AGREEMENT TO CONVERT DEBT
THIS AGREEMENT to Convert Debt ("Agreement") is made and
entered into this 31st day of March, 1998, by and between GLOBAL
CASINOS, INC., a Utah corporation ("Global" or the "Company"), and
▇▇▇▇ ▇▇▇▇▇▇▇ (Claimant").
WITNESSETH:
WHEREAS, Claimant is the holder of a certain Convertible
Promissory Note dated August 1, 1997, in the original principal
amount of Four Million Dollars ($4,000,000) (the "First Note") made
and given by Global Alaska Industries, Inc., an Alaska corporation
and wholly-owned subsidiary of the Company ("GAI");
WHEREAS, this conversion is a result of Nasdaq rules applied
to the Company for the Company's benefit and to that end, the
Company agrees to pay all costs of Claimant required to accomplish
the conversion required by this Agreement;
WHEREAS, Global desires to satisfy the outstanding principal
balance of the First Note by the issuance to Claimant of a
Convertible Promissory Note of even date in the principal amount of
Four Hundred Fifty Thousand Dollars ($450,000) made and given by
GAI (the "Second Note") and shares of Global Series B Convertible
Preferred Stock (the "Preferred Stock" or the "Securities"); and
WHEREAS, Claimant is willing to accept the Second Note and
Preferred Stock in full payment and satisfaction of the outstanding
balance due and owing under the First Note; and
WHEREAS, Claimant and GAI are parties to the Stock Purchase
and Sale Agreement dated August 1, 1997 ("Sale Agreement") and the
parties hereto desire to amend that agreement to the extent
described in this Agreement.
SECTION I: CONVERSION OF DEBT
A. Claimant, GAI and Global affirm and agree that as
of the date of this Agreement, the total outstanding balance of all
sums due and owing to Claimant under the First Note is Three
Million Eight Hundred Fifty-Three Thousand Two Hundred Ninety-One
Dollars ($3,853,291), together with all accrued and unpaid interest
of Fifteen Thousand Two Hundred Two Dollars ($15,202) for a total
due of Three Million Eight Hundred Sixty-Eight Thousand Four
Hundred Ninety-Three Dollars ($3,862,846).
B. Claimant, for itself, successors in interest and
assigns, agrees to accept, as payment in full of the First Note (i)
340,329 shares of Preferred Stock of the Company, such Preferred
Stock having a face value of Ten Dollars ($10.00) per share and
(ii) a Convertible Promissory Note in the original principal amount
of Four Hundred Fifty Thousand Dollars ($450,000) (the "Second
Note").
C. Claimant agrees that upon delivery to it by GAI
and Global, respectively, of the Second Note and confirmation of
the issuance of 340,329 uncertificated shares of Preferred Stock,
such shares of Preferred Stock being validly issued, fully paid and
non-assessable, and Claimant's acceptance of such Securities,
Claimant, for itself, successors in interest and assigns, agrees to
release and forever discharge Global Alaska Industries, Inc., the
Company, its subsidiaries, officers, directors, shareholders,
affiliates, employees and agents, from any liability, payment or
obligation whatsoever in connection with or arising out of the
First Note. Claimant's acceptance of such Securities and the
Second Note shall constitute a full and complete release,
settlement and discharge of any of GAI's or Global's obligation to
Claimant, in connection with the First Note, without the necessity
of Claimant executing any further documentation, release or
settlement agreement; it being the express understanding of the
parties hereto that this Agreement, upon its performance, shall
constitute such evidence of release and discharge.
D. With respect to accepting the Second Note and
Securities in lieu of other forms of payment of the First Note,
Claimant represents and warrants as follows:
1. Claimant fully understands and agrees that
the Securities are offered by Global at a price which was
arbitrarily determined without regard to any value of the
Securities.
2. Claimant fully understands that Global has
a limited net worth and lack of profitable operating history.
3. Claimant acknowledges receipt of such
information as it deems necessary or appropriate as a prudent and
knowledgeable investor in evaluating the conversion of the
obligation. The Claimant acknowledges that Global has made
available to him the opportunity to obtain additional information
to evaluate its status a creditor and the alternatives available to
him. The Claimant acknowledges that it had an opportunity to ask
questions of Global and to the extent it availed itself of such
opportunity, it received satisfactory answers from Global, or its
affiliates.
4. Claimant understands that there exist
inherent risks in accepting the Securities in lieu of payment of
the obligation, which risks include, but are not limited to, the
lack of liquidity of the Securities, and the Company's history of
unprofitable operations.
5. Claimant has been provided with a copy of the
Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of the Company (the "Certificate"),
and, in consultation with Claimant's advisors, fully understands
the relative rights and preferences of holders of shares of the
Preferred Stock. Claimant understands that the Company has no
obligation to redeem any or all of the shares of Preferred Stock at
any time in the future, and that Claimant may be required to hold
such shares indefinitely or convert them into shares of the
Company's Common Stock.
6. Claimant understands that there can be no
assurance with respect to the tax consequences to Claimant under
the execution and delivery of this Agreement, and Claimant
represents and warrants that to the extent that Claimant so
desires, he has obtained tax and legal advice concerning this
Agreement.
7. Claimant acknowledges that the Company has
made no representations or warranties to Claimant, other than
stated in this Agreement, and there can be no assurance regarding
the Company's ability to improve its operating results.
8. Claimant realizes that (i) acceptance of the
Securities is a long-term investment, (ii) Claimant must bear the
economic risk of such investment for an indefinite period of time
because the Securities have not been registered under the
Securities Act or under the Securities Laws of any state and cannot
be resold unless they are subsequently registered under such laws
or exemptions from such registration requirements are available
(iii) the Securities are "restricted securities" within the meaning
of Rule 144 under the Securities Act and are subject to
restrictions on transfer imposed by or on account of federal and
state securities laws.
E. Notwithstanding the provisions to the contrary
contained in this Agreement, the Certificate, the Second Note, the
General Security Agreement dated August 1, 1997, as amended, and
the Amended Stock Pledge Agreement dated March 31, 1998 (hereafter
collectively the "Transaction Documents"), to the contrary, in the
event that prior to the redemption by the Company of the Preferred
Stock and retirement of the Note or the conversion into Common
Stock of the Preferred Stock and Second Note, there should occur a
change in the statutes, rules, regulations and other legal
requirements applicable to the business operations of Alaska Bingo
Supply, Inc., an Alaska corporation ("ABS") and wholly-owned
subsidiary of GAI which, in the sole opinion and judgment of the
Company materially and adversely affects the business operations of
ABS, then and in such event, at GAI's sole option and election,
subject to ABS having no less than Four Hundred Thousand Dollars
($400,000) in net tangible working capital, GAI shall have the
right upon thirty days' prior written notice to Claimant may
rescind all the transactions contemplated by or included in the
Sale Agreement and the Transaction Documents, without any liability
whatsoever. Upon recission, the collateral covered by the General
Security Agreement and shares of ABS Common Stock covered by the
Amended Stock Pledge Agreement shall be immediately delivered to
Claimant, free of any claim of the Company or GAI; and the Second
Note shall be canceled, null and void and all issued and
outstanding shares of Preferred Stock shall be deemed canceled,
null and void and surrendered to the Company, free of any claim of
Claimant.
F. Claimant and GAI agree that the Sale Agreement is
amended consistent with this Agreement, and to the extent there are
conflicts with the Sale Agreement, this Agreement shall be
controlling.
G. GAI and Global represent and warrant that (i)
there are no liens, actual or threatened, against the collateral
described in the General Security Agreement dated August 1, 1997
(the "Collateral"); (ii) Claimant has a perfected first priority
interest in the Collateral; and (iii) this Agreement shall not
adversely affect Claimant's rights in and to the Collateral in any
way whatsoever.
H. In consideration of the foregoing, GAI agrees to
pay to Claimant the sum of Thirty-Six Thousand Dollars ($36,000),
which represents payment in full to Claimant of all costs and
expenses, including legal fees, incurred by Claimant in connection
with the execution and delivery of the Transaction Documents, as
well as payment of all other sums due and owing by GAI or Global to
Claimant. Such sum of Thirty-Six Thousand Dollars ($36,000) shall
be payable, without interest, at the rate of Six Thousand Dollars
($6,000) per month for six (6) consecutive months.
SECTION II: REPRESENTATIONS AND WARRANTIES BY GLOBAL
Global represents and warrants to Claimant that, as of the
date of this Agreement, and as of the date of closing:
A. Organization and Corporation Power. The Company
is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Utah; and has all required
corporate power and authority to own its property and to carry on
its business as now being conducted, and to carry out the
transactions contemplated hereby.
B. Authorization.
1. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated
hereby will not, violate any provision of any charter, by-law,
mortgage, lien, lease, agreement, contract, instrument, order
judgment, or decree to which the Company is a party, or by which it
is bound, and will not violate any other restriction of any other
kind or character of which Company is subject.
2. The Board of Directors of the Company has
taken all action required by law, the Company's Articles of
Incorporation and By-Laws, or otherwise, to authorize execution and
delivery of this Agreement, the stock and the consummation of the
transactions described herein.
3. This Agreement, upon execution and delivery
in accordance herewith, is the valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to the
terms of bankruptcy and similar laws, and any rules and regulations
adopted thereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
and other action.
C. Capitalization. There are sufficient authorized
shares of Common Stock of the Company to cover the issuance of all
shares to be issued and sold pursuant to this Agreement. There are
no restrictions on the transferability of shares of the Company's
Common Stock imposed by or pursuant to the Company's Articles of
Incorporation, as amended, or the Company's By-Laws, or by
agreement to which the Company is a party, except for restrictions
imposed by or on account of federal and state securities laws. The
common shareholders of the Company have no preemptive rights with
respect to the issue or sale of the Company's Common Stock.
D. Compliance. The consummation of the transactions
provided for herein have and will be undertaken in compliance with
all applicable federal and state securities laws.
SECTION III: REPRESENTATIONS AND WARRANTIES BY CLAIMANT
Claimant represents and warrants to Global that, as of the
date of this Agreement, and as of the date of closing, the
following are true and accurate to its knowledge and belief:
A. No Other Information Relied Upon. Claimant
represents, warrants and agrees that it has been afforded the
opportunity to make, and has made, all such investigation of Global
and its financial condition, business, affairs and prospects as it
deems appropriate. Claimant acknowledges receipt of such
information as it deems necessary or appropriate as a prudent and
knowledgeable investor in evaluating the exchange of the shares.
Claimant acknowledges that Global has made available to it the
opportunity to obtain additional information to evaluate the merits
and risks of this exchange. Claimant acknowledges that it has had
the opportunity to ask questions of Global, and, to the extent it
availed itself such opportunity, it received satisfactory answers
from Global, its affiliates, associates, officers and directors.
B. Nature of the Risk. Claimant represents, warrants
and agrees that it understands that Global's business is, by its
nature, speculative; that Claimant is aware that the financial
resources of Global are extremely limited and that it is very
likely that the Company will require additional capital, and there
is no assurance that such capital will be available if necessary;
that Claimant is familiar with the high degree of risk that is
involved in the Company's business, and that Claimant is
financially able and willing to accept the substantial risk
involved in such investment, including the risk of loss of the
entire amount invested.
C. Unregistered Stock. Claimant represents that it
understands that the Global stock has not been registered for sale
under federal or state securities laws and that said securities are
being issued to Claimant pursuant to a claimed exemption from the
registration requirements of such laws which is based upon the fact
that said securities are not being offered to the public. Claimant
understands that in order to satisfy such requirement it must be
acquiring the stock with no view to making a public distribution of
said securities and the representations and warranties contained in
this Section III are given with the intention that Global may rely
thereon for purposes of claiming such exemption; and that it
understands that it must bear the economic risk of its investment
in the stock for a substantial period of time, because the stock
has not been registered under the federal or state securities laws,
and cannot be sold unless subsequently registered under such laws,
or unless an exemption from such registration is available.
D. Stock Acquired for Investment; Limitations on
Dispositions. Claimant represents that it is acquiring the stock
for its own account and for investment and not with a view to, or
for sale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended. Claimant agrees that the
stock will not be offered for sale, sold or otherwise transferred
for value and that no transfer thereof will be made by the Claimant
unless (a) a registration statement with respect thereto has become
effective under the Securities Act of 1933, as amended, or (b)
there is presented to the Company an opinion of counsel for
Claimant reasonably satisfactory to the Company that such
registration is not required, or (c) there is presented to the
Company a letter from the Securities and Exchange Commission (said
Commission having been informed of all relevant circumstances) to
the effect that in the event either the stock is transferred by
Claimant without such registration the Commission or the staff will
not recommend any action. Claimant further agrees that the stock
will not be offered for sale, sold or otherwise transferred unless,
in the opinion of legal counsel for Global, such sale or
disposition does not and will not violate any provisions of any
federal or state securities law or regulation. Claimant consents
that any transfer agent of the Company may be instructed not to
transfer any of the stock unless it receives satisfactory evidence
of compliance with the foregoing provisions and that there may be
endorsed upon any certificates (or instruments issued in
substitution therefor), the Company's regular legend regarding the
sale of restricted securities.
SECTION IV: AGREEMENTS RESPECTING PREFERRED STOCK
A. The parties acknowledge and agree that the
Certificate provides that the Company is under no obligation to
redeem any shares of the Preferred Stock issued hereunder and that
the Claimant does not have the right to compel the Company to
redeem any shares of such Preferred Stock. However, the parties
recognize that the Certificate also provides that in the event the
Company does not exercise its option to redeem shares of Preferred
Stock in certain minimum monthly numbers as shown on the attached
Exhibit A incorporated herein by reference, (the "Minimum Monthly
Optional Redemption"), then and in such event Claimant shall have
the right to convert that number of shares subject to the Minimum
Monthly Optional Redemption which were not so redeemed into shares
of the Company's Common Stock at a conversion price equal to the
Fair Market Value of the Company's Common Stock on the first day of
such month. For the purposes of this Agreement, the "Fair Market
Value" of the Company's Common Stock shall be the average of the
bid and ask prices of the Company's Common Stock as quoted on the
over-the-counter market on such date.
B. Notwithstanding the provisions of Section 4(A)
above, the parties acknowledge that the Rules of Governance of the
Nasdaq Stock Market preclude the conversion of the Preferred Stock
by Claimant into more than 311,550 shares of the Company's Common
Stock ("Maximum Aggregate Conversion") (19.9% of the 1,565,586
shares of the Company's Common Stock issued and outstanding on this
date) without the approval of the Company's shareholders. Claimant
agrees that, notwithstanding any other provision of this Agreement
or the Certificate to the contrary, Claimant will not exercise his
right of conversion to acquire Common Stock of the Company in
excess of the Maximum Aggregate Conversion without the consent of
the Company's shareholders.
C. As soon as practicable following the preparation,
completion and filing by the Company of its annual report on Form
10-KSB (the "Annual Report"), for the fiscal year ending June 30,
1998, the Company agrees to schedule and conduct an Annual Meeting
of Shareholders (the "Annual Meeting") and to seek at such Annual
Meeting the approval of the Company's shareholders of the
conversion of the Preferred Stock into shares of the Company's
Common Stock in excess of the Maximum Aggregate Conversion
permitted under the Nasdaq Rules of Governance in the absence of
such shareholder approval. In connection with such Annual Meeting,
the Company agrees to prepare and file with the Securities and
Exchange Commission (the "Commission") a Proxy Statement for use in
the solicitation of proxies and in such Proxy Statement to
recommend that the Company's shareholders approve the conversion of
the Preferred Stock by Claimant in excess of the Maximum Aggregate
Conversion in accordance with the terms and conditions of the
Certificate.
D. No later than thirty (30) days following the
effective date of this Agreement, the Company agrees to prepare and
file with the Commission a Registration Statement on Form S-3 (the
"Registration Statement"), registering for sale under the
Securities Act of 1933, as amended, (the "Securities Act"), the
shares of the Company's Common Stock issuable upon conversion of
the Preferred Stock (the "Conversion Shares"). In connection with
the filing of such Registration Statement, the Company agrees to
use its best efforts to cause such Registration Statement to be
declared or ordered effective by the Commission, to prepare and
file with the Commission such amendments or supplements to such
Registration Statement and the Prospectus used in connection with
such Registration Statement as may be necessary to keep such
Registration Statement effective for the period ending the earlier
of (i) the redemption by the Company of all of the Preferred Stock;
or (ii) the conversion by Claimant of all of the shares of
Preferred Stock. All costs and expenses incurred in connection
with the registration of the Conversion Shares, including, without
limitation, all registration and qualification fees, and fees and
disbursements of counsel, shall be borne by the Company. The
Company shall be responsible for any underwriter's discounts or
broker's commissions charged in connection with the sale of such
Conversion Shares by Claimant.
E. The Company agrees to comply with all applicable
federal and state securities laws and regulations in connection
with the issuance of the Preferred Stock and registration for sale
of the Conversion Stock.
SECTION V: EVENTS OF DEFAULT
The following occurrences shall be deemed in default of this
Agreement and the Second Note, and Claimant may take all
enforcement action authorized by law or equity:
A. The Registration Statement is not effective on or
before sixty (60) days following the effective date of this
Agreement;
B. The Company issues Preferred Stock or an option
to acquire Preferred Stock to any other person, or issues stock in
the Company or an option to acquire stock in the Company to any
other person where such stock would be senior to the Preferred
Stock; or
C. The Company's failure to comply with or fulfill
any obligation under this Agreement, the Second Note, or the
Certificate.
SECTION VI: MISCELLANEOUS
A. Payment of Expenses of Prevailing Party in
Dispute. Unless otherwise specifically provided for herein, in the
event that there is a dispute concerning this Agreement, including,
without limitation, the issue of compliance with any term of this
Agreement, the court may in its discretion, direct that the
prevailing party shall be entitled to reimbursement from the other
party of reasonable attorneys' fees and other expenses incurred in
resolving the said dispute.
B. Survival and Incorporation of Representations.
The representations, warranties, covenants and agreements made
herein or in any certificates or documents executed in connection
herewith shall survive the execution and delivery thereof, and all
statements contained in any certificate or other document delivered
by the Company hereunder or in connection herewith shall be deemed
to constitute representations and warranties made by the Company in
this Agreement.
C. Amendments and Waivers. This Agreement may not
be amended, nor may compliance with any term, covenant, agreement,
condition or provision set forth herein be waived (either generally
or in a particular instance and either retroactively or
prospectively) unless such amendment or waiver is agreed to in
writing by all parties hereto.
D. Governing Law. This Agreement shall be construed
and enforced in accordance with and governed by the laws of the
State of Alaska, and venue for any legal action brought to enforce
a party's rights under this Agreement shall be in the Superior
Court located in Anchorage, Alaska.
E. Counterparts. This Agreement may be executed by
telex, telecopy or other facsimile transmission, and such facsimile
transmission shall be valid and binding to the same extent as if it
were an original. Further, this Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall together constitute one agreement.
F. Severability. Wherever there is any conflict
between any provision of this Agreement and any statute, law,
regulation or judicial precedent, the latter shall prevail, but in
such event the provisions of this Agreement thus affected shall be
curtailed and limited only to the extent necessary to bring it
within the requirement of the law. In the event that any part,
section, paragraph or clause of this Agreement shall be held by a
court of proper jurisdiction to be invalid or unenforceable, the
entire Agreement shall not fail on account thereof, but the balance
of the Agreement shall continue in full force and effect unless
such construction would clearly be contrary to the intention of the
parties or would result in unconscionable injustice.
IN WITNESS WHEREOF, the parties have signed the Agreement the
date and year first above written.
GLOBAL CASINOS, INC., a Utah corporation
Attest:
By:/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Secretary ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, President
GLOBAL ALASKA INDUSTRIES, INC.,
an Alaska corporation
Attest:
By:/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Secretary ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, President
CLAIMANT:
By:/s/▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
