PLEDGE AND SECURITY AGREEMENT
DRAFT — February 17, 2023 — Subject to Review and Comment — NOT FOR EXECUTION
DRAFT — Prepared by Calderwood & Harkness LLP, Matter No. 1033-00001. Circulated February 17, 2023. This document is a draft for discussion purposes only and does not constitute a binding agreement. Subject to review and comment by Wainwright Hess & Caldwell LLP (lender's counsel) and all parties.
PLEDGE AND SECURITY AGREEMENT
Dated as of February 17, 2023
This PLEDGE AND SECURITY AGREEMENT (this "Agreement") is entered into as of the date first set forth above, by and among:
REDSTONE GAMING CORP., a Nevada corporation (the "Pledgor"),
and
PINNACLE BRIDGE CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Secured Party"),
with the acknowledgment and agreement of
DRALVECEN TITLE & ESCROW CO., a Nevada corporation (the "Collateral Agent").
This Agreement is entered into in connection with that certain Mezzanine Note Purchase Agreement dated as of [●], 2023 (the "Note Purchase Agreement"), among Redstone Gaming Corp. as Issuer, Pinnacle Bridge Mezzanine Opportunities Fund IV, LP as Purchaser, and Pinnacle Bridge Capital Partners, LP, pursuant to which the Purchaser has agreed to purchase $35,000,000 aggregate principal amount of 13.50% Senior Subordinated Notes due 2028 (the "Notes") from Pledgor.
RECITALS
WHEREAS, Pledgor is a Nevada corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol "RDGM," with its principal place of business at 4250 South Decatur Boulevard, Suite 1100, Las Vegas, NV 89103;
WHEREAS, Pledgor is the direct owner of 100% of the issued and outstanding equity interests (the "Pledged Equity") in (a) Redstone Digital Wagering, LLC, a Nevada limited liability company ("RDW"), and (b) Redstone Tribal Management, Inc., a Nevada corporation ("RTM"), each of which is a wholly owned subsidiary of Pledgor;
WHEREAS, Pledgor is the owner of certain intellectual property assets, including rights in the proprietary wagering software known as "RedBet," for which a trademark application was filed with the United States Patent and Trademark Office in August 2022 (the "RedBet IP");
WHEREAS, pursuant to the Note Purchase Agreement, Pinnacle Bridge Mezzanine Opportunities Fund IV, LP (the "Purchaser") has agreed to purchase $35,000,000 aggregate principal amount of 13.50% Senior Subordinated Notes due 2028, bearing cash interest at the rate of 10.50% per annum and payment-in-kind ("PIK") interest at the rate of 3.00% per annum, from Pledgor;
WHEREAS, it is a condition precedent to the Purchaser's obligations under the Note Purchase Agreement that Pledgor execute and deliver this Agreement granting a second-priority security interest in the Collateral (as defined herein) to the Secured Party for the benefit of the Purchaser;
WHEREAS, the security interests granted hereunder are subordinate and junior in all respects to the first-priority liens and security interests of Cornerstone National Bank, N.A., as Administrative Agent (the "Senior Agent") under the Second Amended and Restated Credit Agreement, dated March 15, 2021, among Pledgor, Cornerstone National Bank, N.A. as Administrative Agent, and the lenders party thereto (the "Senior Credit Agreement"), as more fully set forth in the Intercreditor and Subordination Agreement (the "Intercreditor Agreement") among Cornerstone National Bank, N.A. as Senior Agent, Pinnacle Bridge Capital Partners, LP as Mezzanine Lender, and Pledgor as Borrower;
WHEREAS, Dralvecen Title & Escrow Co., a Nevada corporation (the "Collateral Agent"), has been designated to serve as collateral agent for the Secured Party with respect to certain of the Collateral, as more particularly described herein;
WHEREAS, no real property liens are being granted hereunder, as pledges, liens, and encumbrances on real property used in connection with gaming operations are restricted under Nevada gaming regulations, including without limitation regulations promulgated by the Nevada Gaming Control Board, and would require the prior written approval of the Nevada Gaming Control Board, which approval has not been sought or obtained; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.01 — Defined Terms
As used in this Agreement, the following terms shall have the following meanings:
"Agreement" means this Pledge and Security Agreement, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Collateral" means, collectively, the Pledged Equity, the IP Collateral, and all Proceeds thereof, in each case as more particularly described in Article II hereof.
"Collateral Agent" means Dralvecen Title & Escrow Co., a Nevada corporation, with offices at 1980 Festival Plaza Drive, Suite 700, Las Vegas, NV 89135, acting through Karen Prescott, Vice President — Commercial Escrow, as collateral agent hereunder for the benefit of the Secured Party, or any successor collateral agent appointed in accordance with the terms hereof.
"Event of Default" means any "Event of Default" as defined in the Note Purchase Agreement.
"intellectual Property" or "IP Collateral" means the RedBet IP and all related patents, patent applications, trademarks, trademark applications (including, without limitation, the USPTO trademark application for the "RedBet" mark filed in August 2022), service marks, copyrights, copyright registrations, trade secrets, software, source code, object code, algorithms, databases, know-how, and proprietary technology related to the RedBet proprietary wagering software platform, together with all goodwill associated therewith, all licenses, sublicenses, and rights to use the foregoing, and all rights to sue for past, present, and future infringement, misappropriation, or dilution thereof, in each case as more particularly described in Schedule II attached hereto.
"Intercreditor Agreement" means that certain Intercreditor and Subordination Agreement, dated as of [●], 2022, among Cornerstone National Bank, N.A. as Senior Agent, Pinnacle Bridge Capital Partners, LP as Mezzanine Lender, and Redstone Gaming Corp. as Borrower, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Note Purchase Agreement" means the Mezzanine Note Purchase Agreement dated as of [●], 2023, among Redstone Gaming Corp. as Issuer, Pinnacle Bridge Mezzanine Opportunities Fund IV, LP as Purchaser, and Pinnacle Bridge Capital Partners, LP, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Notes" means the 13.50% Senior Subordinated Notes due 2028 in the aggregate principal amount of $35,000,000, issued by the Pledgor pursuant to the Note Purchase Agreement, bearing cash interest at the rate of 10.50% per annum and PIK interest at the rate of 3.00% per annum.
"Pledged Equity" has the meaning set forth in Section 2.01(a).
"Pledgor" means Redstone Gaming Corp., a Nevada corporation (EIN: 88-0412376), with its principal place of business at 4250 South Decatur Boulevard, Suite 1100, Las Vegas, NV 89103.
"Proceeds" means "proceeds" as defined in Article 9 of the UCC, and in any event shall include, without limitation, all cash and non-cash proceeds, dividends (whether in cash, property, or securities), distributions, interest, rents, profits, and other income received or receivable in respect of the Collateral, all proceeds of any insurance, indemnity, warranty, or guaranty payable to or for the account of the Pledgor with respect to any of the Collateral, and all payments (in any form whatsoever) made or due and payable to the Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure, or forfeiture of all or any part of the Collateral by any governmental authority.
"Purchaser" means Pinnacle Bridge Mezzanine Opportunities Fund IV, LP, a Delaware limited partnership.
"RDW" means Redstone Digital Wagering, LLC, a Nevada limited liability company (EIN: 88-0587214), with its registered office in Las Vegas, Nevada.
"RedBet IP" means the proprietary wagering software known as "RedBet" and all intellectual property rights related thereto, as more particularly described in Schedule II hereto.
"RTM" means Redstone Tribal Management, Inc., a Nevada corporation (EIN: 88-0601889), with its registered office in Las Vegas, Nevada.
"Secured Obligations" means all obligations of the Pledgor to the Secured Party and the Purchaser under or in connection with the Note Purchase Agreement, the Notes, this Agreement, the Warrant Agreement, and all other Transaction Documents (as defined in the Note Purchase Agreement), whether now existing or hereafter arising, including, without limitation, all obligations in respect of principal (in the amount of $35,000,000), cash interest (at the rate of 10.50% per annum), PIK interest (at the rate of 3.00% per annum), premiums (if any), fees, costs, expenses, indemnification obligations, and all other amounts payable thereunder or in connection therewith, in each case whether or not allowed or allowable as a claim in any insolvency, bankruptcy, reorganization, or similar proceeding.
"Secured Party" means Pinnacle Bridge Capital Partners, LP, a Delaware limited partnership (EIN: 13-4298551), with its principal office at 280 Park Avenue, 22nd Floor, New York, NY 10017.
"Senior Credit Agreement" means the Second Amended and Restated Credit Agreement, dated March 15, 2021, among Redstone Gaming Corp. as Borrower, Cornerstone National Bank, N.A. as Administrative Agent, and the lenders party thereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time, providing for a $200,000,000 Senior Secured Revolving Credit Facility.
"Senior Liens" means the first-priority liens and security interests granted to or for the benefit of Cornerstone National Bank, N.A. as Administrative Agent under the Senior Credit Agreement, covering, among other things, substantially all assets of the Pledgor and its subsidiaries.
"Senior Obligations" means all "Obligations" as defined in the Senior Credit Agreement.
"Transaction Documents" has the meaning ascribed to such term in the Note Purchase Agreement and, for the avoidance of doubt, includes this Agreement, the Note Purchase Agreement, the Notes, the Warrant Agreement, and the Intercreditor Agreement.
"UCC" means the Uniform Commercial Code as in effect from time to time in the State of Nevada; provided, however, that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Nevada, "UCC" means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection, or priority.
"Warrant Agreement" means the Warrant Agreement, dated as of [●], 2023, between Redstone Gaming Corp. and Pinnacle Bridge Mezzanine Opportunities Fund IV, LP, relating to warrants to purchase 1,650,000 shares of common stock of Redstone Gaming Corp. at an exercise price of $9.24 per share, representing warrant coverage of approximately 3.00% of the fully diluted equity of Redstone Gaming Corp.
Section 1.02 — UCC Terms
Unless otherwise defined herein, terms that are defined in Article 9 of the UCC are used herein as so defined. Without limiting the foregoing, the terms "account," "chattel paper," "commercial tort claim," "deposit account," "document," "equipment," "general intangible," "goods," "instrument," "inventory," "investment property," "letter-of-credit right," "payment intangible," "proceeds," "software," and "supporting obligation" shall have the meanings given to them in Article 9 of the UCC.
Section 1.03 — Rules of Construction
Unless the context otherwise requires: (a) the terms "herein," "hereof," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular Article, Section, or provision hereof; (b) references to any Article, Section, Exhibit, or Schedule are references to Articles, Sections, Exhibits, or Schedules of this Agreement unless otherwise specified; (c) the word "include" and its derivatives (including "including" and "includes") shall mean "include without limitation"; (d) references to any statute, rule, or regulation include any amendments, modifications, or replacements thereof and any successor statute, rule, or regulation; (e) references to any Person include such Person's successors and permitted assigns; (f) references to "$" or "dollars" mean the lawful currency of the United States of America; (g) the singular shall include the plural and the masculine gender shall include the feminine and neuter genders, and vice versa; and (h) the headings and captions used in this Agreement are for convenience of reference only and shall not affect the interpretation or construction hereof.
ARTICLE II — GRANT OF SECURITY INTEREST
Section 2.01 — Pledge and Grant
As security for the due and punctual payment and performance of all Secured Obligations, the Pledgor hereby pledges, assigns, and grants to the Secured Party, for the benefit of the Secured Party and the Purchaser, a continuing second-priority security interest in and lien upon all of the following property of the Pledgor, whether now owned or existing or hereafter acquired or arising and wherever located (collectively, the "Collateral"):
(a) Pledged Equity. All of the following equity interests and related rights (collectively, the "Pledged Equity"):
(i) 100% of the issued and outstanding membership interests of Redstone Digital Wagering, LLC, a Nevada limited liability company, as more particularly described in Part A of Schedule I attached hereto, including all rights, privileges, authority, and powers of the Pledgor as member under the operating agreement or other organizational documents of RDW, and all substitutions and replacements thereof;
(ii) 100% of the issued and outstanding shares of capital stock of Redstone Tribal Management, Inc., a Nevada corporation, as more particularly described in Part B of Schedule I attached hereto, including all stock certificates and other instruments evidencing such shares, and all substitutions and replacements thereof;
(iii) all dividends (whether in cash, property, or securities), distributions, cash, instruments, rights to vote, and other property hereafter received, receivable, or otherwise distributed in respect of, or in exchange for, any or all of the equity interests described in clauses (i) and (ii) above;
(iv) all additional equity interests, securities, or rights of any kind acquired by the Pledgor in RDW or RTM after the date hereof, whether by purchase, stock dividend, stock split, recapitalization, reclassification, merger, consolidation, or otherwise; and
(v) all options, warrants, and other rights to purchase or acquire equity interests in RDW or RTM that may be issued or granted to the Pledgor after the date hereof.
(b) IP Collateral. All right, title, and interest of the Pledgor in and to the following intellectual property and related rights (collectively, the "IP Collateral"):
(i) the RedBet proprietary wagering software, including all source code, object code, algorithms, databases, user interfaces, application programming interfaces (APIs), and documentation related thereto;
(ii) the USPTO trademark application for the "RedBet" mark filed in August 2022, and all intellectual property rights related thereto, including all renewals, extensions, and continuations thereof;
(iii) all patents, patent applications, copyrights, copyright registrations, trade secrets, know-how, and proprietary technology related to or embodied in the RedBet software platform;
(iv) all licenses and sublicenses granted to or by the Pledgor with respect to such intellectual property, to the extent assignable or pledgeable under the terms thereof;
(v) all rights to sue for past, present, and future infringement, misappropriation, or dilution of any of the foregoing intellectual property rights, and to collect and receive all damages, profits, and awards in connection therewith;
(vi) all goodwill associated with the foregoing intellectual property; and
(vii) all books, records, and files relating to any of the foregoing.
(c) Proceeds. All Proceeds of any and all of the foregoing Collateral described in clauses (a) and (b) above, including, without limitation, all cash and non-cash proceeds, products, rents, profits, income, and other amounts received or receivable on account of a sale, exchange, collection, or other disposition of any of the foregoing, all insurance proceeds in respect of any of the foregoing, and all proceeds of proceeds.
Section 2.02 — Second-Priority Nature of Security Interest
The security interests and liens granted hereunder are expressly subordinated and junior in all respects to the Senior Liens held by or for the benefit of Cornerstone National Bank, N.A. as Administrative Agent under the Senior Credit Agreement. The relative priority, rights, obligations, and remedies of the Secured Party, on the one hand, and the Senior Agent and the lenders under the Senior Credit Agreement, on the other hand, with respect to the Collateral shall be as set forth in and governed by the Intercreditor Agreement. In the event of any conflict between the provisions of this Agreement and the provisions of the Intercreditor Agreement, the terms and provisions of the Intercreditor Agreement shall control and govern in all respects, and the rights and obligations of the Secured Party hereunder shall be limited, modified, and restricted as provided in the Intercreditor Agreement. The Pledgor acknowledges and consents to the subordination of the security interests created hereby to the Senior Liens as provided herein and in the Intercreditor Agreement.
Section 2.03 — Exclusion of Real Property
This Agreement does not create and shall not be construed to create any lien, mortgage, deed of trust, or other encumbrance on any real property of the Pledgor or any of its subsidiaries, including, without limitation, any gaming facility, casino, resort, or other real property used in connection with gaming operations. The parties acknowledge and agree that pledges, liens, and encumbrances on real property used in connection with gaming operations are restricted under Nevada gaming regulations, including without limitation the Nevada Revised Statutes and regulations promulgated by the Nevada Gaming Control Board, and would require the prior written approval of the Nevada Gaming Control Board. No such approval has been sought or obtained as of the date hereof, and neither the Secured Party nor the Pledgor intends to seek such approval in connection with this Agreement. For the avoidance of doubt, the Collateral does not include any interest in real property, and the gaming license held by Pledgor (Nevada Gaming Control Board License No. NGC-2019-00847) and corresponding licenses issued by the Arizona Department of Gaming and the New Mexico Gaming Control Board are not pledged hereunder.
ARTICLE III — REPRESENTATIONS AND WARRANTIES OF PLEDGOR
The Pledgor hereby represents and warrants to the Secured Party as follows:
Section 3.01 — Organization and Good Standing
(a) The Pledgor is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada, and has all corporate power and authority necessary to own, lease, and operate its properties and to conduct its business as presently conducted.
(b) RDW is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Nevada, and has all limited liability company power and authority necessary to own, lease, and operate its properties and to conduct its business as presently conducted.
(c) RTM is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada, and has all corporate power and authority necessary to own, lease, and operate its properties and to conduct its business as presently conducted.
Section 3.02 — Authorization; Binding Effect
(a) The Pledgor has full corporate power and authority to execute, deliver, and perform its obligations under this Agreement and to grant the security interests and liens provided for herein. The execution, delivery, and performance of this Agreement by the Pledgor and the granting of the security interests and liens hereunder have been duly authorized by all necessary corporate action on the part of the Pledgor, including, without limitation, authorization by the Board of Directors of the Pledgor.
(b) This Agreement has been duly executed and delivered by the Pledgor and constitutes the legal, valid, and binding obligation of the Pledgor, enforceable against the Pledgor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, fraudulent conveyance, or similar laws relating to or affecting the enforcement of creditors' rights generally, and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).
Section 3.03 — Title to Collateral
The Pledgor is the sole legal and beneficial owner of the Collateral, free and clear of all liens, claims, charges, encumbrances, security interests, and other interests of any kind or nature whatsoever (collectively, "Liens"), except for (i) the Senior Liens under the Senior Credit Agreement, and (ii) the security interests and liens created by this Agreement. No person or entity other than the Pledgor has any ownership interest, legal or equitable, in the Pledged Equity or the IP Collateral, and no person or entity (other than the Senior Agent under the Senior Credit Agreement) holds or claims any Lien on any of the Collateral.
Section 3.04 — Pledged Equity
(a) The Pledged Equity constitutes 100% of the issued and outstanding equity interests in each of RDW and RTM, and there are no other classes or series of equity interests of either RDW or RTM issued and outstanding as of the date hereof.
(b) The membership interests in RDW have been duly authorized and validly issued in accordance with the operating agreement of RDW and applicable law. The shares of capital stock of RTM have been duly authorized, validly issued, fully paid, and nonassessable in accordance with the certificate of incorporation and bylaws of RTM and applicable law.
(c) As of the date hereof, no outstanding options, warrants, conversion rights, exchange rights, preemptive rights, rights of first refusal, or other rights to purchase or acquire equity interests in RDW or RTM exist, other than as may be set forth in the organizational documents of such entities.
(d) The Pledged Equity is not subject to any transfer restriction, buy-sell agreement, right of first offer, or similar agreement, except as set forth in the applicable organizational documents of RDW and RTM and as may be imposed under applicable gaming laws and regulations of the State of Nevada or any other jurisdiction in which the Pledgor or its subsidiaries conduct gaming operations.
Section 3.05 — Intellectual Property
(a) The Pledgor owns or has valid rights to use all of the IP Collateral. The RedBet IP was developed internally by Redstone Digital Wagering, LLC and assigned to, or is otherwise owned by, the Pledgor, and no third party has any ownership interest in the RedBet IP.
(b) The USPTO trademark application for the "RedBet" mark was filed in August 2022 and remains pending as of the date hereof. No notice of rejection, refusal, or opposition has been received from the USPTO or any third party with respect to such application as of the date hereof.
(c) To the Pledgor's knowledge, after due inquiry, the RedBet IP does not infringe upon, misappropriate, or otherwise violate the intellectual property rights of any third party. No claim, action, suit, or proceeding alleging infringement, misappropriation, or dilution of the intellectual property rights of any third party with respect to the RedBet IP has been threatened or commenced against the Pledgor or any of its subsidiaries as of the date hereof.
(d) The Pledgor has taken commercially reasonable steps to protect the confidentiality of trade secrets and proprietary information embodied in the RedBet software, including, without limitation, requiring employees and contractors who have access to such information to execute confidentiality and non-disclosure agreements, limiting access to source code on a need-to-know basis, and implementing reasonable physical and electronic security measures.
Section 3.06 — No Conflicts
The execution, delivery, and performance by the Pledgor of this Agreement and the granting of the security interests and liens provided for herein will not (i) violate or conflict with any provision of the certificate of incorporation, bylaws, or other organizational documents of the Pledgor, RDW, or RTM; (ii) breach, or constitute a default (or an event which, with the giving of notice or the passage of time or both, would constitute a default) under, any material contract, agreement, instrument, indenture, or other arrangement to which the Pledgor is a party or by which the Pledgor or any of its properties is bound, subject to receipt of the consent required under Section 7.03(b) of the Senior Credit Agreement for the incurrence of subordinated indebtedness exceeding $10,000,000; or (iii) violate any applicable law, rule, regulation, order, judgment, or decree of any governmental authority having jurisdiction over the Pledgor or the Collateral.
Section 3.07 — Consents
No consent, approval, authorization, or order of, or filing, registration, or qualification with, any governmental authority or any other person or entity is required in connection with the execution, delivery, or performance of this Agreement by the Pledgor, or the granting of the security interests and liens provided for herein, except:
(a) the filing of one or more UCC-1 financing statements with the Nevada Secretary of State to perfect the security interests granted hereunder;
(b) the consent of Cornerstone National Bank, N.A. as Administrative Agent under the Senior Credit Agreement, as required by Section 7.03(b) thereof, which prohibits the incurrence of subordinated indebtedness exceeding $10,000,000 without the prior written consent of the Administrative Agent;
(c) the execution and delivery of the Intercreditor Agreement by and among the Senior Agent, the Secured Party, and the Pledgor, in form and substance satisfactory to the Required Lenders under the Senior Credit Agreement;
(d) such filings, consents, or approvals as may be required by the Nevada Gaming Control Board, the Arizona Department of Gaming, or the New Mexico Gaming Control Board, to the extent applicable to the transactions contemplated hereby; and
(e) such other filings, consents, or approvals as have been obtained or made prior to the date hereof and remain in full force and effect.
Section 3.08 — Location of Pledgor
The Pledgor's chief executive office and the location of its books and records relating to the Collateral is at 4250 South Decatur Boulevard, Suite 1100, Las Vegas, NV 89103. The Pledgor is organized and incorporated in the State of Nevada. For purposes of perfection of the security interests granted hereunder under the UCC, UCC financing statements should be filed with the Office of the Nevada Secretary of State. The Pledgor has no other places of business at which books and records relating to the Collateral are maintained, other than as may be disclosed in writing to the Secured Party prior to the date hereof.
Section 3.09 — Gaming Regulatory Matters
(a) The Pledgor holds active and valid gaming licenses, permits, and approvals from the Nevada Gaming Control Board (License No. NGC-2019-00847), the Arizona Department of Gaming, and the New Mexico Gaming Control Board, each of which is in full force and effect as of the date hereof. No proceeding is pending or, to the Pledgor's knowledge, threatened to suspend, revoke, or materially modify any such gaming license, permit, or approval.
(b) The Pledgor acknowledges that the grant of a security interest in the Pledged Equity and the IP Collateral hereunder may be subject to gaming regulatory requirements, including, without limitation, suitability determinations with respect to the Secured Party and its principals, officers, directors, and key employees by one or more of the applicable gaming regulatory authorities. The Pledgor agrees to cooperate with the Secured Party and the applicable gaming regulatory authorities in connection with any such suitability determination.
(c) The Pledgor has been advised and acknowledges that the warrant coverage of approximately 3.00% of fully diluted equity of the Pledgor (representing 1,650,000 shares of common stock of the Pledgor) issued to the Purchaser pursuant to the Warrant Agreement falls below the 5% beneficial ownership threshold that would independently trigger a finding-of-suitability requirement for the Secured Party under applicable Nevada gaming regulations; provided, however, that the Pledgor acknowledges and the Secured Party is aware that the accrual of PIK interest at the rate of 3.00% per annum on the Notes, which increases the effective principal amount and the potential conversion ratio over time, could cause this 5% threshold to be approached or exceeded during the term of the Notes, and the parties agree to monitor such threshold and to consult regarding any required gaming regulatory filings in the event such threshold is approached.
(d) The Pledgor acknowledges that any transfer of the Pledged Equity upon exercise of remedies hereunder by the Secured Party may require the prior approval of the Nevada Gaming Control Board, the Arizona Department of Gaming, and the New Mexico Gaming Control Board, as applicable, and that neither the Secured Party nor any transferee of the Pledged Equity shall be required to consummate any such transfer unless and until all required gaming regulatory approvals have been obtained.
ARTICLE IV — COVENANTS OF PLEDGOR
The Pledgor hereby covenants and agrees with the Secured Party as follows:
Section 4.01 — Further Assurances; Financing Statements
(a) The Pledgor shall execute and deliver, or cause to be executed and delivered, all financing statements (including, without limitation, UCC-1 financing statements), continuation statements, amendments, assignments, and other documents, instruments, and agreements as the Secured Party may from time to time reasonably request in order to perfect, maintain, and protect the security interests and liens granted hereunder and the priority thereof, or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.
(b) The Pledgor hereby irrevocably authorizes the Secured Party, at any time and from time to time, to file UCC financing statements, continuation statements, and amendments thereto with the Office of the Nevada Secretary of State and with any other filing office that the Secured Party may deem necessary or desirable, describing the Collateral in such manner as the Secured Party may determine, in each case without the signature of the Pledgor to the extent permitted by applicable law. A carbon, photographic, or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.
(c) The Pledgor shall pay all filing fees, taxes, and other charges payable in connection with any filing made pursuant to this Section 4.01.
Section 4.02 — Maintenance of Collateral
(a) The Pledgor shall maintain the Pledged Equity free and clear of all Liens, other than the Senior Liens and the security interests and liens created hereunder, and shall not create, incur, assume, or permit to exist any Lien on or with respect to any of the Collateral, other than the Senior Liens and the security interests and liens created hereunder.
(b) The Pledgor shall maintain each of RDW and RTM in good standing under the laws of the State of Nevada and shall cause each of RDW and RTM to maintain its corporate or limited liability company existence in full force and effect.
(c) The Pledgor shall not sell, transfer, assign, convey, exchange, or otherwise dispose of, or grant any option, warrant, or other right with respect to, any of the Collateral (or any interest therein) without the prior written consent of the Secured Party, except as expressly permitted under the Note Purchase Agreement and the other Transaction Documents.
(d) The Pledgor shall not enter into any agreement or arrangement that would restrict or impair the Pledgor's ability to grant, maintain, or enforce the security interests granted hereunder.
Section 4.03 — Preservation of IP Collateral
(a) The Pledgor shall take all commercially reasonable actions necessary to prosecute the pending USPTO trademark application for the "RedBet" mark, including timely responding to any office actions, oppositions, or other proceedings before the USPTO, and shall keep the Secured Party reasonably informed of the status of such application.
(b) The Pledgor shall protect and defend the IP Collateral against infringement, misappropriation, dilution, or other violation by third parties, and shall take commercially reasonable steps to enforce its intellectual property rights.
(c) The Pledgor shall not abandon, allow to lapse, or fail to renew any material IP Collateral (including, without limitation, any trademark registration, patent, or copyright registration), or fail to take any action necessary to maintain the validity and enforceability thereof, in each case without the prior written consent of the Secured Party.
(d) The Pledgor shall promptly notify the Secured Party in writing of any material claim, action, suit, proceeding, or investigation involving or relating to the IP Collateral, including, without limitation, any claim of infringement, misappropriation, or invalidity asserted by or against the Pledgor or any of its subsidiaries.
(e) The Pledgor shall not grant any exclusive license or sublicense of the IP Collateral, or enter into any agreement that would materially impair the value of the IP Collateral or the security interest of the Secured Party therein, without the prior written consent of the Secured Party.
Section 4.04 — Compliance with Gaming Regulations
(a) The Pledgor shall maintain in full force and effect all gaming licenses, permits, approvals, and authorizations necessary for the conduct of its business and the business of its subsidiaries, including, without limitation, licenses from the Nevada Gaming Control Board (License No. NGC-2019-00847), the Arizona Department of Gaming, and the New Mexico Gaming Control Board.
(b) The Pledgor shall comply in all material respects with all applicable gaming laws, rules, regulations, and orders of each gaming regulatory authority having jurisdiction over the Pledgor or any of its subsidiaries.
(c) The Pledgor shall promptly notify the Secured Party in writing of any suspension, revocation, non-renewal, or material modification or amendment of any gaming license held by the Pledgor or any of its subsidiaries, or of any investigation, proceeding, or action commenced or threatened by any gaming regulatory authority that could reasonably be expected to result in any such suspension, revocation, non-renewal, or material modification.
Section 4.05 — Restrictions on Subsidiary Indebtedness and Liens
The Pledgor shall not permit RDW or RTM to incur, create, assume, or suffer to exist any indebtedness (whether for borrowed money or otherwise) or to create, incur, assume, or permit to exist any Lien on any of the assets or properties of RDW or RTM, in each case without the prior written consent of the Secured Party, except (i) as permitted under the Note Purchase Agreement, (ii) as permitted under the Senior Credit Agreement, (iii) Liens securing the Senior Obligations, and (iv) Liens arising by operation of law in the ordinary course of business (including, without limitation, mechanics' liens, materialmen's liens, and landlord's liens) that are not yet delinquent or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established.
Section 4.06 — Books and Records; Inspection
(a) The Pledgor shall maintain accurate and complete books and records relating to the Collateral at its principal office at 4250 South Decatur Boulevard, Suite 1100, Las Vegas, NV 89103, or at such other location as may be designated by the Pledgor by prior written notice to the Secured Party.
(b) Upon reasonable prior written notice (which shall not be less than five (5) business days) and during normal business hours, the Pledgor shall permit the Secured Party and its authorized representatives (including, without limitation, the Collateral Agent and any accountants, attorneys, or other professionals retained by the Secured Party) to visit and examine the properties, books, records, and accounts of the Pledgor relating to the Collateral, to make copies and extracts therefrom, and to discuss the affairs, finances, and condition of the Pledgor and the Collateral with the officers, employees, and independent accountants of the Pledgor; provided, however, that so long as no Event of Default has occurred and is continuing, the Secured Party shall not exercise such inspection rights more than two (2) times per calendar year.
Section 4.07 — Notices
The Pledgor shall promptly (and in any event within five (5) business days) notify the Secured Party in writing of:
(a) any event, occurrence, or circumstance that has had, or could reasonably be expected to have, a material adverse effect on the value of the Collateral or the perfection, priority, or enforceability of the Secured Party's security interest therein;
(b) any change in the Pledgor's legal name, identity, organizational structure, type of organization, or state of organization;
(c) any change in the location of the Pledgor's chief executive office or the location of the books and records relating to the Collateral;
(d) any amendment, modification, restatement, or supplement to the organizational documents (including, without limitation, the certificate of incorporation, bylaws, operating agreement, or other governing documents) of RDW or RTM that would affect the Pledged Equity or the rights of the Pledgor with respect thereto;
(e) any event constituting an Event of Default or any event that, with the giving of notice or the passage of time or both, would constitute an Event of Default; and
(f) any material litigation, claim, dispute, or proceeding affecting or relating to the Collateral.
Section 4.08 — Payment of Taxes
The Pledgor shall pay and discharge, or cause to be paid and discharged, all taxes, assessments, governmental charges, and levies imposed on or with respect to the Collateral or any part thereof as the same become due, before the same shall become delinquent or in default; provided, however, that the Pledgor shall not be required to pay or discharge any such tax, assessment, charge, or levy the amount, applicability, or validity of which is being contested in good faith by appropriate proceedings diligently pursued and for which adequate reserves have been established in accordance with generally accepted accounting principles.
ARTICLE V — VOTING RIGHTS; DIVIDENDS
Section 5.01 — Voting Rights Prior to Event of Default
Unless and until an Event of Default shall have occurred and be continuing, the Pledgor shall be entitled to exercise all voting, consent, and other rights and powers pertaining to the Pledged Equity for all purposes not inconsistent with the terms of this Agreement, the Note Purchase Agreement, the Intercreditor Agreement, or any other Transaction Document; provided, however, that the Pledgor shall not exercise any such voting, consent, or other right or power in any manner that would materially impair the value of the Collateral or the security interest of the Secured Party therein or that would be inconsistent with or result in a violation of any provision of this Agreement, the Note Purchase Agreement, or any other Transaction Document.
Section 5.02 — Dividends and Distributions Prior to Event of Default
Unless and until an Event of Default shall have occurred and be continuing, the Pledgor shall be entitled to receive and retain all cash dividends, distributions, and other payments made on or with respect to the Pledged Equity, subject in all respects to the restrictions on restricted payments, distributions, and dividends set forth in the Note Purchase Agreement and the Senior Credit Agreement. To the extent that any dividend, distribution, or payment on or with respect to the Pledged Equity is received by the Pledgor in the form of securities, instruments, or other property (other than cash), such securities, instruments, or other property shall be pledged to the Secured Party and shall constitute additional Collateral hereunder, and the Pledgor shall promptly deliver the same to the Collateral Agent (or to the Secured Party, as directed by the Secured Party), together with such stock powers, endorsements, assignments, and other instruments as the Secured Party may reasonably request.
Section 5.03 — Rights Upon Event of Default
Upon the occurrence and during the continuance of an Event of Default:
(a) the Secured Party shall have the right, subject to the terms of the Intercreditor Agreement and subject to obtaining all required gaming regulatory approvals from the Nevada Gaming Control Board, the Arizona Department of Gaming, the New Mexico Gaming Control Board, and any other applicable gaming regulatory authority, to exercise all voting, consent, and other rights and powers pertaining to the Pledged Equity, and the Pledgor shall take all such action as the Secured Party may reasonably request to give effect to such right;
(b) the Secured Party shall have the right to receive and apply to the Secured Obligations all cash dividends, distributions, and other payments made on or with respect to the Pledged Equity, subject to the terms of the Intercreditor Agreement, including any turnover provisions requiring that proceeds of Collateral be applied first to satisfy Senior Obligations;
(c) the Pledgor hereby irrevocably appoints the Secured Party as the Pledgor's attorney-in-fact and proxy, with full authority in the place and stead and in the name of the Pledgor, to execute such proxies, consents, ratifications, and other instruments as may be necessary or appropriate to exercise such voting and other rights, such power of attorney and proxy being coupled with an interest and irrevocable; provided, however, that such power of attorney and proxy shall be exercisable by the Secured Party only during the continuance of an Event of Default and subject to the terms of the Intercreditor Agreement and applicable gaming regulatory requirements; and
(d) the Pledgor shall promptly deliver to the Collateral Agent (or to the Secured Party, as directed by the Secured Party) all dividends, distributions, and other payments received by the Pledgor on or with respect to the Pledged Equity after the occurrence and during the continuance of an Event of Default, to be held and applied in accordance with Article VI hereof.
ARTICLE VI — REMEDIES
Section 6.01 — Rights Upon Event of Default
Upon the occurrence and during the continuance of an Event of Default, the Secured Party shall have, in addition to all other rights and remedies granted to it under this Agreement and under the Note Purchase Agreement and the other Transaction Documents, all of the rights and remedies of a secured party under the UCC and under all other applicable law, including, without limitation:
(a) the right to foreclose on and sell, assign, transfer, or otherwise dispose of all or any portion of the Collateral at one or more public or private sales, for cash, on credit, or for future delivery, at such prices and upon such terms as the Secured Party may deem commercially reasonable, and to purchase all or any portion of the Collateral at any public sale;
(b) the right to collect and receive all income, dividends, distributions, and proceeds of the Collateral, and to apply the same to the Secured Obligations in such order as the Secured Party may determine, subject to Section 6.05 hereof;
(c) the right to take possession of, and to operate, manage, and control, the Collateral, and to take all actions as the Secured Party may deem necessary or appropriate to protect and preserve the Collateral and to realize upon the security interests and liens granted hereunder;
(d) the right to require the Pledgor to assemble the Collateral and make it available to the Secured Party at a place to be designated by the Secured Party that is reasonably convenient to both parties; and
(e) the right to exercise all other rights and remedies available to the Secured Party under the UCC, this Agreement, the Note Purchase Agreement, the Intercreditor Agreement, and applicable law.
The Secured Party shall give the Pledgor not less than ten (10) days' prior written notice of the time and place of any public sale or of the time after which any private sale or other intended disposition of the Collateral is to be made. The Pledgor agrees that such notice constitutes "reasonable notification" within the meaning of Section 9-611 of the UCC. The Secured Party shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. The Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.
Section 6.02 — Subordination to Senior Liens; Intercreditor Agreement Limitations
All rights and remedies of the Secured Party under this Agreement are subject in all respects to the terms and conditions of the Intercreditor Agreement, including, without limitation:
(a) standstill periods during which the Secured Party may not exercise remedies against the Collateral or take enforcement action with respect to the Secured Obligations, as set forth in the Intercreditor Agreement;
(b) turnover provisions requiring that all proceeds of Collateral received by the Secured Party be applied first to satisfy in full all Senior Obligations before any application to the Secured Obligations;
(c) requirements that any sale, transfer, or other disposition of the Collateral by the Secured Party be subject to and not discharge the Senior Liens, or shall be made only with the prior written consent of the Senior Agent; and
(d) such other restrictions, limitations, and conditions on the exercise of remedies by the Secured Party as are set forth in the Intercreditor Agreement.
In no event shall the Secured Party exercise any right or remedy hereunder in a manner that would violate, contravene, or conflict with the terms or provisions of the Intercreditor Agreement. In the event of any conflict between the provisions of this Article VI and the provisions of the Intercreditor Agreement, the Intercreditor Agreement shall control and govern.
Section 6.03 — Gaming Regulatory Limitations on Remedies
(a) The Secured Party acknowledges and agrees that any foreclosure upon, sale, transfer, assignment, or other disposition of the Pledged Equity upon the exercise of remedies hereunder is subject to the requirement that the proposed transferee (including, without limitation, the Secured Party or any affiliate thereof, in the event of a credit bid or direct acquisition) obtain all necessary gaming licenses, approvals, permits, findings of suitability, and other authorizations from the Nevada Gaming Control Board, the Arizona Department of Gaming, the New Mexico Gaming Control Board, and any other applicable gaming regulatory authority, as a condition to the consummation of any such foreclosure, sale, transfer, or disposition.
(b) The Secured Party acknowledges that the process of obtaining gaming regulatory approvals may be lengthy, uncertain, and subject to conditions, and that delays in obtaining such approvals may limit or delay the exercise of remedies hereunder. Neither the Pledgor nor the Secured Party shall have any liability to the other party for any delay in the exercise of remedies that is attributable to the gaming regulatory approval process.
(c) Any proposed transferee of equity interests in RDW or RTM must be a person or entity that is acceptable to the applicable gaming regulatory authorities and that has obtained all required findings of suitability. The Secured Party shall use commercially reasonable efforts to identify a prospective purchaser that is likely to be approved by the applicable gaming regulatory authorities and shall cooperate with the Pledgor and such authorities in connection with the regulatory approval process.
Section 6.04 — Disposition of IP Collateral
(a) Upon the exercise of remedies hereunder with respect to the IP Collateral, the Secured Party may sell, assign, license, sublicense, or otherwise dispose of or realize upon the RedBet IP and all other IP Collateral, subject to the terms of the Intercreditor Agreement and applicable federal and state intellectual property laws, including, without limitation, the Lanham Act, the Patent Act, the Copyright Act, and applicable state trade secret laws.
(b) All assignments, transfers, or licenses of intellectual property effected in connection with the exercise of remedies hereunder shall be in writing and shall comply with the registration and recording requirements of the USPTO, the United States Copyright Office, and any other applicable governmental authority.
(c) The Secured Party shall have the right to execute, in the name and on behalf of the Pledgor, any document, instrument, or agreement necessary or desirable to effect the assignment, transfer, or licensing of the IP Collateral, including, without limitation, trademark assignments, patent assignments, copyright assignments, and software license agreements.
Section 6.05 — Application of Proceeds
The proceeds of any sale, disposition, or other realization upon the Collateral, and any cash or other amounts held by the Secured Party or the Collateral Agent in respect of the Collateral, shall be applied by the Secured Party (or by the Collateral Agent at the direction of the Secured Party) in the following order of priority:
First, to the payment of all reasonable costs and expenses incurred by the Secured Party or the Collateral Agent in connection with the sale, disposition, or other realization upon the Collateral, including, without limitation, the reasonable fees and expenses of the Collateral Agent (Dralvecen Title & Escrow Co.), legal counsel, accountants, auctioneers, brokers, and other professionals retained by the Secured Party or the Collateral Agent;
Second, to the payment and satisfaction in full of all Senior Obligations in accordance with the Intercreditor Agreement and the Senior Credit Agreement, to the extent required by the Intercreditor Agreement (including, without limitation, all principal, interest, fees, costs, and expenses payable under the Senior Credit Agreement);
Third, to the payment and satisfaction of the Secured Obligations under the Note Purchase Agreement and the related Transaction Documents, in the following order: (i) first, to all accrued and unpaid cash interest at the rate of 10.50% per annum; (ii) second, to all accrued and unpaid PIK interest at the rate of 3.00% per annum; (iii) third, to the outstanding principal balance of the Notes ($35,000,000 or such lesser amount as may then be outstanding); and (iv) fourth, to all fees, costs, expenses, indemnification obligations, and all other amounts payable under the Transaction Documents; and
Fourth, any surplus remaining after payment in full of all amounts described in clauses First through Third above shall be paid to the Pledgor, or as otherwise required by applicable law.
Section 6.06 — Collateral Agent
(a) Dralvecen Title & Escrow Co. shall serve as collateral agent for the Secured Party in connection with the custody, control, and disposition of the Collateral, in accordance with the terms to be set forth in a separate Collateral Agency Agreement to be entered into among the Secured Party, the Pledgor, and Dralvecen Title & Escrow Co. prior to or concurrently with the closing of the transactions contemplated by the Note Purchase Agreement.
(b) Karen Prescott, Vice President — Commercial Escrow, at Dralvecen Title & Escrow Co., 1980 Festival Plaza Drive, Suite 700, Las Vegas, NV 89135, shall serve as the designated officer of the Collateral Agent for purposes of this Agreement and shall be the primary point of contact for all matters relating to the custody and disposition of the Collateral.
(c) The Collateral Agent shall hold in its custody any stock certificates, membership interest certificates, or other instruments evidencing the Pledged Equity that are delivered to it pursuant to this Agreement, together with any stock powers, endorsements, or other transfer instruments executed in blank by the Pledgor and delivered to the Collateral Agent in connection herewith.
Section 6.07 — Pledgor's Liability
The Pledgor shall remain liable for any deficiency remaining after the sale, disposition, or other realization upon the Collateral. Any deficiency remaining after the application of proceeds in accordance with Section 6.05 shall constitute an unsecured obligation of the Pledgor to the Secured Party and the Purchaser and shall be payable upon demand.
ARTICLE VII — COLLATERAL AGENT PROVISIONS
Section 7.01 — Appointment of Collateral Agent
The Secured Party hereby appoints Dralvecen Title & Escrow Co. as Collateral Agent to hold any certificated securities, instruments, stock certificates, membership interest certificates, documents of title, or other tangible property constituting or evidencing the Collateral that is delivered to the Collateral Agent pursuant to this Agreement. The Pledgor hereby acknowledges and consents to such appointment. The Collateral Agent hereby accepts such appointment and agrees to act in accordance with the terms and conditions of this Agreement and the separate Collateral Agency Agreement to be entered into among the parties.
Section 7.02 — Duties of Collateral Agent
(a) The Collateral Agent shall hold the Collateral delivered to it hereunder in trust for the exclusive benefit of the Secured Party, and shall release the same only upon the written instruction of the Secured Party or as otherwise expressly provided in this Agreement or the Collateral Agency Agreement.
(b) The Collateral Agent shall have no duty to exercise any discretion or independent judgment with respect to the Collateral or any matter arising hereunder and shall act only in accordance with the express written instructions of the Secured Party. The Collateral Agent shall have no obligation to take any action with respect to the Collateral except as expressly provided herein or in the Collateral Agency Agreement.