EXHIBIT 1
WINNERS ENTERTAINMENT, INC.
STOCK TRANSFER AGREEMENT
AGREEMENT, dated as of July 2, 1996, between WINNERS ENTERTAINMENT,
INC., a Delaware corporation (the "Company"), and XXXXXXXXX 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 29-22A-1, 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 jeopardize 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:
Page 9 of 16 Pages
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.
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.
Page 10 of 16 Pages
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
(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.
Page 11 of 16 Pages
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.
Page 12 of 16 Pages
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 Nasdaq Small Cap or a
comparable system, or (iii) if the Common Stock is not listed on The Nasdaq
National Market, 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 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;
Page 13 of 16 Pages
(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 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.
Page 14 of 16 Pages
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 license 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 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.
Page 15 of 16 Pages
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.
/s/ XXXXX XXXXXXXX
Xxxxx Xxxxxxxx
President
0000 Xxxxxxxxx Xxxxxx, Xxxxx X
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
XXXXXXXXX LLC
/s/ XXXXX XXXXX
Xxxxx Xxxxx
Power of Attorney
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxx X. Genda
Page 16 of 16 Pages
