Document/Exhibit Description Pages Size
1: 10-K Annual Report 77 476K
2: EX-10.56 Senior Executive Plan 3 17K
3: EX-10.57 Senior Executive Agmt. 5 21K
4: EX-10.58 Amend. #2 to Operating Agmt. 21 82K
5: EX-10.59 Note Purchase Agmt. 41 168K
6: EX-10.60 Reg. Rights Agmt. 25 99K
7: EX-10.61 Note Purchase Agmt. 41 168K
8: EX-10.62 Regis. Rights Agmt. 25 99K
9: EX-10.63 Note Purchase Agmt. 41 168K
10: EX-10.64 Note Purchase Agmt. 41 168K
11: EX-10.65 Note Purchase Agmt. 41 168K
12: EX-10.66 Note Purchase Agmt. 41 168K
13: EX-10.67 Regis. Rights Agmt. 25 100K
14: EX-10.68 Stock Pledge Agmt. 11 35K
15: EX-21.1 Subsidiaries 1 7K
16: EX-23 Consent of Peat 1 9K
17: EX-27 Financial Data Schedule 2 8K
_________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 30, 1995
REGARDING
7-1/2% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 31, 1996
OF
ELSINORE CORPORATION
_________________________________
TABLE OF CONTENTS
[Download Table]
SECTION 1 Sale and Purchase of Notes........................................ 1
SECTION 2 Representations and Warranties of the Company..................... 2
SECTION 3 Representations and Warranties of Purchaser....................... 7
SECTION 4 Conversion........................................................ 8
4.1 Conversion......................................................... 8
4.2 Mechanics of Conversion............................................ 9
a. Surrender, Election and Payment............................... 9
b. Effective Date................................................ 9
c. Share Certificates............................................ 10
d. Acknowledgment of Obligation.................................. 10
e. Payment of Accrued Interest................................... 10
4.3 Current Conversion Price........................................... 10
4.4 Adjustment of Conversion Price..................................... 11
a. Adjustments for Stock Dividends, Recapitalizations, etc....... 11
b. Adjustments for Certain Other
Distributions................................................. 11
c. Adjustments for Issuances of Additional
Stock......................................................... 12
d. Certain Rules in Applying the Adjustment for
Additional Stock Issuances.................................... 13
(i) Cash Consideration..................................... 13
(ii) Non-Cash Consideration................................. 13
(iii) Options, Warrants, Convertibles, etc................... 13
(iv) Number of Shares Outstanding........................... 15
e. Exclusions from the Adjustment for Additional
Stock Issuances............................................... 15
f. Certification................................................. 15
g. Determination of Market Price................................. 15
h. Other Adjustments............................................. 16
i. Meaning of "Issuance"......................................... 16
4.5 Company's Consolidation or Merger................................... 17
4.6 Notice to Holders of Notes.......................................... 17
SECTION 5 Covenants of the Company.......................................... 18
SECTION 6 Defaults.......................................................... 21
SECTION 7 Conditions to the Obligations of Purchaser........................ 24
SECTION 8 Conditions to Obligations of the Company.......................... 27
SECTION 9 Subordination..................................................... 27
9.1 Agreement to Be Bound.............................................. 27
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[Download Table]
9.2 Priority of Senior Indebtedness.................................. 27
9.3 Liquidation; Dissolution; Bankruptcy............................. 28
9.4 No Prejudice or Impairment; Reinstatement........................ 29
9.5 Subrogation...................................................... 30
9.6 Obligations Unaffected........................................... 31
9.7 Definition of Senior Indebtedness................................ 31
SECTION 10 Exchange of Notes; Accrued Interest;Cancellation of Surrendered
Notes; Replacement............................................... 31
SECTION 11 Prepayment...................................................... 33
11.1 Optional Prepayment.............................................. 33
11.2 Change of Control Event.......................................... 34
SECTION 12 Representations and Indemnities to Survive Delivery............. 35
SECTION 13 Notices; Publicity............................................. 35
SECTION 14 Payment of Expenses............................................ 36
SECTION 15 Successors..................................................... 36
SECTION 16 Partial Unenforceability....................................... 36
SECTION 17 Applicable Law................................................. 36
SECTION 18 General........................................................ 37
SECTION 19 Section Headings; Amendment.................................... 37
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NOTE PURCHASE AGREEMENT dated as of March 30, 1995, by and betweenElsinore
Corporation, a Nevada corporation (the "Company"), and G & O Partners, L.P., a
Delaware limited partnership ("Purchaser").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1 Sale and Purchase of Notes.
--------------------------
a. The Company agrees to sell to Purchaser and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, Purchaser agrees to purchase on the Closing Date
(as hereinafter defined), a note or notes in the aggregate principal amount of
$180,000 (collectively, the "Note"). The aggregate purchase price to be paid
to the Company by Purchaser for the Note is 100% of the principal amount of the
Note to be purchased by the Purchaser. All obligations under the Note will be
secured by a pledge of capital stock of Mojave Gaming, Inc., a wholly-owned
subsidiary of the Company, in the manner specified in the Pledge Agreement
attached hereto as Exhibit B ("Pledge Agreement").
b. As used herein, "Notes" means the aggregate of $1,706,250
principal amount of the Company's 7-1/2% Convertible Subordinated Notes Due
December 31, 1996, issued pursuant to the Purchase Agreements (defined in
Section 1(c)), together with all Notes issued in exchange therefor or
replacement thereof. Each of the Notes will be substantially in the form of the
Note set forth as Exhibit A hereto.
c. The Notes are being sold to Purchaser pursuant to this Agreement
and to other purchasers under other agreements dated as of the date hereof
(collectively the "Purchase Agreements"). The sale of Notes to each purchaser
under each Purchase Agreement is a separate sale, the purchasers are not acting
together or as a group for purposes of such purchase and sale and no purchaser
will have any rights or liabilities under any Purchase Agreement other than the
Purchase Agreement to which it is a party.
d. The closing of the purchase and sale of the Notes will take place
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, CA at 10:00 A.M., Pacific Standard time, on March 31, 1995, or such
other time and date as
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shall be mutually agreed to by the Company and Purchaser ("Closing Date").
Subject to the terms and conditions hereof, on the Closing Date (i) the Company
will deliver to Purchaser the Note, as set forth on Annex I hereto, in the form
of Exhibit A hereto in the aggregate principal amount of $1,125,000 and (ii)
upon Purchaser's receipt thereof, Purchaser will deliver to the Company a
certified or official bank check or wire transfer in an amount equal to the
purchase price for the Note payable to the order of the Company in federal or
other next day funds.
SECTION 2 Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to Purchaser that:
a. The execution and delivery by the Company of (i) this Agreement,
(ii) the Note and the Pledge Agreement, and (iii) the Registration Rights
Agreement to be executed and delivered by the Company and Purchaser, in the form
attached as Exhibit C hereto ("Registration Rights Agreement") (collectively,
the "Documents"), the performance by the Company of its obligations thereunder,
the issuance, sale and delivery of the Note and the issuance of Common Stock
upon conversion of the Note have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any Subsidiary (as defined in Section 2(d)) or any of the
properties or assets of the Company or any Subsidiary is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or any
Subsidiary. The Company has full corporate power and authority to enter into
the Documents and to perform the transactions contemplated thereby.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles.
The Pledge Agreement and the Note and the Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
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c. A disclosure memorandum containing all material information with
respect to the business, properties, prospects and financial condition of the
Company and its Subsidiaries as of the date hereof has been delivered to
Purchaser (the "Memorandum"). The information contained in the Memorandum is
true and correct in all material respects as of the date of the Memorandum. The
Memorandum does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made.
d. Except as described in the Memorandum, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity. Each corporation, association or other entity described in the
Memorandum as being owned, directly or indirectly, in whole or in part, is
herein referred to as a "Subsidiary" and all such entities together, are herein
referred to as the "Subsidiaries." The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Nevada,
with full power and authority (corporate and other) to own and lease its
properties and conduct its business as described in the Memorandum; each
Subsidiary has been duly and validly incorporated or otherwise formed pursuant
to the laws of its jurisdiction of formation and, if a corporation, limited
liability company or limited partnership, is in good standing under such laws;
each Subsidiary that is a partnership, limited partnership or limited liability
company is a partnership for United States federal income tax purposes; except
as described in the Memorandum, the Company and each Subsidiary is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
and each Subsidiary is duly qualified to do business and in good standing as a
foreign corporation or other entity in each jurisdiction in which the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company; and except as described in
the Memorandum, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
e. The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Memorandum; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or
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subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Memorandum.
The Company's Board of Directors (i) has reserved for issuance upon conversion
of the Notes up to 2 million shares of the Company's authorized and unissued
Common Stock and, (ii) shall, on an ongoing basis until conversion or maturity
of the Notes, keep reserved such number of shares of the Company's authorized
and unissued Common Stock as shall be necessary for issuance upon conversion of
the Notes. Except as disclosed in or contemplated by the Memorandum and the
financial statements of the Company, and the related notes thereto, included in
the Memorandum, neither the Company nor any Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Memorandum and the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders accurately and fairly presents all material information with
respect to such plans, arrangements, options and rights.
f. The unaudited consolidated financial statements and schedules of
the Company and its Subsidiaries, and the related notes thereto, included in the
Memorandum present fairly the financial position of the Company and such
Subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company and such Subsidiaries for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis.
g. Except as disclosed in the Memorandum, and except as to defaults
that individually or in the aggregate would not be material to the Company,
neither the Company nor any Subsidiary is in violation or default of any
provision of its articles of incorporation or bylaws, or other organization
documents, and is not in breach of or default with respect to any provision of
any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which any of its properties are bound; and there does not exist any state
of facts that constitutes an event of default on the part of the Company or any
Subsidiary as defined in such documents or that, with notice or lapse of time or
both, would constitute such an event of default.
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h. Except as described in the Memorandum, the contracts described in
the Memorandum, and all other material contracts, instruments, and other
documents evidencing legal rights and obligations of the Company or any
Subsidiary ("Contracts"), are in full force and effect on the date hereof; and,
except as described in the Memorandum, (i) neither the Company nor any
Subsidiary nor, to the best of the Company's knowledge, any other party is in
breach of or default under any Contract where such breach or default would
permit any party to terminate such Contract or could result in other penalties
having a material adverse effect on the Company; (ii) to the best of the
Company's knowledge, no event has occurred that, upon notice or the passage of
time, would cause such a default to occur; and (iii) the Company does not expect
to be unable or expect any Subsidiary to be unable to comply with any material
provision of any Contract.
i. Except as described in the Memorandum, there are no legal or
governmental actions, suits or proceedings pending, threatened in a writing
received by the Company or a Subsidiary or, to the best of the Company's
knowledge, otherwise threatened to which the Company or any Subsidiary is or may
be a party or of which property owned or leased by the Company or any Subsidiary
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or any
Subsidiary; and no labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent that might be expected to
affect adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
j. The Company or a Subsidiary has good and marketable title to all
the properties and assets reflected as owned in the balance sheet dated December
31, 1994, included in the financial statements hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such financial statements, (ii) the Memorandum, or (iii)
those that are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company and each
Subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. The Company and each Subsidiary
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owns or leases all such properties as are necessary to its operations as now
conducted.
k. Since the date as of which information is given in the
Memorandum, and except as described in or specifically contemplated by the
Memorandum: (i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, indirect, direct or contingent, or engaged
in any other transaction that is not in the ordinary course of business or that
could result in a material reduction in the future earnings or liquidity of the
Company; (ii) neither the Company nor any Subsidiary has sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) neither the Company nor any Subsidiary has paid or declared any dividends
or other distributions with respect to its capital stock and the Company is not
in default in the payment of principal or interest on any outstanding debt or
obligations for money borrowed; (iv) there has not been any change in the
capital stock of the Company (other than as a result of the sale of the Note
hereunder) or indebtedness material to the Company (other than in the ordinary
course of business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company or any Subsidiary.
l. Except as disclosed in or specifically contemplated by the
Memorandum, the Company and each Subsidiary has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorities to conduct its businesses as now conducted; the expiration in
accordance with their terms of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or any Subsidiary; and except
as described in the Memorandum the Company has no knowledge of any material
infringement by it or its Subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others
that has not been resolved, and there is no claim being made against the Company
or any Subsidiary regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement that could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
m. The Company and each Subsidiary and, to the Company's knowledge,
each employee of the Company or any Subsidiary, acting in that capacity, is
conducting business in compliance with all applicable laws, rules and
regulations of
6
the jurisdictions in which it or such Subsidiary is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
n. The Company and the Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and except as
described in the Memorandum, have paid all taxes shown as due thereon; and,
except as described in the Memorandum, the Company has no knowledge of any tax
deficiency that has been or might be asserted or threatened against the Company
or the Subsidiaries that would materially and adversely affect the business,
operations, or properties of the Company.
o. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
p. The Company and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or such Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
q. Neither the Company nor any of the Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
r. No officer of the Company or any Subsidiary has been determined
to be unsuitable by any gaming regulatory authority nor, to the best of the
Company's knowledge, has any process with a view to any such determination
(other than a routine review of the qualifications of any such person) been
initiated by any such authority.
SECTION 3 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants to the Company that:
a. Purchaser is a validly existing limited partnership in good
standing under the laws of Delaware.
7
Purchaser has full power and authority to enter into this Agreement and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser in accordance with its terms.
b. Purchaser is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the "1933
Act") and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the purchase of the Note.
The Note is being acquired for Purchaser's own account for investment and not
with a view to, or for resale in connection with, any distribution, and no other
person has or will have any right to acquire any beneficial interest therein.
Purchaser understands and agrees that it must bear the economic risk of an
investment in the Note for an indefinite period of time because the Note not
been registered under the 1933 Act or under the securities laws of any state or
other jurisdiction and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless the Note is subsequently registered for sale under
the 1933 Act and the applicable securities laws of such states, or unless an
exemption from registration is available. Purchaser acknowledges that a
restrictive legend will be placed on the Note and each certificate representing
shares of Common Stock issued upon conversion of the Note and a notation shall
be made in the appropriate records of the Company indicating that the Note and
share certificates are subject to restrictions on transfer under the 1933 Act.
Purchaser has received and reviewed the Memorandum. Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering described in the
Memorandum, and to obtain any additional information it requested from the
Company.
SECTION 4 Conversion.
----------
4.1 Conversion.
----------
a. The holder of a Note shall have the right, at the option of such
holder, at any time to convert, subject to the terms and provisions of this
Section 4, the unpaid principal amount of the Note or any portion thereof, in
minimum increments of $1,000, and any accrued and unpaid interest on such Note,
into fully paid and non-assessable shares of Common Stock of the Company or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof ("Shares"). Such conversion of a Note to Shares shall
be made at an amount per Share (of principal of such Note and/or of accrued and
unpaid interest if specified by the holder) which is
8
equal to the then current conversion price, as further described below. Every
Note shall continue to be convertible, in whole or in part, even though the
Company or a holder may have given notice of prepayment with respect to such
Note or any part thereof pursuant to Section 11 hereof, so long as such Note and
the holder's election to convert shall have been delivered to the Company
pursuant to Section 4.2(a) hereof prior to the date fixed for such prepayment.
b. For convenience, the conversion pursuant to this Section 4 of all
or a portion of the principal amount of a Note (and/or of accrued and unpaid
interest if elected by the holder) into Shares is herein sometimes referred to
as the "conversion" of the Note. For purposes of this Section 4, "Business Day"
means any day other than a Saturday, Sunday or legal holiday, on which banks in
the location of the office of the Company identified in Section 13 are open for
business.
4.2 Mechanics of Conversion.
-----------------------
a. Surrender, Election and Payment. The then unpaid principal
-------------------------------
amount of each Note (and/or any accrued and unpaid interest on such Note) may be
converted by the holder thereof, in whole or in part, during normal business
hours on any Business Day by surrender of the Note, accompanied by written
evidence of the holder's election to convert the Note or portion thereof, to the
Company at its office designated in Section 13 hereof (or, if such conversion is
in connection with an underwritten public offering of Shares, at the location at
which the underwriting agreement requires that such Shares be delivered).
Payment of the conversion price for the Shares specified in such election shall
be made by applying an aggregate amount of principal of the Note and/or, if
elected by the holder, of accrued and unpaid interest equal to the amount
obtained by multiplying (i) the number of Shares specified in such election by
(ii) the then current conversion price. Such holder shall thereupon be entitled
to receive the number of Shares specified in such election rounded to the
nearest whole share.
b. Effective Date. Each conversion of a Note pursuant to Section
--------------
4.2(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which such Note shall have been
surrendered to the Company as provided in Section 4.2(a) hereof (except that if
such conversion is in connection with an underwritten public offering of Shares,
then such conversion shall be deemed to have been effected upon such surrender),
and such conversion shall be at the current conversion price in effect at such
time. On each such day that the conversion of a Note is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Shares are issuable upon such conversion, as
9
provided in Section 4.2(c) hereof, shall be deemed to have become the holder or
holders of record thereof.
c. Share Certificates. As promptly as practicable after the
------------------
conversion of a Note, in whole or in part, and in any event within five Business
Days thereafter (unless such conversion is in connection with an underwritten
public offering of Shares, in which event concurrently with such conversion),
the Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes) will cause to be issued in
the name of and delivered to the holder thereof, or as such holder may direct, a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such conversion.
d. Acknowledgment of Obligation. The Company will, at the time of
----------------------------
or at any time after each conversion of a Note, upon the request of the holder
thereof or of any Shares issued upon such conversion, acknowledge in writing its
continuing obligation to afford to such holder all rights to which such holder
shall continue to be entitled under the Documents; provided, that if any such
holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
e. Payment of Accrued Interest. Within five Business Days after
---------------------------
receipt of any Note and an election to convert all or a portion of the principal
amount of such Note under Section 4.2(a) hereof, the Company will pay to the
holder of such Note any unpaid interest, accrued to the date of conversion of
such Note, on the principal amount so converted, except to the extent that the
amount of such interest has also been converted into Shares.
4.3 Current Conversion Price.
------------------------
The term "conversion price" shall mean initially the lower of $1.125
or the average of the daily closing prices for the Common Stock for the 5
consecutive trading days immediately prior to the Closing Date, subject to
adjustment as set forth in Section 4.4. For purposes of determining the initial
conversion price described in the preceding sentence, the "closing price" for
each day shall be the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported by the American Stock Exchange. The
term "current conversion price" as used herein shall mean the conversion price,
as the same may be adjusted from time to time as hereinafter provided, in effect
at any given time. In determining the current conversion price, the result
shall be expressed to the nearest $0.01, but any such lesser amount shall be
carried
10
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
4.4 Adjustment of Conversion Price.
------------------------------
The conversion price shall be subject to adjustment, from time to
time, as follows:
a. Adjustments for Stock Dividends, Recapitalizations, etc. In case
--------------------------------------------------------
the Company shall, after the Closing Date, (i) pay a stock dividend or make a
distribution (on or in respect of its Common Stock) in shares of its Common
Stock, (ii) subdivide the outstanding shares of its Common Stock, (iii) combine
the outstanding shares of its Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of its Common Stock, any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which the holder would have owned immediately
following such action had such Note been converted immediately prior thereto
(with any record date requirement being deemed to have been satisfied), and, in
any such case, such conversion price shall thereafter be subject to further
adjustments under this Section 4. An adjustment made pursuant to this Section
4.4(a) shall become effective retroactively immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
b. Adjustments for Certain Other Distributions. In case the Company
-------------------------------------------
shall, after the Closing Date, fix a record date for the making of a
distribution to holders of its Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends paid out of
retained earnings of the Company (determined under generally accepted accounting
principles consistently applied)), (ii) evidences of indebtedness or other
securities (except for its Common Stock) of the Company or of any entity other
than the Company, or (iii) subscription rights, options or warrants to purchase
any of the foregoing assets or securities, whether or not such rights, options
or warrants are immediately exercisable (all such distributions referred to in
clauses (i), (ii) and (iii) being hereinafter collectively referred to as
"Distributions on Common Stock"), the Company shall set aside in an escrow
reasonably acceptable to the holders of Notes, and suitably invested for the
11
benefit of the holders of Notes, the Distribution on Common Stock to which they
would have been entitled if they had converted all of the Notes held by them for
the Company's Common Stock immediately prior to the record date for the purpose
of determining stockholders entitled to receive such Distribution on Common
Stock and any such Distribution on Common Stock (together with any earnings
while escrowed) shall thereafter be distributed from time to time out of such
escrow to persons converting Notes (immediately upon conversion).
c. Adjustments for Issuances of Additional Stock. Subject to the
---------------------------------------------
exceptions referred to in Section 4.4(e) hereof, in case the Company shall at
any time or from time to time after the Closing Date issue any additional shares
of Common Stock ("Additional Common Stock"), for a consideration per share
either (I) less than the then current Market Price per share of the Common Stock
(determined as provided in Section 4.4(g) hereof), immediately prior to the
issuance of such Additional Common Stock, or (II) without consideration, then
(in the case of either clause (I) or (II)), and thereafter successively upon
each such issuance, the current conversion price shall forthwith be reduced to a
price equal to the price determined by multiplying such current conversion price
by a fraction, of which:
(a) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective plus (ii) the number of shares of Common Stock
which the aggregate amount of consideration, if any, received by the
Company upon all issuances of Common Stock, since the current
conversion price became effective (including the consideration, if
any, received for such Additional Common Stock) would purchase at the
then current Market Price per share of the Common Stock, and
(b) the denominator shall be (i) the number of shares of Common
Stock outstanding when the current conversion price became effective
plus (ii) the number of shares of Common Stock issued since the
current conversion price became effective (including the number of
shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such
adjustment results in a current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required to,
make any adjustment of the current conversion price if the amount of such
adjustment shall be less than one percent of the current conversion price
immediately prior to such adjustment, but any adjustment that would
otherwise be
12
required then to be made which is not so made shall be carried forward and
shall be made at the time of (and together with) the next subsequent
adjustment which, together with any adjustments so carried forward, shall
amount to not less than one percent of the current conversion price
immediately prior to such adjustment.
d. Certain Rules in Applying the Adjustment for Additional Stock
-------------------------------------------------------------
Issuances. For purposes of any adjustment as provided in Section 4.4(c) hereof,
---------
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
------------------
Common Stock for cash, the consideration received by the Company therefor
shall (subject to the last sentence of Section 4.4(g) hereof) be deemed to
be the aggregate consideration paid by the persons to whom such Additional
Common Stock is issued.
(ii) Non-Cash Consideration. In case of the issuance of
----------------------
Additional Common Stock for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received by the Company
shall be deemed to be the value of such consideration at the time of its
receipt by the Company as determined in good faith by the Board of
Directors of the Company, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of Common Stock), the value of the non-cash
consideration shall be deemed to be the principal amount of, and any and
all interest relating to, the obligations cancelled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration,
part or all of which consists of publicly traded securities (i.e., in lieu
of cash), the value of such non-cash consideration shall be the aggregate
market value of such securities (based on the latest reported sale price
regular way) as of the close of the day immediately preceding the date of
their receipt by the Company.
(iii) Options, Warrants, Convertibles, etc. In case of the
-------------------------------------
issuance, whether by distribution or sale to holders of its Common Stock or
to others, by the Company of (i) any security (other than the Notes) that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock (except as stated in Section 4.4(e) hereof), if
inclusion thereof in calculating adjustments under this Section 4.4 would
result in a current conversion price lower than if excluded, the Company
shall be deemed
13
to have issued, for the consideration described below, the number of shares
of Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of Common Stock deliverable upon
the exercise of such rights, options or warrants when first exercisable, as
the case may be (and such shares shall be deemed to be Additional Common
Stock for purposes of Section 4.4(c) hereof). The consideration deemed to
be received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the consideration
so received determined as provided in Section 4.4(d)(i) and (ii) hereof,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion and, as applicable, (y) the
aggregate price at which shares of Common Stock are to be delivered upon
the exercise of such rights, options or warrants when first exercisable
(or, if no price is specified and such shares are to be delivered at an
option price related to the market value of the subject Common Stock an
aggregate option price bearing the same relation to the market value of the
subject Common Stock at the time such rights, options or warrants were
granted). If, subsequently, (1) such number of shares into which such
convertible security is convertible, or which are deliverable upon the
exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options
or warrants is decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the current conversion price
under Section 4.4(c) hereof) with respect to such convertible security,
rights, options or warrants, as the case may be, shall be recalculated as
of the time of such issuance but giving effect to such changes (but any
such recalculation shall not result in the current conversion price being
higher than that which would be calculated without regard to such
issuance). On the expiration or termination of such rights, options or
warrants, or rights to convert, the conversion price hereunder shall be
readjusted (up or down as the case may be) to such current conversion price
as would have been obtained had the adjustments made with respect to the
issuance of such rights, options, warrants or convertible securities been
made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options or
warrants or upon the conversion of any such securities and at the actual
exercise or conversion prices (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
14
(iv) Number of Shares Outstanding. The number of shares of
----------------------------
Common Stock as at the time outstanding shall exclude all shares of Common
Stock then owned or held by or for the account of the Company but shall
include the aggregate number of shares of Common Stock at the time
deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 4.4(d)(3) and 4.4(e) hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges
are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants,
options or conversion privileges or the prior cancellation thereof.
e. Exclusions from the Adjustment for Additional Stock Issuances.
-------------------------------------------------------------
No adjustment of the current conversion price under Section 4.4(c) hereof shall
be made as a result of or in connection with:
(i) the issuance of the Notes, any Shares upon conversion of the
Notes or the issuance of any shares of Common Stock pursuant to Section
6(c) hereof; or
(ii) the issuance of Common Stock to officers, directors or
employees of the Company or any Subsidiary, or the grant to or exercise by
any such persons of options to purchase Common Stock, under bona fide
employee benefit plans, or pursuant to an employment agreement or
consulting agreement, which plan or agreement has been adopted or approved
by the Board of Directors of the Company and, when required by law,
approved by the holders of Common Stock (but only to the extent that the
aggregate number of shares excluded hereby and issued pursuant to such
plans and agreements shall not at any time exceed 15% of the Common Stock
outstanding).
f. Certification. Whenever the current conversion price is adjusted
-------------
as provided in this Section 4.4, the Company will promptly obtain a certificate
of the Company's President or Chief Financial Officer setting forth the current
conversion price as so adjusted, the computation of such adjustment and a brief
statement of the facts accounting for such adjustment, and will mail to the
holders of the Notes a copy of such certificate.
g. Determination of Market Price. For the purpose of any
-----------------------------
computation under this Section 4, the current "Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 10 consecutive trading days before such date (subject to the last
sentence of this Section 4.4(g)). The closing price for each day shall be the
last reported sale price regular way or, in case no
15
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Company's Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers Inc.,
Automated Quotation System. If the closing price cannot be so determined, then
the Market Price shall be determined (x) by the written agreement of the Company
and the holders of Notes representing a majority of the Shares then obtainable
from the conversion of outstanding Notes, or (y) in the event that no such
agreement is reached within 20 days after the event giving rise to the need to
determine the Market Price, by the agreement of two arbitrators, one of whom
shall be selected by the Company and the other of whom shall be selected by such
majority holders or (z) if the two arbitrators so selected fail to agree within
20 days, by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of any arbitrators to be paid by the Company). The
Company shall cooperate, and shall provide all necessary information and
assistance, to permit any determination under the preceding clauses (x), (y) or
(z). If the Company conducts an underwritten public offering of the Company's
Common Stock which is conducted in compliance with any applicable agreements,
and if such public offering either raises at least $3 million of net proceeds to
the Company and/or selling shareholders thereunder or was initiated under the
Registration Rights Agreement at the demand of a holder of Notes or of Shares,
then for purposes of Section 4.4(c) hereof the Company shall be deemed to have
issued such shares of its Common Stock sold in such underwritten public offering
for a consideration per share equal to the then current Market Price per share.
h. Other Adjustments. In case any event shall occur as to which any
-----------------
of the provisions of this Section 4.4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by the Notes in accordance with the essential intent and principles
of this Section 4.4, then, in each such case, the Company shall request its
independent public accountants to render an opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 4.4, necessary to preserve, without dilution, the conversion rights
represented by the Notes. Upon receipt of such opinion, the Company will
promptly mail copies thereof to the holders of the Notes and shall make the
adjustments described therein.
i. Meaning of "Issuance". References in this Agreement to
---------------------
"issuances" of stock by the Company include
16
issuances by the Company of previously unissued shares and issuances or other
transfers by the Company of treasury stock.
4.5 Company's Consolidation or Merger.
---------------------------------
Without limiting the covenants of the Company contained in Section 5
hereof, if the Company shall at any time consolidate with or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), or the Company shall sell, transfer or lease all or
substantially all of its assets, or the Company shall change its Shares into
property other than capital stock, then, in any such case, the holder of a Note
shall thereupon (and thereafter) be entitled to receive, upon the conversion of
such Note in whole or in part, the securities or other property to which (and
upon the same terms and with the same rights as) a holder of the number of
Shares deliverable upon conversion of such Note would have been entitled if such
conversion had occurred immediately prior to such consolidation or merger, such
sale of assets or such change, and such conversion rights shall thereafter
continue to be subject to further adjustments under this Section 4. The Company
shall take such steps in connection with such consolidation or merger, such sale
of assets or such change as may be necessary to assure such holder that the
provisions of the Notes and this Agreement shall thereafter be applicable in
relation to any securities or property thereafter deliverable upon the
conversion of the Notes, including, but not limited to, obtaining a written
obligation to supply such securities or property upon such conversion and to be
so bound by the Notes.
4.6 Notice to Holders of Notes.
--------------------------
In case at any time
a. the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 4.4(a), (c) or
(h); or
b. the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
4.4(b); or
c. there shall occur any Change of Control Event (as defined in
Section 11.2);
then, in any one or more of such cases, the Company shall give written notice to
the holders of the Notes, not less than 20 days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place,
17
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
SECTION 5 Covenants of the Company.
------------------------
The Company covenants and agrees with Purchaser as follows:
a. The Company shall use its best efforts to cause the consummation
of the transactions contemplated hereby in accordance with the terms and
conditions set forth in the Documents.
b. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the Company will furnish to the
holder(s) of the Note and the Shares: (i) concurrent with distribution to the
Company's stockholders, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) concurrent with distribution to the Company's
stockholders, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
c. The Company will use its best efforts to cause the Common Stock
to continue to be listed on the American Stock Exchange or to become listed on
the New York Stock Exchange or designated for quotation as a national market
system security on the National Association of Securities Dealers, Inc.
Automated Quotation System.
d. Until the earlier of (i) December 31, 1996, (ii) prepayment or
repayment of all principal and interest due under the Note, or (iii) the date on
which, following a conversion of the Note in accordance with Section 4 hereof,
Purchaser ceases
18
to be the record holder of 50% or more of the Shares issued upon such
conversion:
(i) Upon the written request of Purchaser delivered to the
Company, the Company will take the actions necessary to appoint to the
Board of Directors of the Company a person designated by Purchaser;
(ii) The Company will grant Purchaser, on an ongoing basis, (a)
reasonable access to its books and records, (b) the right to meet with and
call meetings of Company management, (c) the right to attend, or have its
advisors or representatives attend, and address meetings of the Board of
Directors of the Company; the Company shall effect promptly the changes in
executive officer positions described in the "Management" section of the
Memorandum;
(iii) The Company will promptly advise Purchaser of any event
that represents a material adverse change in its business, properties or
financial condition and of any suit or proceeding commenced or threatened
against the Company, which, if adversely determined, could result in such a
material adverse change; and the Company will promptly advise Purchaser of
the outcome of or any material developments in currently pending
litigation;
(iv) The Company will advise Purchaser on a weekly basis of all
cash payments of $50,000 or more made by the Company or any Subsidiary to
any person, group or entity during that week and any payments made to any
person, group or entity over the previous four-week period that total
$50,000 or more;
(v) All proceeds to the Company from any future debt or equity
financings by the Company, up to a $5 million aggregate maximum, will be
deposited by the Company in an escrow account with such escrow agent and
pursuant to such escrow instructions as shall be mutually agreed by the
Company and Purchaser at the time of such financings. The proceeds from
such financings will be used solely for payment of principal and interest
due under the Company's 12.5% First Mortgage Notes due 2000 (the "First
Mortgage Notes") and under the Company's 20% Mortgage Notes due 1996 (the
"Mortgage Notes") and for payment of amounts, adjustments and assessments
due under the IRS Assessment (as defined in the Memorandum).
e. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the holder(s) of the Note and/or the
Shares shall have the right to purchase such holder's Proportionate Percentage
of any future
19
Eligible Offering. For the purposes of this Section 5(e), "Proportionate
Percentage" means, with respect to such holder, as of any date, the result
(expressed as a percentage) obtained by dividing (i) the number of Shares owned
by such holder as of such date plus the number of Shares into which such
holder's Note as of such date would be convertible; by (ii) the total number of
shares of Common Stock outstanding as of such date. "Eligible Offering" means
an offer by the Company to sell for cash, shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, other than an offering of securities by the Company (i)
to employees, officers and/or directors in connection with or pursuant to any
bona fide employee benefit or compensation plan or pursuant to an employment or
consulting agreement, which plan or agreement has been adopted or approved by
the Board of Directors of the Company; or (ii) in connection with any Change of
Control Event (as defined in Section 11.2). The Company shall, before issuing
any securities pursuant to an Eligible Offering, give written notice thereof to
the holders of the Note and/or the Shares. Such notice shall specify the
security or securities the Company proposes to issue and the consideration that
the Company intends to receive therefor. For a period of 20 days following the
date of such notice, each holder shall be entitled, by written notice to the
Company, to elect to purchase all or any part of the holder's Proportionate
Percentage of the securities being sold in the Eligible Offering. In the event
that a holder does not make the election pursuant to this Section 5(e) to
purchase its Proportionate Percentage of securities included in an Eligible
Offering within such 20 day period, then the Company may issue such securities
to the proposed purchasers in the Eligible Offering, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to such purchasers than, that set forth in the Company's notice and
only within 90 days after the end of such 20 day period. In the event that any
such offer is accepted by the holder, the Company shall sell to the holder and
the holder shall purchase from the Company, for the consideration and on the
terms set forth in the notice described herein, the securities that the holder
shall have elected to purchase.
f. The net proceeds received by the Company from the sale of the
Notes will not be used by the Company to fund expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, or to fund any expenditures
with respect to any lease to which the Company or a Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or a Subsidiary, and
which either is required to be capitalized in accordance with generally accepted
accounting principles, or, even if not so required to be
20
capitalized, shall have (or have had), at the time first entered into, an
initial term of greater than three years (including leases of shorter duration
which are or were extendible to a total term greater than three years at the
option of the lessor.
g. For so long as any of the Notes are outstanding, the Company will
maintain an office where Notes may be presented for payment, exchange, or
conversion as provided in this Agreement. Such office initially shall be the
office of the Company identified in Section 13 hereof, which place may from time
to time be changed by notice to the holders of all Notes then outstanding.
SECTION 6 Defaults.
--------
a. Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment of (A) any part of the
principal of or premium, if any, on any of the Notes, when the same shall
become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise or (B) the interest on any of
the Notes, when the same shall become due and payable; and such default in
the payment of principal, premium or interest shall have continued for 15
days; or
(ii) an "Event of Default" as such term is defined under the
First Mortgage Notes, or the Mortgage Notes or a payment default under the
IRS Assessment and such default continues unremedied for 15 days; or
(iii) the Company defaults in the performance of any of the
covenants contained in Section 5 hereof or of any covenant contained in the
Pledge Agreement or Registration Rights Agreement and such default
continues unremedied for 30 days; or
(iv) any representation or warranty by the Company in the
Documents or in any certificate delivered by the Company pursuant thereto
proves to have been incorrect in any material respect when made; or
(v) a final judgment or order (other than with respect to the
WARN Act Litigation described in the Memorandum) which, either alone or
together with other final judgments or orders against the Company and its
Subsidiaries, exceeds an aggregate of $1 million is rendered by a court of
competent jurisdiction against the Company or any Subsidiary and such
judgment or order shall have
21
continued undischarged or unstayed for 30 days after entry thereof; or
(viii) the Company or any Subsidiary make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or any Subsidiary or
for substantially all of its assets and, if appointed without its consent,
such appointment is not discharged or stayed within 30 days; or proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or stayed within 30
days; or any writ of attachment or execution or any similar process is
issued or levied against the Company or any Subsidiary or any significant
part of its property and is not released, stayed, bonded or vacated within
30 days after its issue or levy; or the Company or any Subsidiary takes
corporate action in furtherance of any of the foregoing.
b. If an Event of Default occurs, then and in each such event
Purchaser may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at its option, by written notice to the Company,
declare the Note to be due and payable. Upon any such declaration, the Note
shall forthwith immediately mature and become due and payable, together with
interest accrued thereon and an "Additional Amount" (as defined below), all
without presentment, demand, protest or notice, all of which are hereby waived.
"Additional Amount" shall mean, with respect to any Note, as of the date of
repayment of such Note after such acceleration, an amount equal to the
Redemption Premium that would be payable if the Company had elected to prepay
such Note pursuant to Section 11 hereof at the time of such repayment. However,
if, at any time after the principal of the Note shall so become due and payable
and prior to the date of maturity stated in the Note, all arrears of principal
and interest on the Note (with interest at the rate specified in the Note on any
overdue principal and any overdue premium and, to the extent legally
enforceable, on any overdue interest) shall be paid to the holders of the Note
by or for the account of the Company, then Purchaser, by written notice or
notices to the Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair any right or remedy resulting
therefrom.
c. If an Event of Default occurs, then and in each such event and in
addition to the foregoing rights, Purchaser shall have the right to:
22
(i) purchase from the Company shares of the Company's authorized
but unissued Common Stock at a per share price equal to 75% of the Market
Price on the date of the Event of Default; provided that, the number of
shares of Common Stock that Purchaser shall be entitled to purchase
pursuant to this Section 6(c) shall not exceed the quotient obtained by
dividing $3 million by such per share purchase price; and
(ii) cause the Company to take such action as may be required to
cause one additional director designated by Purchaser to be appointed to
the Board of Directors of the Company.
Upon the occurrence of an Event of Default, Purchaser may elect to purchase the
shares of Common Stock described in this Section 6(c) by delivering written
notice to the Company of such election and a description of the cash payment
terms and the timetable for closing the issue and purchase of such shares. The
cash payment terms and the closing date for such purchase shall be within the
sole discretion of Purchaser which terms and date shall be reasonable. The
Company shall effect the issuance and sale of such shares promptly in accordance
with the schedule identified by Purchaser in such notice.
d. In case any one or more Events of Default shall occur and be
continuing,
(i) Purchaser may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in the Documents or for
an injunction against a violation of any of the terms thereof, or in aid of
the exercise of any power granted thereby or by law or for any other remedy
(including, without limitation, damages), and
(ii) the Company will pay to Purchaser in addition to any
interest or premium otherwise required, such further amount as shall be
sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys' fees and
expenses.
e. Purchaser shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of the Documents specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of the Documents
will cause irreparable injury to Purchaser and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting Purchaser from pursuing any other
23
remedies available to Purchaser for such breach or threatened breach, including,
without limitation, the recovery of damages from the Company.
SECTION 7 Conditions to the Obligations of Purchaser.
------------------------------------------
The obligations of Purchaser to purchase and pay for the Note on the
Closing Date shall be subject to the following conditions:
a. The Company's independent public accountants, KPMG Peat Marwick,
LLP, shall have completed the audit of the Company's financial statements for
the year ended December 31, 1994, copies of such audited financial statements
shall have been delivered to Purchaser and such audit shall have revealed no
material changes in the financial condition of the Company from the financial
condition presented in the unaudited financial statements for the same period
included in the Memorandum;
b. There shall not have been instituted by or against the Company or
any Subsidiary proceedings under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, nor shall the Company or any Subsidiary
have made a general assignment for the benefit of creditors, admitted in writing
its inability to pay its debts as they mature, appointed or had appointed for it
a receiver or trustee, or had any writ of attachment or execution or any similar
process issued or levied against it; no such matters shall be threatened or
pending nor shall the Company or any Subsidiary have taken any corporate action
in furtherance of any of the foregoing;
c. There shall be no investigation, action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency pending or threatened against the Company or any officer, director or key
employee of the Company other than as disclosed in the Memorandum;
d. The Company will hold in good standing all licenses, permits and
grants of authority from the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the National Indian Gaming Commission (collectively, the "Gaming
Authorities") and any other federal, state or local agency or authority
necessary for the operation of its business and properties; except as disclosed
in the Memorandum, no revocations or terminations of such licenses, permits,
authority or approvals shall be pending or threatened nor shall the Company be
aware of any facts or circumstances that would give rise to any such revocation
or termination;
e. All approvals, consents, permits and authorizations of third
parties, local, state and federal
24
regulatory agencies and authorities and the Company required to carry out the
transactions contemplated herein shall have been received;
f. Since the date of the Memorandum (a) there shall not have been
any change in the capital stock of the Company other than pursuant to the
exercise of outstanding options and warrants disclosed in the Memorandum or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company; (b) no material verbal or written agreement or other
transaction shall have been entered into by the Company that is not in the
ordinary course of business that could result in a material reduction in the
future earnings of the Company; (c) no loss or damage (whether or not insured)
to the property of the Company shall have been sustained that materially and
adversely affects the business, financial condition, results of operations or
prospects of the Company; (d) except as described in the Memorandum, no legal or
governmental action, suit or proceeding affecting the Company that is material
to the Company or that affects or may affect the transactions contemplated
herein shall have been instituted or threatened; and (e) there shall not have
been any material change in the business, financial condition, management,
results of operations or prospects of the Company that makes it impractical or
inadvisable in the judgment of Purchaser to proceed with the purchase of the
Note.
g. The lease financing transaction with T&W Leasing relating to the
7 Cedars casino in the appropriate amount of $690,000 shall have closed.
h. The Company shall have made public announcement of the proposed
management changes described in the "Management" section of the Memorandum and
shall cause those changes to occur in the manner and on the dates described in
the Memorandum.
i. Purchaser shall have received a certificate of the Company
executed by the Chairman of the Board or the President of the Company, dated the
Closing Date to the effect that:
(i) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of this
Agreement and the representations and warranties set forth in the Documents
are true and correct as of the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to the Closing Date;
(ii) Each of the respective signers of the certificate has
carefully examined the Memorandum; in his
25
opinion and to the best of his knowledge, the Memorandum does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and
(iii) Since the date as of which information is given in the
Memorandum, and except as disclosed in or contemplated thereby, there has
not been any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the Company
or any Subsidiary; and except as described in the Memorandum, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any Subsidiary that is material to the Company, whether or
not arising from transactions in the ordinary course of business, or that
may adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any
Subsidiary has entered into any verbal or written agreement or other
transaction that is not in the ordinary course of business or that can
reasonably be expected to result in a material reduction in the future
earnings of the Company or any Subsidiary or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
j. Purchaser shall have received opinions dated the Closing Date and
addressed to Purchaser from Pillsbury Madison & Sutro, and Lionel Sawyer &
Collins, counsel for the Company, in form and substance satisfactory to
Purchaser.
k. The Pledge Agreement and the Registration Rights Agreement in the
forms attached hereto as Exhibits B and C, respectively, shall have been
executed and delivered by the parties thereto.
l. Purchase Agreements for an aggregate of $1,675,000 principal
amount of Notes (inclusive of the principal amount of the Note being purchased
by Purchaser hereunder) shall have been executed and delivered by the parties
thereto and such purchases and sales shall have closed prior to or
simultaneously with the transactions hereunder.
26
SECTION 8 Conditions to Obligations of the Company.
----------------------------------------
The obligations of the Company to issue the Note on the Closing Date
shall be subject to the following conditions:
a. The Company shall have received a certificate of Purchaser
executed by its General Partner and dated the Closing Date to the effect that
the representations and warranties of Purchaser set forth in Section 3 of this
Agreement are true and correct as of the date of this Agreement and as of the
Closing Date and Purchaser has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to the
Closing Date; and
b. All approvals, consents, permits and authorizations of third
parties, local, state and federal regulatory agencies and authorities relating
to Purchaser and required to carry out the transactions contemplated herein
shall have been received.
SECTION 9 Subordination.
-------------
9.1 Agreement to Be Bound. The Note shall, to the extent and in the
---------------------
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance thereof agrees that the Note shall be subject to the provisions
contained in this Section 9. The subordination provisions of this Section 9
shall be for the benefit of the holders of the Senior Indebtedness and may be
enforced directly by such holders.
9.2 Priority of Senior Indebtedness.
-------------------------------
a. No payment on account of principal of, premium, if any, or
interest on the Note, shall be made, and no assets shall be applied to the
purchase or other acquisition or retirement of the Note (other than a conversion
pursuant to Section 4 hereof), for a period (the "Payment Blockage Period") of
(i) 180 days after both of the following have occurred (A) the principal amount
of any Senior Indebtedness in excess of $100,000 in aggregate principal amount
shall have been accelerated upon an event of default thereunder and (B) written
notice of such acceleration shall have been given by the Company or by holders
of Senior Indebtedness to the holders of the Note, stating that this Section
9.2(a) is therefore applicable; provided, that any Payment Blockage Period
arising as a result of this Section 9.2 shall terminate immediately upon the
payment in full of such accelerated Senior Indebtedness or the rescission or
annulment of such acceleration or if such Senior Indebtedness is no longer
27
outstanding; provided, further, that under no circumstances shall there be more
than one Payment Blockage Period in any 365 consecutive day period. As used in
this Section 9.2(a), an "event of default" is an event of default (x) as
defined in any Senior Indebtedness or in the instrument under which the same is
outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
b. In the event that any money, property or securities is received
by the holder of a Note in violation of Section 9.2(a) or the terms or
conditions of any instrument governing the Senior Indebtedness, the holder
thereof shall hold the same in trust for the benefit of the holders of Senior
Indebtedness, and shall deliver the same in kind to the Company.
9.3 Liquidation; Dissolution; Bankruptcy.
------------------------------------
a. Upon any payment or distribution of assets of the Company
(whether in cash, property or securities) to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in any bankruptcy, insolvency, receivership
or similar proceeding regarding the Company, all amounts due or to become due
upon all Senior Indebtedness then outstanding shall first be paid in full before
the holders of the Note shall be entitled to receive any assets so paid or
distributed in respect thereof (but without restricting the rights of holders
under Section 4 hereof); provided, that with respect to the foregoing, the
holders of the Note may receive (and shall be entitled to retain) securities
that are subordinate to (at least to the extent that the Note is subordinate to
Senior Indebtedness pursuant to the terms hereof) the payment of all Senior
Indebtedness then outstanding. Upon any such dissolution or winding-up or
liquidation, reorganization or other proceeding, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the Note would be entitled, except for these
provisions, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness which was then
outstanding (pro rata to each of such holders on the basis of the respective
amounts (to the extent known) of Senior Indebtedness then held by such holders,
to the extent necessary to pay all such Senior Indebtedness which was then
outstanding in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Note (but subject to the proviso to
the preceding sentence).
28
b. Each holder of a Note by its acceptance hereof (x) irrevocably
authorizes and empowers (but without imposing any obligation on) each holder of
any Senior Indebtedness at the time outstanding, under (and only under) the
circumstances set forth in Section 9.3(a), if the holder of a Note shall fail to
do so prior to 20 days before the expiration of the time to do so, to file and
prove all claims of such holder for its ratable share of payments or
distributions in respect of the Note which is required to be paid or delivered
to the holders of Senior Indebtedness as provided in Section 9.3(a), in the name
of each such holder of the Note or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the enforcement of
the provisions of Section 9.3(a), and the holder of a Note may amend any such
claims regarding the Note before or after such 20th day (but not in a manner
inconsistent with the rights of holders of Senior Indebtedness under this
Section 9 other than this Section 9.3(b)) whether such claims are filed by such
holder of a Note or are filed, pursuant to this Section 9.3(b), by any holder of
Senior Indebtedness; and (y) under (and only under) the circumstances set forth
in Section 9.3(a), agrees to execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming the authorization
hereinabove set forth, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and to take all such other action,
as may be reasonably requested by such holder in order to enable such holder to
enforce all claims upon or in respect of such Note holder's ratable share of
payments or distributions in respect of the Note. Nothing in this Section
9.3(b), or any other provision hereof, shall give or be construed to give the
holder of any Senior Indebtedness any right to vote any Note, or any related
claim, or any portion of such Note or such claim, or to exercise any approval
rights, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of trustees or otherwise.
Holders of Senior Indebtedness shall not create any liability to any person on
the part of any holders of Notes in connection with the exercise of any rights
granted under this Section 9.3(b).
9.4 No Prejudice or Impairment; Reinstatement.
-----------------------------------------
a. No right of any present or future holders of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired (i) by any act or failure to act on the part
of the Company, including without limitation any merger or consolidation of the
Company into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company to any other person, (ii) by any act (in good
faith) or failure (in good faith) to act by any such holder of Senior
Indebtedness, including, without limitation, the failure by such holder to
perfect a security
29
interest in any security for the payment of Senior Indebtedness or (iii) by any
noncompliance by the Company with the terms and provisions of the Documents
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the subordination hereunder, at any time or from time to time
and in their absolute discretion, change the manner, place, time or other terms
of payment of, or renew or alter, any Senior Indebtedness, or in each case in
accordance with the terms of the applicable agreement or instrument governing
the Senior Indebtedness modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default thereunder
and release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Note. The absence of any notice to,
or knowledge by, any holder of a Note of the existence or occurrence of any of
the matters or events set forth in this paragraph (a) shall not impair or
otherwise affect the rights of the holders of Senior Indebtedness against
holders of the Note under the subordination provisions of this Section 9.
b. The provisions of this Section 9 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 9.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
9.5 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the holders of the Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, premium, if
any, and interest on (and any other amounts due with respect to) the Note and
all other amounts due under the Documents shall be paid in full; provided, that
any holder of a Note shall have the right, in its sole discretion, to waive such
subrogation rights without affecting such holder's rights with respect to a Note
held by such holder or under the Documents (which rights shall continue in full
force and effect). For the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Note would be entitled except for the
provisions of this Section 9 shall, as among the Company, its creditors
30
other than the holders of Senior Indebtedness, and the holders of the Note, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions in this Section 9 are, and are
intended, solely for the purpose of defining the relative rights of the holders
of the Note, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
9.6 Obligations Unaffected. Nothing contained in this Section 9 is
----------------------
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Note, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Note the principal of, premium, if any, and interest on the Note, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the holders of the Note and creditors of the
Company other than the holders of Senior Indebtedness. Nothing herein shall
prevent a holder of the Note from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Note (or any part
thereof) in accordance with the Note and this Agreement.
9.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
---------------------------------
shall mean the principal of, premium, if any, and interest on indebtedness of
the Company for borrowed money whether such indebtedness is currently
outstanding or hereafter incurred, and any renewals, modifications, refundings
or extensions of any such indebtedness, unless under the provisions of the
instrument creating or evidencing any such indebtedness, or pursuant to which
the same is outstanding, it is provided that such indebtedness is subordinate in
right of payment to any other indebtedness of the Company (including, without
limitation, the Notes); provided, that Senior Indebtedness shall not include (i)
any obligations under any provision of any agreement or instrument regarding
such Senior Indebtedness in respect of (x) fees or reimbursement of expenses or
(y) penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any indebtedness owing to any
Subsidiary or to any other affiliate (of the Company or of any Subsidiary),
(iii) any obligation, to any person, of any affiliate of the Company or of any
Subsidiary (other than an obligation of the Company or of a Subsidiary), which
obligation is assumed or guaranteed by the Company or any Subsidiary.
SECTION 10 Exchange of Notes; Accrued Interest; Cancellation of Surrendered
----------------------------------------------------------------
Notes; Replacement.
------------------
31
a. Subject to Section 3 hereof, at any time at the request of any
holder of a Note delivered to the Company at its office identified in Section 13
hereof, the Company at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new Note, in such denomination or denominations as
such holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Note surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note so surrendered) and payable to such person or persons or order as may be
designated by such holder.
b. In the event that any Note is surrendered to the Company upon the
conversion of all or a portion of any Note, or upon a prepayment under Section
11 hereof, the Company shall pay all accrued and unpaid interest on such Note or
such portion thereof and thereupon interest shall cease to accrue upon that
portion of the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or obligation to
make, any prepayment on such portion of the principal amount pursuant to Section
11 hereof shall terminate all upon the date of such conversion or prepayment and
upon presentation and surrender of such Note to the Company.
c. Upon the conversion in whole or in part of any Note or upon any
prepayment under Section 11 hereof, if only a portion of the principal amount of
a Note is used in such conversion or is prepaid, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note in principal amount equal to the unused or unpaid portion of such
Note.
d. Any Note or portion thereof that has been converted, or that has
been prepaid under Section 11 hereof, shall be cancelled by the Company and no
Note shall be issued in lieu of the principal amount so converted or prepaid.
e. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
32
SECTION 11 Prepayment.
----------
11.1 Optional Prepayment.
-------------------
a. Subject to the other provisions of this Section 11, at any time
during the period beginning on January 1, 1996 and ending on December 30, 1996
the Company may prepay all or part of the principal amount of outstanding Notes
at a price equal to (1) the aggregate principal amount of the Notes to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Notes to be prepaid, plus (3) a premium (the "Redemption Premium") equal to 7-
1/2% of the principal amount being prepaid. The right of the Company to prepay
Notes pursuant to this Section 11.1(a) shall be conditioned upon its giving
notice of prepayment, signed by its President and Treasurer, to the holders of
Notes not less than 20 days and not more than 60 days prior to the date upon
which the prepayment is to be made specifying (i) the holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment, (iv) the accrued and unpaid interest (to but not including the
date upon which the prepayment is to be made) and (v) the Redemption Premium
with respect to such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes so specified in such notice, all accrued
and unpaid interest thereon and the Redemption Premium on such aggregate
principal amount shall all become due and payable on the specified prepayment
date.
b. Upon the occurrence of any Change of Control Event (as defined in
Section 11.2, each holder of a Note shall have the right, at such holder's
option, to require the Company to prepay such holder's Note in whole or in part
at a price equal to: (1) the aggregate principal amount of the Note to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Note to be prepaid, plus (3) an amount equal to 7-1/2% of the principal amount
being prepaid. The option under this Section 11.1(b) shall be exercised by
written notice to the Company given at any time from and after the 30th day
before such Change of Control Event through the 90th day after such Change of
Control Event (or, if later, through the 90th day after such holder receives
written notice from the Company of such Change of Control Event). Promptly (and
in any event within 10 days) after the occurrence of any Change of Control
Event, and not more than 30 days before such Change of Control Event, the
Company shall give written notice to each holder of a Note notifying each such
holder of the occurrence of such Change of Control Event and informing each such
holder of its right to exercise an option to require a prepayment under this
Section 11.1(b).
c. If any prepayment under this Section 11.1 does not repay in full
the aggregate principal amount of all Notes then
33
outstanding, then the aggregate amount of such prepayment of the principal
amount of Notes shall be allocated among all Notes at the time outstanding, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Notes.
11.2 Change of Control Event. For purposes of this Section 11, "Change of
-----------------------
Control Event" means the occurrence of any of the following events:
a. any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934 ("1934 Act") together with any affiliates
and associates of any such person or member of such group (within the meaning of
Rule 12b-2 under the 1934 Act) ("Person") shall at any time beneficially own
(within the meaning of Rule 13d-3 under the 1934 Act) shares of Common Stock of
the Company which represents in excess of either (A) 40% of the total votes
entitled to be cast by all outstanding shares of the Common Stock of the Company
or (B) 40% of all outstanding shares of the Common Stock of the Company;
provided, that a Change of Control Event shall not be deemed to have occurred
under this clause (a) (without limiting the application of clause (b), (c), (d)
or (e) below), solely by reason of such beneficial ownership of over 40% under
the preceding clause (A) or (B) being held by one or more persons who both (x)
are officers and directors of the Company on the Closing Date and (y)
beneficially owned on the Closing Date at least one percent of the shares of the
Company's Common Stock outstanding on the Closing Date (the foregoing being
described as an "acquisition of control"); or
b. the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up; or
c. the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if the effect of
such action would be either (i) to reduce substantially or to eliminate any
public market for the shares of the Company's Common Stock or (ii) to remove the
Company from registration with the Commission under the 1934 Act or (iii) to
require the Company to make a filing under Section 13(e) of the 1934 Act or (iv)
to cause a delisting of the Company's Common Stock from the American Stock
Exchange or such other national securities exchange or quotations service on
which the Common Stock is listed or quoted; or
d. the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries
in a single transaction or series of related transactions; or
34
e. The Company acquires control of any Person and such acquisition,
in the determination of the holder of the Note, results in a material diminution
in the value of the Company's Common Stock.
f. During any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of such period constitute the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who 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 the Company then in office.
SECTION 12 Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, until December 31, 1996.
SECTION 13 Notices; Publicity.
------------------
All communications hereunder shall be in writing and, (i) if sent to
Purchaser, shall be mailed, delivered or telegraphed and confirmed to you at
1290 Avenue of the Americas, New York, New York 10104, Attention: Harry C.
Hagerty, III, with a copy to Stoel Rives, 900 SW Fifth Avenue, Portland, Oregon
97204, Attention: John J. Halle, Esq.; and (ii) if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at Elsinore
Corporation, 202 East Fremont Street, Las Vegas, Nevada 89101, Attention:
Ernest L. East, with a copy to Pillsbury Madison & Sutro, 235 Montgomery Street,
San Francisco, California 94104, Attention: Gregg F. Vignos, Esq. The Company
or Purchaser may change the address for receipt of communications hereunder by
giving notice to the others. No party will issue or approve any news release,
public filing or other announcement concerning the transactions described herein
without the prior approval of the other parties as to the content of the
announcement and its release, which approval will not be unreasonably withheld.
35
SECTION 14 Payment of Expenses.
-------------------
a. In addition to costs incurred by the Company in connection with
the transactions contemplated hereby, the Company will pay all reasonable out-
of-pocket expenses of Purchaser (including fees of counsel) in connection with
these transactions. The Company shall reimburse Purchaser for such expenses
promptly upon receipt from Purchaser of statements detailing such expenses.
b. The Company shall pay all reasonable out-of-pocket expenses of
Purchaser (including fees of counsel) in connection with any actions Purchaser
must reasonably take in connection with any comment, application, approval or
licensure process or procedure required by the Gaming Authorities as a result of
or in connection with these transactions ("Regulatory Expenses"); provided,
however, the Company will not be required to reimburse Purchaser for Regulatory
Expenses if such reimbursement would violate applicable state law or the rules
and regulations of the Gaming Authorities.
SECTION 15 Successors.
----------
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the officers and directors and controlling
persons thereof, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder.
SECTION 16 Partial Unenforceability.
------------------------
The invalidity or unenforceability of any section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph or provision hereof. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 17 Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal laws of (and not the laws pertaining to conflicts of laws) of the
State of New York.
36
SECTION 18 General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in counterparts, each one of which shall
be an original, and all of which shall constitute one and the same document.
SECTION 19 Section Headings; Amendment.
---------------------------
The section headings in this Agreement are for the convenience of the
parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
G & O PARTNERS, L.P. ELSINORE CORPORATION
By /s/ Paul Orwicz By /s/ Thomas E. Martin
----------------------- -----------------------------
Paul Orwicz Name Thomas E. Martin
Title President
37
Schedule of Exhibits and Annex
------------------------------
Exhibit A Promissory Note
Exhibit B Stock Pledge Agreement
Exhibit C Registration Rights Agreement
Annex I Designation of Note Denominations
38
Dates Referenced Herein and Documents Incorporated by Reference
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