock Issuance shall mean the issuance or sale by AGS Capital or any of its Subsidiaries of any Preferred Stock after the Closing Date (other than as permitted by Section 6.01) .
Premises shall have the meaning assigned thereto in the applicable Mortgage.
Presumed Tax Rate means the highest combined marginal federal, state and local income taxation rates applicable to an individual resident of California.
Pro Forma Basis shall mean on a pro forma basis in accordance with GAAP and otherwise reasonably satisfactory to Administrative Agent.
property shall mean any right, title or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible and including Equity Interests or other ownership interests of any person and whether now in existence or owned or hereafter entered into or acquired, including all Real Property.
Property Material Adverse Effect shall have the meaning assigned thereto in the Mortgage.
Purchase Money Obligation shall mean, for any person, the obligations of such person in respect of Indebtedness (including Capital Lease Obligations) incurred for the purpose of financing all or any part of the purchase price of any property (including Equity Interests of any person) or the cost of installation, construction or improvement of any property and any refinancing thereof; provided , however , that (i) such Indebtedness is incurred within one year after such acquisition, installation, construction or improvement of such property by such person and (ii) the amount of such Indebtedness does not exceed 100% of the cost of such acquisition, installation, construction or improvement, as the case may be.
Qualified Capital Stock of any person shall mean any Equity Interests of such person that are not Disqualified Capital Stock.
Real Property shall mean, collectively, all right, title and interest (including any leasehold, mineral or other estate) in and to any and all parcels of or interests in real property owned, leased or operated by any person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof.
Refinancing shall mean the repayment in full and the termination of any commitment to make extensions of credit under the Credit Agreement dated as of May 14, 2007 by and among AGS LLC, as borrower, UBS AG, Stamford Branch, as administrative agent and the other parties party thereto from time to time (as amended, restated, amended and restated, supplemented or otherwise modified prior to the date hereof, the Existing Credit Agreement ).
Register shall have the meaning assigned to such term in Section 10.04(c) .
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Regulation D shall mean Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
Regulation T shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
Regulation U shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
Regulation X shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
Related Parties shall mean, with respect to any person, such persons Affiliates and the partners, directors, officers, employees, agents and advisors of such person and of such persons Affiliates.
Release shall mean any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the Environment.
Required Class Lenders shall mean, with respect to any Class of Term Loans and/or Commitments, Lenders holding more than 50% of the Term Loans and unused Commitments that have not been terminated or expired at such time, if any, of such Class; provided that the Term Loans and Commitments held or deemed held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Class Lenders.
Required Lenders shall mean Lenders having more than 50% of the sum of all Term Loans outstanding and unused Commitments that have not been terminated or expired at such time; provided that the Term Loans and Commitments held or deemed held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
Requirements of Law shall mean, collectively, any and all requirements of any Governmental Authority including any and all laws, judgments, orders, decrees, ordinances, any Compact, Gaming Laws, the IGRA, all applicable laws and rules and regulations of any Indian Tribe, and other rules, regulations, statutes or case law.
Response shall mean (a) response as such term is defined in CERCLA, 42 U.S.C. § 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to (i) clean up, remove, treat, abate or in any other way address any Hazardous Material in the Environment; (ii) prevent the Release or threat of Release, or minimize the further Release, of any Hazardous Material; or (iii) perform studies and investigations in connection with, or as a precondition to, or to determine the necessity of the activities described in, clause (i) or (ii) above.
Responsible Officer of any person shall mean any executive officer or Financial Officer of such person and any other officer or similar official thereof with responsibility for the administration of the obligations of such person in respect of this Agreement.
Sale and Leaseback Transaction has the meaning assigned to such term in Section 6.03 .
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Sarbanes-Oxley Act shall mean the United States Sarbanes-Oxley Act of 2002, as amended, and all rules and regulations promulgated thereunder.
Secondary Delayed Draw Term Loan shall mean the term loans made by the Lenders to Borrower pursuant to Section 2.01(c) . Each Secondary Delayed Draw Term Loan shall be either an ABR Term Loan or a Eurodollar Term Loan.
Secondary Delayed Draw Term Loan Commitment shall mean, with respect to each Lender, the commitment, if any, of such Lender to make a Secondary Delayed Draw Term Loan hereunder in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Lender, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Secondary Delayed Draw Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04 . The initial aggregate amount of the Lenders Secondary Delayed Draw Term Loan Commitments is $7,500,000.
Secondary Delayed Draw Term Loan Commitment Period shall have the meaning assigned to such term in Section 2.01 (c) .
Secondary Delayed Draw Term Loan Lender shall mean a Lender with a Secondary Delayed Draw Term Loan Commitment or an outstanding Secondary Delayed Draw Term Loan.
Secured Obligations shall mean (a) the Obligations, (b) the due and punctual payment and performance of all obligations of Borrower and the other Loan Parties under each Hedging Agreement entered into with any counterparty that is a Secured Party and (c) the due and punctual payment and performance of all obligations of Borrower and the other Loan Parties (including overdrafts and related liabilities) under each Treasury Services Agreement entered into with any counterparty that is a Secured Party; provided that the maximum aggregate amount of obligations that shall constitute Secured Obligations pursuant to the foregoing clauses (b) and (c) shall not exceed $3,000,000 in the aggregate at any time outstanding.
Secured Parties shall mean, collectively, Administrative Agent, Collateral Agent, each other Agent, the Lenders and each counterparty to a Hedging Agreement or Treasury Services Agreement if at the date of entering into such Hedging Agreement or Treasury Services Agreement such person was a Lender or an Affiliate of a Lender and such person executes and delivers to Administrative Agent a letter agreement in form and substance reasonably acceptable to Administrative Agent pursuant to which such person (i) appoints Collateral Agent as its agent under the applicable Loan Documents, (ii) agrees to be bound by the provisions of Sections 10.03 and 10.09 as if it were a Lender and (iii) acknowledges and agrees that the maximum aggregate amount of obligations that shall constitute Secured Obligations pursuant to clauses (b) and (c) of the definition thereof shall not exceed $3,000,000 in the aggregate at any time outstanding.
Securities Act shall mean the Securities Act of 1933.
Securities Collateral shall have the meaning assigned to such term in the Security Agreement.
Security Agreement shall mean a Security Agreement substantially in the form of Exhibit M among the Loan Parties and Collateral Agent for the benefit of the Secured Parties.
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Security Agreement Collateral shall mean all property pledged or granted as collateral pursuant to the Security Agreement (a) on the Closing Date or (b) thereafter pursuant to Section 5.11 .
Security Documents shall mean the Security Agreement, the Mortgages and each other security document or pledge agreement delivered in accordance with applicable local or foreign law to grant a valid, perfected security interest in any property as collateral for the Secured Obligations, and all UCC or other financing statements or instruments of perfection required by this Agreement, the Security Agreement, any Mortgage or any other such security document or pledge agreement to be filed with respect to the security interests in property and fixtures created pursuant to the Security Agreement or any Mortgage and any other document or instrument utilized to pledge or grant or purport to pledge or grant a security interest or lien on any property as collateral for the Secured Obligations.
Specified EBITDA Addbacks shall mean:
(i) for the fiscal quarter ended December 31, 2011, an amount equal to $1,715,184 in respect of commissions, fees and other expenses related to the Blueberi transaction and other one-time costs, expenses and charges;
(ii) for the fiscal quarter ended March 31, 2012, an amount equal to $1,795,541 in respect of commissions, fees and other expenses related to the Blueberi transaction; and
(iii) for the fiscal quarter ended June 30, 2012, an amount equal to $1,261,445 in respect of commissions, fees and other expenses related to the Blueberi transaction.
Specified Equity Issuance shall mean any Equity Issuance that Borrower identifies to the Administrative Agent in writing pursuant to an Officers Certificate on or prior to the date of such Equity Issuance certifying that the proceeds of such Equity Issuance are expected to be used no later than 120 days following the date of receipt of such proceeds for a Permitted Additional Basket Amount Usage.
Sponsor shall mean Alpine AGS, LLC.
Statutory Reserves shall mean for any Interest Period for any Eurodollar Borrowing, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the United States Federal Reserve System in New York City with deposits exceeding one billion dollars against Eurocurrency liabilities (as such term is used in Regulation D). Eurodollar Borrowings shall be deemed to constitute Eurodollar liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Lender under Regulation D.
Subordinated Indebtedness shall mean Indebtedness of Borrower or any Guarantor that is by its terms subordinated in right of payment to the Obligations of Borrower and such Guarantor.
Subsidiary shall mean, with respect to any person (the parent ) at any date, (i) any person the accounts of which would be consolidated with those of the parent in the parents consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, (ii) any other corporation, limited liability company, association or other business entity of which securities or other ownership interests representing more than 50% of the voting power of all Equity Interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors thereof are, as of such date, owned, controlled or held by the parent and/or one or more subsidiaries
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of the parent, (iii) any partnership (a) the sole general partner or the managing general partner of which is the parent and/or one or more subsidiaries of the parent or (b) the only general partners of which are the parent and/or one or more subsidiaries of the parent and (iv) any other person that is otherwise Controlled by AGS Capital and/or one or more subsidiaries of AGS Capital. Unless the context requires otherwise, Subsidiary refers to a Subsidiary of AGS Capital.
Subsidiary Guarantor shall mean each Subsidiary listed on Schedule 1.01 , and each other Subsidiary that is or becomes a party to this Agreement pursuant to Section 5.11 .
Supermajority Lenders shall mean Lenders having more than 60% of the sum of all Term Loans outstanding and unused Commitments that have not been terminated or expired at such time; provided that the Term Loans and Commitments held or deemed held by any Defaulting Lender shall be excluded for purposes of making a determination of Supermajority Lenders.
Survey shall mean a survey of any Mortgaged Property (and all improvements thereon) which is (a) (i) prepared by a surveyor or engineer licensed to perform surveys in the jurisdiction where such Mortgaged Property is located, (ii) dated (or redated) not earlier than six months prior to the date of delivery thereof unless there shall have occurred within six months prior to such date of delivery any exterior construction on the site of such Mortgaged Property or any easement, right of way or other interest in the Mortgaged Property has been granted or become effective through operation of law or otherwise with respect to such Mortgaged Property which, in either case, can be depicted on a survey, in which events, as applicable, such survey shall be dated (or redated) after the completion of such construction or if such construction shall not have been completed as of such date of delivery, not earlier than 20 days prior to such date of delivery, or after the grant or effectiveness of any such easement, right of way or other interest in the Mortgaged Property, (iii) certified by the surveyor (in a manner reasonably acceptable to Administrative Agent) to Administrative Agent, Collateral Agent and the Title Company, (iv) complying in all respects with the minimum detail requirements of the American Land Title Association as such requirements are in effect on the date of preparation of such survey and (v) sufficient for the Title Company to remove all standard survey exceptions from the title insurance policy (or commitment) relating to such Mortgaged Property and issue the endorsements in form and substance reasonably satisfactory to Collateral Agent or (b) otherwise acceptable to Collateral Agent.
Syndication Agent shall have the meaning assigned to such term in the preamble hereto.
Tax Return shall mean all returns, statements, filings, attachments and other documents or certifications required to be filed in respect of Taxes.
Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term Borrowing shall mean a Borrowing comprised of Term Loans.
Term Loan Commitments shall mean the Initial Term Loan Commitment, the Initial Delayed Draw Term Loan Commitment and the Secondary Delayed Draw Term Loan Commitment, collectively.
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Term Loan Lender shall mean a Lender with a Term Loan Commitment or an outstanding Term Loan.
Term Loan Maturity Date shall mean the date which is four years after the Closing Date or, if such date is not a Business Day, the first Business Day thereafter.
Term Loan Repayment Date shall have the meaning assigned to such term in Section 2.09 .
Term Loans shall mean the Initial Term Loans, the Initial Delayed Draw Term Loans and the Secondary Delayed Draw Term Loans, collectively.
Test Period shall mean, at any time, the four consecutive fiscal quarters of AGS Capital then last ended (in each case taken as one accounting period).
Title Company shall mean any title insurance company as shall be retained by Borrower and reasonably acceptable to Administrative Agent.
Total Leverage Ratio shall mean, at any date of determination, the ratio of Consolidated Indebtedness on such date to Consolidated EBITDA for the Test Period then most recently ended.
Transactions shall mean, collectively, the transactions to occur on or prior to the Closing Date pursuant to the Loan Documents, including (a) the execution, delivery and performance of the Loan Documents and the initial borrowings hereunder; (b) the Refinancing; and (c) the payment of all fees and expenses to be paid on or prior to the Closing Date and owing in connection with the foregoing.
Transferred Guarantor shall have the meaning assigned to such term in Section 7.09 .
Treasury Services Agreement shall mean any agreement relating to treasury, depositary and cash management services or automated clearinghouse transfer of funds.
Type , when used in reference to any Term Loan or Borrowing, refers to whether the rate of interest on such Term Loan, or on the Term Loans comprising such Borrowing, is determined by reference to the Adjusted LIBOR Rate or the Alternate Base Rate.
UCC shall mean the Uniform Commercial Code as in effect from time to time (except as otherwise specified) in any applicable state or jurisdiction.
United States shall mean the United States of America.
Upfront Fees shall have the meaning assigned to such term in the Lender Fee Letter.
Voting Stock shall mean, with respect to any person, any class or classes of Equity Interests pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of such person.
Wholly Owned Subsidiary shall mean, as to any person, (a) any corporation 100% of whose capital stock (other than directors qualifying shares) is at the time owned by such person and/or one or more Wholly Owned Subsidiaries of such person and (b) any partnership, association, joint venture, limited liability company or other entity in which such person and/or one or more Wholly Owned Subsidiaries of such person have a 100% equity interest at such time.
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Withdrawal Liability shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02 Classification of Term Loans and Borrowings . For purposes of this Agreement, Term Loans may be classified and referred to by Class ( e.g ., an Initial Term Loan) or by Type ( e.g ., a Eurodollar Term Loan) or by Class and Type. Borrowings also may be classified and referred to by Class ( e.g ., a Term Borrowing, Borrowing of Initial Term Loans) or by Type ( e.g ., a Eurodollar Borrowing) or by Class and Type.
SECTION 1.03 Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise (a) any definition of or reference to any Loan Document, agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any person shall be construed to include such persons successors and assigns, (c) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall refer to such law or regulation as amended, modified or supplemented from time to time, (f) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights and (g) on, when used with respect to the Mortgaged Property or any property adjacent to the Mortgaged Property, means on, in, under, above or about.
SECTION 1.04 Accounting Terms; GAAP . Except as otherwise expressly ed herein, all financial statements to be delivered pursuant to this Agreement shall be prepared in accordance with GAAP as in effect from time to time and all terms of an accounting or financial nature (including Attributable Indebtedness, Capital Lease Obligations and Sale and Leaseback Transactions) shall be construed and interpreted in accordance with GAAP, as in effect on the date hereof unless otherwise agreed to by Borrower and the Required Lenders.
SECTION 1.05 Resolution of Drafting Ambiguities . Each Loan Party edges and agrees that it was represented by counsel in connection with the execution and delivery of the Loan Documents to which it is a party, that it and its counsel reviewed and participated in the preparation and negotiation hereof and thereof and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation hereof or thereof.
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ARTICLE II
THE CREDITS
SECTION 2.01 Commitments . Subject to the terms and conditions and relying on the representations and warranties herein set forth, each Lender agrees, severally and not jointly:
(a) to make an Initial Term Loan to Borrower on the Closing Date in the principal amount not to exceed its Initial Term Loan Commitment; and
(b) to make an Initial Delayed Draw Term Loan to Borrower upon Borrowers request therefor in accordance with Section 2.03 on or prior to the date that is six (6) months after the Closing Date (the Initial Delayed Draw Term Loan Commitment Period ) in an aggregate principal amount not to exceed its Initial Delayed Draw Term Loan Commitment; and
(c) to make a Secondary Delayed Draw Term Loan in an aggregate principal amount not to exceed its Secondary Delayed Draw Term Loan Commitment on such date to Borrower upon Borrowers request therefor in accordance with Section 2.03 (i) from and after the date that is the earlier of (x) the date upon which the Initial Delayed Draw Term Loan is made to Borrower and (y) the date that is six (6) months and one day after the Closing Date and (ii) on or prior to the date that is twelve (12) months after the Closing Date (the Secondary Delayed Draw Term Loan Commitment Period ).
Amounts paid or prepaid in respect of Term Loans may not be reborrowed.
SECTION 2.02 Term Loans .
(a) Each Term Loan shall be made as part of a Borrowing consisting of Term Loans made by the Lenders ratably in accordance with their applicable Commitments; provided that the failure of any Lender to make its Term Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Term Loan required to be made by such other Lender). Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Initial Delayed Draw Term Loan shall be made in one drawing at any time during the Initial Delayed Draw Term Loan Commitment Period and the Secondary Delayed Draw Term Loan shall be made in one drawing which may be made at any time during the Secondary Delayed Draw Term Loan Commitment Period.
(b) Subject to Sections 2.11 and 2.12 , each Borrowing shall be comprised entirely of ABR Term Loans or Eurodollar Term Loans as Borrower may request pursuant to Section 2.03 . Each Lender may at its option make any Eurodollar Term Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Term Loan; provided that any exercise of such option shall not affect the obligation of Borrower to repay such Term Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided that Borrower shall not be entitled to request any Borrowing that, if made, would result in more than ten Eurodollar Borrowings outstanding hereunder at any one time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.
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(c) Each Lender shall make each Term Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as Administrative Agent may designate not later than 11:00 a.m., New York City time, and Administrative Agent shall promptly credit the amounts so received to an account as directed by Borrower in the applicable Borrowing Request maintained with Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders.
(d) Unless Administrative Agent shall have received notice from a Lender prior to the time of any Borrowing that such Lender will not make available to Administrative Agent such Lenders portion of such Borrowing, Administrative Agent may assume that such Lender has made such portion available to Administrative Agent on the date of such Borrowing in accordance with paragraph (c) above, and Administrative Agent may, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If Administrative Agent shall have so made funds available, then, to the extent that such Lender shall not have made such portion available to Administrative Agent, each of such Lender and Borrower severally agrees to repay to Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrower until the date such amount is repaid to Administrative Agent at (i) in the case of Borrower, the interest rate applicable at the time to the Term Loans comprising such Borrowing and (ii) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by Administrative Agent in accordance with banking industry rules on interbank compensation. If such Lender shall repay to Administrative Agent such corresponding amount, such amount shall constitute such Lenders Term Loan as part of such Borrowing for purposes of this Agreement, and Borrowers obligation to repay Administrative Agent such corresponding amount pursuant to this Section 2.02(d) shall cease.
(e) Notwithstanding any other provision of this Agreement, Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Term Loan Maturity Date.
SECTION 2.03 Borrowing Procedure . To request (i) an Initial Term Loan rowing, Borrower shall deliver a duly completed and executed Borrowing Request to Administrative Agent not later than 3:00 p.m., New York City time, one (1) Business Day before the date of the proposed Borrowing and (ii) a Delayed Draw Term Loan Borrowing, Borrower shall deliver a duly completed and executed Borrowing Request to Administrative Agent not later than 11:00 a.m., New York City time, ten (10) Business Days before the date of the proposed Borrowing. Each Borrowing Request shall be irrevocable and shall specify the following information in compliance with Section 2.02 :
(a) whether the requested Borrowing is to be a Borrowing of Initial Term Loans, Initial Delayed Draw Term Loans or Secondary Delayed Draw Term Loans;
(b) the aggregate principal amount of such Borrowing;
(c) the date of such Borrowing, which shall be a Business Day;
(d) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(e) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term Interest Period;
(f) the location and number of Borrowers account to which funds are to be disbursed, which shall comply with the requirements of Section 2.02(c) ;
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(g) in the case such Borrowing is to be a Borrowing of Delayed Draw Term Loans, that the conditions set forth in Section 4.02 have been satisfied as of the date of the notice; and
(h) that the conditions set forth in Sections 4.03(b)-(e) have been satisfied as of the date of the notice.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then Borrower shall be deemed to have selected an Interest Period of one months duration. Promptly following receipt of a Borrowing Request in accordance with this Section, Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lenders Term Loan to be made as part of the requested Borrowing.
SECTION 2.04 Evidence of Debt; Repayment of Term Loans .
(a) Promise to Repay . Borrower hereby unconditionally promises to pay to Administrative Agent for the account of each Term Loan Lender, the principal amount of each Term Loan of such Term Loan Lender as provided in Section 2.09 .
(b) Lender and Administrative Agent Records . Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of Borrower to such Lender resulting from each Term Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. Administrative Agent shall maintain accounts in which it will record (i) the amount of each Term Loan made hereunder, the Type and Class thereof and the Interest Period applicable thereto; (ii) the amount of any principal or interest due and payable or to become due and payable from Borrower to each Lender hereunder; and (iii) the amount of any sum received by Administrative Agent hereunder for the account of the Lenders and each Lenders share thereof. The entries made in the accounts maintained pursuant to this paragraph shall be prima facie evidence of the existence and amounts of the obligations therein recorded absent manifest error; provided that the failure of any Lender or Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of Borrower to repay the Term Loans in accordance with their terms.
(c) Promissory Notes . Any Lender by written notice to Borrower (with a copy to Administrative Agent) may request that Term Loans of any Class made by it be evidenced by a promissory note. In such event, Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) in the form of Exhibit K . Thereafter, the Term Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04 ) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.05 Fees .
(a) Upfront Fees . Borrower agrees to pay to the Lenders, for their own account, the Upfront Fees payable as set forth in the Lender Fee Letter.
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(b) Administrative Agent Fees . Borrower agrees to pay to Administrative Agent, for its own account, the administrative fees payable as set forth in the Agent Fee Letter (the Administrative Agent Fees ).
(c) Commitment Fee . Borrower agrees to pay to Administrative Agent for the account of each Lender a commitment fee (a Commitment Fee ) equal to 5.0% per annum on the unused amount of each Commitment of such Lender during the period from and including the date hereof to but excluding the date on which such Commitment terminates (whether by expiration or as a result of funding or acceleration). Accrued Commitment Fees shall be payable in arrears (A) on the last Business Day of March, June, September and December of each year, commencing on the first such date to occur after the date hereof, and (B) on the date on which such Commitment terminates (whether by expiration or as a result of funding or acceleration). Commitment Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
(d) All Fees shall be paid on the dates due, in immediately available funds, to Administrative Agent for distribution, if and as appropriate, among the Lenders. Once paid, none of the Fees shall be refundable under any circumstances.
SECTION 2.06 Interest on Term Loans .
(a) ABR Term Loans . Subject to the provisions of Section 2.06(c) , the Term Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin in effect from time to time.
(b) Eurodollar Term Loans . Subject to the provisions of Section 2.06(c) , the Term Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin in effect from time to time.
(c) Default Rate . Notwithstanding the foregoing, from and after and during the continuance of an Event of Default pursuant to Section 8.01(a) , (b) , (g) or (h) or as a result of a breach of Section 6.10 , all Obligations shall, to the extent permitted by applicable law, bear interest, after as well as before judgment, at a per annum rate equal to (i) in the case of principal and premium, if any, of or interest on any Term Loan, 2% plus the rate otherwise applicable to such Term Loan as provided in the preceding paragraphs of this Section 2.06 or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Term Loans as provided in Section 2.06(a) (in either case, the Default Rate ).
(d) Interest Payment Dates . Accrued interest on each Term Loan shall be payable in arrears on each Interest Payment Date for such Term Loan; provided that (i) interest accrued pursuant to Section 2.06(c) shall be payable on demand, (ii) in the event of any repayment or prepayment of any Term Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Term Loan prior to the end of the current Interest Period therefor, accrued interest on such Term Loan shall be payable on the effective date of such conversion.
(e) Interest Calculation . All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the
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actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBOR Rate shall be determined by Administrative Agent in accordance with the provisions of this Agreement and such determination shall be conclusive absent manifest error.
SECTION 2.07 Termination and Reduction of Commitments .
(a) Termination of Commitments . The Initial Term Loan Commitment shall automatically terminate at 5:00 p.m., New York City time, on the Closing Date. The Initial Delayed Draw Term Loan Commitment shall automatically terminate at 5:00 p.m., New York City time, on the six-month anniversary of the Closing Date if and to the extent that such Commitments have not been fully drawn by such time. The Secondary Delayed Draw Term Loan Commitment shall automatically terminate at 5:00 p.m., New York City time, on the one-year anniversary of the Closing Date if and to the extent that such Commitments have not been fully drawn by such time.
(b) Optional Terminations and Reductions . At its option, Borrower may at any time terminate, or from time to time permanently reduce, the Commitments of any Class; provided that each reduction of the Commitments of any Class shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000.
(c) Borrower Notice . Borrower shall notify Administrative Agent in writing of any election to terminate or reduce the Commitments under Section 2.07(b) at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities or capital markets transaction, in which case such notice may be revoked by Borrower (by notice to Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments of any Class shall be permanent. Each reduction of the Commitments of any Class shall be made ratably among the Lenders in accordance with their respective Commitments of such Class.
SECTION 2.08 Interest Elections .
(a) Generally . Each Term Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section.Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Term Loans comprising such Borrowing, and the Term Loans comprising each such portion shall be considered a separate Borrowing. Notwithstanding anything to the contrary, Borrower shall not be entitled to request any conversion or continuation that, if made, would result in more than ten Eurodollar Borrowings outstanding hereunder at any one time.
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(b) Interest Election Notice . To make an election pursuant to this Section, Borrower shall deliver, by hand delivery, or telecopier or other electronic transmission (including .pdf), a duly completed and executed Interest Election Request to Administrative Agent not later than 11:00 a.m., New York City time, three (3) Business Days before the date of the proposed effective date of such election. Each Interest Election Request shall be irrevocable. Each Interest Election Request shall specify the following information in compliance with Section 2.02 :
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, or if outstanding Borrowings are being combined, allocation to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term Interest Period.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then Borrower shall be deemed to have selected an Interest Period of one months duration.
Promptly following receipt of an Interest Election Request, Administrative Agent shall advise each Lender of the details thereof and of such Lenders portion of each resulting Borrowing.
(c) Automatic Conversion to ABR Borrowing . If an Interest Election Request with respect to a Eurodollar Borrowing is not timely delivered prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing, Administrative Agent or the Required Lenders may require, by notice to Borrower, that (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.09 Amortization of Term Borrowings . Borrower shall pay to ministrative Agent, for the account of the Lenders, on the dates set forth on Annex I , or if any such date is not a Business Day, on the immediately preceding Business Day (each such date, a Term Loan Repayment Date ), a principal amount of the Term Loans equal to the amount set forth on Annex I for such date (as adjusted from time to time pursuant to Section 2.10(h) ), together in each case with accrued and unpaid interest on the principal amount to be paid to but excluding the date of such payment. To the extent not previously paid, all Term Loans shall be due and payable on the Term Loan Maturity Date.
SECTION 2.10 Optional and Mandatory Prepayments of Term Loans .
(a) Optional Prepayments . Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, subject to the requirements of this Section 2.10 ; provided that each partial prepayment shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000 or, if less, the outstanding principal amount of such Borrowing.
(b) Reserved .
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(c) Asset Sales . Not later than three Business Days following the receipt of any Net Cash Proceeds of any Asset Sale by AGS Capital or any of its Subsidiaries, Borrower shall make prepayments in accordance with Sections 2.10(h) and (i) in an aggregate amount equal to 100% of such Net Cash Proceeds; provided that:
(i) no such prepayment shall be required under this Section 2.10(c)(i) with respect to (A) any Asset Sale permitted by Section 6.06 (other than Section 6.06(b) and 6.06(h) ), (B) the disposition of property which constitutes a Casualty Event, or (C) Asset Sales for fair market value resulting in no more than $500,000 in Net Cash Proceeds per Asset Sale (or series of related Asset Sales) and less than $1,000,000 in Net Cash Proceeds in any fiscal year; and
(ii) so long as no Default shall then exist or would arise therefrom and the aggregate of such Net Cash Proceeds of Asset Sales shall not exceed $2,000,000 in any fiscal year of Borrower, such proceeds shall not be required to be so applied on such date to the extent that Borrower shall have delivered an Officers Certificate to Administrative Agent on or prior to such date stating that such Net Cash Proceeds are expected to be reinvested in fixed or capital assets within 270 days following the date of such Asset Sale (which Officers Certificate shall set forth the estimates of the proceeds to be so expended); provided that if all or any portion of such Net Cash Proceeds is not so reinvested within such 270-day period, such unused portion shall be applied on the last day of such period as a mandatory prepayment as provided in this Section 2.10(c) ; provided , further , that if the property subject to such Asset Sale constituted Collateral, then all property purchased with the Net Cash Proceeds thereof pursuant to this subsection shall be made subject to the Lien of the applicable Security Documents in favor of Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12 .
(d) Debt Issuance or Issuance of Disqualified Capital Stock . Not later than one Business Day following the receipt by AGS Capital or any of its Subsidiaries of any Net Cash Proceeds of any Debt Issuance or any issuance of Disqualified Capital Stock of any of AGS Capitals Subsidiaries (other than any Debt Issuance or issuance of Disqualified Capital Stock permitted by Section 6.01 ), Borrower shall make prepayments in accordance with Sections 2.10(h) and (i) in an aggregate amount equal to 100% of such Net Cash Proceeds.
(e) Equity Issuance . Not later than five Business Days following the receipt of any Net Cash Proceeds of any Equity Issuance, Borrower shall make prepayments in accordance with Sections 2.10(h) and (i) in an aggregate amount equal to (I) in the case of an IPO, 100% of such Net Cash Proceeds and (II) in all other cases, 50% of such Net Cash Proceeds; provided that in the case of this clause (II) only, so long as no Default shall then exist or arise therefrom, to the extent such Net Cash Proceeds are from a Specified Equity Issuance, such proceeds shall not be required to be so applied; provided further however that, if any portion of such Net Cash Proceeds from a Specified Equity Issuance is not applied within 120 days after receipt of such Net Cash Proceeds for a Permitted Additional Basket Amount Usage, 50% of such unused portion of Net Cash Proceeds shall be applied on the last day of such period as a mandatory prepayment as provided in this Section 2.10(e) .
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(f) Casualty Events . Not later than three Business Days following the receipt of any Net Cash Proceeds from a Casualty Event by AGS Capital or any of its Subsidiaries, Borrower shall make prepayments in accordance with Sections 2.10(h) and (i) in an aggregate amount equal to 100% of such Net Cash Proceeds; provided that:
(i) so long as no Default shall then exist or arise therefrom, such proceeds shall not be required to be so applied on such date to the extent that (A) in the event such Net Cash Proceeds shall not exceed $5,000,000, Borrower shall have delivered an Officers Certificate to Administrative Agent on or prior to such date stating that such proceeds are expected to be used, or (B) in the event that such Net Cash Proceeds exceed $5,000,000, Administrative Agent has elected by notice to Borrower on or prior to such date to require such proceeds to be used, in each case, to repair, replace or restore any property in respect of which such Net Cash Proceeds were paid or to reinvest in other fixed or capital assets, no later than 270 days following the date of receipt of such proceeds; provided that if the property subject to such Casualty Event constituted Collateral under the Security Documents, then all property purchased with the Net Cash Proceeds thereof pursuant to this subsection shall be made subject to the Lien of the applicable Security Documents in favor of Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12 ; and
(ii) if any portion of such Net Cash Proceeds shall not be so applied within such 270-day period, such unused portion shall be applied on the last day of such period as a mandatory prepayment as provided in this Section 2.10(f) .
(g) Excess Cash . No later than the date that is 30 days after the end of the applicable Excess Cash Period, beginning with the fiscal year ending December 31, 2013, Borrower shall make prepayments in accordance with Sections 2.10(h) and (i) in an aggregate amount equal to 75% of Excess Cash for the Excess Cash Period then ended (provided that, if the Total Leverage Ratio as of the end of such Excess Cash Period is less than 2.00 to 1.00, then such percentage shall be reduced to 50%).
(h) Application of Prepayments . Prior to any optional or mandatory prepayment hereunder, Borrower shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to Section 2.10(i) , subject to the provisions of this Section 2.10(h) . Any prepayments of Term Loans pursuant to Section 2.10(a) , (c) , (d) , (e) , (f) or (g) shall be applied to reduce scheduled prepayments required under Section 2.09 on a pro rata basis among the prepayments remaining to be made on the Term Loan Repayment Dates occurring from and after the date of such prepayment.
Amounts to be applied pursuant to this Section 2.10 to the prepayment of Term Loans shall be applied, as applicable, first to reduce outstanding ABR Term Loans. Any amounts remaining after each such application shall be applied to prepay Eurodollar Term Loans. Notwithstanding the foregoing, if the amount of any prepayment of Term Loans required under this Section 2.10 shall be in excess of the amount of the ABR Term Loans at the time outstanding (an Excess Amount ), only the portion of the amount of such prepayment as is equal to the amount of such outstanding ABR Term Loans shall be immediately prepaid and, at the election of Borrower, the Excess Amount shall be either (A) deposited in an escrow account on terms satisfactory to Collateral Agent and applied to the prepayment of Eurodollar Term Loans on the last day of the then next-expiring Interest Period for Eurodollar Term Loans; provided that (i) interest in respect of such Excess Amount shall continue to accrue thereon at the rate provided hereunder for the Term Loans which such Excess Amount is intended to repay until such Excess Amount shall have been used in full to repay such Term Loans and (ii) at any time while a Default has occurred and is continuing, Administrative Agent may, and upon written direction from the Required Lenders shall, apply any or all proceeds then on deposit to the payment of such Term Loans in an amount equal to such Excess Amount or (B) prepaid immediately, together with any amounts owing to the Lenders under Section 2.13 . Any and all amounts prepaid under this Section 2.10 shall be without penalty or premium, other than amounts owing to Lenders under Section 2.10(j) (to the extent applicable) and Section 2.13 .
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(i) Notice of Prepayment . Borrower shall notify Administrative Agent by written notice of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment and (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07 , then such notice of prepayment may be revoked if such termination is revoked in accordance with Section 2.07 . Each such notice shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment. Promptly following receipt of any such notice, Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of a Credit Extension of the same Type as provided in Section 2.02 , except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Term Loans included in the prepaid Borrowing and otherwise in accordance with this Section 2.10 . Prepayments shall be accompanied by accrued interest to the extent required by Section 2.06 and any premiums to the extent required by Section 2.10(j) (to the extent applicable).
(j) Term Loan Prepayment Premium . Upon repayment of the Term Loans at any time on or after the Closing Date and on or prior to the third anniversary of the Closing Date for any reason (other than as a result of a repayment pursuant to (i) Section 2.09 , (ii) Section 2.10(c) (solely with respect to the first $2,500,000 of Net Cash Proceeds that are applied to prepay the Term Loans pursuant to Section 2.10(c) in any fiscal year), (iii) Section 2.10 (f) (solely with respect to the first $2,500,000 of Net Cash Proceeds that are applied to prepay the Term Loans pursuant to Section 2.10(f) in any fiscal year) or (iv) Section 2.10(g) ) or in the case of a mandatory assignment of Term Loans pursuant to Section 2.16(b) on or after the Closing Date and on or prior to the third anniversary of the Closing Date, Borrower shall pay to the Lenders (or the replaced Lender or Lenders in connection with a mandatory assignment of Term Loans pursuant to Section 2.16(b) ) a prepayment premium on the principal amount so prepaid as follows:
Relevant Period in which prepayment or mandatory assignment, as the case may be, occurs |
Prepayment Premium (expressed as a percentage
|
|
After the Closing Date and on or prior to the first anniversary of the Closing Date | 6.0% | |
After the first anniversary of the Closing Date and on or prior to the second anniversary of the Closing Date | 3.0% | |
After the second anniversary of the Closing Date and on or prior to the third anniversary of the Closing Date | 1.5% |
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SECTION 2.11 Alternate Rate of Interest . If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(a) Administrative Agent determines (which determination shall be final and conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Rate for such Interest Period; or
(b) Administrative Agent is advised in writing by the Required Lenders that the Adjusted LIBOR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Term Loans included in such Borrowing for such Interest Period;
then Administrative Agent shall give written notice thereof to Borrower and the Lenders as promptly as practicable thereafter and, until Administrative Agent notifies Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.12 Yield Protection .
(a) Increased Costs Generally . If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in, by any Lender (except any reserve requirement reflected in the Adjusted LIBOR Rate);
(ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Term Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for, and without duplication for, Indemnified Taxes or Other Taxes covered by Section 2.15 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender); or
(iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Term Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Term Loan (or of maintaining its obligation to make any such Term Loan), or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount), then, upon request of such Lender, Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.
(b) Capital Requirements . If any Lender determines (in good faith, but in its sole absolute discretion) that any Change in Law affecting such Lender or any lending office of such Lender or such Lenders holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lenders capital or on the capital of such Lenders holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Term Loans made by such Lender to a level below that which such Lender or such Lenders holding company could have achieved but for such Change in Law (taking into consideration such Lenders policies and the policies of such Lenders holding company with respect to capital adequacy), then from time to time Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lenders holding company for any such reduction suffered.
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(c) Certificates for Reimbursement . A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section 2.12 and delivered to Borrower shall be conclusive absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Delay in Requests . Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.12 shall not constitute a waiver of such Lenders right to demand such compensation; provided that Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs incurred or reductions suffered more than six months prior to the date that such Lender notifies Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lenders intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof) .
SECTION 2.13 Breakage Payments . In the event of (a) the payment or ment, whether optional or mandatory, of any principal of any Eurodollar Term Loan earlier than the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Term Loan earlier than the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Term Loan on the date specified in any notice delivered pursuant hereto or (d) the assignment of any Eurodollar Term Loan earlier than the last day of the Interest Period applicable thereto as a result of a request by Borrower pursuant to Section 2.16(b) , then, in any such event, Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Term Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Term Loan had such event not occurred, at the Adjusted LIBOR Rate that would have been applicable to such Term Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Term Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the Eurodollar market. A certificate of any Lender setting forth in reasonable detail any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.13 shall be delivered to Borrower (with a copy to Administrative Agent) and shall be conclusive and binding absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate within 5 days after receipt thereof.
SECTION 2.14 Payments Generally; Pro Rata Treatment; Sharing of Setoffs .
(a) Payments Generally . Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest or fees, or of amounts payable under Section 2.12 , 2.13 , 2.15 or 10.03 , or otherwise) on or before the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New York City time), on the date when due, in immediately available funds, without setoff, deduction or counterclaim. Any amounts received after such time on any date may, in the discretion of Administrative Agent, be deemed to have been received on the next succeeding Business Day for
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purposes of calculating interest thereon. All such payments shall be made to Administrative Agent at its offices at 677 Washington Boulevard, Stamford, Connecticut, except that payments pursuant to Sections 2.12 , 2.13 , 2.15 and 10.03 shall be made directly to the persons entitled thereto and payments pursuant to other Loan Documents shall be made to the persons specified therein. Administrative Agent shall distribute any such payments received by it for the account of any other person to the appropriate recipient promptly following receipt thereof. If any payment under any Loan Document shall be due on a day that is not a Business Day, unless specified otherwise, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Loan Document shall be made in dollars, except as expressly specified otherwise.
(b) Pro Rata Treatment .
(i) Each payment by Borrower of interest in respect of the Term Loans shall be applied to the amounts of such obligations owing to the Lenders pro rata according to the respective amounts then due and owing to the Lenders.
(ii) Each payment on account of principal of the Term Loans shall be allocated among the Term Loan Lenders pro rata based on the principal amount of the Term Loans held by the Term Loan Lenders.
(c) Insufficient Funds . If at any time insufficient funds are received by and available to Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first , toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second , toward payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.
(d) Sharing of Set-Off . If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Term Loans or other Obligations resulting in such Lenders receiving payment of a proportion of the aggregate amount of its Term Loans and accrued interest thereon or other Obligations greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Term Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Term Loans and other amounts owing them, provided that:
(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(ii) the provisions of this paragraph shall not be construed to apply to (x) any payment made by Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Term Loans to any assignee or participant, other than to AGS Capital or its Subsidiaries or any of their respective Affiliates (as to which the provisions of this paragraph shall apply).
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Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Requirements of Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation. If under applicable bankruptcy, insolvency or any similar law any Secured Party receives a secured claim in lieu of a setoff or counterclaim to which this Section 2.14(d) applies, such Secured Party shall to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights to which the Secured Party is entitled under this Section 2.14(d ) to share in the benefits of the recovery of such secured claim.
(e) Borrower Default . Unless Administrative Agent shall have received notice from Borrower prior to the date on which any payment is due to Administrative Agent for the account of the Lenders hereunder that Borrower will not make such payment, Administrative Agent may assume that Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by Administrative Agent in accordance with banking industry rules on interbank compensation.
(f) Lender Default . If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.02(c) , 2.14(e) or 10.03(c) , then Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by Administrative Agent for the account of such Lender to satisfy such Lenders obligations under such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.15 Taxes .
(a) Payments Free of Taxes . Unless otherwise required by applicable Requirements of Law, any and all payments by or on account of any obligation of the Loan Parties hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Taxes; provided that if the Loan Parties shall be required by applicable Requirements of Law to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) Administrative Agent or each Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the applicable Loan Party shall make such deductions and (iii) the applicable Loan Party shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Requirements of Law.
(b) Payment of Other Taxes by Borrower . Without limiting the provisions of paragraph (a) above, Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Requirements of Law or, at the option of Administrative Agent, timely reimburse it for the payment of any Other Taxes.
(c) Indemnification by Borrower . Borrower shall indemnify Administrative Agent and each Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by Administrative Agent or such Lender, as the case may be,
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and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrower by a Lender (with a copy to Administrative Agent), or by Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Evidence of Payments . As soon as practicable after any payment of Taxes by Borrower to a Governmental Authority, Borrower shall deliver to Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Administrative Agent.
(e) Status of Lenders . Any Lender that is a United States person other than any exempt recipient shall deliver to Borrower and Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrower or Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from United States Federal backup withholding tax. Any Foreign Lender shall, to the extent it may lawfully do so, deliver to Borrower and Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of Borrower or Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,
(ii) duly completed copies of Internal Revenue Service Form W-8ECI,
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate, in substantially the form of Exhibit Q-1 , or any other form approved by Administrative Agent, to the effect that such Foreign Lender is not (A) a bank within the meaning of Section 881(c)(3)(A) of the Code, (B) a 10 percent shareholder of Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a controlled foreign corporation described in Section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN,
(iv) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a United States Tax Compliance Certificate substantially in the form of Exhibit Q-1 , IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit Q-3 on behalf of each such direct and indirect partner, or
(v) any other form prescribed by applicable Requirements of Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Requirements of Law to permit Borrower to determine the withholding or deduction required to be made.
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(f) FATCA . If a payment made to any Lender under any Loan Document would be subject to United States Federal withholding tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to Borrower and Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by Borrower or Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Borrower or Administrative Agent as may be necessary for Borrower and Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 2.15(f), FATCA shall include any amendments made to FATCA after the date of this Agreement.
(g) Treatment of Certain Refunds . If Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has paid additional amounts pursuant to this Section, it shall pay to Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrower under this Section with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses of Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that Borrower, upon the request of Administrative Agent or such Lender, agrees to repay the amount paid over to Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Administrative Agent or such Lender in the event Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to Borrower or any other person. Notwithstanding anything to the contrary, in no event will any Lender be required to pay any amount to Borrower the payment of which would place such Lender in a less favorable net after-tax position than such Lender would have been in if the additional amounts giving rise to such refund of any Indemnified Taxes or Other Taxes had never been paid.
SECTION 2.16 Mitigation Obligations; Replacement of Lenders .
(a) Designation of a Different Lending Office . If any Lender requests compensation under Section 2.12 , or requires Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15 , then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Term Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.15 , as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. A certificate setting forth such costs and expenses submitted by such Lender to Borrower shall be conclusive absent manifest error.
(b) Replacement of Lenders . If any Lender requests compensation under Section 2.12 , or if Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15 , or if any Lender is a Defaulting Lender
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or subject to Disqualification, or if Borrower exercises its replacement rights under Section 10.02(d) , then Borrower may, at its sole expense and effort, upon notice to such Lender and Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.04 ), all of its interests, rights and obligations under this Agreement and the other Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:
(i) Borrower shall have paid to Administrative Agent the processing and recordation fee specified in Section 10.04(b) ;
(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Term Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 2.13 ); provided that, in the case of any such assignment by a Defaulting Lender involving a Delayed Draw Term Loan Commitment, such amount shall be reduced by the amount of Upfront Fees that were paid to such Defaulting Lender (or its Affiliates or predecessor(s) in interest) with respect to the portion of the Delayed Draw Term Loan Commitment so assigned;
(iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.15 , such assignment will result in a reduction in such compensation or payments thereafter; and
(iv) such assignment does not conflict with applicable Requirements of Law.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Borrower to require such assignment and delegation cease to apply.
SECTION 2.17 Defaulting Lenders .
(a) Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(i) That Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in Section 10.02 .
(ii) Any payment of principal, interest, premiums, fees or other amounts received by Administrative Agent for the account of that Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise, and including any amounts made available to Administrative Agent by that Defaulting Lender), shall not be paid or distributed to that Defaulting Lender, but will instead be retained by Administrative Agent in a segregated non-interest bearing account until the Term Loan Maturity Date and shall be applied at such time or times as may be reasonably determined by Administrative Agent as follows: first , to the payment of any amounts owing by that Defaulting Lender to Administrative Agent hereunder; second , as Borrower may request (so long as no Default or Event of Default exists), to the funding of any Term Loan in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement; third , if so determined by Administrative Agent and Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of that Defaulting
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Lender to fund Term Loans under this Agreement; fourth , to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against that Defaulting Lender as a result of that Defaulting Lenders breach of its obligations under this Agreement; fifth , to the payment of any amounts owing to Borrower as a result of any judgment of a court of competent jurisdiction obtained by Borrower against that Defaulting Lender as a result of that Defaulting Lenders breach of its obligations under this Agreement; and sixth , after the Term Loan Maturity Date, to that Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Term Loans in respect of which that Defaulting Lender has not fully funded its appropriate share and (y) such Term Loans were made at a time when the conditions set forth in Article IV were satisfied or waived, such payment shall be applied solely to pay the Term Loans of all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Term Loans of that Defaulting Lender. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender shall be deemed paid to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto.
(b) Defaulting Lender Cure . If Borrower and Administrative Agent agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase that portion of outstanding Term Loans of the other Lenders or take such other actions as Administrative Agent may determine to be necessary to cause the Term Loans to be held on a pro rata basis by the Lenders in accordance with their respective Commitments, whereupon that Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to Administrative Agent, Collateral Agent and each of the Lenders (with references to the Companies being references thereto after giving effect to the Transactions unless otherwise expressly stated), on and as of the Closing Date, and on and as of each date as required by Section 4.03(c), that:
SECTION 3.01 Organization; Powers . Each Company (a) is duly organized and validly existing under the laws of the jurisdiction of its organization, (b) has all requisite power, authority, rights, licenses, permits, privileges (including, without limitation, with respect to Indian Tribes), franchises and authorizations to carry on its business as now conducted and to own and lease its property and (c) is qualified and in good standing (to the extent such concept is applicable in the applicable jurisdiction) to do business in every jurisdiction where such qualification is required, except in such jurisdictions where the failure to so qualify or be in good standing, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. There is no existing default under any Organizational Document of any Company or any event which, with the giving of notice or passage of time or both, would constitute a default by any party thereunder.
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SECTION 3.02 Authorization; Enforceability . The Transactions to be entered to by each Loan Party are within such Loan Partys powers and have been duly authorized by all necessary action on the part of such Loan Party. This Agreement has been duly executed and delivered by each Loan Party and constitutes, and each other Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03 No Conflicts . Except as set forth on Schedule 3.03 , the tions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except (i) such as have been obtained or made and are in full force and effect, (ii) filings necessary to perfect Liens created by the Loan Documents and (iii) consents, approvals, registrations, filings, permits or actions the failure to obtain or perform which could not reasonably be expected to result in a Material Adverse Effect, (b) will not violate the Organizational Documents of any Company, (c) will not violate any Requirement of Law, (d) will not violate or result in a default or require any consent or approval under any indenture, agreement or other instrument binding upon any Company or its property, or give rise to a right thereunder to require any payment to be made by any Company, except in the case of clauses (c) and (d) for violations, defaults or the creation of such rights that could not reasonably be expected to result in a Material Adverse Effect, and (e) will not result in the creation or imposition of any Lien on any property of any Company, except Liens created by the Loan Documents and Permitted Liens.
SECTION 3.04 Financial Statements; Projections .
(a) Historical Financial Statements . Borrower has heretofore delivered to the Lenders the consolidated balance sheets and related statements of income, stockholders equity and cash flows of AGS Capital (i) for the fiscal year ended December 31, 2011, audited by and accompanied by the unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and (ii) as of and for the three-month period ended March 31, 2012 and for the comparable period of the preceding fiscal year, in each case, certified by the chief financial officer of Borrower. Such financial statements and all financial statements delivered pursuant to Sections 5.01(a) , (b) and (c) have been prepared in accordance with GAAP and present fairly and accurately the financial condition and results of operations and cash flows of AGS Capital as of the dates and for the periods to which they relate.
(b) No Liabilities . Except as set forth in the financial statements referred to in Section 3.04(a) , there are no liabilities of any Company of any kind, whether accrued, contingent, absolute, determined, determinable or otherwise, which could reasonably be expected to result in a Material Adverse Effect, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability, other than liabilities under the Loan Documents. Since December 31, 2011, there has been no event, change, circumstance or occurrence that, individually or in the aggregate, has had or could reasonably be expected to result in a Material Adverse Effect.
(c) Pro Forma Balance Sheet . Borrower has heretofore delivered to the Lenders AGS Capital unaudited pro forma consolidated balance sheet as of June 30, 2012, after only giving effect to the Transactions as if they had occurred on such date. Such pro forma balance sheet has been prepared in good faith by the Loan Parties, based on the assumptions stated therein (which assumptions are believed by the Loan Parties on the date hereof and on the Closing Date to be reasonable in light of the circumstances in which they were made), are based on the best information available to the Loan Parties as
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of the date of delivery thereof, accurately reflect all adjustments required to be made to give effect to the Transactions, and present fairly in all material respects the pro forma consolidated balance sheet of AGS Capital as of such date and for such periods, assuming that the Transactions had occurred at such dates.
(d) Forecasts . The forecasts of financial performance of AGS Capital and its subsidiaries furnished to the Lenders have been prepared in good faith by Borrower and based on assumptions believed by Borrower to reasonable in light of the circumstances in which they were made.
SECTION 3.05 Properties .
(a) Generally . Each Company has good title to, or valid leasehold interests in, all its property material to its business, free and clear of all Liens except for, in the case of Collateral, Permitted Liens and, in the case of all other material property, Permitted Liens and minor irregularities or deficiencies in title that, individually or in the aggregate, do not interfere with its ability to conduct its business as currently conducted or to utilize such property for its intended purpose. The property of the Companies, taken as a whole, (i) is in good operating order, condition and repair (ordinary wear and tear excepted) and (ii) constitutes all the property which is required for the business and operations of the Companies as presently conducted.
(b) Real Property . Schedules 8(a) and 8(b) to the Perfection Certificate dated the Closing Date contain a true and complete list of each interest in Real Property (i) owned by any Loan Party as of the date hereof and describes the type of interest therein held by such Loan Party and whether such owned Real Property is leased and if leased whether the underlying Lease contains any option to purchase all or any portion of such Real Property or any interest therein or contains any right of first refusal relating to any sale of such Real Property or any portion thereof or interest therein and (ii) leased, subleased or otherwise occupied or utilized by any Loan Party, as lessee, sublessee, franchisee or licensee, as of the date hereof and describes the type of interest therein held by such Loan Party and, in each of the cases described in clauses (i) and (ii) of this Section 3.05(b) , whether any Lease requires the consent of the landlord or tenant thereunder, or other party thereto, to the Transactions.
(c) No Casualty Event . No Company has received any notice of, nor has any knowledge of, the occurrence or pendency or contemplation of any Casualty Event affecting all or any material portion of its property. No Mortgage encumbers improved Real Property that is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards within the meaning of the National Flood Insurance Act of 1968 unless flood insurance available under such Act has been obtained in accordance with Section 5.04 .
(d) Collateral . Each Company owns or has rights to use all of the Collateral and all rights with respect to any of the foregoing used in, necessary for or material to each Companys business as currently conducted, except for the failure to own or have rights to use which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The use by each Company of such Collateral and all such rights with respect to the foregoing do not infringe on the rights of any person other than such infringement which could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. No claim has been made and remains outstanding that any Companys use of any Collateral does or may violate the rights of any third party that could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
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SECTION 3.06 Intellectual Property .
(a) Ownership/No Claims . Each Loan Party owns, or is licensed to use, all patents, patent applications, trademarks, trade names, service marks, copyrights, technology, trade secrets, proprietary information, domain names, know-how and processes necessary for the conduct of its business as currently conducted (the Intellectual Property ), except for those the failure to own or license which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No claim has been asserted and is pending by any person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does any Loan Party know of any valid basis for any such claim which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. The use of such Intellectual Property by each Loan Party does not infringe the rights of any person, except for such claims and infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(b) Registrations . Except pursuant to licenses and other user agreements entered into by each Loan Party in the ordinary course of business that are listed in Schedule 12(a) or 12(b) to the Perfection Certificate, on and as of the date hereof (i) each Loan Party owns and possesses the right to use, and has done nothing to authorize or enable any other person to use, any copyright, patent or trademark (as such terms are defined in the Security Agreement) listed in Schedule 12(a) or 12(b) to the Perfection Certificate, except for those the failure to own or possess the right to use which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect and (ii) all registrations listed in Schedule 12(a) or 12(b) to the Perfection Certificate are valid and in full force and effect.
(c) No Violations or Proceedings . To each Loan Partys knowledge, on and as of the date hereof, there is no material violation by others of any right of such Loan Party with respect to any copyright, patent or trademark listed in Schedule 12(a) or 12(b) to the Perfection Certificate, pledged by it under the name of such Loan Party except as may be set forth on Schedule 3.06(c) that could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.07 Equity Interests and Subsidiaries .
(a) Equity Interests . Schedules 1(a) and 10(a) to the Perfection Certificate dated the Closing Date set forth a list of (i) all the Subsidiaries of AGS Capital and their jurisdictions of organization as of the Closing Date and (ii) the number of each class of its Equity Interests authorized, and the number outstanding, on the Closing Date and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the Closing Date. All Equity Interests of each Company are duly and validly issued and, in the case of any Company that is a corporation, are fully paid and non-assessable, and, other than the Equity Interests of AGS Capital, are owned by AGS Capital, directly or indirectly through Wholly Owned Subsidiaries. All Equity Interests of Borrower and AGS Partners are owned directly by AGS Capital. Each Loan Party is the record and beneficial owner of, and has good and marketable title to, the Equity Interests pledged by it under the Security Agreement, free of any and all Liens, rights or claims of other persons, except the security interest created by the Security Agreement, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any such Equity Interests.
(b) No Consent of Third Parties Required . Other than consents, approvals and licenses required under Gaming Laws, no consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary
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is necessary or reasonably desirable (from the perspective of a secured party) in connection with the creation, perfection or first priority status of the security interest of Collateral Agent in any Equity Interests pledged to Collateral Agent for the benefit of the Secured Parties under the Security Agreement or the exercise by Collateral Agent of the voting or other rights provided for in the Security Agreement or the exercise of remedies in respect thereof.
(c) Organizational Chart . An accurate organizational chart, showing the ownership structure of AGS Capital, Borrower and each Subsidiary on the Closing Date, and after giving effect to the Transactions, is set forth on Schedule 10(a) to the Perfection Certificate dated the Closing Date.
SECTION 3.08 Litigation; Compliance with Laws . There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or, to the knowledge of any Company, threatened against or affecting any Company or any business, property or rights of any Company (i) that involve any Loan Document or any of the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. Except for matters covered by Section 3.18 , no Company or any of its property is in violation of, nor will the continued operation of its property as currently conducted violate, any Requirements of Law (including without limitation, Indian Tribe and Gaming laws, any permits, any zoning or building ordinance, code or approval or any building permits) or any restrictions of record or agreements affecting any Companys Real Property or is in default with respect to any Requirement of Law, where such violation or default, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.09 Agreements . No Company is a party to any agreement or ment or subject to any corporate or other constitutional restriction in its Organizational Documents or otherwise that has resulted or could reasonably be expected to result in a Material Adverse Effect. No Company is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other agreement or instrument to which it is a party or by which it or any of its property is or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default. Schedule 3.09 accurately and completely lists all material agreements (other than leases of Real Property set forth on Schedule 8(a) or 8(b) to the Perfection Certificate dated the Closing Date) to which any Company is a party which are in effect on the date hereof in connection with the operation of the business conducted thereby and Borrower has delivered to Administrative Agent complete and correct copies of all such material agreements, including any amendments, supplements or modifications with respect thereto, and all such agreements are in full force and effect.
SECTION 3.10 Federal Reserve Regulations . No Company is engaged ly, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. No part of the proceeds of any Term Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the regulations of the Board, including Regulation T, U or X. The pledge of the Securities Collateral pursuant to the Security Agreement does not violate such regulations.
SECTION 3.11 Investment Company Act . No Company is an investment pany or a company controlled by an investment company, as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.
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SECTION 3.12 Use of Proceeds . Borrower will use the proceeds of the Initial Term Loan Borrowings made on the Closing Date to finance the Refinancing and to pay fees, costs, commissions and expenses in connection therewith. The Delayed Draw Term Loans will be used by Borrower and its Subsidiaries solely to finance the working capital needs and other general corporate purposes of Borrower and its Subsidiaries.
SECTION 3.13 Taxes . Each Company has (a) timely filed or caused to be timely filed all federal Tax Returns and all material state, local and foreign Tax Returns or materials required to have been filed by it and all such Tax Returns are true and correct in all material respects and (b) duly and timely paid, collected or remitted or caused to be duly and timely paid, collected or remitted all Taxes (whether or not shown on any Tax Return) due and payable, collectible or remittable by it and all assessments received by it, except Taxes (i) that are being contested in good faith by appropriate proceedings and for which such Company, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (ii) which could not, individually or in the aggregate, have a Material Adverse Effect. Each Company, as applicable, has made adequate provision in accordance with GAAP for all Taxes not yet due and payable. Each Company is unaware of any proposed or pending tax assessments, deficiencies or audits that could be reasonably expected to, individually or in the aggregate, result in a Material Adverse Effect. No Company has ever been a party to any understanding or arrangement constituting a tax shelter within the meaning of Section 6111 of the Code, or has ever participated in a reportable transaction within the meaning of Treasury Regulation Section 1.6011-4, except as could not be reasonably expected to, individually or in the aggregate, result in a Material Adverse Effect.
SECTION 3.14 No Material Misstatements . No written information, report, nancial statement, certificate, Borrowing Request, exhibit or schedule furnished by or on behalf of any Company to Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto, taken as a whole, contained or contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were or are made, not misleading in any material respect as of the date such information is dated or certified; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, each Company represents only that it acted in good faith and utilized reasonable assumptions in the light of the circumstances under which they were or are made and due care in the preparation of such information, report, financial statement, exhibit or schedule.
SECTION 3.15 Labor Matters . As of the Closing Date, there are no strikes, outs or slowdowns against any Company pending or, to the knowledge of any Company, threatened. The hours worked by and payments made to employees of any Company have not been in violation of the Fair Labor Standards Act of 1938, as amended, or any other applicable federal, state, local or foreign law dealing with such matters in any manner which could reasonably be expected to result in a Material Adverse Effect. All payments due from any Company, or for which any claim may be made against any Company, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of such Company except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Company is bound.
SECTION 3.16 Solvency . Immediately after the consummation of the Transactions to occur on the Closing Date and immediately following the making of each Term Loan and immediately after giving effect to the application of the proceeds of each Term Loan, (a) the fair value of the properties
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of AGS Capital (on a consolidated basis with its Subsidiaries) will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of AGS Capital (on a consolidated basis with its Subsidiaries) will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) AGS Capital (on a consolidated basis with its Subsidiaries) will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) AGS Capital (on a consolidated basis with its Subsidiaries) will not have unreasonably small capital with which to conduct its business in which it is engaged as such business is now conducted and is proposed to be conducted following the Closing Date.
SECTION 3.17 Employee Benefit Plans . Each Company and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in material liability of any Company or any of its ERISA Affiliates or the imposition of a Lien on any of the property of any Company. The present value of all accumulated benefit obligations of all un-derfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $250,000 the fair market value of the property of all such underfunded Plans. Using actuarial assumptions and computation methods consistent with subpart I of subtitle E of Title IV of ERISA, the aggregate liabilities of each Company or its ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Multiemployer Plan, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.18 Environmental Matters .
(a) Except as set forth in Schedule 3.18 and except as, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect:
(i) The Companies and their businesses, operations and Real Property are in compliance with, and the Companies have no liability under, any applicable Environmental Law; and under the currently effective business plan of the Companies, no expenditures or operational adjustments will be required in order to comply with applicable Environmental Laws during the next five years;
(ii) The Companies have obtained all Environmental Permits required for the conduct of their businesses and operations, and the ownership, operation and use of their property, under Environmental Law, all such Environmental Permits are valid and in good standing and, under the currently effective business plan of the Companies, no expenditures or operational adjustments will be required in order to renew or modify such Environmental Permits during the next five years;
(iii) There has been no Release or threatened Release of Hazardous Material on, at, under or from any Real Property or facility presently or formerly owned, leased or operated by the Companies or their predecessors in interest that could result in liability by the Companies under any applicable Environmental Law;
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(iv) There is no Environmental Claim pending or, to the knowledge of the Companies, threatened against the Companies, or relating to the Real Property currently or formerly owned, leased or operated by the Companies or their predecessors in interest or relating to the operations of the Companies, and there are no actions, activities, circumstances, conditions, events or incidents that could form the basis of such an Environmental Claim; and
(v) No person with an indemnity or contribution obligation to the Companies relating to compliance with or liability under Environmental Law is in default with respect to such obligation.
(b) Except as set forth in Schedule 3.18 and except as, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect for purposes of clauses (i) and (ii) below only:
(i) No Company is obligated to perform any action or otherwise incur any expense under Environmental Law pursuant to any order, decree, judgment or agreement by which it is bound or has assumed by contract, agreement or operation of law, and no Company is conducting or financing any Response pursuant to any Environmental Law with respect to any Real Property or any other location;
(ii) No Real Property or facility owned, operated or leased by the Companies and, to the knowledge of the Companies, no Real Property or facility formerly owned, operated or leased by the Companies or any of their predecessors in interest is (i) listed or proposed for listing on the National Priorities List promulgated pursuant to CERCLA or (ii) listed on the Comprehensive Environmental Response, Compensation and Liability Information System promulgated pursuant to CERCLA or (iii) included on any similar list maintained by any Governmental Authority including any such list relating to petroleum;
(iii) No Lien has been recorded or, to the knowledge of any Company, threatened under any Environmental Law with respect to any Real Property or other assets of the Companies;
(iv) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not require any notification, registration, filing, reporting, disclosure, investigation, remediation or cleanup pursuant to any Governmental Real Property Disclosure Requirements or any other applicable Environmental Law; and
(v) The Companies have made available to the Lenders all material records and files in the possession, custody or control of, or otherwise reasonably available to, the Companies concerning compliance with or liability under Environmental Law, including those concerning the actual or suspected existence of Hazardous Material at Real Property or facilities currently or formerly owned, operated, leased or used by the Companies.
SECTION 3.19 Insurance . Schedule 3.19 sets forth a true, complete and correct description of all property, casualty and liability insurance maintained by each Company as of the Closing Date. All insurance maintained by the Companies is in full force and effect, all premiums have been duly paid, no Company has received notice of violation or cancellation thereof, the Premises, and the use, occupancy and operation thereof, comply in all material respects with all Insurance Requirements, and there exists no default under any Insurance Requirement, the consequence of which is to suspend, cancel or otherwise interrupt any insurance coverage required to be maintained pursuant to this Agreement. Each Company has insurance in such amounts and covering such risks and liabilities as are customary for companies of a similar size engaged in similar businesses in similar locations.
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SECTION 3.20 Security Documents .
(a) Security Agreement . Other than with respect to the pledge of the Equity Interests of Borrower, which is subject to the prior approval of the Nevada Gaming Authorities, the Security Agreement is effective to create in favor of Collateral Agent for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, the Security Agreement Collateral and (i) when financing statements and other filings in appropriate form are filed in the offices specified on Schedule 7 to the Perfection Certificate and (ii) upon the taking of possession or control by Collateral Agent of the Security Agreement Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to Collateral Agent (subject to the prior receipt of the Nevada Gaming Authorities Approval and delivery to Collateral Agent of control of the certificates evidencing the Equity Interests of Borrower) to the extent possession or control by Collateral Agent is required by each Security Document), the Liens created by the Security Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the grantors in the Security Agreement Collateral (other than such Security Agreement Collateral in which a security interest cannot be perfected under the UCC as in effect at the relevant time in the relevant jurisdiction), in each case subject to no Liens other than Permitted Liens.
(b) PTO Filing; Copyright Office Filing . When the Security Agreement or a short form thereof is filed in the United States Patent and Trademark Office and the United States Copyright Office, the Liens created by such Security Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the grantors thereunder in Patents (as defined in the Security Agreement) registered or applied for with the United States Patent and Trademark Office or Copyrights (as defined in such Security Agreement) registered or applied for with the United States Copyright Office, as the case may be, in each case subject to no Liens other than Permitted Liens.
(c) Mortgages . Each Mortgage is effective to create, in favor of Collateral Agent, for its benefit and the benefit of the Secured Parties, legal, valid and enforceable first priority Liens on, and security interests in, all of the Loan Parties right, title and interest in and to the Mortgaged Properties thereunder and the proceeds thereof, subject only to Permitted Liens or other Liens acceptable to Collateral Agent, and when the Mortgages are filed in the offices specified on Schedule 8(a) to the Perfection Certificate dated the Closing Date (or, in the case of any Mortgage executed and delivered after the date thereof in accordance with the provisions of Sections 5.11 and 5.12 , when such Mortgage is filed in the offices specified in the local counsel opinion delivered with respect thereto in accordance with the provisions of Sections 5.11 and 5.12 ), the Mortgages shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, in each case prior and superior in right to any other person, other than Liens permitted by such Mortgage and Permitted Liens.
(d) Valid Liens . Each Security Document delivered pursuant to Sections 5.11 and 5.12 will, upon execution and delivery thereof and, in the case of the pledge of the Equity Interests of Borrower pursuant to the Security Agreement, upon the approval thereof by the Nevada Gaming Authorities, be effective to create in favor of Collateral Agent, for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, all of the Loan Parties right, title and interest in and to the Collateral thereunder, and (i) when all appropriate filings or recordings are made in the appropriate offices as may be required under applicable law and (ii) upon the taking of possession or control by Collateral Agent of such Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to Collateral Agent (subject to the prior receipt of the Nevada Gaming Authorities Approval and delivery to Collateral Agent of control of certificates
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evidencing the Equity Interests of Borrower) to the extent required by any Security Document), such Security Document will constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in such Collateral, in each case subject to no Liens other than the applicable Permitted Liens.
SECTION 3.21 Anti-Terrorism Law . (a) No Loan Party is in violation of any quirement of Law relating to terrorism or money laundering ( Anti-Terrorism Laws ), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the Executive Order ), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56.
(b) No Loan Party and to the knowledge of the Loan Parties, no Affiliate or broker or other agent of any Loan Party acting or benefiting in any capacity in connection with the Loans is any of the following:
(i) a person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
(ii) a person owned or controlled by, or acting for or on behalf of, any person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
(iii) a person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;
(iv) a person that commits, threatens or conspires to commit or supports terrorism as defined in the Executive Order; or
(v) a person that is named as a specially designated national and blocked person on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control ( OFAC ) at its official website or any replacement website or other replacement official publication of such list.
(c) No Loan Party and, to the knowledge of the Loan Parties, no broker or other agent of any Loan Party acting in any capacity in connection with the Term Loans (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in paragraph (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.
SECTION 3.22 Anti-Corruption . Borrower has in place the gaming compliance program described on Schedule 3.22, and is in compliance in all material respects with such program.
ARTICLE IV
CONDITIONS TO CREDIT EXTENSIONS
SECTION 4.01 Conditions to Initial Credit Extension . The obligation of each Lender to fund the initial Credit Extension requested to be made by it on the Closing Date shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 4.01 .
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(a) Loan Documents . All legal matters incident to this Agreement, the Credit Extensions hereunder and the other Loan Documents shall be satisfactory to the Lenders and to Administrative Agent and there shall have been delivered to Administrative Agent an executed counterpart of each of the Loan Documents and the Perfection Certificate.
(b) Corporate Documents . Administrative Agent shall have received:
(i) a certificate of the secretary or assistant secretary of each Loan Party dated the Closing Date, certifying (A) that attached thereto is a true and complete copy of each Organizational Document of such Loan Party certified (to the extent applicable) as of a recent date by the Secretary of State of the state of its organization, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which such person is a party and, in the case of Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect and (C) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party (together with a certificate of another officer as to the incumbency and specimen signature of the secretary or assistant secretary executing the certificate in this clause (i));
(ii) a certificate as to the good standing of each Loan Party (in so-called long-form if available) as of a recent date, from such Secretary of State (or other applicable Governmental Authority); and
(iii) such other documents as the Lenders or Administrative Agent may reasonably request.
(c) Officers Certificate . Administrative Agent shall have received a certificate, dated the Closing Date and signed by the president and the chief executive officer of Borrower, confirming compliance with the conditions precedent set forth in this Section 4.01 and Sections 4.03(b) , (c) and (d) .
(d) Financings and Other Transactions, etc .
(i) The Transactions shall have been consummated or shall be consummated simultaneously on the Closing Date, in each case in all material respects in accordance with the terms hereof and the terms of the Loan Documents, without the waiver or amendment of any such terms not approved by Administrative Agent and the Arranger other than any waiver or amendment thereof that is not materially adverse to the interests of the Lenders.
(ii) The Lenders shall be satisfied with the management, capitalization, the terms and conditions of any equity arrangements and the corporate or other organizational structure of the Companies (after giving effect to the Transactions) and any indemnities, employment and other arrangements entered into in connection with the Transactions.
(iii) The Refinancing shall have been consummated in full to the satisfaction of the Lenders with all liens in favor of the existing lenders under the Existing Credit Agreement being unconditionally released; Administrative Agent shall have received a pay-off letter in form and substance reasonably satisfactory to Administrative Agent with respect to all debt being re-financed in the Refinancing; and Administrative Agent shall have received from any person holding
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any Lien securing any such debt, such UCC termination statements, mortgage releases, releases of assignments of leases and rents, releases of security interests in Intellectual Property and other instruments, in each case in proper form for recording, as Administrative Agent shall have reasonably requested to release and terminate of record the Liens securing such debt.
(iv) AGS Capital and its Subsidiaries shall have no less than $1,000,000 of unrestricted cash (it being understood that for purposes of this Section 4.01(d)(iv) , (x) unrestricted cash shall not include any cash to the extent the use of such cash for application to the payment of the Term Loans is prohibited by law or any contract to which AGS Capital or any of its Subsidiaries is a party and (y) unrestricted cash shall include any cash that is subject to a Lien in favor of the collateral agent in connection with the Existing Credit Agreement).
(e) Financial Statements ; Pro Forma Balance Sheet; Projections . The Lenders shall have received and shall be satisfied with the form and substance of the financial statements (and any changes thereto) described in Section 3.04 and with the forecasts of the financial performance of AGS Capital and its Subsidiaries. To the extent any financial statements described in Section 3.04 have been previously delivered to Administrative Agent, such deliveries shall satisfy the corresponding delivery condition herein provided such financial statements have not been revised, modified, supplemented, amended or restated in any manner since such delivery date.
(f) Indebtedness and Minority Interests . After giving effect to the Transactions and the other transactions contemplated hereby, no Company shall have outstanding any Indebtedness or preferred stock other than (i) the Term Loans and Credit Extensions hereunder, (ii) the Indebtedness listed on Schedule 6.01(b) and (iii) Indebtedness owed to Borrower or any Guarantor.
(g) Opinions of Counsel . Administrative Agent shall have received, on behalf of itself, the other Agents, the Arranger and the Lenders, a favorable written opinion of Proskauer Rose LLP, special New York counsel for the Loan Parties and Greenberg Traurig LLP, special Illinois counsel for the Loan Parties, in each case, (A) dated the Closing Date, (B) addressed to the Agents and the Lenders and (C) covering such matters relating to the Loan Documents and the Transactions as Administrative Agent shall reasonably request.
(h) Solvency Certificate . Administrative Agent shall have received a solvency certificate in the form of Exhibit O , dated the Closing Date and signed by a Financial Officer of Borrower.
(i) Requirements of Law . The Lenders shall be satisfied that AGS Capital, its Subsidiaries and the Transactions shall be in full compliance with all material Requirements of Law, including Regulations T, U and X of the Board, and shall have received satisfactory evidence of such compliance reasonably requested by them.
(j) Consents . The Lenders shall be satisfied that all requisite Governmental Authorities and third parties shall have approved or consented to the Transactions except for the approval by the Nevada Gaming Authorities of the pledge by AGS Capital of the Equity Interests in Borrower, which approval will be obtained after the Closing Date, and there shall be no governmental or judicial action, actual or threatened, which, singly or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect on the Transactions.
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(k) Litigation . There shall be no litigation, public or private, or administrative proceedings, governmental investigation (other than the investigation by the Nevada Gaming Authorities in connection with the approval of the pledge of the Equity Interests of Borrower) or other legal or regulatory developments, actual or threatened, that, singly or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or could reasonably be expected to materially and adversely affect the ability of AGS Capital, Borrower and the Subsidiaries to fully and timely perform their respective obligations under the Loan Documents, or the ability of the parties to consummate the financings contemplated hereby or the other Transactions.
(l) Sources and Uses . The sources and uses of the Initial Term Loans shall be as set forth in Section 3.12 .
(m) Fees . The Arranger and Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses (including the reasonable legal fees and expenses of Latham & Watkins LLP, special counsel to the Agents, and the reasonable fees and expenses of any local counsel (if any), appraisers, consultants and other advisors) required to be reimbursed or paid by Borrower hereunder or under any other Loan Document.
(n) Personal Property Requirements . Collateral Agent shall have received:
(i) all certificates, agreements or instruments representing or evidencing the Securities Collateral accompanied by instruments of transfer and stock powers undated and endorsed in blank (other than the certificates evidencing the Equity Interests of Borrower, which shall be delivered to Collateral Agent upon the receipt of the Nevada Gaming Authorities Approval);
(ii) the Intercompany Note executed by and among AGS Capital and each of its Subsidiaries, accompanied by instruments of transfer undated and endorsed in blank;
(iii) all other certificates, agreements, including Control Agreements, or instruments necessary to perfect Collateral Agents security interest in all Chattel Paper, all Instruments, all Deposit Accounts and all Investment Property of each Loan Party (as each such term is defined in the Security Agreement and to the extent required by the Security Agreement);
(iv) UCC financing statements in appropriate form for filing under the UCC, filings with the United States Patent and Trademark Office and United States Copyright Office and such other documents under applicable Requirements of Law in each jurisdiction as may be necessary or appropriate or, in the reasonable opinion of Collateral Agent, desirable to perfect the Liens created, or purported to be created, by the Security Documents;
(v) certified copies of UCC, United States Patent and Trademark Office and United States Copyright Office searches or equivalent reports or searches, each of a recent date listing all effective financing statements, lien notices or comparable documents that name any Loan Party as debtor and that are filed in the state jurisdiction in which such Loan Party is organized and such other searches that Collateral Agent deems necessary or appropriate, none of which encumber the Collateral covered or intended to be covered by the Security Documents (other than Permitted Liens or any other Liens acceptable to Collateral Agent);
(vi) with respect to each location set forth on Schedule 4.01(n)(vi) , a Landlord Access Agreement or Bailee Letter, as applicable; provided that no such Landlord Access Agreement or Bailee Letter shall be required with respect to (i) any Real Property (including any Real Property
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owned or leased by any customer of a Company where Collateral having a fair market value in excess of $1,000,000 is located) with respect to which a Landlord Access Agreement or Bailee Letter, as applicable, could not be obtained after the Loan Party that is the lessee of such Real Property or owner of the inventory or other personal property Collateral stored with the bailee thereof, as applicable, shall have used all commercially reasonable efforts to do so, (ii) any Real Property owned or leased by an Indian Tribe or located on Indian Land or (iii) any Real Property (including any Real Property owned or leased by any customer of a Company) where Collateral having a fair market value of less than $1,000,000 is located; and
(vii) evidence acceptable to Collateral Agent of payment or arrangements for payment by the Loan Parties of all applicable recording taxes, fees, charges, costs and expenses required for the recording of the Security Documents.
(o) Insurance . Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.04 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a lenders loss payable and shall name Collateral Agent, on behalf of the Secured Parties, as additional insured, in form and substance reasonably satisfactory to Administrative Agent.
(p) USA Patriot Act . The Lenders shall have received, sufficiently in advance of the Closing Date, all documentation and other information that may be required by the Lenders in order to enable compliance with applicable know your customer and anti-money laundering rules and regulations, including the United States PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) including the information described in Section 10.13 .
SECTION 4.02 Conditions to Extensions of Delayed Draw Term Loans . The ligation of each Lender to fund a Credit Extension consisting of Delayed Draw Term Loans shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 4.02 .
(a) Illinois Licensing . At the time of and immediately after giving effect to such Credit Extension and the application of proceeds thereof, (i) the Loan Parties licenses to manufacture and distribute video gaming terminals in the State of Illinois shall, in all material respects, remain in full force and effect, and (ii) no other material adverse developments with respect to the Loan Parties gaming licenses shall have occurred and be continuing.
(b) Gaming Machines in Operation in Illinois . At the time of and immediately after giving effect to the Secondary Delayed Draw Term Loans and the application of proceeds thereof, the Loan Parties must own at least 500 Illinois Video Gaming Terminals that are operating under a revenue sharing, lease or daily fee or similar agreement to which any Loan Party is a party in the State of Illinois.
SECTION 4.03 Conditions to All Credit Extensions . The obligation of each Lender to make any Credit Extension (including the initial Credit Extension) shall be subject to, and to the satisfaction of, each of the conditions precedent set forth below.
(a) Notice . Administrative Agent shall have received a Borrowing Request as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03 ).
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(b) No Default . At the time of and immediately after giving effect to such Credit Extension and the application of the proceeds thereof, no Default or Event of Default shall have occurred and be continuing on such date.
(c) Representations and Warranties . Each of the representations and warranties made by any Loan Party set forth in Article III hereof or in any other Loan Document shall be true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) on and as of the date of such Credit Extension with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.
(d) No Legal Bar . No order, judgment or decree of any Governmental Authority shall restrain any Lender from making any Term Loans to be made by it. No injunction or other restraining order shall have been issued with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement or the making of Term Loans hereunder.
(e) Indian Tribe Laws and Regulations . AGS Capital and its subsidiaries and the Transactions contemplated hereby shall be in compliance with all applicable foreign and U.S. federal, state, local and Indian Tribe laws and regulations, including all applicable environmental laws and regulations except where failure to so comply could not reasonably be expected to cause a Material Adverse Effect. All necessary governmental and material third party approvals (including approvals with respect to Indian Tribes and Gaming) in connection with the Transactions shall have been obtained and shall be in effect.
Each of the delivery of a Borrowing Request and the acceptance by Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by Borrower and each other Loan Party that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the conditions contained in Sections 4.03(b)-(e) have been satisfied. Borrower shall provide such information (including calculations in reasonable detail of the covenants in Section 6.10 ) as Administrative Agent may reasonably request to confirm that the conditions in Sections 4.03(b)-(e) have been satisfied.
ARTICLE V
AFFIRMATIVE COVENANTS
Each Loan Party warrants, covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Term Loan and all Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full (other than contingent obligations and indemnification for which no claim is pending), unless the Required Lenders shall otherwise consent in writing, each Loan Party will, and will cause each of its Subsidiaries to:
SECTION 5.01 Financial Statements, Reports, etc . Furnish to Administrative Agent:
(a) Annual Reports . As soon as available and in any event within 105 days after the end of each fiscal year, beginning with the fiscal year ending December 31, 2012, (i) the consolidated
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balance sheet of AGS Capital as of the end of such fiscal year and related consolidated statements of income, cash flows and stockholders equity for such fiscal year, in comparative form with such financial statements as of the end of, and for, the preceding fiscal year, and notes thereto (including a note with a consolidating balance sheet and statements of income and cash flows separating out AGS Capital and its Subsidiaries, Borrower and the Subsidiaries), accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing satisfactory to Administrative Agent in its reasonable credit judgment (which opinion shall not be qualified as to scope or contain any going concern or like qualification, exception or explanatory paragraph other than any such qualification, exception or explanatory paragraph that is expressly solely with respect to, or expressly resulting solely from, the Term Loan Maturity Date being scheduled to occur within one year from the time such opinion is delivered), stating that such financial statements fairly present, in all material respects, the consolidated financial condition, results of operations and cash flows of AGS Capital as of the dates and for the periods specified in accordance with GAAP, (ii) a management report in a form reasonably satisfactory to Administrative Agent setting forth (A) statement of income items and Consolidated EBITDA of AGS Capital for such fiscal year, showing variance, by dollar amount and percentage, from amounts for the previous fiscal year and budgeted amounts and (B) if requested by Administrative Agent, key operational information and statistics for such fiscal year consistent with internal and industry-wide reporting standards, and (iii) a narrative report and managements discussion and analysis, in a form reasonably satisfactory to Administrative Agent, of the financial condition and results of operations of AGS Capital for such fiscal year, as compared to amounts for the previous fiscal year and budgeted amounts;
(b) Quarterly Reports . As soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year, beginning with the fiscal quarter ending September 30, 2012, (i) the consolidated balance sheet of AGS Capital as of the end of such fiscal quarter and related consolidated statements of income and cash flows for such fiscal quarter and for the then elapsed portion of the fiscal year, in comparative form with the consolidated statements of income and cash flows for the comparable periods in the previous fiscal year, and notes thereto (including a note with a consolidating balance sheet and statements of income and cash flows separating out AGS Capital and its Subsidiaries, Borrower and the Subsidiaries), accompanied by a certificate of a Financial Officer stating that such financial statements fairly present, in all material respects, the consolidated financial condition, results of operations and cash flows of AGS Capital as of the date and for the periods specified in accordance with GAAP consistently applied, and on a basis consistent with audited financial statements referred to in clause (a) of this Section, subject to normal year-end audit adjustments and absence of footnotes, (ii) a management report in a form reasonably satisfactory to Administrative Agent setting forth (A) statement of income items and Consolidated EBITDA for such fiscal quarter and for the then elapsed portion of the fiscal year, showing variance, by dollar amount and percentage, from amounts for the comparable periods in the previous fiscal year and budgeted amounts and (B) if requested by Administrative Agent, key operational information and statistics for such fiscal quarter and for the then elapsed portion of the fiscal year consistent with internal and industry-wide reporting standards, and (iii) a narrative report and managements discussion and analysis, in a form reasonably satisfactory to Administrative Agent, of the financial condition and results of operations for such fiscal quarter and the then elapsed portion of the fiscal year, as compared to the comparable periods in the previous fiscal year and budgeted amounts;
(c) Monthly Reports . Within 45 days after the end of each of the first two months of each fiscal quarter, beginning with the fiscal month ending August 31, 2012, (i) the consolidated balance sheet of AGS Capital as of the end of each such month and the related consolidated statements of income and cash flows of AGS Capital for such month and for the then elapsed portion of the fiscal year, in comparative form with the consolidated statements of income and cash flows for the comparable periods in the previous fiscal year, accompanied by a certificate of a Financial Officer stating that such financial
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statements fairly present, in all material respects, the consolidated results of operations and cash flows of AGS Capital as of the date and for the periods specified in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and absence of footnotes and (ii) a management report in a form reasonably satisfactory to Administrative Agent setting forth (A) statement of income items and Consolidated EBITDA for such month and for the then elapsed portion of the fiscal year, showing variance, by dollar amount and percentage, from amounts for the comparable periods in the previous fiscal year and budgeted amounts and (B) if requested by Administrative Agent, key operational information and statistics for such month and for the then elapsed portion of the fiscal year consistent with internal and industry-wide reporting standards;
(d) Financial Officers Certificate . (i) Concurrently with any delivery of financial statements under Section 5.01(a) or (b) , a Compliance Certificate (A) certifying that no Default has occurred or, if such a Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto, (B) beginning with the fiscal quarter ending Sep-tember 30, 2012, setting forth computations in reasonable detail satisfactory to Administrative Agent demonstrating compliance with the covenants contained in Section 6.10 and, concurrently with any delivery of financial statements under Section 5.01(a) above, setting forth Borrowers calculation of Excess Cash as of the end of the fiscal year most recently ended and (C) showing a reconciliation of Consolidated EBITDA to the net income set forth on the statement of income; (ii) concurrently with any delivery of financial statements under Section 5.01(a) above, beginning with the fiscal year ending December 31, 2012, a report of the accounting firm opining on or certifying such financial statements stating that in the course of its regular audit of the financial statements of AGS Capital and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge that any Default insofar as it relates to financial or accounting matters has occurred or, if in the opinion of such accounting firm such a Default has occurred, specifying the nature and extent thereof; and (iii) concurrently with any delivery of financial statements under Section 5.01(c) , a certificate of a Responsible Officer setting forth Borrowers calculation of (A) Liquidity as of the end of the fiscal month most recently ended and (B) the number of Gaming machines operating under a revenue sharing, lease, daily fee or similar agreement to which any Loan Party is a party (identified on a State by State basis) as of the end of the fiscal month most recently ended;
(e) Financial Officers Certificate Regarding Collateral . Concurrently with any delivery of financial statements under Section 5.01(a) , a certificate of a Financial Officer setting forth the information required pursuant to the Perfection Certificate Supplement or confirming that there has been no change in such information since the date of the Perfection Certificate or latest Perfection Certificate Supplement;
(f) Public Reports . Promptly after the same become publicly available, copies of all periodic and other reports and other materials distributed to holders of its Indebtedness pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor), as the case may be;
(g) Budgets . Within 60 days after the beginning of each fiscal year, a budget for AGS Capital in form reasonably satisfactory to Administrative Agent, but to include balance sheets, statements of income and sources and uses of cash, for each month of such fiscal year prepared in reasonable detail;
(h) Organizational Documents . Promptly provide copies of any Organizational Documents that have been amended or modified in accordance with the terms hereof and deliver a copy of any notice of default given or received by any Company under any Organizational Document within 15 days after such Company gives or receives such notice; and
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(i) Other Information . Promptly, from time to time, such other information regarding the operations, business affairs and financial condition of any Company, or compliance with the terms of any Loan Document, as Administrative Agent or any Lender may reasonably request.
SECTION 5.02 Litigation and Other Notices . Furnish to Administrative Agent written notice of the following promptly (and, in any event, within (i) in the case of clause (a), three Business Days and (ii) in any other case, ten days of the occurrence thereof):
(a) any Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto;
(b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit, litigation or proceeding, whether at law or in equity by or before any Governmental Authority, (i) against any Company or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect or (ii) with respect to any Loan Document;
(c) any development that has resulted in, or could reasonably be expected to result in a Material Adverse Effect;
(d) the occurrence of a Casualty Event with respect to properties having a book value in excess of $1,000,000;
(e) the occurrence of the termination of, or the receipt by any Loan Party of notice of the termination of, or the occurrence of any event or condition which would, with the passage of time or the giving of notice or both, constitute an event of default under or permit the termination of, any one or more material agreements or licenses of any Company;
(f) (i) the incurrence of any material Lien (other than Permitted Liens) on, or claim asserted against any of the Collateral or (ii) the occurrence of any other event which could reasonably be expected to materially adversely affect the value of the Collateral; and
(g) to the extent permitted by law, the occurrence of any events, discussions, notices or changes with respect to any criminal investigation or action or any material regulatory investigation or action involving any Loan Party or any Affiliate or representative of any Loan Party, and the Loan Parties shall take commercially reasonable actions to avoid or mitigate any cost or regulatory consequences that might arise from such investigation or action (it being understood, for the avoidance of doubt, that in no event shall the provisions of this clause be construed or deemed to provide any Agent or any Lender control over any Loan Party).
SECTION 5.03 Existence; Businesses and Properties .
(a) Do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.05 or Section 6.06 or, in the case of any Subsidiary, where the failure to perform such obligations, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
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(b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, privileges (including, without limitation, with respect to Indian Tribes), franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply with all applicable Requirements of Law including with respect to Indian Tribes (any and all zoning, building, Environmental Law, Indian Tribe and Indian Gaming law, any permits, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Real Property) and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted, except, in each case, where the failure to comply, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; pay and perform its obligations under all Leases (except where the failure to pay or perform such Lease obligations could not reasonably be expected to result in a Material Adverse Effect) and Loan Documents; and at all times maintain, preserve and protect all property material to the conduct of such business and keep such property in good repair, working order and condition (other than wear and tear occurring in the ordinary course of business) and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times, except the failure of which could not reasonably be expected to result in a Material Adverse Effect; provided that nothing in this Section 5.03(b) shall prevent (i) sales of property, consolidations or mergers by or involving any Company in accordance with Section 6.05 or Section 6.06 ; (ii) the withdrawal by any Company of its qualification as a foreign corporation in any jurisdiction where such withdrawal, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; or (iii) the abandonment by any Company of any rights, franchises, licenses, trademarks, trade names, copyrights or patents that such person reasonably determines are not useful to its business or no longer commercially desirable.
SECTION 5.04 Insurance .
(a) Generally . Keep its insurable property adequately insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks as is customary with companies in the same or similar businesses operating in the same or similar locations, including insurance with respect to Mortgaged Properties and other properties material to the business of the Companies against such casualties and contingencies and of such types and in such amounts with such deductibles as is customary in the case of similar businesses operating in the same or similar locations, including (if applicable to the business conducted at such date of determination) (i) physical hazard insurance on an all risk basis, (ii) commercial general liability against claims for bodily injury, death or property damage covering any and all insurable claims, (iii) explosion insurance in respect of any boilers, machinery or similar apparatus constituting Collateral, (iv) business interruption insurance, (v) workers compensation insurance and such other insurance as may be required by any Requirement of Law and (vi) such other insurance against risks as Administrative Agent may from time to time require (such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to Administrative Agent and Collateral Agent); provided that with respect to physical hazard insurance, neither Collateral Agent nor the applicable Company shall agree to the adjustment of any claim thereun-der without the consent of the other (such consent not to be unreasonably withheld or delayed); provided , further , that no consent of any Company shall be required during an Event of Default.
(b) Requirements of Insurance . All such insurance shall, as appropriate, (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by Collateral Agent of written notice thereof, and (ii) name Collateral Agent as mortgagee (in the case of property insurance) or additional insured on behalf of the Secured Parties (in the case of liability insurance) or loss payee (in the case of property insurance), as applicable.
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(c) Notice to Agents . Notify Administrative Agent and Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.04 is taken out by any Company; and promptly deliver to Administrative Agent and Collateral Agent a duplicate original copy of such policy or policies upon request.
(d) Flood Insurance . With respect to each Mortgaged Property, obtain flood insurance in such total amount as Administrative Agent or the Required Lenders may from time to time require, if at any time the area in which any improvements located on any Mortgaged Property is designated a flood hazard area in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as amended from time to time.
(e) Brokers Report . Deliver to Administrative Agent and Collateral Agent and the Lenders a report of a reputable insurance broker with respect to such insurance and such supplemental reports with respect thereto as Administrative Agent or Collateral Agent may from time to time reasonably request.
(f) Mortgaged Properties . No Loan Party that is an owner of Mortgaged Property shall take any action that is reasonably likely to be the basis for termination, revocation or denial of any insurance coverage required to be maintained under such Loan Partys respective Mortgage or that could be the basis for a defense to any claim under any Insurance Policy maintained in respect of the Premises, and each Loan Party shall otherwise comply in all material respects with all Insurance Requirements in respect of the Premises; provided , however , that each Loan Party may, at its own expense and after written notice to Administrative Agent, (i) contest the applicability or enforceability of any such Insurance Requirements by appropriate legal proceedings, the prosecution of which does not constitute a basis for cancellation or revocation of any insurance coverage required under this Section 5.04 or (ii) cause the Insurance Policy containing any such Insurance Requirement to be replaced by a new policy complying with the provisions of this Section 5.04 .
SECTION 5.05 Obligations and Taxes .
(a) Payment of Obligations . Pay and discharge promptly when due and payable by it all Taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, services, materials and supplies or otherwise that, if unpaid, might give rise to a Lien other than a Permitted Lien upon such properties or any part thereof; provided that such payment and discharge shall not be required with respect to any such Tax, assessment, charge, levy or claim so long as (x)(i) the validity or amount thereof shall be contested in good faith by appropriate proceedings timely instituted and diligently conducted and the applicable Company shall have set aside on its books adequate reserves or other appropriate provisions with respect thereto in accordance with GAAP, (ii) such contest operates to suspend collection of the contested obligation, Tax, assessment or charge and enforcement of a Lien other than a Permitted Lien and (iii) in the case of Collateral, the applicable Company shall have otherwise complied with the Contested Collateral Lien Conditions and (y) the failure to pay could not reasonably be expected to result in a Material Adverse Effect.
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(b) Filing of Returns . Timely and correctly file all material Tax Returns required to be filed by it. Withhold, collect and remit all Taxes that it is required to collect, withhold or remit.
(c) Tax Shelter Reporting . Borrower does not intend to treat the Term Loans as being a reportable transaction within the meaning of Treasury Regulation Section 1.6011-4. In the event Borrower determines to take any action inconsistent with such intention, it will promptly notify Administrative Agent thereof.
SECTION 5.06 Employee Benefits . (a) Comply in all material respects with the applicable provisions of ERISA and the Code and (b) furnish to Administrative Agent (x) as soon as possible after, and in any event within 5 days after any Responsible Officer of any Company or any ERISA Affiliates of any Company knows or has reason to know that, any ERISA Event has occurred that, alone or together with any other ERISA Event could reasonably be expected to result in liability of the Companies or any of their ERISA Affiliates in an aggregate amount exceeding $500,000 or the imposition of a Lien, a statement of a Financial Officer of Borrower setting forth details as to such ERISA Event and the action, if any, that the Companies propose to take with respect thereto, and (y) upon request by Administrative Agent, copies of (i) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any Company or any ERISA Affiliate with the Internal Revenue Service with respect to each Plan; (ii) the most recent actuarial valuation report for each Plan; (iii) all notices received by any Company or any ERISA Affiliate from a Multiemployer Plan sponsor or any governmental agency concerning an ERISA Event; and (iv) such other documents or governmental reports or filings relating to any Plan (or employee benefit plan sponsored or contributed to by any Company) as Administrative Agent shall reasonably request.
SECTION 5.07 Maintaining Records; Access to Properties and Inspections; Annual Meetings .
Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law are made of all dealings and transactions in relation to its business and activities. Subject to compliance with Gaming Laws, each Company will permit any representatives designated by Administrative Agent or any Lender upon at least three (3) Business Days prior written notice, to visit and inspect the financial records and the property of such Company at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by Administrative Agent or any Lender to discuss the affairs, finances, accounts and condition of any Company with the officers and employees thereof and advisors therefor (including independent accountants) provided, however, that so long as no Default or Event of Default has occurred and is continuing, the Companies shall only be responsible for paying the expenses of one (1) visitation or inspection in any fiscal year.
SECTION 5.08 Use of Proceeds . Use the proceeds of the Term Loans only for the purposes set forth in Section 3.12 .
SECTION 5.09 Compliance with Environmental Laws; Environmental Reports .
(a) Comply, and cause all lessees and other persons occupying Real Property owned, operated or leased by any Company to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Real Property; obtain and renew all material Environmental Permits applicable to its operations and Real Property; and conduct all Responses required by, and in accordance with, Environmental Laws; provided that no Company shall be required to undertake any Response to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.
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(b) If a Default caused by reason of a breach of Section 3.18 or Section 5.09(a) shall have occurred and be continuing for more than 30 days without the Companies commencing activities reasonably likely to cure such Default in accordance with Environmental Laws, at the written request of Administrative Agent or the Required Lenders through Administrative Agent, provide to the Lenders within 45 days after such request, at the expense of Borrower, an environmental assessment report regarding the matters which are the subject of such Default, including, where appropriate, soil and/or groundwater sampling, prepared by an environmental consulting firm and, in the form and substance, reasonably acceptable to Administrative Agent and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Response to address them.
SECTION 5.10 Maintenance of Ratings . Upon request of the Arranger, use mercially reasonable efforts to cause the Term Loans and Borrowers corporate credit to be, and thereafter to continue to be, rated by Standard & Poors Ratings Group and Moodys Investors Service Inc. (but not to maintain a specific rating).
SECTION 5.11 Additional Collateral; Additional Guarantors .
(a) Subject to this Section 5.11 , with respect to any property acquired after the Closing Date by any Loan Party that is intended to be subject to the Lien created by any of the Security Documents but is not so subject, promptly (and in any event within 30 days after the acquisition thereof (or such later date as the Administrative Agent may agree)) (i) execute and deliver to Administrative Agent and Collateral Agent such amendments or supplements to the relevant Security Documents or such other documents as Administrative Agent or Collateral Agent shall deem necessary or advisable to grant to Collateral Agent, for its benefit and for the benefit of the other Secured Parties, a Lien on such property subject to no Liens other than Permitted Liens, and (ii) take all actions necessary to cause such Lien to be duly perfected to the extent required by such Security Document in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by Administrative Agent. Borrower shall otherwise take such actions and execute and/or deliver to Collateral Agent such documents as Administrative Agent or Collateral Agent shall require to confirm the validity, perfection and priority of the Lien of the Security Documents on such after-acquired properties.
(b) With respect to any person that is or becomes a Subsidiary after the Closing Date, promptly (and in any event within 30 days after such person becomes a Subsidiary (or such later date as the Administrative Agent may agree)) (i) subject to the prior approval of the Nevada Gaming Authorities, deliver to Collateral Agent the certificates, if any, representing all of the Equity Interests of such Subsidiary, together with undated stock powers or other appropriate instruments of transfer executed and delivered in blank by a duly authorized officer of the holder(s) of such Equity Interests, and all intercompany notes owing from such Subsidiary to any Loan Party together with instruments of transfer executed and delivered in blank by a duly authorized officer of such Loan Party and (ii) cause such new Subsidiary (A) to execute a Joinder Agreement or such comparable documentation to become a Subsidiary Guarantor and a joinder agreement to the applicable Security Agreement, substantially in the form annexed thereto or, in the case of a Foreign Subsidiary, execute a security agreement compatible with the laws of such Foreign Subsidiarys jurisdiction in form and substance reasonably satisfactory to Administrative Agent, and (B) to take all actions necessary or advisable in the opinion of Administrative Agent or Collateral
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Agent to cause the Lien created by the applicable Security Agreement to be duly perfected to the extent required by such agreement in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by Administrative Agent or Collateral Agent. Notwithstanding the foregoing, (1) the Equity Interests required to be delivered to Collateral Agent pursuant to clause (i) of this Section 5.11(b) shall not include any Equity Interests of a Foreign Subsidiary created or acquired after the Closing Date and (2) no Foreign Subsidiary shall be required to take the actions specified in clause (ii) of this Section 5.11(b) , if, in the case of either clause (1) or (2), doing so would constitute an investment of earnings in United States property under Section 956 (or a successor provision) of the Code, which investment would or could reasonably be expected to trigger a material increase in the net income of a United States shareholder of such Subsidiary pursuant to Section 951 (or a successor provision) of the Code, as determined in good faith by the Administrative Agent and the Borrower; provided that this exception shall not apply to (A) Voting Stock of any Foreign Subsidiary which is a first-tier Foreign Subsidiary of either the Borrower or a Domestic Subsidiary (a First-Tier Foreign Subsidiary) representing 66% of the total voting power of all outstanding Voting Stock of such Foreign Subsidiary and (B) 100% of the Equity Interests not constituting Voting Stock of any such First-Tier Foreign Subsidiary, except that any such Equity Interests constituting stock entitled to vote within the meaning of Treasury Regulation Section 1.956-2(c)(2) shall be treated as Voting Stock for purposes of this Section 5.11(b) .
(c) Promptly grant to Collateral Agent, within 30 days of the acquisition thereof (or such later date as the Administrative Agent may agree), a security interest in and Mortgage on (i) Real Property owned in fee by such Loan Party as is acquired by such Loan Party after the Closing Date that, together with all other owned Real Property of the Loan Parties and any improvements thereon, has a fair market value in the aggregate in excess of $2,500,000, and (ii) unless Collateral Agent otherwise consents, leased Real Property of such Loan Party which together with all leases of the Loan Parties have annual lease payments in the aggregate in excess of $2,500,000, in each case, as additional security for the Secured Obligations (unless the subject property is already mortgaged to a third party to the extent permitted by Section 6.02 ). Such Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to Administrative Agent and Collateral Agent and shall constitute valid and enforceable perfected Liens subject only to Permitted Liens or other Liens acceptable to Collateral Agent. The Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of Collateral Agent required to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in connection therewith shall be paid in full. Such Loan Party shall otherwise take such actions and execute and/or deliver to Collateral Agent such documents as Administrative Agent or Collateral Agent shall require to confirm the validity, perfection and priority of the Lien of any existing Mortgage or new Mortgage against such after-acquired Real Property (including a title policy, a Survey and local counsel opinion (each in form and substance reasonably satisfactory to Administrative Agent and Collateral Agent) in respect of such Mortgage).
SECTION 5.12 Security Interests; Further Assurances . Promptly, upon the sonable request of Administrative Agent, Collateral Agent or any Lender, at Borrowers expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise deemed by Administrative Agent or Collateral Agent reasonably necessary or desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby subject to no other Liens except as permitted by the applicable Security Document, or obtain any consents or waivers as may be necessary or appropriate in connection therewith. Deliver or cause to be delivered to Administrative Agent and Collateral
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Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to Administrative Agent and Collateral Agent as Administrative Agent and Collateral Agent shall reasonably deem necessary to perfect or maintain the Liens on the Collateral pursuant to the Security Documents. Upon the exercise by Administrative Agent, Collateral Agent or any Lender of any power, right, privilege or remedy pursuant to any Loan Document which requires any consent, approval, registration, qualification or authorization of any Governmental Authority, execute and deliver all applications, certifications, instruments and other documents and papers that Administrative Agent, Collateral Agent or such Lender may reasonably require. If Administrative Agent, Collateral Agent or the Required Lenders determine that they are required by a Requirement of Law to have appraisals prepared in respect of the Real Property of any Loan Party constituting Collateral, Borrower shall provide to Administrative Agent appraisals that satisfy the applicable requirements of the Real Estate Appraisal Reform Amendments of FIRREA and are otherwise in form and substance satisfactory to Administrative Agent and Collateral Agent.
SECTION 5.13 Information Regarding Collateral .
(a) Not effect any change (i) in any Loan Partys legal name, (ii) in the location of any Loan Partys chief executive office, (iii) in any Loan Partys identity or organizational structure, (iv) in any Loan Partys Federal Taxpayer Identification Number or organizational identification number, if any, or (v) in any Loan Partys jurisdiction of organization (in each case, including by merging with or into any other entity, reorganizing, dissolving, liquidating, reorganizing or organizing in any other jurisdiction), until (A) it shall have given Collateral Agent and Administrative Agent not less than 30 days prior written notice (in the form of an Officers Certificate), or such lesser notice period agreed to by Collateral Agent, of its intention so to do, clearly describing such change and providing such other information in connection therewith as Collateral Agent or Administrative Agent may reasonably request and (B) it shall have taken all action reasonably satisfactory to Collateral Agent to maintain the perfection and priority of the security interest of Collateral Agent for the benefit of the Secured Parties in the Collateral, if applicable. Each Loan Party agrees to promptly provide Collateral Agent with certified Organizational Documents reflecting any of the changes described in the preceding sentence. Each Loan Party also agrees to promptly notify Collateral Agent of any change in the location of any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral is located (including the establishment of any such new office or facility), other than changes in location to a Mortgaged Property or a leased property subject to a Landlord Access Agreement.
(b) Concurrently with the delivery of financial statements pursuant to Section 5.01(a) , deliver to Administrative Agent and Collateral Agent, upon request, a Perfection Certificate Supplement and a certificate of a Financial Officer and the chief legal officer of Borrower certifying that all UCC financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction necessary to protect and perfect the security interests and Liens under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period).
SECTION 5.14 Affirmative Covenants with Respect to Leases . With respect to each Lease, the respective Loan Party shall perform all the obligations imposed by the landlord under such Lease, except where the failure to so perform could not reasonably be expected to result in a Property Material Adverse Effect.
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SECTION 5.15 Nevada Gaming Approvals . No later than (A) ten (10) days after the Closing Date, Borrower shall have submitted (or shall have caused the submission of) an application, together with all requisite documentation and information in connection therewith (determined in good faith by Borrower), to the Nevada Gaming Authorities requesting the Nevada Gaming Authorities Approval (it being understood that delivery of supplemental documentation and information provided after the submission of such application in response to requests by the Nevada Gaming Authorities shall not constitute a failure to timely comply with this Section 5.15 ) and (B) five (5) Business Days after receipt by AGS Capital of the Nevada Gaming Authorities Approval, Borrower shall notify Administrative Agent and Collateral Agent in writing of AGS Capitals receipt thereof.
ARTICLE VI
NEGATIVE COVENANTS
Each Loan Party warrants, covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Term Loan and all Fees and all other expenses or amounts payable under any Loan Document have been paid in full (other than contingent obligations and indemnification for which no claim is pending), unless the Required Lenders shall otherwise consent in writing, no Loan Party will, nor will they cause or permit any Subsidiaries to:
SECTION 6.01 Indebtedness . Incur, create, assume or permit to exist, directly or indirectly, any Indebtedness, except
(a) Indebtedness incurred under this Agreement and the other Loan Documents;
(b) (i) Indebtedness outstanding on the Closing Date and listed on Schedule 6.01(b) , (ii) refinancings or renewals thereof; provided that (A) any such refinancing Indebtedness is in an aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being renewed or refinanced, plus the amount of any premiums required to be paid thereon and reasonable fees and expenses associated therewith, (B) such refinancing Indebtedness has a later or equal final maturity and longer or equal weighted average life than the Indebtedness being renewed or refinanced and (C) the covenants, events of default, subordination and other provisions thereof (including any guarantees thereof) shall be, in the aggregate, no less favorable in any material respect to the Lenders than those contained in the Indebtedness being renewed or refinanced;
(c) Indebtedness under Hedging Obligations with respect to interest rates not entered into for speculative purposes; provided that (i) such Hedging Obligations relate to payment obligations on Indebtedness otherwise permitted to be incurred by the Loan Documents and (ii) the notional principal amount of such Hedging Obligations at the time incurred does not exceed the principal amount of the Indebtedness to which such Hedging Obligations relate;
(d) Indebtedness to the extent constituting an Investment that is permitted by Section 6.04(f) ;
(e) Indebtedness in respect of Purchase Money Obligations and Capital Lease Obligations, and refinancings or renewals thereof, in an aggregate amount not to exceed $5,000,000 at any time outstanding;
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(f) Indebtedness in respect of bid, performance or surety bonds, workers compensation claims, self-insurance obligations and bankers acceptances issued for the account of any Company in the ordinary course of business, including guarantees or obligations of any Company with respect to letters of credit supporting such bid, performance or surety bonds, workers compensation claims, self-insurance obligations and bankers acceptances (in each case other than for an obligation for money borrowed), in an aggregate amount not to exceed $500,000 at any time outstanding;
(g) Contingent Obligations of any Loan Party in respect of Indebtedness otherwise permitted under this Section 6.01 ;
(h) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided , however , that such Indebtedness is extinguished within five Business Days of incurrence;
(i) unsecured Indebtedness of any Loan Party or any of its Subsidiaries incurred to finance a Permitted Acquisition in an aggregate principal amount not to exceed $2,000,000 at any time outstanding; provided that (x) both immediately before and after giving effect to the incurrence of any such Indebtedness on a Pro Forma Basis, no Default shall have occurred and be continuing and (y) the cash pay interest rate with respect to any such Indebtedness shall not exceed 15% per annum;
(j) Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business in an aggregate amount not to exceed $500,000 at any time outstanding;
(k) Indebtedness arising from agreements of the Borrower or any Subsidiary consisting of indemnification, adjustment of purchase price or similar obligations, in each case incurred or retained in connection with the disposition of any business, assets or a subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition;
(l) Permitted Subordinated Loans in an initial face amount not to exceed $10,000,000 at any time outstanding; provided that (x) both immediately before and after giving effect to the incurrence of any such Indebtedness on a Pro Forma Basis, (A) no Default shall have occurred and be continuing and (B) the Total Leverage Ratio shall not be greater than 2.50 to 1.00, (y) the cash pay interest rate with respect to any such Indebtedness shall not exceed 15% per annum and (z) the maturity date of any such Indebtedness shall be no earlier than the date that is 6 months following the Term Loan Maturity Date; and
(m) Indebtedness of any Company in an aggregate amount not to exceed $1,000,000 in the aggregate for all Companies at any time outstanding.
SECTION 6.02 Liens . Create, incur, assume or permit to exist, directly or ly, any Lien on any property now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except the following (collectively, the Permitted Liens ):
(a) inchoate Liens for taxes, assessments or governmental charges or levies not yet due and payable or delinquent and Liens for taxes, assessments or governmental charges or levies, which (i) are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings (or orders entered in connection with such proceedings)
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have the effect of preventing the forfeiture or sale of the property subject to any such Lien, and (ii) in the case of any such charge or claim which has or may become a Lien against any of the Collateral, such Lien and the contest thereof shall satisfy the Contested Collateral Lien Conditions;
(b) Liens in respect of property of any Company imposed by Requirements of Law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers, warehousemens, materialmens, landlords, workmens, suppliers, repairmens and mechanics Liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the property of the Companies, taken as a whole, and do not materially impair the use thereof in the operation of the business of the Companies, taken as a whole, (ii) which, if they secure obligations that are then due and unpaid, are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property subject to any such Lien, and (iii) in the case of any such Lien which has or may become a Lien against any of the Collateral, such Lien and the contest thereof shall satisfy the Contested Collateral Lien Conditions;
(c) any Lien in existence on the Closing Date and set forth on Schedule 6.02(c) and any Lien granted as a replacement or substitute therefor; provided that any such replacement or substitute Lien (i) does not secure an aggregate amount of Indebtedness, if any, greater than that secured on the Closing Date plus the amount of any premiums required to be paid thereon and reasonable fees and expenses associated therewith and (ii) does not encumber any property other than the property subject thereto on the Closing Date (any such Lien, an Existing Lien );
(d) easements, rights-of-way, restrictions (including zoning restrictions), covenants, licenses, encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies on or with respect to any Real Property, in each case whether now or hereafter in existence, (i) not securing Indebtedness or (ii) that individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect;
(e) Liens arising out of judgments, attachments or awards not resulting in a Default and in respect of which such Company shall in good faith be prosecuting an appeal or proceedings for review in respect of which there shall be secured a subsisting stay of execution pending such appeal or proceedings and, in the case of any such Lien which has or may become a Lien against any of the Collateral, such Lien and the contest thereof shall satisfy the Contested Collateral Lien Conditions;
(f) Liens (other than any Lien imposed by ERISA) (x) imposed by Requirements of Law or deposits made in connection therewith in the ordinary course of business in connection with workers compensation, unemployment insurance and other types of social security legislation, (y) incurred in the ordinary course of business to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (z) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers; provided that (i) with respect to clauses (x), (y) and (z) of this paragraph (f), such Liens are for amounts not yet due and payable or delinquent or, to the extent such amounts are so due and payable, such amounts are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings for orders entered in connection with such proceedings have the effect of preventing the forfeiture or sale of the property subject to any such Lien, (ii) to the extent such Liens are
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not imposed by Requirements of Law, such Liens shall in no event encumber any property other than cash and Cash Equivalents, (iii) in the case of any such Lien against any of the Collateral, such Lien and the contest thereof shall satisfy the Contested Collateral Lien Conditions and (iv) the aggregate amount of deposits at any time pursuant to clause (y) and clause (z) of this paragraph (f) shall not exceed $500,000 in the aggregate;
(g) Leases of the properties of any Company, in each case entered into in the ordinary course of such Companys business;
(h) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by any Company in the ordinary course of business in accordance with the past practices of such Company;
(i) Liens securing Indebtedness incurred pursuant to Section 6.01(e) ; provided that any such Liens attach only to the property being financed pursuant to such Indebtedness and do not encumber any other property of any Company;
(j) bankers Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by any Company, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements; provided that, unless such Liens are non-consensual and arise by operation of law, in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;
(k) Liens on property of a person existing at the time such person is acquired or merged with or into or consolidated with any Company to the extent permitted hereunder (and not created in anticipation or contemplation thereof); provided that such Liens do not extend to property not subject to such Liens at the time of acquisition (other than improvements thereon) and are no more favorable to the lienholders than such existing Lien;
(l) Liens granted pursuant to the Security Documents to secure the Secured Obligations;
(m) licenses of Intellectual Property granted by any Company in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Companies;
(n) the filing of UCC financing statements solely as a precautionary measure in connection with operating leases or consignment of goods;
(o) Liens incurred in the ordinary course of business of any Company with respect to obligations that do not in the aggregate exceed $500,000 at any time outstanding, so long as such Liens, to the extent covering any Collateral, are pari passu or subordinated to the Liens granted pursuant to the Security Documents pursuant to an intercreditor or subordination agreement, as the case may be, that is reasonably satisfactory to Administrative Agent;
provided , however , that no consensual Liens shall be permitted to exist, directly or indirectly, on any Securities Collateral, other than Liens granted pursuant to the Security Documents.
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SECTION 6.03 Sale and Leaseback Transactions . Enter into any arrangement, rectly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred (a Sale and Leaseback Transaction ) unless (i) the sale of such property is permitted by Section 6.06 and (ii) any Liens arising in connection with its use of such property are permitted by Section 6.02 .
SECTION 6.04 Investment, Loan and Advances . Directly or indirectly, lend money or credit (by way of guarantee or otherwise) or make advances to any person, or purchase or acquire any stock, bonds, notes, debentures or other obligations or securities of, or any other interest in, or make any capital contribution to, any other person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract (all of the foregoing, collectively, Investments ), except that the following shall be permitted:
(a) the Companies may consummate the Transactions in accordance with the provisions of the Loan Documents;
(b) Investments outstanding on the Closing Date and identified on Schedule 6.04(b) and any modification, replacement, renewal, reinvestment or extension of any of the foregoing; provided that the amount of any Investment permitted pursuant to this Section 6.04(b) is not increased from the amount of such Investment on the Closing Date except as otherwise permitted by another clause of this Section 6.04 ;
(c) the Companies may (i) acquire and hold accounts receivables and notes receivables owing to any of them if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms, (ii) invest in, acquire and hold cash and Cash Equivalents, (iii) endorse negotiable instruments held for collection in the ordinary course of business or (iv) make lease, utility and other similar deposits in the ordinary course of business;
(d) Hedging Obligations incurred pursuant to Section 6.01(c) ;
(e) loans and advances to directors, employees and officers of Borrower and the Subsidiaries for bona fide business purposes and to purchase Equity Interests of AGS Capital, in aggregate amount not to exceed $500,000 at any time outstanding;
(f) Investments (i) by any Company in Borrower or any Subsidiary Guarantor, (ii) by a Subsidiary that is not a Subsidiary Guarantor in any other Subsidiary that is not a Subsidiary Guarantor and (iii) by any Loan Party in any Foreign Subsidiary of AGS Capital in an aggregate amount, in the case of this subclause (iii), not to exceed $3,000,000 at any time outstanding; provided that, in the case of each of the foregoing clauses (i), (ii) and (iii), any Investment in the form of a loan or advance shall be evidenced by the Intercompany Note and, in the case of a loan or advance by a Loan Party, pledged by such Loan Party as Collateral pursuant to the Security Documents;
(g) Investments in securities of trade creditors or customers in the ordinary course of business received upon foreclosure or pursuant to any plan of reorganization or liquidation or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers;
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(h) Investments made by Borrower or any Subsidiary consisting of consideration received in connection with an Asset Sale made in compliance with Section 6.06 ;
(i) deposits by any Credit Party made in the ordinary course of business consistent with past practices to secure the performance of leases;
(j) Permitted Development Loans and Capital and Intangible Expenditures (to the extent constituting Investments) by Borrower and its Subsidiaries permitted by Section 6.10(c) ;
(k) Permitted Acquisitions; and
(l) other Investments in an aggregate amount not to exceed $1,000,000 at any time outstanding (provided that the amount set forth in this Section 6.04(l) may be increased by the Additional Basket Amount).
An Investment shall be deemed to be outstanding to the extent not returned in the same form as the original Investment to Borrower or any Subsidiary Guarantor.
SECTION 6.05 Mergers and Consolidations . Wind up, liquidate or dissolve its fairs or enter into any transaction of merger or consolidation (or agree to do any of the foregoing at any future time), except that the following shall be permitted:
(a) Asset Sales in compliance with Section 6.06 ;
(b) acquisitions in compliance with Section 6.07 ;
(c) any Company may merge or consolidate with or into Borrower or any Subsidiary Guarantor, as long as Borrower is the surviving person in the case of any merger or consolidation involving Borrower and a Subsidiary Guarantor is the surviving person and remains a Wholly Owned Subsidiary of AGS Capital in any other case; provided that the Lien on and security interest in such property granted or to be granted in favor of Collateral Agent under the Security Documents shall be maintained or created in accordance with the provisions of Section 5.11 or Section 5.12 , as applicable;
(d) any Company (other than Borrower) may be liquidated, wound up or dissolved into Borrower or any Subsidiary Guarantor; and
(e) any Company that is not a Guarantor may merge or consolidate with or into, or be liquidated, wound up or dissolved into, any other Company that is not a Guarantor.
To the extent the Required Lenders or all the Lenders, as applicable, waive the provisions of this Section 6.05 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 6.05 , the Liens created by the Security Documents on such Collateral (unless sold to a Company) shall be automatically released and terminated, and, so long as Borrower shall have provided the Agents such certifications or documents as any Agent shall reasonably request in order to demonstrate compliance with this Section 6.05 , the Agents shall take all actions they deem appropriate in order to effect the foregoing.
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SECTION 6.06 Asset Sales . Effect any Asset Sale, or agree to effect any Asset Sale, except that the following shall be permitted:
(a) disposition of used, worn out, obsolete or surplus property by any Company in the ordinary course of business and the abandonment or other disposition of Intellectual Property that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the conduct of the business of the Companies taken as a whole;
(b) Asset Sales; provided that the aggregate consideration received in respect of all Asset Sales pursuant to this clause
(b) shall not exceed $1,500,000 in any four consecutive fiscal quarters of AGS Capital;
(c) dispositions of Gaming machines provided (i) such disposition is (A) for cash or in exchange for future revenue or other consideration pursuant to a bona fide, written licensing agreement with a distributor or other third party and (B) immediately after giving effect to such disposition, AGS Capital and its Subsidiaries shall continue to have operating under a revenue sharing, lease or daily fee or similar agreement to which any Loan Party is a party at least 6,000 Gaming machines;
(d) leases of real or personal property in the ordinary course of business and in accordance with the applicable Security Documents;
(e) the Transactions as contemplated by the Loan Documents;
(f) mergers and consolidations in compliance with Section 6.05 ;
(g) Investments in compliance with Section 6.04 ; and
(h) Sale and Leaseback Transactions permitted by Section 6.03 .
To the extent the Required Lenders or all the Lenders, as applicable, waive the provisions of this Section 6.06 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 6.06 , the Liens created by the Security Documents on such Collateral (unless sold to a Company) shall be automatically released and terminated, and, so long as Borrower shall have provided the Agents such certifications or documents as any Agent shall reasonably request in order to demonstrate compliance with this Section 6.06 , the Agents shall take all actions they deem appropriate in order to effect the foregoing.
SECTION 6.07 Acquisitions . Purchase or otherwise acquire (in one or a series of related transactions) any part of the property (whether tangible or intangible) of any person (or agree to do any of the foregoing at any future time), except that the following shall be permitted:
(a) Capital and Intangible Expenditures by Borrower and the Subsidiaries to the extent permitted by Section 6.10(c) ;
(b) purchases and other acquisitions of inventory, materials, equipment and intangible property in the ordinary course of business;
(c) Investments in compliance with Section 6.04 ;
(d) leases of real or personal property in the ordinary course of business and in accordance with the applicable Security Documents;
(e) the Transactions as contemplated by the Loan Documents;
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(f) Permitted Acquisitions; and
(g) mergers and consolidations in compliance with Section 6.05 ;
provided that the Lien on and security interest in such property granted or to be granted in favor of Collateral Agent under the Security Documents shall be maintained or created in accordance with the provisions of Section 5.11 or Section 5.12 , as applicable.
SECTION 6.08 Dividends . Authorize, declare or pay, directly or indirectly, any Dividends with respect to any Company, except that the following shall be permitted:
(a) Dividends (x) by any Subsidiary of Borrower to Borrower or any Wholly-Owned Subsidiary of Borrower and (y) by any Foreign Subsidiary of AGS Capital to AGS Capital;
(b) payments by Borrower and/or AGS Partners to AGS Capital to permit AGS Capital, and the subsequent use of such payments by AGS Capital, to repurchase or redeem Qualified Capital Stock of AGS Capital held by officers, directors or employees or former officers, directors or employees (or their transferees, estates or beneficiaries under their estates) of any Company, upon their death, disability, retirement, severance or termination of employment or service; provided that the aggregate cash consideration paid for all such redemptions and payments shall not exceed, in any fiscal year, the sum of (x) $500,000 (and up to 50% of such $500,000 not used in any fiscal year may be carried forward to the next succeeding (but no other) fiscal year), plus (y) the amount of any Net Cash Proceeds received by or contributed to Borrower from the issuance and sale since the issue date of Qualified Capital Stock of AGS Capital to officers, directors or employees of any Company that have not been used to make any repurchases, redemptions or payments under this clause (b), plus (z) the net cash proceeds of any key-man life insurance policies of any Company that have not been used to make any repurchases, redemptions or payments under this clause (b);
(c) (A) to the extent actually used by AGS Capital to pay such taxes, costs and expenses, payments by Borrower and/or AGS Partners to or on behalf of AGS Capital in an amount sufficient to pay franchise taxes and other fees required to maintain the legal existence of AGS Capital and (B) payments by Borrower and/or AGS Partners (I) to or on behalf of AGS Capital in an amount sufficient to pay out-of-pocket legal, accounting and filing costs and other expenses in the nature of overhead in the ordinary course of business of AGS Capital and (II) to Alpine Investors II, LP or one or more of its Affiliates in respect of a one-time transaction fee on the Closing Date, in the case of clauses (A) and (B), in an aggregate amount not to exceed in any fiscal year the sum of (x) $600,000 minus (y) the aggregate amount of the Consulting Agreement Amount paid or payable during such fiscal year; and
(d) Permitted Tax Distributions, so long as AGS Capital uses such distributions to pay quarterly distributions to members of AGS Capital to satisfy such members income tax obligations arising from the operations of AGS Capital during the corresponding fiscal quarter or any prior fiscal quarter.
SECTION 6.09 Transactions with Affiliates . Enter into, directly or indirectly, any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of any Company (other than between or among Borrower and one or more Subsidiary Guarantors), other than on terms and conditions at least as favorable to such Company as would reasonably be obtained by such Company at that time in a comparable arms-length transaction with a person other than an Affiliate, except that the following shall be permitted:
(a) Dividends permitted by Section 6.08 ;
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(b) Investments permitted by Sections 6.04 ;
(c) reasonable and customary director, officer and employee compensation (including bonuses) and other benefits (including retirement, health, stock option and other benefit plans) and indemnification arrangements, in each case approved by the Board of Directors of Borrower;
(d) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods and services, in each case in the ordinary course of business and otherwise not prohibited by the Loan Documents;
(e) the existence of, and the performance by any Loan Party of its obligations under the terms of, any limited liability company, limited partnership or other Organizational Document or securityholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party on the Closing Date, and similar agreements that it may enter into thereafter; provided , however , that the existence of, or the performance by any Loan Party of obligations under, any amendment to any such existing agreement or any such similar agreement entered into after the Closing Date shall only be permitted by this Section 6.09(e) to the extent not more adverse to the interest of the Lenders in any material respect, when taken as a whole, than any of such documents and agreements as in effect on the Closing Date;
(f) sales of Qualified Capital Stock of AGS Capital to Affiliates of Borrower not otherwise prohibited by the Loan Documents and the granting of registration and other customary rights in connection therewith;
(g) any transaction with an Affiliate where the only consideration paid by any Loan Party is Qualified Capital Stock of AGS Capital;
(h) those transactions set forth on Schedule 6.09 hereto;
(i) transactions with Affiliates not otherwise prohibited by the Loan Documents resulting in obligations of Borrower in an aggregate amount not to exceed $250,000 at any time outstanding;
(j) the Transactions as contemplated by the Loan Documents; and
(k) the payment of (i) fees to an Affiliate of Alpine Investors II, LP pursuant to the Consulting Agreement in an aggregate amount not to exceed $300,000 in any fiscal year, (ii) all out-of-pocket-fees, expenses and other reimbursements in connection with the Consulting Agreement (the aggregate amount of payments made pursuant to the foregoing subclauses (i) and (ii), the Consulting Agreement Amount ) and (iii) indemnities in connection with the Consulting Agreement.
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SECTION 6.10 Financial Covenants .
(a) Maximum Total Leverage Ratio . Permit the Total Leverage Ratio, as of the last day of any Test Period to exceed the ratio set forth opposite such Test Period in the table below:
Test Period |
Leverage Ratio |
|||||
September 30, 2012 |
4.00 to 1.00 | |||||
December 31, 2012 |
3.85 to 1.00 | |||||
March 31, 2013 |
3.85 to 1.00 | |||||
June 30, 2013 |
3.75 to 1.00 | |||||
September 30, 2013 |
3.60 to 1.00 | |||||
December 31, 2013 |
3.25 to 1.00 | |||||
March 31, 2014 |
3.10 to 1.00 | |||||
June 30, 2014 |
2.95 to 1.00 | |||||
September 30, 2014 |
2.80 to 1.00 | |||||
December 31, 2014 |
2.45 to 1.00 | |||||
March 31, 2015 |
2.30 to 1.00 | |||||
June 30, 2015 |
2.15 to 1.00 | |||||
September 30, 2015 and thereafter |
2.00 to 1.00 |
(b) Minimum Consolidated Interest Coverage Ratio . Permit the Consolidated Interest Coverage Ratio, as of the last day of any Test Period to be less than the ratio set forth opposite such Test Period in the table below:
Test Period |
Interest Coverage
|
|||||
September 30, 2012 |
2.25 to 1.00 | |||||
December 31, 2012 |
2.25 to 1.00 | |||||
March 31, 2013 |
2.25 to 1.00 | |||||
June 30, 2013 |
2.35 to 1.00 | |||||
September 30, 2013 |
2.45 to 1.00 | |||||
December 31, 2013 |
2.55 to 1.00 | |||||
March 31, 2014 |
2.65 to 1.00 | |||||
June 30, 2014 |
2.75 to 1.00 | |||||
September 30, 2014 |
2.85 to 1.00 | |||||
December 31, 2014 and thereafter |
3.00 to 1.00 |
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(c) Limitation on Capital and Intangible Expenditures . Permit the aggregate amount of Capital and Intangible Expenditures made in any fiscal year to exceed the amount for such fiscal year set forth opposite such fiscal year in the table below:
Fiscal Year |
Maximum Amount | |||
2012 |
$ | 32,500,000 | ||
2013 |
$ | 35,000,000 | ||
2014 |
$ | 25,000,000 | ||
2015 |
$ | 22,500,000 | ||
2016 and each fiscal year thereafter |
$ | 17,000,000 |
provided that the amount set forth opposite each such period above (I) may be increased by the Additional Basket Amount and (II) shall be increased (or decreased) by an amount equal to (i) the Permitted Development Agreement Net Amount minus (ii) the Canadian Payroll Tax Credit Net Amount; and provided, further , that (x) if the aggregate amount of Capital and Intangible Expenditures made in any fiscal year shall be less than the maximum amount of Capital and Intangible Expenditures permitted under this Section 6.10(c) for such fiscal year (before giving effect to any carryover, but after giving effect to any increases (or decreases) pursuant to clause (II) of the immediately preceding proviso), then 100% of such shortfall amount may be added to the amount of Capital and Intangible Expenditures permitted under this Section 6.10(c) for the immediately succeeding (but not any other) fiscal year and (y) in determining whether any amount is available for carryover, the amount expended in any fiscal year shall first be deemed to be from the amount allocated to such fiscal year (before giving effect to any carryover); and provided, further , that in no event shall (A) the maximum amount of Permitted Development Loans for fiscal year ending December 31, 2012, exceed $13,500,000 at any time outstanding, (B) the total amount of Permitted Development Loans made by a Loan Party or any of its Subsidiaries in fiscal year 2013, exceed $3,500,000 and (C) the total amount of Permitted Development Loans made by a Loan Party or any of its Subsidiaries in fiscal year 2014 or any fiscal year thereafter, exceed $3,000,000, plus, in the case of the amounts in clauses (A) through (C), the Additional Basket Amount.
(d) Minimum Liquidity . Permit Liquidity to be less than $3,000,000 at any time.
(e) Optional Pro Forma Debt Prepayment . Notwithstanding anything to the contrary, if the Loan Parties are not in compliance with Section 6.10(a) for the applicable measuring period (the Computation Period ), no Event of Default shall be deemed to exist solely as a result of a violation of Section 6.10(a) for such Computation Period if Borrower optionally prepays the Term Loans with cash on hand (it being understood that any prior notice requirements with respect to optional prepayments are hereby expressly waived for purposes of this clause (e)) in an amount that, after giving effect to such prepayment on a pro forma basis, would cause the Loan Parties to be in compliance with Section 6.10(a) for the applicable Computation Period (such prepayment, an Optional Pro Forma Debt Repayment ); provided, that such Optional Pro Forma Debt Repayment must be made by Borrower on or prior to the date that is ten (10) days after the date on which financial statements are required to be delivered for such fiscal quarter end or fiscal year end, as the case may be. Notwithstanding the foregoing, Borrowers rights under this Section 6.10(e) may not be exercised more than two (2) times during the term of this Agreement.
SECTION 6.11 Prepayments of Other Indebtedness; Modifications of Organizational Documents and Other Documents, etc . Directly or indirectly:
(a) make (or give any notice in respect thereof) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Indebtedness outstanding under any Subordinated Indebtedness, except as otherwise permitted by this Agreement;
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(b) amend or modify, or permit the amendment or modification of, any provision of any Loan Document, any document governing any Material Indebtedness in any manner that is adverse in any material respect to the interests of the Lenders;
(c) terminate, amend or modify any of its Organizational Documents (including (x) by the filing or modification of any certificate of designation and (y) any election to treat any Pledged Securities (as defined in the Security Agreement) as a security under Section 8-103 of the UCC other than concurrently with the delivery of certificates representing such Pledged Securities to Collateral Agent) or any agreement to which it is a party with respect to its Equity Interests (including any stockholders agreement), or enter into any new agreement with respect to its Equity Interests, other than any such amendments or modifications or such new agreements which are not adverse in any material respect to the interests of the Lenders; provided that AGS Capital may issue such Equity Interests, so long as such issuance is not prohibited by Section 6.13 or any other provision of this Agreement, and may amend or modify its Organizational Documents to authorize any such Equity Interests.
SECTION 6.12 Limitation on Certain Restrictions on Subsidiaries . Directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by Borrower or any Subsidiary, or pay any Indebtedness owed to Borrower or a Subsidiary, (b) make loans or advances to Borrower or any Subsidiary or (c) transfer any of its properties to Borrower or any Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) applicable Requirements of Law; (ii) this Agreement and the other Loan Documents; (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of a Subsidiary; (iv) customary provisions restricting assignment of any agreement entered into by a Subsidiary in the ordinary course of business; (v) any holder of a Lien permitted by Section 6.02 restricting the transfer of the property subject thereto; (vi) customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 6.06 pending the consummation of such sale; (vii) any agreement in effect at the time such Subsidiary becomes a Subsidiary of Borrower, so long as such agreement was not entered into in connection with or in contemplation of such person becoming a Subsidiary of Borrower; (viii) without affecting the Loan Parties obligations under Section 5.11 , customary provisions in partnership agreements, limited liability company organizational governance documents, asset sale and stock sale agreements and other similar agreements entered into in the ordinary course of business that restrict the transfer of ownership interests in such partnership, limited liability company or similar person; (ix) restrictions on cash or other deposits or net worth imposed by suppliers or landlords under contracts entered into in the ordinary course of business; (x) any instrument governing Indebtedness assumed in connection with any Permitted Acquisition, which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person or the properties or assets of the person so acquired; (xi) in the case of any joint venture which is not a Loan Party in respect of any matters referred to in clauses (b) and (c) above, restrictions in such persons Organizational Documents or pursuant to any joint venture agreement or stockholders agreements solely to the extent of the Equity Interests of or property held in the subject joint venture or other entity; or (xii) any encumbrances or restrictions imposed by any amendments or refinancings that are otherwise permitted by the Loan Documents of the contracts, instruments or obligations referred to in clauses (iii) or (vii) above; provided that such amendments or refinancings are no more materially restrictive with respect to such encumbrances and restrictions than those prior to such amendment or refinancing.
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SECTION 6.13 Limitation on Issuance of Capital Stock .
(a) With respect to AGS Capital, issue any Equity Interest that is not Qualified Capital Stock.
(b) With respect to AGS Partners, Borrower or any Subsidiary, issue any Equity Interest (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, any Equity Interest, except (i) for stock splits, stock dividends and additional issuances of Equity Interests which do not decrease the percentage ownership of AGS Capital, Borrower or any Subsidiaries in any class of the Equity Interest of such Subsidiary; (ii) Subsidiaries of Borrower formed after the Closing Date in accordance with Section 6.14 may issue Equity Interests to Borrower or the Subsidiary of Borrower which is to own such Equity Interests; and (iii) AGS Partners and Borrower may issue common stock that is Qualified Capital Stock to AGS Capital. All Equity Interests issued in accordance with this Section 6.13(b) shall, to the extent required by Sections 5.11 and 5.12 or any Security Agreement or if such Equity Interests are issued by Borrower or AGS Partners, be delivered to Collateral Agent for pledge pursuant to the applicable Security Agreement.
SECTION 6.14 Limitation on Creation of Subsidiaries . Establish, create or quire any additional Subsidiaries without the prior written consent of the Required Lenders; provided that, without such consent, Borrower may (i) establish or create one or more Wholly Owned Subsidiaries of Borrower or another Loan Party, (ii) establish, create or acquire one or more Subsidiaries in connection with an Investment made pursuant to Section 6.04(f) or (iii) acquire one or more Subsidiaries in connection with a Permitted Acquisition, so long as, in each case, Section 5.11(b) shall be complied with.
SECTION 6.15 Business .
(a) With respect to AGS Capital, engage in any business activities or have any properties or liabilities, other than (i) its ownership of the Equity Interests of Borrower, AGS Partners and American Gaming Systems Toronto, Ltd., cash received from Equity Interests or Dividends and Investments permitted hereunder, (ii) obligations under the Loan Documents, (iii) establishing, creating or acquiring any Subsidiary in accordance with Section 6.14 , and (iv) activities and properties incidental to the foregoing clauses (i), (ii) and (iii).
(b) With respect to Borrower and the Subsidiaries, (i) engage (directly or indirectly) in any business other than those businesses in which Borrower and its Subsidiaries are engaged on the Closing Date (or, in the good faith judgment of the Board of Directors, which are substantially related thereto or are reasonable extensions thereof) and any other businesses incidental thereto and (ii) establish, create or acquire any Subsidiary in accordance with Section 6.14 .
(c) With respect to AGS Partners, (i) engage (directly or indirectly) in any business other than those businesses in which AGS Partners and its Subsidiaries are engaged on the Closing Date (or, in the good faith judgment of the Board of Directors, which are substantially related thereto or are reasonable extensions thereof) and any other businesses incidental thereto and (ii) establish, create or acquire any Subsidiary in accordance with Section 6.14 .
SECTION 6.16 Limitation on Accounting Changes . Make or permit any change in accounting policies or reporting practices, without the consent of the Required Lenders, which consent shall not be unreasonably withheld, except changes that are required by GAAP.
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SECTION 6.17 Fiscal Year . Change its fiscal year-end to a date other than cember 31.
SECTION 6.18 No Further Negative Pledge . Enter into any agreement, ment, deed or lease which prohibits or limits the ability of any Loan Party to create, incur, assume or suffer to exist any Lien upon any of their respective properties or revenues, whether now owned or hereafter acquired, or which requires the grant of any security for an obligation if security is granted for another obligation, except the following: (1) this Agreement and the other Loan Documents; (2) covenants in documents creating Liens permitted by Section 6.02 prohibiting further Liens on the properties encumbered thereby; (3) any other agreement that does not restrict in any manner (directly or indirectly) Liens created pursuant to the Loan Documents on any Collateral securing the Secured Obligations and does not require the direct or indirect granting of any Lien securing any Indebtedness or other obligation by virtue of the granting of Liens on or pledge of property of any Loan Party to secure the Secured Obligations; and (4) any prohibition or limitation that (a) exists pursuant to applicable Requirements of Law, (b) consists of customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 6.06 pending the consummation of such sale, (c) restricts subletting or assignment of any lease governing a leasehold interest of Borrower or a Subsidiary, (d) exists in any agreement in effect at the time such Subsidiary becomes a Subsidiary of Borrower, so long as such agreement was not entered into in contemplation of such person becoming a Subsidiary or (e) is imposed by any amendments or refinancings that are otherwise permitted by the Loan Documents of the contracts, instruments or obligations referred to in clause (4) (d); provided that such amendments and refinancings are no more materially restrictive with respect to such prohibitions and limitations than those prior to such amendment or refinancing.
SECTION 6.19 Anti-Terrorism Law; Anti-Money Laundering .
(a) Directly or indirectly, (i) knowingly conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in Section 3.21 , (ii) knowingly deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order or any other Anti-Terrorism Law, or (iii) knowingly engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law (and the Loan Parties shall deliver to the Lenders any certification or other evidence requested from time to time by any Lender in its reasonable discretion, confirming the Loan Parties compliance with this Section 6.19 ).
(b) Cause or permit any of the funds of such Loan Party that are used to repay the Term Loans to be derived from any unlawful activity with the result that the making of the Term Loans would be in violation of any Requirement of Law.
SECTION 6.20 Embargoed Person . Cause or permit (a) any of the funds or erties of the Loan Parties that are used to repay the Term Loans to constitute property of, or be beneficially owned directly or indirectly by, any person subject to sanctions or trade restrictions under United States law ( Embargoed Person or Embargoed Persons ) that is identified on (1) the List of Specially Designated Nationals and Blocked Persons maintained by OFAC and/or on any other similar list maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq ., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq ., and any Executive Order or Requirement of Law promulgated thereunder, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by a Requirement of
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Law, or the Term Loans made by the Lenders would be in violation of a Requirement of Law, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders or (b) any Embargoed Person to have any direct or indirect interest, of any nature whatsoever in the Loan Parties, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by a Requirement of Law or the Term Loans are in violation of a Requirement of Law.
SECTION 6.21 Use of Proceeds . Cause or permit any part of the proceeds from any Term Loan, directly or indirectly, to be used:
(a) to offer or make payments to any official, officer, employee or representative of any Governmental Authority or employee, political party, official of a political party, candidate for political office, official of any public international organization or anyone else acting in an official capacity (each, a Government Official ), in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977 (15 USC. §§ 78dd 1 et seq.) (the FCPA ); or
(b) to offer or make payments or to take any other action that would constitute a violation, or implicate any Agent or any Lender in a violation of, the U.K. Bribery Act 2010, and, where applicable, legislation enacted by member States and signatories implementing the OECD Convention Combating Bribery of Foreign Officials (collectively, with the FCPA and the U.K. Bribery Act 2010, the Anti- Corruption Laws ).
SECTION 6.22 Anti-Bribery . Violate, or cause or permit any of its Affiliates to violate, the FCPA or any other Anti-Corruption Laws or undertake or cause to be undertaken any Anti-Corruption Prohibited Activity.
SECTION 6.23 Borrower Equity Interests . Create, incur, assume or permit to ist, directly or indirectly, any Lien on the Equity Interests of Borrower or on any income or revenues or rights in respect of any thereof other than (i) non-consensual Liens imposed by Requirements of Law and (ii) from and after receipt of the Nevada Gaming Authorities Approval, Liens in favor of Collateral Agent.
ARTICLE VII
GUARANTEE
SECTION 7.01 The Guarantee . The Guarantors hereby jointly and severally antee, as a primary obligor and not as a surety to each Secured Party and their respective successors and assigns, the prompt payment in full when due (whether at stated maturity, by required prepayment, declaration, demand, by acceleration or otherwise) of the principal of and interest (including any interest, fees, costs or charges that would accrue but for the provisions of the Title 11 of the United States Code after any bankruptcy or insolvency petition under Title 11 of the United States Code) on the Term Loans made by the Lenders to, and the Notes held by each Lender of, Borrower, and all other Secured Obligations from time to time owing to the Secured Parties by any Loan Party under any Loan Document, in each case, strictly in accordance with the terms thereof (such obligations being herein collectively called the Guaranteed Obligations ). The Guarantors hereby jointly and severally agree that if Borrower or other Guarantor(s) shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the same in cash, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
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SECTION 7.02 Obligations Unconditional . The obligations of the Guarantors der Section 7.01 shall constitute a guaranty of payment and to the fullest extent permitted by applicable Requirements of Law, are absolute, irrevocable and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the Guaranteed Obligations of Borrower under this Agreement, the Notes, if any, or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or Guarantor (except for payment in full). Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder which shall remain absolute, irrevocable and unconditional under any and all circumstances as described above:
(i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes, if any, or any other agreement or instrument referred to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be amended in any respect, or any right under the Loan Documents or any other agreement or instrument referred to herein or therein shall be amended or waived in any respect or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with;
(iv) any Lien or security interest granted to, or in favor of, any Lender or Agent as security for any of the Guaranteed Obligations shall fail to be perfected; or
(v) the release of any other Guarantor pursuant to Section 7.09 .
The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that any Secured Party exhaust any right, power or remedy or proceed against Borrower under this Agreement or the Notes, if any, or any other agreement or instrument referred to herein or therein, or against any other person under any other guarantee of, or security for, any of the Guaranteed Obligations. The Guarantors waive any and all notice of the creation, renewal, extension, waiver, termination or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by any Secured Party upon this Guarantee or acceptance of this Guarantee, and the Guaranteed Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guarantee, and all dealings between Borrower and the Secured Parties shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guarantee. This Guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee of payment without regard to any right of offset with respect to the Guaranteed Obligations at any time or from time to time held by Secured Parties, and the obligations and liabilities of the Guarantors hereunder shall not be conditioned or contingent upon the pursuit by the Secured Parties or any other person at any time of any right or remedy against Borrower or against any other person which may be or become liable
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in respect of all or any part of the Guaranteed Obligations or against any collateral security or guarantee therefor or right of offset with respect thereto. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantors and the successors and assigns thereof, and shall inure to the benefit of the Lenders, and their respective successors and assigns, notwithstanding that from time to time during the term of this Agreement there may be no Guaranteed Obligations outstanding.
SECTION 7.03 Reinstatement . The obligations of the Guarantors under this cle VII shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of Borrower or other Loan Party in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise.
SECTION 7.04 Subrogation; Subordination . Each Guarantor hereby agrees that until the indefeasible payment and satisfaction in full in cash of all Guaranteed Obligations and the expiration and termination of the Commitments of the Lenders under this Agreement it shall waive any claim and shall not exercise any right or remedy, direct or indirect, arising by reason of any performance by it of its guarantee in Section 7.01 , whether by subrogation or otherwise, against Borrower or any other Guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. Any Indebtedness of any Loan Party permitted pursuant to Section 6.01(d) shall be subordinated to such Loan Partys Secured Obligations in the manner set forth in the Intercompany Note evidencing such Indebtedness.
SECTION 7.05 Remedies . The Guarantors jointly and severally agree that, as tween the Guarantors and the Lenders, the obligations of Borrower under this Agreement and the Notes, if any, may be declared to be forthwith due and payable as provided in Section 8.01 (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 8.01 ) for purposes of Section 7.01 , notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by Borrower) shall forthwith become due and payable by the Guarantors for purposes of Section 7.01 .
SECTION 7.06 Instrument for the Payment of Money . Each Guarantor hereby acknowledges that the guarantee in this Article VII constitutes an instrument for the payment of money, and consents and agrees that any Lender or Agent, at its sole option, in the event of a dispute by such Guarantor in the payment of any moneys due hereunder, shall have the right to bring a motion-action under New York CPLR Section 3213.
SECTION 7.07 Continuing Guarantee . The guarantee in this Article VII is a tinuing guarantee of payment, and shall apply to all Guaranteed Obligations whenever arising.
SECTION 7.08 General Limitation on Guarantee Obligations . In any action or proceeding involving any state corporate limited partnership or limited liability company law, or any applicable state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under Section 7.01 would otherwise be held or determined to be void, voidable, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 7.01 , then, notwithstanding any other provision to the contrary, the amount of such liability shall, without any further action by such Guarantor, any
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Loan Party or any other person, be automatically limited and reduced to the highest amount (after giving effect to the right of contribution established in Section 7.10 ) that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.
SECTION 7.09 Release of Guarantors . If, in compliance with the terms and visions of the Loan Documents, all or substantially all of the Equity Interests or property of any Guarantor are sold or otherwise transferred (a Transferred Guarantor ) to a person or persons, none of which is Borrower or a Subsidiary, such Transferred Guarantor shall, upon the consummation of such sale or transfer, be automatically released from its obligations under this Agreement (including under Section 10.03 hereof) and its obligations to pledge and grant any Collateral owned by it pursuant to any Security Document and, in the case of a sale of all or substantially all of the Equity Interests of the Transferred Guarantor, the pledge of such Equity Interests to Collateral Agent pursuant to the Security Agreements shall be automatically released, and, so long as Borrower shall have provided the Agents such certifications or documents as any Agent shall reasonably request, Collateral Agent shall take such actions as are necessary to effect each release described in this Section 7.09 in accordance with the relevant provisions of the Security Documents, so long as Borrower shall have provided the Agents such certifications or documents as any Agent shall reasonably request in order to demonstrate compliance with this Agreement.
SECTION 7.10 Right of Contribution . Each Subsidiary Guarantor hereby agrees that to the extent that a Subsidiary Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against any other Subsidiary Guarantor hereunder which has not paid its proportionate share of such payment. Each Subsidiary Guarantors right of contribution shall be subject to the terms and conditions of Section 7.04 . The provisions of this Section 7.10 shall in no respect limit the obligations and liabilities of any Subsidiary Guarantor to Administrative Agent and the Lenders, and each Subsidiary Guarantor shall remain liable to Administrative Agent and the Lenders for the full amount guaranteed by such Subsidiary Guarantor hereunder.
EVENTS OF DEFAULT
SECTION 8.01 Events of Default . Upon the occurrence and during the ance of the following events ( Events of Default ):
(a) default shall be made in the payment of any principal of any Term Loan when and as the same shall become due and payable, whether at the due date thereof (including a Term Loan Repayment Date) or at a date fixed for prepayment (whether voluntary or mandatory) thereof or by acceleration thereof or otherwise;
(b) default shall be made in the payment of any interest on any Term Loan or any Fee, premiums or any other amount (other than an amount referred to in paragraph (a) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings hereunder, or any representation, warranty, written statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;
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(d) default shall be made in the due observance or performance by any Company of any covenant, condition or agreement contained in Section 5.02(a) , 5.03 , 5.08 or 5.15 or in Article VI ; provided that with respect to any default under Section 6.10(a) , and solely in connection with an Optional Pro Forma Debt Repayment in accordance with Section 6.10(e) , such default shall continue unremedied for a period of ten (10) days after the date on which financial statements are required to be delivered with respect to the relevant fiscal quarter end or fiscal year end, as the case may be;
(e) default shall be made in the due observance or performance by any Company of any covenant, condition or agreement contained in any Loan Document (other than those specified in paragraphs (a), (b) or (d) immediately above) and such default shall continue unremedied or shall not be waived for a period of 30 days after the earlier of (i) written notice thereof from Administrative Agent or any Lender to Borrower and (ii) knowledge thereof by AGS Capital or Borrower;
(f) any Company shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness (other than the Obligations), when and as the same shall become due and payable beyond any applicable grace period, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee or other representative on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity or become subject to a mandatory offer purchase by the obligor; provided that it shall not constitute an Event of Default pursuant to this paragraph (f) unless the aggregate amount of all such Indebtedness referred to in clauses (i) and (ii) exceeds $2,500,000 at any one time ( provided that, in the case of Hedging Obligations, the amount counted for this purpose shall be the amount payable by all Companies if such Hedging Obligations were terminated at such time);
(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of any Company, or of a substantial part of the property of any Company, under Title 11 of the U.S. Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law; (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Company or for a substantial part of the property of any Company; or (iii) the winding-up or liquidation of any Company; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(h) any Company shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law; (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (g) above; (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Company or for a substantial part of the property of any Company; (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding; (v) make a general assignment for the benefit of creditors; (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due; (vii) take any action for the purpose of effecting any of the foregoing; or (viii) wind up or liquidate;
(i) one or more judgments, orders, decrees or settlements for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against, or agreed to by, any Company or any combination thereof and the same shall remain undischarged, unvacated or unbonded for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon properties of any Company to enforce any such judgment;
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(j) one or more ERISA Events shall have occurred that, in the opinion of the Required Lenders, when taken together with all other such ERISA Events, could reasonably be expected to result in liability of any Company and its ERISA Affiliates in an aggregate amount exceeding $2,500,000 or in the imposition of a Lien on any properties of a Company;
(k) any security interest and Lien purported to be created by any Security Document in any material portion of the Collateral shall cease to be in full force and effect, or shall cease to give Collateral Agent, for the benefit of the Secured Parties, the Liens, rights, powers and privileges purported to be created and granted under such Security Document (including a perfected first priority security interest in and Lien on all of the Collateral thereunder (except as otherwise expressly provided in such Security Document)) in favor of Collateral Agent, or shall be asserted by Borrower or any other Loan Party not to be a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in or Lien on the Collateral covered thereby;
(l) any Loan Document or any material provisions thereof shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or a proceeding shall be commenced by any Loan Party or any other person, or by any Governmental Authority, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or any Loan Party shall repudiate or deny any portion of its liability or obligation for the Obligations;
(m) there shall have occurred a Change in Control;
(n) any Company shall be prohibited or otherwise restrained from conducting the business theretofore conducted by it in any manner that has or could reasonably be expected to result in a Material Adverse Effect by virtue of any determination, ruling, decision, decree or order of any court or Governmental Authority of competent jurisdiction; or
(o) any Company shall be prohibited or otherwise restrained from conducting the business theretofore conducted by it in any manner that has or could reasonably be expected to result in a Material Adverse Effect due to changes in any applicable Gaming Laws;
then, and in every such event (other than an event with respect to AGS Capital or Borrower described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, Administrative Agent may, and at the request of the Required Lenders shall, by notice to Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Term Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Term Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other Obligations of Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrower and the Guarantors, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event, with respect to AGS Capital or Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Term Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other Obligations of Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrower and the Guarantors, anything contained herein or in any other Loan Document to the contrary notwithstanding.
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SECTION 8.02 Application of Proceeds . The proceeds received by Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral pursuant to the exercise by Collateral Agent of its remedies shall be applied, in full or in part, together with any other sums then held by Collateral Agent pursuant to this Agreement, promptly by Collateral Agent as follows:
(a) First , to the payment of all reasonable costs and expenses, fees, commissions and taxes of such sale, collection or other realization including compensation to Collateral Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith and all amounts for which Collateral Agent is entitled to indemnification pursuant to the provisions of any Loan Document, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;
(b) Second , to the payment of all other reasonable costs and expenses of such sale, collection or other realization including compensation to the other Secured Parties and their agents and counsel and all costs, liabilities and advances made or incurred by the other Secured Parties in connection therewith, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;
(c) Third , without duplication of amounts applied pursuant to clauses (a) and (b) above, to the payment in full in cash, pro rata , of interest and other amounts constituting Obligations (other than principal) and any fees, premiums and scheduled periodic payments due under Hedging Agreements or Treasury Services Agreements constituting Secured Obligations and any interest accrued thereon, in each case, equally and ratably in accordance with the respective amounts thereof then due and owing;
(d) Fourth , to the payment in full in cash, pro rata , of principal amount of the Delayed Draw Term Loans and any premium thereon;
(e) Fifth , to the payment in full in cash, pro rata , of principal amount of the Initial Term Loans and any premium thereon and any breakage, termination or other payments under Hedging Agreements and Treasury Services Agreements constituting Secured Obligations and any interest accrued thereon;
(f) Sixth , to the payment in full in cash, pro rata , of all other amounts constituting Obligations; and
(g) Seventh , the balance, if any, to the person lawfully entitled thereto (including the applicable Loan Party or its successors or assigns) or as a court of competent jurisdiction may direct.
In the event that any such proceeds are insufficient to pay in full the items described in clauses (a) through (f) of this Section 8.02 , the Loan Parties shall remain liable, jointly and severally, for any deficiency.
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ARTICLE IX
ADMINISTRATIVE AGENT AND COLLATERAL AGENT
SECTION 9.01 Appointment and Authority . Each of the Lenders hereby cably appoints UBS AG, Stamford Branch, to act on its behalf as Administrative Agent and Collateral Agent hereunder and under the other Loan Documents and authorizes such Agents to take such actions on its behalf and to exercise such powers as are delegated to such Agents by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of Administrative Agent, Collateral Agent and the Lenders, and neither Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.
SECTION 9.02 Rights as a Lender . Each person serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include each person serving as an Agent hereunder in its individual capacity. Such person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with Borrower or any Subsidiary or other Affiliate thereof as if such person were not an Agent hereunder and without any duty to account therefor to the Lenders.
SECTION 9.03 Exculpatory Provisions . No Agent shall have any duties or tions except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, no Agent:
(i) shall be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(ii) shall have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that such Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that such Agent shall not be required to take any action that, in its judgment or the judgment of its counsel, may expose such Agent to liability or that is contrary to any Loan Document or applicable Requirements of Law; and
(iii) shall, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Borrower or any of its Affiliates that is communicated to or obtained by the person serving as such Agent or any of its Affiliates in any capacity.
No Agent shall be liable for any action taken or not taken by it (x) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 10.02 ) or (y) in the absence of its own gross negligence or willful misconduct. No Agent shall be deemed to have knowledge of any Default unless and until notice describing such Default is given to such Agent by Borrower or a Lender.
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No Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to such Agent. Without limiting the generality of the foregoing, the use of the term agent in this Agreement with reference to Administrative Agent or Collateral Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term us used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties.
SECTION 9.04 Reliance by Agent . Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Term Loan that by its terms must be fulfilled to the satisfaction of a Lender, Administrative Agent may presume that such condition is satisfactory to such Lender unless Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Term Loan. Each Agent may consult with legal counsel (who may be counsel for Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
SECTION 9.05 Delegation of Duties . Each Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through, or delegate any and all such rights and powers to, any one or more sub-agents appointed by such Agent (including, without limitation, Wilmington Trust, National Association, as custodian of Collateral Agent pursuant to the terms of that certain Custodian Agreement dated as of the Closing Date among Wilmington Trust, National Association, AGS Capital, Borrower and Collateral Agent). Each Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.
SECTION 9.06 Resignation of Agent . Each Agent may at any time give notice of its resignation to the Lenders and Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may on behalf of the Lenders, and in consultation with Borrower, appoint a successor Agent meeting the qualifications set forth above provided that if the Agent shall notify Borrower and the Lenders that no qualifying person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Agent shall be discharged from its duties and
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obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by Collateral Agent on behalf of the Lenders under any of the Loan Documents, the retiring Collateral Agent shall continue to hold such collateral security as nominee until such time as a successor Collateral Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through an Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Agent as provided for above in this paragraph. Upon the acceptance of a successors appointment as Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Agent, and the retiring Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this paragraph). The fees payable by Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrower and such successor. After the retiring Agents resignation hereunder and under the other Loan Documents, the provisions of this Article IX and Section 10.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting as Agent.
SECTION 9.07 Non-Reliance on Agent and Other Lenders . Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender further represents and warrants that it has reviewed each document made available to it on the Platform (as defined below) in connection with this Agreement and has acknowledged and accepted the terms and conditions applicable to the recipients thereof. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
SECTION 9.08 No Other Duties, etc . Anything herein to the contrary standing, none of the Bookmanagers, Arrangers, Syndication Agent or other titles as necessary listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as Administrative Agent, Collateral Agent or a Lender hereunder.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Notices .
(a) Generally . Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows:
(i) if to any Loan Party, to Borrower at:
AGS LLC
c/o Alpine Investors
Three Embarcadero Center
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Suite 2330
San Francisco, CA 94111
Attention: Graham Weaver
Telecopier No.: 415-392-9101
Email: gmweaver@alpine-investors.com
With a copy to:
AGS LLC
6680 Amelia Earhart Ct
Las Vegas, NV 89119
Attention: Curt Mayer
Telecopier No.: (702) 722-6705
With a copy to:
Proskauer Rose LLP
Eleven Times Square
New York, NY 10036-8299
Attention: Justin Breen
Telecopier No.: (212) 969-2900
Email: jbreen@proskauer.com
and
Proskauer Rose LLP
2049 Century Park East
Suite 3200
Los Angeles, CA 90067
Attention: Glen K. Lim
Telecopier No.: (310) 284-5615
Email: glim@proskauer.com
(ii) | if to Administrative Agent or Collateral Agent, to it at: |
UBS AG, Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901
Attention: Banking Product Services
Telecopier No.: (203) 719-4176
Email: DL-UBSAgency@ubs.com
(iii) | if to a Lender, to it at its address (or telecopier number) set forth in its Administrative Questionnaire. |
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
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(b) Electronic Communications . Notices and other communications to the Lenders hereunder may (subject to Section 10.01(d) ) be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Administrative Agent; provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. Administrative Agent, Collateral Agent or Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it (including as set forth in Section 10.01(d) ); provided that approval of such procedures may be limited to particular notices or communications.
Unless Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c) Change of Address, etc . Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.
(d) Posting . Each Loan Party hereby agrees that it will provide to Administrative Agent all information, documents and other materials that it is obligated to furnish to Administrative Agent pursuant to this Agreement and any other Loan Document, including all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, Borrowing or other extension of credit (including any election of an interest rate or interest period relating thereto), (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default under this Agreement or (iv) is required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any borrowing or other extension of credit hereunder (all such non-excluded communications, collectively, the Communications ), by transmitting the Communications in an electronic/soft medium in a format reasonably acceptable to Administrative Agent at DL-UBSAgency@ubs.com or at such other e-mail address(es) provided to Borrower from time to time or in such other form, including hard copy delivery thereof, as Administrative Agent shall require. In addition, each Loan Party agrees to continue to provide the Communications to Administrative Agent in the manner specified in this Agreement or any other Loan Document or in such other form, including hard copy delivery thereof, as Administrative Agent shall require. Nothing in this Section 10.01 shall prejudice the right of the Agents, any Lender or any Loan Party to give any notice or other communication pursuant to this Agreement or any other Loan Document in any other manner specified in this Agreement or any other Loan Document or as any such Agent shall require.
To the extent consented to by Administrative Agent in writing from time to time, Administrative Agent agrees that receipt of the Communications by Administrative Agent at its e-mail address(es) set forth above shall constitute effective delivery of the Communications to Administrative Agent for purposes of the Loan Documents; provided that Borrower shall also deliver to Administrative Agent an executed original of each Compliance Certificate required to be delivered hereunder.
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Each Loan Party further agrees that Administrative Agent may make the Communications available to the Lenders by posting the Communications on Intralinks or a substantially similar electronic transmission system (the Platform ). The Platform is provided as is and as available. The Agents do not warrant the accuracy or completeness of the Communications, or the adequacy of the Platform and expressly disclaim liability for errors or omissions in the communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by any Agent in connection with the Communications or the Platform. In no event shall Administrative Agent or any of its Related Parties have any liability to the Loan Parties, any Lender or any other person for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any Loan Partys or Administrative Agents transmission of communications through the Internet, except to the extent the liability of such person is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such persons gross negligence or willful misconduct.
SECTION 10.02 Waivers; Amendment .
(a) Generally . No failure or delay by any Agent or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of each Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by this Section 10.02 , and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Term Loan shall not be construed as a waiver of any Default, regardless of whether any Agent or any Lender may have had notice or knowledge of such Default at the time. No notice or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances.
(b) Required Consents . Subject to Section 10.02(c) and (d) , neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended, supplemented or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Borrower and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by Administrative Agent, Collateral Agent (in the case of any Security Document) and the Loan Party or Loan Parties that are party thereto, in each case with the written consent of the Required Lenders; provided that no such agreement shall be effective if the effect thereof would:
(i) increase the Commitment of any Lender without the written consent of such Lender (it being understood that no amendment, modification, termination, waiver or consent with respect to any condition precedent, covenant or Default shall constitute an increase in the Commitment of any Lender);
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(ii) reduce the principal amount or premium of any Term Loan or reduce the rate of interest thereon (other than interest pursuant to Section 2.06(c) ), or reduce any Fees payable hereunder, or change the form or currency of payment of any Obligation, without the written consent of each Lender directly affected thereby (it being understood that any amendment or modification to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest for purposes of this clause (ii));
(iii) (A) change the scheduled final maturity of any Term Loan, or any scheduled date of payment of or the installment otherwise due on the principal amount of any Term Loan under Section 2.09 , (B) postpone the date for payment of any interest or fees payable hereunder, (C) change the amount of, waive or excuse any such payment (other than waiver of any increase in the interest rate pursuant to Section 2.06(c) ) or (D) postpone the scheduled date of expiration of any Commitment, in any case, without the written consent of each Lender directly affected thereby;
(iv) increase the maximum duration of Interest Periods hereunder, without the written consent of each Lender directly affected thereby;
(v) permit the assignment or delegation by Borrower of any of its rights or obligations under any Loan Document, without the written consent of each Lender;
(vi) release AGS Capital or all or substantially all of the Subsidiary Guarantors from their Guarantee (except as expressly provided in Article VII ), or limit their liability in respect of such Guarantee, without the written consent of each Lender;
(vii) release all or substantially all of the Collateral from the Liens of the Security Documents or alter the relative priorities of the Secured Obligations entitled to the Liens of the Security Documents, in each case without the written consent of each Lender (it being understood that additional Classes of Term Loans consented to by the Required Lenders may be equally and ratably secured by the Collateral with the then existing Secured Obligations under the Security Documents);
(viii) change Section 2.14(b) , (c) or (d) in a manner that would alter the pro rata sharing of payments or setoffs required thereby or any other provision in a manner that would alter the pro rata allocation among the Lenders of Term Loan disbursements, including the requirements of Section 2.02(a) , without the written consent of each Lender directly affected thereby;
(ix) change any provision of this Section 10.02(b) or Section 10.02(c) or (d) , without the written consent of each Lender directly affected thereby (except for additional restrictions on amendments or waivers for the benefit of Lenders of additional Classes of Term Loans consented to by the Required Lenders);
(x) change the percentage set forth in the definition of Required Lenders, Required Class Lenders, Supermajority Lenders or any other provision of any Loan Document (including this Section) specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender (or each Lender of such Class, as the case may be), other than to increase such percentage or number or to give any additional Lender or group of Lenders such right to waive, amend or modify or make any such determination or grant any such consent;
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(xi) change the application of prepayments as among or between Classes under Section 2.10(h) or Section 8.02 , without the written consent of the Required Class Lenders of each Class that is being allocated a lesser prepayment as a result thereof (it being understood that the Required Lenders may waive, in whole or in part, any prepayment so long as the application, as between Classes, of any portion of such prepayment that is still required to be made is not changed and, if additional Classes of Term Loans under this Agreement consented to by the Required Lenders are made, such new Term Loans may be included on a pro rata basis in the various prepayments required pursuant to Section 2.10(h) );
(xii) change or waive the application of prepayments of Term Loans of any Class set forth in Section 2.10(h) to the remaining scheduled amortization payments to be made thereon under Section 2.09 , without the written consent of the Required Class Lenders of such Class;
(xiii) change or waive any provision of Article X as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the written consent of such Agent; or
(xiv) change any provision of Article VI , Article VIII , Section 5.10 , Section 2.10(j) or the definition of Change in Control, in each case, without the written consent of the Supermajority Lenders.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except to the extent the consent of such Lender would be required under clause (i), (ii) or (iii) in the proviso to the first sentence of this Section 10.02(b) .
(c) Collateral . Without the consent of any other person, but subject to the receipt of any approvals required under applicable Gaming Laws, the applicable Loan Party or Parties and Administrative Agent and/or Collateral Agent may (in its or their respective sole discretion, or shall, to the extent required by any Loan Document) enter into any amendment or waiver of any Loan Document, or enter into any new agreement or instrument, to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Secured Parties, or as required by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply with applicable Requirements of Law.
(d) Dissenting Lenders . If, in connection with any proposed change, waiver, discharge or termination of the provisions of this Agreement as contemplated by Section 10.02(b) , the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Borrower shall have the right to replace all, but not less than all, of such non-consenting Lender or Lenders (so long as all non-consenting Lenders are so replaced) with one or more persons pursuant to Section 2.16 so long as at the time of such replacement each such new Lender consents to the proposed change, waiver, discharge or termination. Each Lender agrees that, if Borrower elects to replace such Lender in accordance with this Section, it shall promptly execute and deliver to Administrative Agent an Assignment and Assumption to evidence such sale and purchase and shall deliver to Administrative Agent any Note (if Notes have been issued in respect of such Lenders Term
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Loans) subject to such Assignment and Assumption; provided that the failure of any such non-consenting Lender to execute an Assignment and Assumption shall not render such sale and purchase (and the corresponding assignment) invalid and such assignment shall be recorded in the Register.
(e) Nevada Gaming Modifications . Notwithstanding anything to the contrary, in the event that the Nevada Gaming Authorities request modifications or amendments to the Loan Documents as a requirement or condition for granting the Nevada Gaming Authorities Approval, Borrower and Administrative Agent may, without the consent of any other Lender or person, effect such modifications or amendments so long as such modifications are not adverse to the interests of the Lenders in any material respect.
SECTION 10.03 Expenses; Indemnity; Damage Waiver .
(a) Costs and Expenses . Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by Administrative Agent, Collateral Agent, Syndication Agent, the Arranger and their respective Affiliates (including without limitation the reasonable fees, charges and disbursements of (x) Latham and Watkins LLP, as counsel to the Arranger, Administrative Agent and Collateral Agent and (y) any local counsel retained in an applicable jurisdiction) in connection with the syndication of the credit facilities provided for herein (including the obtaining and maintaining of CUSIP numbers for the Term Loans and in connection with the appointment by Administrative Agent and/or Collateral Agent of a custodian to hold certain Equity Interests on its or their behalf in the State of Nevada), the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendment, amendment and restatement, modification or waiver of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), including in connection with post-closing searches to confirm that security filings and recordations have been properly made, (ii) all reasonable out-of-pocket expenses incurred by Administrative Agent, Collateral Agent or any Lender (including the fees, charges and disbursements of any counsel for Administrative Agent, Collateral Agent or any Lender), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section 10.03 , or (B) in connection with the Term Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Term Loans and (iii) all documentary and similar taxes and charges in respect of the Loan Documents.
(b) Indemnification by Borrower . Borrower shall indemnify Administrative Agent (and any sub-agent thereof), Collateral Agent (and any sub-agent thereof) each Lender and each Related Party of any of the foregoing persons (each such person being called an Indemnitee ) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee) incurred by any Indemnitee or asserted against any Indemnitee by any third party or by Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document, or any amendment, amendment and restatement, modification or waiver of the provisions hereof or thereof, or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Term Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or Release or threatened Release of Hazardous Materials on, at, under or from any property owned, leased or operated by any Company at any time, or any Environmental Claim related in any way to any Company, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by Borrower or any other Loan Party, and regardless of
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whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitees obligations hereunder or under any other Loan Document, if Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.
(c) Reimbursement by Lenders . To the extent that Borrower for any reason fails to indefeasibly pay any amount required under paragraph (a) or (b) of this Section 10.03 to be paid by it to Administrative Agent (or any sub-agent thereof), Collateral Agent or any Related Party of any of the foregoing, each Lender severally agrees to pay to Administrative Agent (or any such sub-agent), Collateral Agent (or any sub-agent thereof) or such Related Party, as the case may be, such Lenders pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against Administrative Agent (or any such sub-agent) or Collateral Agent (or any sub-agent thereof) in its capacity as such, or against any Related Party of any of the foregoing acting for Administrative Agent (or any such sub-agent) or Collateral Agent (or any sub-agent thereof) in connection with such capacity. The obligations of the Lenders under this paragraph (c) are subject to the provisions of Section 2.14 . For purposes hereof, a Lenders pro rata share shall be determined based upon its share of the sum of the total outstanding Term Loans and unused Commitments at the time.
(d) Waiver of Consequential Damages, Etc . To the fullest extent permitted by applicable Requirements of Law, no Loan Party shall assert, and each Loan Party hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Term Loan or the use of the proceeds thereof. No Indemnitee referred to in paragraph (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) Payments . All amounts due under this Section shall be payable not later than 3 Business Days after demand therefor.
SECTION 10.04 Successors and Assigns .
(a) Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of Administrative Agent, Collateral Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of paragraph (b) of this Section 10.04 , (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section 10.04 or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by Borrower or any Lender shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any person (other than
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the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the other Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders . Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Term Loans at the time owing to it); provided that
(i) except in the case of any assignment made in connection with the primary syndication of the Commitment and Term Loans by the Arranger or an assignment of the entire remaining amount of the assigning Lenders Commitment and the Term Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Term Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Term Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to Administrative Agent or, if Trade Date is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $1,000,000 unless each of Administrative Agent and, so long as no Default has occurred and is continuing, Borrower otherwise consent (each such consent not to be unreasonably withheld or delayed);
(ii) (A) on or prior to the first anniversary of the Closing Date, each partial assignment shall be made as an assignment of a proportionate part of all of the assigning Lenders rights and obligations under this Agreement with respect to the Term Loan or the Commitment assigned and shall be accompanied by a pro-rata portion of the assigning Lenders rights and obligations with respect to each other tranche of the Term Loan and the Commitments hereunder ( provided that in the case of an assignment of Delayed Draw Term Loan Commitments pursuant to Section 2.16(b) (and each subsequent assignment of such Delayed Draw Term Loan Commitments by any assignee Lender that takes such assignment pursuant to Section 2.16(b) ), such assignment (and each subsequent assignment of such Delayed Draw Term Loan Commitments by any assignee Lender that takes such assignment pursuant to Section 2.16(b) ) may be made on a non- pro rata basis with respect to each other tranche of the Term Loan and the Commitments hereunder); provided that for purposes of this subclause (ii)(A), (x) assignments by a Lender to an Affiliate of such Lender shall not be required to be made on a pro rata basis with respect to each other tranche of the Term Loan and the Commitments hereunder and (y) in the case of an assignment by a Lender to a non-Affiliate of such Lender, the Term Loan and Commitments of such Lender shall be deemed to include the Term Loan and Commitments of each Affiliate of such Lender for purposes of complying with the pro rata assignment requirements set forth herein and (B) after the first anniversary of the Closing Date, each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement with respect to the Term Loan or the Commitment assigned (except that this clause (ii)(B) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate tranches on a non- pro rata basis after the first anniversary of the Closing Date);
(iii) the parties to each assignment shall execute and deliver to Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 ( provided that no such processing and recordation fee shall be required in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund of a Lender), and the Eligible Assignee, if it shall not be a Lender, shall deliver to Administrative Agent an Administrative Questionnaire; and
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(iv) no assignments to a Defaulting Lender shall be permitted.
Subject to acceptance and recording thereof by Administrative Agent pursuant to paragraph (c) of this Section 10.04 , from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.12 , 2.13 , 2.15 and 10.03 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section 10.04 .
(c) Register . Administrative Agent, acting solely for this purpose as an agent of Borrower, shall maintain at one of its offices in Stamford, Connecticut a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Term Loans owing to, each Lender pursuant to the terms hereof from time to time (the Register ). The entries in the Register shall be conclusive, and Borrower, Administrative Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrower, Collateral Agent and any Lender (with respect to its own interest only), at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations . Any Lender may at any time, without the consent of, or notice to, Borrower or Administrative Agent sell participations to any person (other than a natural person or Borrower or any of Borrowers Affiliates or Subsidiaries) (each, a Participant ) in all or a portion of such Lenders rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Term Loans owing to it); provided that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Borrower, Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clause (i), (ii) or (iii) of the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (e) of this Section, Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12 , 2.13 and 2.15 (subject to the requirements of those Sections) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.14 as though it were a Lender.
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Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each participants interest in the Term Loan or other obligations under this Agreement (the Participant Register ). The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
(e) Limitations on Participant Rights . A Participant shall not be entitled to receive any greater payment under Sections 2.12 , 2.13 and 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with Borrowers prior written consent.
(f) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. In the case of any Lender that is a fund that invests in bank loans, such Lender may, without the consent of Borrower or Administrative Agent, collaterally assign or pledge all or any portion of its rights under this Agreement, including the Term Loans and Notes or any other instrument evidencing its rights as a Lender under this Agreement, to any holder of, trustee for, or any other representative of holders of, obligations owed or securities issued, by such fund, as security for such obligations or securities.
(g) Electronic Execution of Assignments . The words execution, signed, signature, and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable Requirement of Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
SECTION 10.05 Survival of Agreement . All covenants, agreements, tions and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Term Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Agents or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Term Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12 , 2.14 , 2.15 and Article X (other than Section 10.12 ) shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Term Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.
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SECTION 10.06 Counterparts; Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01 , this Agreement shall become effective when it shall have been executed by Administrative Agent and when Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopier or electronic .pdf e-mail transmission shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 10.07 Severability . Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 10.08 Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Requirements of Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of Borrower or any other Loan Party against any and all of the obligations of Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of Borrower or such Loan Party may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender and each of their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or its Affiliates may have. Each Lender agrees to notify Borrower and Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
SECTION 10.09 Governing Law; Jurisdiction; Consent to Service of Process .
(a) Governing Law . This Agreement shall be construed in accordance with and governed by the law of the State of New York, without regard to conflicts of law principles that would require the application of the laws of another jurisdiction.
(b) Submission to Jurisdiction . Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding
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may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.
(c) Waiver of Venue . Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent permitted by applicable Requirements of Law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in Section 10.09(b) . Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable Requirements of Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Service of Process . Each party hereto irrevocably consents to service of process in any action or proceeding arising out of or relating to any Loan Document, in the manner provided for notices (other than telecopier) in Section 10.01 . Nothing in this Agreement or any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by applicable Requirements of Law.
SECTION 10.10 Waiver of Jury Trial . Each Loan Party hereby waives, to the est extent permitted by applicable Requirements of Law, any right it may have to a trial by jury in any legal proceeding directly or indirectly arising out of or relating to this Agreement, any other Loan Document or the transactions contemplated hereby (whether based on contract, tort or any other theory). Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section.
SECTION 10.11 Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 10.12 Treatment of Certain Information; Confidentiality . Each of Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates respective partners, directors, officers, employees, agents, advisors and other representatives (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any Governmental Authority or regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Requirements of Law or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 10.12 , to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to Borrower and its obligations, (iii) any actual or prospective investor in
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any Lender or such Lenders Affiliates or (iv) any rating agency for the purpose of obtaining a credit rating applicable to any Lender, (g) with the consent of Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than Borrower. For purposes of this Section, Information means all information received from Borrower or any of its Subsidiaries relating to Borrower or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by Borrower or any of its Subsidiaries; provided that, in the case of information received from Borrower or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential. Any person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such person has exercised the same degree of care to maintain the confidentiality of such Information as such person would accord to its own confidential information.
SECTION 10.13 USA PATRIOT Act Notice . Each Lender that is subject to the Act (as hereinafter defined) and Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act ), it is required to obtain, verify and record information that identifies Borrower, which information includes the name, address and tax identification number of Borrower and other information regarding Borrower that will allow such Lender or Administrative Agent, as applicable, to identify Borrower in accordance with the Act. This notice is given in accordance with the requirements of the Act and is effective as to the Lenders and Administrative Agent.
SECTION 10.14 Interest Rate Limitation . Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Term Loan, together with all fees, charges and other amounts which are treated as interest on such Term Loan under applicable Requirements of Law (collectively, the Charges ), shall exceed the maximum lawful rate (the Maximum Rate ) which may be contracted for, charged, taken, received or reserved by the Lender holding such Term Loan in accordance with applicable Requirements of Law, the rate of interest payable in respect of such Term Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Term Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Term Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
SECTION 10.15 Lender Addendum . Each Lender to become a party to this Agreement on the date hereof shall do so by delivering to Administrative Agent a Lender Addendum duly executed by such Lender, Borrower and Administrative Agent.
SECTION 10.16 Obligations Absolute . To the fullest extent permitted by applicable Requirements of Law, all obligations of the Loan Parties hereunder shall be absolute and unconditional irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of any Loan Party;
(b) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto against any Loan Party;
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(c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document or any other agreement or instrument relating thereto;
(d) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to any departure from any guarantee, for all or any of the Obligations;
(e) any exercise or non-exercise, or any waiver of any right, remedy, power or privilege under or in respect hereof or any Loan Document; or
(f) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Loan Parties.
SECTION 10.17 Compliance with Gaming Laws . Notwithstanding anything to the contrary herein or in any of the other Loan Documents, Administrative Agent acknowledges and agrees that the exercise of certain rights and remedies hereunder (including the exercise of remedial rights upon certain Collateral and voting of Equity Interests in (or otherwise taking control of) persons licensed by the Gaming Authorities and/or under Gaming Laws) are subject to Gaming Laws. Notwithstanding any other provision of this Agreement, Borrower expressly authorizes each of the Agents, the Lenders and their respective assignees to cooperate with the Gaming Authorities in connection with the administration of their regulatory jurisdiction over the Companies, including, without limitation, the provision of such documents or other information as may be requested by any such Gaming Authorities relating to the Agents, any of the Lenders, their respective assignees, Borrower or any other Company, or the Loan Documents. Each Agent and each Lender further acknowledges and agrees that it shall cooperate with the Nevada Gaming Authorities (to the extent not inconsistent with the internal policies of such person and only for long as such person is in such capacity) in connection with the administration of their regulatory jurisdiction over the Loan Parties, including through the provision of such documents or other information as may be requested by the Nevada Gaming Authorities relating to any Agent, the Lenders, or their respective assignees, or to the Loan Parties. The parties acknowledge that the provisions of this Section 10.17 shall not be for the benefit of any Company or any other person.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
AGS LLC | ||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
AGS Capital, LLC | ||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
AGS Partners, LLC | ||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
AGS Illinois, LLLP | ||
By: AGS LLC, its General Partner | ||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
Signature page to Credit Agreement
UBS AG, STAMFORD BRANCH,
as Administrative
Agent and Collateral Agent |
||
By: | /s/ Mary E. Evans | |
Name: Mary E. Evans | ||
Title: Associate Director Banking Products Services, US |
By: | /s/ David Urban | |
Name: David Urban | ||
Title: Associate Director Banking Products Services, US |
Signature page to Credit Agreement
Exhibit 10.19
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this Amendment ) is entered into as of April 16, 2013, by and among AGS LLC, a Delaware limited liability company ( Borrower ), AGS Capital, LLC, a Delaware limited liability company ( Holdings ), AGS Partners, LLC, a Delaware limited liability company ( AGS Partners ), the Subsidiary Guarantors listed on the signature pages hereof, the Lenders signatory hereto and UBS AG, STAMFORD BRANCH, as Administrative Agent (in such capacity, the Administrative Agent ) and Collateral Agent (in such capacity, the Collateral Agent ) for the Lenders.
RECITALS
WHEREAS, Borrower, Holdings, AGS Partners, the Subsidiary Guarantors, the Lenders, the Administrative Agent and the Collateral Agent are parties to that certain $130,000,000 Credit Agreement dated as of August 15, 2012 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the Credit Agreement ) (except as otherwise noted herein, capitalized terms used herein without definition have the meanings ascribed to such terms in the Credit Agreement after giving effect to this Amendment); and
WHEREAS, Borrower has notified the Administrative Agent that it desires to amend the Credit Agreement to, among other things, modify certain of the financial covenant levels set forth in Section 6.10 of the Credit Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT; WAIVERS.
A. Amendment to Section 2.10 (Optional and Mandatory Prepayments of Term Loans) . Section 2.10(j) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
(j) Term Loan Prepayment Premium . Upon repayment of the Term Loans at any time on or after the Closing Date for any reason (including any such repayment on the Term Loan Maturity Date or upon acceleration but excluding any such repayment pursuant to (i) Section 2.09 (other than any such payment required to be made on the Term Loan Maturity Date), (ii) Section 2.10(c) (solely with respect to the first $2,500,000 of Net Cash Proceeds that are applied to prepay the Term Loans pursuant to Section 2.10(c) in any fiscal year), (iii) Section 2.10 (f) (solely with respect to the first $2,500,000 of Net Cash Proceeds that are applied to prepay the Term Loans pursuant to Section 2.10(f) in any fiscal year) or (iv) Section 2.10(g) ) or in the case of a mandatory assignment of Term Loans pursuant to Section 2.16(b) on or after the Closing Date, Borrower shall pay to the Lenders (or the replaced Lender or Lenders in connection with a mandatory assignment of Term Loans pursuant to Section 2.16(b) ) a prepayment premium on the principal amount so prepaid (or mandatorily assigned) as follows:
Relevant Period in which prepayment or mandatory assignment, as the case may be, occurs |
Prepayment Premium (expressed as a percentage of principal amount repaid or mandatorily assigned, as the case may be) |
|
After the Closing Date and on or prior to the first anniversary of the Closing Date |
7.75% | |
After the first anniversary of the Closing Date and on or prior to the second anniversary of the Closing Date |
4.75% | |
After the second anniversary of the Closing Date and on or prior to the third anniversary of the Closing Date |
3.25% | |
After the third anniversary of the Closing Date |
1.75% |
B. Amendments to Section 6.10 (Financial Covenants) .
(i) Section 6.10(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
(a) Maximum Total Leverage Ratio . Permit the Total Leverage Ratio, as of the last day of any Test Period to exceed the ratio set forth opposite such Test Period in the table below:
Test Period |
Leverage Ratio |
|||||
September 30, 2012 |
4.00 to 1.00 | |||||
December 31, 2012 |
3.85 to 1.00 | |||||
March 31, 2013 |
4.20 to 1.00 | |||||
June 30, 2013 |
4.20 to 1.00 | |||||
September 30, 2013 |
4.15 to 1.00 | |||||
December 31, 2013 |
3.95 to 1.00 | |||||
March 31, 2014 |
3.70 to 1.00 | |||||
June 30, 2014 |
3.50 to 1.00 | |||||
September 30, 2014 |
3.40 to 1.00 | |||||
December 31, 2014 |
3.30 to 1.00 | |||||
March 31, 2015 |
3.10 to 1.00 |
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June 30, 2015 |
2.95 to 1.00 | |||||
September 30, 2015 |
2.80 to 1.00 | |||||
December 31, 2015 |
2.65 to 1.00 | |||||
March 31, 2016 |
2.55 to 1.00 | |||||
June 30, 2016 and thereafter |
2.45 to 1.00 |
(ii) Section 6.10(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
(b) Minimum Consolidated Interest Coverage Ratio . Permit the Consolidated Interest Coverage Ratio, as of the last day of any Test Period to be less than the ratio set forth opposite such Test Period in the table below:
Test Period |
Interest Coverage Ratio |
|||||
September 30, 2012 |
2.25 to 1.00 | |||||
December 31, 2012 |
2.25 to 1.00 | |||||
March 31, 2013 |
2.00 to 1.00 | |||||
June 30, 2013 |
2.00 to 1.00 | |||||
September 30, 2013 |
2.10 to 1.00 | |||||
December 31, 2013 |
2.10 to 1.00 | |||||
March 31, 2014 |
2.25 to 1.00 | |||||
June 30, 2014 |
2.40 to 1.00 | |||||
September 30, 2014 |
2.45 to 1.00 | |||||
December 31, 2014 |
2.45 to 1.00 | |||||
March 31, 2015 |
2.60 to 1.00 | |||||
June 30, 2015 |
2.70 to 1.00 | |||||
September 30, 2015 |
2.80 to 1.00 | |||||
December 31, 2015 |
2.90 to 1.00 | |||||
March 31, 2016 and thereafter |
3.00 to 1.00 |
SECTION 2. AMENDMENT FEES.
Each Term Loan Lender that shall execute a counterpart hereof and return such counterpart to the Administrative Agent prior to 5:00 p.m., New York City time, on April 16, 2013, shall be entitled to an amendment fee (collectively, the Amendment Fees ) payable upon
3
the First Amendment Effective Date as provided in Section 3 below equal to 0.25% of the outstanding Term Loans of such Term Loan Lender, as calculated on the First Amendment Effective Date. The Amendment Fees payable under this Section 2 to a Term Loan Lender shall be paid to the Administrative Agent for the account of such Term Loan Lender, shall be paid in immediately available funds and, once paid, shall not be refundable under any circumstances. For the avoidance of doubt, the parties hereto agree that no Amendment Fees shall be payable unless the First Amendment Effective Date shall occur.
SECTION 3. CONDITIONS TO EFFECTIVENESS.
The effectiveness of each provision of this Amendment is subject to the satisfaction of each of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the First Amendment Effective Date ):
A. The Administrative Agent shall have received all of the following, in form and substance satisfactory to the Administrative Agent:
(i) Amendment . This Amendment, duly executed and delivered by Borrower, Holdings, AGS Partners, the Subsidiary Guarantors, the Required Lenders, the Administrative Agent and the Collateral Agent;
(ii) Fees . (x) The Amendment Fees and all fees and out-of-pocket expenses (documented and required to be reimbursed or paid by Borrower), in each case, due and payable on or prior to the First Amendment Effective Date and (y) any other fees, expenses and other amounts payable on the First Amendment Effective Date referred to in Section 8 hereof documented and required to be reimbursed or paid by Borrower hereunder or under any other Loan Document; and
(iii) Additional Information . Such additional documents, instruments and information as the Administrative Agent may reasonably request to effect the transactions contemplated hereby.
B. All corporate proceedings taken in connection with the execution and delivery of this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant thereto, and all legal matters incident thereto, shall be reasonably satisfactory to the Administrative Agent.
C. Borrower and each other Loan Party shall be in compliance in all material respects with all the terms and provisions of each Loan Document on its part to be observed or performed, and, immediately after giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing.
D. The representations and warranties contained herein and in the Loan Documents (after giving effect to this Amendment) shall be true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) as of such earlier date).
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SECTION 4. Representations and Warranties; Reaffirmation of Grant . Each Loan Party hereby represents and warrants to the Agents and the Lenders that, as of the date hereof after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment and all other documents executed and/or delivered in connection herewith have been authorized by all requisite corporate, partnership or limited liability company action on the part of such Loan Party and will not violate the Organizational Documents of such Loan Party, (b) all representations and warranties of the Loan Parties set forth in the Credit Agreement and in any other Loan Document are true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) as if made again on and as of such date (except those, if any, which by their terms specifically relate only to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) as of such earlier date), (c) no Default or Event of Default has occurred and is continuing, (d) the Credit Agreement (as amended by this Amendment, the Amended Agreement ), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations of the Loan Parties in accordance with the terms thereof except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors rights generally or by equitable principles (regardless of whether enforcement is sought in equity or at law) and (e) each of the Security Documents to which such Loan Party is a party and all of the Collateral described therein do and shall continue to secure the payment of all Secured Obligations. Each Loan Party that is a party to the Security Agreement or any of the Security Documents hereby reaffirms its grant of a security interest in the Collateral to the Collateral Agent for the ratable benefit of the Secured Parties, as collateral security for the prompt and complete payment and performance when due of the Secured Obligations.
SECTION 5. No Conflict . Each Loan Party which is a party hereto represents and warrants to each Lender that the execution and delivery of this Amendment by each Loan Party that is a party hereto and the performance by each Loan Party that is a party hereto of the Amended Agreement do not and will not (i) violate (A) any provision of any law or any governmental rule or regulation applicable to any Loan Party that is a party hereto, (B) the certificate or articles of incorporation or partnership agreement, other constitutive documents or by-laws of any Loan Party that is party hereto, or (C) any order, judgment or decree of any court or other agency or government binding on any Loan Party that is a party hereto, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contractual obligation of any Loan Party that is a party hereto, except to the extent such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of each Loan Party that is a party hereto (other than any Liens created under any of the Loan Documents in favor of the Collateral Agent, on behalf of the Secured Parties or Permitted Liens), or (iv) require any approval of stockholders, members or partners or any approval or consent of any Person under any contractual obligation of each Loan Party that is a party hereto, except for such approvals or consents which will be obtained on or before the First Amendment Effective Date and disclosed to the Administrative Agent and except for any such approvals or consents the failure of which to obtain will not have a Material Adverse Effect.
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SECTION 6. Survival of Representations and Warranties . All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment, and no investigation by any Agent or the Lenders shall affect the representations and warranties or the right of the Agents and the Lenders to rely upon them. If any representation or warranty made in this Amendment is false in any material respect as of the date made or deemed made, then such shall constitute an Event of Default under the Credit Agreement.
SECTION 7. Reference to Agreement . Each of the Loan Documents, including the Credit Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement, whether direct or indirect, shall mean a reference to the Credit Agreement as amended hereby. This Amendment shall constitute a Loan Document under the Credit Agreement.
SECTION 8. Costs and Expenses . Borrower shall pay on demand all reasonable costs and expenses of the Agents (including the reasonable fees, costs and expenses of counsel to the Agents) incurred in connection with the preparation, execution and delivery of this Amendment.
SECTION 9. Governing Law . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
SECTION 10. Execution . This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 11. Limited Effect . This Amendment relates only to the specific matters expressly covered herein, shall not be considered to be a waiver of any rights or remedies any Lender may have under the Credit Agreement or under any other Loan Document, and shall not be considered to create a course of dealing or to otherwise obligate in any respect any Lender to execute similar or other amendments or grant any waivers under the same or similar or other circumstances in the future.
SECTION 12. Ratification by Guarantors . Each of the Guarantors acknowledges that its consent to this Amendment is not required, but each of the undersigned nevertheless does hereby agree and consent to this Amendment and to the documents and agreements referred to herein. Each of the Guarantors agrees and acknowledges that (i) notwithstanding the effectiveness of this Amendment, such Guarantors Guarantee shall remain in full force and effect without
6
modification thereto and (ii) nothing herein shall in any way limit any of the terms or provisions of such Guarantors Guarantee or any other Loan Document executed by such Guarantor (as the same may be amended from time to time), all of which are hereby ratified, confirmed and affirmed in all respects. Each of the Guarantors hereby agrees and acknowledges that no other agreement, instrument, consent or document shall be required to give effect to this Section 12. Each of the Guarantors hereby further acknowledges that Borrower, the Agents and any Lender may from time to time enter into any further amendments, modifications, terminations and/or waivers of any provisions of the Loan Documents without notice to or consent from such Guarantor and without affecting the validity or enforceability of such Guarantors Guarantee or giving rise to any reduction, limitation, impairment, discharge or termination of such Guarantors Guarantee.
[ signature pages follow ]
7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.
AGS LLC | ||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
AGS CAPITAL, LLC | ||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
AGS PARTNERS, LLC | ||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
AGS ILLINOIS LLLP | ||
By: AGS LLC Its: General Partner |
||
By: | /s/ Robert L Miodunski | |
Name: Robert L Miodunski | ||
Title: CEO |
[Signature Page to First Amendment to Credit Agreement]
UBS AG, STAMFORD BRANCH, As Administrative Agent and Collateral Agent |
||
By: | /s/ Lana Glfas | |
Name: Lana Glfas | ||
Title: Director Banking Products Services, US |
By: | /s/ Joselin Fernandes | |
Name: Joselin Fernandes | ||
Title: Associate Director Banking Products Services, US |
[Signature Page to First Amendment to Credit Agreement]
WhiteHorse Finance Warehouse, LLC., By: WhiteHorse Finance, Inc., its designated manager as a Lender |
||
By: | /s/ Jay Carvell | |
Name: Jay Carvell | ||
Title: CEO |
[Signature Page to First Amendment to Credit Agreement]
SPECIAL VALUE CONTINUATION PARTNERS, LP
By: Tennenbaum Capital Partners, LLC Its: Investment Manager
as a Lender |
||
By: | /s/ Michael Leitner | |
Name: Michael Leitner | ||
Title: Managing Partner |
[Signature Page to First Amendment to Credit Agreement]
Medley Capital Corporation as a Lender |
||
By: | /s/ Richard Allorto | |
Name: Richard Allorto | ||
Title: CFO |
[Signature Page to First Amendment to Credit Agreement]
Main Street Capital Corporation as a Lender |
||
By: | /s/ Dwayne Hyzak | |
Name: Dwayne Hyzak | ||
Title: Sr Managing Director |
[Signature Page to First Amendment to the AGS LLC Credit Agreement]
CCT Funding LLC as a Lender |
||
By: | /s/ Philip Davidson | |
Name: Philip Davidson | ||
Title: Authorized Signatory |
[Signature Page to First Amendment to Credit Agreement]
Corporate Capital Trust, Inc., as a Lender |
||
By: | /s/ Philip Davidson | |
Name: Philip Davidson | ||
Title: Authorized Signatory |
[Signature Page to First Amendment to Credit Agreement]
KKR Lending Partners Funding LLC as a Lender |
||
By: | /s/ Philip Davidson | |
Name: Philip Davidson | ||
Title: Authorized Signatory |
[Signature Page to First Amendment to Credit Agreement]
KKR Lending Funding Partners II LLC as a Lender |
||
By: | /s/ Philip Davidson | |
Name: Philip Davidson | ||
Title: Authorized Signatory |
[Signature Page to First Amendment to Credit Agreement]
KKR VRS Credit Partners L.P. as a Lender |
||
By: | /s/ Philip Davidson | |
Name: Philip Davidson | ||
Title: Authorized Signatory |
[Signature Page to First Amendment to Credit Agreement]
Congruent Credit Opportunities Fund, LP as a Lender |
||
By: Congruent Investment Partners, LLC |
||
By: | /s/ Matt Killebrew | |
Name: Matt Killebrew | ||
Title: Authorized Signatory |
[Signature Page to First Amendment to Credit Agreement]
Congruent Credit Opportunities Fund II, LP, as a Lender |
||
By: Congruent Investment Partners, LLC |
||
By: | /s/ Matt Killebrew | |
Name: Matt Killebrew | ||
Title: Authorized Signatory |
[Signature Page to First Amendment to Credit Agreement]
Exhibit 21.1
SUBSIDIARIES OF AP GAMING HOLDCO, INC.
As of December [11], 2013
Name |
Jurisdiction of Incorporation |
|
AGS Capital, LLC* |
Delaware | |
AGS Illinois, LLLP* |
Illionois | |
AGS LLC* |
Delaware | |
AGS Partners, LLC* |
Delaware | |
Amalco ULC* |
Canada | |
American Gaming Systems Toronto, Ltd.* |
Canada | |
AP Gaming Acquisition, LLC |
Delaware | |
AP Gaming Holdings, LLC |
Delaware | |
AP Gaming I, LLC |
Delaware | |
AP Gaming II, Inc. |
Delaware | |
AP Gaming, Inc. |
Delaware | |
AP Gaming NV, LLC |
Delaware |
* | To be a subsidiary of AP Gaming Holdco, Inc. upon the consummation of the Acquisition. |