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 XXXX XXXXXXX ("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
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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
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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
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
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Xxxxxxx X. Xxxxxxxxxxx, President
GLOBAL ALASKA INDUSTRIES, INC.,
an Alaska corporation
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
--------------------------------------
Xxxxxxx X. Xxxxxxxxxxx, President
CLAIMANT:
/s/ Xxxx Xxxxxxx
-----------------------------------------
Xxxx Xxxxxxx
