MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING ("Memorandum") is entered and effective
this 29th day of October, 1997 by and among Boardwalk Casino, Inc., a Nevada
corporation ("Boardwalk"), Diversified Opportunities Group Ltd, an Ohio
limited liability company ("Diversified"), Xxxxxx Entertainment Nevada, Inc.,
a Nevada corporation, or its nominee ("Xxxxxx") and Xxxx X. Xxxxxx, a Nevada
resident ("Xxxxxx") under the following circumstances:
A. Boardwalk needs an immediate capital infusion of $3.25 Million to
pay interest due on its $40 Million Note Indenture dated as of April
7, 1995 between Boardwalk, as Issuer and Shawmut Bank, N.A., as Trustee
(the "Note Indenture") and retire an outstanding $600,000 obligation
and is in need of substantial additional assistance in order to improve
the financial results of its current business.
X. Xxxxxx is willing to purchase $2.65 Million and Xxxxxx is willing to
purchase $600,000 of 6% non-voting cumulative preferred stock of
Boardwalk.
X. Xxxxxx has under consideration up to an additional $15 Million
investment in Boardwalk and the construction of a development on the
office building property currently leased by Boardwalk from Xxxxxx that
is intended to enhance Boardwalk's gaming and hotel operations.
D. Boardwalk and Xxxxxx are interested in providing Xxxxxx with the
means to develop the office building property in a manner that will
be beneficial to Boardwalk.
NOW, THEREFORE, the parties agree as follows:
1. ISSUANCE OF PREFERRED STOCK AND RELINQUISHMENT OF RIGHTS TO COMMON STOCK
1.1 On or before October 29, 1997, Boardwalk will issue and Xxxxxx and
Xxxxxx will purchase at a price of $1,000 per share, 6% Non-voting
Cumulative Preferred Share, Series A of Boardwalk ("Preferred
Shares"), containing the terms described in Exhibit A attached hereto.
The number of shares and the consideration for each purchaser are set
forth in
the following table:
Purchaser Shares Purchased Consideration
--------- ---------------- -------------
Xxxxxx 2,650 $2.65 Million
Xxxxxx 600 $600,000
1.2 The proceeds of the sale of Preferred Shares together with existing
working capital of Boardwalk will be used to pay the current interest payment
due on the Note Indenture and the outstanding $600,000 note payable to Xxxxx
Xxxxxxx.
1.3 Diversified hereby relinquishes its right to convert all or any
portion of the unpaid principal balance of the $5,000,000 Convertible
Subordinated Note issued on September 24, 1996 by Boardwalk to Diversified
into shares of common stock of Boardwalk, $.001 par value per share and
Boardwalk accepts such relinquishment and hereby cancels such conversion
right.
2. XXXXXX OPTION FOR BOARDWALK PREFERRED SHARES
2.1 Upon the initial purchase of the Preferred Shares, Boardwalk will
grant to Xxxxxx an option (the "Option") to acquire up to an
additional 15,000 Preferred Shares at a purchase price of $1000 per
share, such option to remain outstanding for a period of two (2)
years.
2.2 As long as the Option is outstanding, Boardwalk will not extend,
change the strike price or otherwise change any of the terms of any of
the warrants for Boardwalk common stock outstanding on the date the
Option is granted, including, without limitation, the warrants
expiring in February, 1998.
3. OFFICE BUILDING OPTION AND LEASE MODIFICATION
3.1 In consideration of Jacob's commitment of time and resources to
explore the feasibility of a development with a total cost in excess
of $20 Million on the site of the adjoining office building currently
leased by Boardwalk from the Xxxxxxx X. Xxxxxx and Xxxx Xxxxxx Family
Trust (the "Family Trust") under a Lease Agreement effective October
1, 1996 (the "Lease"), Xxxxxx will grant to Xxxxxx a purchase option
(the "Purchase
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Option") to purchase the premises leased under the Lease (the "Office
Building Property") on the following terms and conditions:
3.1.1 The purchase price for the Office Building Property is $10
Million in cash or other form of same day funds.
3.1.2 The Purchase Option must be exercised by written notice to
Xxxxxx no later than November 1, 1998 (the "Exercise Date")
and the closing of the purchase and payment of the purchase
price shall occur on January 3, 1999 (the "Closing Date").
3.1.3 On the Exercise Date Xxxxxx shall deposit $500,000 as xxxxxxx
money with National Title Company, as escrow agent, to be
applied toward the payment of the Purchase Price. The xxxxxxx
money will be forfeited if Xxxxxx fails to close on the
Closing Date for any reason other than the failure of Xxxxxx
to convey the title to the Office Building Property, provide
title insurance, pay closing costs, deliver closing documents
or prorate rent in accordance with the requirements of
Section 32 of the Lease.
3.2 Xxxxxx and Boardwalk hereby agree that the Lease will be modified as
follows:
3.2.1 Commencing November 1, 0000 Xxxxxxxxx will have the right to
defer payment of up to $40,000 per month of the Base Rent due
under the Lease. If the Purchase Option is not exercised the
deferred Base Rent will be due November 1, 1998 and the right
to defer payment will terminate. If the Purchase Option is
exercised the deferred Base Rent will be due on the Closing
Date.
3.2.2 Boardwalk's option and right of first refusal to purchase
the Office Building Property in Section 32 of the Lease will
be subject to and subordinate to the Purchase Option and will
terminate upon the closing of the Purchase Option by Xxxxxx.
3.3. The Option and Proxy Agreement among Xxxxxxx X. Xxxxxx,
individually and as trustee of the Family Trust, Diversified and
Boardwalk dated September 24, 1996 (the "Xxxxxx Shares Agreement")
will be deemed to be amended to provide that:
3.3.1 The phrase "1,000,000 shares" in paragraphs 1(c) and 1(d)
will be changed to "1,734,620 shares" and the exercise price
for the shares subject to paragraph 1(c) of
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the Xxxxxx Shares Agreement will be changed to $4.00 per
share and the exercise price for the shares described in
paragraph 1(d) will be changed to $4.00 per share.
3.3.2 If the Purchase Option is not exercised, then on and after
the Exercise Date the phrase "1,734,620 shares" in paragraphs
1(c) and 1(d) will revert to "1,000,000 shares".
3.3.3 In the event a merger, consolidation or sale of all or
substantially all of the assets of Boardwalk to Xxxxxx is
presented for shareholder approval and Xxxxxx votes the shares
she directly or beneficially owns against such transaction, the
exercise price for the shares subject to option as described in
subparagraphs (a) and (b) above will be $1.00 per share.
3.3.4. The rights granted to purchase shares under the Xxxxxx
Shares Agreement will apply to any shares received in exchange
for the shares subject to the Xxxxxx Shares Agreement in any
merger, consolidation or sale transaction.
4. DEVELOPMENT PROJECT
4.1 Xxxxxx will undertake a preliminary analysis of the feasibility of
building and financing a development on the Office Building Property
(the "Project") and channeling patrons of the Project into the
Boardwalk gaming facilities. Upon completion of the feasibility
analysis, Xxxxxx will share the results with the Boardwalk Board of
Directors and after having the benefit of Boardwalk's input, decide
whether to pursue the Project. Boardwalk agrees that until a decision
has been made by Xxxxxx as to whether to proceed with the Project, it
will not convey, transfer or encumber the Boardwalk tangible assets or
otherwise take any action with respect to the Boardwalk tangible
assets that will interfere or negatively impact upon the prospects for
the Project. If Boardwalk violates the provisions of this Section 4.1,
then Boardwalk shall within ten (10) days of such occurrence, pay to
Xxxxxx in cash, a termination fee of $2 Million as reimbursement for
Xxxxxx' expenses relative to the transactions contemplated by this
Memorandum of Understanding and as full and complete liquidation of
all damages.
4.2 If Xxxxxx elects to go forward with the Project, the Board of
Directors of Boardwalk will
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entertain at that time or such later time selected by Xxxxxx, not to
exceed two (2) years from completion of the feasibility study for
the Project, a proposal from Xxxxxx to merge, consolidate or sell
all or substantially all of the assets of Boardwalk to Xxxxxx at a
price and on terms to be negotiated at the time the proposal is
made; provided, that if the proposed transaction is a merger or
consolidation with Black Hawk Gaming & Development Co., Inc. ("Black
Hawk"), the ratio of Boardwalk shares to Black Hawk shares, based on
their respective outstanding shares shall not be greater than 2
shares of Boardwalk for 1 share of Black Hawk.
5. CONDITIONS TO CLOSING
5.1 The obligation of Xxxxxx to consummate any or all of the transactions
contemplated by this Memorandum is subject to the following
conditions:
5.1.1 Completion of on-going due diligence activities which do not
disclose material variances from information heretofore
provided by Boardwalk.
5.1.2 Obtaining requisite approvals from the Nevada Gaming
Commission, the Nevada State Gaming Control Board and the
authorities of Xxxxx County, Nevada and any other
governmental or regulatory authority if required ("Gaming
Authorities").
5.1.3 The approval of the Boards of Directors of Boardwalk and
Xxxxxx.
5.1.4 The execution and delivery of definitive agreements in form
and substance satisfactory to Xxxxxx and Xxxxxx granting to
Xxxxxx the rights and property interests contemplated by
Sections 2, 3 and 4 of this Memorandum.
6. CONSTRUCTION
6.1 This Memorandum shall be construed in accordance with the internal
laws of the State of Nevada.
7. ASSIGNMENT
7.1 Upon receiving any necessary approvals from the Gaming Authorities,
Xxxxxx may assign its rights and delegate its obligations under this
Memorandum or any of the definitive agreements executed and
delivered pursuant to this Memorandum to Black Hawk Gaming &
Development Company, Inc. or any other corporation, limited
liability company,
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partnership, trust or other entity which is under common control
with or controlled, through equity ownership and/or voting control,
by Xxxxxx or Xxxxxxx X. Xxxxxx.
8. CONFIDENTIALITY
8.1 Boardwalk, Xxxxxx and Xxxxxx agree that none of the them nor their
directors, shareholders, employees or agents shall divulge any
confidential or proprietary information regarding any of them, or
any entity under common control with or controlled, through equity
ownership and/or voting control, by any of them except to the extent
(a) required by law, (b) otherwise available from third parties, or
(c) previously known to them from sources other than Boardwalk,
Xxxxxx or Xxxxxx.
9. REIMBURSEMENT OF EXPENSES OF XXXXXX
9.1 Boardwalk shall reimburse Xxxxxx for and/or pay directly on behalf
of and in the name of Xxxxxx, up to $40,000 of the fees and expenses
of Xxxxxx' attorneys and accountants incurred in the investigation,
negotiation and/or consummation of the transactions contemplated
hereby.
10. LEGAL STATUS OF THIS MEMORANDUM
10.1 The terms of this Memorandum are intended to create binding and
substantive obligations of the parties to: (a) abide by the terms of
paragraphs 1 through 10 hereof, (b) incorporate into the definitive
agreements described in this Memorandum those obligations contained
in this Memorandum which do not require further negotiation, and (c)
negotiate in good faith all other terms of the definitive agreements
so that such terms are not inconsistent with the provisions of this
Memorandum. If the parties are unable to reach agreement on the
terms of the definitive agreements after good faith negotiations,
each party will be free to terminate their obligations under this
Memorandum without further obligation to the other except as
provided in this Memorandum.
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IN WITNESS WHEREOF, the undersigned hereby execute and deliver this
Memorandum as of the date first set forth above.
BOARDWALK CASINO, INC.
By: /s/ Xxxxxxx Xxxxxxxx
--------------------------------------
Title: President
-------------------------------------
XXXXXX ENTERTAINMENT NEVADA, INC.
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxx, President
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By Xxxxxx Entertainment Ltd., it manager
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxx, President
/s/ Xxxx X. Xxxxxx
-------------------------------------------
Xxxx X. Xxxxxx, Individually, as Executrix
of the Estate of Xxxxxxx X. Xxxxxx and as
Trustee under an Agreement dated July 14, 1993
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EXHIBIT A
BOARDWALK PREFERRED SHARES
Pursuant to the authority granted under Section 3.2 of the Company's
Restated Articles of Incorporation, the Board of Directors does hereby
authorize the issuance, from the Company's authorized but unissued Preferred
Shares, of up to 18,250 Preferred Shares, par value of $.001, such Preferred
Shares to be designated as "6% Non-voting Cumulative Preferred Shares, Series
A", which shall have the powers, preferences and rights, and be subject to
the qualifications, limitations and restrictions, set forth below.
1
DESIGNATION OF NEW PREFERRED SHARES. The new Preferred Shares shall
bear the designation "6% Non-voting Cumulative Preferred Shares, Series A".
2
NUMBER OF PREFERRED SHARES; CONSIDERATION. The Company may issue up to
a maximum of 18,250 shares of 6% Non-voting Cumulative Preferred Shares,
Series A. After the issuance of any 6% Non-voting Cumulative Preferred Shares,
Series A, the Company shall not authorize or issue any Preferred Shares or
other equity securities which are not junior to the 6% Non-voting Cumulative
Preferred Shares, Series A with respect to dividends and upon liquidation,
without first having obtained the written consent to such issuance of the
holders of a majority of the 6% Non-voting Cumulative Preferred Shares,
Series A then outstanding.
3
DIVIDENDS. Holders of record of 6% Non-voting Cumulative Preferred Shares,
Series A shall be entitled to receive, when and as declared by the Board of
Directors of the Company out of funds legally available for the payment of
dividends, cumulative dividends at the annual rate of $60 per share, and no
more. Such dividends with respect to any share of 6% Non-voting Cumulative
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Preferred Shares, Series A shall accrue (whether or not declared) from the
date of issue thereof and shall be payable on the last business day of each
December (herein after referred to as a "Dividend Payment Date") to persons who
are holders of record of any 6% Non-voting Cumulative Preferred Shares,
Series A on the immediately preceding December 15.
So long as any of the 6% Non-voting Cumulative Preferred Shares, Series
A are outstanding, the Company will not declare or pay or set apart for
payment any dividends (other than a dividend in Common Stock or in any
other class of stock ranking junior to the 6% Non-voting Cumulative
Preferred Shares, Series A both as to dividends and upon liquidation) or
make any other distribution on any class of Company stock ranking junior
to the 6% Non-voting Cumulative Preferred Shares, Series A either as to
dividends or upon liquidation and will not redeem, purchase or otherwise
acquire for value, or set apart money for any sinking or other analogous
fund for the redemption or purchase of any shares of any such junior class
unless (a) all dividends on the 6% Non-voting Cumulative Preferred Shares,
Series A for all Dividend Payment Dates prior to or concurrent with the
payment with respect to any such dividend, distribution, redemption,
purchase or acquisition as to such junior class (in any such case, a
"Junior Payment"), and if the Junior Payment does not occur on a Dividend
Payment Date for the 6% Non-voting Cumulative Preferred Shares, Series A,
for the next succeeding Dividend Payment Date, shall have been paid, and
(b) the Company is then in compliance with its obligations, if any, with
respect to the redemption of the 6% Non-voting Cumulative Preferred Shares,
Series A pursuant to the provisions of paragraph 5 below. Notwithstanding
the foregoing provisions limiting redemption or purchase of the junior
securities described above, the Company may make such a redemption or
purchase upon first obtaining the written consent thereto of the holders
of a majority of the 6% Non-voting Cumulative Preferred Shares, Series A
then outstanding.
4
LIQUIDATION PREFERENCE. The 6% Non-voting Cumulative Preferred Shares,
Series A shall be preferred over the Company's Common Shares and any other
series of Preferred Shares hereafter created by the Company as to assets so
that in the event of any liquidation, dissolution or winding-up
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of the Company, whether voluntary or involuntary, the holders of the 6%
Non-Voting Cumulative Preferred Shares, Series A shall be entitled to receive
on a ratable basis out of the assets of the Company available for
distribution to its shareholders, whether from capital, surplus or earnings,
before any distribution is made to holders of Common Shares or any other
series of Preferred Shares, an amount equal to $1,000 per share, plus all
dividends and distributions accrued and unpaid on the 6% Non-voting
Cumulative Preferred Shares, Series A to the date payment is made. If upon
any liquidation, dissolution or winding-up of the Company, the assets of the
Company, or the proceeds thereof, distributable among the holders of the 6%
Non-voting Cumulative Preferred Shares, Series A are insufficient to pay in
full the preferential amount aforesaid, then such assets, or proceeds
thereof, shall be distributed among such holders ratably in accordance with
the respective amount which would be payable on such shares if all amounts
payable thereon were paid in full. For purposes of this paragraph 4, neither
the voluntary sale, lease, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property or assets of the Company, nor the consolidation or merger of the
Company with one or more companies, shall be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary, unless such voluntary
sale, lease, conveyance, exchange or transfer shall be in connection with a
plan of liquidation, dissolution or winding-up of the Company.
5
REDEMPTION RIGHTS. On or after April 1, 2005 the 6% Non-voting
Cumulative Preferred Shares, Series A shall be permitted to be redeemed by
the Company upon the written request of any holder thereof for a redemption
price of $1,000 per share, plus all accrued, unpaid dividends, whether
declared or undeclared, through the date when the redemption price for the
shares being redeemed is paid. After April 1, 2005, upon receipt of a
written notice from a holder of 6% Non-voting Cumulative Preferred Shares,
Series A setting forth the number of such holder's 6% Non-voting Cumulative
Preferred Shares, Series A to be redeemed, together with a stock certificate
representing the shares to be redeemed, properly endorsed or accompanined by
a properly endorsed stock power, the Company shall redeem the 6% Non-voting
Cumulative Preferred Shares, Series A requested to be redeemed within thirty
(30) days of receiving such request by paying the redemption price to the
redeeming holder and, if appropriate, issuing a new stock certificate to the
redeeming holder
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representing the 6% Non-voting Cumulative Preferred Shares, Series A, if any,
represented by the certificate(s) delivered by the redeeming holder which are
not then being redeemed.
6
VOTING RIGHTS. Except as provided by law, and paragraphs 2 and 3
hereof, the holders of the 6% Non-voting Cumulative Preferred Shares, Series A
shall have no voting rights whatsoever.
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