1
EXHIBIT F
OPTION AND PROXY AGREEMENT
--------------------------
THIS AGREEMENT is made as of September 24, 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
2
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.
-2-
3
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 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
-3-
4
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.
(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
-4-
5
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.
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
-5-
6
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:
"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 24, 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.
-6-
7
"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.
"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
-7-
8
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 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.
17. 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.
18. 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.
19. 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.
20. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
-8-
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
BOARDWALK CASINO, INC.
By: /s/ Xxxxx Xxxxxxx
----------------------------------------
Title: Secretary/Treasurer
-------------------------------------
/s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
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: /s/ Xxxxxxx X. Xxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxx, President
-9-
10
SCHEDULE A
OPTION AND PROXY AGREEMENT
XXXXXX SHARES/OPTIONS
Shares 3,250,000
Options* 340,000
*all issued under 1994 Stock Compensation Plan