<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the Quarterly Period Ended JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-22521
--------
WINNERS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1103135
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1461 GLENNEYRE STREET, SUITE F, LAGUNA BEACH, CALIFORNIA 92651
--------------------------------------------------------------
(Address of principal executive offices)
(714) 376-3010
--------------
Registrant's telephone number, including area code
n/a
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been the subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.00001 PAR VALUE
-------------------------------
Class
18,628,397 SHARES
-----------------
Outstanding at August 14, 1996
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed and Consolidated Balance Sheets
at December 31, 1995 and June 30, 1996 . . . . . . . . . . . . . 1
Condensed and Consolidated Statement of Operations for the
Three Months and Six Months Ended June 30, 1996 and 1995 . . . . 3
Condensed and Consolidated Statement of Cash flows
for the Six Months Ended June 30, 1996 and 1995 . . . . . . . . 4
Notes to Condensed and Consolidated Financial Statements . . . . . . 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 11
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 13
Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Liquidity and Sources of Capital . . . . . . . . . . . . . . . . . . 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 17
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . . . . . 18
Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . . . . . 18
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . 18
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . 18
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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CONDENSED AND CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 893,000 $ 807,000
Restricted cash 411,000 426,000
Notes receivable from related parties,
net of allowance for doubtful accounts
of $290,000 62,000 62,000
Accounts receivable, net of allowance for
doubtful accounts of $112,000 and
$70,000 for 1996 and 1995, respectively 224,000 174,000
Deferred financing costs 268,000 388,000
Other current assets 346,000 115,000
----------- -----------
Total current assets 2,204,000 1,972,000
----------- -----------
Property:
Land 371,000 371,000
Buildings 15,716,000 15,716,000
Equipment and automobiles 2,292,000 2,258,000
Furniture and fixtures 2,046,000 2,021,000
Construction in progress 989,000 519,000
----------- -----------
21,414,000 20,885,000
Less accumulated depreciation (3,525,000) (2,785,000)
----------- -----------
17,889,000 18,100,000
Net Assets of Discontinued
Oil and gas activities 2,616,000 2,616,000
Other Assets:
Excess of cost of investments
over assets acquired, net of accumulated
amortization of $896,000 and
$770,000 for 1996 and 1995, respectively 2,878,000 3,004,000
Deposits and other 27,000 55,000
----------- -----------
2,905,000 3,059,000
----------- -----------
TOTAL ASSETS $25,614,000 $25,747,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
1
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CONDENSED AND CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,606,000 $ 3,474,000
Accrued liabilities 2,183,000 2,096,000
Accrued leases 610,000 161,000
Short term notes payable 718,000 0
Current portion of long term debt 3,727,000 2,536,000
Redeemable common stock 772,000 991,000
------------ ------------
Total current liabilities 10,616,000 9,258,000
Accrued Liabilities 343,000 490,000
Deferred Income Taxes 1,463,000 1,529,000
Long Term Debt, net of current 6,363,000 8,071,000
Redeemable Common Stock, net of current 246,000 415,000
------------ ------------
Total Liabilities 19,031,000 19,763,000
------------ ------------
Shareholders' Equity:
Common stock 2,000 2,000
Paid-in-capital 32,760,000 32,115,000
Receivable from exercise of stock options 0 (69,000)
Accumulated deficit (26,179,000) (26,064,000)
------------ ------------
Total shareholders' equity 6,583,000 5,984,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,614,000 $ 25,747,000
============ ============
</TABLE>
See accompanying notes to financial statements.
2
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CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Video lottery terminals $ 6,142,000 $ 3,892,000 $11,900,000 $ 6,843,000
Pari-mutuel commissions 1,157,000 1,151,000 2,165,000 2,048,000
Food, beverage and lodging 921,000 873,000 1,573,000 1,391,000
Other 303,000 305,000 463,000 542,000
----------- ----------- ----------- -----------
Total Revenue $ 8,523,000 $ 6,221,000 $16,101,000 $10,824,000
----------- ----------- ----------- -----------
Costs and Expenses:
Cost video lottery terminals $ 4,083,000 $ 2,710,000 $ 8,028,000 $ 4,892,000
Cost of pari-mutuel commissions 1,361,000 1,393,000 2,497,000 2,644,000
Cost of food, beverage and lodging 848,000 871,000 1,529,000 1,616,000
Cost of other revenues 276,000 304,000 492,000 522,000
General and administrative expenses 883,000 1,380,000 2,078,000 2,481,000
Depreciation and amortization 407,000 317,000 866,000 620,000
----------- ----------- ----------- -----------
Total Costs and Expenses $ 7,858,000 $ 6,975,000 $15,490,000 $12,775,000
----------- ----------- ----------- -----------
Operating Income (Loss) 665,000 (754,000) 611,000 (1,951,000)
Interest Expense (593,000) (344,000) (792,000) (760,000)
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 72,000 (1,098,000) (181,000) (2,711,000)
Benefit for Income Taxes 33,000 32,000 66,000 65,000
----------- ----------- ----------- -----------
Net Income (Loss) $ 105,000 $(1,066,000) $ (115,000) $(2,646,000)
=========== =========== =========== ===========
Net Income (Loss) Per Share $ .01 $ (.07) $ (.01) $ (.17)
=========== =========== =========== ===========
Weighted Average Number
of Shares Outstanding 18,274,708 15,260,481 18,217,246 16,033,815
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Loss $ (115,000) $(2,646,000)
Adjustments to reconcile net losses to
net cash used in operating activities:
Depreciation and amortization 866,000 613,000
Common stock issued and
stock options granted for services rendered 292,000 0
Common stock issued for interest expense 230,000 315,000
Provision for doubtful accounts 40,000 0
Provision for settlement agreements (208,000) 18,000
Deferred income taxes (66,000) (65,000)
Net Change in Assets and Liabilities:
Prepaid expenses and other (80,000) 450,000
Restricted cash 15,000 286,000
Net assets of discontinued operations 0 (26,000)
Accounts payable and accrued expenses (347,000) 973,000
----------- -----------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 627,000 (82,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits and other 28,000 2,000
Capital expenditures (593,000) (3,573,000)
----------- -----------
CASH USED IN INVESTING ACTIVITIES $ (565,000) $(3,571,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments (1,076,000) 0
Proceeds from issuance of notes payable 1,100,000 3,652,000
Proceeds from issuance of common stock 0 27,000
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES $ 24,000 $ 3,679,000
----------- -----------
NET INCREASE (DECREASE) IN CASH 86,000 26,000
Cash, Beginning of Period 807,000 1,057,000
----------- -----------
Cash, End of Period $ 893,000 $ 1,083,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed, consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of Management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included herein. Operating results
for the six months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and notes thereto
included in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995.
NOTE 2 - CONTINGENCIES
In 1995, the Registrant recorded a provision for loss in the amount of $308,000
for a legal settlement based on management's estimates. In June 1996, the
related lawsuit was dismissed upon payment of a $100,000 settlement. The
remaining $208,000 reserve was reversed in June, 1996, and is reflected as a
reduction in general and administrative expenses in the Condensed and
Consolidated Statements of Operations.
The Registrant has developed and is implementing a corrective action plan to
stop leakage from underground storage tanks at its Mountaineer Race Track and
Resort facility in Chester, West Virginia. In 1995, Management estimated the
cost of the plan to be $140,000, consisting of $60,000 in monitoring and
operational costs to be expended in 1995 and 1996, and $80,000 in capital
expenditures to be incurred in 1996. The Registrant recorded a provision of
$140,000 in 1995 for these projected expenses. The Registrant expended $45,000
relating to this contingency in the second half of 1995 and $59,000 in the
first half of 1996.
NOTE 3 - INCOME TAXES
The benefit for income taxes recorded in the accompanying statement of
operations for the six month periods ended June 30, 1996 and 1995 results from
non-tax deductible depreciation expense attributable to the purchase method of
accounting for the investment. At June 30, 1996, the Registrant has recorded a
non-current valuation allowance of approximately $8.7 million against its
primary deferred tax assets (net operating loss carryforwards for federal and
state income tax purposes). At June 30, 1996, the Registrant has approximately
$23 million in net operating loss carryforwards, however, as a result of a
change of ownership of the Registrant during 1992 due to issuances of the
Registrant's common stock, the use of such net operating loss carryforwards
earned during 1992 through 1995 is subject to certain limitations.
5
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NOTE 4 - DISCONTINUED OIL AND GAS ACTIVITIES
BALANCE SHEET ITEMS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---- ----
<S> <C> <C>
ASSETS
Term note receivable $ 192,000 $ 236,000
Production note receivable 150,000 150,000
Oil and gas activities:
Working interest in proved oil and gas properties 2,582,000 2,582,000
---------- ----------
2,924,000 2,968,000
---------- ----------
LIABILITIES
Accounts payable and accrued liabilities (293,000) (252,000)
Payables to related parties (15,000) (100,000)
---------- ----------
NET ASSETS $2,616,000 $2,616,000
========== ==========
</TABLE>
The Registrant's remaining oil and gas assets are located in Michigan,
consisting of a 25% working interest in a 64% net revenue interest in proved
reserves. Thirty-four wells are located on the property which have been
inoperative since the Registrant acquired the property in December 1992. The
well sites require certain remedial activities, which include abandonment
costs. Management has estimated the cost of such remedial activities to range
from $1,200,000 to $2,000,000 should its current plan of operation with
Fleur-David not continue. Management expects to continue with its initial
rework and eventual waterflood project with Fleur-David to minimize the
Registrant's costs associated with remediation and abandonment of the wells.
The Registrant's estimated cost of rework and waterflood, as a 25% joint
venture interest holder, is $550,000, $311,000 of which has been paid through
June 30, 1996 and the remaining $239,000 included as a liability in the net
assets of discontinued operations in the accompanying June 30, 1996 condensed
and consolidated balance sheet.
Related Party Transactions
Sale of Oil and Gas Leases and Wells. In December 1994, the Registrant entered
into an arrangement to sell certain proved and unproven gas reserves located in
Southeast Ohio for notes valued at approximately $426,000 to a party related to
an officer and shareholder of the Registrant. In connection therewith, the
Registrant obtained two notes, a $300,000 note bearing interest at 8% per
annum, payable at $10,000 per month beginning June 1995, and a $150,000
non-interest bearing note, payable based on 50% of production revenues in
excess of $10,000 per month, secured by the assets sold. The Registrant
recorded a loss on the sale of these assets of $567,000 in 1994. At June 30,
1996, the principal balance on the term note is approximately $192,000, and the
principal balance of the production note is $150,000.
Notes Payable. During 1994 and 1995, various corporate affiliates of Mr.
Arneault advanced an aggregate sum of approximately $100,000 to the Registrant's
ExCal subsidiary primarily to cover overhead expenses in connection with the
maintenance of leases and other costs associated with the Registrant's existing
oil and gas interests in Michigan and former interests in Ohio. In February
1996, such accrued amount, along with accrued interest thereon at the rate of
10% per annum, was converted into three demand promissory notes in the aggregate
principal amount of $100,218 payable to such corporate affiliates of Mr.
Arneault at the rate of 10% per annum. At June 30, 1996, two of the notes have
been paid and the principal balance on the remaining note payable is $15,000.
No material overhead expenses are expected to be incurred in 1996.
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NOTE 5 - LICENSING
In June 1996, Mountaineer's video lottery license was renewed through June 30,
1997.
NOTE 6 - SETTLEMENT AGREEMENT
In January 1993, the Registrant entered into a financing arrangement with
Jackpot Enterprises, Inc. On March 2, 1995, the Registrant settled a claim by
Jackpot, effective June 25, 1994, by agreeing to issue shares of its common
stock with registration rights. The number of shares is based on a guaranteed
price of $512,500 divided by the closing market price per share on the effective
date of registration. The Registrant recorded a provision for loss of $525,000
in connection with the settlement which was included in the consolidated
statement of operations for the year ended December 31, 1994.
The Registrant issued 125,000 shares to Jackpot on the date of the settlement
and, for every 60 days the registration statement remains unfiled, the
Registrant is obligated to issue an additional 12,500 shares, up to a maximum
of 125,000 additional shares. At June 30, 1996, 100,000 of such additional
shares have been issued; 37,500 of such additional shares were issued during
the six months ended June 30, 1996, to which a value of $52,000 was ascribed
and charged to accrued liabilities. The issuance of such shares has been, and
will continue to be reflected in the statement of stockholders' equity at no
additional value or consideration.
NOTE 7 - LONG-TERM DEBT
Construction Note Payable
In March 1996, Bennett Management & Development Corporation and its parent, The
Bennett Funding Group, Inc., filed for protection from creditors under Chapter
11 of the federal bankruptcy laws. The bankruptcy court subsequently assigned
a trustee to administer the affairs of the estates while in bankruptcy. The
Registrant has continued to remit interest and principal payments to Bennett
Management & Development Corporation under the terms of the construction loan
agreement, as amended January 1996. The outstanding principal balance of the
construction note payable is $9,633,333 at June 30, 1996. The Registrant paid
$566,666 and $638,000, respectively, of principal and interest relating to the
construction note in the first six months of 1996.
Term Notes
In September 1995, the Registrant entered into an agreement with its
totalisator system supplier to convert $461,000 of outstanding trade payables
into a term note. Under the terms of the agreement, the Registrant is required
to make 21 monthly interest and principal payments of $17,800 and 8
additional payments of approximately $17,800 on various dates through May 31,
1997. The loan, which is unsecured, bears interest at the rate of 12% per
annum. The loan is subject to an acceleration clause and other financial
disincentives in the event of default. At June 30, 1996, the outstanding
principal balance is $251,000. The Registrant paid $157,000 and $21,000 of
principal and interest, respectively, in the first six months of 1996 related
to this term note.
In May 1996, the Registrant reached a settlement agreement with the holder of
52,250 shares of redeemable common stock, valued at $313,000, as further
described in Note 9. Pursuant to the settlement agreement, the Registrant
agreed to pay $25,000 upon execution of the settlement agreement and delivered
a promissory note calling for a total of three payments of $5,000 due on August
1, 1996, November 1, 1996 and February 1, 1997; a payment of $50,087 on May 1,
1997; and a total of four annual payments of $40,087 due on May 1, 1998 through
2001. The
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promissory note, which is unsecured, does not bear interest. The obligation to
pay the amounts identified above was discounted at the rate of 8%, and long
term debt in the amount of $206,000 was recorded in the Condensed and
Consolidated Balance Sheet, as of June 30, 1996.
The Registrant charged $601,000 and $760,000, respectively, to interest expense
relating to long-term debt in the six month periods ended June 30, 1996 and
1995. The Registrant capitalized $267,000 and $1,027,000 of interest in the
first two quarters of 1996 and 1995, respectively.
NOTE 8 - SHORT TERM NOTES PAYABLE
In the first half of 1996, the Registrant entered into a series of short-term
note agreements with three lenders aggregating $1,100,000. Under the terms of
the agreements the Registrant is obligated to repay a total of $1,302,000 in
interest and principal in 1996. In addition, the Registrant issued 100,000
shares of its common stock, and warrants to purchase 50,000 shares of its
common stock at $0.80 per share, valued in the aggregate at $81,000 as
supplemental consideration for the loans. The remaining principal balance of
the notes is $718,000 at June 30, 1996. Future principal obligations for the
loans, which are unsecured, are as shown below:
<TABLE>
<CAPTION>
July 1996 August 1996 Total
--------- ----------- --------
<S> <C> <C> <C>
$600,000 short-term notes dated March 22, 1996 $112,000 $106,000 $218,000
$250,000 short-term note dated May 30, 1996 250,000 0 250,000
$250,000 short-term note dated June 7, 1996 0 250,000 250,000
-------- -------- --------
$362,000 $356,000 $718,000
======== ======== ========
</TABLE>
The Registrant charged $192,000 to interest expense relating to short-term
notes in the first half of 1996.
NOTE 9 - CAPITAL TRANSACTIONS
During 1995, the Registrant incurred salaries to key members of management
totaling $204,000 which remained unpaid at December 31, 1995. On February 9,
1996, the board of directors approved two agreements to issue a total of
466,676 shares of the Registrant's common stock in satisfaction of $186,000 of
these liabilities (plus accrued interest of $3,300 calculated at the rate of
10% per annum) based on the closing market price of the stock on that day of
$.40625 per share. The agreements provide that for a term of one year
commencing February 9, 1996, in the event the initial holders propose to sell
any of the shares, they shall be required to notify the Registrant of such
intention and the Registrant may then elect, at any time before the proposed
date of sale, to purchase the shares at the price of $1.00 per share, payable
within two days after the date of such election. Otherwise, the shares may be
sold as proposed. In addition, the Registrant shall have the right at any time
to purchase the shares for a price of $1.00 per share within two days after
notice of its intention to do so.
In November 1995, the Registrant entered into an agreement to compensate a key
consultant for services previously rendered to the Registrant. The agreement
provided for the issuance of 200,000 shares of the Registrant's common stock to
the consultant and registration of the shares on From S-8 with the Securities
and Exchange Commission. The registration statement was filed on December 4,
1995, and the shares were issued effective January 19, 1996.
In November 1995, the Registrant's board of directors adopted an incentive
stock option plan meeting the requirements of Section 422 of the Internal
Revenue Code, subject to shareholder approval. In accordance with the plan,
500,000 shares were reserved for issuance on January 23,
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1996 at an exercise price of $.5625 per share, based on the closing market
price of the stock on that day. The options are exercisable over a period of
five years, subject to certain limitations.
On January 23, 1996, the board of directors granted to its two outside
directors, Robert A. Blatt and Robert L. Ruben, non-qualified stock options to
purchase 50,000 shares and 75,000 shares of the Registrant's common stock,
respectively, at the fair market value of the shares on the date of grant of
$0.5625 per share. The options are immediately exercisable for a term of five
years.
On March 22, 1996, the Registrant issued 100,000 shares of common stock in
connection with the short-term financing described in Note 8 above. Such
shares were valued at the fair market value of $.8125 per share on that date,
and are being amortized to interest expense over the life of the related loan.
In 1992, the Registrant acquired all of the capital stock of Golden Palace
Casinos, Inc. in exchange for 4,311,000 shares of the Registrant's common
stock. With respect to 209,000 shares of such stock, the founders of Golden
Palace Casinos were granted put rights requiring the Registrant to redeem such
shares at $6.00 per share at the request of the holders ("Redeemable Shares").
On June 30, 1995, holders of 104,500 Redeemable Shares received an aggregate of
366,750 shares of the Registrant's common stock, of which 276,750 shares are
subject to conversion into notes at a value of $1.50 per share or approximately
$417,000. The Registrant negotiated settlements in the second quarter of 1996
with the holders of the remaining 104,500 Redeemable Shares as described below
and in Note 7. As a result of these settlements, the Registrant recorded a
$211,000 increase to paid-in-capital, reflecting the reclassification of
104,500 shares to stockholders' equity. The $206,000 long-term note payable
was recorded in the accompanying Condensed and Consolidated Balance Sheet.
There was no gain or loss arising from the settlement agreements.
Pursuant to one of the settlement agreements, the Registrant agreed to issue
133,416 shares of the Registrant's common stock (the "Shares"). In the event
the average market price of the Registrant's common stock is less than $1.50
per share for the 90 trading days following the effective date of the
registration statement, the Registrant will be required to issue that number of
additional shares required to satisfy the difference between $1.50 per share
and such average market price. If the Shares were not registered by June 30,
1996, the Registrant agreed to execute a promissory note in the amount of
$200,125 with interest at 12% per year from the date of the note, payable in 24
equal monthly installments.
So long as the Registrant is not in default with respect to its repayment
obligations under the promissory note, if such note is required to be
delivered, then upon either (i) the registration of the Shares or (ii) the
eligibility of the Shares for public sale pursuant to SEC Rule 144, then the
Registrant shall receive as a credit against any amounts then due under the
note an amount equal to the average closing market price of the common stock
for the 90 trading days following the effective date of the registration
statement or the date the Shares become eligible for public sale under Rule
144. Upon execution and delivery of the promissory note, the Registrant will
have the right to repurchase the Shares for $1.50 per share and would, upon
such repurchase, receive a like credit against the amount due under the note.
The creditor may extinguish the Registrant's right of repurchase upon notice,
resulting in a credit against the note equal to $1.50 per share multiplied by
the number of shares as to which the right of repurchase had been extinguished.
NOTE 10 - SUBSEQUENT EVENTS
Finance Arrangement
On July 2, 1996, the Registrant's Mountaineer subsidiary entered into a
financing arrangement with a private lending firm for a working capital loan
and a commitment for first mortgage refinancing. The $5 million loan is
secured by a second mortgage on Mountaineer's real and
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personal property and is guaranteed by the Registrant. The note evidencing the
loan calls for monthly payments of interest only at the rate of 12% per annum,
and a default rate of 22% per annum. The Registrant also agreed to issue the
lender 183,206 shares of its common stock and warrants to purchase an
additional 1,141,250 shares at $1.06 per share. The principal is to be repaid
at the end of the three year term, during which the loan is subject to, on each
anniversary date, additional fees in cash equal to 8% of the outstanding
principal balance, stock equal to 5% of the outstanding principal balance
(valued at the average closing bid price for the 30 days prior to each
anniversary date), and warrants to purchase 250,000 shares of common stock at
$1.06 per share. Certain restrictions are imposed limiting the Registrant's
ability to incur additional debt, make capital expenditures and increase
management's compensation, and anti-dilution provisions are included to protect
the lender in the event the Registrant issues additional securities at a price
below $1.06 per share without the consent of the lender or subsequent holders
of the warrants.
As part of the transaction, the lender also provided a one year commitment to
lend Mountaineer up to $11.1 million of additional funds to be used to
refinance the current first mortgage held by Bennett Management & Development
Corp. The commitment is subject to customary conditions, including negotiation
of definitive loan agreements. In connection with the financing commitment,
the Registrant agreed to pay a $110,000 commitment fee and to issue the lender
additional warrants to purchase 350,000 shares of common stock at $1.06 per
share.
In order to assure compliance with provisions of the West Virginia Racetrack
Video Lottery Act concerning control over a licensee of the State Lottery, the
lender has agreed that it may not own, through the exercise of warrants or
otherwise, more than 5% of the Registrant's outstanding common stock unless and
until the West Virginia Lottery Commission either (i) approves the lender or
(ii) provides an advisory opinion approving an arrangement whereby the lender
may own but may not have voting rights to any shares in excess of the 5%
threshold. If the lender becomes disqualified after such Lottery Commission
approval, any shares held in excess of the 5% threshold, if registered, shall
be sold by the lender in the market; otherwise such shares may be put to the
Registrant at the then market price, payable in cash or a note with interest
payable monthly at 24% per annum and all principal due in one year.
The Registrant agreed to register the stock and warrants with the SEC, subject
to cash penalties if such registration is not initially filed on or before
90 days from the date of the loan agreement, and up to two additional cash
penalties if the registration is not declared effective before seven and nine
months from the date of demand therefor by the lender. All warrants are
exercisable for a term of five years.
Net proceeds after repayment of a $250,000 loan from an affiliate of the lender
pending the closing, due diligence and loan origination fees, fees associated
with the take-out commitment and the costs of the transaction are approximately
$4.2 million. The loan proceeds will be used by Mountaineer to retire a
substantial portion of its accounts payable, make future site improvements and
decorate the Speakeasy Gaming Saloon. The loan proceeds will also be used for
television and print advertising campaigns in the Pittsburgh and Cleveland
markets.
Commencement of Video Slot Operations
On July 3, 1996, Mountaineer introduced several offerings of classic casino
"slot" games on 350 of its 800 video lottery terminals. The new games are
offered in addition to Mountaineer's existing gaming choices of video poker,
keno and blackjack. Mountaineer earned an average daily net win of $139 per
terminal in the first 33 days following installation of video slot games,
compared to $68 per terminal during the same period in 1995. There can be no
assurance that the revenue levels generated immediately after the inception of
video slot operations can be sustained in future periods.
10
<PAGE> 13
Note Receivable
In 1995, the Registrant recorded a $50,000 loss provision in connection with a
short term loan advanced in 1994 to a company with a common significant
shareholder. In April 1996, a confessed judgment promissory note was obtained
to secure payment for the loan. Payment of $58,333, including interest at 8%
per annum, was due on August 4, 1996, however, no payment was made. The
Registrant is currently negotiating to collect the amount now due and will
proceed with legal action if Management determines that such negotiations
become unproductive.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Registrant earned revenues for the respective six-month periods in 1996 and
1995 as shown below:
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
----------- -----------
<S> <C> <C>
Operating Revenues:
Video lottery operations $11,900,000 $ 6,843,000
Pari-mutuel commissions 2,165,000 2,048,000
Lodging, food and beverage 1,573,000 1,391,000
Other revenues 463,000 542,000
----------- -----------
$16,101,000 $10,824,000
=========== ===========
</TABLE>
Revenues
Mountaineer's operating revenues increased significantly in late 1995, most
notably in video lottery operations. Total revenues increased by $5.3 million
or 49%, to $16.1 million in the first half of 1996 from $10.8 million for the
six month period ended June 30, 1995.
The geographic area surrounding the Registrant's operating facilities in West
Virginia experienced extensive flooding and unusually heavy snowfall in the
first quarter of 1996. The Registrant's 49% revenue increase was achieved
despite these unusual weather conditions, which produced difficult travel
conditions, as well as financial exigencies for local residents who constitute
a significant portion of Mountaineer's customer base. Flood and snow damage in
portions of Ohio, West Virginia and Western Pennsylvania reached levels
resulting in their designation as federal disaster areas. Mountaineer's
facilities are situated well above the flood plain and did not sustain any
damage; Mountaineer's nearest competitor was extensively damaged and ceased
operations for approximately four weeks in the first quarter of 1996.
Video Lottery Operations. Mountaineer has operated video lottery terminals
("VLTs") in West Virginia since 1990; operations were conducted under a
provisional license until September 1994. The West Virginia Racetrack Video
Lottery Act, signed in March 1994, allowed the uninterrupted continuation of
video lottery games at Mountaineer and permitted the Registrant to increase its
number of VLTs from 165 to 400 on September 4, 1994. In July 1995, the
Registrant placed into operation an additional 400 VLTs, bringing the total
number of VLTs in operation to 800. Mountaineer has subsequently received
approval from the West Virginia Lottery Commission to add up to 200 more VLTs,
which it intends to install within the next 12 months. A summary of the video
lottery gross winnings less patron payouts for the six months ended June 30,
1996 and 1995 is as follows:
11
<PAGE> 14
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Total gross wagers $ 42,217,000 $ 23,178,000
Less patron payouts (30,317,000) (16,335,000)
------------ ------------
Revenues - video lottery operations $ 11,900,000 $ 6,843,000
============ ============
</TABLE>
VLT revenues for the six month period ended June 30, 1996 increased by $5.1
million to $11.9 million, or nearly double the level of VLT revenues for the
same period in 1995. The increase was primarily attributable to the expansion
of video lottery facilities and the addition of 400 more terminals in July 1995
and expansion of the Lodge Speakeasy Gaming Saloon in December 1995. The
results of video lottery operations reflect a continued trend of significantly
increasing aggregate net win; Mountaineer maintained $82 per machine net win
per day for the six months ended June 30, 1996 with 800 VLTs in operation,
compared to $95 per day for the six months ended June 30, 1995 with only 400
VLTs in operation.
On July 3, 1996, Mountaineer introduced several offerings of classic casino
"slot" games on 350 of its 800 video lottery terminals. The new games are
offered in addition to Mountaineer's existing gaming choices of video poker,
keno and blackjack. The inception of video slot gaming coincided with the
commencement of a large scale marketing campaign aimed beyond the 40 mile
radius from which Mountaineer has traditionally drawn the bulk of its patrons.
Mountaineer earned an average daily net win of $139 per terminal in the first
33 days following installation of video slots, compared to $68 per terminal
during the same period in 1995.
Racing Operations. The Registrant's revenue from racing operations is derived
mainly from commissions earned on pari-mutuel wagering handle on live races
held at Mountaineer and on races conducted at other host racetracks and
simulcast at Mountaineer. Under West Virginia Horse Racing Law, the Registrant
is required to conduct live racing a minimum of 220 days per year.
Mountaineer's total pari-mutuel commissions for the six months ended June 30,
1996 and 1995 are summarized below:
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
------------ ------------
<S> <C> <C>
Total pari-mutuel wagering handle $ 20,182,000 $ 19,242,000
Less patrons' winning tickets (15,990,000) (15,314,000)
------------ ------------
4,192,000 3,928,000
Less:
State and County pari-mutuel tax (246,000) (224,000)
Purses and Horsemen's Association (1,781,000) (1,656,000)
------------ ------------
Pari-mutuel Commissions $ 2,165,000 $ 2,048,000
============ ============
</TABLE>
For the six months ended June 30, 1996, simulcast handle rose by $2.6 million,
or 32% compared to $10.6 million for the same period in 1995. Management
believes the increase resulted from renovations to track betting facilities and
an increase in the number of wagering days to seven days per week at multiple
locations, plus the introduction of simulcast greyhound racing in the second
quarter of 1995.
Live racing handle declined by $1.7 million to $9.6 million, or 15%, for the
six months ended June 30, 1996 from $11.2 million for the six months ended June
30, 1995. Through the first half of 1996, Mountaineer has completed 108 of the
annually required 220 live racing days compared to 113 days for the same period
in 1995. Average daily purses, which were $25,000 in the second quarter of
1995, have increased several times during 1995 and 1996 to $31,000 at June 30,
1996. Management believes that live racing handle will increase as racing
purses increase, following the concept that higher purses attract higher
quality race participants, which in turn captures the interest
12
<PAGE> 15
of horse racing betters from a larger geographic region. In accordance with
this philosophy, Mountaineer has recently begun offering moderately funded
stakes races of up to $20,000, with the intention of funding more sizable
stakes races if a favorable revenue trend develops from this practice.
Mountaineer also plans to raise daily purses (excluding stakes races)
approximately 30% to $40,000 during the second half of 1996.
Food, Beverage and Lodging Operations. Food, beverage and lodging revenues
accounted for a combined increase of 13% to $1,573,000 for the six months ended
June 30, 1996 from $1,391,000 for the same six month period in 1995.
Management believes that refurbishment of the lodge guest rooms early in 1995,
in combination with other improvements at Mountaineer, contributed to a
$109,000 revenue increase to $439,000 from $330,000 for the same
period-to-period comparison. Forty-one guest rooms were unavailable for use in
the first quarter of 1995 due to smoke damage experienced in the fourth quarter
of 1994. Food and beverage revenues also reflected an increase of $73,000 to
$1,134,000 from $1,061,000 for the six months ended June 1995.
Other Operating Revenues. Other sources of revenues decreased by $79,000 to
$463,000 from $542,000, for the six month period ended June 30, 1996, compared
to the same period in 1995. Other operating revenues are primarily derived
from the sale of programs, parking and admission fees relating to Mountaineer's
racing activities.
Costs and Expenses
Operating costs and gross profit earned from operations for the six month
periods ended June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30
Operating Costs: 1996 1995
----------- ----------
<S> <C> <C>
Video lottery operations $ 8,028,000 $4,892,000
Pari-mutuel commissions 2,497,000 2,644,000
Lodging, food and beverage 1,529,000 1,616,000
Other revenues 492,000 522,000
----------- ----------
$12,546,000 $9,674,000
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30
Gross Profit (Loss): 1996 1995
----------- ----------
<S> <C> <C>
Video lottery operations $ 3,872,000 $1,951,000
Pari-mutuel commissions (332,000) (596,000)
Lodging, food and beverage 44,000 (225,000)
Other revenues (29,000) 20,000
----------- ----------
$ 3,555,000 $1,150,000
=========== ==========
</TABLE>
Mountaineer's 49% increase in revenues resulting from the expanded scope of
entertainment offerings resulted in higher total costs as expenses increased by
$2.9 million to $12.5 million in the first half of 1996, an increase of 30%,
from $9.7 million for the six months ended June 30, 1995.
Video Lottery Operations. Costs of VLTs increased by $3.1 million, or 64%,
from $4.9 million to $8.0 million for the six months ended June 30, 1996,
compared to the six months ended June 30, 1995, reflecting the increase in
statutory expenses directly related to the 74% increase in video lottery
revenues. Such expenses accounted for $2.7 million of the total cost increase.
13
<PAGE> 16
After payment of a State Administrative Fee of up to 4% of revenues,
Mountaineer is obligated to make payments from the remaining video lottery
revenues to certain funds administered by the West Virginia Lottery Commission,
as follows: State Tax 30%, Horsemen's Purse Fund 15.5% Tourism Promotion 3%,
Hancock County Tax 2%, Breeders Classics 1%, Veterans Memorial 1%, and 0.5% to
the Employee Pension Fund. Taxes and assessments paid to these funds are
included in cost of video lottery operations in the consolidated statement of
operations. Statutory costs and assessments for the respective six month
periods are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
---------- ----------
<S> <C> <C>
State of West Virginia $3,481,000 $1,999,000
Horsemen's Purse Fund 1,799,000 1,033,000
Other contract costs 870,000 501,000
---------- ----------
$6,150,000 $3,533,000
========== ==========
</TABLE>
In addition, Mountaineer paid management fees of $198,000 to American Gaming
and Entertainment, Ltd. ("AGEL") for the six months ended June 30, 1995. The
Registrant's June 2, 1994 management agreement with AGEL was suspended pursuant
to a stay agreement effective June 30, 1995, until such time as the
Registrant's construction lender complied with certain requirements of the West
Virginia Lottery Commission.
On July 1, 1995, the Registrant and American Newco entered into a consulting
agreement whereby American Newco agreed to provide consulting services in
connection with the Registrant's video lottery operations at the rate of
$10,000 per month, subject to increases of up to $10,000 per month for
additional services which may be provided, through March 17, 1997. The
personal involvement of the two shareholders of American Newco as consultants
to the Registrant is a material element of the consulting agreement. Such
personal involvement has not been provided since October 15, 1995, and on May
10, 1996, Management provided American Newco and AGEL with formal notice of
termination of the consulting and management agreements. (Pursuant to a June
30, 1995 settlement agreement between the Registrant, Mountaineer and Gamma of
West Virginia, Inc., a subsidiary of AGEL, in the event the consulting
agreement is terminated for cause, the management agreement automatically
terminates.) As a result, no consulting fees have been accrued in 1996. On May
14, 1996, the Registrant received written notice from a representative of AGEL
demanding payment under the management agreement. Although Management believes
there are sufficient grounds to terminate the consulting and management
agreements without additional liability to the Registrant, there are no
assurances that such terminations will not be successfully challenged or that
the Registrant will not incur additional liability in connection with the
agreements.
VLT salaries expense increased by $154,000 to $401,000 for the six months ended
June 30, 1996, compared to $247,000 for the six months ended June 30, 1995.
This increase was attributable to staff hired to support the operation of the
additional VLTs. Costs incurred by Mountaineer for utilities and insurance due
to enlarged facilities and expanded staffing increased by $122,000 to $255,000
from $133,000 for the same period-to-period comparison. Lease expenses
increased from $435,000 in the first half of 1995 to $718,000 in the first half
of 1996, reflecting the 400 additional VLTs placed into service in the third
quarter of 1995.
Racing Operations. Costs of pari-mutuel commissions declined $147,000, or 6%,
from $2.6 million in the first half of 1995 to $2.5 million in the first half
of 1996. Simulcast host track fees and totalisator system lease expenses
relating to simulcasting operations increased $106,000 from 1995 to 1996, due
to expansion of this phase of racing. Totalisator lease expenses relating to
live racing declined $75,000 from the first half of 1995 versus 1996 due to
negotiation of more
14
<PAGE> 17
favorable lease terms in December 1995. Also, a reduction in live race days,
from 113 in the first half of 1995 to 108 in the same period in 1996,
contributed to the reduction in expenses.
Food, Beverage and Lodging Operations. Food, beverage and lodging expenses
decreased by $87,000 to $1,529,000 in the first half of 1996 from $1,616,000
for 1995, reflecting greater operating efficiencies achieved in 1996.
Costs of Other Operating Revenues. Costs of other revenues decreased by
$30,000 to $492,000 for the period ended June 1996 from $522,000 for the six
month period ended June 30, 1995.
General and Administrative Expenses. General and administrative expenses
decreased by $403,000 to $2.1 million or 16%, from $2.5 million for the same
six month periods ended June 30, 1996 and 1995, respectively. Management's
efforts to reduce the cost of corporate operations produced a decrease in
corporate general and administrative expenses by $151,000 from $925,000, or
16%, to $775,000 for the same period-to-period comparison. Corporate general
and administrative expenses for the first half of 1996 reflected the issuance
of 200,000 shares, valued at $106,000 for the services rendered by a key
consultant and significant shareholder. General and administrative expenses at
Mountaineer reflected a 13% decrease, from $1.6 million to $1.3 million for the
same periods despite the expanded scope of Mountaineer's operations and the
assumption of certain corporate responsibilities. Second quarter 1996 expenses
were favorably impacted by a $208,000 reversal of a 1995 provision for
litigation losses.
Advertising expense, included in general and administrative expenses, decreased
by 19%, from $535,000 to $433,000 for the six months ended June 30, 1996,
compared to the same period in 1995. Advertising expenditures are expected to
increase significantly in the second half of 1996 as Mountaineer commences
promotion of its new video slot games.
Cash Flows
During the six months ended June 30, 1996, the Registrant produced net cash
from operations of $627,000 versus net cash used in operations of $82,000 for
the comparable period in 1995. Losses from operations of $135,000 for the six
months ended June 30, 1996 were offset by non-cash depreciation and
amortization of $866,000, and diminished by a $208,000 noncash reversal of a
1995 provision for legal settlement. During the six months ended June 30,
1995, net losses of $2,646,000 were offset by non-cash depreciation,
amortization and common stock issued for services and settlements, aggregating
$928,000. First half 1996 operations were funded to the extent of $522,000 by
stock issuances, compared to $315,000 in the first half of 1995.
During the six months ended June 30, 1996, the Registrant invested $593,000 for
redevelopment of its properties at Mountaineer. The Registrant borrowed
$1,100,000 under short term borrowing arrangements to service its working
capital requirements in the first half of 1996, and paid $1,076,000 in short
term and long term principal during the same period.
Liquidity and Sources of Capital
At June 30, 1996, the Registrant has current liabilities in excess of current
assets of approximately $8.4 million, of which $772,000 relates to redeemable
common stock obligations and $3.7 million represents the current portion of
long-term debt. The Registrant secured a series of short-term loans in the
second quarter of 1996 totaling $1.1 million to address cash flow exigencies
existing prior to the funding of the $5 million term loan in July 1996.
Approximately $382,000 of these short-term obligations were repaid in the
second quarter; the remaining $718,000 will be repaid in July and August.
15
<PAGE> 18
Pursuant to the $10.2 million construction loan with Bennett Management &
Development Corporation, Mountaineer paid the first 2 of the 36 requisite
monthly principal payments in May and June 1996. Despite Mountaineer's
significant increase in revenues, repayment of the Bennett loan over 36 months
could unduly burden Mountaineer's cash flow, and there can be no assurance,
absent additional financing, that Mountaineer could continue to pay that
indebtedness and meet all of its other obligations. The Registrant is taking
the following measures to address its near and long-term capital needs:
Amendment of the Bennett Construction Loan Agreement
In March 1996, Bennett Management & Development Corporation and its parent, The
Bennett Funding Group, Inc., filed for protection from creditors under Chapter
11 of the federal bankruptcy laws. The bankruptcy court assigned a trustee to
administer the Bennett companies while in bankruptcy. The Registrant has
commenced negotiations with the trustee seeking a reduction in the principal
payments in order to alleviate the burden on the Registrant's cash flow until
permanent financing on more favorable terms can be arranged. The Registrant
believes that the resolution of the issues involving Bennett, coupled with
anticipated increases in video lottery and simulcast racing revenues
(especially with the introduction of video slot games in July 1996) will permit
the Registrant to refinance its long-term debt and meet continuing obligations,
however, there can be no assurances that such issues will be resolved or that
such refinancing will be arranged on terms acceptable to Management. The
Registrant has continued to remit interest and principal payments to Bennett
under the terms of the construction loan agreement. An expanded discussion of
various legal issues germane to the Bennett loan appears in Part III, Item 5,
Other Information.
$5 Million Working Capital Loan
On July 2, 1996, the Registrant and Mountaineer entered into a financing
arrangement with a private lending firm for a working capital loan and a
commitment for first mortgage refinancing. The $5 million loan is secured by
a second mortgage on Mountaineer's real and personal property and is guaranteed
by the Registrant. The note evidencing the loan calls for monthly payments of
interest only at the rate of 12% per annum, and a default rate of 22% per
annum. The Registrant also agreed to issue the lender 183,206 shares of its
common stock and warrants to purchase an additional 1,141,250 shares at $1.06
per share. The principal is to be repaid at the end of the three year term,
during which the loan is subject to, on each anniversary date, additional fees
of cash equal to 8% of the outstanding principal balance, stock equal to 5% of
the outstanding principal balance (valued at the average closing bid price for
the 30 days prior to each anniversary date), and warrants to purchase 250,000
shares of common stock at $1.06 per share. The loan proceeds will be used to
substantially liquidate trade accounts payable, fund future capital
expenditures, and launch extensive television and print advertising campaigns.
$11.1 Million First Mortgage Commitment
As part of the working capital loan transaction, the lender also provided a
one-year commitment to lend Mountaineer up to $11.1 million of additional funds
to be used to refinance the current mortgage held by Bennett Management &
Development Corporation. The financing commitment is subject to customary
conditions, including negotiation of definitive loan agreements and no material
adverse changes in Mountaineer's business prior to closing. In connection with
the financing commitment, the Registrant agreed to pay a $110,000 commitment
fee and to issue the lender additional warrants to purchase 350,000 shares of
common stock at $1.06 per share.
If the Registrant is able to close such financing, the loan terms provide that
the lender would be secured by a first mortgage on Mountaineer's real and
personal property and the guarantee of the Registrant. An initial financing
facility fee of $888,000 would be payable upon closing along with
16
<PAGE> 19
550,00 shares of the Registrant's common stock and warrants to purchase
1,632,140 shares at $1.06 per share. The note evidencing the loan would
provide for monthly payments of interest only at the rate of 12% per annum.
Principal would be payable at the end of the three year term, during which the
loan would be subject to, on each anniversary date, additional financing
facility fees of cash equal to 8% of the outstanding principal balance, 550,00
shares of the Registrant's common stock and warrants to purchase an additional
550,000 shares at $1.06 per share. The loan proceeds would be used to pay the
initial financing facility fee and to repay the Bennett loan. There are no
assurances that such a financing will be obtained on terms acceptable to
Management or within sufficient time for the Registrant to meet its ongoing
obligations.
Alternative Mortgage Financing
The Registrant is continuing to seek alternative mortgage financing from a
number of prospects on more favorable terms and longer amortization periods
than those currently in place. The Registrant believes that its significant
increases in revenues, reductions in accounts payable from proceeds of the $5
million working capital loan and improvements in Mountaineer's facilities will
permit the Registrant to obtain permanent financing on terms acceptable to
Management. If such a facility is offered, the Registrant will avail itself of
the early liquidation clauses of its existing loan agreements. There are no
assurances that such a financing will be obtained on terms acceptable to the
Registrant or within sufficient time to meet its ongoing obligations.
The Registrant intends to further expand its physical renovation of Mountaineer
in preparation for its marketing as a comprehensive destination resort centered
around extensive video gaming operations. Significant increases in revenues
were provided by Mountaineer's expanded gaming operations after the
introduction of 400 additional video lottery terminals in July 1995 and the
subsequent expansion of the lodge based Speakeasy Gaming Saloon in December
1995. This trend has continued on an accelerated pace since the introduction
of video slots gaming in July 1996. Mountaineer's revenue streams have
historically exhibited seasonal peaks in the summer months with declining
patronage in the winter months. Management believes that the emergence of
video gaming as its dominant profit center will reduce the severity of these
seasonal fluctuations in revenue; however, there are no assurances that this
trend will be appreciably altered.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Joyce Brantley v. Mountaineer Park, Inc., Civil Action No. 94-C-124, Circuit
Court of Hancock County, West Virginia. On June 24, 1996, the Registrant
settled the Brantley case by paying a lump sum of $100,000 in consideration for
a dismissal of the case with prejudice. The Registrant will seek to recoup
this sum -- as well as its costs and attorney's fees in attempting to have the
default judgment set aside and in settling the matter -- by filing an action
for legal malpractice against the attorney who failed to file a timely response
to the complaint, which led to the entry of the default judgment. The
Registrant believes that it will prevail in the malpractice action, but there
can be no assurances of such result or, until there has been pretrial
discovery, that the attorney has sufficient assets or insurance to satisfy the
anticipated judgment.
Darelynn Lehto v. Winners Entertainment, Inc., Civil Action No. 4-96-49, United
States District Court for the District of Minnesota (filed January 11, 1996).
By agreement dated May 10, 1996, the Registrant settled its differences with
Ms. Lehto. Pursuant to the settlement agreement, the Registrant agreed to pay
Ms. Lehto $25,000 upon execution of the settlement agreement and delivered a
promissory note calling for a total of three payments of $5,000 due on August
1, 1996, November 1, 1996 and February 1, 1997; a payment of $50,087 on May 1,
1997; and a total of four payments of $40,087 due on May 1, 1998, 1999, 2000
and 2001. In consideration for the Registrant's execution of the settlement
agreement, the payment of $25,000 and delivery of the
17
<PAGE> 20
promissory note, Ms. Lehto has dismissed the litigation with prejudice, the
parties have exchanged mutual releases, and Ms. Lehto has agreed to the
cancellation of options previously granted to her to purchase 50,000 shares of
the Registrant's common stock at a price of $.01 per share.
Dorothy M. van Haaften. By agreement dated April 2, 1996, as amended by
Amendment dated June 18, 1996, the Registrant settled its differences with Ms.
van Haaften without the filing of any litigation. Pursuant to the settlement
agreement, the Registrant agreed to issue Ms. van Haaften 133,416 shares of the
Registrant's common stock (the "Shares"). In the event the average market
price of the Registrant's common stock is less than $1.50 per share for the 90
trading days following the effective date of the registration statement, the
Registrant will be required to issue Ms. van Haaften that number of additional
shares required to satisfy the difference between $1.50 per share and such
average market price. If the Shares were not registered by June 30, 1996, the
Registrant agreed to execute a promissory note in favor of Ms. van Haaften in
the amount of $200,125 with interest at 12% per year from the date of the note,
payable in 24 equal monthly installments.
So long as the Registrant is not in default with respect to its repayment
obligations under the promissory note, if such note is required to be
delivered, then upon either (i) the registration of the Shares or (ii) the
eligibility of the Shares for public sale pursuant to SEC Rule 144, then the
Registrant shall receive as a credit against any amounts then due under the
note an amount equal to the average closing market price of the common stock
for the 90 trading days following the effective date of the registration
statement or the date the shares become eligible for public sale under Rule
144. Upon execution and delivery of the promissory note, the Registrant will
have the right to repurchase the Shares for $1.50 per share and would, upon
such repurchase, receive a like credit against the amount due under the note.
Ms. van Haaften may extinguish the Registrant's right of repurchase upon
notice, resulting in a credit against the note equal to $1.50 per share
multiplied by the number of shares as to which the right of repurchase had been
extinguished. As additional consideration for Ms. van Haaften's entering the
settlement agreement, the Registrant forgave the $10,000 loan made to Ms. van
Haaften in March of 1993, released the collateral therefor (1,666 shares of the
Registrant's common stock), and paid Ms. van Haaften the sum of $10,000.
For further discussion of legal proceedings, see "Bennett Management &
Development Corporation" at Part III, Item 5, Other Information. There is
incorporated by reference the information appearing under the caption "Legal
Proceedings" in the Registrant's Form 10-K for the year ended December 31,
1995.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5 - OTHER INFORMATION
Mountaineer Park, Inc., et al. v. Bennett Management & Development Corporation,
et al., United States Bankruptcy Court, Northern District of New York, Case
Nos. 96-61376 (SDG), 96-61377 (SDG), 96-61378 (SDG), 96-61379 (SDG). On July
1, 1996, the Registrant and Mountaineer filed an adversary proceeding against
Bennett Management & Development Corporation
18
<PAGE> 21
("Bennett") in the United States Bankruptcy Court for the Northern District of
New York. In the complaint, the Registrant and Mountaineer seek compensatory
and punitive damages, recoupment and setoff, and other equitable relief,
including declaratory and injunctive relief for lender liability arising out of
Bennett's (i) insistence that Mountaineer enter a management agreement with
Bennett's financially troubled gaming affiliate, which, the complaint alleges,
misspent loan proceeds; (ii) bad faith refusals to honor the requests of the
West Virginia Lottery Commission to supply audited financial statements by the
deadline and then several extended deadlines; (iii) fraudulent
misrepresentations and omissions in connection with amendments of the parties'
Construction Loan Agreement -- particularly with respect to issuance of an
additional 1,020,000 shares of the Registrant's common stock to Bennett; and
(iv) conduct of its business generally, which has led to recent allegations of
civil and criminal wrongdoing by Bennett in matters unrelated to its loan to
Mountaineer, which in turn, led Bennett to seek the protection of the
Bankruptcy Court.
With the filing of the complaint, the Registrant and Mountaineer also brought
on a motion by order to show cause for a temporary restraining order
prohibiting Bennett from (i) enforcing the repayment terms of the Construction
Loan Agreement and $10.2 million Promissory Note; (ii) claiming an event of
default; (iii) foreclosing pursuant to the deed of trust securing the repayment
obligation; or (iv) selling any of the Registrant's common stock held by
Bennett. At the July 1 hearing, the Bankruptcy Court denied the motion,
principally because the Registrant and Mountaineer had not defaulted on the
obligation to repay the loan and there was no evidence that such a default was
imminent. Thus, the Court concluded, there was no crisis warranting the
extraordinary relief sought. By agreement, the parties have stipulated to
extend Bennett's time to respond to the complaint to September 16, 1996.
Despite denying the motion, the Court encouraged the parties to engage in good
faith settlement negotiations. The Registrant and Mountaineer have begun
negotiating a settlement of the suit in the context of a restatement of the
terms of the Construction Loan Agreement. The Registrant cannot predict at
this time whether a settlement can be reached or whether it will prevail in the
litigation.
Crystal Asset Management Group, Ltd. In July 1994, the Registrant entered
into an agreement settling all claims by a consulting firm arising from an
April 1993 financial advisory agreement. The Registrant agreed to pay fees and
expenses of $165,684 and to cancel previously issued warrants to purchase
135,000 shares of common stock with registration rights at $7.00 per share, and
instead, issued warrants to purchase 145,000 shares of common stock with
registration rights, exercisable at $6.25 per share through December 1996. An
initial payment of $15,000 was made upon execution of the settlement agreement,
however, no further payments were made. In August 1996, the Registrant entered
into an oral agreement, modifying the settlement agreement. The new agreement,
which is subject to execution of a definitive written agreement, provides for
mutual releases of all claims in exchange for the Registrant's payment of
$90,000 in cash and reduction of the exercise price of the previously issued
warrants to $3.00 per share and extension of the term thereof through December
1997.
19
<PAGE> 22
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
3(i) Articles of Incorporation, as amended.(1)
3(ii) By-Laws of Winners Entertainment, Inc.(1)
4(1) Warrant Certificate No. 1 issued to Madeleine, LLC, dated July
2, 1996, to purchase 891,250 shares of common stock of Winners
Entertainment, Inc. at $1.06 per share for five years
commencing July 2, 1996.
10(1) Promissory Note by Mountaineer Park, Inc. to AstraFund, Ltd.,
dated June 1, 1996.
10(2) Note Secured by Real Estate Mortgage for Mountaineer Park,
Inc. to Bridge Capital, LLC, dated June 6, 1996.
10(3) Agreement of Unconditional Guaranty, between Winners
Entertainment, Inc. and Bridge Capital, LLC, dated June 6,
1996.
10(4) Deed of Trust by and between Mountaineer Park, Inc. and Penny
Loucas, as Trustee for Bridge Capital, LLC, dated June 6, 1996.
10(5) Term Loan Agreement among Mountaineer Park, Inc., Winners
Entertainment, Inc. and Madeleine, LLC, dated July 2, 1996.
10(6) First Amendment to Term Loan Agreement among Mountaineer Park,
Inc., Winners Entertainment, Inc. and Madeleine, LLC, dated
July 2, 1996.
10(7) Promissory Note by Mountaineer Park, Inc. to Madeleine, LLC,
dated July 2, 1996.
10(8) Security Agreement made by Mountaineer Park, Inc. in favor of
Madeleine, LLC, dated July 2, 1996.
10(9) Deed of Trust, Leasehold Deed of Trust, Security Agreement,
Assignment, Fixture Filing and Financing Statement by and
among Mountaineer Park, Inc., Deborah A. Sink and Carl D.
Andrews as Trustees, and Madeleine, LLC as the Secured Party,
dated July 2, 1996.
10(10) Stock Transfer Agreement between Winners Entertainment, Inc.
and Madeleine, LLC, dated July 2, 1996.
10(11) Registration Rights Agreement between Madeleine, LLC and
Winners Entertainment, Inc., dated July 2, 1996.
- ----------------------
(1) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, Exhibits 3(i) and 3(ii).
20
<PAGE> 23
10(12) Financing Commitment from Madeleine, LLC to Mountaineer Park,
Inc., dated July 2, 1996.
10(13) Agreement by and between Winners Entertainment, Inc. and
Darelynn Lehto, dated May 10, 1996.
10(14) Promissory Note by Winners Entertainment, Inc. to Darelynn
Lehto, dated May 10, 1996.
10(15) Settlement Agreement by and between Winners Entertainment,
Inc. and Dorothy van Haaften, dated April 2, 1996.
10(16) Amendment of Settlement Agreement by and between Winners
Entertainment, Inc. and Dorothy van Haaften, dated June 18,
1996.
27 Financial Data Schedule.
(B) REPORTS ON FORM 8-K.
None.
21
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WINNERS ENTERTAINMENT, INC.
(Registrant)
/s/ Edson R. Arneault August 13, 1995
- ------------------------------------------------
Edson R. Arneault
President and Chief Executive Officer
/s/ Thomas K. Russell August 13, 1995
- ------------------------------------------------
Thomas K. Russell
Secretary, Treasurer and Chief Financial Officer
/s/ Robert L. Ruben August 13, 1995
- ------------------------------------------------
Robert L. Ruben
Director
/s/ Robert A. Blatt August 13, 1995
- ------------------------------------------------
Robert A. Blatt
Director
22
<PAGE> 1
EXHIBIT 4(1)
THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE, AND THE WARRANT SHARES ISSUABLE
UPON EXERCISE THEREOF, HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH SECTION 5 OF THIS WARRANT CERTIFICATE
WARRANT CERTIFICATE
For the Purchase of 891,250 Shares of
Common Stock of WINNERS ENTERTAINMENT, INC.
WARRANT CERTIFICATE NO. 1
This Warrant Certificate certifies that Madeleine LLC (the
"Original Holder") is the registered holder of 891,250 Warrants (as hereinafter
defined) to purchase shares of Common Stock (as hereinafter defined) of Winners
Entertainment, Inc., a Delaware corporation (the "Company"). Each Warrant
entitles the Holder (as hereinafter defined) upon exercise to receive one
Warrant Share (as hereinafter defined) at the Purchase Price (as hereinafter
defined), which shall initially be $1.06 per share, which shall be payable in
lawful funds of the United States of America. The number of shares of Common
Stock purchasable hereunder and the Purchase Price therefor are subject to
adjustment as hereinafter provided in Section 7 and Section 13. The Warrants
evidenced by this Warrant Certificate have been issued in connection with the
transactions contemplated by the Term Loan Agreement, dated as of July 2, 1996,
among Mountaineer Park, Inc., a West Virginia corporation and a wholly-owned
subsidiary of the Company ("Mountaineer"), the Company and the Original Holder
(the "Term Loan Agreement").
The Warrants are subject to the following further terms and
conditions:
1. DEFINITIONS
"Commission" shall mean the Securities and Exchange Commission
and any other similar or successor agency of the federal government of the
United States of America then administering the Securities Act or the Exchange
Act.
"Common Stock" shall mean and include the Company's authorized
voting Common Stock, $0.00001 par value per share, as constituted at the Date of
Issuance, and shall also include any class of the capital stock of the Company
hereafter authorized which shall neither: (i) be limited to a fixed sum or a
percentage of par value in respect of the rights of the holders thereof to
receive dividends and to participate in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding-up of the Company;
nor (ii) be subject at any time to redemption by the Company; provided, however,
that, except as provided in Section 7, the Common Stock receivable upon exercise
of any Warrant shall include only shares of the capital stock of the Company
designated as voting Common Stock on the Date of Issuance, or shares of any
class or classes of the voting capital stock of the Company resulting from any
reclassification or reclassifications of such Common Stock which are not limited
to any such fixed sum or percentage of par value and which are not subject to
any such redemption.
"Company" shall have the meaning given to such term in the
first paragraph of this Warrant Certificate.
<PAGE> 2
"Controlling Interest" shall have the meaning given to such
term in Section 4.3(h).
"Convertible Securities" shall have the meaning given to such
term in Section 7.2.
"Date of Issuance" shall have the meaning given to such term
in Section 12.
"Event" shall have the meaning given to such term in Section
7.2.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Exercise Period" shall have the meaning given to such term in
Section 4.2.
"Exercise Time" shall have the meaning given to such term in
Section 4.3.
"Financing Facility" shall have the meaning given to such term
in Section 7.2.
"Generally Accepted Accounting Principles" shall mean, at any
particular time, generally accepted accounting principles as in effect at such
time; provided, however, that, if employment of more than one principle shall be
permissible at such time in respect of a particular accounting matter,
"Generally Accepted Accounting Principles" shall refer to the principle which is
then employed by the Company with the concurrence of its independent certified
public accountants.
"Holder" shall mean the Original Holder and its successors and
permitted assigns. Unless the context otherwise requires, "Holder" shall include
a registered owner of Warrant Shares.
"indemnified party" shall have the meaning given to such term
in Section 5.7(b).
"Mountaineer" shall have the meaning given to such term in the
first paragraph of this Warrant Certificate.
"Options" shall have the meaning given to such term in
Section 7.2.
"Original Holder" shall have the meaning given such term in
the first paragraph of this Warrant Certificate.
"Person" shall mean a corporation, an association, a
partnership, an organization, a business, an individual or a government or
political subdivision thereof or any governmental agency.
"Purchase Price" shall have the meaning given such term in
Section 7.1.
"Registrable Securities" shall mean the Warrants and all
Warrant Shares issuable or issued upon exercise of the Warrants. Any such
securities shall cease to constitute "Registrable Securities" when such
securities have been disposed of by the Holder pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144 (or any
successor rule) of the Commission under the Securities Act. "Registrable
Securities" shall include any securities issued as a dividend or distribution on
account of Registrable Securities or resulting from a subdivision of the
outstanding Registrable Securities into a greater number of securities (by
reclassification, stock split or otherwise) or that may be issued in respect of,
in exchange for or in substitution of any Registrable Securities, whether by the
Company or its successors or assigns.
- 2 -
<PAGE> 3
"Registration Expenses" shall have the meaning set forth in
Section 5.6.
"Registration Rights Agreement" shall the mean the
Registrations Rights Agreement, dated as of the Date of Issuance, between the
Company and the Original Holder.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Term Loan Agreement" shall have the meaning given such term
in the first paragraph of this Warrant Certificate.
"Transfer" shall include any sale, transfer, assignment or
other disposition of any Warrants or Warrant Shares, or of any interest in
either thereof, which would constitute a sale thereof within the meaning of the
Securities Act.
"Underwriter" shall have the meaning given such term in
Section 5.4.
"Warrant Certificates" means this Warrant Certificate and the
other Warrant Certificates of the Company issued on the Date of Issuance or at
any time thereafter in connection with the transactions contemplated by Term
Loan Agreement (including, but not limited to, the replacement Warrant
Certificates issued on the date hereof to Bridge Capital, LLC and Brownstone
Holdings, LLC, each entitling the registered holder thereof to purchase 25,000
shares of Common Stock), and any certificates issued in exchange or replacement
thereof.
"Warrants" shall mean the Warrants represented hereby and such
other warrants as are issued in exchange, transfer or replacement of any
Warrants.
"Warrant Shares" shall mean the shares of Common Stock
purchased or purchasable in connection with the exercise of Warrants pursuant to
Section 4 hereof.
Any terms used in this Warrant Certificate which are not
defined in this Section 1 have the meanings respectively set forth elsewhere in
this Warrant Certificate.
2. OWNERSHIP OF THE WARRANTS
The Company may deem and treat the Person in whose name the
Warrants are registered as the Holder for all purposes, notwithstanding any
notations of ownership or writing made hereon by anyone other than the Company,
and shall not be affected by any notice to the contrary, until presentation of
this Warrant Certificate for registration of transfer as provided in Section 3.
The Company shall maintain at its office in Laguna Beach, California or in
Chester, West Virginia, a register for the Warrants, in which the Company shall
record the name and address of the Person in whose name each Warrant has been
issued, as well as the name and address of each transferee and each prior owner
of such Warrant. Within five days after the Holder shall by written notice to
the Company request the same, the Company will deliver to the Holder a
certificate, signed by one of its officers, listing the names and addresses of
every other holder of Warrants and/or Warrant Shares who is a successor or a
direct or indirect assignee of the Original Holder, as such information appears
in said register and in the stock transfer books of the Company at the close of
business on the day before such certificate is signed.
3. EXCHANGE, TRANSFER AND REPLACEMENT
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Holder to the Company at its office or agency provided for in
Section 2, for new Warrant Certificates of
- 3 -
<PAGE> 4
like tenor, representing in the aggregate the right to purchase the number of
shares of Common Stock purchasable hereunder, each of such new Warrant
Certificates to represent the right to purchase such number of shares of Common
Stock as shall be designated by the Holder at the time of such surrender.
Subject to Section 5 hereof, this Warrant Certificate and all rights hereunder
are transferable, in whole or in part, in accordance with Section 2, by the
Holder hereof in person or by duly authorized attorney, and a new Warrant
Certificate shall promptly be made and delivered by the Company, of the same
tenor as this Warrant Certificate but registered in the name of the transferee,
upon surrender of this Warrant Certificate together with a duly completed
Assignment, substantially in the form attached hereto as Exhibit I, at the
office of the Company where the register provided for in Section 2 is
maintained. Upon receipt by the Company at its office provided for in Section 2
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant Certificate, and, in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant Certificate, if mutilated, the Company will make and
deliver a new Warrant Certificate of like tenor in replacement of this Warrant
Certificate. This Warrant Certificate shall be promptly canceled by the Company
upon the surrender thereof in connection with any exchange, transfer or
replacement. The Company shall pay all taxes and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrant
Certificates pursuant to this Section 3.
4. EXERCISE
4.1. Right to Exercise. The Holder may exercise, in whole or
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant Certificate at the times set forth in Section 4.2.
4.2. Exercise Period. The Holder may exercise, in whole or in
part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant Certificate at any time and from time to time after
the date hereof and until 5:00 p.m., Pacific Time, on July 2, 2001 (the
"Exercise Period").
4.3. Exercise Procedure. (a) Warrants will be deemed to have
been exercised as of the date during the Exercise Period when the Company has
received all of the following items (the "Exercise Time"):
(i) a completed Exercise Agreement, as described in Section
4.4 below, executed by the Holder;
(ii) this Warrant Certificate; and
(iii) cash or a certified or official bank check payable to
the Company in an amount equal to the then effective Purchase Price for the
shares for which this Warrant Certificate is being exercised.
(b) Certificates for Warrant Shares purchased upon the
exercise of Warrants will be delivered by the Company to the Holder within five
business days after the date of the Exercise Time. Unless the remaining Warrants
have expired or have been exercised, the Company will prepare a new Warrant
Certificate, substantially identical hereto, representing the Warrants formerly
represented by this Warrant Certificate which have not expired or been exercised
and will, within such five-day period, deliver such new Warrant Certificate to
the Holder. Notwithstanding anything to the contrary set forth herein, the
business day periods provided for in this paragraph shall, without any further
action, be reduced to such shorter time period as shall be necessary in order
for the Holder to effect any Transfer of Warrants or Warrant Shares in
accordance with any applicable clearing procedures or other procedures governing
registration of transfer. In the case of a public offering of any Registrable
Securities, the provisions set forth in this Section 4.3(b)
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<PAGE> 5
shall, to the extent applicable, be subject to clause (vi) of Section 5.5.
(c) The Warrant Shares shall, when issued, be duly authorized,
validly issued, previously unissued, fully paid and nonassessable and will be
free from all taxes, liens and charges with respect thereto.
(d) Warrant Shares will be deemed to have been issued at the
Exercise Time, and the Person in whose name such shares are registered will be
deemed for all purposes to have become the Holder of such shares at the Exercise
Time.
(e) The issuance of certificates for Warrant Shares upon the
exercise of Warrants will be made without charge for any issuance tax in respect
thereof or other cost incurred by the Company in connection with such exercise
and the related issuance of shares of Common Stock.
(f) The Company will not close its books against the transfer
of the Warrants or of any of the Warrant Shares in any manner which interferes
with the timely exercise of the Warrants or the timely transfer of all or any
part of this Warrant Certificate or the Warrant Shares. The Company will from
time to time take all such action as may be necessary to assure that the par
value per share of the unissued Common Stock acquirable upon the exercise of
Warrants is at all times equal to or less than the Purchase Price then in
effect.
(g) Upon the exercise of Warrants, the Holder of the Warrant
Shares issued upon the exercise of the Warrants shall be entitled to all of the
rights, and shall be subject to all of the obligations, set forth herein, in
each case to the extent provided for herein.
(h) The right of the Holder to exercise any Warrants hereunder
shall be expressly limited to the extent that the Holder (together with its
affiliates or other persons or entities controlled by or under common control
with the Holder) will thereafter own in the aggregate more than 5% of the then
issued and outstanding Common Stock (a "Controlling Interest"), unless the
Holder's ownership of such a Controlling Interest has been approved by the West
Virginia Lottery Commission or such approval shall no longer be required under
applicable law. The Company shall use its best efforts to obtain, or help
obtain, as applicable, any such approval.
4.4. Exercise Agreement. Upon any exercise of the Warrants,
the Exercise Agreement will be substantially in the form set forth in Exhibit II
hereto, except that if the Warrant Shares are not to be issued in the name of
the Holder, the Exercise Agreement will also state the name or names of the
Person or Persons to whom the certificates for Warrant Shares are to be issued,
and the Holder shall comply with Sections 5.1 and 5.2 hereof in connection
therewith. The Exercise Agreement shall be dated the actual date of execution
thereof.
5. TRANSFER AND REGISTRATION
5.1. Restrictions on Transfer Generally. Notwithstanding any
provisions contained in this Warrant Certificate to the contrary, the Warrants
shall not be transferable and the related Warrant Shares shall not be issuable
to any Person, or transferable by the Holder thereof, except upon satisfaction
of the conditions specified in this Section 5.1. Such conditions are intended to
insure compliance with the provisions of the Securities Act in respect of the
exercise of the Warrants or the Transfer of the Warrants or Warrant Shares. The
Holder agrees that it will not: (i) Transfer Warrants prior to delivery to the
Company of the opinion of counsel referred to in, and to the effect described
in, Section 5.2, or until registration under the Securities Act of the Warrants
and all related Warrant Shares has become effective; (ii) request the issuance
to any Person of Warrant Shares issuable upon the exercise of Warrants prior to
delivery to the Company of the opinion of counsel referred to in, and to the
effect described in, Section 5.2, or until registration of
- 5 -
<PAGE> 6
the related Warrant Shares under the Securities Act has become effective; or
(iii) Transfer any Warrant Shares prior to delivery to the Company of the
opinion of counsel referred to in, and to the effect described in, Section 5.2,
or until registration of such Warrant Shares under the Securities Act has become
effective. Compliance with the foregoing provisions shall not be required for
any Transfer of Warrants or of Warrant Shares by the Holder to the Company.
5.2. Opinion of Counsel. Subject to Section 5.11, so long as
this Warrant Certificate, or any certificate for Warrant Shares issued upon the
exercise of Warrants, bears the legend required by Section 5.10, the Holder
agrees that, prior to any Transfer or attempted Transfer of Warrants or Warrant
Shares evidenced by such certificate, it shall give written notice to the
Company of its intention to effect such Transfer. Any such notice shall describe
the manner and timing of the proposed Transfer in reasonable detail. Such notice
shall be accompanied by an opinion of counsel for the Holder, in form and
substance reasonably satisfactory to the Company, stating that the proposed
Transfer may be effected without registration of the securities to be
transferred under the Securities Act, following receipt of which the Company
shall promptly, at such time as shall be requested by the Holder, give effect to
such Transfer in accordance with the terms of the notice delivered by the Holder
to the Company. Each Warrant Certificate or certificate evidencing Warrants
Shares, as the case may be, issued to a transferee in such Transfer shall bear
the legend set forth in Section 5.10 if required by such Section , unless, in
the opinion of counsel for the Company, such legend is not required or
appropriate in order to insure compliance with the Securities Act.
Notwithstanding anything to the contrary in this Section 5.2, if in the
reasonable opinion of counsel for the Company, the proposed Transfer may not be
effected without registration under the Securities Act, the Company shall
promptly (and, in any case, within two business days after receiving the notice
of proposed Transfer from the Holder) so notify the Holder and the Holder shall
not consummate such Transfer until the required registration under the
Securities Act has become effective, except in another transaction exempt from
the registration requirements of the Securities Act.
5.3. Registration. The Company shall use its best efforts to,
within 120 days after the Date of Issuance, effect the registration on an
applicable form under the Securities Act of the resale of the Warrants and the
issuance or, if not permissible under the Securities Act, the resale of the
Warrant Shares. The Company shall use its best efforts to keep such registration
statement filed and declared effective pursuant to this Warrant Certificate
continuously effective until such time as (i) none of the securities covered by
such registration statement shall constitute Registrable Securities or (ii) all
of the Registrable Securities covered by such registration statement are freely
transferable pursuant to Rule 144(k); provided, however, that, notwithstanding
the foregoing, prior to the suspension or termination of the effectiveness of
any registration statement pursuant to either clause (i) or clause (ii) of this
sentence, (A) the Company shall have delivered to the Holder an opinion of
counsel to the Company satisfactory in form and substance to the Holder and its
counsel stating that the applicable condition precedent to the termination of
the effectiveness of the registration statement set forth in this sentence has
been satisfied and (B) the Holder and its counsel shall have concurred with the
conclusions set out in such opinion. If the Company shall fail to file any
registration statement required to be filed by the Company pursuant to this
Section 5.3 on or before the date that is 90 days after the Date of Issuance,
the Company shall, within five days thereafter, pay to the Holder, in cash, with
respect to each Warrant Share held by the Holder (determined on an as-converted
basis), an amount that is equal to the greater of (i) 10% of the closing price
of the Common Stock on the business day immediately preceding such 90th day and
(ii) $350,000 divided by the number of Warrant Shares (determined on an
as-converted basis) required to be included on such registration statement (the
"Initial Penalty"). In the event that a registration statement required to be
filed pursuant to this Agreement shall fail to be declared effective on or
before February 1, 1997, the Company shall pay to the Holder an additional
amount equal to 5% of the closing price of the Common Stock on the business day
immediately preceding February 1, 1997 for each Warrant Share (determined on an
as-converted basis) to be included on such registration statement (the
"Secondary Penalty"). If such registration statement is not declared
- 6 -
<PAGE> 7
effective by March 31, 1997, the Company shall pay to the Holder an
additional penalty of 10% of the closing price of the Common Stock on March 31,
1997, and on the last day of each month thereafter (each a "10% Due Date") on
the business day immediately preceeding such 10% Due Date for each Warrant Share
(determined on an as-converted basis) to be included on such registration
statement until such registration statement is declared effective (the "Final
Penalties"). With respect to any subsequent registration statement required to
be filed hereunder, the time for determination of (i) the Initial Penalty shall
be 90 days from the date of demand for the filing of such registration statement
(the "Demand Date"), (ii) the Secondary Penalty shall be seven calander months
from the Demand Date, and (iii) the Final Penalties shall be nine calendar
months from the Demand Date. The amount of any penalties due in connection
therewith shall be determined as set forth above in connection with the initial
registration statement to be filed hereunder. For purposes of this paragraph,
the closing price of such security for any day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each
case (i) on the principal national securities exchange on which such security is
listed or to which such security is admitted to trading or (ii) if such security
is not listed or admitted to trading on a national securities exchange, in the
over-the-counter market as reported by The Nasdaq National Market or a
comparable system, or (iii) if such security is not listed on The Nasdaq
National Market or a comparable system, as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to time in
good faith by the Board of Directors of the Company for that purpose. In the
absence of all of the foregoing, or if for any other reason the closing price of
such security cannot be determined pursuant to the foregoing sentence, the
closing price shall be the fair market value of such security as determined in
good faith by the Board of Directors of the Company. Without limiting the
remedies available to the Holder, the Company acknowledges that any failure by
the Company to comply with its obligations under this Section 5.3 may result in
material irreparable injury to the Holder (and/or subsequent holders) for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Holder (or any subsequent holder of Registrable Securities) may obtain such
relief as may be required to specifically enforce the Company's obligations
under this Section 5.3. Notwithstanding anything in this Warrant certificate to
the contrary, so long as the Company is in compliance with its obligations with
respect to the payment of any penalties pursuant to this Section 5.3, it shall
not be in breach of its obligation to register Common Stock or Warrants under
this Section 5.3.
5.4. Underwritten Offering. The Holder may sell any or all of
its Registrable Securities in an underwritten offering; provided, however, that,
nothing contained in this Section 5.4 shall in any way accelerate the obligation
of the Company set forth in the first sentence of Section 5.3. If the Holder
desires to do so, it shall so notify the Company in writing, stating in such
notice the number and class of securities proposed to be sold. Within five days
after receipt of such notice, the Company shall mail a notice stating that the
Holder has requested an underwritten offering of all or part of its Registrable
Securities (which notice shall state the number and class of securities proposed
to be sold by the Holder) to any other holders of Registrable Securities and to
any other holders of "Registrable Securities" under any other Warrant
Certificates or the Registration Rights Agreement. Any such other holder
desiring to participate in the underwritten offering shall be entitled to do so,
provided that such holder notifies the Company of its intent to so participate
(specifying in its notice the number of securities proposed to be sold, all of
which shall be required to be of the same class as those set forth in the
Holder's notice) not later than the date that is fifteen days after the date on
which the Company mailed notice of such underwritten offering to such other
holder. In any such underwritten offering requested by the Holder, the
investment banker or investment bankers and manager or managers (the
"Underwriters") that will administer the offering will be selected by the
Holder, subject to the reasonable approval of the holders of a majority of the
securities (determined on an as-converted basis and including the Holder's
Registrable Securities) proposed to be included in such offering and the
reasonable approval of the Company. Notwithstanding anything to the contrary set
forth
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<PAGE> 8
herein, if the Underwriter determines that the number of securities
includable in an underwritten offering requested by the Holder is limited due to
market conditions, priority shall be given first to the Registrable Securities
and any other securities constituting "Registrable Securities" under any other
Warrant Certificate or the Registration Rights Agreement held by the Holder and
then to securities held by all other holders of securities proposing to sell
securities in such underwritten offering on a pro rata basis (determined on an
as-converted basis). Any holder of securities requesting the inclusion of
securities held by such holder in an underwritten offering pursuant to this
Section 5.4 (including the Holder) may, at any time (subject to any arrangements
entered into with the Underwriters), withdraw all or any part of its securities
from such underwritten offering. Notwithstanding anything to the contrary
herein, the provisions of this Section 5.4 shall not apply to any securities
that are freely transferable pursuant to Rule 144(k) under the Securities Act.
5.5. Registration Procedures; Obligations of the Company. In
connection with its obligations under Section 5.3 and Section 5.4, the Company
shall, in addition to such other requirements as are set forth elsewhere in this
Warrant Certificate, including, without limitation, in Section 5.3 and Section
5.4:
(i) prepare and file with the Commission a
registration statement on an applicable form under the
Securities Act with respect to the applicable securities, use
its best efforts to cause such registration statement to
become effective within the applicable time period and
promptly prepare and file with the Commission such amendments
and supplements to the registration statement and the
prospectus used in connection therewith as may be necessary to
keep the registration statement effective and current and to
comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities covered by
the registration statement, including, without limitation,
such amendments and supplements as may be necessary to reflect
the intended method of disposition from time to time of the
prospective seller or sellers of such securities or as may be
necessary upon the occurrence of an event contemplated by
clause (E) of paragraph (ii) of this Section 5.5, and use its
best efforts to cause any such amendment to become effective
and such registration statement to become usable as soon as
thereafter practicable;
(ii) notify the Holder promptly and, if
requested by the Holder, confirm such advice in writing, (A)
when any registration statement filed hereunder has become
effective and when any post-effective amendments and
supplements thereto have been filed and become effective, (B)
of any request by the Commission or any state securities
authority for amendments and supplements to any registration
statement filed hereunder and related prospectus or for
additional information after the registration statement has
become effective, (C) of the issuance by the Commission or any
state securities authority of any stop order suspending the
effectiveness of any registration statement filed hereunder or
the initiation of any proceedings for that purpose, (D) if,
between the effective date of any registration statement filed
hereunder and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties
of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any,
relating to such offering cease to be true and correct in all
material respects or if the Company receives any notification
with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the
initiation of any proceeding for such purpose, (E) of the
happening of any event which makes any statement made in any
registration statement filed hereunder or the related
prospectus untrue in any material respect or which requires
the making of any changes in the registration statement or
prospectus in order to make the statements therein not
misleading and (F) of any determination by the Company that
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<PAGE> 9
a post-effective amendment to any registration statement filed
hereunder would be appropriate;
(iii) make every reasonable effort to obtain
the withdrawal of any order suspending the effectiveness of
any registration statement filed hereunder at the earliest
possible moment and provide prompt notice to the Holder of the
withdrawal of any such order;
(iv) promptly furnish to the Holder and any
Underwriter such number of copies of a prospectus, including a
preliminary prospectus and any prospectus supplement, in
conformity with the requirements of the Securities Act, and
such other documents as the Holder and/or Underwriter may
reasonably request in order to facilitate the public sale or
other disposition of Registrable Securities;
(v) use its best efforts to register or
qualify on a timely basis the Registrable Securities covered
by any registration statement filed hereunder under such other
securities or blue sky or other applicable laws of such
jurisdictions within the United States as the Holder shall
reasonably request to enable the Holder to consummate the
public sale or other disposition in such jurisdictions of
Registrable Securities;
(vi) cooperate with the Holder to facilitate
the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing
any restrictive legends and enable such Registrable Securities
to be in such amounts and registered in such names as the
Holder may reasonably request at least two business days prior
to the closing of any sale of Registrable Securities;
(vii) upon the occurrence of any event
contemplated by clause (E) of paragraph (ii) of this Section
5.5, notify the Holder to suspend use of any applicable
prospectus as promptly as practicable after the occurrence of
such an event;
(viii) within a reasonable time prior to the
filing of any registration statement to be filed hereunder,
prospectus to be included therein, or amendment or supplement
to either of the foregoing, provide copies of such document to
the Holder and its counsel, and make such of the
representatives of the Company as shall be reasonably
requested by the Holder or its counsel available for
discussion of such document, and shall not at any time file or
make any amendment or supplement to any such document of which
the Holder and its counsel shall not have previously been
advised and furnished a copy or in a form in which the holders
of a majority of the securities covered by such registration
statement (determined on an as-converted basis) or their
counsel shall reasonably object on a timely basis;
(ix) make available for inspection by a
representative of the Holder, any Underwriter participating in
any disposition pursuant to any registration statement filed
hereunder and attorneys and accountants designated by the
Holder or any Underwriter, at reasonable times and in a
reasonable manner, all financial and other records, pertinent
documents and properties of the Company, and cause the
respective officers, directors and employees of the Company to
supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in
connection with the registration statement; provided, however
that such representatives, Underwriters, attorneys or
accountants agree to keep confidential any records,
information or documents that are designated by the
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<PAGE> 10
Company in writing as confidential and to use such information
obtained pursuant to this provision only in connection with
the transaction for which such information was obtained, and
not for any other purpose, unless (A) such records,
information or documents (I) are available to the public, (II)
were already in such representatives', Underwriters',
attorneys' or accountants' possession prior to their receipt
from the Company and they do not otherwise have any obligation
to keep such records, information or documents confidential or
(III) are obtained by such representatives, Underwriters,
attorneys or accountants from a third person who, insofar as
is known to such representatives, Underwriters, attorneys or
accountants, is not prohibited from transmitting the
information to such representatives, Underwriters, attorneys
or accountants by a contractual, legal or fiduciary obligation
to the Company or a third party, or (B) disclosure of such
records, information or documents is required by court or
administrative order after the exhaustion of appeals
therefrom;
(x) use its best efforts to cause all
Registrable Securities to be listed or traded on any
securities exchange or any automated quotation system on which
similar securities issued by the Company are then listed or
traded, to the extent such Registrable Securities satisfy
applicable listing or trading requirements; provided, that,
for purposes of this clause (x), the Warrants shall not be
deemed to be similar to the Common Stock.
(xi) enter into such customary agreements and
take all such other reasonable actions in connection therewith
in order to expedite or facilitate the disposition of
Registrable Securities (including, but not limited to,
pursuant to an underwritten offering), and in such connection,
(A) to the extent possible, make such representations and
warranties to the Holder and any Underwriters of Registrable
Securities with respect to the business of the Company and its
subsidiaries and its or its subsidiaries' joint ventures, the
applicable registration statement, prospectus and documents
incorporated by reference or deemed incorporated by reference,
if any, in each case, in form, substance and scope as are
customarily made by issuers to Underwriters in underwritten
offerings, and confirm the same if and when requested, (B)
obtain opinions of counsel to the Company (which counsel and
opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holder and any Underwriters and their
respective counsel) addressed to the Holder and any
Underwriter, covering the matters customarily covered in
opinions requested in underwritten offerings, (C) obtain "cold
comfort" letters from the independent certified public
accountants of the Company (and, if necessary, any other
certified public accountant of any subsidiary of the Company
or any joint venture in which the Company or any of its
subsidiaries is a partner, or of any business acquired by the
Company for which financial statements and financial data are
or are required to be included in the applicable registration
statement) addressed to the Holder and any Underwriter, such
letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in
connection with underwritten offerings, and (D) deliver such
documents and certificates as may be reasonably requested by
the Holder or any Underwriter, and which are customarily
delivered in underwritten offerings, to evidence the continued
validity of the representations and warranties of the Company
made pursuant to clause (A) above and to evidence compliance
with any customary conditions contained in any underwriting
agreement.
(xii) take, or refrain from taking, such
other actions, and execute and deliver such other documents,
as may reasonably be requested by the Holder or any
Underwriter.
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<PAGE> 11
5.6. Expenses of Registration. All expenses incurred in
effecting any registration pursuant to this Section 5 (collectively,
"Registration Expenses"), including, without limitation, all registration and
filing fees, listing fees, printing expenses, expenses of compliance with blue
sky laws, fees and disbursements of counsel for the Company and expenses of any
audits incidental to or required by any such registration, shall be borne by the
Company; provided, that, in the case of all registrations, the Holder shall pay
the fees and disbursements of its own counsel and underwriting discounts and
commissions in connection with an underwriter offering.
5.7. Indemnification. (a) The Company hereby indemnifies and
holds harmless the Holder and each officer, director and controlling person of
the Holder against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of any rule or regulation promulgated under the
Securities Act or any state securities law applicable to the Company and
relating to any action required of or inaction by the Company in connection with
any such registration, qualification or compliance, and will reimburse the
Holder and each such officer, director and controlling person for any legal and
any other expenses incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided, however, that the
Company will not be liable to the Holder in any such case to the extent that any
such claim, loss, damage or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company in
an instrument duly executed by the Holder and stated to be specifically for use
in the document containing such untrue statement of a material fact or omitting
to state the material fact required to be stated therein.
(b) Each party entitled to indemnification hereunder (each an
"indemnified party") shall give notice to the Company promptly after such
indemnified party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Company (at its expense) to assume the defense of
any claim or any litigation resulting therefrom, provided that counsel for the
Company who shall conduct the defense of such claim or litigation shall be
reasonably satisfactory to the indemnified party. The indemnified party may
participate in such defense, but only at such indemnified party's expense. The
omission by any indemnified party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 5.7(b) except to the
extent that the omission results in a failure of actual notice to the Company
and the Company is damaged solely as a result of the failure to give notice. The
Company shall not, in the defense of any such claim or litigation, except with
the consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability with respect to such claim or litigation.
(c) The reimbursement required by this Section 5.7 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(d) To the extent any indemnification by the Company is
prohibited or limited by law, the Company agrees to make the maximum
contribution permitted by applicable law with respect to any amounts for which
it would otherwise be liable under Section 5.7(a).
(e) The Company will enter into indemnification and
contribution arrangements with the Holder, any other participating
securityholders and the Underwriters that are usual and customary and/or
reasonable under the circumstances in connection with any underwritten offering
to be effected pursuant to Section 5.4; provided, that, nothing contained herein
shall require the
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<PAGE> 12
Company to indemnify any Underwriter in connection with any statement expressly
provided for inclusion in any registration statement by such Underwriter.
5.8. Other Registrations. (a) The Company may not, without the
prior written consent of the holders of a majority of the participating
Registrable Securities (determined on an as-converted basis), permit present or
subsequent investors in the Company (other than transferees of Registrable
Securities) to participate in any registrations initiated pursuant to Section
5.3 or underwritten offerings requested pursuant to Section 5.4; provided,
however, that, nothing contained herein shall be interpreted so as to prohibit
the Company from entering into and performing its obligations under Section 5.4,
under Section 5.4 of any of the other Warrant Certificates, under the
Registration Rights Agreement (including, but not limited to, in respect of
securities to be received on future dates pursuant to the Term Loan Agreement)
or under any of the registration rights agreements listed on Schedule 5.8(a).
(b) To the extent that an underwritten offering is requested
pursuant to any other Warrant Certificate or the Registration Rights Agreement,
the Holder shall be given the opportunity to elect to participate in such
underwritten offering on the terms and subject to the conditions set forth in
the Registration Rights Agreement. The Company shall not amend any of such terms
in any Warrant Certificate or in the Registration Rights Agreement in a manner
adverse to the Holder without the prior written consent of the holders of a
majority of the Registrable Securities (determined on an as-converted basis).
5.9. Rule 144 Requirements; Adequate Information for Private
Sales. (a) At all times and from time to time, the Company shall undertake to
make publicly available and available to the Holder, pursuant to Rule 144 of the
Commission under the Securities Act, such information as is necessary to enable
the Holder to make sales of Registrable Securities pursuant to that Rule. The
Company shall furnish to the Holder, upon request, a written statement executed
by the Company as to the steps it has taken to comply with the current public
information requirements of Rule 144. Notwithstanding the foregoing, the Company
shall have no further obligations under this Section 5.9 at such time as all
then outstanding Registrable Securities may be sold pursuant to paragraph (k) of
Rule 144, as determined by, and set forth in an opinion of, counsel to the
Company who is reasonably acceptable to the Holder. The Holder shall notify the
Company promptly after it ceases to hold any Registrable Securities.
(b) If the Holder desires to effect a Transfer of Registrable
Securities without registration under the Securities Act, and if at such time
such Transfer cannot be effected pursuant to Rule 144, then the Company, at the
Holder's request and at the Company's expense, shall provide the Holder with all
such information regarding the Company as would be required in order to enable
the Holder to comply with the exemption from registration provided by Section
4(l) of the Securities Act (or any successor provision) or any other applicable
exemption from registration.
5.10. Legends. (a) Each Warrant Certificate issued in
exchange, transfer, or replacement of this Warrant Certificate shall (unless
otherwise permitted by Section 5.2 or unless the Warrants to be evidenced by
such Warrant Certificate shall have been transferred pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144 or any
successor rule) be stamped or otherwise imprinted with a legend substantially in
the form of the legend appearing at the top of the first page of this Warrant
Certificate.
(b) Each certificate for Warrant Shares, including any such
certificate issued to a subsequent transferee, shall (unless otherwise permitted
by Section 5.2 or unless the Warrant Shares to be evidenced by such certificate
shall have been issued or transferred pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 144 or any successor
rule) be stamped or otherwise imprinted with a legend in substantially the
following form:
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<PAGE> 13
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE TRANSFER
OF SAID SECURITIES IS SUBJECT TO THE RESTRICTIONS SET FORTH IN
SECTION 5 OF THE WARRANT CERTIFICATE, DATED AS OF JULY 2,
1996, OF WINNERS ENTERTAINMENT, INC., A COPY OF WHICH HAS BEEN
DELIVERED TO THE REGISTERED HOLDER OF THE SECURITIES
REPRESENTED HEREBY AND WHICH IS AVAILABLE FOR INSPECTION AT
THE HEAD OFFICE OF WINNERS ENTERTAINMENT, INC. NO TRANSFER OF
SAID SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL
THE TERMS AND CONDITIONS OF SECTION 5 OF THE WARRANT
CERTIFICATE SHALL HAVE BEEN COMPLIED WITH."
(c) The provisions of Sections 4.3(h), 5.1 and 5.2 and this
Section 5.10 shall be binding upon all subsequent Holders.
5.11. Exchange of Certificates. At such time as shall
reasonably be requested by the Holder, subject to applicable law regarding the
unrestricted transfer of securities, the Company will deliver to the Holder,
upon delivery to the Company of a certificate or certificates representing
Warrants or Warrant Shares bearing the legend set forth in Section 5.10, a new
certificate or certificates representing such Warrants or Warrant Shares but not
bearing such legend.
6. COMPANY'S ACKNOWLEDGMENT OF OBLIGATIONS
The Company will, at the time of any exercise of Warrants,
upon the request of the Holder, acknowledge in writing its continuing obligation
to afford to the Holder all rights to which the Holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant
Certificate; provided, however, that, if the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to the Holder any such rights.
7. ADJUSTMENTS
The number of Warrant Shares purchasable pursuant hereto and
the Purchase Price per Warrant Share shall be subject to adjustment from time to
time on and after the Date of Issuance as hereinafter provided in this Section
7.
7.1. Adjustment of Purchase Price. The initial purchase price
per Warrant Share of $1.06 per share shall be subject to adjustment from time to
time as hereinafter provided on or after the Date of Issuance (as so adjusted
from time to time, the "Purchase Price"). Upon each adjustment of the number of
Warrant Shares purchasable pursuant hereto, the Purchase Price shall be reduced
to a price determined by dividing the aggregate Purchase Price of all
unexercised Warrant Shares in effect immediately prior to such adjustment by the
maximum total number of Warrant Shares purchasable immediately after such
adjustment.
7.2. Adjustment of Number of Shares. If and whenever after the
Date of Issuance the Company shall in any manner (i) issue or sell any shares of
its Common Stock, (ii) grant any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or securities convertible
into or exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), (iii) issue or sell Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, or (iv) declare a dividend or make any other
distribution upon any stock of the Company payable in Common Stock, Options or
Convertible Securities (any of the matters referred to in clauses (i), (ii),
(iii)
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<PAGE> 14
and (iv) being an "Event"), the Holder shall thereafter be entitled to purchase
in the aggregate, at the Purchase Price resulting from the adjustment provided
by Section 7.1, the number of Warrant Shares equal to that percentage of the
total number of shares of Common Stock (determined on an as-converted basis)
that the Holder was entitled to purchase immediately prior to such Event;
provided, however, that, if an adjustment is required to be made pursuant to
this sentence in respect of any Event that involves the offer and/or issuance of
securities to all of the holders of the Common Stock, the Holder shall
thereafter be entitled to receive the number of Warrant Shares which the Holder
would have owned immediately following such Event (on an as-converted basis) had
the Warrants been exercised immediately prior thereto. Notwithstanding the
foregoing, no adjustment shall be made pursuant to any Event: (i) at any time
prior to the date that is 30 months after the repayment in full of all of the
outstanding principal under the Term Loan Agreement and the $11,100,000 loan
facility (the "Financing Facility") contemplated by the letter agreement, dated
July 2, 1996, among the Original Holder, Mountaineer and the Company, if (A) the
securities issued in connection with the Event were sold for a price (determined
on an as-converted basis) exceeding the Purchase Price or (B) if the Event that
would result in such adjustment was approved in advance in writing by the
holders of a majority of the shares of Common Stock (determined on an
as-converted basis) issuable upon the exercise of the warrants represented by
the Warrant Certificates, which approval shall not be unreasonably withheld; and
(ii) following the date that is 30 months after the repayment in full of all of
the outstanding principal under the Term Loan Agreement and the Financing
Facility; provided, however, that, notwithstanding anything to the contrary set
forth in clauses (i) and (ii) above, the adjustments provided for in the first
sentence of this Section 7.2 shall continue to be made in respect of any Event
to the extent that such Event involves the offer and/or issuance of securities
to all of the holders of any class of securities of the Company; provided,
further, however, that, nothing contained in this sentence shall limit the
effect of any adjustment to be made pursuant to any other Section of this
Warrant Certificate. Notwithstanding the first sentence of this paragraph, no
adjustment shall be made pursuant to this Section 7.2 in respect of the issuance
of (i) Common Stock or Options to employees, directors and officers of the
Company and its subsidiaries under bona fide employee benefit plans adopted by
the Board of Directors, to the extent that, with respect to any applicable
fiscal year, shares of Common Stock or Options representing (on an as-converted
basis) no more than 1% of the issued and outstanding shares of Common Stock on
the Date of Issuance are issued, (ii) Common Stock in the ordinary course of
business, the issuance of which has been approved by the Board of Directors, to
the extent that, with respect to any applicable fiscal year, shares of Common
Stock representing (on an as-converted basis) no more than .5% of the issued and
outstanding shares of Common Stock on the Date of Issuance are issued or (iii)
warrants or shares of Common Stock pursuant to the terms of the Term Loan
Agreement or the Financing Facility.
7.3. Record Date. In case at any time the Company shall take a
record of the holders of the Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in shares of Common Stock,
Options or in Convertible Securities or (ii) to subscribe for or purchase shares
of Common Stock, Options or Convertible Securities, then such record date shall,
for purposes of the adjustments to be made pursuant to this Section 7, be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the payment of such dividend or of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
7.4. Liquidating Dividends. The Company will not declare a
dividend upon the Common Stock payable other (i) than out of consolidated
earnings for the fiscal year of the Company in respect of which the dividend is
paid, determined in accordance with Generally Accepted Accounting Principles
consistently applied by the Company's independent certified public accountants,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries, or (ii) than in Common Stock, unless, in either case, the
Company shall pay over to the Holder, on the dividend payment date, the cash,
stock or other securities and other property which the Holder would have
received if the Holder had exercised the Warrants in full to purchase
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<PAGE> 15
Warrant Shares and had been the record holder of such Warrant Shares on the date
on which a record is taken for the purpose of such dividend, or, if a record is
not taken, the date as of which the holders of Common Stock of record entitled
to such dividend are to be determined. For the purposes of the foregoing, a
dividend other than in cash shall be considered payable out of earnings only to
the extent that such earnings are charged an amount equal to the fair value of
such dividend as determined in good faith by the Board of Directors of the
Company.
7.5. Subdivision or Combination of Shares. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Purchase Price in effect immediately prior to such
subdivision shall thereafter be proportionally reduced and the number of shares
of Common Stock purchasable hereunder shall be proportionately increased so that
the Holder shall be entitled to receive the number of Warrant Shares which the
Holder would have owned immediately following such action had the Warrants been
exercised immediately prior thereto at the aggregate Purchase Price in effect
immediately prior to such action. In case the outstanding shares of Common Stock
shall be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of shares of Common Stock purchasable hereunder shall be
proportionately reduced so that the Holder shall thereafter be entitled to
receive the number of Warrant Shares which the Holder would have owned
immediately following such action had the Warrants been exercised immediately
prior thereto at the aggregate Purchase Price in effect immediately prior to
such action.
7.6. Reorganization, Merger, etc. If any capital
reorganization or reclassification of the capital stock of the Company (other
than as provided in Section 7.5), or consolidation or merger of the Company with
another corporation, or the sale or conveyance, of all or substantially all of
its assets to another corporation, shall be effected in such a way that holders
of the Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for shares of Common Stock, then, prior to and as
a condition of such reorganization, reclassification, consolidation, merger,
sale or conveyance, lawful and adequate provision shall be made whereby the
Holder shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant Certificate and in
lieu of the Warrant Shares immediately theretofore purchasable and receivable
upon the exercise of the Warrants, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger, sale or conveyance not taken place. In any such case,
appropriate provision shall be made with respect to the rights and interests of
the Holder to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Purchase Price and of the number of Warrant
Shares purchasable upon the exercise of the Warrants and for the registration of
Registrable Securities to the extent provided in Section 5) shall thereafter be
applicable, as nearly as may be in relation to any stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any such consolidation, merger, sale or conveyance unless prior to or
simultaneously with the consummation thereof the survivor or successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing or otherwise acquiring such assets shall
(i) assume by written instrument executed and sent to the Holder, the obligation
to deliver to the Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder may be entitled to receive,
and containing the express assumption by such survivor or successor corporation
of the due and punctual performance and observance of every provision of this
Warrant Certificate to be performed and observed by the Company and of all
liabilities and obligations of the Company hereunder, and (ii) deliver to the
Holder an opinion of counsel, in form and substance reasonably satisfactory to
the Holder, to the effect that such written instrument has been duly authorized,
executed and delivered by such survivor or successor corporation and constitutes
a legal, valid and binding instrument enforceable against such survivor
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<PAGE> 16
or successor corporation in accordance with its terms, and to such further
effects as the Holder may request.
7.7. Exceptions to Adjustment of Purchase Price. Anything
herein to the contrary notwithstanding, the Company shall not be required to
make any adjustment of the Purchase Price upon the issuance of Warrants, the
issuance of Warrant Shares upon the exercise of Warrants or the issuance of
warrants or shares of Common Stock in connection with the Financing Facility.
7.8. Treasury Shares. The number of shares of Common Stock
outstanding at any time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of Section
7.9. Company to Prevent Dilution. In case at any time or from
time to time conditions arise, which are not adequately covered by the
provisions of this Section 7, and which might materially and adversely affect
the exercise rights of the Holder, the Board of Directors of the Company shall
appoint a firm of independent certified public accountants of recognized
national standing, which may be the firm regularly retained by the Company,
which shall give their opinion upon the adjustment, if any, necessary with
respect to the Purchase Price and/or number of Warrant Shares issuable upon the
exercise of the Warrants, on a basis consistent with the standards established
in the other provisions of this Section 7, so as to preserve, without dilution,
the exercise rights of the Holder. Upon receipt of such opinion, the Board of
Directors of the Company shall forthwith make the adjustments described therein.
7.10. Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of the
Warrants, or upon any adjustment in the Purchase Price (in each case to the
extent applicable), then, and in each such case, the Company within 5 days
thereafter, shall deliver written notice thereof to the Holder, which notice
shall state the increased or decreased number of Warrant Shares purchasable upon
the exercise of the Warrants, setting forth in reasonable detail the method of
calculation and the facts upon which such calculations are based. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the provisions of Section 9.
8. SPECIAL COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) The Company will not, by amendment of its Certificate of
Incorporation or through any capital reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, directly or indirectly, avoid or seek to avoid the observance
or performance of any of the terms of the Warrants, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (i) will not increase the par value of the Warrant
Shares above the Purchase Price payable therefor upon such exercise, or take any
other action that would cause the Purchase Price to be less than the par value
of the Warrant Shares, (ii) will take all such action as may be necessary or
appropriate in order that the Company may at all times validly and legally issue
fully paid and non-assessable Warrant Shares upon the exercise of all Warrants
from time to time outstanding and (iii) will not issue any capital stock of any
class which is preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary dissolution, liquidation or winding-up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par value in respect of participation in dividends and in any such distribution
of assets.
- 16 -
<PAGE> 17
(b) If any shares of Common Stock required to be reserved for
the purpose of exercising the Warrants require registration with or approval of
any governmental authority under any federal law (other than the Securities Act)
or under any state law before such shares may be issued upon exercise of the
Warrants, the Company will, at its expense, as expeditiously as possible, use
its best efforts to cause such shares to be duly registered or approved, as the
case may be.
(c) The Company will give notice to the Holder within ten days
after the Company shall have filed with the Commission an application to
register any securities of the Company pursuant to the Exchange Act. The Company
will review its stock ledgers, stock transfer books and other corporate records
periodically (and not less than once in each calendar quarter) in order to
determine whether the Holder is or shall have become, directly or indirectly,
the owner of record of more than such percentage of any class of the Company's
equity securities (as defined in the Exchange Act) as shall cause such Holder to
be required to make any filing or declarations to the Company, the Commission or
any securities exchange or inter-dealer quotation system pursuant to the
provisions of the Exchange Act or the rules and regulations of any such
securities exchange or inter-dealer quotation system. The Company will give
prompt notice to the Holder whenever it shall have so determined, but in any
event not less than quarterly, and such notice shall also specify the
information upon which the Company bases such determination; provided, that, the
Company shall be required to give such notice only once in each fiscal year to
the Holder if its percentage of ownership of record of the Company's equity
securities has not changed since the date that the last such notice was given.
Nothing contained in this paragraph (c) of Section 8 be construed so as to
qualify or limit any reporting obligation of the Holder under the Exchange Act.
9. NOTIFICATION BY THE COMPANY
In case at any time:
(i) the Company shall declare any dividend or any
other distribution upon its Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock
of any class or any Convertible Securities or Options;
(iii) the Board of Directors of the Company shall
authorize any capital reorganization or reclassification of the capital
stock of the Company, or a sale or conveyance of all or substantially
all of the assets of the Company, or a consolidation or merger of the
Company with or into another Person;
(iv) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(v) the Company shall propose to take any other
action that would require a vote of the Company's stockholders; then,
in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and to the
extent legally practicable and to the extent determined as of such
time), not less than 30 days before any record date or other date set
for definitive action) of the date on which (A) the books of the
Company shall close or a record shall be taken with respect to such
dividend, distribution, subscription rights or Options or (B) such
reorganization, reclassification, sale, conveyance, consolidation,
merger, dissolution, liquidation, winding-up or other action shall take
place or be voted on by the stockholders of the Company, as the case
may be. Such notice shall also specify the date as of which the holders
of Common Stock of record
- 17 -
<PAGE> 18
shall participate in said dividend, distribution, subscription rights
or Options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in
question or the record date is subject to the effectiveness of a
registration statement under the Securities Act or to a favorable vote
of stockholders, the notice required by this Section 9 shall so state.
10. LIMITATION ON EXERCISE
Notwithstanding any other provision hereof, the Holder shall
not be entitled to exercise the Warrants if, as a result of such exercise, the
Holder would own, control or have power to vote a greater quantity of securities
of any kind issued by the Company than the Holder shall be permitted to own,
control or have the power to vote under any law or under any regulation, rule or
other requirement or any governmental authority at any time applicable to the
Holder. For purposes of this Section 10, a written statement of the Holder, to
the effect that the Holder is legally entitled to exercise Warrants and that
such purchase of the Warrant Shares purchasable upon the exercise of such
Warrants will not violate the prohibitions set forth in the preceding sentence,
shall be sufficient evidence of the legality thereof and shall obligate the
Company to deliver certificates representing the Warrant Shares so purchased in
accordance with the other provisions hereof unless the Company shall reasonably
disagree as to the accuracy of any material portion of such written statement.
11. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY
The Warrants will not entitle the Holder to any voting rights
or other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Holder, shall give rise to
any liability of the Holder for any portion of the Purchase Price or as a
stockholder of the Company.
12. DATE OF ISSUANCE
The date the Company initially issues the Warrants will be
deemed to be the "Date of Issuance" thereof and of each new Warrant issued in
exchange, transfer or replacement thereof, regardless of the number of times new
certificates representing the unexplored and unexercised rights formerly
represented by this Warrant Certificate shall be issued.
13. AMENDMENT AND WAIVER
Except as otherwise provided herein, the provisions of the
Warrant Certificates may be amended and the Company may take action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the prior written consent of the holders of a
majority of the "Warrant Shares" then outstanding under all of the Warrant
Certificates (determined on an as-converted basis), or, in the case of any
amendment to, or action prohibited or required under, Section 5.3, 5.4, 5.5,
5.6, 5.8 or 5.9 of any Warrant Certificate, the holders of a majority of the
"Registrable Securities" under all of the Warrant Certificates (determined on an
as-converted basis); provided, that, changes that are detrimental to the Holder
in (i) the Purchase Price, (ii) the number of or class of securities issuable
upon the exercise of Warrants, (iii) the conversion adjustment provisions set
forth in Section 7 and (iv) the indemnification and contribution provisions set
forth in Section 5.7, shall not be made as to the Holder without the consent of
the Holder.
14. NO FRACTIONAL SHARES
- 18 -
<PAGE> 19
The Company shall not be required to issue stock certificates
representing fractions of shares of Common Stock, but may at its option in
respect of any final fraction of a share make a payment in cash based on the
then effective Purchase Price.
15. RESERVATION OF SHARES
The Company will authorize, reserve and keep available at all
times, free from preemptive rights, a sufficient number of shares of Common
Stock or other securities, if so required, to satisfy the exercise of the
Warrants.
16. NOTICES
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid or when delivered by courier:
(i) if to the Original Holder, at 950 Third Avenue,
New York, New York 10022, or at such other address as may have been
furnished to the Company in writing by the Holder; and
(ii) if to the Company, at Route 2 South, Chester,
West Virginia 26034, Attention: President, or at such other address as
may have been furnished to the Holder in writing by the Company, with a
copy to Robert L. Ruben, Esq., Freer & McGarry, 100 Thomas Jefferson
Street, N.W., Suite 600, Washington, D.C. 20007.
17. HEADINGS
The headings of the Sections and subsections of this Warrant
Certificate are inserted for convenience only and shall be deemed not to
constitute a part of this Warrant Certificate.
18. GOVERNING LAW; CONSENT TO JURISDICTION
This Warrant Certificate shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to the
principles of conflicts of laws of such State. If any action or proceeding shall
be brought by the Holder in order to enforce any right or obligation in respect
of this Warrant Certificate or the Warrants, the Company hereby consents and
will submit to the jurisdiction of any state or federal court of competent
jurisdiction sitting within the area comprising the Southern District of New
York, and agrees that venue will be proper in any such court.
19. BINDING EFFECT
The terms and provisions of this Warrant Certificate
shall inure to the benefit of the Original Holder and its successors and
permitted assigns and shall be binding upon the Company and its successors and
permitted assigns, including, without limitation, any Person succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
20. CALCULATION OF AMOUNTS AND PERCENTAGES
To the extent that any provision of this Warrant
Certificate requires the approval of the holders of a stated percentage or
amount (to the extent constituting less than all) of the Warrants, Warrant
Shares or Registrable Securities, all of the "Warrants," "Warrant Shares" and
"Registrable Securities," as the case may be, under all of the Warrant
Certificates held by the
- 19 -
<PAGE> 20
"Original Holders" thereof and their respective successors and permitted assigns
shall be included when making such calculation.
21. REPRESENTATIONS OF ORIGINAL HOLDER
The Original Holder represents and warrants that it
is an "accredited investor" as such term is defined in the Rule 501(c) of
Regulation D under the Securities Act and that it is acquiring the Warrants for
its own account or for one or more accounts (each of which is an "accredited
investor") as to which it exercises sole investment discretion, for investment
and not with a view to resale or distribution thereof.
22. OTHER REPRESENTATIONS
(a) The Company represents and warrants that it has not
entered into, and covenants that, on and after the Date of Issuance it will not
enter into, any agreement that is inconsistent with or that may prejudice the
rights granted to the Holder in this Warrant Certificate or that otherwise
conflicts with the provisions hereof. The rights granted to the Holder hereunder
do not in any way conflict with and are not inconsistent with the rights granted
to the holders of the Company's other issued and outstanding securities, other
than rights underlying agreements set forth on Schedule 5.8(a) hereto, copies of
which have been provided to the Holder.
(b) The Company has validly reserved for issuance upon
exercise of all of the Warrants, out of its authorized but unissued share
capital, a sufficient number of shares of Common Stock so as to enable the
Holder to exercise the Warrants in full.
WITNESS the seal of the Company and the signatures of its duly
authorized officers.
Dated: July 2, 1996 WINNERS ENTERTAINMENT, INC.
By: /s/ Edson R. Arneault
----------------------------
Name: Edson R. Arneault
Title:President
Attest:
/s/ Robert L. Ruben
- -----------------------------
Robert L. Ruben
Assistant Secretary
- 20 -
<PAGE> 21
EXHIBIT I
ASSIGNMENT
To Be Executed by the Registered Holder Desiring to
Transfer Purchase Rights Evidenced by
the Within Warrant Certificate of
WINNERS ENTERTAINMENT, INC.
FOR VALUE RECEIVED, the undersigned registered Holder hereby sells,
assigns and transfers unto _________________ the right to purchase
________ Warrant Shares (as defined in the Warrant Certificate) covered
by the within Warrant Certificate, and does hereby irrevocably
constitute and appoint _____________________ Attorney to transfer the
applicable number of Warrants on the books of the Company (as defined
in the Warrant Certificate), with full power of substitution.
Name of
Registered Holder
--------------------------------
Signature
----------------------------------------
Title
----------------------------------------
Address
-----------------------------------------
--------------------------------------------------
Dated: __________, 19__
In the presence of
- ---------------------
NOTICE:
The signature to the foregoing Assignment must correspond to the name written
upon the face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
- 21 -
<PAGE> 22
EXHIBIT II
EXERCISE AGREEMENT
To Be Executed by the Registered Holder Desiring to
Exercise Warrants Represented by the Within Warrant Certificate of
WINNERS ENTERTAINMENT, INC.
The undersigned registered holder hereby exercises the right
to purchase _____ shares of the Common Stock covered by the within Warrant
Certificate, according to the conditions thereof, and herewith make payment in
full of the Purchase Price of such shares, $______.
Name of
Registered Holder
--------------------------------
Signature
----------------------------------------
Title
----------------------------------------
Address
-----------------------------------------
--------------------------------------------------
Dated: __________, 19__
- 22 -
<PAGE> 23
SCHEDULE OF SUBSTANTIALLY IDENTICAL
WARRANTS
The following four warrants are substantially identical in all material
respects to the warrant identified as Exhibit 4(1) in Item 14 of Part IV, with
the following exceptions:
Warrant Certificate No. 2 issued to Madeleine, LLC, dated July 2, 1996,
to purchase 250,000 shares of the common stock of Winners Entertainment, Inc. at
$1.06 per share for five years commencing July 2, 1996.
Warrant Certificate No. 3 issued to Bridge Capital, LLC, dated July 2,
1996, to purchase 25,000 shares the common stock of Winners Entertainment, Inc.
at $0.80 per share for five years commencing July 2, 1996.
Warrant Certificate No. 4 issued to Brownstone Holdings, LLC, dated
July 2, 1996, to purchase 25,000 shares of Winners Entertainment, Inc. at $0.80
per share for five years commencing July 2, 1996.
Warrant Certificate No. 5 issued to Madeleine LLC, dated July 2, 1996,
to purchase 350,000 shares of Winners Entertainment, Inc. at $1.06 per share for
five years commencing July 2, 1996.
<PAGE> 1
EXHIBIT 10(1)
PROMISSORY NOTE
US$250,000.00
FOR VALUE RECEIVED, the undersigned, Mountaineer Park, Inc., a West
Virginia corporation (the "Maker"), promises to pay AstraFund, Ltd., a Cayman
Islands, BWI corporation along with each subsequent holder or holders of this
Note (the "Holder"), the sum of Two Hundred Fifty Thousand Dollars
(US$250,000.00) on or before 1 July, 1996.
All payments on account hereof shall be made to AstraFund, Ltd., c/o
Cliff R. Bodden, Managing Director, at Trafalgar Square, West Bay Road, Box
31450 SMB, Grand Cayman, Cayman Islands, British West Indies, or such other
place as the Holder may designate in writing delivered or mailed to the Maker.
The whole of the amount of this Note shall become immediately due and
payable, without notice, at the option of the Holder hereof, in case of an Event
of Default, as hereinafter defined, notice of the exercise of such option being
hereby waived. As used in this Note, an Event of Default shall be (i) the
failure of the Maker to make payment in account hereof within 10 days after
demand by Holder by the terms hereof, (ii) an assignment by maker for the
benefit of its creditors, or a subsequent part of Maker's assets are subjected
to lien by reason of failure to pay debt, or maker applies for relief under any
provision of the United States Bankruptcy Code or any other law for the
protection of creditors, or Maker is otherwise declared bankrupt or insolvent,
or (iii) the breach by Maker of any of the representations contained in the
paragraph next following, then in each and every such case, the balance shall
become immediately due and payable without demand or notice, at the option of
the Holder hereof.
Maker represents the (i) first deed of trust currently held by Bennett
Management & Development Corporation ("BM&DC") to secure the Maker's outstanding
US$10,200,000.00 construction loan from BM&DC, constitutes the sole deed of
trust on Mountaineer Race Track & Resort, (ii) Maker shall pledge no security
interest in Mountaineer Race Track & Resort in excess of US$10,200,000.00
without first paying Holder the balance of this Note, and (iii) Maker shall not
sell or otherwise dispose of Mountaineer Race Track & Resort, or real property
described on Exhibit "A" attached hereto and made a part hereof, unless the
Holder is paid in full.
In the event that the Holder for any reason shall deem it necessary to
refer this Note to an attorney for enforcement of any rights hereunder, by suit
or otherwise, reasonable attorney's fees, together with all costs and expenses
of such action, shall be a part of the obligations of the Maker and the Holder
may take judgment for all such amounts. Maker may prepay the full amount due
hereon, at any time, without penalty.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally by overnight or second day courier, or by registered or certified
mail, return receipt requested, properly addressed and postage prepaid, as
follows:
<PAGE> 2
If to Holder: If to Maker:
AstraFund, Ltd. Mountaineer Race Track & Resort
Attention: Cliff R. Bodden Attention: Edson R. Arneault
Trafalgar Place State Route 2 South
West Bay Road, Box 31450 SMB Post Office Box 358
Grand Cayman, Cayman Islands Chester, West Virginia
British West Indies United States of America
(809) 945-3880 (304) 387-2400
The date notice shall be deemed given is the date of receipt of such
notice except in the case of an addressee's refusal to accept delivery or in the
case of a change of address of which no notice was properly provided. In either
such case, notice shall be deemed given upon the date it is sent to the last
known address. Notice of a change of address shall become effective, if sent in
the manner set forth above.
This Note shall be assignable, and Maker, for itself, its heirs, legal
representatives, successors and assigns, respectively, expressly waives
presentment for payment, notice of dishonor, protest, notice of protest, all
other notices (except as expressly provided herein) and diligence in collection,
and consents that the time for said payment or any part thereof may be extended
by the Holder without in any way modifying, altering, releasing, affecting, or
limiting their respective liabilities.
Any and all amounts to be paid hereunder shall be paid in good funds,
without setoff, counter claim or deduction. All amounts payable hereunder are
payable in the lawful money of the United States of America.
This Note shall be governed, as to usury, by the laws of the Cayman
Islands, BWI and as to other matters by the laws of the State of West Virginia.
The Maker consents to the jurisdiction of the courts of the Cayman Islands, BWI,
as to matters involving usury and to the federal courts of the State of West
Virginia for other matters and waives all defenses of forum non conveniens, lack
of venue, or personal jurisdiction with respect to any action brought on this
Note in such courts.
This Note shall be binding upon the Maker and its heirs, executors,
administrators, personal representatives, successors and assigns and shall inure
to the benefit of the Holder and heirs, executors, administrators, personal
representatives, successors and assigns.
Whenever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Note.
This Note shall not be modified, and no terms of this Note shall be
waived except by a written instrument signed by the Maker and the Holder.
The term "Maker" as used in this Note shall mean and have reference to,
collectively, all parties and each of them directly or indirectly obligated for
the indebtedness evidenced by this Note, whether as principal maker, endorser,
grantor, or
<PAGE> 3
otherwise, together with their respective heirs, administrators,
legal representatives, successors and assigns of each of the foregoing.
Failure to exercise any of the foregoing options contained in this Note
shall not constitute a waiver of the right to exercise the same or any other
option at any subsequent time in respect to any other event. The acceptance by
Holder of any payment hereunder that is less than payment in full of all amounts
due and payable at the time a full payment is due shall not constitute a waiver
of the right to exercise any of the foregoing options contained in this Note at
that time or any subsequent time or nullify any prior exercise of any such
option without the express written consent of Holder.
MAKER AND HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY AND ALL RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
(INCLUDING, BUT NOT LIMITED TO, ANY CLAIMS, CROSS-CLAIMS AND THIRD PARTY CLAIMS)
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE OTHER LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREIN. MAKER HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE HOLDER OR THE HOLDER'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE HOLDER WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. MAKER
ACKNOWLEDGES THAT THE HOLDER HAS BEEN INDUCED TO ENTER INTO THIS LOAN, INCLUDING
THIS NOTE, BY INTER ALIA, THE PROVISIONS OF THIS PARAGRAPH.
IN WITNESS WHEREOF, in the State of West Virginia, this Note has been
executed and delivered by the Maker as of the day and year hereinabove set
forth.
MAKER:
MOUNTAINEER PARK, INC.,
a West Virginia corporation
By: /s/ Edson R. Arneault
-------------------------------
Edson R. Arneault, President
<PAGE> 1
EXHIBIT 10(2)
NOTE SECURED BY REAL ESTATE MORTGAGE
$250,000.00 June 6, 1996
For valuable consideration, Mountaineer Park, Inc., a West Virginia
Corporation, does hereby promise to pay to the order of Bridge Capital, LLC, a
Nevada Limited Liability Company ("Promisee"), the principal sum of Two Hundred
FiftyThousand Dollars ($250,000.00), together with interest thereon, from the
date hereof, at the rate of 15% per annum, payable principal and interest sixty
(60) days after the date hereof.
Both principal and interest are payable in immediately available funds
at the office of Promisee, at P3015 East Sunset Road, Las Vegas, Nevada 89120,
or at such place as the holder hereof may from time to time designate in
writing.
Promisor may prepay this Note in full or in part at any time.
Prepayments shall be applied first to accrued interest and then to the next due
payments of principal hereunder.
Promisor represents and warrants as follows: (a) Promisor is a
corporation duly organized, validly existing and in good standing under the laws
of West Virginia and the State of Delaware; and, (b) the execution, delivery and
performance by Promisor of this Note the Deed of Trust, and the UCC 1 Financing
Statement; (i) Promisor's character or bylaws or (ii) any law or any contractual
restriction binding on or affecting Promisor; (c) no authorization or approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for the due execution, delivery and performance
by Promisor of any Document; and (d) each Document to which Promisor is a party
constitutes the legal, valid and binding obligation of Promisor, enforceable
against Promisor in accordance with its terms.
So long as any principal of or interest on this Note shall remain
unpaid, Promisor will, unless Promisee shall otherwise consent in writing:
(a) Furnish to Promisee at Promisee's request: (i) balance
sheets of Promisor and its subsidiaries as of the end of such
quarter and statements of income and retained earnings of
Promisor and its subsidiaries for the period commencing at the
end of the previous fiscal year and ending with the end of such
quarter, certified by the chief financial officer of Promisor;
(ii) within one hundred twenty (120) days after the end of each
fiscal year of Promisor, a copy of the annual report for such
year for Promisor and its subsidiaries, containing financial
statements for such year certified in a manner acceptable to
Promisee by independent public accountants of recognized
standing; (iii) promptly after the sending or filing thereof,
copies of all reports that Promisor sends to any of its security
holders; (iv) as soon as possible and in any event within five
(5) business days after Promisee's notice to Promisor of the
occurrence of an event of default hereunder or any event that,
with the giving of notice or the lapse of time or both, would
constitute an event of default hereunder, together with
Promisee's specific request therefor, the written statement of
the chief financial officer of Promisor, setting forth the
details of such event of default or event and the action that
Promisor proposes to take with respect thereto; and, (v)
promptly upon request, such other information concerning the
condition or operations, financial or otherwise, of Promisor or
any of its subsidiaries as Promisee from time to time may
reasonably request.
(b) Comply, and cause each of its subsidiaries to comply, in all
material respects with all applicable laws, rules, regulations
and orders, such compliance to include, without limitation,
payment before the same become delinquent all taxes, assessments
and governmental charges imposed upon it or upon its property
subject
1
<PAGE> 2
to the deed of trust being assigned to Promisee by the
Assignments (as hereinafter defined) except to the extent
contested in good faith.
(c) Maintain and preserve its existence, rights and privileges,
and obtain, maintain and preserve all authorizations and
approvals that are necessary in the proper conduct of its
business.
(d) Keep adequate and proper records and books of account, in
which complete and correct entries
will be made in accordance with generally accepted accounting
principals consistently applied, reflecting all financial
transactions of Promisor.
(e) Not merge or consolidate with any person or entity except
where Promisor is the surviving entity.
(f) Not sell, convey, transfer, lease or dispose of (whether in
one transaction or in a series of transactions) all or
substantially all of its assets to any person or entity, or
abandon all or substantially all of its assets.
(g) Not make any material change in the nature of its business
as carried on at the date hereof, except upon the written
consent of Promisee, which consent shall not be unreasonably
withheld.
This Note is secured by a Real Estate Deed of Trust and UCC Financing
Statement of even date herewith. Should any event of default, as hereinafter
defined, occur, the whole sum of principal and interest hereunder shall, without
notice, immediately become due at the option of the holder hereof. Any and all
of the following shall constitute an event of default hereunder:
(a) Failure to make any payment of any installment of principal
interest hereunder within ten (10) days after the date on which
it
(b) Failure to perform any obligation contained herein or in the
Deed of Trust or in the Assignment of the Warrants or any other
security instrument by which this Note is or becomes secured or
any guaranty hereof or thereof, other than the payment of
principal or interest hereunder, which failure is not cured
within a period of thirty (30) days after the date of notice
thereof; provided, however, that if Promisee's providing
Promisor such thirty (30) day cure period would, in Promisee's
reasonable judgment, materially adversely impair security for
this Note, then Promisee shall timely provide a copy to Promisor
of any such notice of such failure to perform that Promisee
receives, and shall otherwise afford Promisor such cure period,
if any, as will not so impair such security, not to exceed
thirty (30) days notice; or
(c) Any representation or warranty made by any Loan Party in
this Note, in any other Document or in any document or
certificate executed in connection with this Note shall have
been incorrect in any material respect when made; or
(d) Any Loan Party shall fail to perform or observe any term,
covenant, or agreement contained in any Document to be performed
or observed by such Loan Party, and, except as set forth in
clause (a) above, such failure, if capable of being remedied,
shall remain unremedied for thirty (30) days after written
notice thereof shall have been given to such Loan Party by
Promisee; or
(e) Any Loan Party shall fail to pay any debt for borrowed money
or other similar obligation or liability ("Indebtedness")
(excluding Indebtedness evidence by this Note) or any interest
or premium thereon, when due (whether by scheduled
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maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or any other default under any
agreement or instrument relating to any such Indebtedness, or
any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or
instrument, if the effect of such default or event is to
accelerate the maturity of such Indebtedness; or any such
Indebtedness shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled
prepayment), prior to the stated maturity thereof, provided,
however, that, with respect to any non-monetary default relating
to such Indebtedness, Promisor shall not not deemed in default
hereunder if Promisor notified Promisee of such default and
Promisor's intention to contest any such default, thereafter
diligently prosecutes such defense, and any adjudication or
resolution does not materially affect any Loan Party; or,
(f) One or more judgments or orders for the payment of money
exceeding any applicable insurance coverage by more than
$1,000,000.00 in the aggregate shall be rendered against any
Loan Party, and either (i) enforcement proceedings shall have
been commenced by any creditor upon any such judgment or order,
or (ii) there shall be any period of ten (10) consecutive days
during which a stay of enforcement of any such judgment or
order, by reason of a pending appeal or otherwise, shall to be
in effect; or
(g) Any Loan Party shall be generally not paying its debts as
such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be
instituted by or against any such person or entity seeking to
adjudicate it a bankrupt or insolvent, or seeking dissolution,
liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee,
custodian, or other similar official for such person or entity
or for any substantial part of its property; or any Loan Party
shall take any action to authorize or effect any of the actions
set forth above in this clause (g); or
(h) Any provision of this Note or any other Document shall at
any time for any reason be declared to be null and void by a
court of competent jurisdiction, or the validity or
enforceability thereof shall be contested by any Loan Party, or
a proceeding shall be commenced by any Loan Party seeking to
establish the invalidity or unenforceability thereof, or any
Loan Party shall deny that it has any liability or obligation
hereunder or thereunder; or
(i) Failure to grant the Warranties provided for above.
In the event of default under this Note, the Mortgage, the UCC 1
Financing Statement or any other instrument securing this Note, (a) interest
shall be payable on the whole of the sum outstanding at the rate of twenty two
percent (22%) per annum (the "Agreed Rate"), for the duration of such default
following any applicable grace period, whether or not the holder hereof has
exercised its option to accelerate the maturity of this Note and declare the
entire unpaid principal indebtedness due and payable and (b) following
Promisee's satisfaction of any applicable notice and cure requirements, Promisee
may (i) declare the outstanding principal amount of this Note and all other
amounts due hereunder to be immediately due and payable, whereupon the
outstanding principal amount of this Note and all such other amounts shall
become and shall be forthwith due and payable, without
diligence, presentment, demand, protest or
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other notice of any kind, all of which are hereby expressly waived, and (ii)
exercise any and all of its other rights under applicable law, hereunder and
under the other documents.
Promisor and all others who may have become liable for the payment of
all or any part of this obligation do hereby severally waive presentment for
payment, protest and demand, notice of protest, demand and dishonor, and
nonpayment of this Note and expressly agree that the maturity of this Note or
any payment hereunder may be extended from time to time, at the option of the
holder hereof, without in any way affecting the liability of each. Promisor
agrees that the holder hereof may release all or part of the security for the
payment thereof or release any party liable for this obligation. Any such
extension or release may be made without notice to any of the parties and
without discharging their liability.
Promisor promises to pay on demand all costs incurred in collection
and/or enforcement of this Note, the Pledge, either of the Assignments or any
other instrument securing this Note or any part hereof or thereof or otherwise
in connection herewith, including, but not limited to, reasonable attorneys'
fees, and, in the event of court action, all costs and such additional sums and
attorneys' fees as the court may adjudge reasonable.
The obligations of any party liable for the payment of all or any part
of this obligation shall be joint and several.
Promisor agrees that all notices or other communications provided for
hereunder shall be in writing (including telecommunications) and shall be
mailed, telecopied, telexed, telegraphed or delivered to Promisor at the
following address: Mountaineer Park Inc., P. O. Box 358, Chester, West Virginia
26034 or at such other address as may hereafter be specified by Promisor to
Promisee at its address set forth herein) in writing. All notices and
communications shall be effective (i) if mailed, when received or three (3) days
after mailing, whichever is earlier, (ii) if telecopied, when transmitted, (iii)
if telexed, when confirmed by telex answer back, (iv) if telegraphed, when
delivered to the telegraph company and (v) if delivered, upon delivery.
No failure on the Part of Promisee to exercise, and no delay in
exercising, any right, power, privilege or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof by Promisee
preclude any other or further exercise thereof or the exercise of any other
right, power, privilege, or remedy of Promisee. No amendment or waiver of any
provision of this Note, nor consent to any departure by Promisor therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Promisee, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Promisor waives any right to trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Note.
If any term, provision, covenant or condition of this Note, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void, or unenforceable, all provisions, covenants and conditions of
this Note and all applications thereof not held invalid, void, or unenforceable,
shall continue in full force and effect and shall in no way be affected,
impaired, or
The laws of the State of West Virginia shall govern the validity,
construction, performance and effect of this Note. Hancock County, West Virginia
shall be the exclusive venue for any action brought by the parties in any way
related to this Note.
IN WITNESS WHEREOF, Mountaineer Park, Inc., has affixed its signature
at Alliance, Ohio, this 6th day of June, 1996.
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Signed and acknowledged in the presence of:
MOUNTAINEER PARK, INC.
By: /s/ Edson R. Arneault
--------------------------------
EDSON R. ARNEAULT, PRESIDENT
STATE OF OHIO )
COUNTY OF STARK )
Before me, a Notary Public, in and for said County and State,
personally appeared the above named Mountaineer Park, Inc., by Edson R.
Arneault, its President, who acknowledged that he did sign the foregoing
instrument, and that the same is his free act and deed, and the deed of such
corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Alliance, Ohio, this 6th day of June, 1996.
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EXHIBIT 10(3)
AGREEMENT OF UNCONDITIONAL GUARANTY
This Agreement is made this day between Winners Entertainment, Inc.,
("Guarantor"), and Bridge Capital, LLC, ("Lender").
WHEREAS, Lender has this date entered into a Note Agreement with the
Mountaineer Park, Inc., ("Debtor"), and,
NOW THEREFORE IT IS AGREED AS FOLLOWS:
Section 1. Consideration. The consideration for this continuing and
unconditional guaranty is Lender's agreement to loan $250,000.00 to Debtor. The
consideration includes any extension of time for the payment of the indebtedness
of Debtor to Lender pursuant to the Note executed this date. For the
consideration described in the preceding sentences and for other good and
valuable consideration, Guarantor does hereby unconditionally guarantee to
Lender, its successors and assigns, payment, on demand, in lawful money of the
United States of America, of any and all indebtedness of Debtor to Lender.
Guarantor agrees that upon any default of Debtor in payment of Debtor's
indebtedness to Lender or any part thereof, Guarantor will pay to Lender, upon
demand, the entire amount of the indebtedness of Debtor to the full extent of
this Guaranty without any obligation on the part of Lender to endeavor to
collect such indebtedness from or any proceed against Debtor or any surety,
indorser, or other guarantor, or to liquidate any collateral then held by Lender
securing payment of such indebtedness. The principal amount of this Guaranty is
the sum of Two Hundred Fifty Thousand Dollars ($250,000.00), which is a sum of
money that Debtor is required to pay to Lender in addition to other sums that
Debtor is required to pay pursuant to the Note executed this date and which has
been previously described in the Section.
Section 1.2. As additional consideration for the loan by the Lender to
the Debtor, Guarantor does hereby grant to the Lender a Warrant to purchase
25,000 shares of common stock of Winners Entertainment, Inc., and Guarantor does
further grant to Brownstone Holdings, LLC a warrant to purchase 25,000 shares of
common stock of Winners Entertainment, Inc., in accordance with the terms and
conditions of the Warrants attached as Exhibit "A" and "B". Said Warrants shall
be issued and delivered to Lender by the Guarantor within ten (10) days after
the receipt of the proceeds of the Loan by Debtor.
Section 2. Maximum Liability and Indebtedness.
2.1. Maximum Liability. The liability of Guarantor under this Guaranty
shall not exceed the Principal Amount set forth in Section 1 of this Agreement,
plus interest, and any costs, including attorney fees, that may be incurred in
enforcing the payment of the indebtedness of Debtor or with the collection or
sale of any collateral secured by the agreements above described and which are
for securing payment of such Indebtedness, whether or not suit or action is
instituted.
2.2. "Indebtedness" Defined. The word "indebtedness" is used herein in
its most comprehensive sense and means any and all indebtedness of every kind or
nature, for which Debtor is obligated to Lender pursuant to the Note executed
this date described above.
Section 3. Obligations of and Payments by Debtor. The Principal Amount
of this Guaranty shall not operate as a restriction upon the amount of the
Indebtedness of Debtor to Lender either in the aggregate or at any one time.
Lender shall have and is hereby given the right
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and privilege to apply all sums of money or property which it may receive from
Debtor, by setoff, or for Debtor's benefit, to the reduction or payment of any
Indebtedness of Debtor in excess of the amount covered by this Guaranty, before
any such amounts need be applied to the reduction of the liability of Guarantor
created by virtue of this Guaranty.
Section 4. Lender's Rights in Dealing with Debtor. Guarantor consents
to any and all interest rate changes, finance charge changes, and modifications
of terms and extensions of time for the payment of Debtor's Indebtedness to
Lender, or any part thereof, or any renewals or modifications of instruments
evidencing the indebtedness or relating to collateral or security for the
Indebtedness. Guarantor authorizes Lender, without notice or demand and without
affecting his liability hereunder, from time to time to renew, compromise,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the Indebtedness or any part thereof. Lender may release any
collateral given to Lender by Debtor, with or without substitution of new
collateral, and Lender may release, agree not to sue, or choose not to proceed
against the Debtor's sureties, indorsers or other guarantors without affecting
the liability of Guarantor herein. Guarantor further waives: (a) presentment and
demand for payment of any Indebtedness of Debtor; (b) protest and notice of
dishonor or default with respect to any Indebtedness of Debtor; (c) all other
notices to which Guarantor might otherwise be entitled; and, (d) any demand for
payment under this Guaranty.
Section 5. Waiver of Acceptance of or Reliance of Guaranty. Lender
would not have loaned the money to Debtor without this Guaranty and has relied
upon this Guaranty. This Guaranty shall take affect when signed by Lender and
Guarantor hereby waives any requirement of acceptance or reliance by Lender.
Section 6. Lender's Rights in Dealing with Collateral of Debtor. On the
nonpayment of the Indebtedness or any part thereof, or on the default of Debtor
in any other particular, Lender may, at its option and without any manner
affecting the liability of Guarantor herein, do any of the following: (a) choose
not to endeavor to realize upon or liquidate any collateral then held by Seller;
(b) sell at public or private sale, at such time and place for such price by
such method or manner and upon such terms as it may deem reasonable, any
collateral now or hereafter held by it; (c) negotiate and compromise with
Debtor, or any person, firm or corporation liable upon any collateral now or
hereafter held by it; and (d) foreclose by judicial sale, or non-judicial sale,
as may be permitted under state law, or enforce by all available remedies,
including forfeiture, the Debtor's interest in any subject real property as may
be permitted under state law as allowed to the Lender of a real estate contract,
beneficiary of a trust deed or mortgage.
Section 7. Effect of Certain Events. Without limiting the generality of
any other provisions hereof, this Guaranty shall remain in full force and effect
and shall not be in any way affected by nor shall Guarantor be exonerated or his
liabilities and obligations discharged in whole or in part by any of the
following events: (a) any merger, acquisition, consolidation or change in
structure of Debtor or any sale, lease, transfer or other disposition of or all
of the assets or capital stock of Debtor; (b) any claim, defense, counterclaim
or setoff which Debtor may have or assert; or (c) any action by Lender which
impairs collateral or limits any rights of Guarantor to seek subrogation,
reimbursement, contribution or indemnity against, or recourse to, Debtor or any
other person with respect to payments made by Guarantor pursuant to this
guaranty, including but not limited to any failure by Lender to perfect a
security interest in any collateral or relating to Lender's custody and
preservation of collateral.
Section 8. Guarantor's Familiarity with Debtor. Guarantor hereby
acknowledges that he is making this Guaranty at Debtor's request based solely on
its familiarity with an independent investigation of Debtor's financial
condition, affairs and circumstances and not in reliance upon any investigation
or knowledge of Lender. Guarantor represents that it is fully aware of such
conditions, affairs and circumstances and acknowledges that as between itself
and Lender, it
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will have full responsibility to inform itself as to any changes in such
condition, affairs and circumstances. Guarantor hereby waives any duty on the
part of Lender, and acknowledges that it is not relying upon and is not
expecting Lender, to disclose to it any fact now or hereafter known by Lender
relating to such condition, affairs or circumstances.
Section 9. Enforceability of Guaranty Not Conditional. The
enforceability of this Guaranty is not conditioned upon any other person or
entity also guarantying the payment of Debtor's Indebtedness to Lender or upon
any other act to be performed by Lender or any other person or entity as a
condition to the full enforceability of this Guaranty.
Section 10. Duration of Guaranty. This Guaranty shall be an open and
continuous one and shall continue in full force and effect until terminated by
written notice of such termination delivered by Lender to Guarantor personally
or by certified mail or until payment in full of the Indebtedness. In the event
of such termination, this Guaranty shall continue to remain in full force and
effect with respect to the amount of indebtedness covered by this Guaranty
outstanding and owing from Debtor to Lender at the time such notice is received
by Lender, including all renewals, extensions and refinancing of such amounts.
Section 11. Requirement of Writing. Guarantor understands and agrees
that this Guaranty cannot be waived, abandoned, terminated, released, or
modified in any way by Lender except in writing signed by an authorized agent of
Lender. Guarantor further understands and agrees that it cannot rely in any
respect upon any oral statements or representations relating to this Guaranty
and hereby warrants that it has not so relied.
Section 12. Waiver. Any waiver of a provision of this Guaranty must be
in writing signed by the party waiving its rights and shall apply only in the
specific instance and for the specific purpose given. The giving of a waiver in
one instance or for one purpose shall not create any implied obligation to give
a waiver in another instance or for another purpose.
Section 13. Not Affected by Bankruptcy Code. Guarantor agrees that this
Guaranty shall remain in full force and effect notwithstanding any action by or
against Lender or concerning any collateral which is secured to Lender in
connection with the indebtedness of Debtor in any proceeding in the United
States Bankruptcy Court including, but not limited to: (a) matters relating to
valuation of collateral; (b) election or imposition of secured or unsecured
claim status upon claims by Lender; or (c) confirmation of any reorganization
plan or other payment plan pursuant to any Chapter of the Bankruptcy Code. In
the event any payment received under this obligation and paid by any person or
entity including Guarantor shall be deemed by final order of a court to have
been a voidable preference under the bankruptcy laws of the United States, or a
court otherwise declares that Seller is not entitled to retain any such payment
for any reason, the obligation of Guarantor shall remain as an obligation due
hereunder and shall not be considered as having been extinguished by said
payment or payments notwithstanding any purported cancellation of this Guaranty
by Lender or return of this Guaranty by Lender to Guarantor.
Section 14. Guarantor's Direct Benefit. Guarantor hereby represents and
warrants that it is in the Guarantor's direct interest to assist the Debtor
because of the undersigned's interests in and relationships with the Debtor.
Section 15. Applicable Law. The laws of the State of West Virginia
shall govern the validity, construction, performance and effect of this
Agreement of Unconditional Guaranty. Hancock County, West Virginia shall be the
exclusive venue for any action brought by the parties in any way related to this
Agreement of Unconditional Guaranty.
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Section 16. Notice Clause. A copy of any notice of under this Agreement
shall be served by certified mail, return receipt requested, directed to
Guarantor at the address stated below or such other address given to Lender in
writing by the Guarantor, subsequent to the execution and delivery of this
Agreement. Any other notice shall be effective upon the deposit of such notice,
in writing, by the regular United States mail, postage prepaid, address to the
party or parties who receive such notice.
Winners Entertainment, Inc.
1461 Glenneyre Street, Suite F
Laguna Beach, CA 92651
Bridge Capital, LLC
3015 East Sunset Road
Las Vegas, Nevada 89120
The undersigned Guarantor has read this Guaranty and understands that
this Guaranty is effective until terminated in the manner set forth in above.
The undersigned Guarantor acknowledges that Guarantor has not relied on any oral
or written representations by Lender in entering into this Agreement and that
Guarantor has freely, without coercion or duress, entered into this Agreement.
GUARANTOR:
WINNERS ENTERTAINMENT, INC.
By: SS:/ EDSON R. ARNEAULT
Edson R. Arneault,
President
DEBTOR:
MOUNTAINEER PARK, INC.
By: SS:/EDSON R. ARNEAULT
Edson R. Arneault,
President
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EXHIBIT 10(4)
DEED OF TRUST
THIS CREDIT LINE DEED OF TRUST, made this 6th day of June, 1996, by and
between MOUNTAINEER PARK, INC., whether one or more, hereafter called
"Grantor"), and PENNY LOUCAS, 3677 Pennsylvania Avenue, Weirton, West Virginia
26062, as Trustee (whether one or more, hereinafter together called "Trustees").
WITNESSETH:
That for and in consideration of the indebtedness and trusts hereinafter
set forth and of the sum of Ten Dollars ($10.00), cash in hand paid, the receipt
and sufficiency of which are hereby acknowledged, Grantor does hereby grant and
convey unto Trustees, with power of sale, all of the following:
(A) All that/those certain lot(s), tract(s) or parcel(s) of real estate,
together with the improvements now or hereafter constructed and situate thereon
and all appurtenances thereunto belonging or in anywise appertaining, situate
and being in the Grant District, Hancock County, West Virginia, and more
particularly described on Schedule I hereto attached and by this reference
incorporated in and made a part of this Deed of Trust.
(B) All right, title and interest of Grantor now owned or hereafter
acquired in and to any and all sidewalks, alleys, streets and all strips and
gores of land adjacent to or used in connection with such real estate and all
easements and rights of way in connection therewith.
(C) All buildings, improvements and fixtures of every kind, and all
machinery, equipment and property which are or shall be attached to, or be
deemed to be, fixtures and a part of the real estate herein conveyed.
(D) All rentals, income, issues and profits that may accrue from the
aforesaid real estate and improvements or any part thereof; provided, however,
that so long as Grantor shall not be in default hereunder Grantor shall be
entitled to collect and receive all said rents, income, issues and profits.
All property described above, together with the real estate described
above, shall secure the indebtedness herein described and covered by this Deed
of Trust, and all the foregoing property, interests in property and other rights
and interests are herein sometimes referred to collectively as the "Collateral".
TO HAVE AND TO HOLD the Collateral unto Trustees and their
successors in the trust forever; and Grantor does hereby covenant to and with
Trustees ad Bridge Capital, LLC, having a principal place of business at 3015
East Sunset Road, Las Vegas, Nevada 89120 (the beneficial owner and holder of
the promissory note secured by this Deed of Trust, and which, together with any
other holder, is hereinafter sometimes called "Lender"), that Grantor will
warrant generally the Collateral; that Grantor has the right to convey the
Collateral to Trustees; that the same is free from any and all liens and
encumbrances other than real estate taxes assessed but not yet due and payable;
all items as set forth in a certain ALTA Commitment dated April 8, 1996,
prepared by Chicago Title Company, a Mechanic's Lien in favor of ___________, a
Judgement Lien in favor of __________________; that Trustees will have quiet
possession thereof and that Grantor will execute such further assurances of the
Collateral as may be requisite, including, but not limited to, the execution and
delivery of financing statements and such other instruments as
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Lender may require to impose the lien hereof more specifically upon any
item or items of property, or rights or interests therein, covered by this Deed
of Trust.
IN TRUST NEVERTHELESS to secure the payment of (i) that
certain promissory note of even date herewith, in the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000 00), executed by Grantor and payable to
the order of Lender, a copy of which is attached hereto for identification as
Exhibit ~ and is by this reference incorporated herein and made a part hereof,
and to secure also any and all extensions, modifications, and renewals of said
note, or any part thereof, however changed in form, manner or amount
(collectively the "Note"), and (ii) all other indebtedness of Grantor to Lender
or Trustees, at any time and from time to time arising hereunder or under the
note of even date herewith, and to secure also any and all extensions,
modifications and renewals of said Note (all of which indebtedness, together
with the interest thereon, is sometimes hereinafter collectively referred to as
the "Secured Debt").
IN TRUST, FURTHER, to secure the payment of any and all
renewals, extensions or substitutions of said Note, or any part thereof, however
changed in form, manner or amount, together with all interest that may then be
due thereon.
Grantor agrees that the Note hereby secured or any part of the
principal or interest thereof, or any other item secured hereunder, may be
extended or renewed from time to time by the holder thereof, at its option, at
the request of the then owners of the Collateral hereby conveyed, or at the
request of any party bound thereon, or of any party who has assumed or may
hereafter assume the payment of said Note, without the consent of or notice to
other parties bound thereon, and without releasing them from any liability then
existing.
Grantor covenants, represents, warrants and agrees as follows:
1. That Grantor will, so log as the Secured Debt, or any part
thereof, remains unpaid: (a) pay as and when and payable all taxes, assessments
and other governmental charges and fees that may be levied or assessed against
the Collateral, including the buildings and improvements now situated on the
Collateral, or that may hereafter be erected thereon, and any improvements and
additions made therein or thereto from time to time and will furnish annually to
Lender receipts showing the payment of such taxes, assessments, charges and fees
; (b) have and keep the building and improvements now situate on the Collateral
or that may hereafter be erected thereon, and all other insurable property
covered by this Deed of Trust constantly insured against loss or damage by fire
and such other casualties, contingencies and hazards as Lender may require, in
one or more responsible and solvent insurance companies authorized to transact
business in the State of West Virginia approved by Lender, and in an amount
satisfactory to Lender, with a standard mortgage clause, non-contributory,
provided that loss or damage shall be payable to Lender as Lender's interest may
appear, and will pay the premiums for such insurance as the same become due and
payable and deliver the policy or policies of such insurance and all renewals
thereof, to Lender and if such Collateral shall be damaged by fire or other
casualty insured against Lender shall be entitled to receive the proceeds of
such insurance to the extent of the unpaid balance of the Secured Debt and shall
apply such proceeds i~ Lender's discretion, to the Secured Debt or to restore
the Collateral; (c) keep and maintain the Collateral in good condition and
repair and not abandon the same, or any part thereof, nor commit or permit the
commission of waste on or in the Collateral, or any part thereof, and Grantor
shall comply, and cause all occupants of the Collateral or those in possession
thereof to comply with all laws, ordinances, rules and regulations relating to
the use or maintenance of the Collateral and with all requirements, directions
and orders and notices of violations thereof issued by any governmental agency,
body or officer; (d) permit
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Trustees or Lender, or any of them, or their agents, to enter and inspect the
Collateral at all reasonable times; and (e) pay to Trustees, or to Lender, upon
demand, any and all sums of money, including all costs, expenses and reasonable
attorney's fees, which Trustees or Lender, or any of them, may incur or expend
in any action or proceeding that may concern the Collateral, or any part thereof
or interest therein, including without limitation any eminent domain proceeding,
or any action or proceeding to sustain the lien of this Deed of Trust or its
priority or in defending any party thereto, or any party secured hereby, against
the liens, demands or claims of title of any person, firm or corporation,
asserting priority over this Deed of Trust, or asserting title adverse to the
title under which Trustees hold, or in the discharge of any such liens, demands
or claims, or in connection with any action to foreclose this Deed of Trust, or
to recover any indebtedness secured hereby.
2. In the event Grantor (i) fails to make any payment required or
fails to comply with, perform or carry out any of the provisions of Paragraph 1
hereof, or (ii) fails to perform any of the terms, convenants or agreements by
Grantor to be performed under this Deed of Trust or is otherwise in default
under this Deed of Trust, including, but not limited to failure to pay any
advances made by Lender to protect the lien and security hereof as provided
herein and interest of any future advances and all other items of the Secured
Debt when due, then, and in any such event, Lender shall have the right (i)
without notice to or demand upon Grantor or any other person in the case of
non-payment as and when due under the note or in the case of failure of Grantor
to maintain insurance on the Collateral as provided herein and (ii) upon 30 days
notice to Grantor with respect to any other failure to perform by Grantor
hereunder, to make any such payment, take any such action or do any such thing
as, in the exercise of Leader's discretion, may be determined to be reasonably
necessary to protect the lien and security hereof as fully and completely as if
Grantor made each and every such payment when due, and kept, complied with,
performed and carried out the provisions of said paragraph 1 in every respect.
Without limiting the generality of the foregoing, Lender may, in any such event,
(a) obtain the required insurance covering the Collateral and pay the premiums
thereon or pay any unpaid premiums on any insurance procured by Grantor; (b) pay
said taxes, assessments and other governmental charges and fees together with
any penalties and interest accrued thereon, and redeem the Collateral from a tax
sale if it has been sold, and shall be subrogated to the lien of the
governmental body to which such payment was made; (c) make and pay for any and
all repairs which Lender deems necessary to place or keep the Collateral in good
condition and repair; (d) stop or mitigate waste on or in the Collateral or any
part thereof; (e) stop or prevent the removal, destruction, demolition, or
structural alteration of any building or improvement on the Collateral; (f) stop
or prevent the violation of any law, ordinance, rule or regulation relating to
the use or maintenance of the Collateral or of any requirement, direction or
order of notice of violation thereof issued by any agency, body or officer; and,
(g) pay all or any part of any sum of Paragraph 1 hereof; and Grantor hereby
promises to pay to Lender, upon demand, any and all sums of money paid out or
expended by Lender, for any of the purposes set out in this Paragraph 2,
together with interest thereon from the date of payment at an annual rate equal
to the rate of interest accruing on the principal of the Note plus seven percent
(the "Default Rate"), and agrees that any sum or sums of money so paid by Lender
or by Trustees, or any of them, shall thereupon be and become a part of the
Secured Debt, and shall be collectible as such, all without waiver of any right
arising from the breach of or default in the performance of any warranty,
covenant, condition, provision or agreement herein contained or contained in the
note, including the right to enter and take possession of the Collateral, and
rent and manage the same, and the right to foreclose this Deed of Trust; but
nothing herein contained shall be construed as imposing any duty or obligation
upon Lender, or upon Trustees, to pay any such sum or sums of money herein
authorized to be paid, or to take any other action authorized hereunder.
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<PAGE> 4
3. (a) For the purposes of this Deed of Trust, (i) "hazardous
materials" means, and includes, petroleum products, fl _ able explosives,
radioactive materials, asbestos or any hazardous, toxic or dangerous waste,
substance or material defined as such or defined as a hazardous substance or
other similar term by, in or for the purposes of any environmental laws, and
(ii) "environmental laws" means any "superfund" or "superlien" law or any other
federal, state or local statute, law, ordinance, code, rule, regulation, order
or decree, regulating, relating to or imposing liability or standards of conduct
any hazardous materials as may now or at any time hereafter be in effect.
(b) Except as otherwise disclosed in the Loan Agreement, Grantor
and the Collateral are in substantial compliance with all environmental laws.
(c) At any time during the term of the loan secured by this Deed
of Trust, Grantor shall provide the Lender, at the expense of Grantor, with such
reports of inspection or audits of the Collateral as Lender may request,
prepared by qualified consultants approved by Lender, certifying as to the
presence or absence of hazardous materials on the Collateral, and Grantor shall
permit Lender, its agents and employees, to inspect or audit the Collateral, and
for such purpose to enter upon the Collateral and to conduct all such tests as
Lender shall determine to be necessary.
(d) Grantor shall not place, or permit to be placed on the
Collateral, any hazardous materials. If, at any time, it is determined by Lender
that hazardous materials are or may be located on the Collateral which, under
any applicable environmental laws, requires special handling in collection,
storage, treatment or disposal, Grantor shall, within thirty (30) days after
receiving written notice thereof, take or cause to be taken, at its sole
expense, such actions as may be necessary to comply with all applicable
environmental laws.
(e) Grantor shall indemnify Bridge Capital, LLC and Lawrence
Manypenny and shall hold Bridge Capital, LLC and Lawrence Manypenny harmless
from and against all loss, damage and expense, including, without limitation,
attorneys' fees and costs incurred in the investigation, defense and settlement
of claims that Bridge Capital, LLC and Penny Loucas may incur as the result of
or in connection with the assertion against Bridge Capital, LLC and Penny Loucas
or any claim directly or indirectly, in whole or in part, as to the presence or
removal of any hazardous materials, or relating to any activities on or
affecting the Collateral, whether prior to or during the term of the loan
secured by this Deed of Trust and whether such activity was carried on by
Grantor or any predecessor in interest of Grantor or any other person. Grantor
shall promptly notify Lender and Trustees in writing of any order or pending or
threatened action by any regulatory agency or other governmental body, or any
claims made by any third party relating to environmental laws of hazardous
materials on or emanations from the Collateral and shall promptly furnish Bridge
Capital, LLC and Penny Loucas with copies of any correspondence or legal
pleadings in connection therewith. Lender and Trustees shall have the right, but
absolutely no duty, to take any action they deem necessary or desirable,
including, without limitation, appearing in or defending any such claims or
actions, all at the cost of Grantor.
(f) The obligations and liabilities of Grantor under this
Paragraph shall survive any foreclosure or the delivery of a deed in lieu of
foreclosure of this Deed of Trust.
4. The occurrence of any of the following events shall constitute
an event of default hereunder (hereinafter called an "Event of Default"), and
upon the occurrence of any Event of Default and the Leader's giving of Notice of
the occurrence of such Event of Default ("Notice of Default") which Event of
Default is not cured by Grantor within 30 days from the mailing date of the
Notice of Default (the "Cure Period") (except with respect
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<PAGE> 5
to an Event of Default arising from non-payment as and when due under the Note
or from failure of the Grantor to maintain any insurance on the Collateral
required hereunder or from failure of the Grantor to pay any-taxes applicable
to the Collateral as and when due other than such taxes the payment of which
Grantor is contesting in good faith, which shall not require the giving of a
Notice of Default), the Secured Debt shall at the option of Lender immediately
become due and payable without notice to or demand on Grantor, or any other
person: (a) if default shall be made in the payment as and when due of the Note,
or any installment or part thereof, or the interest thereon, or of any sum due
under the provisions of this Deed of Trust or the interest thereon; (b) if
default shall be made in the payment, as and when due and payable, of any tax,
assessment or other governmental charge or fee or any insurance premium or if
the required insurance is not effected by Grantor or the policies delivered to
Lender as herein required; (c) if there shall be a breach of or default in the
performance or any covenant, condition, agreement, warranty or provision
contained in this Deed of Trust or in the Loan Agreement; (d) if Grantor, or any
party to of guarantor of the Note, shall become insolvent or make an assignment
for the benefit of creditors, or if any petition for bankruptcy or arrangement
pursuant to the Federal Bankruptcy Act, or any similar federal or state law,
shall be filed by or against any of Grantor or any party to or guarantor of said
note; (e) if any representation or warranty made or furnished to Lender by
Grantor in connection with this Deed of Trust, the note or the Loan Agreement or
to induce Lender to make the said loan proves to have been substantially untrue;
(f) if there shall not or hereafter exist upon the Collateral, or any part
thereof, any claim, lien or encumbrance, other than real estate taxes assessed
but not yet due and payable or other liens and encumbrances, if any, mentioned
above, which is or might be superior to the lien of this Deed of Trust,
including, without limitation, any recorded mechanic's, materialmen's or similar
lien (whether or not the Lender had prior notice thereof); (g) if the Collateral
or any part thereof or any legal or equitable interest therein be sold or
transferred in any manner whatsoever, whether by deed, sales contract, lease or
any other instrument, by Grantor to any person, firm, entity or corporation,
except by devise or inheritance, without the consent in writing of the Lender;
or (h) if Grantor shall do or suffer to be done any act or thing which would
impair the security for the Secured Debt.
5. If any one or more Events of Default shall occur and be
continuing beyond any applicable Cure Period, any one or more of the following
rights and remedies shall exist, any two or more of which may be exercised
concurrently:
(a) Trustees or Lender may forthwith, without notice,
separately or jointly: (i) enter into and upon all of the
Collateral, either in person or by agent, and take possession of
the Collateral without process of law, without liability to
Grantor or other owner or owners of the Collateral, and manage and
rent the same, or any part thereof, collect and receive the rents,
issues and profits thereof (past due, due or become due) and apply
the same to the payment of the Secured Debt, after first deducting
the costs and expenses incurred in managing the Collateral and in
collecting said rents, issues and profits (including, but not
limited to, reasonable attorneys' fees and expenses) and after
deducting such further amount or amounts as may be necessary to
pay or reimburse said Lender and Trustees for any sum or sums of
money paid by them, or any of them, under the provisions hereof,
together with interest thereon at the Default Rate to the date of
payment; or (ii) have a receiver appointed by any court having
jurisdiction to take charge of the Collateral and collect, receive
and apply the rents, issues and profits thereof. In either case,
any person or persons in possession of the Collateral, or any part
thereof, shall be deemed a tenant at will and shall at once
surrender such possession on demand of Lender or Trustees or a
receiver. It is understood and agreed by and between the parties
hereto that nothing herein shall be construed as a substitute for,
or in
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<PAGE> 6
derogation of, the right to foreclose this Deed of Trust or
as imposing any or obligation upon Lender or upon Trustees, or any
of them, to take charge of the Collateral or to collect said
rents, issues or profit or to have a receiver appointed for such
purpose.
(b) Lender may, at its option, declare the Secured Debt to
be immediately due and payable and upon the exercise of said
option the Secured Debt may be collected by proper action,
foreclosure of this Deed of Trust or any other legal or equitable
proceeding.
(c) At any time after the exercise by Lender of the option
to declare the Secured Debt to be immediately due and payable,
Trustees, upon the written request of Lender, shall foreclose upon
and sell the Collateral to satisfy the Secured Debt at public
auction at the front door of the Courthouse of Hancock County,
West Virginia, or, if the Collateral be located in more than one
county, at the front door of the courthouse of any county in which
the Collateral, or any part thereof, is situate, for cash in hand
on the day of sale, with the Trustee to have the right, but not
the obligation, to require the successful bidder at the sale to
post a deposit of up to ten percent (10%) of the bid amount, after
first giving notice of such sale by publishing such notice in some
newspaper of general circulation published in the county or
counties wherein the Collateral is located, or, if there be no
such newspaper(s), in a qualified newspaper(s) of general
circulation in said county or counties once a week for two (2)
successive weeks preceding the day of sale and after giving notice
to Grantor as provided in paragraph 12 at least twenty (20) days
prior to the day of sale. Lender may direct Trustees to sell al or
a part of the Collateral, and sales may be in such lots, parcels
or other units and in such order as Trustees determine to be most
likely to maximize the total sales price, and Lender may become
the purchaser of the Collateral so sold. Out of the proceeds of
such sale Trustees shall pay, first, the costs and expenses of
executing this trust (including, but not limited to, reasonable
attorneys' fees and expenses), to Trustees, or to the one so
acting, as his or their commission hereunder; second, to Lender
and Trustees all moneys which they or any of them may have paid
for taxes, assessments or other governmental charges or fees,
insurance, repairs, court costs, and all other costs and expenses
incurred to paid under the provisions of this Deed of Trust,
together with interest thereon at the Default Rate from the date
of payment; third, to Lender the full amount due and unpaid on the
note and all other indebtedness hereby secured, together with all
interest accrued thereon to date of payment; fourth, to the holder
of an other lien or liens of record, in the order of their legal
priority, such sums as may be due thereof, but such payment may be
made or may not be made, in whole or in part, within the sole
discretion of the Trustees; and, fifth, the balance, if any, to
grantor, his heirs, personal representatives, successors or
assigns upon delivery of and surrender to the purchaser or
purchasers of possession of the Collateral less the expense, if
any, of obtaining such possession. This Deed of Trust shall, with
respect to all items of personal property and fixtures subject to
the lien hereof, be deemed to grant a security interest to the
Lender under the Uniform Commercial Code of West Virginia (the
"Code"). In the event of the occurrence of any Event of Default,
in addition to the rights, remedies and powers herein above set
forth, Lender and Trustees shall have as to any and all fixtures
and personal property covered by this Deed of Trust, all rights,
remedies and powers of a secured party under the Code. This
instrument is to be filed for record in the real estate records of
the county in which the Collateral is located, so as to serve as a
fixture filing pursuant to W. Va. Code Section 46-9-402.
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<PAGE> 7
6. Grantor does hereby waive personal service of notice of any
sale made hereunder, upon him, his heirs, devisees, personal representatives,
agents, successors or assigns, and also waives the posting of notice of sale at
the courthouse.
7. Grantor agrees that any sale made hereunder may be adjourned
from time to time without notice other than oral proclamation or such
adjournment at the time and place of sale, or at the time and place of any
adjourned sale.
8. In the event that foreclosure proceedings are instituted
hereunder but are not completed, Trustees shall be reimbursed for all costs and
expenses incurred by them in commencing such proceedings (including, but not
limited, reasonable attorneys' fees and expenses); and all costs and expenses so
incurred by Trustees, together with interest thereon until paid at the Default
Rate, shall be payable by Grantor on demand, and shall be and become a part of
the Secured Debt and shall be collectible as such.
9. Trustees, or either of them, or the survivor thereof, may act
in the execution of this trust, and in the event either of Trustees shall act
alone, the authority and power of the Trustee so acting shall be as full and
complete as if the powers and authority granted to Trustees herein jointly had
been granted to such Trustee along; and either or both of Trustees are hereby
authorized to act by agent or attorney in the execution of this trust, and it
shall not be necessary for any Trustee to be present in person at any
foreclosure sale hereunder.
10. It is hereby expressly covenanted and agreed by all parties
hereto that Lender may, at any time and from time to time hereafter, without
notice to or consent from grantor or Trustees, appoint and substitute another
trustee or trustees, corporations or persons, in place of the Trustees herein
named to execute the trust herein created. Upon such appointment, either with or
without a conveyance to said substituted trustee or trustees by the Trustees
herein named, or by any substituted trustee or trustees in case the said right
of appointment is exercised more than once, the new and substituted trustee or
trustees in each instance shall be vested with all the rights, titles,
interests, powers, duties and trusts in the Collateral which are vested in and
conferred upon the Trustees herein named; and such new and substituted trustee
or trustees shall be considered the successors and assigns of the Trustees who
are named herein within the meaning of this instrument, and substituted in their
place and stead. Each such appointment and substitution shall be evidenced by an
instrument in writing which shall recite the parties to and the book and page of
record of this Deed of Trust, and the description of the real estate herein
described, which instrument, executed and acknowledged by Lender and recorded in
the office of the Clerk of the County Commission of the County wherein the
Collateral is situate, shall be conclusive proof of the proper substitution and
appointment of such successor trustee or trustees, and notice of such proper
appointment and substitution to all parties in interest.
11. A copy of any notice of trustee's sale under this Deed of
Trust shall be served on Grantor by certified mail, return receipt requested,
directed to Grantor at the address stated below or such other address given to
Lender in writing by Grantor, subsequent to the execution and delivery of this
Deed of Trust. Any other notice (except notice of other liens that may be given
to Lender pursuant to W. Va. Code Section 38-1-14) shall be effective upon the
deposit of such notice, in writing, in the regular United States mail, postage
prepaid, addressed to the party or parties who receive such notice at the
following addresses or at such other addresses any such party may give to the
other parties in writing:
To Grantor:
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<PAGE> 8
Mountaineer Park, Inc.
P.O. Box 358
Chester, West Virginia 26034
Attn: President
with a copy faxed to:
Thomas K. Russell
Fax No.: (714) 376-3018
To Lender:
Bridge Capital, L.L.C.
3015 East Sunset Road
Las Vegas, Nevada 89120
To Trustees:
Penny Loucas
3677 Pennsylvania Avenue
Weirton, WV 26062
notice of other liens given pursuant to W. Va. Code Section 38-1-14, shall be
given to Lender at the above address and shall be effective upon receipt by
Lender.
12. No failure of Lender or Trustees to exercise any option herein
contained shall constitute a waiver of any right or privilege herein given or
granted to Lender or Trustees, and as waiver by Lender or Trustees of the right
to exercise any option as to any breach or default shall not constitute a waiver
of the right to exercise the same option, or any other option herein contained,
as to another or any continuing or subsequent breach or default.
13. In the event that this Deed of Trust shall now or at any time
after the date hereof be subordinate to any other deed of trust on the
Collateral, Grantor hereby agrees that: (a) any default in the performance of
any of the terms, covenants and conditions of any prior deed of trust shall
constitute and be a default under the terms hereof; (b) the lien of this Deed of
Trust shall extend to the interest of Grantor in the proceeds from any sale of
the Collateral, whether by foreclosure of any such prior encumbrance or
otherwise, to the extent any such proceeds exceed the amount necessary to
satisfy such prior encumbrances, and the Grantor does hereby assign, transfer
and set over any such excess proceeds to the Lender; and (c) any trustee or
other person conducting any such sale or foreclosure is hereby directed to pay
such excess proceeds to the extent necessary to pay the herein Secured Debt in
full, notwithstanding any provision to the contrary contained in any prior
encumbrance.
14. It is further understood and agreed between the parties hereto
that if any term or provision of this Deed of Trust or the Note contravene or be
in conflict with any law of the state of West Virginia or any other applicable
law or regulation, such term or provision is amended and modified to conform
with such law.
15. Whenever and wherever herein the plural is used it shall
include the singular and vice versa as the context may require, and the word
"Grantor" or the words "him", "he" or "his" when used in this Deed of Trust
shall, when required by the context hereof,
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<PAGE> 9
be taken to refer to and to mean the Grantor or Grantors herein, whether one or
more in number, and whether individual, firm or corporation, and the wood
"person" as used herein shall include an individual(s), firm(s), corporation(s)
or other legal entity(ies), and if there shall be two or more persons herein
before described as "Grantor", the covenants, conditions, agreements, warranties
and provisions herein made and contained shall be deemed to be made by Grantor,
jointly and severally, and each shall be jointly and severally liable thereon.
16. It is further understood and agreed by and between the parties
hereto that all covenants, agreements, representations and warranties of Grantor
herein contained shall extend to and bind its successors and assigns, and shall
inure to the benefit of Lender and Trustees and their successors and assigns.
Witness the following signature:
SIGNED IN THE PRESENCE OF:
MOUNTAINEER PARK, INC.
By: /s/ Edson R. Arneault
--------------------------------
Edson R. Arneault, President
STATE OF OHIO )
COUNTY OF STARR )
BEFORE ME, a Notary Public, in and for said County and State personally
appeared MOUNTAINEER PARK, INC. by Edson R. Arneault, its President, who
acknowledged that he did sign the foregoing instrument and that the same was his
free act and deed and the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Alliance, Ohio this 6th day of June, 1996.
/s/
--------------------------------
Notary Public
THIS INSTRUMENT PREPARED BY:
GEIGER, TEEPLE, SMITH & HAHN
260 East Main Street
Alliance, Ohio 44601
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<PAGE> 1
EXHIBIT 10(5)
TERM LOAN AGREEMENT
TERM LOAN AGREEMENT, dated as of July 2, 1996, among MOUNTAINEER PARK,
INC., a West Virginia corporation (the "Borrower"), WINNERS ENTERTAINMENT, INC.,
a Delaware corporation (the "Guarantor"), and MADELEINE LLC, a New York limited
liability company (the "Lender").
RECITALS
The Borrower and the Guarantor have requested the Lender to extend
credit to the Borrower from the date hereof through the Maturity Date (as
hereinafter defined) in the form of a single three (3) year term loan in the
principal amount of $5,000,000. The proceeds of the term loan shall be used by
the Borrower to repay existing indebtedness of the Borrower and for the
Borrower's general working capital purposes. Accordingly, the Lender, the
Borrower and the Guarantor hereby agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions. As used in this Agreement, the following
terms shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
"Affiliate" means, as to any Person, (i) any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person, or (ii) any trade
or business (whether or not incorporated) which is a member of a group of which
such Person is a member and which is under common control within the meaning of
Section 414 of the Internal Revenue Code and the rules and regulations
promulgated thereunder from time to time.
"Borrower" has the meaning specified therefor in the preamble hereto.
"Bridge" means Bridge Capital, LLC, a Nevada limited liability company.
"Business Day" means any day not a Saturday, Sunday or legal holiday on
which the Lender is open for business in New York City and banks in the State of
West Virginia are not required or authorized to close.
"Capex Cap Amount" means, with respect to any fiscal
year, the lesser of (a) the product of (i) the sum of (A) Net Income, (B) income
taxes, (C) interest expense, (D) depreciation and (E) amortization, in each case
determined for such fiscal year in accordance with GAAP, and (ii) .07, and (b)
the difference between (i) the net increase in cash from operations for such
fiscal year, determined in accordance with GAAP, and (ii) the sum of (A)
interest expense and (B) all scheduled reductions of principal with respect to
Indebtedness, in each case for such fiscal year.
"Capital Expenditures" means any expenditure (including deposits) of
the Borrower for assets which it is contemplated will be used or usable in
fiscal years of the Borrower and which are properly classifiable as fixed assets
the cost of which may not be deducted from income in the year of acquisition,
all computed in accordance with generally accepted accounting principles applied
on a consistent basis.
<PAGE> 2
"Capital Leases" means leases or agreements to lease that, in
accordance with GAAP, have been or should be capitalized on the books of the
Borrower.
"Capitalized Lease Obligations" means any obligation of the Borrower
for the payment of rent for any real or personal property under Capital Leases
and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof, all computed and consolidated in accordance with
generally accepted accounting principles applied on a consistent basis.
"Collateral" means all of the property (real and personal) of the
Borrower purported to be subject to the lien or security interest purported to
be created by any mortgage, deed of trust, security agreement, pledge agreement,
assignment or other security document heretofore or hereafter executed by the
Borrower in favor of the Lender as security for all or any part of the
Obligations.
"Commitment" means the commitment of the Lender to make a Loan to the
Borrower pursuant to Section 2.01 hereof in the principal amount not to exceed
$5,000,000.00.
"Common Stock" means the common stock of the Guarantor, par value
$0.00001 per share.
"Deed of Trust" means the Deed of Trust with respect to the Property in
substantially the form of Exhibit B.
"Effective Date" has the meaning specified therefor in Article IV
hereof.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained for employees of
the Borrower or any of its Affiliates.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9601, et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801, et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.), the Federal
Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act
(42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section
6451 et seq.), and the Medical Waste Tracking Act of 1988, Pub. L. No. 100-582,
102 Stat. 2950 (1988), as such laws have been amended or supplemented from time
to time, and any similar present or future Federal, state or local statute,
ordinance, rule or regulation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and, unless the context otherwise requires, the rules
and regulations promulgated thereunder from time to time.
"Event of Default" means any of the events set forth in Section 7.01
hereof.
"Existing Loan" means the loan made by Bridge to the Borrower in the
amount of $250,000 and evidenced by the Existing Note.
"Existing Note" means the Note Secured By Real Estate, dated June 6,
1996, made by the Borrower and payable to Bridge, in the original principal
amount of $250,000.
"Financial Statements" means the audited financial statements of the
Guarantor and its Subsidiaries as set forth in the Guarantor's 10K for the
fiscal year ended December 31, 1995, the unaudited financial statements of the
Guarantor and its Subsidiaries as set forth in the Guarantor's
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<PAGE> 3
10Q for the fiscal quarter ended March 31, 1996, the unaudited financial
statements of the Borrower for the fiscal year ended December 31, 1996, and for
the fiscal quarter ended March 31, 1996.
"GAAP" means generally accepted accounting principles as in effect from
time-to-time in the United States, consistently applied.
"Governmental Authority" means any nation or government, any federal,
state, city, town, municipality, county, local or other political subdivision
thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and having jurisdiction over the Parties to the Loan Documents.
"Guaranty" means the Guaranty made by the Guarantor in favor of the
Lender pursuant to Article IX hereof, guaranteeing the Obligations under the
Loan Documents.
"Guarantor" has the meaning specified therefor in the preamble hereto.
"Hazardous Materials" means, without limit, any pollutant, waste,
flammable explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or other materials defined in or
regulated under any Environmental Law.
"Indebtedness" means (i) all indebtedness or other obligations of the
Borrower for borrowed money or for the deferred purchase price of property or
services, (ii) Capitalized Lease Obligations of the Borrower, (iii) all
obligations of the Borrower under direct or indirect guaranties, contingent or
other obligations of the Borrower to purchase or otherwise acquire or assure a
creditor against loss in respect thereof, indebtedness or other obligations of
any other Person for borrowed money or for the deferred purchase price of
property or services or Capitalized Lease Obligations of any other Person, (iv)
all indebtedness or other obligations of the Borrower for borrowed money or for
the deferred purchase price of property or services secured by (or for which the
holder of such indebtedness has an existing right, contingent or otherwise, to
be secured by) any lien, security interest or other charge or encumbrance upon
or in property owned by the Borrower, (v) all obligations of the Borrower in
respect of letters of credit and bankers' acceptances, (vi) liabilities incurred
under Title IV of ERISA with respect to any plan (other than a Multiemployer
Plan) covered by Title IV of ERISA and maintained for employees of the Borrower
or any of its Affiliates, and (vii) withdrawal liability incurred under ERISA by
the Borrower or any of its Affiliates to any Multiemployer Plan.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Lender" has the meaning specified therefor in the preamble hereto.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan" means the term loan made by the Lender to the Borrower pursuant
to Article II of this Agreement.
"Loan Documents" means this Agreement, the Note, the Deed of Trust, the
Security Agreement, the Guaranty, the Certificates, the Warrants, the
Registration Rights Agreement, the Stock Transfer Agreement and all other
instruments, documents and agreements executed and
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<PAGE> 4
delivered pursuant hereto or thereto.
"Loan Fees" means all of the fees and expenses payable, whether in
cash, in kind, in Common Stock or in Warrants, by the Borrower and the Guarantor
under Section 3.01 of this Agreement.
"Loan Parties" means the Borrower and the Guarantor.
"Maturity Date" means July 1, 1999, or such earlier date on which the
Loan shall become due and payable, in whole or in part, in accordance with the
terms of this Agreement, whether by acceleration or otherwise.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Income" means the net income after tax of the Borrower and its
Subsidiaries determined on a consolidated basis, in accordance with GAAP, less
any reported income from extraordinary items.
"Note" means a promissory note of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the Indebtedness resulting from the making
of the Loan and delivered to the Lender pursuant to Article IV hereof, as such
promissory note may be modified or amended from time to time, and any promissory
note or notes issued in exchange or replacement therefor.
"Notice of Borrowing" has the meaning specified in Section 2.02 hereof.
"Obligations" means (i) the obligation of any Loan Party to pay, as and
when due and payable (by scheduled maturity or otherwise), all amounts from time
to time owing by it in respect of any Loan Document, whether for principal,
interest, (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Borrower or the Guarantor
whether or not a claim for post-filing interest is allowed pursuant to 11 U.S.C.
Section 506, or otherwise in such cases), fees or otherwise and (ii) the
obligation of any Loan Party to perform or observe all of its other obligations
from time to time existing under any Loan Document.
"Operating Leases" means leases or agreements to lease of the Borrower,
other than Capital Leases.
"Operating Lease Obligations" means all obligations of the Borrower for
the payment of rent for any real or personal property under leases or agreements
to lease, other than Capitalized Lease Obligations, all computed in accordance
with GAAP.
"Payment Office" means Madeline, LLC, 950 Third Avenue, New York, New
York 10022, Attn: Mr. Kevin P. Genda.
"Permitted Investments" means (i) marketable direct obligations issued
or unconditionally guaranteed by the United States Government, or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (ii)
commercial paper, maturing not more than 270 days after the date of issue,
issued by a corporation rated P-1 by Moody's Investors Service, Inc. or A-1 by
Standard & Poor's Corporation or issued by the Lender or its Affiliates, (iii)
time certificates of deposit, issued by commercial banking institutions, each of
which is a member of the Federal Reserve System and has a combined capital and
surplus of not less than $100,000,000, (iv) money market accounts maintained
with mutual funds having assets in excess of $2,500,000,000, and (v) tax exempt
securities rated A or better by Moody's Investors Service, Inc. or A+ or better
by Standard &
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Poor's Corporation.
"Person" means an individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture or
governmental authority.
"Plan of Remediation" means the Corrective Action Plan, dated August
14, 1995, a copy of which is annexed hereto as Exhibit J.
"Post-Default Rate" means a rate per annum equal to 22%.
"Property" means the real property described in Schedule I hereto.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Lender and the Guarantor, in substantially the form of Exhibit C
hereto.
"Security Agreement" means the Security Agreement by the Borrower, in
substantially the form of Exhibit D hereto.
"Senior Loan Agreement" means the (i) Credit Line Deed of Trust, dated
June 27, l994; (ii) the Note in original principal amount of $l0,200,000.00,
dated June 28, 1994, and (iii) the Construction Loan Agreement, dated June 27,
l994; as amended and supplemented by the Agreement, dated August l8, 1994; the
Construction Loan Agreement, dated December 7, l994; the Construction Loan
Agreement Amendment, dated February l0, l995; the Letter Amendment to
Construction Loan Agreement, dated April l0, l995; the Construction Loan
Agreement Amendment V, dated July l995; the Letter Amendment to Construction
Loan Agreement, dated October 3l, l995; the Letter Amendment to Construction
Loan Agreement, dated November 28, l995; the Letter Amendment to Construction
Loan Agreement, dated December 2l, l995; and the Letter Amendment to
Construction Loan Agreement, dated January 12, l996, each among the Senior
Secured Creditor, the Borrower and the Guarantor.
"Senior Secured Creditor" means Bennett Management & Development Corp.,
the bankruptcy estate thereof under chapter 11 Bankruptcy Case No. 9661379,
presently pending in the United States Bankruptcy Court for the Northern
District of New York and any and all successors and assigns of either of them,
any of which has the legal and/or equitable rights in the Property as of the
Effective Date.
"Stock Certificate" means any original stock certificate issued by the
Guarantor representing shares of Common Stock.
"Stock Transfer Agreement" means the Stock Transfer Agreement between
the Lender and the Guarantor, in substantially the form of Exhibit I hereto.
"Subsidiary" means any corporation of which more than 50% of the
outstanding capital stock or similar rights of holders of equity having (in the
absence of contingencies) ordinary voting power to elect directors (or Persons
performing similar functions) of such corporation is, at the time of
determination, owned directly, or indirectly through one or more intermediaries,
by any Person.
"Taxes" means any tax imposed by the State of West Virginia or any
subdivision thereof.
"Termination Date" means the earlier to occur of (a) the Maturity Date
and (b) the date on which all of the Obligations have been fully performed.
"Title Insurance Policy" means the mortgagee's loan policy, together
with all endorsements
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<PAGE> 6
made from time to time thereto, issued by or on behalf of a title insurance
company satisfactory to the Lender, insuring the Lien created by the Deed of
Trust in an amount and on terms satisfactory to the Lender, delivered to the
Lender pursuant to Article IV hereof.
"Unfunded Liabilities" has the meaning specified therefor in Subsection
5.01(j) hereof.
"Warrants" means validly issued warrants for the purchase of shares of
Common Stock, in substantially the form attached hereto as Exhibit E.
SECTION 1.02. Accounting and Other Terms. Unless otherwise expressly
stated herein, all accounting determinations hereunder shall be made, all
accounting terms used herein shall be interpreted, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP.
All terms used in this Agreement which are defined in Article 9 of the Uniform
Commercial Code in effect in the State of New York on the date hereof and which
are not otherwise defined herein shall have the same meanings herein as set
forth therein.
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
SECTION 2.01. Commitment. The Lender agrees, on the terms and
conditions hereinafter set forth, to make the Loan to the Borrower on the
Effective Date in a principal amount not to exceed the Commitment. Any principal
amount of the Loan which is repaid or prepaid by the Borrower may not be
reborrowed.
SECTION 2.02. Making the Loan. The Borrower shall give the Lender prior
written notice in substantially the form of Exhibit F hereto (a "Notice of
Borrowing") no later than 11:00 A.M. (New York City time) on the day of the
proposed borrowing. Such Notice of Borrowing shall be irrevocable and shall
specify the principal amount of the proposed borrowing and the proposed
borrowing date, which shall be the Effective Date: and (i) the Borrower shall be
bound to make a borrowing in accordance therewith; and (ii) the Lender shall be
required to make the Loan in accordance with the terms of the Loan Agreement.
The Lender may act without liability upon the basis of written notice believed
by the Lender in good faith to be from the Borrower (or from any officer thereof
designated in writing to the Lender) and the Parties to the Loan Documents shall
execute a "Settlement Statement" or "Use of Proceeds" which shall constitute
prima facie evidence as to the terms of this borrowing. On the Effective Date
and upon fulfillment of the applicable conditions set forth in Article IV
hereof, the Lender will make available the requested Loan to the Borrower in an
amount not to exceed the Commitment by delivering the proceeds thereof, in
immediately available funds (either in the form of a certified bank check or
wire transfer) less the fees and expenses due under Section 3.01 and 8.04
hereof. The Borrower shall execute and deliver to the Lender, on the Effective
Date, the Note payable to the order of the Lender to evidence the Loan in the
principal amount of the Commitment. The Loan amount may be increased to provide
for the funding and payment of the Lender's fees and costs incurred in
connection herewith, together with interest due thereon, which are unpaid as of
the Termination Date and which accrue thereafter. The Note and the books and
records of the Lender shall be presumptive evidence of the amount of the Loan
whether in excess of the principal amount of the Note or otherwise.
SECTION 2.03. Interest.
(a) Loan. The Loan shall bear interest on the principal amount
thereof from time to time outstanding from the Effective Date until such
principal amount becomes due at an interest rate per annum of twelve percent
(12%).
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<PAGE> 7
(b) Default Interest. Any amount of principal of the Loan,
fees and (to the extent permitted by law) interest which is not paid when due
(after any applicable grace period therefor set forth in Section 7 hereof),
whether upon demand, by acceleration or otherwise, and all amounts payable after
the occurrence and during the continuance of an Event of Default, shall bear
interest from the day when due until such amount is paid in full at a rate per
annum equal to the Post-Default Rate. In the event that any amount of principal
of, or interest on, the Loan is not paid within 10 days of the due date thereof
(whether by demand, acceleration or otherwise) when due, the Borrower shall,
upon demand, pay an additional fee equal to 5% of the amount of such principal
and/or interest not timely paid.
(c) Interest Payment. Interest on the Loan shall be payable
monthly, in arrears, on the last day of each month, commencing July 31, 1996,
and on the Termination Date (whether by demand, acceleration or otherwise).
Interest at the Post-Default Rate shall be payable on demand.
SECTION 2.04. Repayment. The Loan shall be payable as to principal in
full on the Maturity Date, together with all such other amounts as may be
necessary to repay in full all unpaid Obligations to the Lender.
SECTION 2.05. Termination or Reduction of Commitment. The Commitment
shall terminate in full at 5:00 P.M. (New York City time) on the Effective Date.
SECTION 2.06. Optional Prepayment of the Loan. The Borrower may, on the
same Business Day's telephone notice no later than 11:00 A.M. (New York City
time) (promptly confirmed in writing) prepay without cost or penalty, the
outstanding amount of the Loan in whole or in part with accrued interest to the
date of such prepayment on the amount prepaid.
ARTICLE III
FEES, PAYMENTS AND OTHER COMPENSATION
SECTION 3.01. Fees and Other Consideration.
(a) Loan Fee. The Borrower shall pay to the Lender, on the
Effective Date, in immediately available funds, a non-refundable loan fee of
$400,000. The Borrower hereby instructs the Lender to withhold this fee from the
proceeds of the Loan on the Effective Date in satisfaction thereof.
(b) Administration Fee. The Borrower shall pay to the Lender
on each anniversary of the Effective Date a non-refundable fee (the
"Administrative Fee") equal to 8% of the outstanding principal amount of the
Loan as of the date of such anniversary.
(c) Audit and Collateral Monitoring Fees. The Borrower shall
pay to the Lender on each anniversary of the Effective Date, the costs and
expenses incurred by the Lender in connection with the periodic collateral
appraisals and audit reviews performed by or on behalf of the Lender in such
year; provided, however, that so long as no Event of Default has occurred and is
continuing, the Borrower's obligation under this Subsection 3.01(c) shall be
limited to $25,000 for each 365 (or 366, as applicable) day period following the
Effective Date.
(d) Common Stock. The Guarantor shall, on the Effective Date
and on the date of each anniversary of the Effective Date until all of the
amounts due to the Lender hereunder (including, without limitation, all
principal, interest, fees (whether due in cash, in Common Stock, in Warrants or
in kind), expenses and indemnities) (the "Payments") have been satisfied in
full, deliver to the Lender Stock Certificates, in such denominations as the
Lender may request, validly issued to the Lender or its designee, representing
the number of shares of Common Stock equal to
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<PAGE> 8
the quotient of (i) the product of (A) the outstanding principal amount of the
Loan on the day of such delivery and (B) 5%, and (ii) the average daily closing
price on each Business Day, as reported in a publication of generally recognized
standing in the securities industry, for the 30 Business Days immediately
preceding the third Business Day prior to the Effective Date or the date of such
anniversary, as the case may be; provided, however, that such shares shall be
issued to the Lender or its designee only upon the payment by the Lender to the
Guarantor of an amount equal to the product of (i) the par value of the Common
Stock and (ii) the number of shares of Common Stock to be issued. If the
issuance of shares to the Lender would result in a put obligation (the "Put")
pursuant to Section 4.01 of the Stock Transfer Agreement, then the maximum
number of shares that may be issued without resulting in a Put shall be issued
to the Lender as hereinabove set forth, and the Borrower shall issue to the
Lender Warrants for the purchase of the remaining shares due to be issued to the
Lender hereunder with an Exercise Price (as defined in the Warrant) equal to the
par value of the Common Stock. Each Certificate issued hereunder shall bear the
following legend:
"The Shares represented by this certificate have not
been registered or qualified under the Securities Act of 1933,
as amended, or the "blue sky" laws of any state, and may be
offered or sold only if registered and qualified pursuant to
the relevant provisions of federal and state securities laws,
or if an exemption from such registration or qualification is
applicable, upon an opinion of counsel to the issuer that such
transfer will not violate any federal or state securities laws
applicable thereto."
The parties hereto agree that, for income tax
purposes, the purchase price to be attributed to the shares of
Common Stock issued to the Lender hereunder on the date hereof
is $_____________.
(e) Warrants. The Guarantor shall, on the Effective Date and
on the date of each anniversary of the Effective Date until all of the Payments
have been satisfied in full, issue and deliver to the Lender or its designee
validly issued Warrants for the purchase of 250,000 shares of Common Stock. The
Expiration Date (as defined in the Warrant) shall, in each case, be five years
from the date of issuance of such Warrant. The Exercise Price (as defined in the
Warrant) shall, in each case, be equal to $1.06. In addition, on the Effective
Date, the Guarantor shall issue and deliver to the Lender or its designee
validly issued Warrants for the purchase of 891,250 shares of Common Stock, for
an Exercise Price (as defined in the Warrant) of $1.06 per share, with an
Expiration Date of five years from the date of issuance.
Notwithstanding the foregoing, to the extent that there shall
occur at any time, prior to any such issuance of Warrants, any event of a type
that would require adjustment of the number of shares issuable upon the exercise
of the Warrants or the Exercise Price (as defined in the Warrant) of such shares
to the extent that such Warrants already had been issued, the number of shares
to be issued under such Warrant, and the Exercise Price thereof, shall prior to
issuance, be adjusted in the manner provided in Section 7 of the Warrant. Any
such adjusted number of shares issuable pursuant to a Warrant and any such
adjusted Exercise Price shall be reflected in the Warrant at the time of the
issuance thereof.
The parties hereto agree that, for income tax purposes, the
purchase price to be attributed to the Warrants issued to the Lender hereunder
on the date hereof is $_____________.
SECTION 3.02. Payments and Computations. The Borrower will make each
payment under the Loan Documents to which it is a party not later than 2:30 P.M.
(New York City time) on the day when due, in lawful money of the United States
of America and in immediately available funds, to the Lender at the Payment
Office, or at such other place or to such account as the Lender may designate by
notice to the Borrower. All payments shall be made by the Borrower without
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<PAGE> 9
defense, set-off or counterclaim to the Lender. Subject to Section 7.01 below,
all interest, fees, costs and expenses for which the Borrower is obligated under
any Loan Document shall, if not timely paid by the Borrower, be added to the
principal amount of the Loan and the Borrower hereby authorizes the Lender to,
and the Lender may, from time to time, increase the principal amount of the Loan
by any such amounts due under any Loan Document to which the Borrower is a
party. The Borrower confirms that any addition to principal which the Lender so
makes to the Loan as herein provided will be made as an accommodation to the
Borrower and solely at the Lender's discretion. Whenever any payment to be made
under any such Loan Document shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in the computation of
interest and fees. All computations of interest under this Agreement and any
other Loan Document and all fees shall be made by the Lender on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest is
payable. In no event shall prior recourse to any Collateral be a prerequisite to
the Lender's right to demand payment of any Obligation. The Lender's records
kept in the ordinary course of its business shall be presumed to be correct and
shall constitute prima facie evidence of the amount owing or paid with respect
to any Obligation.
SECTION 3.03. Taxes. (a) If the Borrower shall be required by any
applicable law, rule or regulation to deduct or withhold any Taxes from or in
respect of any amount payable hereunder, then (i) the amount so payable shall be
increased to the extent necessary so that after making all required deductions
and withholdings (including Taxes on amounts payable to the Lender pursuant to
this sentence) the Lender shall receive an amount equal to the sum it would have
received had no such deductions or withholdings been made, (ii) the Borrower
shall make such deductions or withholdings and (iii) the Borrower shall pay to
the relevant taxation authority the full amount required to be so deducted or
withheld. Whenever any Taxes are payable by the Borrower, as promptly as
possible thereafter the Borrower shall send the Lender an official receipt or
other documentation satisfactory to the Lender evidencing such payment to such
authority. If, due to the imposition of any Taxes, the Lender's tax liability
with respect to any amounts payable hereunder to any other taxing authority is
reduced, the amount of such reduction shall be paid by the Lender to the
Borrower upon Borrower's demand therefor; provided, however, that in no event
shall the Lender be required to pay to the Borrower an amount in excess of the
amount withheld by the Borrower in respect of Taxes due
rom or in respect of any amount payable hereunder.
(b) If the Lender shall be required to pay any Taxes in
respect of any amount payable by the Borrower hereunder, then the Borrower
shall, upon demand by the Lender, pay to the Lender an amount equal to the
difference between (i) the Taxes required to be paid by the Lender, and (ii) the
amount, if any, of the reduction of the Lender's tax liability to any other
taxing authority resulting from the payment of such Taxes; provided, however,
that in no event shall the Lender be required to pay to the Borrower an amount
in excess of the amount paid by the Borrower to the Lender pursuant to this
paragraph 3.03(b).
ARTICLE IV
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 4.01. Conditions Precedent to Effectiveness. This Agreement
shall become effective as of the Business Day when each of the following
conditions precedent shall have been satisfied (the "Effective Date"):
(a) Payment of Fees, Etc. The Borrower shall have paid on or
before the Effective Date all fees, costs, expenses and taxes then payable by
the Borrower pursuant to Sections 3.01 and 8.04 hereof, and the Guarantor shall
have satisfied all of its Obligations pursuant to Section 3.01(d) and (e)
hereof.
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<PAGE> 10
(b) Representations and Warranties; No Event of Default. The
representations and warranties contained in Section 5.01 of this Agreement and
in each other Loan Document and certificate or other writing delivered to the
Lender pursuant hereto on or prior to the Effective Date shall be correct on and
as of the Effective Date as though made on and as of such date; and no Event of
Default, or event which with the giving of notice or the lapse of time or both
would constitute an Event of Default, shall have occurred and be continuing on
the Effective Date or would result from this Agreement becoming effective in
accordance with its terms.
(c) Legality. The making of the Loan shall not contravene any
law, rule or regulation applicable to the Lender, the Borrower or the Guarantor.
(d) Delivery of Documents. The Lender shall have received on
or before the Effective Date the following, each in form and substance
satisfactory to the Lender and, unless indicated otherwise, dated the Effective
Date:
(i) the Note, duly executed by the Borrower;
(ii) the Security Agreement, duly executed by the
Borrower;
(iii) the Registration Rights Agreement duly executed
by the Guarantor;
(iv) the Stock Transfer Agreement duly executed by
the Guarantor;
(v) a copy of the Deed of Trust, duly executed by the
Borrower and the Lender, and certified as filed by the Clerk
of the County Commission of Hancock, West Virginia;
(vi) evidence of the recording of the Deed of Trust
in such other office or offices as may be necessary or, in the
opinion of the Lender, desirable to perfect each Lien
purported to be created thereby or to otherwise protect the
rights of the Lender thereunder;
(vii) the Title Insurance Policy;
(viii) a survey of the Property;
(ix) a certificate executed by the Company that to
the best of its knowledge, the Property not located in an area
designated by a Governmental Authority as a flood or similar
hazard area in form and substance satisfactory to the Lender,
in its sole and absolute discretion;
(x) acknowledgment copies of appropriate financing
statements on Form UCC-1, duly executed by the Borrower and
duly filed in such office or offices as may be necessary or,
in the opinion of the Lender, desirable to perfect the
security interests purported to be created by the Security
Agreement;
(xi) a title report with respect to the Property
showing only those exceptions as are acceptable to the Lender,
in its sole and absolute discretion;
(xii) certified copies of requests for copies of
information on Form UCC-11, listing all effective financing
statements which name as debtor the Borrower and which are
filed in the offices referred to in clause (x) above, together
with copies of such financing statements, none of which,
except as otherwise agreed to in writing by the Lender, shall
cover any of the Collateral;
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<PAGE> 11
(xiii) a copy of the resolutions adopted by the Board
of Directors of the each Loan Party, certified as of the
Effective Date by an authorized officer thereof, authorizing
(A) the borrowings hereunder and the transactions contemplated
by the Loan Documents to which such entity is or will be a
party, and (B) the execution, delivery and performance by each
Loan Party of each Loan Document to which it is or will be a
party and the execution and delivery of the other documents to
be delivered by the Loan Parties in connection herewith;
(xiv) a certificate of an authorized officer of each
Loan Party certifying the names and true signatures of the
officers of such Loan Party authorized to sign each Loan
Document to which such entity is or will be a party and the
other documents to be executed and delivered by the Loan
Parties in connection herewith, together with evidence of the
incumbency of such authorized officers;
(xv) a certificate, dated as of a date not more than
ten (10) Business Days prior to the Effective Date, of the
appropriate official of the jurisdiction of incorporation and
each jurisdiction of foreign qualification, both inside and
outside the United States, of each Loan Party, certifying as
to the subsistence in good standing of, and the payment of
taxes by, each Loan Party in such jurisdictions and listing
all charter documents of each Loan Party on file with such
official(s), together with confirmation by telephone or
telegram (where available) on the Effective Date from such
official(s) as to such matters;
(xvi) a copy of the charter of each Loan Party,
certified as of a date not more than 30 days prior to the
Effective Date by the appropriate official(s) of the
jurisdiction of incorporation of each Loan Party and as of the
Effective Date by an authorized officer of such Loan Party;
(xvii) a copy of the by-laws of each Loan Party,
certified as of the Effective Date by an authorized officer of
such Loan Party;
(xviii) an opinion of Freer & McGarry, counsel to the
Borrower and the Guarantor, substantially in the form of
Exhibit G hereto and as to such other matters as the Lender
may reasonably request;
(xvix) an opinion of Jackson and Kelly, West Virginia
counsel to the Borrower and the Guarantor, substantially in
the form of Exhibit H hereto and as to such other matters as
the Lender may reasonably request;
(xx) a copy of the Financial Statements, together
with a certificate of the chief executive officer or chief
financial officer of the Borrower, setting forth all existing
guarantees and other contingent liabilities of the Borrower;
(xxi) a certificate of insurance evidencing insurance
on all property of the Borrower as is required by Section
6.01(h) hereof, naming the Lender as additional insured as its
interests may appear for all insurance maintained by the
Borrower;
(xxii) a schedule of all existing leases under which
the Borrower is a lessee for the use of real property,
certified by the chief financial officer of the Borrower;
(xxiii) such other agreements, instruments,
approvals, opinions and other documents as the Lender may
reasonably request.
(e) Proceedings; Receipt of Documents. All proceedings in
connection with the
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<PAGE> 12
transactions contemplated by this Agreement, and all documents incidental
thereto, shall be satisfactory to the Lender and its counsel, and the Lender and
such counsel shall have received all such information and such counterpart
originals or certified or other copies of such documents as the Lender or such
counsel may reasonably request.
(f) Material Adverse Change. The Lender shall have determined,
in its sole and absolute discretion, that no material adverse change shall have
occurred in the business, operations, assets, financial condition or prospects
of the Borrower or the Guarantor after March 31, 1996.
(g) Existing Loan. The Existing Loan shall be repaid in full
prior to or contemporaneously with the funding by the Lender of the Loan. The
Borrower hereby instructs the Lender to withhold from the proceeds of the Loan
all amounts due in respect of the Existing Loan, as determined by Bridge, and to
remit such funds pursuant to instructions provided to the Lender by Bridge.
(h) Due Diligence. The Lender shall have completed its due
diligence with respect to the Loan Parties and the results thereof shall be
acceptable to the Lender, in its sole and absolute discretion.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties of the Borrower and the
Guarantor. The Borrower and the Guarantor, as appropriate, each represent and
warrant as follows:
(a) Organization, Good Standing, Etc. Each Loan Party (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, (ii) has all requisite power and
authority to conduct its business as now conducted and as presently contemplated
to make the borrowings hereunder and to consummate the transactions contemplated
hereby and by each of the Loan Documents to which it is a party, and (iii) is
duly qualified to do business and is in good standing in each jurisdiction and
territory, inside and outside of the United States, in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary. The Borrower is a wholly-owned subsidiary of
the Guarantor.
(b) Authorization, Etc. The execution, delivery and
performance by each Loan Party of each Loan Document to which it is a party (i)
have been duly authorized by all necessary corporate action, (ii) do not and
will not contravene the charter or by-laws, law or any contractual restriction
binding on or otherwise affecting it or any of its properties, (iii) do not and
will not result in or require the creation of any lien, security interest or
other charge or encumbrance (other than pursuant to any such Loan Document) upon
or with respect to any of its properties, and (iv) do not and will not result in
any suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to its operations or any of its
properties.
(c) Governmental Approvals. No authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority or
other regulatory body is required in connection with the due execution, delivery
and performance by the Borrower or the Guarantors of any Loan Document to which
such Persons are or will be parties.
(d) Enforceability of Loan Documents. This Agreement is, and
each other Loan Document to which the Borrower or the Guarantor is or will be a
party, when delivered hereunder, will be a legal, valid and binding obligation
of such Person, enforceable against such Person in
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accordance with its terms.
(e) Certificates. Each Stock Certificate issued and delivered
pursuant to subsection 3.01(d) or pursuant to the terms of any Warrant shall,
upon issuance and delivery pursuant to the terms hereof or the terms of such
Warrant, as may be the case, represent validly issued, fully paid and
non-assessable shares of Common Stock.
(f) Subsidiaries. There are no Subsidiaries of the Borrower
other than Mountaineer Magic, Inc.
(g) Litigation. Except as set forth on Schedule II hereto and
in the Financial Statements, there is no pending or threatened action, suit or
proceeding affecting the Borrower or any of the Guarantors before any court or
other Governmental Authority or any arbitrator. There is no pending or
threatened action, suit or proceeding affecting the Borrower or any of the
Guarantors before any court or other Governmental Authority or any arbitrator
which may materially adversely affect the operations or condition, financial or
otherwise, of such Person or the ability of such Person to perform its
obligations under any Loan Document to which such Person is or will be a party.
(h) Financial Condition. The Financial Statements, copies of
which have been delivered to the Lender, fairly present the financial condition
of the Loan Parties as of the respective dates thereof and the results of
operations of the Loan Parties for the fiscal periods ended on such respective
dates, all in accordance with GAAP. Since March 31, 1996, there has been no
material adverse change in such condition or operations. There has been no
change in the number of shares of Common Stock outstanding since May 16, 1996,
as reported on the Form 10Q of the Guarantor for the period ending March 31,
1996, other than as set forth on Schedule X hereto.
(i) Compliance with Law, Etc. Neither the Borrower nor the
Guarantor is in violation of its charter or by-laws, any law or any material
term of any agreement or instrument binding on or otherwise affecting it or any
of its properties.
(j) ERISA. Neither Loan Party maintains, or is obligated to
maintain or contribute to, any Employee Plan or Multiemployer Plan. As of the
Effective Date, neither Loan Party has any employee benefit plan with respect to
which the present value of all vested, nonforfeitable benefits under such plan
exceeds the fair market value of the assets of such plan allocable to such
benefits (any such amount constituting an "Unfunded Liability").
(k) Taxes, Etc. After giving effect to any lawful extension,
all Federal, state and local tax returns and other reports required by
applicable law to be filed by the Borrower or the Guarantors have been filed,
and all taxes, assessments and other governmental charges imposed upon the
Borrower or the Guarantors or any property of the Borrower or the Guarantors
which have become due and payable on or prior to the date hereof have been paid,
except to the extent contested in good faith by proper proceedings which stay
the imposition of any penalty, fine or lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set aside for the
payment thereof.
(l) Regulation U. Neither the Borrower nor the Guarantor is or
will not be engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U issued
by the Board of Governors of the Federal Reserve System), and no proceeds of the
Loan will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock.
(m) Adverse Agreements, Etc. Neither the Borrower nor the
Guarantor is a party
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to any agreement or instrument, or subject to any charter
or other corporate restriction or any judgment, order, regulation, ruling or
other requirement of a court or other Governmental Authority or regulatory body,
which materially adversely affects, or, to the best knowledge of the Borrower or
the Guarantor, in the future is reasonably likely to materially adversely
affect, the condition or operations, financial or otherwise, of the Borrower or
the Guarantor or the ability of the Borrower or the Guarantor to perform its
obligations under any Loan Document to which the Borrower is or will be a party.
(n) Holding Company and Investment Company Acts. Neither the
Borrower nor the Guarantor is (i) a "holding company" or a "subsidiary company"
of a "holding company" or an "affiliate" of a "holding company", as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, or
(ii) an "investment company" or an "affiliated person" or "promoter" of, or
"principal underwriter" of or for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended.
(o) Permits, Etc. The Borrower and the Guarantor have all
permits, licenses, authorizations and approvals required for it to lawfully own
and operate its respective businesses. Schedule III hereto sets forth all
licenses, permits, authorizations and approvals required by any Governmental
Authority for the lawful conduct of the Borrower's business, and each of the
foregoing has been obtained by the Borrower and is in full force and effect as
of the Effective Date.
(p) Title to Properties. The Borrower has good and marketable
title to all of its properties and assets, free and clear of all liens, security
interests and other charges and encumbrances and other types of preferential
arrangements, except (i) Liens in favor of the Senior Secured Creditor pursuant
to the Senior Loan Agreement, and (ii) such as are permitted by Section 6.02(a)
hereof. All of Borrower's properties are titled in Borrower's legal name.
Borrower has not used, or filed a financing statement (or other evidence of a
lien, charge or Security Interest) under, any other name in any United States
jurisdiction or territory outside the United States for at least the last five
(5) years.
(q) Full Disclosure. No Loan Document or schedule or exhibit
thereto and no certificate, report, statement or other document or information
furnished to the Lender in connection herewith or with the consummation of the
transactions contemplated hereby, contains any misstatement of material fact or
omits to state a material fact or any fact necessary to make the statements
contained herein or therein not misleading. There is no contingent liability or
other material fact that may adversely affect the condition or operations,
financial or otherwise, or the business or prospects of the Borrower or the
Guarantor which has not been set forth in a footnote included in the Financial
Statements or a Schedule hereto or thereto.
(r) Operating Lease Obligations. The Borrower does not have
any obligation as lessee for the payment of rent for any real or personal
property other than as set forth in Schedule IV hereto.
(s) Indebtedness. The Borrower has no Indebtedness other than
Indebtedness set forth on Schedule V hereto.
(t) Environmental Matters. Except as set forth in the Plan of
Remediation, (i) the Borrower is in compliance with all applicable Environmental
Laws, and (ii) none of the operations of the Borrower is the subject of any
Federal, state or local investigation to determine whether any remedial action
is needed to address the presence, disposal, release or threatened release of
any Hazardous Material into the environment which may have a material adverse
effect on the business, operations, property, assets or financial or other
condition of the Borrower, and the Borrower does not have any contingent
liability in connection with any release of any Hazardous Material into the
environment which may have a material adverse effect on its business,
operations, property, assets
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<PAGE> 15
or financial or other condition.
(u) Schedules. All of the information which is required to be
scheduled to this Agreement is correct and accurate in all material respects.
(v) Insurance. Each of Borrower and the Guarantor keeps its
insurable properties adequately insured and maintains (i) insurance to such
extent and against such risks, including fire, as is customary with companies in
the same or similar businesses, (ii) workmen's compensation insurance in the
amount required by applicable law, (iii) personal liability insurance and public
liability insurance, which shall include product liability insurance, in the
amount customary with companies in the same or similar business against claims
for personal injury or death or properties owned, occupied or controlled by it,
and (iv) such other insurance as may be required by law or as may be reasonably
required in writing by the Lender.
(w) Use of Proceeds. The proceeds of the Loan shall be used to
pay accrued accounts receivable of the Borrower, for improvements to the
Property and for general working capital.
(x) Solvency of the Borrower. On and as of the Effective Date,
and after giving effect to the Loan and to liens created by the Borrower in
connection therewith, (i) the sum of the assets, at a fair valuation, of the
Borrower will exceed its debts ("debt" means any liability on a claim, and
"claim" means (A) right to payment, whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured or (B) right to an
equitable remedy for breach of performance if such breach gives rise to payment,
whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured);
(ii) the Borrower has not incurred and does not intend to incur, and does not
believe that it will incur, debts beyond its ability to pay such debts as such
debts mature; and (iii) the Borrower has, and will have, sufficient capital with
which to conduct its business.
(y) Solvency of the Guarantor. On and as of the Effective
Date, after giving effect to the Loan and to liens created by the Borrower in
connection therewith, (i) the sum of the consolidated assets, at a fair
valuation, of the Guarantor will exceed its consolidated debts ("debt" means any
liability on a claim, and "claim" means (A) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured or (B) right to an equitable remedy for breach of performance if
such breach gives rise to payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured); (ii) the Guarantor has not incurred and does
not intend to incur, and does not believe that it will incur, debts beyond its
ability to pay such debts as such debts mature; and (iii) the Guarantor will
have sufficient capital with which to conduct its business.
(z) Representations, Warranties and Covenants of Lender.
Lender hereby represents and warrants to and covenants with Borrower and Winners
that:
All shares of Winners Common Stock acquired by Lender in
accordance with this Agreement are being acquired by lender for its own account
for investment and without a view to distribute any of the shares of Winners
Common Stock in any transaction which would be in violation of the Securities
Act of l933, as amended.
ARTICLE VI
COVENANTS OF THE BORROWER AND THE GUARANTOR
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<PAGE> 16
SECTION 6.01. Affirmative Covenants. So long as any principal of or
interest on the Loan shall remain unpaid or the Lender shall have any commitment
to make the Loan hereunder, the Borrower and, where appropriate, the Guarantor
will, unless the Lender shall otherwise consent in writing:
(a) Reporting Requirements. Furnish to the Lender:
(i) as soon as available and in any event within 30
days after the end of each month, an interim (A) consolidated and
consolidating balance sheets of the Borrower as at the end of such
month and for the period commencing at the end of the immediately
preceding fiscal year and ending with the end of such month, (B)
consolidated and consolidating statement of income of the Borrower as
at the end of such month and for the period commencing at the end of
the immediately preceding fiscal year and ending with the end of such
month, and (C) consolidated and consolidating statement of cash flow of
the Borrower for such month and for the period commencing at the end of
the immediately preceding fiscal year and ending with the end of such
month, setting forth in comparative form the corresponding figures for
the corresponding date or period of the immediately preceding fiscal
year and setting forth the budget for such period all in reasonable
detail and prepared in accordance with generally accepted accounting
principles consistently applied, each duly certified by the chief
financial officer of the Borrower as (1) fairly presenting the
financial condition of the Borrower at the end of such month, and the
results of the operations of the Borrower for such month (subject to
normal year-end audit adjustments), and (2) having been prepared in
accordance with generally accepted accounting principles consistently
applied;
(ii) as soon as available and in any event within 45
days after the end of each fiscal quarter of the Borrower, an interim
(A) consolidated and consolidating balance sheet of the Borrower as at
the end of such quarter and for the period commencing at the end of the
immediately preceding fiscal year and ending with the end of such
quarter, (B) consolidated and consolidating statement of income of the
Borrower as at the end of such quarter and for the period commencing at
the end of the immediately preceding fiscal year and ending with the
end of such quarter, and (C) consolidated and consolidating statement
of cash flow of the Borrower for such quarter and for the period
commencing at the end of the immediately preceding fiscal year and
ending with the end of such quarter setting forth in comparative form
the corresponding figures for the corresponding date or period of the
immediately preceding fiscal year and setting forth the budget for such
period, all in reasonable detail and prepared in accordance with
generally accepted accounting principles consistently applied, each
duly certified by the chief financial officer of the Borrower as (1)
fairly presenting the financial condition of the Borrower at the end of
such quarter, and the results of the operations of the Borrower for
such quarter (subject to normal year-end audit adjustments), and (2)
having been prepared in accordance with generally accepted accounting
principles consistently applied;
(iii) as soon as available and in any event within 90
days after the end of each fiscal year of the Borrower, a (A)
consolidated and consolidating balance sheet of the Borrower as at the
end of such fiscal year, (B) consolidated and consolidating statement
of income of the Borrower as at the end of such fiscal year, and (C)
consolidated and consolidating statement of cash flow of the Borrower
for such fiscal year setting forth in comparative form the
corresponding figures for the immediately preceding fiscal year and
setting forth the budget for such fiscal year, all in reasonable detail
and prepared in accordance with generally accepted accounting
principles consistently applied and, in the case of balance sheets and
statement of income, accompanied by a report and an unqualified
opinion, prepared in accordance with generally accepted auditing
standards, of an independent certified public accountant of recognized
standing selected by the Borrower
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<PAGE> 17
and satisfactory to the Lender, together with any management letter
prepared by such accountant and a written statement of such accountant
(1) to the effect that in making the examination necessary for its
certification of such financial statements, it has not obtained any
knowledge of the existence of an Event of Default, or an event which,
with the giving of notice or the lapse of time or both, would
constitute an Event of Default, or (2) if such accountant shall have
obtained any knowledge of the existence of an Event of Default, or an
event which, with the giving of notice or the lapse of time or both,
would constitute an Event of Default, describing the nature thereof;
(iv) within 30 days after the end of any fiscal quarter of the
Guarantor or such time that the information required to be delivered
pursuant to this subparagraph 6.01(a)(iv) is delivered to the
Securities and Exchange Commission without violation of any rule,
regulation or order thereof, balance sheets of the Guarantor and its
subsidiaries as of the end of such fiscal quarter and statements of
income and retained earnings of the Guarantor and its subsidiaries for
the period commencing at the beginning of the fiscal year in which such
fiscal quarter falls through the end of such fiscal quarter, certified
as accurate and correct by the chief financial officer of the
Guarantor;
(v) within 120 days after the end of each fiscal year of the
Guarantor or such time that the information required to be delivered
pursuant to this subparagraph 6.01(a)(v) is delivered to the Securities
and Exchange Commission without violation of any rule, regulation or
order thereof, a copy of the annual report for such fiscal year for the
Guarantor and its subsidiaries containing financial statements for such
year certified in a manner acceptable to Lender by independent public
accountants of recognized standing;
(vi) promptly after the sending or filing thereof, copies of
all reports that the Guarantor sends to any of its security holders,
reports and copies of all reports and registration statements that the
Guarantor or any subsidiary files with the Securities and Exchange
Commission or any national securities exchange;
(vii) promptly upon delivery thereof, all reports and filings
made by the Borrower and/or the Guarantor to the West Virginia Racing
Commission or the West Virginia Lottery Commission;
(viii) simultaneously with the delivery of the financial
statements required by clauses (i), (ii), (iii), (iv) and (v) of this
Section 6.01(a), (A) a certificate of the chief financial officer of
the appropriate Loan Party, stating that such officer has reviewed the
provisions of this Agreement and the other Loan Documents to which such
Loan Party is a party and has made or caused to be made under his
supervision a review of the condition and operations of such Loan Party
during the period covered by such financial statements with a view to
determining whether the Borrower was in compliance with all of the
provisions of such Loan Documents, and that such review has not
disclosed, and such officer has no knowledge of, the existence during
such period of an Event of Default, or an event which, with the giving
of notice or the lapse of time or both, would constitute an Event of
Default;
(ix) as soon as available, and in any event no later than 90
days after the end of each year, annual financial projections
(including forecasted income statements, cash flow statements,
schedules of cash receipts and disbursements and borrowings hereunder)
of the Borrower and the Guarantor for the next succeeding three-year
period, all in reasonable detail, together with all such supporting
information as the Lender shall reasonably request;
(x) promptly after submission to any Governmental Authority
not
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<PAGE> 18
otherwise referred to in this subsection 6.01(a), all documents and
information furnished to such Governmental Authority, unless such
documents and information are furnished in the ordinary course of
business and will not result in any adverse action to be taken by such
Governmental Authority;
(xi) promptly after obtaining knowledge thereof but in any
event not later than five (5) days after the occurrence of an Event of
Default, or an event which, with the giving of notice or the lapse of
time or both, would constitute an Event of Default, or a material
adverse change in the condition or operations, financial or otherwise,
of the Borrower, the written statement of the chief executive officer
or the chief financial officer of the Borrower, setting forth the
details of such Event of Default, event or material adverse change and
the action which the Borrower proposes to take with respect thereto;
(xii) as soon as possible and in any event within 10 days
after the Borrower, the Guarantor or any of their Affiliates knows or
has reason to know of the existence of any Unfunded Liability, a notice
setting forth the amount of such Unfunded Liability, certified by the
chief financial officer of the applicable Loan Party.
(xiii) promptly after the commencement thereof but in any
event not later than five (5) Business Days after service of process
with respect thereto on, or the obtaining of knowledge thereof by, the
Borrower or the Guarantor, notice of each action, suit or proceeding
before any court or other Governmental Authority or other regulatory
body or any arbitrator which may materially adversely affect the
condition or operations, financial or otherwise, of the Borrower or the
Guarantor; and
(xiv) promptly upon request, such other information concerning
the condition or operations, financial or otherwise, of the Borrower or
the Guarantor as the Lender from time to time may reasonably request.
(b) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders, such compliance to
include, without limitation, (i) paying before the same become delinquent all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or upon any of their properties, and (ii) paying all
lawful claims which if unpaid might become a lien or charge upon any of their
properties, except to the extent contested in good faith by proper proceedings
which stay the imposition of any penalty, fine or lien resulting from the
non-payment thereof and with respect to which adequate reserves have been set
aside for the payment thereof.
(c) Preservation of Existence, Etc. Maintain and preserve its
existence, rights and privileges, and become or remain duly qualified and in
good standing in each jurisdiction in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary. Maintain all licenses and accreditations necessary to
conduct the business of the Borrower and the Guarantor.
(d) Keeping of Records and Books of Account. Keep adequate
records and books of account, with complete entries made in accordance with
GAAP.
(e) Inspection Rights. Permit the Lender or any agent or
representative thereof at any reasonable time and from time to time to examine
and make copies of and abstracts from its records and books of account, to visit
and inspect its properties, to conduct audits or examinations, and to discuss
its affairs, finances and accounts with any of the directors, officers,
employees, independent accountants or other representatives thereof. The
Borrower agrees to pay the cost of each such audit or examination as provided in
subsection 3.01(c).
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<PAGE> 19
(f) Maintenance of Properties, Etc. Maintain and preserve all
of its properties which are necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and comply at all times with the provisions of all leases to which the Borrower
or the Guarantor is a party as lessee or under which the Borrower or the
Guarantor occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.
(g) Maintenance of Insurance. Maintain insurance with
responsible and reputable insurance companies or associations (including,
without limitation, comprehensive general liability, personal liability and
hazard insurance) with respect to its properties and business, in such amounts
and covering such risks, as is required by any Governmental Authority or other
regulatory body having jurisdiction with respect thereto or as is carried
generally in accordance with sound business practice by companies in similar
businesses similarly situated.
(h) Environmental Indemnity. Comply with the requirements of
all applicable Environmental Laws, provide to the Lender all documentation in
connection with such compliance that the Lender may reasonably request, and
defend, indemnify, and hold harmless the Lender, its employees, agents,
officers, and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses (including, without
limitation, attorney and consultant fees, investigation and laboratory fees,
court costs, and litigation expenses) arising out of (i) the presence, disposal,
release, or threatened release of any Hazardous Materials on any property at any
time owned or occupied by the Borrower (or its predecessors in interest or
title); (ii) any personal injury (including wrongful death) or property damage
(real or personal) arising out of or related to such Hazardous Materials; (iii)
any investigation, lawsuit brought or threatened, settlement reached, or
government order relating to such Hazardous Materials; and/or (iv) any violation
of any Environmental Law.
(i) Notification of Event of Default. Immediately notify
Lender in writing of any default of nonpayment or any other default or event of
default or notice thereof under any of the Loan Documents (as defined in the
Senior Loan Agreement) or any other agreements or instruments representing
material Indebtedness of Borrower or the Guarantor or any Lien on their
respective assets.
(j) Further Assurances. Each Loan Party shall do, execute,
acknowledge and deliver, at the sole cost and expense of such Loan Party, all
such further acts, deeds, conveyances, mortgages, assignments, estoppel
certificates, financing statements, notices of assignment, transfers and
assurances as the Lender may reasonably require from time to time in order to
better assure, convey, grant, assign, transfer and confirm unto the Lender the
rights now or hereafter intended to be granted to the Lender under this
Agreement, any Loan Document or any other instrument under which such Loan Party
may be or may hereafter become bound to convey, mortgage or assign to the Lender
to effect the intention or facilitate the performance of the terms of the
Agreement.
(k) Environmental Actions. The Borrower shall take all
remedial and other actions as set forth in the Plan of Remediation in a timely
manner.
(l) Estoppel Certificate. The Borrower and the Guarantor will
each use their best good faith effort to obtain and deliver to the Lender an
estoppel certificate duly executed by each Person (other than the Lender) having
a Lien on the Property as of the Effective Date, certifying and covenanting as
to such matters relating thereto as the Lender may reasonably request.
SECTION 6.02. Negative Covenants. So long as any principal of or
interest on the Loan, or any Obligation, shall remain unpaid or the Lender shall
have any commitment to make the Loan, the Borrower will not and, where
appropriate, the Guarantor will not, without the prior written
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<PAGE> 20
consent of the Lender:
(a) Liens, Etc. Create or suffer to exist any Lien upon or
with respect to any of its properties, rights or other assets, whether now owned
or hereafter acquired, or assign or otherwise transfer any right to receive
income, other than:
(i) Liens created pursuant to the Loan Documents;
(ii) Liens existing on the date hereof, as set forth in
Schedule VI hereto, and the renewal and replacement of such liens,
provided that any such renewal or replacement lien shall be limited to
the property or assets covered by the lien renewed or replaced and the
indebtedness secured by any such renewal or replacement lien shall be
in an amount not greater than the amount of indebtedness secured by the
lien renewed or replaced;
(iii) Liens for taxes, assessments or governmental charges or
levies to the extent that the payment thereof shall not be required by
Section 6.01(b)(i) hereof;
(iv) Liens created by operation of law, such as materialmen's
liens, mechanics' liens and other similar liens, arising in the
ordinary course of business and securing claims the payment of which
shall not be required by Section 6.01(b)(ii) hereof;
(v) deposits, pledges or Liens (other than liens arising under
ERISA) securing (A) obligations incurred in respect of workers'
compensation, unemployment insurance or other forms of governmental
insurance or benefits, (B) the performance of bids, tenders, leases,
contracts (other than for the payment of money) and statutory
obligations, or (C) obligations on surety or appeal bonds, but only to
the extent such deposits, pledges or liens are incurred or otherwise
arise in the ordinary course of business and secure obligations which
are not past due;
(vi) restrictions on the use of real property and minor
irregularities in the title thereto which do not (A) secure obligations
for the payment of money or (B) materially impair the value of such
property or its use by any Loan Party in the normal conduct of such
Loan Party's business;
(vii) (A) purchase money liens on or purchase money security
interests in equipment acquired or held by the Borrower in the ordinary
course of its business to secure the purchase price of such property or
Indebtedness incurred solely for the purpose of financing the
acquisition of such property, or (B) liens or security interests
existing on such property at the time of its acquisition, provided,
that (1) no such lien or security interests shall extend to cover any
other property of the Borrower, and (2) the principal amount of the
Indebtedness secured by any such lien or security interest shall not
exceed 100% of the lesser of the fair market value or the cost of the
property so held or acquired; and
(viii) any other Lien in favor of the Lender.
(b) Indebtedness. Create, incur or suffer to exist any
Indebtedness, other than:
(i) Indebtedness to the Lender;
(ii) Indebtedness created hereunder or under the Note;
(iii) Indebtedness existing on the date hereof, as set forth
in Schedule V hereto, and any extension of maturity, refinancing or
other modification of the terms
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<PAGE> 21
thereof, provided, however, that such extension, refinancing or
modification (A) is pursuant to terms that are not less favorable to
the Borrower than the terms of the Indebtedness being extended,
refinanced or modified, and (B) after giving effect to the extension,
refinancing or modification of such Indebtedness, the amount of such
Indebtedness outstanding is not greater than the amount of such
Indebtedness outstanding immediately prior to such extension,
refinancing or modification;
(iv) Indebtedness represented by accounts payable incurred in
the ordinary course of business;
(v) Indebtedness secured by liens or security interests
permitted by clause (vii) of subsection (a) of this Section 6.02;
(vi) Indebtedness permitted by subsection (b) of this Section
6.02;
(vii) Subordinated Indebtedness of the Borrower on terms
approved, in writing, by the Lender; and
(viii) Indebtedness under Operating Leases permitted by
Section 6.02(g) hereof.
(c) Guaranties, Etc. Assume, guarantee, endorse or otherwise become
directly or contingently liable (including, without limitation, liable by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss), in connection with any Indebtedness of any other Person,
other than:
(i) guaranties created hereunder or under any Loan Document;
(ii) guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
(iii) guaranties existing on the date hereof, as set forth in
Schedule VII hereto, including any renewal or other modification
thereof, provided, however, that such renewal or modification (A) is
pursuant to terms that are not less favorable to the Borrower than the
terms of the guaranty being renewed or modified, and (B) after giving
effect to the renewal or modification of such guaranty, the amount of
the outstanding indebtedness guaranteed by such guaranty is not greater
than the amount of the outstanding indebtedness guaranteed by such
guaranty immediately prior to such renewal or modification; and
(iv) guaranties of any other Indebtedness to the Lender or
Indebtedness permitted by subsection (b) of this Section 6.02.
(d) Merger, Consolidation, Sale of Assets, Etc.
(i) merge or consolidate with any Person; or
(ii) sell, assign, lease, engage in sale leaseback
transactions or otherwise transfer or dispose of, whether in one
transaction or in a series of related transactions, any substantial
portion of its properties, rights or other assets (whether now owned or
hereafter acquired) to any Person.
(e) Change in Nature of Business. Make any material change in the
nature of its business as conducted on at the date hereof.
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(f) Investments, Etc. Make any loan or advance to any Person or
purchase or otherwise acquire any capital stock, properties, assets or
obligations of, or any interest in, any Person, other than (i) Permitted
Investments, and (ii) investments existing on the date hereof, as set forth in
Schedule VIII hereto.
(g) Lease Obligations. Create, incur or suffer to exist any obligation
as lessee (i) for the payment of rent for any real or personal property in
connection with any sale and leaseback transaction, or (ii) for the payment of
rent for any real or personal property under Operating Leases which would cause
the aggregate amount of all obligations in respect of Operating
Leases payable by the Borrower in any fiscal year of the Borrower to exceed 105%
of the Operating Leases outstanding as of the end of the prior fiscal year.
(h) Capital Expenditures. Make or be committed to make any Capital
Expenditures (by purchase or capitalized lease) in excess of the Capex Cap
Amount for the prior fiscal year.
(i) Salaries and Withdrawals. Pay or become obligated to pay any fees,
wages, distributions, salary, bonus, commission, contributions to deferred
benefit plans or any other compensation ("Compensation") to, or for the benefit
of, the Guarantor or any officers of the Borrower or the Guarantor in any
calendar year in excess of 120% of such Persons Compensation in the immediately
preceding calendar year.
(j) Dividends, Etc. Declare or pay any dividend, purchase or otherwise
acquire for value any of its capital stock now or hereafter outstanding, return
any capital to its stockholders as such, or make any other payment or
distribution of assets to its stockholders as such or to purchase or otherwise
acquire for value any stock of the Borrower; provided, however, that nothing
herein shall prevent the Borrower from making distributions to the Guarantor in
the aggregate in any fiscal year equal to the lesser of (i) the amount necessary
to pay the expenses of the Guarantor, and (ii) $500,000.00 plus expenses paid to
any third parties, in each case minus the funds available to the Guarantor from
other sources other than through the issuance of securities.
(k) Federal Reserve Regulations. Permit the Loan or the proceeds of the
Loan under this Agreement to be used for the purpose which violates or is
inconsistent with the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
(l) Transactions with Affiliates. The Borrower shall not enter into or
be a party to any transaction with any of its Affiliates, except in the ordinary
course of business for fair consideration and on terms no less favorable to the
Borrower as are available from unaffiliated third parties.
(m) Fiscal Year, Accounting Policies. Permit any material change in the
fiscal year or accounting policies and procedure of the Borrower without the
prior written consent of the Lender.
(n) Improvements. Make or commit to make any improvements on the
Property with a total cost in excess of $250,000.00 without the prior written
consent of the Lender, after Lender's review of all plans, permits and other
items necessary to ensure that any such improvement will comply with all
applicable building and safety requirements as the Lender, in its sole and
absolute discretion, may determine; provided, however, that the foregoing
limitations shall not apply to the proceeds of the Loan.
(o) Senior Debt. Permit the increase of the principal amount of or
interest rate or monetary default penalties under the Senior Loan Agreement.
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SECTION 6.03 Negative Covenants of the Guarantor. So long as any of the
Obligations remains outstanding, the Guarantor shall not:
(a) take any action to increase the par value of the Common
Stock;
(b) issue any Common Stock, any preferred stock or any
security providing for the purchase of or convertibility into, or exchangeable
for, Common Stock or preferred stock, other than;
(i) in connection with stock rights, warrants and
options existing on the date hereof as set forth on Schedule IX hereto;
(ii) in connection with future incentive stock
options or warrants for employees of the Guarantor not to exceed 1% of
the number of outstanding shares of Common Stock in any fiscal year;
(iii) in the ordinary course of business of the
Guarantor not to exceed 1/2 of 1% of the number of outstanding shares
of Common Stock in any fiscal year; and
(iv) in connection with any merger, acquisition or
sale of a major portion of the assets of the Guarantor approved in
writing by the Lender, such approval not to be unreasonably withheld.
(v) as provided under Section 3.01 hereof.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If any of the following Events of
Default shall occur and be continuing:
(a) the Borrower shall fail to pay any principal on the Loan
when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise);
(b) the Borrower shall fail to pay any interest on the Loan or
any fee or other amount (whether by scheduled payment, acceleration, demand or
otherwise) within three (3) Business Days of the date when due; provided,
however, that failure to make payments when due with respect to Obligations in
this Subsection 7.01(b) more than three (3) times in any twelve (12) month
period shall constitute an Event of Default hereunder;
(c) any representation or warranty made by any Loan Party or
any officer of any Loan Party under or in connection with any Loan Document
shall have been incorrect in any material respect when made;
(d) any Loan Party shall fail to perform or observe any of the
covenants contained in Sections 6.01, 6.02 or 6.03 hereof and Article IX hereof;
(e) any Loan Party shall fail to perform or observe any other
term, covenant or agreement contained in any Loan Document and to be performed
or observed by such Loan Party;
(f) there shall occur any breach or default under any other
agreement involving the borrowing of money under which such Loan Party or any of
its subsidiaries may be obligated as borrower or guarantor;
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(g) any Loan Party (i) shall institute any proceeding or
voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for such Person or for any substantial part
of its property, (ii) shall be generally not paying its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
(iii) shall make a general assignment for the benefit of creditors, or (iv)
shall take any action to authorize or effect any of the actions set forth above
in this subsection (g);
(h) any proceeding shall be instituted against any Loan Party
seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for such
Person or for any substantial part of its property, and either such proceeding
shall remain undismissed or unstayed for a period of 60 days or any of the
actions sought in such proceeding (including, without limitation, the entry of
an order for relief against it or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property) shall occur;
(i) any provision of any Loan Document shall at any time for
any reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any Loan Party, or a proceeding shall be commenced
by any Loan Party, or by any Governmental Authority or other regulatory body
having jurisdiction over any Loan Party, seeking to establish the invalidity or
unenforceability thereof, or any Loan Party shall deny that such Loan Party has
any liability or obligation purported to be created under any Loan Document;
(j) the Security Agreement, the Deed of Trust or any other
security document, after delivery thereof pursuant hereto, shall for any reason
fail or cease to create a valid and perfected and, to the extent provided for by
the terms hereof or thereof, first or second priority lien on or security
interest in any Collateral purported to be covered thereby;
(k) one or more judgments or orders (other than a judgment or
award described in subsections (g) and (h) of this Section 7.01) for the payment
of money exceeding any applicable insurance coverage shall be rendered against
any Loan Party, and either (i) enforcement proceedings shall have been commenced
by any creditor upon any such judgment or order, or (ii) there shall be any
period of 30 consecutive days during which a stay of enforcement of any such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;
(l) any Loan Party or any Affiliate of a Loan Party shall
suffer to exist any Unfunded Liability in excess of $100,000.
then, and in any such event, the Lender may, by notice to the
Borrower, (i) declare its Commitment to make the Loan hereunder to be
terminated, whereupon such Commitment shall forthwith terminate, (ii) declare
the Loan, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Loan, all such interest
and all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; provided, however, that upon the
occurrence of an Event of Default described in subsections (g) and (h) of this
Section 7.01, the Commitment to make the Loan hereunder shall immediately
terminate and the Loan, all such interest thereon and all other amounts shall
become payable and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are expressly waived by the
Borrower, and; provided further, that upon the occurrence of an Event of Default
other than the events described in Subsections (a), (b), (g) and (h), the
Borrower shall
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have three (3) Business Days in which to cure such Event of
Default and (iii) exercise any and all of its other rights under applicable law,
hereunder and under the other Loan Documents.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing and shall be mailed,
telecopied, with a copy sent promptly thereafter by U.S. mail, return receipt
requested or delivered, if to the Borrower or the Guarantor, at the following
address:
Mountaineer Park, Inc.
8 Route 2 South
Chester, West Virginia 26034
Attention: Mr. Edson Arneault
Telephone No.: (304) 387-2400
Telecopy No.: (304) 387-1598
with copies to:
Freer & McGarry
1000 Thomas Jefferson Street, NW, Suite 60
Washington, DC 20007
Attention: Robert Rubin, Esq.
Telephone No.: (202) 965-6565
Telecopy No.: (202) 965-4839
and if to the Lender, to it at the following address:
Madeleine LLC
950 Third Avenue
New York, New York 10022
Attention: Mr. Kevin P. Genda
Telephone No.: (212) 758-5110
Telecopy No.: (212) 421-2947
with copies to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Mark A. Neporent, Esq.
Telephone No.: (212) 756-2238
Telecopy No.: (212) 593-5955
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 9.01. All such notices and other communications shall be
effective (i) if mailed, when received or three days after mailing, whichever
first occurs, (ii) if telecopied, when transmitted, provided same is on a
Business Day and, if not, on the next Business Day, or (iii) if delivered, upon
delivery, provided same is on a Business Day and, if not, on the next Business
Day, except that notices to the Lender pursuant to Article II hereof shall not
be effective until received by the Lender.
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SECTION 8.02. Amendments, Etc. No amendment of any provision of this
Agreement, the Note or any other Loan Document shall be effective unless it is
in writing and signed by the Borrower, each of the Guarantor and the Lender, and
no waiver of any provision of this Agreement, the Note or any other Loan
Document, nor consent to any departure by the Borrower therefrom, shall be
effective unless it is in writing and signed by the Lender, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 8.03. No Waiver; Remedies, Etc. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder or under any
other Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The rights and
remedies of the Lender provided herein and in the other Loan Documents are
cumulative and are in addition to, and not exclusive of, any right or remedy
provided by law. The rights of the Lender under any Loan Document against any
party thereto are not conditional or contingent on any attempt by the Lender to
exercise any of its rights under any other Loan Document against such party or
against any other Person.
SECTION 8.04. Fees, Costs, Expenses and Taxes. Whether or not the Loan
is made hereunder or the transactions contemplated hereby are consummated, the
Borrower will pay on demand (i) all fees, costs and expenses in connection with
the preparation, execution, delivery, filing, recording, amendment,
modification, waiver and administration of the Loan Documents and the other
documents to be delivered pursuant to the Loan Documents, including, without
limitation, the reasonable fees, out-of-pocket expenses and other client charges
of Schulte Roth & Zabel, counsel to the Lender, and Bowles Rice McDavid Graff &
Love, West Virginia counsel to the Lender and with respect to advising the
Lender as to its rights and responsibilities under the Loan Documents and the
reasonable fees, out-of-pocket expenses and other client charges of all
accountants, auditors and consultants retained by the Lender in connection with
the transactions contemplated by this Agreement, and (ii) all costs and
expenses, if any (including reasonable counsel fees, out-of-pocket expenses and
other client charges), in connection with the enforcement of the Loan Documents
and the other documents to be delivered pursuant to the Loan Documents. In
addition, the Borrower will pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing and recording of the Loan Documents and the other documents to be
delivered pursuant to the Loan Documents, and will save the Lender harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes and fees.
SECTION 8.05. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lender may, and is hereby authorized
to, at any time and from time to time, without notice to the Borrower (any such
notice being expressly waived by the Borrower) and to the fullest extent
permitted by law, set off and apply any and all indebtedness at any time owing
by the Lender to or for the credit or the account of the Borrower against any
and all obligations now or hereafter existing, irrespective of whether or not
the Lender shall have made any demand hereunder or thereunder and although such
obligations may be contingent or unmatured. The Lender agrees to notify the
Borrower promptly after any such set-off and application made by the Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Lender under this Section 8.05`
are in addition to the other rights and remedies (including, without limitation,
other rights of set-off) which the Lender may have.
SECTION 8.06. Severability. Any provision of this Agreement, or of any
other Loan Document to which the Borrower or any of the Guarantors is a party,
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or thereof
or
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affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 8.07. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Borrower, the Guarantor and the Lender and
their respective successors and assigns, except that neither the Borrower nor
any Guarantor may assign its rights hereunder or any interest herein without the
prior written consent of the Lender. The Lender may assign to one or more banks
or other entities all or any part of, or may grant participations to one or more
banks or other entities in or to all or any part of the Commitment, the Loan, or
the Note, and, to the extent of any such assignment or participation (unless
otherwise stated therein), the assignee of such assignment shall have the same
rights and benefits hereunder and under the Note as it would have if it were the
Lender hereunder. In connection with any assignment by the Lender pursuant
hereto, the Borrower shall, promptly upon request by the Lender, execute and
deliver a new Note or Notes, in replacement of the then effective Note or Notes,
in an aggregate principal amount equal to the outstanding principal amount of
the Loan at such time, payable to the order of the Lender and/or an assignee(s).
The Lender may, in connection with any such assignment or participation or as
may be required by law or any Governmental Authority or other regulatory body,
disclose any public and non-public information relating to the Borrower and each
of the Guarantors furnished by or on behalf of the Borrower or any of the
Guarantors or any of their Affiliates to the Lender.
SECTION 8.08. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
SECTION 8.09. Headings. Section headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
SECTION 8.10. Governing Law. This Agreement, the Note, and the other
Loan Documents shall be governed by, and construed in accordance with, the law
of the State of New York applicable to contracts made and to be performed in
such State without regard to conflicts of law principles. Any legal action or
proceeding with respect to this Agreement or any other Loan Document may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Borrower and the Guarantor hereby irrevocably accept for themselves in
respect of their property, generally and unconditionally, the jurisdiction of
the aforesaid courts. The Borrower and the Guarantor further irrevocably consent
to the service of process out of any of the aforementioned courts and in any
such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Borrower at its address for notices
contained in Section 8.01, such service to become effective thirty (30) days
after such mailing. The Borrower and the Guarantor hereby irrevocably appoint
Mr. Robert A. Blatt, c/o CRC Group, 1890 Palmer Avenue, Suite 303, Larchmont,
New York 10538, or such other Person as shall be acceptable to the Lender, as
their agent for service of process in respect of any such action or proceeding.
Nothing herein shall affect the right of the Lender to service of process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Borrower and the Guarantor in any other jurisdiction.
SECTION 8.11. WAIVER OF JURY TRIAL, ETC. EACH OF THE BORROWER, THE
GUARANTOR AND THE LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHT UNDER THIS AGREEMENT,
THE NOTE, OR OTHER LOAN DOCUMENT, OR UNDER ANY AMENDMENT, WAIVER, CONSENT,
INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE
DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY
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SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY. EACH OF THE BORROWER AND THE GUARANTOR HEREBY WAIVES ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER AND THE GUARANTOR CERTIFY THAT
NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF ANY ACTION,
PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE BORROWER
AND THE GUARANTOR HEREBY ACKNOWLEDGE THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.
SECTION 8.12. Reinstatement; Certain Payments. If a claim is ever made
upon the Lender for repayment or recovery of any amount or amounts received by
the Lender in payment or on account of any of the Obligations under this
Agreements, the Lender shall give prompt notice of such claim to the Borrower,
and if the Lender repays all or part of said amount by reason of (i) any
judgment, decree or order of any court or administrative body having
jurisdiction over the Lender or any of its property, or (ii) any settlement or
compromise of any such claim effected by the Lender with any such claimant, then
and in such event the Borrower and the Guarantor (A) agree that any such
judgment, decree, order, settlement or compromise shall be binding upon the
Borrower and the Guarantor notwithstanding the cancellation of the Note or other
instrument evidencing the Obligations under this Agreement or the other Loan
Documents or the termination of this Agreement or the other Loan Documents, and
(B) shall be and remain liable to the Lender hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by the Lender.
SECTION 8.13. Indemnification. In addition to all of their other
Obligations under this Agreement, the Borrower and the Guarantor jointly and
severally agree to defend, protect, indemnify and hold harmless the Lender and
any assignee of the Lenders rights hereunder, and all of their respective
officers, directors, employees, attorneys, consultants and agents (including,
without limitation, those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in this Agreement)
(collectively called the "Indemnitees") from and against any and all losses,
damages, liabilities, obligations, penalties, fees, costs and expenses
(including, without limitation, attorneys' fees, costs and expenses) incurred by
such Indemnitees, whether prior to or from and after the Effective Date, whether
direct, indirect or consequential, as a result of or arising from or relating to
any suit, investigation, action or proceeding by any Person, whether threatened
or initiated, asserting a claim for any legal or equitable remedy against any
Person under any statute or regulation, including, without limitation, any
Federal or state securities or labor laws, or under any Federal, state or local
environmental, health or safety laws, regulations or, common law principles,
arising from or in connection with the past, present or future operations of the
Borrower or its predecessors in interest, arising from or in connection with any
of the following: (i) the negotiation, preparation, execution or performance of
this Agreement or of any document executed in connection with the transactions
contemplated by this Agreement, (ii) the Lender's furnishing of funds to the
Borrower under this Agreement, including, without limitation, the management of
the Loan, or (iii) any matter relating to the financing transactions
contemplated by this Agreement or by any document executed in connection with
the transactions contemplated by this Agreement (collectively, the "Indemnified
Matters"); provided, however, that the Borrower and the Guarantor shall have no
obligation to any Indemnitee hereunder for any Indemnified Matter caused by or
resulting from the gross negligence or willful misconduct of such Indemnitee, as
determined by a final judgment of a court of competent jurisdiction. Such
indemnification for all of the foregoing losses, damages, fees, costs and
expenses of the Lender shall be part of the Obligations, secured by the
Collateral and chargeable against the Loan Account. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section 8.13
may be
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unenforceable because it is violative of any law or public policy, the
Borrower shall contribute the maximum portion which it is permitted to pay and
satisfy under applicable law, to the payment and satisfaction of all Indemnified
Matters incurred by the Indemnitees. The provisions of this Section 8.13 shall
survive termination of this Agreement.
ARTICLE IX
GUARANTY
SECTION 9.01. Guaranty. the Guarantor, and each other Guarantor that
may become party hereto, hereby (i) irrevocably, absolutely and unconditionally
guarantees the prompt payment, as and when due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), of (A) all
the Obligations, including, without limitation, all amounts now or hereafter
owing in respect of the Loan Documents, whether for principal, interest, fees,
expenses or otherwise, and (B) all indebtedness, obligations and other
liabilities, direct or indirect, absolute or contingent, now existing or
hereafter arising of the Borrower to the Lender and (ii) agrees, to pay any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Lender in enforcing its rights under this Agreement, the Guarantee and each
other Loan Document.
SECTION 9.02. Obligations Unconditional.
(i) the Guarantor and each other Guarantor that may become
party hereto, hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents, regardless
of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Lender
with respect thereto. the Guarantor and each other Guarantor agrees
that its guarantee constitutes a guaranty of payment when due and not
of collection, and waives any right to require that any resort be had
by the Lender to any security held for payment of the Obligations or to
any balance of any deposit account or credit on the books of the Lender
in favor of the Borrower or for any other reason. The liability of the
Guarantor and each other Guarantor hereunder shall be absolute and
unconditional irrespective of: (i) any lack of validity or
enforceability of any Loan Document or any agreement or instrument
relating thereto; (ii) any extension or change in the time, manner or
place of payment of, or in any other term in respect of, all or any of
the Obligations (including, without limitation, any extension for
longer than the original period), or any other amendment or waiver of
or consent to any departure from any provision of any Loan Document;
(iii) any exchange or release of, or non-perfection of any lien on or
security interest in, any Collateral, or any release or amendment or
waiver of or consent to any departure from any other guaranty, for all
or any of the Obligations; or (iv) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, the
Borrower or any other Guarantor in respect of the Obligations or the
Guarantor and each other Guarantor in respect hereof.
(ii) This Guaranty (i) is a continuing guaranty and shall
remain in full force and effect until such date on which all of the
Obligations and all other expenses to be paid by the Guarantor or any
other Guarantor pursuant hereto shall have been satisfied in full after
the Commitment shall have been terminated, (ii) shall continue to be
effective or shall be reinstated, as the case may be, if at any time
any payment of any of the Obligations is rescinded or must otherwise be
returned by the Lender upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment
had not been made, and (iii) shall be binding upon the Guarantor, any
other Guarantor or their respective heirs, executors, successors and
assigns.
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SECTION 9.03. Waivers. The Guarantor hereby waives, to the extent
permitted by applicable law, (i) promptness and diligence, (ii) notice of
acceptance and notice of the incurrence of any Obligation, (iii) notice of any
action taken by the Lender or the Borrower or any other agreement or instrument
relating thereto, (iv) all other notices, demands and protests, and all other
formalities of every kind in connection with the enforcement of the Obligations
or of the obligations of the Guarantor and each other Guarantor hereunder, the
omission of or delay in which, but for the provisions of this Section 9.03,
might constitute grounds for relieving the Guarantor or any other Guarantor of
its obligations hereunder, and (v) any requirement that the Lender protect,
secure, perfect or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against any Person or any
Collateral. All such waivers by the Guarantor shall be effective only to the
extent permitted by applicable law.
SECTION 9.04. Subrogation. The Guarantor hereby waives and agrees that
it will not exercise any rights which it may acquire by way of subrogation
hereunder, by any payment made by it hereunder or otherwise. If the amount shall
be paid to the Guarantor or such other Guarantor on account of such subrogation
rights at any time when all of such Obligations and all other Obligations shall
not have been paid in full, such amount shall be held in trust for the benefit
of the Lender, shall be segregated from the other funds of the Guarantor or such
other Guarantor and shall forthwith be paid over to the Lender to be applied in
whole or in part by the Lender against the Obligations, whether matured or
unmatured, in accordance with the terms of this Agreement.
SECTION 9.05. No Waiver; Remedies. No failure on the part of the Lender
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedy provided by law.
SECTION 9.06. Taxes.
(a) Each payment by the Guarantor under this Loan Agreement
shall be made without withholding for or on account of any present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of the Lender, taxes imposed on its
income, and franchise taxes imposed on it by the jurisdiction (or any political
subdivision thereof) under the laws of which the Lender is organized (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"); provided, however, that
if such Taxes are required by law to be withheld from any such payment, the
Guarantor shall make such withholding for the account of the Lender, make timely
payment thereof to the appropriate governmental authority, and forthwith pay for
the account of the Lender such additional amount as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 9.06.) the Lender receives an amount
equal to the sum it would have received had no such deductions been made. All
such Taxes shall be paid by the Guarantor prior to the date on which penalties
attach thereto or interest accrues thereon; provided, however, that, if any such
penalties or interest become due, the Guarantor shall make prompt payment
thereof to the appropriate governmental authority.
(b) the Guarantor will indemnify the Lender for the full
amount of Taxes (including any Taxes on amounts payable under this Section
9.06.) paid by the Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
were correctly or legally asserted. This indemnification shall be made within 30
days from the date the Lender makes written demand therefor.
(c) Within 30 days after the date of any payment of Taxes,
the Guarantor will
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furnish to the Lender the original or a certified copy of a receipt evidencing
payment thereof. If no Taxes are payable in respect of any payment hereunder or
under the Note, the Guarantor will furnish to the Lender a certificate from each
appropriate taxing authority, or an opinion of counsel acceptable to the Lender,
in either case stating that such payment is exempt from or not subject to Taxes.
SECTION 9.07. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by any of the Borrower in respect of the
Obligations is stayed upon the insolvency, bankruptcy or reorganization of any
of the Borrower, all such amounts otherwise subject to acceleration under the
terms of this Agreement shall nonetheless be payable by the Guarantor forthwith
on demand by the Lender.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
MOUNTAINEER PARK, INC.
By: /s/ Edson R. Arneault
-------------------------
Name: Edson R. Arneault
Title: President
WINNERS ENTERTAINMENT, INC.
By: /s/ Edson R. Arneault
-------------------------
Name: Edson R. Arneault
Title: President
MADELEINE LLC
By: /s/ Kevin Genda
-------------------------
Name: Kevin Genda
Title: Power of Attorney
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SCHEDULE I
Description of Property
-32-
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SCHEDULE II
Litigation
-33-
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SCHEDULE III
Licenses, Permits, Authorizations and Approvals
-34-
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SCHEDULE IV
Lease Obligations of the Borrower
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SCHEDULE V
Indebtedness of the Borrower
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SCHEDULE VI
Existing
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SCHEDULE VII
Guarantees of the Borrower
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SCHEDULE VIII
Investments
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SCHEDULE IX
Stock Rights, Warrants and Options
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SCHEDULE X
Shares of Common Stock Issued
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EXHIBIT A
Form of Note
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EXHIBIT B
Form of Deed of Trust
-43-
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EXHIBIT C
Form of Registration Rights Agreement
-44-
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EXHIBIT D
Form of Security Agreement
-45-
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EXHIBIT E
Form of Warrants
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EXHIBIT F
Form of Borrowing Notice
-47-
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EXHIBIT G
Form of Opinion of Freer & McGarry,
Counsel to the Borrower and the Guarantor
-48-
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EXHIBIT H
Form of Opinion of Jackson & Kelley,
West Virginia Counsel to the Borrower and the Guarantor
-49-
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EXHIBIT I
Form of Stock Transfer Agreement
-50-
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EXHIBIT J
Corrective Action Plan
-51-
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TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions.............................................
SECTION 1.02. Accounting and Other Terms..............................
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
SECTION 2.01. Commitment..............................................
SECTION 2.02. Making the Loan.........................................
SECTION 2.03. Interest................................................
(a) Loan...........................................................
(b) Default Interest...............................................
(c) Interest Payment...............................................
SECTION 2.04. Repayment...............................................
SECTION 2.05. Termination or Reduction of Commitment..................
SECTION 2.06. Optional Prepayment of the Loan.........................
ARTICLE III
FEES, PAYMENTS AND OTHER COMPENSATION
SECTION 3.01. Fees and Other Consideration............................
(a) Loan Fee.......................................................
(b) Administration Fee.............................................
(c) Audit and Collateral Monitoring Fees...........................
(d) Common Stock...................................................
(e) Warrants.......................................................
SECTION 3.02. Payments and Computations...............................
SECTION 3.03. Taxes...................................................
ARTICLE IV
CONDITIONS OF EFFECTIVENESS AND LENDING
SECTION 4.01. Conditions Precedent to Effectiveness...................
(a) Payment of Fees, Etc...........................................
(b) Representations and Warranties; No Event of Default............
(c) Legality.......................................................
(d) Delivery of Documents..........................................
(e) Proceedings; Receipt of Documents..............................
(f) Material Adverse Change........................................
(g) Existing Loan..................................................
(h) Due Diligence..................................................
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties of the Borrower and the
Guarantor
(a) Organization, Good Standing, Etc..............................
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(b) Authorization, Etc............................................
(c) Governmental Approvals........................................
(d) Enforceability of Loan Documents..............................
(e) Certificates..................................................
(f) Subsidiaries..................................................
(g) Litigation....................................................
(h) Financial Condition...........................................
(i) Compliance with Law, Etc......................................
(j) ERISA.........................................................
(k) Taxes, Etc....................................................
(l) Regulation U..................................................
(m) Adverse Agreements, Etc.......................................
(n) Holding Company and Investment Company Acts...................
(o) Permits, Etc..................................................
(p) Title to Properties...........................................
(q) Full Disclosure...............................................
(r) Operating Lease Obligations...................................
(s) Indebtedness..................................................
(t) Environmental Matters.........................................
(u) Schedules.....................................................
(v) Insurance.....................................................
(w) Use of Proceeds...............................................
(x) Solvency of the Borrower......................................
(y) Solvency of the Guarantor.....................................
ARTICLE VI
COVENANTS OF THE BORROWER AND THE GUARANTOR
SECTION 6.01. Affirmative Covenants..................................
(a) Reporting Requirements........................................
(b) Compliance with Laws, Etc.....................................
(c) Preservation of Existence, Etc................................
(d) Keeping of Records and Books of Account.......................
(e) Inspection Rights.............................................
(f) Maintenance of Properties, Etc................................
(g) Maintenance of Insurance......................................
(h) Environmental Indemnity.......................................
(i) Notification of Event of Default..............................
(j) Further Assurances............................................
(k) Environmental Actions.........................................
(l) Estoppel Certificate..........................................
SECTION 6.02. Negative Covenants.....................................
(a) Liens, Etc. ..................................................
(b) Indebtedness..................................................
(c) Guaranties, Etc. .............................................
(d) Merger, Consolidation, Sale of Assets, Etc. ..................
(e) Change in Nature of Business..................................
(f) Investments, Etc. ............................................
(g) Lease Obligations.............................................
(h) Capital Expenditures..........................................
(i) Salaries and Withdrawals......................................
(j) Dividends, Etc. ..............................................
(k) Federal Reserve Regulations...................................
(l) Transactions with Affiliates..................................
(m) Fiscal Year, Accounting Policies..............................
(n) Improvements..................................................
(o) Senior Debt...................................................
SECTION 6.03 Negative Covenants of the Guarantor.....................
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ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default......................................
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices, Etc...........................................
SECTION 8.02. Amendments, Etc........................................
SECTION 8.03. No Waiver; Remedies, Etc...............................
SECTION 8.04. Fees, Costs, Expenses and Taxes........................
SECTION 8.05. Right of Set-off.......................................
SECTION 8.06. Severability...........................................
SECTION 8.07. Successors and Assigns.................................
SECTION 8.08. Counterparts...........................................
SECTION 8.09. Headings...............................................
SECTION 8.10. Governing Law..........................................
SECTION 8.11. WAIVER OF JURY TRIAL, ETC..............................
SECTION 8.12. Reinstatement; Certain Payments........................
SECTION 8.13. Indemnification........................................
ARTICLE IX
GUARANTY
SECTION 9.01. Guaranty...............................................
SECTION 9.02. Obligations Unconditional..............................
SECTION 9.03. Waivers................................................
SECTION 9.04. Subrogation............................................
SECTION 9.05. No Waiver; Remedies....................................
SECTION 9.06. Taxes..................................................
SECTION 9.07. Stay of Acceleration...................................
SCHEDULE I Description of Property
SCHEDULE II Litigation
SCHEDULE III Licenses, Permits, Authorizations and Approvals
SCHEDULE IV Lease Obligations of the Borrower
SCHEDULE V Indebtedness of the Borrower
SCHEDULE VI Existing Liens
SCHEDULE VII Guarantees of the Borrower
SCHEDULE VIII Investments
SCHEDULE IX Stock Rights, Warrants and Options
SCHEDULE X Shares of Common Stock Issued
EXHIBIT A Form of Note
EXHIBIT B Form of Deed of Trust
EXHIBIT C Form of Registration Rights Agreement
EXHIBIT D Form of Security Agreement
EXHIBIT E Form of Warrants
EXHIBIT F Form of Borrowing Notice
EXHIBIT G Form of Opinion of Freer & McGarry, Counsel to the
Borrower and the Guarantor
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EXHIBIT H Form of Opinion of Jackson & Kelly, West Virginia Counsel
to the Borrower and the Guarantor
EXHIBIT I Form of Stock Transfer Agreement
EXHIBIT J Corrective Action Plan
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TERM LOAN AGREEMENT
Dated as of July 2, 1996
among
MOUNTAINEER PARK, INC., as Borrower,
WINNERS ENTERTAINMENT, INC., as Guarantor
and
MADELEINE LLC, as Lender
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<PAGE> 1
EXHIBIT 10(6)
FIRST AMENDMENT TO TERM LOAN AGREEMENT
FIRST AMENDMENT TO TERM LOAN AGREEMENT, dated July 2, 1996 (the "Term
Loan Agreement"), among MOUNTAINEER PARK, INC., a West Virginia corporation (the
"Borrower"), WINNERS ENTERTAINMENT, INC., a Delaware corporation (the
"Guarantor") and MADELEINE LLC, a New York limited liability company (the
"Lender").
RECITALS
The Borrower, the Guarantor and the Lender desire to amend the
Term Loan Agreement to (i) modify the representations contained in Sections
5.01(b) and 5.01(i) of the Term Loan Agreement, (ii) waive the Event of Default,
if any so exists, under Section 7.01(f) of the Term Loan Agreement arising from
a breach, if any, of Paragraph 5(g) of the Credit Line Deed of Trust (the "First
Deed"), made the 27th day of June, 1994, by and between the Borrower and Louis
S. Southworth II and Ellen S. Cappellanti as trustees, with respect to the
Property and (iii) add as a new Event of Default the Guarantor's failure to
increase the number of validly issued, fully paid and non-assessable shares of
its Common Stock from 25,000,000 shares to 30,000,000 shares on or before l20
days from the date hereof, all on the terms and conditions hereinafter set
forth. Accordingly, the Borrower, the Guarantor and the Lender hereby agree as
follows:
1. Definitions. All capitalized terms used herein and not otherwise
defined herein are used herein as defined in the Term Loan Agreement.
2. Authorization, Etc. Section 5.01(b)(ii) of the Term Loan Agreement
is hereby amended by adding the words "(other than the provisions of Paragraph
5(g) of the First Deed)" after the word "restriction" and before the word
"binding" on the fourth line of Section 5.01(b).
3. Compliance with Law, Etc.. Section 5.01(i) of the Term Loan
Agreement is hereby amended by adding the words ", other than the provisions of
Paragraph 5(g) of the First Deed" as a consequence of the granting of the Deed
of Trust by the Borrower to the Lender after the word "instrument" on the third
line thereof.
4. Events of Default. Section 7.01 of the Term Loan Agreement is hereby
amended by (a) deleting the period at the end of Section 7.01(l) and replacing
it with a semi-colon and (b) adding a new subsection (i) as follows:
"(i) the Guarantor shall have failed to increase the number of
validly issued, fully paid and non-assessable shares of its
Common Stock from 25,000,000 shares to 30,000,000 shares on or
before l20 days from the date hereof."
5. Representations and Warranties. The Borrower and the Guarantor
represent and warrant to the Lender as follows:
(a) The execution, delivery and performance by the Borrower and
the Guarantor of this Amendment and the performance by the Borrower and the
Guarantor of the Term Loan Agreement as amended hereby (i) have been duly
authorized by all necessary corporate action and (ii) do not and will not
contravene their organization documents or any applicable law.
(b) This Amendment and the Term Loan Agreement, as amended
hereby, constitute the legal, valid and binding obligations of the Borrower and
the Guarantor, enforceable against the Borrower and the Guarantor in accordance
with their terms.
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<PAGE> 2
(c) The representations and warranties contained in Article V of
the Term Loan Agreement, except as modified by this Amendment, are correct on
and as of the date hereof as though made on and as of the date hereof (except to
the extent such representations and warranties expressly relate to an earlier
date), and no Event of Default has occurred and is continuing on and as of the
date hereof.
6. Continued Effectiveness of Loan Agreement. Each of the Borrower and
the Guarantor hereby (i) confirms and agrees that each Loan Document to which it
is a party is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that on and after the date hereof
all references in any such Loan Document to "the Term Loan Agreement",
"thereto", "thereof", "thereunder" or words of like import referring to the Term
Loan Agreement shall mean the Term Loan Agreement as amended by this Amendment
and (ii) confirms and agrees that to the extent that any such Loan Document
purports to assign or pledge to the Lender, or to grant to the Lender a security
interest in or Lien on, any collateral as security for the Obligations of the
Borrower or the Guarantor from time to time existing in respect of the Term Loan
Agreement and the Loan Documents, such pledge, assignment and/or grant of the
Term Loan Agreement and security interest or Lien is hereby ratified and
confirmed in all respects.
7. Miscellaneous.
(a) This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
(d) The Borrower will pay on demand all fees, costs and expenses
of the Lender in connection with the preparation, execution and delivery of this
Amendment, including, without limitation, the reasonable fees, disbursements,
and other charges of Schulte Roth & Zabel, counsel to the Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
BORROWER: GUARANTOR:
MOUNTAINEER PARK, INC. WINNERS ENTERTAINMENT, INC.
By: /s/ Edson R. Arneault By: /s/ Edson R. Arneault
----------------------------- -----------------------------
Name: Edson R. Arneault Name: Edson R. Arneault
Title: President Title: President
LENDER:
MADELEINE LLC
By: /s/ Kevin Genda
--------------------------------
Name: Kevin Genda
Title: Power of Attorney
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<PAGE> 1
EXHIBIT 10(7)
PROMISSORY NOTE
$5,000,000.00 Dated: July 2, 1996
New York, New York
FOR VALUE RECEIVED, MOUNTAINEER PARK, INC., a West Virginia
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of MADELEINE
LLC, a New York limited liability company (the "Lender") (i) the initial
principal amount of FIVE MILLION DOLLARS ($5,000,000.00), or, the aggregate
unpaid principal amount of the Loan (as defined in the Loan Agreement
hereinafter referred to) made by the Lender to the Borrower, payable on the
Maturity Date (as defined in the Loan Agreement), and (ii) interest on the
unpaid principal amount of the Obligations (as defined in the Loan Agreement)
under the Loan Agreement from the date such Loan is made until all such
Obligations are paid in full, at such interest rates, and payable at such times,
as are specified in the Loan Agreement.
Notwithstanding any other provision of this Note, interest
paid or becoming due hereunder or under the Loan Agreement, or any document or
instrument executed in connection herewith or therewith, shall in no event
exceed the maximum rate permitted by applicable law. Both principal and interest
are payable in lawful money of the United States of America in immediately
available funds to Madeleine LLC at 950 Third Avenue, New York, New York 10022,
Attention: Mr. Kevin Genda, or such other office as the Lender may designate.
The Loan made by the Lender to the Borrower pursuant to the
Loan Agreement, and all payments made on account of principal hereof, shall be
recorded by the Lender and, prior to any transfer hereof, indorsed on Schedule A
attached hereto which is a part of this Note.
This Note is the Note referred to in the Term Loan Agreement
dated as of July 2, 1996 (as amended or otherwise modified from time to time,
the "Loan Agreement"), among the Borrower, Winners Entertainment, Inc. and the
Lender, and is entitled to the benefits of the Loan Agreement, the Deed of Trust
and the Security Agreement as provided for therein. The Loan Agreement, among
other things, contains provisions for the acceleration of the maturity of the
unpaid principal amount of this Note upon the happening of certain stated Events
of Default (as defined in the Loan Agreement), and also for prepayments on
account of principal hereof prior to the maturity hereof upon the terms and
conditions specified therein. The Borrower hereby waives presentment for
payment, demand, protest and notice of dishonor of this Note.
This Note shall be governed by, and construed and interpreted
in accordance with, the internal laws of the State of New York applicable to
contracts made and to be performed therein without consideration as to choice of
law.
MOUNTAINEER PARK, INC.
By: /s/ Edson R. Arneault
-----------------------------
Name: Edson R. Arneault
Title: President
<PAGE> 1
EXHIBIT 10(8)
SECURITY AGREEMENT
SECURITY AGREEMENT dated July 2, 1996, made by MOUNTAINEER PARK, INC.,
a West Virginia corporation (the "Grantor"), in favor of MADELEINE LLC, a New
York limited liability company (the "Lender").
W I T N E S S E T H :
WHEREAS, the Grantor, WINNERS ENTERTAINMENT, INC. and the Lender are
parties to a Tern Loan Agreement dated as of July 2, 1996 (such Agreement, as
amended or otherwise modified from time to time, being hereinafter referred to
as the "Loan Agreement");
WHEREAS, pursuant to the Loan Agreement the Lender has agreed to make a
loan (the "Loan") to the Grantor in an aggregate principal amount not to exceed
the amount of the Commitment (as defined in the Loan Agreement), the proceeds of
which are to be used by the Grantor to repay existing indebtedness of the
Grantor and for the Grantor's general working capital purposes; and
WHEREAS, it is a condition precedent to the making of the Loan by the
Lender pursuant to the Loan Agreement that the Grantor shall have executed and
delivered to the Lender a security agreement providing for the grant to the
Lender of a security interest in all furniture, fixtures and equipment of the
Grantor;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lender to make and maintain the Loan pursuant
to the Loan Agreement, the Grantor hereby agrees with the Lender as follows:
SECTION 1. Definitions. Reference is hereby made to the Loan Agreement
for a statement of the terms thereof. All terms used in this Agreement which are
defined in the Loan Agreement or in Article 9 of the Uniform Commercial Code
(the "Code") currently in effect in the State of New York and which are not
otherwise defined herein shall have the same meanings herein as set forth
therein..
SECTION 2. Grant of Security Interest. As collateral security for all
of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges
and assigns to the Lender, and grants to the Lender a continuing security
interest in, all furniture, fixtures and equipment of every kind and description
of the Grantor, whether now or hereafter existing and whether now owned or
hereafter acquired (the "Collateral"), including, without limitation, the
following:
(a) all equipment of any kind including, without limitation, the
equipment described in Schedule I hereto, all furniture, fixtures, machinery and
all motor vehicles, tractors and other like property, whether or not the title
thereto is governed by a certificate of title or ownership (hereinafter
collectively referred to as the "Motor Vehicles"), wherever located and whether
now or hereafter existing and whether now owned or hereafter acquired, together
with all substitutes, replacements, accessions and additions thereto, and all
tools, parts, accessories and attachments used in connection therewith
(hereinafter collectively referred to as the "Equipment");
(b) the books and records of the Grantor relating to any of
the foregoing Collateral, including, without limitation, all minute books,
ledgers, records, computer programs, software, printouts and other computer
materials, in each case indicating, summarizing or evidencing any of the
Collateral; and
1
<PAGE> 2
(c) all proceeds of any and all of the foregoing Collateral
(including, without limitation, all payments under insurance (whether or not the
Lender is the loss payee thereof)), any indemnity, warranty or guaranty, payable
by reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral,
in each case howsoever the Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
SECTION 3. Security for Obligations. The security interest created
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, whether now existing or hereafter incurred (the
"Obligations"):
(a) the prompt payment by the Grantor, as and when due and
payable, of all amounts from time to time owing by it in respect of the Loan
Agreement, the Note and the other Loan Documents, including, without limitation,
principal of and interest on the Loan (including, without limitation, all
interest that accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of the Grantor
to the extent allowed by law), all fees of every kind howsoever payable
including, without limitation, all consideration as set forth in Article 3 of
the Loan Agreement, commissions, expense reimbursements, indemnifications and
all other amounts due or to become due under any Loan Document; and
(b) the due performance and observance by the Grantor of all
of its other obligations from time to time existing in respect of the Loan
Documents.
SECTION 4. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) Except as more fully set forth in the Financial Statements
and Schedule II to the Loan Agreement there is no pending or threatened action,
suit, proceeding or claim before any court or other governmental authority or
any arbitrator, or any order, judgment or award by any court or other
governmental authority or arbitrator, that may adversely affect the grant by the
Grantor, or the perfection, of the security interest purported to be created
hereby in the Collateral, or the exercise by the Lender of any of its rights or
remedies hereunder.
(b) All taxes, assessments and other governmental charges
imposed upon the Grantor or any property of the Grantor (including, without
limitation, all federal income and social security taxes on employees' wages)
and which have become due and payable on or prior to the date hereof have been
paid, except to the extent contested in good faith by proper proceedings which
stay the imposition of any penalty, fine and lien resulting from the non-payment
thereof and with respect to which adequate reserves in accordance with generally
accepted accounting principles have been established for the payment thereof.
(c) All Equipment now existing is, and all Equipment hereafter
existing will be, located at the Property, other than Equipment located at the
address specified therefor in Schedule I hereto. The Grantor's chief place of
business and chief executive office, the place where the Grantor keeps its
records concerning the Equipment, are located at the addresses specified
therefor in Schedule I hereto.
(d) The Grantor is and will be at all times the sole and
exclusive owner of the Collateral free and clear of any lien, security interest
or other charge or encumbrance except for (i) the security interest created by
this Agreement and (ii) the security interests and other encumbrances described
in Schedule II hereto. Other than as set forth in Schedule II hereto, no
effective financing statement or other instrument similar in effect covering all
or any part of the Collateral is on file in any recording or filing office
except such as may have been filed in favor of
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<PAGE> 3
the Lender relating to this Agreement.
(e) The exercise by the Lender of any of its rights and remedies
hereunder will not contravene any law, rule or regulation of any Governmental
Authority or any contractual restriction binding on or otherwise affecting the
Grantor or any of its properties and will not result in or require the creation
of any lien, security interest or other charge or encumbrance upon or with
respect to any of its properties.
(f) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority, or any other Person, is
required for (i) the grant by the Grantor, or the perfection, of the security
interest purported to be created hereby in the Collateral or (ii) the exercise
by the Lender of any of its rights and remedies hereunder, except (A) with
respect to the perfection of the security interest created hereby in Equipment,
the filing under the Uniform Commercial Code as in effect in the applicable
jurisdiction of the financing statements described in Schedule III hereto, all
of which financing statements have been duly filed and are in full force and
effect, (B) with respect to the perfection of the security interest created
hereby in Motor Vehicles, for the submission of an appropriate application,
together with the certificate of title, with respect to each Motor Vehicle, to
the appropriate state agency.
(g) This Agreement creates valid security interests in favor of
the Lender in the Collateral, as security for the Obligations. The filing of the
financing statements described in Schedule III hereto result in the perfection
of such security interests. Such security interests are, or in the case of
Collateral in which the Grantor obtains rights after the date hereof, will be,
perfected security interests, subject only to the security interests and other
encumbrances described in Schedule II hereto and the recording of such
instruments of assignment. Such recordings and filings and all other action
necessary or desirable to perfect and protect such security interest have been
duly taken, except for the filings and recordations described in Section 4(i)
hereof.
SECTION 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Lender shall otherwise consent
in writing:
(a) Further Assurances. The Grantor will at its expense, at any
time and from time to time, promptly execute and deliver all further instruments
and documents and take all further action that may be necessary or desirable or
that the Lender may reasonably request in order (i) to perfect and protect the
security interest purported to be created hereby; (ii) to enable the Lender to
exercise and enforce its rights and remedies hereunder in respect of the
Collateral; or (iii) otherwise to effect the purposes of this Agreement,
including, without limitation: (A) executing and filing such financing or
continuation statements, or amendments thereto, as may be necessary or desirable
or that the Lender may request in order to perfect and preserve the security
interest purported to be created hereby, (B) furnishing to the Lender from time
to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Lender may reasonably request, all in reasonable detail, and (C) upon the
acquisition after the date hereof by the Grantor of any Equipment covered by a
certificate of title or ownership, cause the Lender to be listed as the
lienholder (or, in the event such Equipment is subject to a purchase money
security interest or a lien existing as of the date hereof (a "Permitted Lien"),
as a junior lienholder) on such certificate of title and within 60 days of the
acquisition thereof and deliver evidence of the same to the Lender.
(b) Location of Equipment. Except as set forth in Schedule I
hereto, the Grantor will keep the Equipment (other than used Equipment sold in
the ordinary course of business in accordance with Section 5(g) hereof) at the
Property.
(c) Condition of Equipment. The Grantor will cause the
Equipment to be maintained and preserved in the same condition, repair and
working order as when acquired and in
3
<PAGE> 4
accordance with any manufacturer's manual, ordinary wear and tear excepted, and
will forthwith, or in the case of any loss or damage to any Equipment as quickly
as practicable after the occurrence thereof, make or cause to be made all
repairs, replacements and other improvements in connection therewith which are
necessary or desirable or which the Lender may request to such end. The Grantor
will promptly furnish to the Lender a statement regarding any material loss or
damage to any Equipment.
(d) Taxes, Etc. The Grantor will pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Equipment, except to the extent the validity thereof is being
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or lien resulting from the non-payment thereof and with respect to
which adequate reserves have been set aside for the payment thereof.
(e) Insurance.
(i) The Grantor will, at its own expense, maintain
insurance (including, without limitation, comprehensive general liability and
hazard insurance) with respect to the Equipment in such amounts, against such
risks, in such form, in commercially reasonable amounts and with such insurers
as shall be satisfactory to the Lender from time to time. Each policy for
liability insurance shall provide for all losses to be paid on behalf of the
Lender and the Grantor as their respective interests may appear, and each policy
for property damage insurance shall provide for all losses to be adjusted with,
and paid directly to, the Lender; provided, however, that with respect to
Equipment subject to a Permitted Lien, the Lender's rights may be subject to the
rights of the holder of such Permitted Lien. Except as required by any agreement
which creates a Permitted Lien, each such policy shall in addition (A) name the
Grantor and the Lender as insured parties thereunder (without any representation
or warranty by or obligation upon the Lender) as their interests may appear, (B)
contain the agreement by the insurer that any loss thereunder shall be payable
to the Lender on its own account notwithstanding any action, inaction or breach
of representation or warranty by the Grantor, (C) provide that there shall be no
recourse against the Lender for payment of premiums or other amounts with
respect thereto and (D) provide that at least 30 days' prior written notice of
cancellation or of lapse shall be given to the Lender by the insurer. The
Grantor will, if so requested by the Lender, deliver to the Lender original or
duplicate policies of such insurance and, as often as the Lender may reasonably
request, a report of a reputable insurance broker with respect to such
insurance. The Grantor will also, at the request of the Lender, execute and
deliver instruments of assignment of such insurance policies and cause the
respective insurers to acknowledge notice of such assignment.
(ii) Reimbursement under any liability insurance
maintained by the Grantor pursuant to this Section 5(e) may be paid directly to
the Person who shall have incurred liability covered by such insurance. In the
case of any loss involving damage to Equipment as to which paragraph (iii) of
this Section 5(e) is not applicable, the Grantor will make or cause to be made
the necessary repairs to or replacements of such Equipment, and any proceeds of
insurance maintained by the Grantor pursuant to this Section 5(e) shall be paid
by the Lender to the Grantor as reimbursement for the costs of such repairs or
replacements.
(iii) Upon the occurrence and during the continuance of
an Event of Default or upon the actual or constructive total loss of any
Equipment, all insurance payments in respect of such Equipment shall be paid to
the Lender and applied as specified in Section 7(b) hereof.
(f) Transfers and Other Liens.
(i) The Grantor will not sell, assign (by operation of
law or otherwise), lease, exchange or otherwise transfer or dispose of any of
the Collateral (except for sales and
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<PAGE> 5
dispositions of obsolete Equipment in the ordinary course of business so long as
the amount thereof sold in any fiscal year by the Grantor shall not have a fair
market value in excess of $100,000).
(ii) The Grantor will not create or suffer to exist any
lien, security interest or other charge or encumbrance upon or with respect to
any Collateral except for;
(A) the security interests created hereby;
(B) the security interests and other encumbrances
existing on the date hereof and described in Schedule IV hereto; and
(C) Permitted Liens.
(g) Motor Vehicles.
(i) Within 60 days of the date hereof, the Grantor
shall deliver to the Lender photocopies of the certificates of title or
ownership for the Motor Vehicles owned by it with the Lender listed as
lienholder.
(ii) Upon the acquisition after the date hereof by the
Grantor of any Motor Vehicle, the Grantor shall deliver to the Lender
photocopies of the certificates of title or ownership for such Motor Vehicle,
together with the manufacturer's statement of origin, with the Lender listed as
lienholder.
(iii) The Grantor hereby appoints the Lender as its
attorney-in-fact, effective the date hereof and terminating upon the termination
of this Agreement, for the purpose of (i) executing on behalf of the Grantor
title or ownership applications for filing with appropriate Governmental
Authorities to enable Motor Vehicles now owned or hereafter acquired by the
Grantor to be retitled and the Lender listed as lienholder thereof, (ii) filing
such applications with such state agencies and (iii) executing such other
documents and instruments on behalf of, and taking such other action in the name
of, the Grantor as the Lender may deem necessary or advisable to accomplish the
purposes hereof (including, without limitation, for the purpose of creating in
favor of the Lender a perfected lien on the Motor Vehicles and exercising the
rights and remedies of the Lender hereunder). This appointment as
attorney-in-fact is irrevocable and coupled with an interest.
(iv) Any photocopies of certificates of title or
ownership delivered pursuant to the terms hereof shall be accompanied by
odometer statements for each Motor Vehicle covered thereby.
(v) So long as no Event of Default or event which, with
the giving of notice or the lapse of time or both, would constitute an Event of
Default shall have occurred and be continuing, upon the request of the Grantor,
the Lender shall execute and deliver to the Grantor such instruments as the
Grantor shall reasonably request to remove the notation of the Lender as
lienholder on any certificate of title for any Motor Vehicle; provided that any
such instruments shall be delivered, and the release effective, only upon
receipt by the Lender of a certificate from the Grantor, stating that the Motor
Vehicle the lien on which is to be released is to be sold or has suffered a
casualty loss (with title thereto passing to the casualty insurance company
therefor in settlement of the claim for such loss) and any proceeds of such sale
or casualty loss being paid to the Lender hereunder to be applied to the
Obligations then outstanding in the manner contemplated by Section 7(b) hereof.
(h) Inspection and Reporting. The Grantor shall permit
representatives of the
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Lender, upon reasonable notice and at any time during normal business hours, to
inspect and make abstracts from its books and records pertaining to the
Collateral, and permit representatives of the Lender to be present at the
Grantor's place of business to receive copies of all communications and
remittances relating to the Collateral, and to forward copies of any notices or
communications received or made by the Grantor with respect to the Collateral,
all in such manner as the Lender may require.
SECTION 6. Additional Provisions Concerning the Collateral.
(a) The Grantor hereby authorizes the Lender to file, without
the signature of the Grantor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Collateral.
(b) The Grantor hereby irrevocably appoints the Lender the
Grantor's attorney-in-fact and proxy, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Lender's discretion, to take any action and to execute any instrument which
the Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, (i) to obtain and adjust insurance
required to be paid to the Lender pursuant to Section 5(e) hereof, (ii) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any Collateral,
(iii) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper in connection with clause (i) or (ii) above, and
(iv) to file any claims or take any action or institute any proceedings which
the Lender may deem necessary or desirable for the collection of any Collateral
or otherwise to enforce the rights of the Lender with respect to any Collateral.
(c) If the Grantor fails to perform any agreement contained
herein, the Lender may itself perform, or cause performance of, such agreement
or obligation, in the name of the Grantor or the Lender, and the expenses of the
Lender incurred in connection therewith shall be payable by the Grantor pursuant
to Section 8 hereof.
(d) The powers conferred on the Lender hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Lender shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 7. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all of the rights and remedies of a secured party on default under the
Code (whether or not the Code applies to the affected Collateral), and also may
(i) require the Grantor to, and the Grantor hereby agrees that it will at its
expense and upon request of the Lender forthwith, assemble all or part of the
Collateral as directed by the Lender and make it available to the Lender at a
place or places to be designated by the Lender which is reasonably convenient to
both parties and (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Lender's offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Lender
may deem commercially reasonable. The Grantor agrees that, to the extent notice
of sale shall be required by law, at least 10 days' notice to the Grantor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Lender shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Lender may adjourn any public or
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<PAGE> 7
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Grantor hereby waives any claims against
the Lender arising by reason of the fact that the price at which the Collateral
may have been sold at a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Lender accepts the first offer received and does not
offer the Collateral to more than one offeree.
(b) Any cash held by the Lender as Collateral and all proceeds
received by the Lender in respect of any sale or collection from, or other
realization upon, all or any part the Collateral may, in the discretion of the
Lender, be held by the Lender as collateral for, and/or then or at any time
thereafter applied in whole or in part by the Lender against, all or any part of
the Obligations as follows:
(i) first, to the payment of the costs and expenses of
such sale, collection or other realization, including the out-of-pocket costs
and expenses of the Lender and the reasonable fees, costs, expenses and other
client charges of counsel employed in connection therewith, to the payment of
all advances made by the Lender for the account of the Grantor hereunder and to
the payment of all costs and expenses incurred by the Lender in connection with
the administration and enforcement of this Agreement;
(ii) second, at the option of the Lender, to the
payment or other satisfaction of any liens and other encumbrances upon any of
the Collateral;
(iii) third, to the payment of all other Obligations
then due and payable;
(iv) fourth, to the payment of any other amounts
required by applicable law (including, without limitation, Section 9-504(1)(c)
of the Code or any successor or similar, applicable statutory provision); and
(v) fifth, to the Grantor or to whomsoever shall be
lawfully entitled to receive the same or as a court of competent jurisdiction
shall direct.
(c) In the event that the proceeds of any such sale, collection
or realization are insufficient to pay all amounts to which the Lender is
legally entitled, the Grantor shall be liable for the deficiency, together with
interest thereon at the highest rate specified in any applicable Loan Document
for interest on overdue principal thereof or such other rate as shall be fixed
by applicable law, together with the costs of collection and the reasonable
fees, costs, expenses and other client charges of any attorneys employed by the
Lender to collect such deficiency.
SECTION 8. Indemnity and Expenses.
(a) The Grantor agrees to indemnify and hold the Lender harmless
from and against any and all claims, damages, losses, liabilities, obligations,
penalties, costs or expenses (including, without limitation, legal fees, costs,
expenses and other client charges) to the extent that they arise out of or
otherwise result from this Agreement (including, without limitation, enforcement
of this Agreement), except claims, losses or liabilities resulting solely and
directly from the Lender's gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Lender (i) the
amount of any and all costs and expenses, including the reasonable fees, costs,
expenses and other client charges of counsel for the Lender and of any experts
and agents (including, without limitation, any collateral trustee which may act
as agent of the Lender), which the Lender may incur in connection with (A) the
preparation, negotiation, execution, delivery, recordation, administration,
amendment, waiver or other modification or termination of this Agreement, or (B)
the custody, preservation, use or
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<PAGE> 8
operation of, the Collateral and (ii) the amount of any and all costs and
expenses, including the fees, costs, expenses and other client charges of
counsel for the Lender and of any experts and agents (including, without
limitation, any collateral trustee which may act as agent of the Lender), which
the Lender may incur in connection with (A) the sale of, collection from, or
other realization upon, any Collateral, (B) the exercise or enforcement of any
of the rights of the Lender hereunder, or (C) the failure by the Grantor to
perform or observe any of the provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed (by certified mail,
postage prepaid and return receipt requested), telegraphed, telecopied (with a
copy by U.S. Mail Return Receipt Requested), or delivered; if to the Grantor, to
it at the following address:
Mountaineer Park, Inc.
8 Route 2 South
Chester, West Virginia 26034
Attention: Mr. Edson Arneault
Telephone No.: (304) 387-2400
Telecopy No.: (304) 387-1598
with copies to:
Freer & McGarry
1000 Thomas Jefferson Street, NW, Suite 600
Washington, DC 20007
Attention: Robert Ruben, Esq.
Telephone No.: (202) 965-6565
Telecopy No.: (202) 965-4839
and if to the Lender, to it at the following address:
Madeleine LLC
c/o Cerberus Partners, L.P.
950 Third Avenue
New York, New York 10022
Attention: Mr. Kevin P. Genda
Telephone No.: (212) 758-5110
Telecopy No.: (212) 421-2947
with copies to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Mark A. Neporent, Esq.
Telephone No.: (212) 756-2238
Telecopy No.: (212) 593-5955
or as to any such Person, at such other address as shall be designated by such
Person in a written notice to such other Person complying as to delivery with
the terms of this Section 9. All such notices and other communications shall be
effective (i) if mailed, three days after being deposited in the mails, (ii) if
telegraphed, when delivered to the telegraph company, (iii) if telecopied, when
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received and (iv) if delivered, upon delivery.
SECTION 10. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Grantor and the Lender, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Grantor therefrom, shall be effective unless it is in writing and signed by
the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) No failure on the part of the Lender to exercise, and no
delay in exercising, any right hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Lender provided herein and in the
other Loan Documents are cumulative and are in addition to, and not exclusive
of, any rights or remedies provided by law. The rights of the Lender under any
Loan Document against any party thereto are not conditional or contingent on any
attempt by the Lender to exercise any of its rights under any other Loan
Document against such party or against any other Person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest
in the Collateral and shall (i) remain in full force and effect until the
payment in full or release of the Obligations, and (ii) be binding on the
Grantor and its successors and assigns and shall inure, together with all rights
and remedies of the Lender hereunder, to the benefit of the Lender and its
respective permitted successors, transferees and assigns. Without limiting the
generality of clause (ii) of the immediately preceding sentence, without notice
to the Grantor, the Lender may assign or otherwise transfer the Note, and its
rights under any other Loan Document, to any other Person and such other Person
shall thereupon become vested with all of the benefits in respect thereof
granted to the Lender herein or otherwise. None of the rights or obligations of
the Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Lender, and any such assignment or transfer shall be null
and void.
(e) Upon the satisfaction in full of the Obligations, (i) this
Agreement and the security interests created hereby shall terminate and all
rights to the Collateral shall revert to the Grantor and (ii) the Lender will,
upon the Grantor's request and at the Grantor's expense, (A) return to the
Grantor such of the Collateral as shall not have been sold or otherwise disposed
of or applied pursuant to the terms hereof and (B) execute and deliver to the
Grantor such documents as the Grantor shall reasonably request to evidence such
termination, all without any representation, warranty or recourse whatsoever.
(f) This Agreement shall be governed by and construed in
accordance with the law of the State of New York, except as required by
mandatory provisions of law and except to the extent that the validity and
perfection or the perfection and the effect of perfection or non- perfection of
the security interest created hereby, or remedies hereunder, in respect of any
particular Collateral are governed by the law of a jurisdiction other than such
the State of New York.
(g) Any legal action or proceeding with respect to this
Agreement or any document related thereto may be brought in the courts of the
State of New York or the United States of America for the Southern District of
New York, and, by execution and delivery of this Agreement, the Grantor hereby
accepts for itself and in respect of its property, generally and
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<PAGE> 10
unconditionally, the jurisdiction of the aforesaid courts. The Grantor hereby
irrevocably waives any objection, including, without limitation, any objection
to the laying of venue or based on the grounds of forum non conveniens, which it
may now or hereafter have to the bringing of any such action or proceeding in
such respective jurisdictions and consents to the granting of such legal or
equitable relief as is deemed appropriate by the court.
(h) The Grantor irrevocably consents to the service of process
of any of the aforesaid courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to such
Grantor at its address provided herein, such service to become effective 30 days
after such mailing.
(i) Nothing contained herein shall affect the right of the
Lender to serve process in any other manner permitted by law or commence legal
proceedings or otherwise proceed against the Grantor or any of the Grantor's
property in any other jurisdiction.
(j) EACH OF THE GRANTOR AND (BY ITS ACCEPTANCE OF THIS
AGREEMENT) THE LENDER WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
MOUNTAINEER PARK, INC.
By: /S/ Edson R. Arneault
------------------------------
Edson R. Arneault
President
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Schedule I
ADDRESSES OF EQUIPMENT
Equipment Location of Equipment
Chief Place of Business, Chief Executive
Office and Location of Records
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<PAGE> 12
Schedule II
OTHER LIENS
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Schedule III
UCC-1 FINANCING STATEMENTS
13
<PAGE> 1
EXHIBIT 10(9)
DEED OF TRUST,
LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT, FIXTURE FILING AND FINANCING STATEMENT
THIS DEED OF TRUST, LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT, FIXTURE FILING AND FINANCING STATEMENT (hereinafter referred to as
"Trust Deed" or "Deed of Trust") made and entered into as of July 2, 1996 by and
among MOUNTAINEER PARK, INC., a West Virginia corporation, party of the first
part ("Grantor"), and Deborah A. Sink, a resident of Kanawha County, West
Virginia, and Carl D. Andrews, a resident of Kanawha County, West Virginia, as
Trustees, parties of the second part (collectively, the "Trustees) and MADELEINE
LLC, ("Madeleine"), a New York limited liability company, shall be referred to
herein as the "Secured Party".
W I T N E S S E T H:
WHEREAS, pursuant to that certain Term Loan Agreement dated as of
July 2, 1996 by and between Secured Party and Grantor (the "Loan Agreement"),
Secured Party has agreed to make a loan to Grantor (the "Loan") evidenced by a
certain promissory note of Grantor, in the principal amount of $5,000,000.00, in
favor of Secured Party and dated the date of this Deed of Trust (the "Note");
and
WHEREAS, the obligation of Secured Party to extend credit under the
Loan Agreement is subject to the condition, among others, that Grantor grant the
Property (as hereinafter defined) to Trustees in trust for the benefit of
Secured Party; and
WHEREAS, to induce Secured Party to extend credit to Grantor, and as
security for the Note, Grantor desires to execute and deliver this Deed of Trust
to Trustees for the benefit of Secured Party pursuant to the Loan Agreement; and
WHEREAS, this Trust Deed is subordinate to the lien of the credit
line Deed of Trust from Mountaineer Park, Inc. to Louis S. Southworth II and
Ellen S. Cappellaniti, Trustees, dated June 27, 1994, recorded in the office of
the Clerk of the county Commision of Hancock County, West Virginia, in Trust
Deed Book 318, page 692, securing a note in the original principal amount of
$10,200,000 payable to Bennett Management & Development Corp. (the "Bennett
Management Trust Deed").
<PAGE> 2
NOW, THEREFORE, in order further to secure the payment of the
principal amount of $5,000,000.00 and all sums due or to become due under the
Loan Agreement, the Loan, and the Loan Documents (as defined in the Loan
Agreement), or any extensions or modifications thereof, as well as to secure the
performance of all Grantor's covenants and agreements contained in this Trust
Deed or any amendments thereof, and in consideration of the premises and the
further sum of Ten Dollars ($10.00) to Grantor in hand well and truly paid by
Secured Party at and before the delivery hereof, the receipt whereof is hereby
acknowledged, Grantor has granted, bargained and sold, mortgaged, conveyed,
aliened, enfeoffed, released, confirmed, assigned, transferred and set over, and
by these presents does grant, bargain and sell, mortgage, convey, alien,
enfeoff, release, confirm, assign, transfer and set over unto Trustees, their
successors and assigns, in trust, with power of sale, Grantor's interest
(including without limitation all surface and mineral interests, if any,
including coal) in those certain tracts of land more particularly described in
Exhibit "A" attached hereto and made a part hereof (the "Land").
TOGETHER with Grantor's interest in all the coal, if any, in all
seams underlying the Land in which Grantor has rights.
TOGETHER with all Grantor's interest in sand, stone, water and
gravel found on the Land and Grantor's right to dump refuse from such coal on
the surface of the Land.
TOGETHER with the tenements, hereditaments, appurtenances and all
the estates and rights of Grantor in and to the Land.
TOGETHER with all the right, title and interest of Grantor in and to
all streets, roads and public places, opened or proposed, adjoining the Land,
and all easements and rights-of-way, public or private, now or hereafter used in
connection with the Land, including without limitation, all roads and ways on
the surface of or underground on the Land for the mining, transportation,
ventilation and drainage of coal and for the transportation of workmen and
supplies and all other necessary or useful purposes in connection with the
exploration, mining, processing, production and removal of coal.
TOGETHER with Grantor's interest in all the oil and gas, if any,
underlying the Land.
TOGETHER with all right, title and interest of Grantor, now owned or
hereafter acquired, in and to any land lying in the bed of any street, road or
avenue, opened or proposed, in front
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<PAGE> 3
of or adjoining the Land to the extent of the interest of Grantor therein, now
or hereafter acquired.
TOGETHER with all right, title and interest of Grantor, now owned or
hereafter acquired, in and to any and all sidewalks and alleys, and all strips
and gores of land, adjacent to or used in connection with the Land.
TOGETHER with all buildings, tipples, inclines, machine shops,
structures, improvements, rail spurs, dams and reservoirs in connection with the
mining of coal (the "Improvements") of every kind and description now or
hereafter erected or placed on the Land.
TOGETHER with all of Grantor's present and future right, title and
interest in (i) all fixtures including without limitation, all standing or cut
timber, and all minerals, including without limitation, coal, minerals before
extraction, minerals as extracted and accounts resulting from the sale thereof
("Fixtures") heretofore or hereafter placed on the Lands or Leased Lands and
(ii) all machinery and equipment, including without limitation, all coal
preparation plants, docks, transloading, coal storage, cleaning and transporting
facilities or other improvements located on any of the Lands, now or hereafter
used by Grantor and all equipment and machinery comprising, or related to the
operation of such facilities or improvements ("Equipment"), wherever located,
and all attachments, accessories, and parts used or intended to be used with any
of such Equipment or Fixtures whether now or hereinafter installed therein or
thereon or affixed thereto as well as all substitutes and replacements thereof
in whole or in part, and (iii) all products and all cash and noncash proceeds
(including insurance policies and proceeds) and all guaranties, claims, rights,
remedies and privileges relating to any or all of the items listed in (i) and
(ii) above.
TOGETHER with all the mining rights and easements owned by Grantor
and appurtenant to the Land.
TOGETHER with all right, title and interest of Grantor as lessee
under any and all leases relating to any Fixtures, together with any options to
purchase the Fixtures which are subject to such leases and together with the
benefit of any payments now or hereafter made thereon.
TOGETHER with the reversions, remainders, easements, rents, issues
and profits arising or issuing from the Land and from the Improvements thereon,
including, but not limited to, the rents, royalties, issues and profits arising
or issuing from all leases and subleases now or hereafter entered into covering
all or any part of the Land and for the Improvements, including,
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<PAGE> 4
without limitation, all accounts receivable, maintenance, tax and insurance
contributions, percentage rents, minimum rents, any damages or awards following
suit or arbitration damages following default, capital reserve funds, any sums
to which Grantor may become entitled in any court proceedings involving the
bankruptcy, insolvency or reorganization of any tenants or operators of the
Land; any guaranties of any rents, royalties, income and profits due or to
become due under any lease, and any proceeds payable under any policy of
insurance covering loss of rents under any lease for any cause, all of which
leases, subleases, rents, issues and profits are hereby assigned (collectively,
the "Rents") and, if requested by Secured Party, shall be caused to be further
assigned to Secured Party by Grantor. The foregoing assignment shall include
without limitation, cash or securities deposited under leases to secure
performance by tenants or operators of their obligations thereunder, whether
such cash or securities are to be held until the expiration of the terms of such
leases or applied to one or more installments of rent coming due prior to the
expiration of such terms. The foregoing assignment is intended by Grantor and
Secured Party to create and shall be construed to create an absolute,
unconditional and presently effective assignment to Secured Party of all of
Grantor's right, title and interest in the Rents and shall not be deemed to
create merely a security interest therein for the payment of any indebtedness or
the performance of any obligations of Grantor evidenced by the Loan Agreement,
the Note, and the Loan Documents. Grantor will execute and deliver to Secured
Party on demand such assignments and instruments as Secured Party may require to
implement, confirm, maintain and continue the assignment hereunder.
TOGETHER with any and all awards, damages, payments and other
compensation and any and all claims therefor and rights thereto which may result
from taking or injury by virtue of the exercise of the power of eminent domain
of or to, or any damage, injury or destruction in any manner caused to, the
Land, the Improvements, or any part thereof, or from any change of grade or
vacation of any street abutting thereon, all of which awards, damages, payments,
compensation, claims and rights are hereby assigned, transferred and set over to
Trustees on behalf of Secured Party to the fullest extent that Grantor may under
the law so do.
TOGETHER with all of Grantor's right, title and interest in and to
all rights and claims arising under and by virtue of the covenants of warranty
contained in those deeds conveying the Land to Grantor.
ALL of which property and rights therein hereinabove described or
mentioned and all of which collateral is now existing or hereafter arising, now
owned or hereafter acquired,
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<PAGE> 5
due or to become due, including proceeds, products, and insurance proceeds to
secure payment of all indebtedness of Grantor to Secured Party now existing or
hereafter arising, being hereinafter collectively called, the "Property". It is
the intention of the parties hereto that this Deed of Trust shall embrace and
Grantor does hereby grant to Trustees on behalf of Secured Party a mortgage,
deed of trust and security interest in all of the properties, rights, interests,
claims, demands and privileges of every kind and character as are owned by the
Grantor or in which the Grantor has rights in and appurtenant to all lands in
the county in which this instrument is recorded, whether fee, mineral, surface,
leasehold, easement, right-of-way or otherwise, and wheresoever situate, and
whether or not specifically described herein, together with all rents, royalties
and other income arising from the various coal leases and other instruments and
agreements affecting the same.
BUT THIS CONVEYANCE IS IN TRUST, HOWEVER, to secure the payment of
the Debt (as hereinafter defined) and performance of the other obligations of
Grantor referred to herein.
And without limiting any of the other provisions of this Deed of
Trust, Grantor, as debtor, expressly grants unto Secured Party, a security
interest in all those portions of the Property which may be subject to the
Uniform Commercial Code (the "Code") provisions applicable to secured
transactions under the laws of any state and this Deed of Trust shall constitute
a Security Agreement under the Code.
TO HAVE AND TO HOLD the same unto Trustees, their successors and
assigns, forever.
PROVIDED, HOWEVER, that if Grantor shall pay to Secured Party the
Debt (as hereinafter defined), and shall keep and perform each of its other
covenants, conditions and agreements set forth herein and in the Loan Agreement,
the Note, and the Loan Documents, upon the termination of all obligations,
duties and commitments of Grantor under the Loan Agreement, the Note, and the
Loan Documents, this Deed of Trust and the estate hereby granted and conveyed
shall become null and void.
This conveyance is intended as a Trust Deed and is given for the
purpose of securing payment of the Debt and performance of the other obligations
of Grantor referred to above.
This Trust Deed is executed and delivered subject to the following
covenants, conditions and agreements.
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<PAGE> 6
1. Definitions. Words and terms defined in the Loan Agreement shall,
unless the context hereof clearly requires otherwise, have the same meanings
herein as therein provided.
2. Debt Secured. "Debt" means, collectively, (i) all indebtedness
whether of principal, interest, fees, expenses or otherwise of Grantor to
Secured Party incurred in connection with the Loan Agreement, the Note, and the
Loan Documents, as the same may from time to time be amended, together with any
and all extensions, renewals, refinancings or refundings thereof in whole or in
part and (ii) all costs and expenses, including without limitation, to the
extent permitted by law, reasonable attorneys' fees and legal expenses, incurred
by Trustees or Secured Party or Secured Party in the collection of any of the
indebtedness referred to in clause (i) above, and (iii) any advances made by
Secured Party or Secured Party for the maintenance, preservation, protection or
enforcement of, or realization upon, any property or assets now or hereafter
made subject to a mortgage, pledge, lien or security interest granted pursuant
to this Deed of Trust or pursuant to any agreement, instrument or note relating
to any of the Debt, including without limitation advances for taxes, insurance,
repairs and the like; interest on the principal sums hereby secured, and taxes,
insurance premiums and other obligations, including interest thereon undertaken
by Secured Party or Secured Party herein or in any other agreement securing or
otherwise pertaining to all indebtedness evidenced or guaranteed by the Loan
Agreement, the Note, and the Loan Documents.
The beneficial owner of the Debt is MADELEINE LLC, the Secured
Party, and the residence and principal place of business of said beneficial
owner and the Secured Party is as follows:
Madeleine, LLC
950 Third Avenue
New York, New York 10022
Attention: Kevin Genda
3. Impositions and Other Charges.
(a) Duty to Pay. Until payment in full of the Debt and
termination of all obligations, duties and commitments of Grantor under the Loan
Agreement, the Note and the Loan Documents, Grantor will, except as otherwise
provided in Article VII of the Loan Agreement, (i) at least five (5) days prior
to the date on which any interest or penalties shall commence to accrue thereon,
pay, discharge and, upon the request of Secured Party furnish to Secured Party
copies of (unless originals are requested by Secured Party) proper receipts for
all taxes, general and special, water and sewer rent charges, excise levies,
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<PAGE> 7
transit taxes, levies and assessments of every kind and all
charges for utilities and utility services, and which may have been or may
hereafter be charged, assessed, levied, confirmed, imposed upon, or grow or
become due and payable out of, or in respect to, or against, the Property, or
any part thereof, or any appurtenances thereto (collectively, the
"Impositions"), by any lawful authority or public utility, or which may become a
lien thereon, unless the same shall have been fully paid to Secured Party as
provided in subparagraph 3(b) hereof, (ii) pay and discharge all mechanics'
liens which may be filed against said premises, (iii) pay and discharge any
documentary, stamp or other tax, including interest and penalties thereon, if
any, now or hereafter becoming payable hereon, (iv) provide, renew and keep
alive by paying the necessary premiums and charges thereon such policies of
hazard and liability insurance upon the property and upon the buildings and
improvements now or hereafter erected upon the Property as are required by the
Secured Party.
(b) Escrow by Secured Party. Upon the written request of
Trustees or Secured Party, provided such funds have not been escrowed under the
Bennett-Management Trust Deed, Grantor will pay or cause to be paid to Secured
Party contemporaneously with each monthly payment of interest, principal or
principal and interest a sum equal to one-twelfth (1/12th) of the real estate
taxes and premiums for insurance required by subparagraph 3(a) hereof so as to
enable Secured Party to pay the same at least thirty (30) days before they
become due. Amounts so paid shall be deemed not to be trust funds but may at the
option of Secured Party be commingled with general funds of Secured Party. No
interest shall be paid on such amounts. If, pursuant to any provision of this
Trust Deed, the whole amount of the principal debt remaining or any installment
of interest, principal or principal and interest becomes due and payable prior
to its originally scheduled maturity, Secured Party shall have the right, at its
election, to a apply any amounts paid to Secured Party under this subparagraph
3(b), with accrued interest, thereon, against all or any part of the
indebtedness secured by this Trust Deed, any interest thereon or in payment of
the premiums or payments for which the amounts were paid. If the real estate
taxes and insurance premiums required to be escrowed pursuant to this paragraph
shall exceed the estimate therefor and the amounts paid into escrow under this
subparagraph 3(b), Grantor shall on demand forthwith make good the deficiency.
Grantor will furnish to Secured Party tax and insurance bills in sufficient time
to enable Secured Party to pay such taxes and premiums before interest and
penalties accrue thereon.
(c) Proof of Payment. Unless the same shall have been fully
paid to Secured Party as provided in subparagraph 3(b) hereof, Grantor, upon the
written request of Secured Party, will
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<PAGE> 8
furnish or will cause to be furnished to Secured Party within thirty (30) days
after the date when any Impositions would become delinquent, official receipts
of the appropriate taxing authority or other authority to which the charge is
payable, or other evidences reasonably satisfactory to Secured Party evidencing
the payment thereof.
(d) Evidence of Payment. The certificate, or bill of the
appropriate official designated by law to make or issue the same or to receive
payment of any Imposition, of non- payment of such Imposition shall be prima
facie evidence that such Imposition is due and unpaid at the time of the making
or issuance of such certificate, advice or bill.
4. Risk of Loss; Insurance. Risk of loss or, damage to or
destruction of the Property is and shall remain upon Grantor. If Grantor fails
to effect and keep in force insurance covering the Property as required by the
Secured Party, or fails to pay the premiums thereon when due, Trustees or
Secured Party upon receipt of notice of default may do so for the account of
Grantor. Grantor hereby assigns and sets over to Secured Party all monies which
may become payable on account of all insurance covering the Property including
without limitation any return of unearned premiums which may be due upon
cancellation of any such insurance, and directs the insurers to pay directly to
Secured Party any amount so due which shall be applied to the principal balance
of the Note, provided the Note is current and no Event of Default exists subject
only to the rights of the holder(s) of the note secured by the
Bennett-Management Trust Deed. Trustees on behalf of Secured Party are hereby
irrevocably appointed the attorneys-in-fact of Grantor to endorse any draft or
check which may be payable to Grantor in order to collect the proceeds of such
insurance or any return of unearned premiums which Secured Party is entitled to
collect under this paragraph 4. Secured Party shall apply such proceeds of all
casualty insurance in accordance with the provisions of paragraph 16 of this
Deed of Trust. Secured Party may deduct from such proceeds any expense incurred
by Secured Party in collecting the same (including counsel fees).
5. Property Maintenance, Alterations, Improvements. Grantor shall
maintain the Property and all buildings and improvements subject to this Deed of
Trust in good working order and condition, ordinary wear and tear excepted, and
shall not commit or suffer waste. In no event shall Grantor undertake any
alteration or addition to the Property which reduces the economic value of the
Property. Secured Party shall have the right to enter upon the Property at any
reasonable hour and upon 24-hour notice for the purpose of inspecting the order,
condition and repair of the buildings and Improvements erected thereon.
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<PAGE> 9
6. Location of Personal Property. The personal property covered by
this Trust Deed is located in Hancock County, West Virginia more particularly
described on Exhibit A to this Deed of Trust or in another county in which a
priority security interest in such personal property has been granted to Secured
Party. Except as otherwise permitted under the Loan Agreement, Grantor will not
move (except to any county in which Secured Party has a prior perfected security
interest in such items of personal property), remove, transfer, sell, convey or
otherwise assign any of the items of personal property included in the Property
until the Debt secured hereby is paid in full.
7. Compliance with Laws. Grantor will promptly comply, in all
material respects, with all present and future laws, ordinances, rules and
regulations of any governmental authority having an effect on Grantor or the
Property.
8. Further Assurances. Grantor will, from time to time, make, do,
execute and acknowledge, as may be reasonably neccesary such further acts,
deeds, conveyances, mortgages, security agreements, financing statements,
continuation statements and other assurances in law as may be required for the
purpose of effectuating the intent hereof.
9. Failure to Pay Impositions and Other Charges; Protection of
Property. Except as otherwise provided in the Loan Agreement, in the event
Grantor neglects or refuses to pay or cause to be paid the charges mentioned in
paragraph 3 of this Deed of Trust, or fails to maintain the buildings and
Improvements as aforesaid, Secured Party after notice to Grantor may do so, add
to the Debt the cost thereof, and collect the same as part of said Debt. Secured
Party shall, after the expiration of notice and grace period provided in the
Loan Agreement, have the power and authority to institute and maintain any suits
and proceedings as Secured Party may deem advisable (a) to prevent any
impairment of the Property by any acts which may be unlawful or any violation of
this Deed of Trust, and (b) to preserve or protect its interest in the Property.
10. Prohibition of Liens; Debt. Grantor will pay, or bond, from time
to time when the same shall become due, all claims and demands of mechanics,
materialmen, laborers, and others which, if unpaid, might result in, or permit
the creation of, a lien on the Property or any part thereof, or on the revenues,
rents, issues, income and profits arising therefrom. Grantor will do everything
necessary so that the lien and priority hereof shall be fully preserved, at the
cost of Grantor, without expense to Secured Party,except as otherwise provided
in the Loan Agreement.
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<PAGE> 10
Grantor will not, without the written consent of Secured Party,
create or suffer to be created any security interest under the Code, together
with any amendments or supplements thereto, or other encumbrances in favor of
any party other than Secured Party, or create or suffer any reservation of title
by any such other party, with respect to any fixtures, nor shall any such
fixtures or property be the subject matter of any lease or other transaction
whereby the ownership or any beneficial interest in any of such property is held
by any person or entity other than Grantor (or Secured Party as provided
herein)except as permitted in the Loan Agreement. Except as permitted in the
Loan Agreement, all such property shall be purchased for cash or in such manner
that no lien shall be created thereon except the lien of this Mortgage, unless
Mortgagee shall agree in writing to the contrary before a contract to purchase
any such property is executed.
11. Prohibition of Assumption, Transfer. Grantor hereby warrants and
covenants that it is the lawful owner of the Property that Grantor has good
right and lawful authority to convey and encumber the same, that the Property is
free and clear from all liens and encumbrances except for liens in favor of the
Secured Party,the Bennett-Management Trust Deed and liens permitted under the
Loan Agreement, and that it will warrant and defend such title to the Property
against the claims of all persons whomsoever. Except as disclosed in the Loan
Agreement or otherwise permitted under the Loan Agreement, Grantor shall not
create, incur, assume or suffer to exist any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing), any conditional sale or other title retention
agreement, any lease intended as security, (and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction) on the Property or any other part of the collateral mentioned
above. Except as disclosed in the Loan Agreement or otherwise permitted under
the Loan Agreement, Grantor shall not, without the prior written consent of
Secured Party, sell, lease, transfer or otherwise dispose of any of the Property
or all or a substantial portion of its assets, or liquidate or consolidate with
or merge with or into any entity.
12. Priority of Lien. This Deed of Trust shall be a second lien deed
of trust and shall be superior in right to other deeds of trust, except the
Bennett-Management Trust Deed encumbering part or all of the Property except for
liens or encumbrances disclosed in the Loan Agreement and accepted by the
Secured Party. Except as otherwise provided herein or in the Loan Agreement,
Grantor will not create or permit to accrue upon all or any part of the Property
any debt, lien or charge except the lien of this Deed of Trust and shall
promptly pay and
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<PAGE> 11
discharge, any lien or charge whatsoever which by any present or future law may
be or become superior to, or on a parity with this Deed of Trust, either in lien
or in distribution out of the proceeds of any judicial sale of the Property, or
any part thereof, and any lien or charge not permitted by paragraph 11.
13. Default.
(a) Default and Remedies. In the event sums are due and owing
by Grantor under the terms of the Loan Agreement, the Note and by reason of an
Event of Default (as defined in the Loan Agreement), Trustees or Secured Party
may forthwith proceed to enforce payment of the amounts due and owing under the
Note or the performance of any term hereof, whether by foreclosure, by suit in
law or equity or otherwise, and without further delay undertake any one or more
of the following:
(1) Foreclosure. At any times sums are due and owing
under the Loan Agreement, the Note as aforesaid, beyond any
applicable grace periods, Trustees, upon the written request
of Secured Party, may foreclose upon and sell the Property to
satisfy the Debt. After the giving of notice as provided
pursuant to W. Va. Code Section 38-1-4, Trustees shall sell
all the Property herein conveyed, or so much thereof as the
Trustees shall deem necessary, at public auction, at the front
door of the courthouse in the county (or any county if more
than one) where the Property is located, or such other places
as permitted by law, for cash in hand on the day of sale.
Further, Trustees may take such other action as the law may
allow, at law or in equity, for the enforcement and
realization of the Deed of Trust security or any other
security which is herein or elsewhere provided for, and
proceed thereon to final judgment and execution thereon for
the entire unpaid balance of the principal indebtedness, with
interest, at the rates and pursuant to the methods of
calculation specified in the Note, the Loan Agreement, and
this Deed of Trust to the date of default and thereafter at
the rate provided in the Note and the Loan Agreement together
with all other sums secured by this Deed of Trust, all costs
of suit, interest at the rate specified in the Note, and the
Loan Agreement on any judgment obtained by Secured Party from
and after the date of any foreclosure sale of the Property
(which may be sold in one parcel or in such parcels, manner or
order as Trustees shall elect) until actual payment is made
pursuant to the foreclosure sale
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<PAGE> 12
of the full amount due Secured Party, and an attorneys'
reasonable commission for collection without further stay, any
law, usage or custom to the contrary notwithstanding. Upon any
such foreclosure sale, Secured Party may bid for and purchase
the Property in a commercially responsible manner and, upon
compliance with the terms of sale, may hold, retain and
possess and dispose of such property in its own absolute right
without further accountability. In addition to the rights,
remedies and powers hereinabove set forth, Secured Party and
Trustees shall have as to any and all fixtures and personal
property covered by this Deed of Trust, all rights, remedies
and powers of a secured party under the Code.
(2) Receivership. Have a receiver appointed to enter
into possession of the Property, collect the earnings,
revenues, rents, issues, profits and income therefrom and
apply the same as the court may direct. It is understood and
agreed by and between the parties hereto that nothing herein
contained shall be construed as a substitute for, or in
derogation of, the right to foreclose this Deed of Trust or as
imposing any duty or obligation upon Secured Party or upon
Trustees, or any of them, to take charge of the Property or to
collect said rents, issues or profit or to have a receiver
appointed for such purposes.
(3) Sale of personal property. Secured Party shall have
such rights and remedies in respect of so much of the Property
as may, under applicable law, including the Code, be personal
property, or any part thereof, as are provided by the Code and
such other rights and remedies in respect thereof which it may
have at law or in equity or under this Deed of Trust,
including without limitation the right to take possession of
the Property wherever located and to sell all or any portion
thereof at public or private sale, without prior notice to
Grantor, except as otherwise required by law (and if notice is
required by law, after ten (10) days' prior written notice,
which Grantor agrees is a reasonable period of notice), at
such place or places and at such time or times and in such
manner and upon such terms, whether for cash or on credit, as
Secured Party in its sole discretion may determine. Secured
Party shall apply the
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<PAGE> 13
proceeds of any such sale to the payment of the Debt. Upon the
occurrence of any Event of Default, Grantor, upon demand by
Secured Party, shall promptly assemble any equipment and
fixtures included in the Property and make them available to
Secured Party at a place to be designated by Secured Party
which shall be reasonably convenient to Secured Party and
Grantor.
(4) Sale of the Property. Secured Party may sell any of
the Property, not specifically designated as personal property
and subject to subparagraph (3) above, in accordance with any
applicable law.
(5) Additional rights and remedies; not exclusive. In
addition to all the foregoing, Trustees and Secured Party
shall have such other rights as the law allows in the pursuit
of the foregoing specified remedies and shall have such other
remedies as the law allows for the realization of security
interests herein granted. The rights and remedies herein
provided to Trustees and Secured Party shall be cumulative and
not alternative, and are not exclusive of any other remedies
that may be available to the Trustees and Secured Party,
whether at law, in equity, or otherwise.
(b) Provisions Regarding Sale. (i) Grantor agrees that any
sale made hereunder may be adjourned from time to time without notice other than
oral proclamation of such adjournment at the time and place of sale, or at the
time and place of any adjourned sale, and (ii) Grantor agrees that any sale of
real property or interest in real property hereunder shall be made in accordance
with the laws of the State of West Virginia relating to sales under deeds of
trust, with the exceptions herein stated and with the further exception that the
Grantor covenants and agrees.
(c) Rights in Pursuit of Remedies. In the event sums are due
and owing under the Note or the Loan Documents as aforesaid, Secured Party in
pursuance of the foregoing remedies, or in addition thereto, (i) shall be
entitled to resort to its several securities for the payment of the sums secured
hereby in such order and manner as Secured Party may think fit without impairing
Secured Party's lien in, or rights to, any of such securities and without
affecting the liability of any person, firm or corporation for the sums secured
hereby, except to the extent that the Debt shall have been reduced by the actual
monetary consideration, if any, received by Secured Party from
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<PAGE> 14
the proceeds of such security; (ii) may, in Secured Party's sole discretion,
release for such consideration, or none, as the Secured Party may require, any
portion of the Property without, as to the remainder of the security, in
otherwise impairing or affecting the lien of this Deed of Trust, or the priority
thereof, or improving the position of any subordinate lienholder with respect
thereto, except to the extent that the Debt shall have been reduced by the
actual monetary consideration, if any, received by Secured Party for such
release; and/or (iii) may accept the assignment or pledge of any other property
in place thereof as Secured Party may require without being accountable for so
doing to any other lienor.
(d) Continued Lien of Deed of Trust. No entry of any judgment
by Secured Party and no levy of an execution under any judgment upon the
Property or upon any other property of Grantor shall affect in any manner or to
any extent, the lien of this Deed of Trust upon the Property or any part
thereof, or any liens, rights, powers or remedies of Secured Party hereunder,
but such liens, rights, powers and remedies of Secured Party shall continue
unimpaired as before.
(e) Subordination of Tenants' Rights Under Leases. In the
event that Trustees shall have the right to foreclose this Deed of Trust,
Grantor authorizes Trustees at their option to foreclose this Deed of Trust,
subject to the rights of any tenants of the Property if Trustees or Secured
Party elect that this Deed of Trust shall be subordinate to rights of tenants,
and the failure to make any such tenants parties defendant to any such
foreclosure proceeding and to foreclose their rights will not be asserted by
Grantor as a defense to any proceeding instituted by Trustees or Secured Party
to collect the Debt or any deficiency remaining unpaid after the foreclosure
sale of the Property.
(f) Discontinuance of Proceedings; Position of Parties
Restored. If Trustees or Secured Party shall have proceeded to enforce any right
or remedy under this Deed of Trust by foreclosure, or otherwise, any such
proceedings shall have been discontinued or abandoned for any reason, then in
every such case Grantor and Trustees or Secured Party, shall be restored to
their former positions and rights hereunder, and all rights, powers and remedies
of Secured Party shall continue as if no such proceeding had occurred or had
been taken.
14. Application of Proceeds of Foreclosure. Trustees or Secured
Party shall apply the proceeds of any foreclosure sale of or other disposition
or realization upon, or rents or profits from, the Property:
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<PAGE> 15
(a) First, to the payment or reimbursement of all reasonable
advances, expenses and disbursements of Trustees and Secured Party
(including, without limitation, the reasonable fees and costs of
their counsel and agents and not less than $500 as commission to
Trustees for acting as Trustees hereunder) incurred in connection
with the administration and enforcement of, or the preservation of
any rights under, this Deed of Trust or in the collection of the
obligations of Grantor under the Note and the Loan Documents;
(b) Second, in satisfaction of the Debt, whether for
principal, interest or expenses in such order as Trustees or Secured
Party shall designate; and
(c) Third, the balance, if any, to be distributed
as required by law.
If the proceeds from any such sale of or other disposition or
realization upon the Property are insufficient to pay the Debt, the Grantor
shall remain liable for such deficiency.
15. Trustees.
(a) Removal. It is hereby expressly covenanted and agreed that
Secured Party may, at any time and from time to time hereafter, upon notice to
Trustees and Grantor, but without any other notice, appoint and substitute
another Trustee, corporation or person, in place of either or both of the
Trustees herein named to execute the trust herein created. Upon such
appointment, either with or without a conveyance to said substituted Trustee or
Trustees by the Trustees herein named, or by any other substituted Trustee in
case the said right of appointment is exercised more than once, the new and
substituted Trustee in each instance shall be vested with all the rights,
titles, interests, powers, duties and trusts in the premises which are vested in
and conferred upon the Trustee herein named; and such new and substituted
Trustee shall be considered the successor and assign of the Trustee in his place
and stead. Each appointment and substitution shall be evidenced by an instrument
in writing, which instrument, executed and acknowledged by Secured Party and
recorded in the Office of the Clerk of the County Commission of the County
wherein said property is situate, shall be conclusive proof of the proper
substitution and appointment of such successor Trustee or Trustees, and notice
of such proper substitution and appointment to all parties in interest. The
Trustees, or either of them or the survivor thereof, may act in the execution of
this trust and in the event either of the Trustees shall act alone, the
authority and power of the Trustees so acting shall be as full and complete as
if the
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<PAGE> 16
powers and authority granted to the Trustees herein jointly had been granted to
such Trustee alone. Either or both of the Trustees are hereby authorized to act
by agent or attorney in the execution of this trust.
(b) Fees. In the event foreclosure proceedings instituted
under the terms and provisions of this Trust Deed are not completed through no
fault of the Trustees, Trustees shall be entitled to receive and forthwith be
paid the necessary costs and expenses incurred by them, together with a fee of
not less than Five Hundred Dollars ($500.00).
(c) Action. The Trustees herein may act by agent or attorney
appointed by them in the execution of this Deed of Trust and the Trustees shall
not be required to be present in person.
16. Casualty Loss.
(a) Notice to Secured Party. In case of casualty resulting in
damage or destruction to the Property, Grantor shall promptly give written
notice thereof to Trustees and Secured Party.
(b) Restoration of Property. Unless Secured Party elects to
apply insurance proceeds to reduce the Debt, then, regardless of the amount of
any such damage or destruction, Grantor shall at its sole cost and expense, and
whether or not the insurance proceeds, if any, shall be sufficient for the
purpose, restore, repair, replace, rebuild or alter the same as nearly as
possible to its value, condition and character immediately prior to such damage
or destruction or with such changes or alterations as may be made at Grantor's
election in conformity with and subject to the conditions of paragraph 8 hereof.
Such restoration, repairs, replacements, rebuilding or alteration shall be
commenced promptly and prosecuted with reasonable diligence. If (i) estimates
received, and/or made, by Secured Party disclose that the cost or restoration
would be in excess of the amount of the insurance proceeds available therefor,
or (ii) during the period of restoration by Grantor the amount of the insurance
proceeds shall not be sufficient to complete such restoration, then in either of
such events, Grantor shall deposit with Secured Party the amount required to
complete such restoration or such other security as shall be satisfactory to
Secured Party.
(c) Application of Proceeds. All proceeds of and payments
under insurance policies with respect to any casualty event shall be paid to
Secured Party and applied by Secured Party first to payment of the actual costs,
fees and expenses, if any, incurred by Secured Party in connection with
adjustment of the
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<PAGE> 17
loss and settlement with the insurance company. The remainder of such insurance
proceeds shall be applied by Secured Party, at the sole discretion of Secured
Party, either (i) in reduction of the outstanding Debt, as Secured Party may
elect, or (ii) to the payment of the cost of the aforesaid restoration, repairs,
replacement, rebuilding or alterations, including the cost of temporary repairs
and the cost of protection of property pending the completion of permanent
restoration, repairs, replacement, rebuilding or alterations (all of which
temporary and permanent repairs, restoration, replacement, rebuilding,
alterations and protection of property are hereinafter collectively referred to
as the "restoration").
(d) Advancement of Proceeds. If under the provisions of this
paragraph 16, insurance proceeds are to be applied to the cost of restoration,
Secured Party shall hold such insurance proceeds, together with any amounts
deposited with Secured Party pursuant to subparagraph 16(b) hereof, and advance
the same for application to the cost of the restoration from time to time as the
restoration progresses. Such funds will be advanced upon the written request of
Grantor and upon Grantor's compliance with such reasonable requirements therefor
as Secured Party shall impose. Upon completion of all of the restoration in a
good and workmanlike manner and substantially in accordance with any plans and
specifications therefor which Secured Party may have required, and upon receipt
by Secured Party of evidence satisfactory to Secured Party that the restoration
has been completed and that the Property is not and will not become subject to
any mechanic's or materialmen's liens on account of the restoration or any part
thereof, any balance of the insurance proceeds or sums deposited with Secured
Party pursuant to subparagraph 16(b) hereof and not applied to the cost of
restoration shall be applied to reduce the Debt, and any balance remaining after
repayment of the Debt shall be paid over to Grantor.
(e) Effect of Default. Notwithstanding any provision of this
paragraph 16 to the contrary, if at any time during any restoration of the
Property, an Event of Default in the payment on the Note shall exist, Secured
Party shall have no obligation to continue to apply insurance money to
restoration and may apply such insurance money to reduction of the Debt.
(f) No Postponement, Abatement of Scheduled Installments. In
no event shall the application to the obligation of Grantor, whether or not then
due or payable, of any insurance proceeds postpone, abate or reduce any of the
periodic installments of principal and interest thereafter to become due under
the Debt until the Debt is completely satisfied and paid in full. If Secured
Party shall acquire title to the Property either by virtue of a deed in lieu of
foreclosure or a judicial
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sale thereof pursuant to proceedings under the Note or this Deed of Trust, then
all of Grantor's estate, right, title and interest in and to all such policies,
including unearned premiums thereon and the proceeds thereof, shall vest in
Secured Party.
17. Condemnation.
(a) Notice, Right to Participate. Grantor shall give Trustees
and Secured Party immediate notice of any actual or threatened commencement of
condemnation proceedings or the exercise of the right of eminent domain. In the
event that the Property, or any part thereof, shall be taken in condemnation
proceedings or by exercise of any right of eminent domain (hereinafter called
collectively, "condemnation proceedings"), Secured Party may on behalf of
Grantor participate in any such condemnation proceedings and may on behalf of
and with the concurrence of Grantor adjust, contest, accept, reject or
compromise any proposed award and collect and, without the concurrence of
Grantor, may receive the proceeds thereof and endorse drafts, and Secured Party
is hereby irrevocably appointed attorney-in-fact of Grantor for such purposes,
such power being coupled with an interest. The decision of Secured Party with
the concurrence of Grantor with regard to the adjustment, contest, acceptance,
rejection or compromise of any proposed award issued in connection with any
condemnation proceedings shall be binding upon Grantor. The award that may be
made in any such proceeding or the proceeds thereof shall be deposited with
Secured Party and distributed in the manner set forth in this paragraph 18. The
parties agree to execute any and all further documents that may be required in
order to facilitate collection of any award or awards and the making of any such
deposits with Secured Party.
(b) Condemnation of All or Material Part of Property. If at
any time during the term of this Deed of Trust title to the whole or a material
part of the Property shall be taken in condemnation proceedings or by agreement
between Grantor and Secured Party and those authorized to exercise such right,
Secured Party shall apply such award or proceeds which it receives pursuant to
subparagraph 17(a) hereof to payment of the Debt and any balance then remaining
shall be paid to Grantor. In the event that the amount of the award or proceeds
received by Secured Party shall not be sufficient to pay the Debt, Grantor
shall, within ten (10) days after the application of the award or proceeds as
aforesaid pay or cause to be paid such deficiency to Secured Party. For the
purposes of this subparagraph 17(b) "a material part" shall be deemed to have
been taken if the portion of the Property taken shall preclude, in Secured
Party's sole judgment the effective use of the Property as an economically
viable unit for the permitted purposes for which Grantor utilizes such Property.
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(c) Condemnation of Less than Material Part of Property. If at
any time during the term of this Deed of Trust title to a portion of the
Property that does not constitute "a material part" of the Property shall be
taken as aforesaid, all of the award or proceeds collected by Secured Party
pursuant to subparagraph 17(a) hereof, shall, at the option of the Secured
Party, (i) be applied to reduce the Debt or (ii) be held by Secured Party, and
applied and paid over toward the costs of demolition, repair and restoration,
substantially in the same manner and subject to the same conditions as those
provided in paragraph 16 hereof with respect to insurance and other monies. Any
balance remaining in the hands of Secured Party after payment of such costs of
demolition, repair and restoration shall be retained by Secured Party and
applied in reduction of the Debt. In the event that the costs of such
demolition, repairs and restoration shall exceed the new amount collected by
Secured Party, Grantor shall pay the deficiency.
(d) Temporary Use or Taking. If at any time during the term of
this Deed of Trust the temporary use of the whole or any part of the Property
shall be taken in condemnation proceedings, all of the award or proceeds
collected by Secured Party pursuant to subparagraph 17(a) hereof shall be held
by Secured Party and applied by Secured Party toward the payment of the monthly
interest payment or of the monthly payments of principal and interest due on the
Debt until such time as the Debt is completely satisfied and paid, except that,
if such taking by condemnation proceedings results in changes and alterations to
the Property or any part thereof which would necessitate an expenditure to
restore the Property or any part thereof to its former condition, then such
portion of the award or proceeds as in Secured Party's reasonable estimation
shall be necessary to cover the cost of restoration shall at the option of
Secured Party be retained by Secured Party, without application as aforesaid,
and be applied and paid over toward the restoration of the Property, or any part
thereof, to its former condition in substantially the same manner and subject to
the same conditions as those provided in paragraph 16 hereof with respect to
insurance and other monies. In the event that the costs of such restoration
shall exceed the net amount collected by Secured Party, Grantor shall pay or
cause to be paid the deficiency.
(e) Taking of Rights of Light, Air, Access and the Like. Any
award for compensation made in condemnation proceedings for consequential
damages or for the taking of rights in, under and above the streets adjoining
such Property, or the rights and benefits of light, air or access to said
streets, or for the taking of space, or rights therein, below the surface of, or
above, the Property, shall be paid over to and received by Secured Party. Such
awards or compensation shall at the option of Secured Party be either applied to
the reduction of the Debt,
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or paid over toward the cost of such demolition, repair and restoration of the
Property as shall be necessitated by such taking, substantially in the same
manner and subject to the same conditions as those provided in paragraph 17
hereof with respect to insurance and other monies, and any balance remaining in
the hands of Secured Party shall be retained by Secured Party, and applied in
reduction of the Debt in the same manner as provided in subparagraph 17(c) with
respect to the balance of the award or awards therein referred to.
(f) Reimbursement of Costs, Fees and the Like. In the case of
any taking covered by the provisions of this paragraph 17, Grantor shall be
entitled as a first priority to reimbursement out of any award or awards for all
reasonable costs, fees, and expenses incurred in the determination and
collection of any such awards.
(g) Payments Pending Receipt of Award. Notwithstanding any
taking by condemnation proceedings, Grantor shall continue to pay interest on
the Debt at the rates provided in the Note until any such award or payment shall
have been actually received by Secured Party and applied to the principal sum as
provided in this paragraph 18, if it is to be so applied under this paragraph
18. Any reduction in the principal sum resulting from Secured Party's
application of such award or payment as hereinafter set forth shall be deemed to
take effect only on the date of such application. If prior to Secured Party's
receipt of such award or payment the Property shall have been sold to Secured
Party or its nominee on foreclosure of this Deed of Trust, Secured Party shall
have the right to receive and retain the entire award or payment.
(h) No Postponement, Abatement or Scheduled Installments. In
no event shall the application to the Debt of any payment to Secured Party
pursuant to this paragraph 18 postpone, abate or reduce any of the periodic
installments of principal or interest thereafter to become due under the Note
and the Loan Documents until such amounts are paid in full.
18. Indemnity for Costs. Grantor will indemnify against, and on
demand repay Trustees or Secured Party for any loss, damage, expense, or
reasonable attorneys' fees which may be incurred by reason of any action or
proceeding affecting the Property or the title thereto or Trustee's or Secured
Party's interest under this Deed of Trust to which Trustees or Secured Party is
made a party (by intervention or otherwise).
19. Change in Trust Deed Tax Laws. In the event of the passage after
the date of this Deed of Trust of any law of the State of West Virginia
deducting from the value of the Property for the purpose of taxation any lien
thereon, or
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changing in any way the laws now in force for the taxation of mortgages, or
debts secured thereby, for state or local purposes, or the manner of the
operation of any such taxes so as to affect the interest of Trustees or Secured
Party, then and in such event, Grantor shall bear and pay the full amount of
such taxes.
20. Agreements Continuing, Absolute. The agreements and obligations
of Grantor hereunder are continuing agreements and obligations, and are absolute
and unconditional irrespective of the genuineness, validity or enforceability of
the Note or any other instrument or instruments now or hereafter evidencing the
Debt or any other agreement or agreements now or hereafter entered into by
Secured Party and Grantor pursuant to which the Debt or any part thereof is
issued or of any other circumstance which might otherwise constitute a legal or
equitable discharge of such agreements and obligations; without limitation upon
the foregoing, the agreements and obligations of Grantor shall not in any such
way be affected by (i) any renewal, refinancing or refunding of the Debt in
whole or in part, (ii) any extension of the time of payment of the amounts due
and owing under the Note or any other instrument or instruments now or hereafter
evidencing the Debt or any part thereof, (iii) any amendment to or modification
of the terms of the Note or other instrument or instruments now or hereafter
evidencing the Debt or any part thereof or any other agreement or agreements now
or hereafter entered into by Secured Party and Grantor pursuant to which the
Debt or any part thereof is issued or secured, (iv) any substitution, exchange
or release of, or failure to preserve, perfect or protect, or other dealing in
respect of, the Property or any other property or any security for the payment
of the Debt or any part thereof, (v) any bankruptcy, insolvency, arrangement,
composition, assignment for the benefit of creditors or similar proceeding
commenced by or against Grantor or (vi) any other matter or thing whatsoever
whereby the agreements and obligations of Grantor hereunder would or might
otherwise be released or discharged.
21. Partial Invalidity. The invalidity per se or in any application
of any one or more paragraphs of this Deed of Trust or any part of any thereof
shall not affect the remaining portions of this Deed of Trust, all of which are
inserted conditionally on their being held valid in law.
22. Notices. All notices, requests, demands, directions and other
communications (collectively "notices") under the provisions of this Deed of
Trust must be in writing unless otherwise expressly permitted under this
Agreement and must be sent by first-class express mail, private overnight or
next Business Day courier, in all cases with charges prepaid, and any such
properly given notice will be effective when received.
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All notices will be sent to the applicable party at the addresses stated below
or in accordance with the last unrevoked written direction from such party to
the other parties. Any notice to be provided by a subordinate lienholder, as
contemplated by West Virginia Code 38-1-4, shall be forwarded to Secured Party
at the address stated below. A copy of any notice of Trustee's sale under this
Deed of Trust shall be served on Grantor by certified mail, return receipt
requested, directed to the address stated below.
If to Grantor: Mountaineer Park, Inc.
8 Route 2 South
Chester, West Virginia 26034
Attn: Mr. Edson Arneault
and copy to: Freer & McGarry
1000 Thomas Jefferson St., N.W.
Suite 600
Washington, DC 20007
Attention: Robert Ruben, Esquire
If to Secured
Party: Madeleine, LLC
950 Third Avenue
New York, New York 10022
Attention: Kevin Genda
and copy to: Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Mark A. Neporent, Esquire
If to Trustees: Deborah A. Sink, Esq.
Carl D. Andrews, Esq.
P. O. Box 1386
Charleston, West Virginia 25301
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IN WITNESS WHEREOF the parties have caused this instrument to be
executed by their respective officers thereunder duly authorized as of the date
first above written.
ATTEST: MOUNTAINEER PARK, INC.
By:_______________________ By:________________________________
Title:____________________ Its: ______________________________
MADELEINE LLC, as Secured Party
By:________________________________
Its:_______________________________
This Deed of Trust was prepared by
Carl D. Andrews, Esq.
Bowles Rice McDavid Graff & Love
P. O. Box 1386
Charleston, WV 25325-1386
(304) 347-1109
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<PAGE> 24
STATE OF _____________________ )
) SS:
COUNTY OF ____________________ )
ON THIS, the _____ day of _______________, 1996, before me, the
undersigned officer, personally appeared _______________________, who
acknowledged himself to be the __________________ of Mountaineer Park, Inc., a
West Virginia corporation, and that he, as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
-------------------------------
Notary Public
My Commission Expires:
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<PAGE> 25
STATE OF ________________ )
) SS:
COUNTY OF _______________ )
ON THIS, the ____ day of __________, 1996, before me, the undersigned
officer, personally appeared ____________________ who acknowledged himself to be
the ___________________ for MADELEINE LLC, and that he, as such
___________________, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
-------------------------------
Notary Public
My Commission Expires:
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<PAGE> 1
EXHBIT 10(10)
WINNERS ENTERTAINMENT, INC.
STOCK TRANSFER AGREEMENT
AGREEMENT, dated as of July 2, 1996, between WINNERS ENTERTAINMENT, INC.,
a Delaware corporation (the "Company"), and MADELEINE LLC, a New York limited
liability company (the "Stockholder").
WHEREAS, the Company is authorized to issue 25,000,000 shares of common
stock, par value $0.00001 per share (the "Common Stock");
WHEREAS, in consideration for the Stockholder's making (i) a loan pursuant
to a Term Loan Agreement, dated as of July 2, 1996 (the "Loan Agreement") among
Mountaineer Park, Inc., a West Virginia corporation and a wholly-owned
subsidiary of the Company (the "Subsidiary"), the Company, as Guarantor, and the
Stockholder, and (ii) a commitment, pursuant to a commitment letter, dated as of
July 2, 1996, to make an $11,100,000 loan to the Subsidiary pursuant to the
terms and conditions set forth therein (the "Commitment"), the Company has
issued, and will in the future issue, shares of Common Stock (together with any
and all other shares of Common Stock owned by the Stockholder from time to time,
the "Shares") and warrants for the purchase of Common Stock (the "Warrants");
WHEREAS, the Company and the Stockholder acknowledge that, in the event
that (i) the Stockholder were to own more than 5% of the outstanding Common
Stock of the Company, (ii) the Stockholder was not approved under the Company's
license (the "License") issued by the West Virginia Lottery Commission (the
"Commission") pursuant to Section ___, et. seq., of the West Virginia Code
(together with all rules and regulations promulgated thereunder, the "Code") to
engage in the video lottery business, and (iii) the Stockholder had the
authority to vote the Shares, that the License may be revoked by the Commission;
WHEREAS, the Stockholder and the Company desire to avoid the occurrence of
any event that would cause the revocation of the License, and, in addition to
the provisions contained in the Warrants preventing the exercise thereof if such
exercise would jeapordize the License, have agreed to take the actions as
provided in this Agreement to assure that (i) the License will not be revoked
and (ii) the Stockholder will be compensated for any required divestiture of all
or a portion of the Shares;
NOW, THEREFORE, in consideration of the mutual premises and agreements set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
Representations and Warranties
Sec. 1.01. Representations and Warranties. Each of the parties hereto
represents and warrants that it has full power and authority to execute and
deliver this Agreement, and the execution and delivery of this Agreement will
not result in the breach of or default under, with or without the giving of
notice or the passage of time or both, any other agreement or arrangement to
which such party is a party or by which such party is bound.
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ARTICLE II.
Indemnification of the Stockholder
Sec. 2.01 Indemnification of the Stockholder. To the fullest extent
permitted by law, the Company shall indemnify and hold harmless the Stockholder,
and any assignee of, or participant in, Stockholder's rights under and relating
to the Loan Agreement and the Commitment and their respective agents, officers,
directors, members and legal representatives (collectively, an "Indemnified
Party") from and against any loss or expense suffered or sustained by it by
reason of the fact that it is or was a Stockholder, including without limitation
any judgment, settlement, reasonable attorney's fees and other costs or expenses
incurred in connection with the defense of any actual or threatened action or
proceeding, provided that such loss or expense did not result from the gross
negligence, willful misconduct, dishonesty or bad faith of the Indemnified
Party. The Company shall advance to the Indemnified Party reasonable attorney's
fees and other costs and expenses incurred in connection with the defense of any
action or proceeding which arises out of such conduct. The Indemnified Party
hereby agrees that, in the event it receives any such advance, it shall
reimburse the Company for such fees, costs and expenses to the extent that it
shall be determined that it was not entitled to indemnification under this Sec.
2.01.
ARTICLE III.
Undertakings of the Parties
Sec. 3.01 Approval of the West Virginia Lottery Commission. Each party
hereto agrees to use its best efforts to secure the approval (the "Approval") of
the Stockholder under the License such that the Stockholder may own in excess of
5% of the issued and outstanding Common Stock of the Company at any time and
from time to time. In connection with the undertaking provided for in this
Section 3.01, the Company shall, without limitation:
(i) prepare and submit to the Commission all applicable forms
under the Code with respect to the Approval, use its best efforts to
cause such Approval to become effective as soon as reasonably
possible, promptly prepare and submit to the Commission such
amendments and supplements as may be necessary to keep the Approval
effective and current and to comply with the provisions of the Code;
(ii) notify the Stockholder promptly and, if requested by the
Stockholder, confirm such advice in writing, (a) of any request by
the Commission for amendments and supplements to any statement
submitted to the Commission hereunder and related information or for
additional information and (b) if, between the effective date of any
Approval and the closing of any issuance of Shares by the Company,
the representations and warranties of the Company contained in any
information provided to the Commission cease to be true and correct
in all material respects or if the Company receives any notification
with respect to the suspension or qualification of the Approval or
the initiation of any proceeding for such purpose;
(iii) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of any Approval at the
earliest possible moment and provide prompt notice to the
Stockholder of the withdrawal of any such order;
(iv) within a reasonable time prior to the submission of any
information to the Commission concerning the Stockholder, provide to
the Stockholder and its counsel a copy of such information, and
shall not at any time submit or make any amendment or supplement to
any such submission of which the Stockholder and its counsel shall
not have previously been advised and furnished a copy; and
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<PAGE> 3
(v) take, or refrain from taking, such other actions, and
execute and deliver such other documents, as may reasonably be
requested by the Stockholder or the Commission to obtain and
maintain the Approval.
3.02 Opinion of Counsel to the Commission. The Company agrees to use its
best efforts to secure an opinion of counsel to the Commission (the "Opinion")
that in the event that the Approval is not in effect, the Stockholder may own in
excess of 5% of the issued and outstanding Common Stock of the Company at any
time and from time to time, provided that the Stockholder does not, at any such
time, have the authority to vote or control the vote of over 5% of all of the
issued and outstanding Common Stock. In connection with the undertaking provided
for in this Section 3.02, the Company shall, without limitation, (i) prepare and
submit to the Commission and counsel to the Commission all applicable
information with respect to the Opinion, (ii) use its best efforts to cause the
issuance of the Opinion as soon as reasonably possible, and (iii) promptly
prepare and submit to the Commission and counsel therefor such amendments and
supplements as may be necessary to obtain and keep in effect the Opinion.
3.03. Expenses of Approval and Opinion. All expenses incurred in effecting
the Approval and obtaining the Opinion (collectively, "Expenses"), including,
without limitation, all registration and filing fees, listing fees, printing
expenses, fees and disbursements of counsel for the Company and the Stockholder
and expenses of any audits incidental to or required for the Approval (other
than with respect to the financial statements of the Stockholder), shall be
borne by the Company.
ARTICLE IV.
Mandatory Put
Sec. 4.01 Put Requirement. In the event that (i) the Approval is not
in effect, (ii) the Opinion has not been obtained, (iii) the Stockholder owns
more than 5% of the issued and outstanding Common Stock, and (iv) there is no
other reasonable alternative that, in the opinion of counsel to the Company,
would satisfy the requirements of the Code (such alternative being acceptable
to the Stockholder in its sole and absolute discretion), then, promptly after
notice to the Stockholder by the Company, the Stockholder shall be obligated
to sell, and the Company obligated to purchase, from time to time, the
minimum number of Shares such that after giving effect to such purchase, the
Stockholder will own 5% or less of the Common Stock; provided, however, that
if the Shares are registered pursuant to an effective registration statement
under the Securities Act of 1933, as amended, the Stockholder shall use its
best efforts to divest such number of Shares in the public market.
Sec. 4.02 Purchase Price. The price per Share at which the Company shall
purchase the Shares from the Stockholder pursuant to Sec. 4.01 hereof (the
"Purchase Price") shall be equal to the average Closing Price of the Common
Stock for the twenty (20) Business Days (as defined in the Loan Agreement)
immediately preceding the date of such purchase. "Closing Price" means the last
reported sale price regular way or, in case no such reported sale takes place on
such day, the average of the closing bid and asked prices regular way for such
day, in each case (i) on the principal national securities exchange on which
such security is listed or to which the Common Stock is admitted to trading or
(ii) if the Common Stock is not listed or admitted to trading on a national
securities exchange, in the over-the-counter market as reported by The Nasdaq
National Market, the The Nasdaq Small Cap or a comparable system, or (iii) if
the Common Stock is not listed on The Nasdaq National Market, the The Nasdaq
Small Cap or a comparable system, as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time in good faith
by the Board of Directors of the Company for that purpose. In the absence of all
of the foregoing, or if for any other reason the Closing Price of such security
cannot
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be determined pursuant to the foregoing sentence, the Closing Price shall be the
fair market value of such security as determined in good faith by an appraiser
mutually agreed upon by the parties hereto.
Sec. 4.03 Payment of the Purchase Price. The Purchase Price shall be
payable with respect to each Share, in cash, upon surrender thereof to the
Company; provided, however, that to the extent that the payment of the Purchase
Price in cash would result in the insolvency of the Company or, in the good
faith opinion of the Board of Directors of the Company, would reduce the
Company's working capital below the level required for the ongoing operation of
the Company's business in its ordinary course, the Purchase Price shall be paid
by the making of a loan therefore by the Stockholder, evidenced by a note made
by the Company (the "Note"). The principal of the Note shall be payable in full
on the date that is one year from the date of the purchase of Shares by the
Company. Interest on the Note shall be payable monthly and at maturity at a rate
of 24% per annum (calculated on the basis of a year of 360 days) or, if such
rate would be higher than the maximum rate allowed by applicable law, such
maximum allowable rate. The Note shall be governed by the laws of the State of
New York, and shall be payable to the order of the Stockholder or its designee.
If requested by the Stockholder, the Company shall cause the Note to be secured
by a first or second priority lien, pursuant to a deed of trust in form and
substance satisfactory to the Stockholder, on the Property (as defined in the
Loan Agreement).
Sec. 4.04 Escrow Shares. In the event that a Note is issued pursuant to
Sec. 4.03 hereof the Company shall validly issue that number of duly authorized
shares of Common Stock (the "Escrow Shares") equal to the number of Shares
purchased by the Company and paid for with the Note, in the name of an escrow
agent (the "Agent"), to be selected by the Stockholder, and held by the Agent
pursuant to an escrow agreement (the "Escrow Agreement") containing such terms
and conditions as are customary for such transactions including, without
limitation, the following:
(i) upon receipt of a certificate of the Company,
countersigned by the Stockholder, that all or any portion of the Note has
been repaid, the Agent will surrender to the Company all or a pro rata
portion, as the case may be, of Escrow Shares as set forth in such
certificate;
(ii) upon receipt of a certificate of the Stockholder,
countersigned by the Company, that the conditions that required the
purchase of Shares by the Company have been cured, the Agent shall
transfer the number of Escrow Shares set forth in such certificate to the
Stockholder; and
(iii) such other provisions with respect to the voting rights
of the Escrow Shares as the Commission may deem necessary in writing to
keep in effect the License;
provided, however, that if the Shares have been registered pursuant to a valid
and effective registration statement under the Securities Act of 1933, as
amended, at the time of the issuance of the Note, the Stockholder will transfer
the Shares directly to the Agent to be held pursuant to the Escrow Agreement
upon receipt by the Stockholder of the Note, duly executed.
Sec. 4.05 Conditions to Release of Escrow Shares. (i) At any time
after all or a portion of the principal amount of the Note is paid to the
Stockholder, upon request by the Company, the Stockholder shall countersign a
certificate to the Agent authorizing the release to the Company of the number
of Escrow Shares equal to the quotient of (a) the amount of the principal of
the Note that has been paid, and (b) the Purchase Price.
(ii) At any time that there are Escrow Shares, if the
acquisition of any number of such Escrow Shares by the Stockholder would not
cause the revocation of the License, then, upon request by the Stockholder, the
Company shall countersign a certificate to the Agent for
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the transfer of such number of Escrow Shares to the Stockholder. Upon receipt by
the Stockholder of any Escrow Shares, the principal balance of the Note shall be
reduced by the product of (a) the number of Escrow Shares transferred to the
Stockholder and (b) the Purchase Price.
Each party hereto agrees to execute and deliver any and all documents,
agreements, instruments and certificates necessary or desirable to carry out the
intent of this Sec. 4.05. The expenses of the parties in connection with the
Agent and the transfers of the Escrow Shares shall be born by the Company;
provided, however, that the Company shall not be required to pay the fees of the
Agent in excess of the amount of a bona-fide offer by a potential escrow agent,
selected by the Company, submitted to the Stockholder prior to the engagement of
the Agent.
ARTICLE V.
Effect of Other Agreements
5.01 Articles of Incorporation. The terms, conditions and agreements
contained herein set forth the rights of the parties hereto with respect to any
repurchase of Shares by the Corporation, whether pursuant to Article VII of the
Restated Certificate of Incorporation (or any successor provision) of the
Company or otherwise; provided, however, that the Company hereby agrees that so
long as the Approval is effective, the Stockholder shall not be a "Disqualified
Holder" (as defined in the Restated Certificate of Incorporation of the Company
as in effect as of the date hereof) unless and until (i) the Company receives
written notification from a governmental authority with jurisdiction over it
that the continued ownership of the Shares by the Stockholder would result in
the loss or revocation of any lisence or franchise of a material nature
necessary for the conduct of the Company's business, and (ii) the Stockholder
has not cured the events giving rise to such notice within the time provided by
such governmental authority.
5.02 Other Rights. Except as otherwise expressly set forth herein,
notwithstanding any other right that the Company may have to redeem Shares from
the Stockholder, the Company hereby expressly covenants that no such right shall
be exercised by it without the prior written consent of the Stockholder.
ARTICLE VI.
Miscellaneous
Sec. 6.01. General. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts with the same effect
as if the parties executing such counterparts had all executed one counterpart,
provided, that the counterparts, in the aggregate, shall have been duly executed
by each of the parties hereto. The parties hereto hereby stipulate that the
transmission of a facsimile counterpart of this Agreement bearing a signature
purporting to be that of a party hereto received by either party at such party's
principal place of business shall (i) constitute an original of this Agreement,
and (ii) constitute delivery of this Agreement by the party transmitting such
facsimile.
Sec. 6.02. Amendments to Stockholder Agreement. The terms and
provisions of this Agreement may be modified or amended at any time and from
time to time with the written consent of all of the parties hereto.
Sec. 6.03. Choice of Law. Notwithstanding the place where this
Agreement may be executed by any of the parties hereto, the parties expressly
agree that all the terms and provisions hereof shall be construed under the
laws of the State of New York.
Sec. 6.04. Conflicts; Ratification; etc. In the event that the
performance by any party hereto of any provision hereof would conflict with
or cause a default, whether with or without the or cause a default, whether
with or without the
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passage of time, under any other instrument, document or other agreement under
which such party is bound (any such occurrence a "Conflict"), such party shall
use its good faith best efforts to remedy or waive the Conflict such that the
full intent of this Agreement shall prevail.
Sec. 6.05. Notices. Each notice or other communication relating to this
Agreement shall be in writing and delivered in person or by registered or
certified mail. All such communications shall be addressed to the appropriate
party (or his legal representative) at such party's address set forth under such
party's name on the signature page hereto. Either party hereto may designate a
new address by notice to that effect given to the other party hereto. Unless
otherwise specifically provided in this Agreement, a notice shall be deemed to
have been effectively given when mailed by registered or certified mail to the
proper address or delivered in person.
Sec. 6.07. Headings. The titles of the Articles and the headings of
the Sections of this Agreement are for convenience of reference only, and are
not to be considered in construing the terms and provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
WINNERS ENTERTAINMENT, INC.
By: /S/ Edson R. Arneault
--------------------------------------
Name: Edson R. Arneault
Title: President
1461 Glenneyre Street, Suite F
Laguna Beach, California 92651
MADELEINE LLC
By: /s/ Kevin P. Genda
--------------------------------------
Name: Kevin P. Genda
Title: Power of Attorney
950 Third Avenue, 20th Floor
New York, New York 10022
Attention: Mr. Kevin P. Genda
6
<PAGE> 1
EXHIBIT 10(11)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of July 2, 1996, between
Madeleine L.L.C., a New York limited liability company ("Madeleine"), and
Winners Entertainment, Inc., a Delaware corporation (the "Company").
Concurrently with the execution and delivery of this Registration
Rights Agreement, a Term Loan Agreement, dated as of the date hereof, among
Mountaineer Park, Inc., a West Virginia corporation and a wholly-owned
subsidiary of the Company, the Company and Madeleine (the "Term Loan
Agreement"), has been executed and delivered.
In connection with the execution and delivery of the Term Loan
Agreement, the Company has issued to Madeleine 183,206 shares of Common Stock
(as hereinafter defined) (the "Restricted Shares") that are subject to
restrictions on Transfer (as hereinafter defined) pursuant to the Securities Act
(as hereinafter defined).
The Company desires to grant to Madeleine registration rights with
respect to the Restricted Shares and such other securities of the Company that
Madeleine may acquire from time to time, whether pursuant to the Term Loan
Agreement or otherwise, the Transfer of which is restricted pursuant to the
Securities Act and which are not entitled to the benefits of any other
registration rights.
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
"Commission" shall mean the Securities and Exchange Commission and
any other similar or successor agency of the federal government of the United
States of America then administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the Company's Common Stock, $0.00001 par
value per share.
"Company" shall have the meaning given such term in the first
paragraph of this Registration Rights Agreement.
"Controlling Interest" shall have the meaning given such term in
Section 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Holder" shall mean Madeleine and its successors and permitted
assigns.
"Indemnified party" shall have the meaning given to such term in
paragraph (b) of Section 6.
"Madeleine" shall have the meaning given such term in the first
paragraph of this
<PAGE> 2
Registration Rights Agreement.
"Person" shall mean a corporation, an association, a partnership, an
organization, a business, an individual or a government or political subdivision
thereof or any governmental agency.
"Registrable Securities" shall mean the Restricted Shares and any
other securities of the Company acquired by the Holder from the Company from
time to time, and any securities into or for which such other securities may be
convertible or exercisable, whether issued or acquired pursuant to the Term Loan
Agreement or otherwise, the Transfer of which is restricted pursuant to the
Securities Act and which are not entitled to the benefits of any other
registration rights. Any such securities shall cease to constitute Registrable
Securities when such securities have been disposed of by the Holder pursuant to
an effective registration statement under the Securities Act or pursuant to Rule
144 (or any successor rule) of the Commission under the Securities Act.
"Registrable Securities" shall include any securities issued as a dividend or
distribution on account of Registrable Securities or resulting from a
subdivision of the outstanding Registrable Securities into a greater number of
securities (by reclassification, stock split or otherwise) or that may be issued
in respect of, in exchange for or in substitution of any Registrable Securities,
whether by the Company or its successors or assigns.
"Registration Expenses" shall have the meaning set forth in
Section 5.
"Restricted Shares" has the meaning given such term in the third
paragraph of this Registration Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Term Loan Agreement" shall have the meaning given such term in the
second paragraph of this Registration Rights Agreement.
"Transfer" shall include any sale, transfer, assignment or other
disposition which would constitute a sale within the meaning of the Securities
Act.
"Underwriter" shall have the meaning given such term in Section 3.
"Warrant Certificates" shall mean the Warrant Certificates of the
Company issued on the date hereof or at any time hereafter in connection with
the transactions contemplated by the Term Loan Agreement (including, but not
limited to, the replacement Warrant Certificates issued on the date hereof to
Bridge Capital, LLC and Brownstone Holdings, LLC, each entitling the registered
holder thereof to purchase 25,000 shares of Common Stock), and any certificates
issued in exchange or replacement thereof.
Any terms used in this Registration Rights Agreement which are not
defined in this Section 1 have the meanings respectively set forth elsewhere in
this Registration Rights Agreement.
2. REGISTRATION
2.1 Restricted Shares. The Company shall use its best efforts
to, within 120 days after the date of this Registration Rights Agreement, effect
the registration on an applicable form under the Securities Act of the resale of
the Restricted Shares.
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<PAGE> 3
2.2 Additional Securities. To the extent that the Holder
acquires any additional securities of the Company that constitute Registrable
Securities, the Company shall use its best efforts to, within 120 days after the
date registration of such Registrable Securities is requested by the Holder,
effect the registration on an applicable form under the Securities Act of the
resale of such Registrable Securities and, to the extent that such Registrable
Securities are convertible into or exercisable for any other securities, the
issuance or, if not permissible under the Securities Act, resale of such other
securities.
2.3 Duration of Registration. The Company shall use its best
efforts to keep each registration statement filed and declared effective
pursuant to this Registration Rights Agreement continuously effective until such
time as (i) none of the securities covered by such registration statement shall
constitute Registrable Securities or (ii) all of the Registrable Securities
covered by such registration statement are freely transferable pursuant to Rule
144(k); provided, however, that, notwithstanding the foregoing, prior to the
suspension or termination of the effectiveness of any registration statement
pursuant to either clause (i) or clause (ii) of this sentence, (A) the Company
shall have delivered to the Holder an opinion of counsel to the Company
satisfactory in form and substance to the Holder and its counsel stating that
the applicable condition precedent to the termination of the effectiveness of
the registration statement set forth in this sentence has been satisfied and (B)
the Holder and its counsel shall have concurred with the conclusions set out in
such opinion.
2.4 Failure to Effect Registration. (a) If the Company shall fail to
file any registration statement required to be filed by the Company pursuant to
Section 2.1 on or before the date that is 90 days after the date hereof, in such
form and substance as shall be required by the Securities Act, the Company
shall, within five days thereafter, pay to the Holder, in cash, with respect to
each Restricted Share held by the Holder, an amount that is equal to the greater
of (i) 10% of the closing price of the Common Stock on the business day
immediately preceding such 90th day and (ii) $350,000 divided by the number of
Restricted Shares then outstanding. In the event that a registration statement
required to be filed pursuant to Section 2.1 hereof shall fail to be declared
effective on or before seven calendar months from the date of demand therefor by
the Holder (the "Demand Date"), the Company shall pay to the Holder within 5
days of the expiration of such seven calendar month period 5% of the closing
price of the Common Stock on the business day immediately preceding the end of
such seven month period. In the event that a registration statement required to
be filed pursuant to this Agreement shall fail to be declared effective on or
before nine calendar months from the Demand Date, the Company shall pay to the
Holder within 5 days of the expiration of such nine calendar month, and on the
last day of each calendar month thereafter until such registration statement is
declared effective, 10% of the closing price of the Common Stock on the business
day immediately preceding the end of such nine month or one month period, as
applicable. For purposes of this Section 2.4, the closing price of such security
for any day shall be the last reported sale price regular way or, in case no
such reported sale takes place on such day, the average of the closing bid and
asked prices regular way for such day, in each case (i) on the principal
national securities exchange on which such security is listed or to which such
security is admitted to trading or (ii) if such security is not listed or
admitted to trading on a national securities exchange, in the over-the-counter
market as reported by The Nasdaq National Market or a comparable system, or
(iii) if such security is not listed on The Nasdaq National Market or a
comparable system, as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time in good faith by the Board
of Directors of the Company for that purpose. In the absence of all of the
foregoing, or if for any other reason the closing price of such security cannot
be determined pursuant to the foregoing sentence, the closing price shall be the
fair market value of such security as determined in good faith by the Board of
Directors of the Company.
If the Company shall fail to file any registration statement
required to be filed by the Company pursuant to Section 2.2 on or before the
date that is 90 days after the date that
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<PAGE> 4
registration is requested, in such form and substance as shall be required by
the Securities Act, the Company shall, within five days thereafter, pay to the
Holder, in cash, with respect to each Registrable Security requested to be
registered, an amount that is equal to the greater of (i) 10% of the closing
price of such Registrable Security, or, if such security is convertible into or
exercisable for Common Stock, an amount equal to 10% of the closing price of one
share of Common Stock multiplied by the number of shares of Common Stock into or
for which such security is convertible or exercisable, in each case on the
business day immediately preceding such 90th day, and (ii) $350,000 divided by
the number of Registrable Securities required to be included on such
registration statement (without any double counting of convertible securities
and securities issued upon conversion thereof). In the event that a registration
statement required to be filed pursuant to this Agreement shall fail to be
declared effective on or before seven calendar months from the date of demand
therefor by the Holder (the "Demand Date"), the Company shall pay to the Holder
within 5 days of the expiration of such seven calendar month period 5% of the
closing price of the Common Stock on the business day immediately preceding the
end of such seven month period. In the event that a registration statement
required to be filed pursuant to this Agreement shall fail to be declared
effective on or before nine calendar months from the Demand Date, the Company
shall pay to the Holder within 5 days of the expiration of such nine calendar
month, and on the last day of each calendar month thereafter until such
registration statement is declared effective, 10% of the closing price of the
Common Stock on the business day immediately preceding the end of such nine
month or one month period, as applicable. The closing price of such Registrable
Security shall be determined in accordance with the second and third sentence of
this paragraph. Notwithstanding anything in this Warrant certificate to the
contrary, so long as the Company is in compliance with its obligations with
respect to the payment of any penalties pursuant to this Section 2.4, it shall
not be in breach of its obligation to register Common Stock or Warrants under
this Section 2.4.
(b) Without limiting the remedies available to the Holder, the
Company acknowledges that any failure by the Company to comply with its
obligations under Section 2.1 or 2.2 may result in material irreparable injury
to the Holder (and/or subsequent holders) for which there is no adequate remedy
at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Holder (or any
subsequent holder of Registrable Securities) may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2.1 or
2.2 and under the registration provisions of this Agreement generally.
3. UNDERWRITTEN OFFERINGS
The Holder may sell any or all of its Registrable Securities in an
underwritten offering; provided, however, that, nothing contained in this
Section 3 shall in any way accelerate the obligation of the Company set forth in
Section 2.1. If the Holder desires to do so, it shall so notify the Company in
writing, stating in such notice the number and class of securities proposed to
be sold. Within five days after receipt of such notice, the Company shall mail a
notice stating that the Holder has requested an underwritten offering of all or
part of its Registrable Securities (which notice shall state the number and
class of securities proposed to be sold by the Holder) to any other holders of
Registrable Securities and to any other holders of "Registrable Securities"
under the Warrant Certificates. Any such other holder desiring to participate in
the underwritten offering shall be entitled to do so, provided that such holder
notifies the Company of its intent to so participate (specifying in its notice
the number of securities proposed to be sold, all of which shall be required to
be of the same class as those set forth in the Holder's notice) not later than
the date that is fifteen days after the date on which the Company mailed notice
of such underwritten offering to such other holder. In any such underwritten
offering requested by the Holder, the investment banker or investment bankers
and manager or managers (the "Underwriters") that will administer the offering
will be selected by the Holder, subject to the reasonable approval of the
holders of a majority of the securities (determined on an as-converted basis and
including the
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<PAGE> 5
Holder's Registrable Securities) proposed to be included in such offering and
the reasonable approval of the Company. Notwithstanding anything to the contrary
set forth herein, if the Underwriter determines that the number of securities
includable in an underwritten offering requested by the Holder is limited due to
market conditions, priority shall be given first to the Registrable Securities
and any other securities constituting "Registrable Securities" under the Warrant
Certificates held by the Holder and then to securities held by all other holders
of securities proposing to sell securities in such underwritten offering on a
pro rata basis (determined on an as-converted basis). Any holder of securities
requesting the inclusion of securities held by such holder in an underwritten
offering pursuant to this Section 3 (including the Holder) may, at any time
(subject to any arrangements entered into with the Underwriters), withdraw all
or any part of its securities from such underwritten offering. Notwithstanding
anything to the contrary herein, the provisions of this Section 3 shall not
apply to any securities that are freely transferable pursuant to Rule 144(k)
under the Securities Act.
4. REGISTRATION PROCEDURES
In connection with its obligations under Section 2.1, 2.2 and 3, the
Company shall, in addition to such other requirements as are set forth elsewhere
in this Registration Rights Agreement, including, without limitation, in the
foregoing Sections :
(i) prepare and file with the Commission a registration
statement on an applicable form under the Securities Act with
respect to the applicable securities, use its best efforts to cause
such registration statement to be declared effective within the
applicable time period and promptly prepare and file with the
Commission such amendments and supplements to the applicable
registration statement and the prospectus used in connection
therewith as may be necessary to keep the registration statement
effective and current and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all
securities covered by the registration statement, including, without
limitation, such amendments and supplements as may be necessary to
reflect the intended method of disposition from time to time of the
prospective seller or sellers of such securities or as may be
necessary upon the occurrence of an event contemplated by clause (E)
of paragraph (ii) of this Section 4, and use its best efforts to
cause any such amendment to become effective and such registration
statement to become usable as soon as thereafter practicable;
(ii) notify the Holder promptly and, if requested by the
Holder, confirm such advice in writing, (A) when any registration
statement filed hereunder has become effective and when any
post-effective amendments and supplements thereto have been filed
and become effective, (B) of any request by the Commission or any
state securities authority for amendments and supplements to any
registration statement filed hereunder and related prospectus or for
additional information after the registration statement has become
effective, (C) of the issuance by the Commission or any state
securities authority of any stop order suspending the effectiveness
of any registration statement filed hereunder or the initiation of
any proceedings for that purpose, (D) if, between the effective date
of any registration statement filed hereunder and the closing of any
sale of Registrable Securities covered thereby, the representations
and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, if
any, relating to such offering cease to be true and correct in all
material respects or if the Company receives any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, (E) of the happening of any event which
makes any statement made in any registration statement filed
hereunder or the
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<PAGE> 6
related prospectus untrue in any material respect or which requires
the making of any changes in the registration statement or
prospectus in order to make the statements therein not misleading
and (F) of any determination by the Company that a post-effective
amendment to any registration statement filed hereunder would be
appropriate;
(iii) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of any registration statement
filed hereunder at the earliest possible moment and provide prompt
notice to the Holder of the withdrawal of any such order;
(iv) promptly furnish to the Holder and any Underwriter such
number of copies of a prospectus, including a preliminary prospectus
and any prospectus supplement, in conformity with the requirements
of the Securities Act, and such other documents as the Holder and/or
Underwriter may reasonably request in order to facilitate the public
sale or other disposition of Registrable Securities;
(v) use its best efforts to register or qualify on a timely
basis the Registrable Securities covered by any registration
statement filed hereunder under such other securities or blue sky or
other applicable laws of such jurisdictions within the United States
as the Holder shall reasonably request to enable the Holder to
consummate the public sale or other disposition in such
jurisdictions of Registrable Securities;
(vi) cooperate with the Holder to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and
enable such Registrable Securities to be in such amounts and
registered in such names as the Holder may reasonably request at
least two business days prior to the closing of any sale of
Registrable Securities;
(vii) upon the occurrence of any event contemplated by clause
(E) of paragraph (ii) of this Section 4, notify the Holder to
suspend use of any applicable prospectus as promptly as practicable
after the occurrence of such an event;
(viii) within a reasonable time prior to the filing of any
registration statement to be filed hereunder, prospectus to be
included therein, or amendment or supplement to either of the
foregoing, provide copies of such document to the Holder and its
counsel, and make such of the representatives of the Company as
shall be reasonably requested by the Holder or its counsel available
for discussion of such document, and shall not at any time file or
make any amendment or supplement to any such document of which the
Holder and its counsel shall not have previously been advised and
furnished a copy or in a form in which the holders of a majority of
the securities covered by such registration statement (determined on
an as-converted basis) or their counsel shall reasonably object on a
timely basis;
(ix) make available for inspection by a representative of the
Holder, any Underwriter participating in any disposition pursuant to
any registration statement filed hereunder and attorneys and
accountants designated by the Holder or any Underwriter, at
reasonable times and in a reasonable manner, all financial and other
records, pertinent documents and properties of the Company, and
cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection
with the registration statement; provided, however that
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<PAGE> 7
such representatives, Underwriters, attorneys or accountants agree
to keep confidential any records, information or documents that are
designated by the Company in writing as confidential and to use such
information obtained pursuant to this provision only in connection
with the transaction for which such information was obtained, and
not for any other purpose, unless (A) such records, information or
documents (I) are available to the public, (II) were already in such
representatives', Underwriters', attorneys' or accountants'
possession prior to their receipt from the Company and they do not
otherwise have any obligation to keep such records, information or
documents confidential or (III) are obtained by such
representatives, Underwriters, attorneys or accountants from a third
person who, insofar as is known to such representatives,
Underwriters, attorneys or accountants, is not prohibited from
transmitting the information to such representatives, Underwriters,
attorneys or accountants by a contractual, legal or fiduciary
obligation to the Company or a third party, or (B) disclosure of
such records, information or documents is required by court or
administrative order after the exhaustion of appeals therefrom;
(x) use its best efforts to cause all Registrable Securities
to be listed or traded on any securities exchange or any automated
quotation system on which similar securities issued by the Company
are then listed or traded, to the extent such Registrable Securities
satisfy applicable listing or trading requirements; provided, that,
for purposes of this clause (x), the Warrants shall not be deemed to
be similar to the Common Stock.
(xi) enter into such customary agreements and take all such
other reasonable actions in connection therewith in order to
expedite or facilitate the disposition of Registrable Securities
(including, but not limited to, pursuant to an underwritten
offering), and in such connection, (A) to the extent possible, make
such representations and warranties to the Holder and any
Underwriters of Registrable Securities with respect to the business
of the Company and its subsidiaries and its or its subsidiaries'
joint ventures, the applicable registration statement, prospectus
and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are
customarily made by issuers to Underwriters in underwritten
offerings, and confirm the same if and when requested, (B) obtain
opinions of counsel to the Company (which counsel and opinions, in
form, scope and substance, shall be reasonably satisfactory to the
Holder and any Underwriters and their respective counsel) addressed
to the Holder and any Underwriter, covering the matters customarily
covered in opinions requested in underwritten offerings, (C) obtain
"cold comfort" letters from the independent certified public
accountants of the Company (and, if necessary, any other certified
public accountant of any subsidiary of the Company or any joint
venture in which the Company or any of its subsidiaries is a
partner, or of any business acquired by the Company for which
financial statements and financial data are or are required to be
included in the applicable registration statement) addressed to the
Holder and any Underwriter, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings, and (D) deliver
such documents and certificates as may be reasonably requested by
the Holder or any Underwriter, and which are customarily delivered
in underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to
clause (A) above and to evidence compliance with any customary
conditions contained in any underwriting agreement.
(xii) take, or refrain from taking, such other actions, and
execute and
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<PAGE> 8
deliver such other documents, as may reasonably be requested by the
Holder or any Underwriter.
5. EXPENSES OF REGISTRATION
All expenses incurred in effecting any registration pursuant to this
Registration Rights Agreement (collectively, "Registration Expenses"),
including, without limitation, all registration and filing fees, listing fees,
printing expenses, expenses of compliance with blue sky laws, fees and
disbursements of counsel for the Company and expenses of any audits incidental
to or required by any such registration, shall be borne by the Company;
provided, that, in the case of all registrations, the Holder shall pay the fees
and disbursements of its own counsel and underwriting discounts and commissions
in connection with an underwritten offering.
6. INDEMNIFICATION
(a) The Company hereby indemnifies and holds harmless the Holder and
each officer, director and controlling person of the Holder against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document incident
to any registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act or any state securities
law applicable to the Company and relating to any action required of or inaction
by the Company in connection with any such registration, qualification or
compliance, and will reimburse the Holder and each such officer, director and
controlling person for any legal and any other expenses incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action; provided, however, that the Company will not be liable to the Holder in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company in an instrument duly executed by the
Holder and stated to be specifically for use in the document containing such
untrue statement of a material fact or omitting to state the material fact
required to be stated therein.
(b) Each party entitled to indemnification hereunder (each an
"indemnified party") shall give notice to the Company promptly after such
indemnified party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Company (at its expense) to assume the defense of
any claim or any litigation resulting therefrom, provided that counsel for the
Company who shall conduct the defense of such claim or litigation shall be
reasonably satisfactory to the indemnified party. The indemnified party may
participate in such defense, but only at such indemnified party's expense. The
omission by any indemnified party to give notice as provided herein shall not
relieve the Company of its obligations under this paragraph (b) of Section 6
except to the extent that the omission results in a failure of actual notice to
the Company and the Company is damaged solely as a result of the failure to give
notice. The Company shall not, in the defense of any such claim or litigation,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability with respect to such claim or litigation.
(c) The reimbursement required by this Section 6 shall be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(d) To the extent any indemnification by the Company is prohibited
or limited
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<PAGE> 9
by law, the Company agrees to make the maximum contribution permitted by
applicable law with respect to any amounts for which it would otherwise be
liable under paragraph (a) of this Section 6.
(e) The Company will enter into indemnification and contribution
arrangements with the Holder, any other participating securityholders and the
Underwriters that are usual and customary and/or reasonable under the
circumstances in connection with any underwritten offering to be effected
pursuant to Section 3; provided, that, nothing contained herein shall require
the Company to indemnify any Underwriter in connection with any statement
expressly provided for inclusion in any registration statement by such
Underwriter.
7. RIGHTS OF OTHER SECURITYHOLDERS
(a) The Company may not, without the prior written consent of the
holders of a majority of the participating Registrable Securities (determined on
an as-converted basis), permit present or subsequent investors in the Company
(other than transferees of Registrable Securities) to participate in any
registrations initiated pursuant to Sections 2.1 or 2.2 or underwritten
offerings requested pursuant to Section 3; provided, however, that, nothing
contained herein shall be interpreted so as to prohibit the Company from
entering into and performing its obligations under Section 3, under the Warrant
Certificates or under any of the registration rights agreements listed on
Schedule 5.8(a).
(b) To the extent that an underwritten offering is requested
pursuant to a Warrant Certificate, the Holder shall be given the opportunity to
elect to participate in such underwritten offering on the terms and subject to
the conditions set forth in the Warrant Certificate. The Company shall not amend
any of such terms in any Warrant Certificate in a manner adverse to the Holder
without the prior written consent of the holders of a majority of the
Registrable Securities (determined on an as-converted basis).
(c) The Company represents and warrants that it has not entered
into, and covenants that, on and after the date hereof it will not enter into,
any agreement that is inconsistent with or that may prejudice the rights granted
to the Holder in this Registration Rights Agreement or that otherwise conflicts
with the provisions hereof. The rights granted to the Holder hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities, other than
with respect to those agreements set forth in Schedule 5.8(a) to the Warrant
Certificate, copies of which the Holder has received.
8. RULE 144 COMPLIANCE
(a) At all times and from time to time, the Company shall undertake
to make publicly available and available to the Holder, pursuant to Rule 144 of
the Commission under the Securities Act, such information as is necessary to
enable the Holder to make sales of Registrable Securities pursuant to that Rule.
The Company shall furnish to the Holder, upon request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirements of Rule 144. Notwithstanding the foregoing, the
Company shall have no further obligations under this paragraph (a) of Section 8
at such time as all then outstanding Registrable Securities may be sold pursuant
to paragraph (k) of Rule 144, as determined by, and set forth in an opinion of,
counsel to the Company who is reasonably acceptable to the Holder. The Holder
shall notify the Company promptly after it ceases to hold any Registrable
Securities.
(b) If the Holder desires to effect a Transfer of Registrable
Securities without registration under the Securities Act, and if at such time
such Transfer cannot be effected pursuant to Rule 144, then the Company, at the
Holder's request and at the Company's expense, shall provide the Holder with all
such information regarding the Company as would be required in order
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to enable the Holder to comply with the exemption from registration provided by
Section 4(l) of the Securities Act (or any successor provision) or any other
applicable exemption from registration.
9. TRANSFER RESTRICTIONS ON RESTRICTED SHARES
9.1. Restrictions on Transfer Generally. The Restricted Shares
shall not be transferable except upon satisfaction of the conditions specified
in this Section 9.1. Such conditions are intended to insure compliance with the
provisions of the Securities Act in respect of the Transfer of the Restricted
Shares. The Holder agrees that it will not Transfer the Restricted Shares prior
to delivery to the Company of the opinion of counsel referred to in, and to the
effect described in, Section 9.2, or until registration under the Securities Act
of the Restricted Shares has become effective. Compliance with the foregoing
provisions shall not be required for any Transfer of Restricted Shares by the
Holder to the Company. The right of the Holder to transfer any Restricted Shares
shall be expressly limited to the extent that the subsequent Holder (together
with its affiliates or other persons or entities controlled by or under common
control with such subsequent Holder) will own in the aggregate more than 5% of
the then issued and outstanding shares of Common Stock (a "Controlling
Interest"), unless the subsequent Holder's ownership of such a Controlling
Interest has been approved by the West Virginia Lottery Commission or such
approval shall no longer be required under applicable law. The Company shall use
its best efforts to obtain, or help obtain, as applicable, any such approval.
9.2. Opinion of Counsel. Subject to Section 9.4, so long as
the certificate for the Restricted Shares bears the legend required by Section
9.3, the Holder agrees that, prior to any Transfer or attempted Transfer of
Restricted Shares evidenced by such certificate, it shall give written notice to
the Company of its intention to effect such Transfer. Any such notice shall
describe the manner and timing of the proposed Transfer in reasonable detail.
Such notice shall be accompanied by an opinion of counsel for the Holder, in
form and substance reasonably satisfactory to the Company, stating that the
proposed Transfer may be effected without registration of the securities to be
transferred under the Securities Act, following receipt of which the Company
shall promptly, at such time as shall be requested by the Holder, give effect to
such Transfer in accordance with the terms of the notice delivered by the Holder
to the Company. Each certificate evidencing Restricted Shares issued to a
transferee in such Transfer shall bear the legend set forth in Section 9.3 if
required by such Section , unless, in the opinion of counsel for the Company,
such legend is not required or appropriate in order to insure compliance with
the Securities Act. Notwithstanding anything to the contrary in this Section
9.2, if in the reasonable opinion of counsel for the Company, the proposed
Transfer may not be effected without registration under the Securities Act, the
Company shall promptly (and, in any case, within two business days after
receiving the notice of proposed Transfer from the Holder) so notify the Holder
and the Holder shall not consummate such Transfer until the required
registration under the Securities Act has become effective, except in another
transaction exempt from the registration requirements of the Securities Act.
9.3. Legends.
(a) Each certificate for Restricted Shares, including any such
certificate issued to a subsequent transferee, shall (unless otherwise permitted
by Section 9.2 or unless the Restricted Shares to be evidenced by such
certificate shall have been issued or transferred pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144 or any
successor rule) be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND THE TRANSFER OF SAID
SECURITIES IS SUBJECT TO THE
-10-
<PAGE> 11
RESTRICTIONS SET FORTH IN SECTION 9 OF THE REGISTRATION RIGHTS
AGREEMENT, DATED AS OF JULY [ ], 1996, BETWEEN WINNERS
ENTERTAINMENT, INC. AND MADELEINE L.L.C., A COPY OF WHICH HAS BEEN
DELIVERED TO THE REGISTERED HOLDER OF THE SECURITIES REPRESENTED
HEREBY AND WHICH IS AVAILABLE FOR INSPECTION AT THE HEAD OFFICE OF
WINNERS ENTERTAINMENT, INC. NO TRANSFER OF SAID SECURITIES SHALL BE
VALID OR EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS OF
SECTION 9 OF THE REGISTRATION RIGHTS AGREEMENT SHALL HAVE BEEN
COMPLIED WITH."
(b) The provisions of Sections 9.1 and 9.2 and this
Section 9.3. shall be binding upon all subsequent Holders.
9.4. Exchange of Certificates. At such time as shall
reasonably be requested by the Holder, subject to applicable law, the Company
will deliver to the Holder, upon delivery to the Company of a certificate or
certificates representing Restricted Shares bearing the legend set forth in
Section 9.3, a new certificate or certificates representing such Restricted
Shares but not bearing such legend.
10. MISCELLANEOUS
10.1 Exchange Act and Other Filings. The Company will give
notice to the Holder within ten days after the Company shall have filed with the
Commission an application to register any securities of the Company pursuant to
the Exchange Act. The Company will review its stock ledgers, stock transfer
books and other corporate records periodically (and not less than once in each
calendar quarter) in order to determine whether the Holder is or shall have
become, directly or indirectly, the owner of record of more than such percentage
of any class of the Company's equity securities (as defined in the Exchange Act)
as shall cause such Holder to be required to make any filing or declarations to
the Company, the Commission or any securities exchange or inter-dealer quotation
system pursuant to the provisions of the Exchange Act or the rules and
regulations of any such securities exchange or inter-dealer quotation system.
The Company will give prompt notice to the Holder whenever it shall have so
determined, but in any event not less than quarterly, and such notice shall also
specify the information upon which the Company bases such determination;
provided, that, the Company shall be required to give such notice only once in
each fiscal year to the Holder if its percentage of ownership of record of the
Company's equity securities has not changed since the date that the last such
notice was given. Nothing contained in this paragraph shall be construed so as
to qualify or limit any reporting obligation of the Holder under the Exchange
Act.
10.2. Amendment And Waiver. Except as otherwise provided
herein, the provisions of this Registration Rights Agreement may be amended and
the Company may take action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the prior
written consent of the holders of a majority of the Registrable Securities
(determined on an as-converted basis), or, in the case of any amendment to, or
action prohibited or required under Section 9.1, 9.2 or 9.3, the holders of a
majority of the Restricted Shares; provided, that, changes that are detrimental
to the Holder in the indemnification and contribution provisions set forth in
Section 6 shall not be made as to the Holder without the consent of the Holder.
10.3. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first-class postage prepaid or when delivered
by courier:
-11-
<PAGE> 12
(i) if to Madeleine, at 950 Third Avenue, New York, New York 10022,
or at such other address as may have been furnished to the Company in
writing by the Holder; and
(ii) if to the Company, at Route 2 South, Chester, West Virginia
26034, Attention: President, or at such other address as may have been
furnished to the Holder in writing by the Company, with a copy to Robert
L. Ruben, Esq., Freer & McGerry, 1000 Thomas Jefferson Street, N.W., Suite
600, Washington, D.C. 20007.
10.4. Headings. The headings of the Sections and subsections
of this Registration Rights Agreement are inserted for convenience only and
shall be deemed not to constitute a part of this Registration Rights Agreement.
10.5. Governing Law; Consent To Jurisdiction. This
Registration Rights Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to the principles of
conflicts of laws of such State. If any action or proceeding shall be brought by
the Holder in order to enforce any right or obligation in respect of this
Registration Rights Agreement, the Company hereby consents and will submit to
the jurisdiction of any state or federal court of competent jurisdiction sitting
within the area comprising the Southern District of New York, and agrees that
venue will be proper in any such court.
10.6. Binding Effect. The terms and provisions of this
Registration Rights Agreement shall inure to the benefit of the Holder and its
successors and permitted assigns and shall be binding upon the Company and its
successors and permitted assigns, including, without limitation, any Person
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
10.7 Calculation of Amounts and Percentages. To the extent
that any provision of this Registration Rights Agreement requires the approval
of the holders of a stated percentage or amount (to the extent constituting less
than all) of the Registrable Securities or the Restricted Shares, all of the
Registrable Securities and Restricted Shares, as the case may be, held by
Madeleine and its successors and assigns shall be included when making such
calculation.
-12-
<PAGE> 13
10.8 Representations of Initial Holder. The initial Holder
represents and warrants that it is an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D under the Securities Act and that it is
acquiring the Restricted Shares for its own account or for one or more accounts
(each of which is an "accredited investor") as to which it exercises sole
investment discretion, for investment and not with a view to resale or
distribution thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
WINNERS ENTERTAINMENT, INC.
By: /S/ Edson R. Arneault
--------------------------------------
Name: Edson R. Arneault
Title: President
1461 Glenneyre Street, Suite F
Laguna Beach, California 92651
MADELEINE LLC
By: /s/ Kevin P. Genda
--------------------------------------
Name: Kevin P. Genda
Title: Power of Attorney
950 Third Avenue, 20th Floor
New York, New York 10022
Attention: Mr. Kevin P. Genda
-13-
<PAGE> 1
EXHIBIT 10(12)
MADELEINE LLC
950 THIRD AVENUE
NEW YORK, NEW YORK 10022
July 2, 1996
Mountaineer Park, Inc.
Route 2 South
Post Office Box 358
Chester, West Virginia 26034
Attn: Mr. Ted Arneault
Re: Financing Commitment
Dear Mr. Arneault:
Mountaineer Park, Inc. ("MPI") and Winners Entertainment, Inc. ("WEI")
have requested that Madeleine LLC (the "Lender") provide financing to MPI for
the purpose of refinancing (the "Proposed Refinancing") MPI's current
indebtedness in the approximate principal amount of $10.2 million (the "Bennett
Loan") to Bennett Management & Development Corp. ("Bennett"). The Lender is
pleased to advise you that it is willing to provide MPI with a $11.1 million
loan facility (the "Financing Facility") in connection with the Proposed
Refinancing, guaranteed by WEI, substantially on the terms and conditions set
forth in the Outline of Terms and Conditions delivered to you simultaneously
herewith (the "Term Sheet"). The Lender's commitment to provide the Financing
Facility is subject in all respects to the satisfaction of the terms and
conditions contained in this commitment letter and in the Term Sheet.
MPI and WEI acknowledge that the Term Sheet is intended as an outline only
and does not purport to summarize all of the conditions, covenants,
representations, warranties and other provisions which would be contained in
definitive legal documentation for the Financing Facility. The Lender's
commitment to provide the Financing Facility is subject to the negotiation and
execution of definitive loan documents. Such definitive legal documentation
shall be in form and substance satisfactory to the Lender.
By its execution hereof and its acceptance of the commitment contained
herein, MPI and WEI agree to indemnify and hold harmless the Lender and each of
its assignees, their affiliates and their respective directors, officers,
employees and agents (each, an "Indemnified Party") from and against any and all
expenses, losses, claims, damages and liabilities arising out of, or in any
manner related to, this commitment letter, and the commitment made herein, but
excluding therefrom all expenses, losses, claims damages and liabilities which
are finally determined in a non-appealable decision of a court to have resulted
solely from the gross negligence or willful misconduct of the Indemnified Party.
MPI hereby agrees (i) to pay to the Lender a commitment fee of $110,000
payable upon the execution and delivery by MPI and WEI of this commitment
letter, which fee shall be non-refundable, and (ii) to reimburse the Lender for
all fees and expenses (including legal fees and expenses) incurred by or on
behalf of the Lender in connection with the negotiation, preparation, execution
and delivery of this commitment letter, the Term Sheet and any and all
definitive documentation relating hereto and thereto. WEI agrees to issue to the
Lender warrants to purchase 350,000 shares of common stock of WEI at $1.06 per
share upon the execution and delivery by MPI and WEI of this
<PAGE> 2
EXHIBIT 10(12)
commitment letter. The obligations MPI and WEI under this paragraph, and the
immediately preceding paragraph, shall remain effective whether or not
definitive documentation is executed and notwithstanding any termination of this
commitment letter.
The Lender's commitment to provide the Financing Facility is subject to
the satisfaction of (i) the conditions set forth in the Term Sheet and (ii) the
Lender at all times prior to and including the date on which the Proposed
Refinancing closes, that there has not occurred or become known to MPI, WEI or
the Lender any material adverse change with respect to the condition, financial
or otherwise, operations, assets or prospects of MPI or WEI determined by the
Lender in its sole discretion, to be exercised reasonably and in good faith (a
"Material Adverse Change").
MPI and WEI represent and warrant that (i) all written information and
other materials concerning the Financing Facility and the Proposed Refinancing
(the "Information") which has been, or is hereafter, prepared by, or on behalf
of, MPI and delivered to the Lender is, or when delivered will be, when
considered as a whole, complete and correct in all material respects and does
not, or will not when delivered, contain any untrue statement of material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which such
statement has been made and (ii) to the extent that any such Information
contains projections, such projections were prepared in good faith on the basis
of (a) assumptions, methods and tests stated therein which are believed by MPI
and WEI to be reasonable and (b) information believed by MPI and WEI to have
been accurate based upon the information available to MPI and WEI at the time
such projections were furnished to the Lender.
MPI and WEI agree that the Lender shall have no liability to MPI or WEI or
any of their affiliates in connection with the transactions contemplated by this
commitment letter or the Term Sheet unless and to the extent that it is finally
determined in a non-appealable decision of a court that such liability resulted
solely from the willful breach by the Lender of its obligations hereunder.
MPI and WEI agree that they will (i) consult with the Lender prior to the
making of any press release or other public announcement or any filing in which
reference is made to the Lender, the Financing Facility or the Proposed
Refinancing and (ii) obtain the prior approval (which approval shall not be
unreasonably withheld) of the Lender before any such release or filing. In
addition, the Lender shall not, without the prior written consent of MPI,
disclose the existence or contents of this commitment letter and the Term Sheet
to its accountants, attorneys and other advisors on a confidential basis in
connection with the transactions contemplated hereby or thereby or as required
by law.
The Lender represents and warrants that it has, and will have during the
term of this commitment, sufficient capital to fund the Financing Facility.
The offer made by the Lender in this commitment letter shall remain in
effect until the earlier of (a) 5:00 p.m. (New York City time) July 3, 1996 and
(b) the closing of the $5 million loan from the to MPI, at which time it will
expire unless prior thereto the Lender has received (i) a copy of this
commitment letter signed by MPI accepting such offer, (ii) the commitment fee of
$110,000 in funds immediately available, and (iii) warrants to purchase 350,000
shares of WEI common stock at $1.06 per share.
The commitment by the Lender to provide the Financing Facility shall
expire at 5:00 p.m. (New York City time) on June 30, 1997, unless on or prior to
such date,
<PAGE> 3
EXHIBIT 10(12)
definitive legal documentation shall have been agreed to in writing by all
parties thereto, all in form and substance satisfactory to the Lender.
Should the terms and conditions of the offer contained herein meet with
your approval, please indicate your acceptance by signing and returning a copy
of this letter to the Lender and paying the commitment fee as described above.
This commitment letter, together with the Term Sheet, (i) supersedes all
prior discussions, agreements, commitments, arrangements, negotiations or
understandings, whether oral or written, of the parties with respect to the
transactions contemplated hereby and thereby, (ii) shall be governed by the laws
of the State of New York, without giving effect to the conflict of laws
provisions thereof, and (iii) shall be binding upon the Lender, MPI, WEI and
their respective successors and permitted assigns. This commitment letter may be
amended, modified or waived only in a writing signed by the parties hereto.
Very truly yours,
MADELEINE, LLC
By: /s/ Kevin Genda
----------------------------------------
Name: Kevin Genda
Title: Power of Attorney
Agreed and accepted on this
4th day of July, 1996:
MOUNTAINEER PARK, INC.
By: /s/ Edson R. Arneault
------------------------------
Name: Edson R. Arneault
Title: President
WINNERS ENTERTAINMENT, INC.
By: /s/ Edson R. Arneault
------------------------------
Name: Edson R. Arneault
Title: President
<PAGE> 1
EXHIBIT 10(13)
AGREEMENT
AGREEMENT made this 10th day of May, 1996, by and between Winners
Entertainment, Inc., a Delaware corporation formerly known as Excalibur Holding
Corporation ("Winners"), and Darelynn Lehto, a resident of Minnesota ("Lehto"):
WHEREAS, Winners and Lehto are parties to an Agreement and Plan of
Exchange dated August 31, 1992 (the "Exchange Agreement"), which became
effective on October 13, 1992, pursuant to which all the outstanding shares of
common stock of Golden Palace Casinos, Inc., a Minnesota corporation ("Golden
Palace") were exchanged for stock of Winners; and
WHEREAS, Lehto has received 209,000 shares of Winners' common stock in
exchange for her 209,000 shares of Golden Palace common stock, which shares are
represented by two certificates -- one (EC 1295) for 52,250 shares and one (EC
1305) for 156,750 shares; and
WHEREAS, Section 4.4(b) of the Exchange Agreement provides in part that:
(b) [Winners] shall, within 30 days of the Closing date, file with the
SEC a registration statement in appropriate form covering 25% of the
[Winners] stock received by each GPC securities holder...; and
WHEREAS, Winners included 52,500 (which number should have been 52,250) of
Lehto's shares in a registration statement under the Securities Act of 1933
(registration no. 33-54556 the "Registration Statement") filed on Form S-1 for
the purpose of registering 25% of the shares of Winners' stock issued in
exchange for the shares of Golden Palace; and
WHEREAS, Section 4.4(c) of the Exchange Agreement defines the term
"Founder" to include Lehto and certain other named individuals and Section
4.4(c)(i)[3] provides that:
[3] in connection with any underwritten public offering of [Winners]
securities (other than the ExCal 1992 Convertible Oil & Gas Program)
register for offer and sale 52,500 shares of [Winners] common stock for
each Founder which shares shall be either:
[a] purchased by the underwriter for the purchase price of at least
$6.00 per share (if the underwritten purchase price is less
than $6.00 per share, [Winners] shall pay the difference
between the underwritten purchase price and $6.00 per share),
or
[b] in the event that the prospective underwritten public offering
of [Winners] securities is not closed on or before February 1,
1993, at each Founder's sole option and request, [Winners]
shall purchase said 52,500 shares of [Winners] from such
requesting Founder for the purchase price of $6.00 per share.
WHEREAS, Section 4.4(c)(i)[2] of the Exchange Agreement granted Lehto
options, exercisable in increments of 10,000 per year, to purchase 50,000
restricted shares of Winners' common stock for $.01 per share, which shares were
not accorded any registration rights (the "Options"); and
<PAGE> 2
WHEREAS, the Registration Statement has not yet become effective, but
Lehto is now able to sell her shares in broker's transactions, subject to
compliance with SEC Rule 144; and
WHEREAS, Lehto has requested pursuant to Section 4.4(c)(i)[3][b] of the
Exchange Agreement that Winners purchase 52,500 shares from her at $6.00 per
share; and
WHEREAS, by letter from her counsel dated September 26, 1994, Lehto
notified Winners that she intended to sell her shares in the market in order to
mitigate her damages and to hold Winners responsible, as to 52,500 shares (the
"Put Shares"), for the difference between the $6.00 per share put price and the
price for which such shares are sold; and
WHEREAS, Lehto has in fact sold the Put Shares pursuant to SEC Rule 144
resulting in net proceeds to Lehto of $250,435.06 less than the proceeds she
would have received from sale at the put price; and
WHEREAS, Lehto, on January 11, 1996, filed Civil Action No. 4-96-49
against Winners in the U.S. District Court for the District of Minnesota
seeking, among other things, an award of compensatory, consequential, and
incidental damages, as well as interest and attorneys' fees under the Exchange
Agreement (the "Litigation"); and
WHEREAS, Winners and Lehto wish to resolve their dispute amicably pursuant
to the terms of this Settlement Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
Winners and Lehto agree as follows:
1. ACKNOWLEDGEMENT OF MUTUAL MISTAKE. Winners and Lehto acknowledge that
the number 52,500 with respect to the shares referred to in Section 4.4
(c)(i)[3] in the Exchange Agreement and included in the Registration Statement
appeared as a product of mutual mistake, and such number should have been
52,250.
2. PAYMENT. In consideration for Lehto's agreements hereunder, Winners
agrees to pay Lehto the sum of $250,435 as follows:
a. $25,000 upon execution of this Settlement Agreement;
b. $5,000 on August 1, 1996
c. $5,000 on November 1, 1996
d. $5,000 on February 1, 1997
e. $50,087 on May 1, 1997
f. $40,087 on May 1, 1998
g. $40,087 on May 1, 1999
h. $40,087 on May 1, 2000
i. $40,087 on May 1, 2001
<PAGE> 3
The payments due pursuant to (b) through (i) above will be evidenced by Winners'
promissory note in the form attached hereto as Exhibit A.
3. DISMISSAL OF THE LITIGATION.
Upon execution of this Settlement Agreement, the delivery of the $25,000
payment set forth in Section 2 above, and delivery of the promissory note, Lehto
will promptly dismiss the Litigation with prejudice.
4. CANCELLATION OF OPTIONS.
Upon execution of this Settlement Agreement, delivery of the $25,000
payment set forth in Section 2 above, and delivery of the promissory note, Lehto
hereby agrees that the Options shall be deemed cancelled and that she will have
no further rights under Section 4.4(c)(i)[2] of the Exchange Agreement.
5. ACKNOWLEDGEMENT CONCERNING REGISTRATION RIGHTS. Lehto hereby
acknowledges that the registration rights set forth in Section 4.4(b) of the
Exchange Agreement and the provisions of Section 4.4(c)(i)[3] are not cumulative
and that she was not entitled to the registration of more than 25% of her
Winners shares in any event. Further, Lehto acknowledges that, except as set
forth in this Agreement, she has no right to the registration of any shares of
Winners' stock that she may own.
6. FURTHER DOCUMENTS. Winners and Lehto agree to execute such further
documents as may be necessary from time to time to give effect to the
purposes of this Agreement.
7. CONFLICT. To the extent this Agreement is in conflict with the terms
of the Exchange Agreement, the terms of this Agreement shall control with
respect to the rights of Lehto.
8. THIRD PARTY BENEFICIARIES. Winners and Lehto do not intend for the
terms of this Agreement to be enforceable by any third parties, other than
the assignees or successors, if any, of the signatories hereto. This
Agreement shall be binding on the parties, their heirs, successors, and
assigns.
9. CHOICE OF LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Minnesota. The federal and
state district courts in Hennepin and Ramsey counties of Minnesota shall have
exclusive jurisdiction over disputes concerning this Agreement.
10. RELEASES. Upon execution of this Settlement Agreement, delivery of the
$25,000 payment set forth in Section 2 above, and delivery of the promissory
note, except for those obligations expressly provided for in this Settlement
Agreement and the Promissory Note (Exhibit A), Winners and Lehto hereby forever
release and discharge the other and each of the other's officers, directors,
shareholders, employees, agents, affiliates, attorneys, successors, assigns, and
heirs as the case may be of and from any and all claims, rights, duties,
obligations, debts, liabilities, damages, injuries, actions, and causes of
action of every kind and nature, foreseen and unforeseen, contingent and actual,
liquidated and unliquidated, suspected and unsuspected, disclosed and
undisclosed, including without limitation all claims which either party has or
might have arising from or related to Exchange Agreement that were brought or
could have been brought
<PAGE> 4
in the Litigation. Notwithstanding the foregoing, it is expressly agreed by the
parties that Lehto's right, if any, to indemnity or contribution arising out of
Lehto's employment by Golden Palace Casinos shall not be affected by this
release or this Settlement Agreement.
Each party acknowledges that it has been advised by experienced and
knowledgeable counsel with respect to this Settlement Agreement generally and
this release specifically.
WITNESS the hands of Lehto and Winners' duly authorized representative as
of the day and year first above written.
WINNERS ENTERTAINMENT, INC.
By: /s/ Edson R. Arneault
---------------------------------------
Edson R. Arneault, President
By: /s/ Darelyn Lehto
---------------------------------------
Darelynn Lehto
<PAGE> 1
EXHIBIT 10(14)
EXHIBIT A
PROMISSORY NOTE
$225,435 MAY 10, 1996
For value received, Winners Entertainment, Inc., a Delaware corporation
formerly known as Excalibur Holding Corporation ("Winners"), promises to pay the
order of Darelynn Lehto, a resident of Minnesota ("Lehto"), at the offices of
Faegre & Benson L.L.P., 220 Norwest Center, Minnesapolis, Minnesota, or at such
other place as the holder hereof and then hereafter from time to time designates
in writing, in lawful money of the United States of America, the principal sum
of Two-Hundred and Twenty-Five Thousand Four Hundred and Thirty-Five Dollars
($225,435) (the "Principal Balance") according to the following installment
schedule:
Date Installment Due Amount of Installment
August 1, 1996 $5,000.00
November 1, 1996 $5,000.00
February 1, 1997 $5,000.00
May 1, 1997 $50,087.00
May 1, 1998 $40,087.00
May 1, 1999 $40,087.00
May 1, 2000 $40,087.00
May 1, 2001 $40,087.00
Each payment under the above schedule shall be by check payable to
Darelynn Lehto at Faegre & Benson L.L.P. No interest shall be due and payable on
the principal balance of this Note if the payments of the principal balance of
this Note are paid when due; provided, however, that if any payment on the
principal balance of this Note is not paid when due, then interest shall be due
and payable on the Principal Balance at the rate of 8% per annum from and after
the date such payment was due until the date such late payment, together with
any accrued interest, has been paid in full. This provision shall not be deemed
to excuse late payment or be deemed a waiver of any other rights Lehto may have
upon a failure to duly and punctually pay the principal balance hereof.
Winners may prepay the principal balance of this Note in whole or in part
at any time without premium or penalty.
If any payment hereunder is not made after ten (10) days' written notice
of default given to Winners by first class mail at the address shown below (such
notice effective three days after mailing), then Lehto may, at her option, by
notice in writing to Winners, declare this Note to be immediately due and
payable whereupon the principal balance shall be immediately due and payable
without further notice or demand.
The Principal Balance shall become automatically due and payable without
notice or demand if a petition is filed by or against Winners under the United
States Bankruptcy Code.
Winners shall pay all costs of collection, including reasonable attorneys'
fees and legal expenses, if this Note is not paid when due.
<PAGE> 2
This Note shall be governed by the substantive law of Minnesota. The
federal and state district courts in Hennepin and Ramsey Counties of Minnesota
shall have exclusive jurisdiction over disputes concerning this Note.
Any provision of this Note which is prohibited or unenforceable shall be
ineffective to the extent of such a prohibition or unenforceability without
invalidating the remaining provisions hereof.
No delay or omission on the part of any holder hereof in exercising any
right or remedy hereunder shall operate as a waiver of any right or remedy under
this Note. A waiver on any one occasion shall not be construed as a waiver of
any right or remedy on any future occasion.
All makers, endorsers, sureties, guarantors, and accommodation parties
hereby waive presentment, dishonor, notice of dishonor and protest and consent
to any and all extensions, renewals, substitutions and alterations of any of the
terms of this Note and any other documents related hereto and to the release of
or failure by Lehto to exercise any rights against any party liable for or any
property securing payment thereof.
Winners Entertainment, Inc.
State Route 2 South
Post Office Box 358
Chester, West Virginia 26034
/s/ Edson R. Arneault
-----------------------------------------
By: Edson R. Arneault
Its: President
<PAGE> 1
EXHIBIT 10(15)
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT made as of April 2, 1996 by and between Winners
Entertainment, Inc., a Delaware corporation formerly known as Excalibur Holding
Corporation ("Winners"), and Dorothy van Haaften, a resident of Virginia ("van
Haaften"):
WHEREAS, Winners and van Haaften are parties to an Agreement and Plan of
Exchange dated August 31, 1992 (the "Exchange Agreement"), which became
effective on October 13, 1992, pursuant to which all the outstanding shares of
common stock of Golden Palace Casinos, Inc., a Minnesota corporation ("Golden
Palace") were exchanged for stock of Winners; and
WHEREAS, van Haaften has received 209,000 shares of Winners' common stock
in exchange for her 209,000 shares of Golden Palace common stock; and
WHEREAS, Winners included 52,500 (which number should have been 52,250) of
van Haaften's shares in a registration statement under the Securities Act of
1933 (registration no. 33-54556 the "Registration Statement") filed in Form S-1
or the purpose of registering 25% of the shares of Winners' stock issued in
exchange for the shares of Golden Palace; and
WHEREAS, Section 4.4(c) of the Exchange Agreement defines the term
"Founder" to include van Haaften and certain other named individuals and
Section 4.4(c)(i)[3] provides that:
[3] in connection with any underwritten public offering of [Winners]
securities (other than the ExCal 1992 Convertible Oil & Gas Program)
register for offer and sale 52,500 shares of [Winners] shall pay the
difference between the underwritten purchase price and $6.00 per
share), or
[a] purchased by the underwriter for the purchase price of at
least $6.00 per share (if the underwritten purchase price is
less than $6.00 per share, [Winners] shall pay the difference
between the underwritten purchase price and $6.00 per share),
or
[b] in the event that the prospective underwritten public
offering of [Winners] securities is not closed on or before
February 1, 1993, at each Founder's sole option and request,
[Winners] shall purchase said 52,500 shares of [Winners] from
such requesting Founder for the purchase price of $6.00 per
share.
WHEREAS, Section 4.4(b) of the Exchange Agreement provides in part that:
[b] [Winners] shall, within 30 days of the Closing date,
file with the SEC a registration statement in appropriate
form covering 25% of the [Winners] stock received by each
GPC securities holder . . .; and
WHEREAS, Section 4.4(c)(i)[2] ;of the Exchange Agreement granted van
Haaften options, exercisable in increments of 10,000 per year, to purchase
50,000
<PAGE> 2
restricted shares of Winners' common stock for $.01 per share, which shares were
not accorded any registration rights; and
WHEREAS, the Registration Statement was not effective on or before
February 1, 1993; and
WHEREAS, van Haaften and Winners entered a Loan Agreement dated March 4,
1993 pursuant to which (i) van Haaften agreed to forbear from requesting that
Winners repurchase her shares until after the effective date of the Registration
Statement; and (ii) Winners agreed to lend and did lend van Haaften the sum of
$10,000.00 without interest and without recourse except for a pledge of 1,666
shares of van Haaften's Winners stock; and
WHEREAS, the parties wish to modify their prior agreements with respect to
the repurchase of shares such that the $6 price guarantee is replaced by the
issuance of additional shares of Winners' stock.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
Winners and van Haaften agree as follows:
1. ACKNOWLEDGMENT OF MUTUAL MISTAKE. Winners and van Haaften acknowledge
that the number 52,500 with respect to the shares referred to in Section
4.4(c)(i)[3] in the Exchange Agreement and included in the Registration
Statement appeared as a product of mutual mistake, and such number should have
been 52,250.
2. AGREEMENT TO FORBEAR. van Haaften hereby confirms that she shall
forbear from asserting any alleged rights under the Exchange Agreement with
respect to the repurchase of shares by Winners pending performance of this
Settlement Agreement. Upon either (i) issuance and registration of the Make-Up
Shares (as defined below) and issuance of any required Additional Shares; or
(ii) the execution, delivery and full payment of the promissory note referred to
in Section 6 of this Agreement if required), Section 4.4(b) and 4.4(c)(i)[3],
which provided for the registration of certain of van Haaften's shares of
Winners stock and the repurchase of such shares at a price of $6 per share shall
be deemed deleted from the Exchange Agreement and shall be of no further force
or effect with respect to van Haaften.
3. ISSUANCE OF WINNERS COMMON STOCK; REPAYMENT OF LOAN; RELEASE OF Lien.
Upon execution and delivery of this Settlement Agreement, in consideration of
van Haaften's entering this Agreement, Winners will cause its transfer agent to
issue van Haaften 150,083 shares of Winners common stock (the "Make-Up Shares").
Upon issuance, the Make-Up Shares shall be validly issued, fully paid, and
non-assessable. The certificate(s) representing the Make-Up Shares shall bear
the following restrictive legends:
1. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT
OR WINNERS ENTERTAINMENT, INC. RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO WINNERS
ENTERTAINMENT, INC. STATING
<PAGE> 3
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
2. PURSUANT TO A SETTLEMENT AGREEMENT ENTERED BY THE ISSUER AND DOROTHY
van HAAFTEN, A COPY OF WHICH IS ON FILE WITH THE ISSUER, THE ISSUER MAY
REPURCHASE THESE SECURITIES AT A PRICE OF $1.50 PER SHARE AND THE
HOLDER OF THESE SECURITIES MAY BE ENTITLED TO THE ISSUANCE OF
ADDITIONAL SHARES.
As soon as the Make-Up Shares are registered as set forth in Section 5 below, or
the federal securities laws otherwise permit the removal of the first
restrictive legend, Winners will promptly direct its transfer agent to remove
such legend. Further, if the right of repurchase is extinguished as set forth
herein, Winners will promptly direct its transfer agent to remove the second
legend.
Further, upon execution and delivery of this Settlement Agreement, Winners
shall deem the loan made pursuant to the Loan Agreement to have been paid in
full and satisfied and shall return the securities pledged thereby to van
Haaften.
4. INVESTMENT REPRESENTATION.
(a) ACCESS TO INFORMATION. van Haaften represents and warrants that she
has had access to all information available to Winners concerning its condition,
financial and otherwise, its management, its business and its prospects. van
Haaften represents that she has received a copy of the Company's Annual Report
on Form 10-k for the fiscal years ended 1993 and 1994 and Form 10-Q for the
Quarters ended March 31, 1995, June 30, 1995, and September 30, 1995 (the
"Disclosure Documents"). van Haaften represents that she has read the Disclosure
Documents and has reviewed all available information with her legal, financial
and investment advisors to the extent that she deemed such review necessary or
appropriate. van Haaften acknowledges that she is aware that because of Winners'
financial position and other factors, the acquisition of the common stock
involves a high degree of risk.
(b) RESTRICTED SECURITIES. van Haaften understands and acknowledges
that, until registered, the shares of common stock to be issued under this
Settlement Agreement are restricted securities and are being acquired by van
Haaften for her own account and not on behalf of any other person and are being
acquired for investment purposes and not for distribution. van Haaften
represents that an investment in the common stock is a suitable investment for
her, taking into consideration the restrictions on transferability affecting the
common stock. The company is the only person which may register the common stock
for public sale under the Securities Act of 1933 (the "Act") and state
securities laws. van Haaften agrees that she will not transfer or sell the
common stock without registration under the Act and any applicable state
securities laws unless exemptions from such registration requirements are
available.
(c) EXEMPT TRANSACTIONS. In the event van Haaften sells any of the
Make-Up Shares prior to the effective date of the registration statement in a
transaction exempt from the Act's registration requirements, then Winners shall
receive a credit against the Note (if such Note is required to be executed and
delivered pursuant to Section 6 below) in an amount equal to the actual purchase
price of such shares, up to $1.50 per share multiplied by the number of shares
sold.
<PAGE> 4
5. REGISTRATION OF SHARES. Winners will use its best efforts to cause a
registration statement to become effective with the Securities and Exchange
Commission by June 30, 1996 (the "Registration Statement"). Such Registration
Statement shall include the Make-Up Shares, provided such inclusion is not
prohibited by applicable law. If such registration statement is withdrawn prior
to its effective date, then Winners will include such shares in its next
registration statement. Winners' failure to register any shares required to be
registered by this Settlement Agreement shall not constitute a breach of this
Settlement Agreement so long as Winners shall not have registered shares after
the date of this Agreement for any other selling shareholder in a registration
that legally could have included van Haaften as a selling shareholder.
6. EXECUTION OF PROMISSORY NOTE. If the Registration Statement does not
become effective by June 30, 1996, for whatever reason, then Winners shall
execute and deliver to van Haaften a promissory note in the form attached hereto
as Exhibit A (the "Note").
7. ISSUANCE OF ADDITIONAL SHARES. If the average closing market price of
Winners' common stock for the ninety (90) trading days immediately following the
effective date of the Registration Statement is less than $1.50 per share, then
Winners shall issue van Haaften that number of additional shares required to
satisfy the difference between $1.50 per share and such average market price
(the "Additional Shares").
8. ACKNOWLEDGMENT CONCERNING REGISTRATION RIGHTS. van Haaften hereby
acknowledges that the registration rights set forth in Section 4.4(b) of the
Exchange Agreement and the provisions of Section 4.4(c)(i)[3] are not cumulative
and that she was not entitled to the registration of more than 25% of her
Winners shares in any event. Further, van Haaften acknowledges that, except as
set forth in this Agreement, she has no right to the registration of either any
shares that she currently owns or could purchase through the exercise of options
granted in the Exchange Agreement.
9. REMAINING SHARES UNAFFECTED. Nothing in this Agreement shall affect van
Haaften's ability to buy or sell shares of Winners stock, including but not
limited to van Haaften's right to exercise options to purchase 50,000 additional
shares of Winners common stock pursuant to the Exchange Agreement.
10. RIGHT OF REPURCHASE. After the execution and delivery of the Note,
Winners shall have the right to repurchase the Make-Up Shares at a price of
$1.50 per share. van Haaften shall transfer and deliver the repurchased shares
to Winners in a manner reasonably acceptable to Winners' counsel and transfer
agent. Additionally, the amount then due on the Note shall be reduced by the
repurchase proceeds. Notwithstanding the foregoing, at any time, van Haaften
may, at her election, by delivering written notice to Winners, extinguish the
right of repurchase, as to any or all of the Make-Up Shares. In such event,
Winners will receive a credit against the Note in an amount equal to $1.50
multiplied by the number of shares as to which the right of repurchase has been
extinguished.
11. MUTUAL RELEASES. Upon either (i) registration of the Make-Up Shares or
(ii) execution and delivery of the Note, except for those obligations expressly
provided for in this Settlement Agreement, Winners and van Haaften hereby
forever release and discharge the other and each of the other's officers,
directors, shareholders, employees, agents, affiliates, attorneys, successors,
and assigns of and from any and all claims, rights, duties, obligations, debts,
liabilities, damages, injuries, actions, and causes of action of every kind and
nature, foreseen and unforeseen, contingent and actual, liquidated and
unliquidated, suspected and unsuspected, disclosed and undisclosed, including
without
<PAGE> 5
limitation all claims which either party has or might have arising from or
related to the Exchange Agreement. Notwithstanding the foregoing, it is
expressly agreed by the parties that van Haaften's right, if any, to indemnity
or contribution arising out of van Haaften's employment by Golden Palace Casinos
shall not be affected by this release or this Settlement Agreement.
Each party acknowledges that it has been advised by experienced and
knowledgeable counsel with respect to this Settlement Agreement generally and
this release specifically.
12. FURTHER DOCUMENTS. Winners and van Haaften agree to execute such
further documents as may be necessary from time to time to give effect to the
purposes of this Settlement Agreement.
13. CONFLICT. To the extent this Agreement is in conflict with the
terms of the Exchange Agreement, the terms of this Agreement shall control
with respect to the rights of van Haaften.
14. THIRD PARTY BENEFICIARIES. Winners and van Haaften do not intend
for the terms of this Settlement Agreement to be enforceable by any third
parties, other than the assignees or successors, if any, of the signatories
hereto. This Agreement shall be binding on the parties, their heirs,
successors, and assigns.
15. CHOICE OF LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws off the State of Minnesota.
16. MERGER AND INTEGRATION. This Settlement Agreement, together with the
Note, if required to be executed hereunder, constitutes a single, integrated
written contract expressing the entire agreement of the parties hereto with
respect to the subject matter hereof. No covenants, agreements, representations
or warranties of any kind have been made by any party hereto, All prior claims,
discussions and negotiations have been and are merged and integrated into, and
are superseded by this Settlement Agreement and the Registration Statement
Agreement.
17. NOTICES. Any notice permitted or required by this Settlement Agreement
shall be by Certified U.S. Mail and shall be deemed received as of the date on
which such notice is delivered by the U.S. Postal Service. Notice to the Company
shall be addressed as follows:
Edson R. Arneault, President
Mountaineer Park, Inc.
P.O. Box 358
Chester, West Virginia 26034
with a copy to:
Robert L. Ruben, Esq.
Freer & McGarry, P.C.
1000 Thomas Jefferson Street, N.W.
6th Floor
Washington, D.C. 20007
Notice to van Haaften shall be addressed as follows:
<PAGE> 6
Ms. Dorothy van Haaften
158 South Main Street
P.O. Box 887
Chatham, Virginia 24531
with a copy to:
Cortney S. LeNeave, Esq.
Hunegs, Stone, Koenig & LeNeave
1650 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402
18. ATTORNEY'S FEES. In any action concerning the performance or
enforcement of the terms of this Settlement Agreement, the prevailing party
shall be entitled to an award of costs and reasonable attorney's fees.
WITNESS the hands of van Haaften and Winners' duly authorized
representative as of the day and year first above written.
WINNERS ENTERTAINMENT, INC.
By: /s/ Edson R. Arneault
-----------------------------------------
Edson R. Arneault, President
By: /s/ Dorothy van Haaften
-----------------------------------------
Dorothy van Haaften
<PAGE> 1
EXHIBIT 10(16)
AMENDMENT OF SETTLEMENT AGREEMENT
This is an AMENDMENT of a Settlement Agreement entered as of April 2, 1996
(the "Settlement Agreement") by and between Winners Entertainment, Inc.
("Winners") and Dorothy van Haaften:
In consideration of the mutual promises, undertakings, deliveries, and
payment set forth below, the parties hereby amend the Settlement Agreement as
follows:
1. Winners shall deliver to van Haaften a check in the amount of
$10,000.00 upon execution of this Agreement.
2. van Haaften agrees that the number of Make Up Shares to be delivered to
her shall in connection with the Settlement Agreement shall be 133,416 instead
of the 150,083 originally set forth in the Settlement Agreement.
3. van Haaften agrees that the Promissory Note that is Exhibit A to the
Settlement Agreement shall be replaced by the Promissory Note attached as
Exhibit A to this Amendment.
4. This Amendment is expressly conditioned upon van Haaften's receipt of
the this Amendment executed by Winners together with the check for $10,000.00 on
or before June 30, 1996. If such condition is not fulfilled, this Amendment
shall be deemed void ab initio. 18th day of June, 1996.
WINNERS ENTERTAINMENT, INC.
/s/ Dorothy vna Haaften By: /s/ Edson R. Arneault
- ----------------------- ---------------------------------
Dorothy van Haaften Edson R. Arneault, President
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