OPTION AND PROXY AGREEMENT
THIS AGREEMENT is made as of September ____, 1996, by and among
Boardwalk Casino, Inc., a Nevada corporation (the "Company"), Xxxxxxx X.
Xxxxxx, individually and as trustee under an agreement dated July 14, 1993
("Xxxxxx"), and Diversified Opportunities Group Ltd., an Ohio limited
liability company, or its nominee as described in Section 14 ("Investor").
RECITALS
A. Pursuant to a certain Purchase Agreement dated as of even date
herewith (the "Purchase Agreement"), by and among Investor, Xxxxxx and the
Company, Investor is acquiring certain Shares and a Note (as defined in the
Purchase Agreement) of the Company.
B. It is a condition to closing the transactions contemplated by the
Purchase Agreement that Xxxxxx and the Investor enter into this Agreement for
the purposes, among others, of (i) providing the Investor an option to
acquire and a right of first refusal with respect to certain of the Shares of
the Company owned by Xxxxxx, (ii) establishing the composition of the
Company's Board of Directors (the "Board"), (iii) assuring continuity in the
management and ownership of the Company, and (iv) providing certain covenants
for the benefit of Investor.
C. Capitalized terms used but not otherwise defined herein are defined
in Paragraph 9 hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties to this Agreement hereby agree
as follows:
1. ACQUISITION OF AND OPTION FOR XXXXXX SHARES.
Subject to the conditions to Closing (as described in the Purchase
Agreement), Investor shall acquire the Shares contemplated by subparagraph
(a), below, and shall be granted an option (the "Option") to acquire from
Xxxxxx additional Shares, as described below:
(a) At Closing Investor shall acquire from Xxxxxx 182,411 Shares at a
purchase price of $7.00 per Share (the "Strike Price"). The
parties acknowledge that Investor is filing with the Gaming
Board (as defined in the Purchase Agreement) a request for a
ruling letter with respect to the transactions contemplated
by the Purchase Agreement. Within 7 days following the
receipt of a favorable ruling letter from the Gaming Board
satisfactory to Purchaser and Seller, each in the exercise of
its reasonable business judgment, Investor shall acquire from
Xxxxxx 317,589 Shares (the "Differential Shares") at the
Strike Price. If, however, the Gaming Board determines that
Investor may not acquire the Differential Shares without
first having obtained Licensing Approval (as defined in the
Purchase Agreement), Investor shall thereafter have the right
but not the obligation
to acquire the Differential Shares on the terms described in
subparagraph (b) below.
(b) If applicable, Investor shall have the right but not the
obligation to acquire from Xxxxxx and Xxxxxx shall have the
obligation to sell to Investor the Differential Shares. The
exercise price for the Differential Shares shall be determined by
taking the difference of (i) $7.75 less (ii) the Strike Price.
Such difference shall be multiplied by a fraction, the numerator
of which shall be the number of full months (excluding partial
months) elapsed from the Closing until such time as the Investor
obtains Licensing Approval and the denominator of which shall be
18. The product obtained therefrom shall be added to the Strike
Price in order to determine the Exercise Price. For purposes of
illustration if the Closing occurs on September 17, 1996, the
Strike Price was $7 and Investor obtains Licensing Approval on
September 20, 1997, the exercise price for the Differential
Shares would be $7.50 (e.g. $7.75 - $7.00 = $.75 x 12/18 = $.50 +
$7 = $7.50). Investor shall have the right to exercise the
Option for the Differential Shares as described in this
subparagraph (b) by giving written notice to Xxxxxx during the 30
day period following Investor's receipt of Licensing Approval;
provided, however if Investor does not obtain Licensing Approval
on or before the 18 month anniversary of the Closing, such Option
for the Differential Shares as described in this subparagraph (b)
shall be null and void. Thereafter, Investor shall have the
right but not the obligation to acquire the Differential Shares
on the terms described in subparagraph (d) below.
(c) Investor shall have the right but not the obligation to acquire
from Xxxxxx and Xxxxxx shall have the obligation to sell to
Investor up to 1,000,000 Shares at an exercise price of $7.75 per
Share. This right may be exercised by Investor commencing on
receipt of Licensing Approval and continuing until the 18 month
anniversary of the Closing by giving written notice to Xxxxxx.
(d) Investor shall have the right but not the obligation to acquire
from Xxxxxx and Xxxxxx shall have the obligation to sell to
Investor up to an amount equal to the sum of the Differential
Shares plus 1,000,000 Shares (less any Shares acquired by
Investor pursuant to subparagraph (c) above) at an exercise price
of $8.25 per Share. This right may be exercised by Investor at
any time following the expiration of the Option period described
in subparagraph (c) and continuing until the third anniversary
date of the Closing by giving written notice to Xxxxxx.
The exercise of any such Option shall be conditioned upon appropriate
Licensing Approval or other regulatory approval being obtained from the
Nevada Gaming Authorities. The Option shall continue to apply to any Shares
owned by Xxxxxx'x estate or family which are acquired from Xxxxxx. The
closing of any purchase and sale of any such Shares pursuant to Paragraphs
1(b), (c) or (d) shall be consummated as soon as practical after the delivery
of the Investor's written election notice to Xxxxxx, but in any event within
15 business days after the delivery of such
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notice. At the closing of the purchase and sale of the Differential Shares
pursuant to Paragraph 1(a), Xxxxxx shall deliver a certificate affirming the
representations and warranties made by Xxxxxx pursuant to the Purchase
Agreement. The purchase price of any Shares acquired pursuant to this
Paragraph 1 shall be payable by Investor in cash by wire transfer or
certified or bank check at the time of transfer and Xxxxxx shall deliver to
Investor certificates representing such Shares in proper form for transfer.
2. FIRST REFUSAL RIGHTS.
(a) TRANSFER OF SHARES. None of Xxxxxx, Xxxxxx'x family or his
estate (collectively, the "Selling Party") shall sell, transfer, assign,
pledge or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any interest in
any Shares or any securities containing options or rights to acquire any
Shares (a "Transfer"), except pursuant to the provisions of this Paragraph 2.
A Selling Party shall not consummate any Transfer until 14 calendar days
after the later of the delivery to the Investor of such Selling Party's Offer
Notice (as defined below) (the "Election Period"); provided, however, the
Election Period shall be reduced to 7 calendar days if the proposed Transfer
involves an interest in less than 50,000 Shares. The restrictions set forth
in this Paragraph 2 shall not apply with respect to (i) any Shares owned by
Xxxxxx'x family members on the date hereof or (ii) any Transfer of Shares
from Xxxxxx'x estate to his family members pursuant to the terms of his will
or trust agreement; provided that the restrictions contained in this
Paragraph 2 shall continue to be applicable to the Shares after any such
Transfer and provided further that the transferees of such Shares shall have
agreed in writing to be bound by the provisions of this Agreement affecting
the Shares so transferred.
(b) FIRST OFFER RIGHT. At least 7 or 14 calendar days prior to
making any Transfer, of any Shares or securities, as applicable, the Selling
Party shall deliver a written notice (an "Offer Notice") to the Company and
the Investor. The Offer Notice shall disclose in reasonable detail the
proposed number of Shares or securities to be transferred, the proposed terms
and conditions of the Transfer and the identity of the prospective
transferee(s) (if known). The Investor may elect to purchase a portion of
such Shares or securities, at the price to be paid to the Selling Party and
on the terms proposed in the Offer Notice, equal to the greater of (i) 35% of
the number of Shares offered for sale by the Selling Party or (ii) an amount
determined by multiplying (x) the number of Shares or securities offered for
sale by the Selling Party by (y) the Investor's then percentage ownership of
Shares of the Company, by delivering written notice of such election to the
Selling Party as soon as practical but in any event during the Election
Period. In determining the Investor's percentage ownership, it shall be
assumed that the Investor has purchased 500,000 Shares under Paragraphs 1(a),
(b) and/or (d), has exercised the Option for 1,000,000 Shares under
Paragraphs 1(c) and/or (d) and has converted the Note for 666,667 Shares. If
the Investor has elected to purchase Shares and securities from the Selling
Party, the transfer of such Shares shall be consummated as soon as practical
after the delivery of the election notice(s) to the Selling Party, but in any
event within 15 days after the expiration of the Election Period. At the
time of transfer, the Selling Party shall deliver to the Investor
certificates representing such Shares in proper form for the transfer and the
Investor shall deliver the purchase price in accordance with the terms set
forth in the Offer Notice, including any notes for a Selling Party financed
purchase.
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(c) SHARES NOT ACQUIRED BY THE INVESTOR. To the extent of the
Shares not purchased by the Investor, the Selling Party shall, within 90 days
after the expiration of the Election Period, complete the transfer of such
Shares either in the public market or to the proposed transferee set forth in
the Offer Notice at a price no less than the price per Share specified in the
Offer Notice and on other terms no more favorable to the transferees thereof
than offered to the Investor, and furnish proof of such transfer to the
Investor. Any Shares not transferred within such 90-day period shall be
reoffered to the Investor under this Paragraph 2 prior to any subsequent
Transfer. The Shares so transferred by the Selling Party pursuant to the
Offer Notice shall no longer be subject to the restrictions contained herein
and the legend referred to in Paragraph 7 may be removed at the time of such
transfer.
3. BOARD OF DIRECTORS.
(a) From and after the time that the Board is to be expanded to
six persons pursuant to Section 3(b) of the Purchase Agreement, Xxxxxx shall
vote all of his Shares and any other voting securities of the Company over
which Xxxxxx has voting control and shall take all other necessary or
desirable actions within his control (whether in his capacity as a
stockholder, director, member of a Board committee or officer of the Company
or otherwise, and including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of
written consents in lieu of meetings), so that:
(i) the authorized number of directors on the Board shall
be established at six directors;
(ii) Xxxxxxx X. Xxxxxx shall be elected to the Board;
(iii) at such time as the Investor has acquired 1,000,000
or more Shares from Xxxxxx pursuant to this Agreement, the Board shall be
expanded to seven directors and the additional director shall be designated
by the Investor (such additional director together with Xxxxxxx X. Xxxxxx
are sometimes referred to collectively as the "Investor Directors"); and
(iv) in the event that either of the Investor Directors
are removed (with or without cause) or cease to, or cannot, serve as a
member of the Board for his elected term of office, the resulting vacancy
on the Board shall be filled by a representative designated by the
Investor.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each Investor Director in connection with attending the meetings of
the Board and any committee thereof.
(c) If the Investor fails to designate a representative to fill a
directorship pursuant to the terms of this Paragraph 3 within 30 days after
written notice, the election of an individual to such directorship shall be
accomplished in accordance with the Company's Bylaws and applicable law.
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4. CERTAIN COVENANTS OF XXXXXX.
From and after the Closing, Xxxxxx shall, subject to his fiduciary
duties as a director of the Company, vote all of his Shares and any other
voting securities of the Company over which Xxxxxx has voting control and
shall take all other necessary or desirable actions within his control
(whether in his capacity as a stockholder, director, member of a Board
committee or officer of the Company or otherwise, and including, without
limitation, attendance at such meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), so
that the Company shall not, without the prior written consent of the
Investor, take any of the actions described in Section 7 of the Note.
5. IRREVOCABLE PROXY. In order to secure Xxxxxx'x obligation to vote
his Shares and other voting securities of the Company in accordance with the
provisions of Paragraphs 3 and 4 hereof, Xxxxxx hereby appoints the Investor
as his true and lawful proxy and attorney-in-fact, with full power of
substitution, to vote all of his Shares and other voting securities of the
Company for the election and/or removal of directors and all such other
matters as expressly provided for in Paragraphs 3 and 4. The Investor may
exercise the irrevocable proxy granted to it hereunder at any time Xxxxxx
fails to comply with the provisions of this Agreement, subject to the receipt
of the required Licensing Approval. The proxies and powers granted by Xxxxxx
pursuant to this Paragraph 5 are coupled with an interest and are given to
secure the performance of Xxxxxx'x obligations to the Investor under this
Agreement. Such proxies and powers shall be irrevocable and shall survive
the death, incompetency, disability, bankruptcy or dissolution of Xxxxxx and
the subsequent holders of his Shares. If for any reason whatsoever the proxy
described above is deemed to expire after seven years from the date hereof,
this Agreement shall be deemed an agreement entered into in accordance with
Section 78.365(3) of the Nevada General Corporate Law, effective for a term
of 15 years following the date hereof.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Xxxxxx represents and warrants that (i) Xxxxxx is the record
owner of the number of Shares set forth on Schedule A attached hereto, and (ii)
Xxxxxx has not granted and is not a party to any proxy, voting trust or other
agreement which is inconsistent with, conflicts with or violates any provision
of this Agreement. Xxxxxx shall not grant any proxy or become party to any
voting trust or other agreement which is inconsistent with, conflicts with or
violates any provision of this Agreement. Xxxxxx shall at all times during the
term of this Agreement own unencumbered and have available for immediate
transfer to the Investor the number of Shares pursuant to which Investor has
been granted an Option or right to purchase hereunder.
(b) The Investor hereby affirms the representations and warranties
being made by it pursuant to Section 5(c) of the Purchase Agreement.
7. LEGEND.
Each certificate evidencing Shares of Xxxxxx, individually and as
trustee, and each certificate issued in exchange for or upon the transfer of any
such Shares shall also be stamped or otherwise imprinted with a legend in
substantially the following form:
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"The securities represented by this certificate are subject to
the conditions, restrictions and obligations specified in the
Option and Proxy Agreement, dated as of September ____, 1996 and
as amended and modified from time to time, among the issuer (the
"Company"), Xxxxxxx X. Xxxxxx, individually and as trustee under
an agreement dated July 14, 1993 and Diversified Opportunities
Group Ltd., or its permitted assignee(s), and the Company
reserves the right to refuse the transfer of such securities
until such conditions, restrictions and obligations have been
fulfilled with respect to such transfer."
Xxxxxx shall deliver all certificates representing Shares held by him,
individually and as trustee, as of the date hereof and the Company shall or
shall cause its transfer agent to imprint such legend on all such certificates.
8. TRANSFER. Prior to transferring any Shares, except for a Transfer to
the Investor and a permitted third party transferee pursuant to Xxxxxxxxx 0,
Xxxxxx shall cause the prospective transferee (including his family members) to
be bound by all of the obligations of Xxxxxx under this Agreement with respect
to the Shares so transferred and to execute and deliver to the Company and the
Investor a counterpart of this Agreement.
9. DEFINITIONS.
"Affiliate" of a Person means any other Person controlling, controlled by
or under common control with such first Person.
"Board" has the meaning set forth in the recitals.
"Closing" has the meaning set forth in the Purchase Agreement.
"Company" has the meaning set forth in the introductory paragraph.
"Gaming Board" has the meaning set forth in the Purchase Agreement.
"Investor" has the meaning set forth in the introductory paragraph.
"Investor Directors" has the meaning set forth in Paragraph 3.
"Licensing Approval" has the meaning set forth in the Purchase Agreement.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and/or a governmental entity or any
department, agency or political subdivision thereof.
"Purchase Agreement" has the meaning set forth in the recitals.
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"Shares" means the Company's shares of common stock, $.001 par value.
10. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
Transfer of any Shares of Xxxxxx in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Shares as the owner of such Shares for
any purpose.
11. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the parties hereto unless such modification, amendment or
waiver is approved in writing by the parties hereto. The failure of any party
to enforce any of the provisions of this Agreement shall in no way be construed
as a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
12. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
13. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this Agreement embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
14. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
parties hereto and may not be assigned; provided, however, the Investor may
assign its rights and obligations hereunder, in whole or in part, to one or more
corporations, limited liability companies, partnerships, trusts or other
entities which are under common control with, or controlled, through equity
ownership and/or voting control by, the Investor or Xxxxxxx X. Xxxxxx; it being
acknowledged that any entity in which Xxxxxxx X. Xxxxxx beneficially owns 15% or
more of the voting equity securities and is the Chairman of the Board and/or
Chief Executive Officer constitutes common control.
15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
16. REMEDIES. The Investor shall be entitled to enforce its rights under
this Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the
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provisions of this Agreement and the Investor may in its discretion apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief (without posting a bond or other security) in order
to enforce or prevent any violation of the provisions of this Agreement.
16. NOTICES. Any notice, demand or other communication provided for in or
required by this Agreement shall be given in accordance with Section 19 of the
Purchase Agreement.
17. GOVERNING LAW. All issues and questions concerning the construction,
validity, interpretation and enforceability of this Agreement and the exhibits
and schedules hereto shall be governed by the laws of the State of Nevada.
18. BUSINESS DAYS. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or legal holiday in the
State of Nevada, the time period shall automatically be extended to the business
day immediately following such Saturday, Sunday or legal holiday.
19. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
BOARDWALK CASINO, INC.
By:
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Title:
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Xxxxxxx X. Xxxxxx, individually and as
trustee under an agreement dated July 14,
1993
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: Xxxxxx Entertainment Ltd., its manager
By:
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Xxxxxxx X. Xxxxxx, President
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SCHEDULE A
SHARE OWNERSHIP OF XXXXXX
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