-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RV/SIMCnX3M5TsJG1atK9jk/pRTZYMyRZCo6FQ2Crtek+WuLsD7+qt+nWdAv01pe pzr349AAAuUj2NWbNRy22g== 0000902664-97-000152.txt : 19970404 0000902664-97-000152.hdr.sgml : 19970404 ACCESSION NUMBER: 0000902664-97-000152 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19970403 SROS: NASD GROUP MEMBERS: FEINBERG STEPHEN GROUP MEMBERS: STEPHEN FEINBERG SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MTR GAMING GROUP INC CENTRAL INDEX KEY: 0000834162 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 841103135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-50735 FILM NUMBER: 97574489 BUSINESS ADDRESS: STREET 1: 1461 G;EMMEURE STREET STREET 2: SUITE F CITY: LAGUNA BEACH STATE: CA ZIP: 92651 BUSINESS PHONE: 7143763010 MAIL ADDRESS: STREET 1: 30448 RANCHO VIEJO RD STREET 2: STE 110 CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 92675 FORMER COMPANY: FORMER CONFORMED NAME: WINNERS ENTERTAINMENT INC DATE OF NAME CHANGE: 19931117 FORMER COMPANY: FORMER CONFORMED NAME: EXCALIBUR HOLDING CORPORATION DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EXCALIBUR SECURITY SERVICES INC DATE OF NAME CHANGE: 19920202 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FEINBERG STEPHEN CENTRAL INDEX KEY: 0000947822 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841103135 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 950 THIRD AVENUE STREET 2: TWENTIETH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124216300 MAIL ADDRESS: STREET 1: 950 THIRD AVENUE 20TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934* (Amendment No. 1 ) MTR GAMING GROUP, INC. - ------------------------------------------------------------------------------ (Name of Issuer) Common Stock - ------------------------------------------------------------------------------ (Title of Class of Securities) 974902108 - ------------------------------------------------------------------------------ (CUSIP Number) Stephen Feinberg 450 Park Avenue New York, New York 10022 (212) 891-2100 - ------------------------------------------------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) December 27, 1996 - ------------------------------------------------------------------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ] Check the following box if a fee is being paid with this statement [ ]. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of less than five percent of such class. See Rule 13d-7.) Page 1 of 16 Pages _____________________________________________________________________________ (1) NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Stephen Feinberg _____________________________________________________________________________ (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP ** Not applicable (a) [ ] (b) [ ] _____________________________________________________________________________ (3) SEC USE ONLY _____________________________________________________________________________ (4) SOURCE OF FUNDS WC _____________________________________________________________________________ (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] _____________________________________________________________________________ (6) CITIZENSHIP OR PLACE OF ORGANIZATION United States _____________________________________________________________________________ NUMBER OF (7) SOLE VOTING POWER 2,170,241* SHARES ______________________________________________________________ BENEFICIALLY (8) SHARED VOTING POWER OWNED BY ______________________________________________________________ EACH (9) SOLE DISPOSITIVE POWER 2,170,241* REPORTING ______________________________________________________________ PERSON WITH (10) SHARED DISPOSITIVE POWER _____________________________________________________________________________ (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,170,241 _____________________________________________________________________________ (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ] _____________________________________________________________________________ (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.21% _____________________________________________________________________________ (14) TYPE OF REPORTING PERSON ** IN _____________________________________________________________________________ ** SEE INSTRUCTIONS BEFORE FILLING OUT Page 2 of 16 Pages * The person filing this statement is Stephen Feinberg. Stephen Feinberg indirectly, through one or more partnerships or other entities, possesses voting and investment power over all Securities (as defined herein) owned by (i) The Long Horizons Fund, L.P. ("Long Horizons"), Illiad, L.P. ("Illiad") and Styx Partners, L.P. ("Styx"), each of which are Delaware limited partnerships and (ii) Styx International, Ltd. ("International") and The Long Horizons Overseas Fund, Ltd. ("Overseas"), each of which are corporations organized under the laws of the Bahamas. Although Madeleine LLC ("Madeleine") is the record holder of 3,858,206 Securities, pursuant to participation agreements with Madeleine, as of the date hereof, Long Horizons is the beneficial owner of 1,167,125 Securities, Illiad is the beneficial owner of 358,442 Securities, Styx is the beneficial owner of 463,402 Securities, International is the beneficial owner of 52,389 Securities and Overseas is the beneficial owner of 128,882 Securities. Madeleine disclaims beneficial ownership of any Securities. Page 3 of 16 Pages This Amendment No. 1 (the "Amendment") amends the Statement on Schedule 13D dated July 2, 1996 (the "13D"), filed by Madeleine LLC ("Madeleine"), Feinberg Management, L.P. ("Feinberg Management") and Stephen Feinberg with respect to the shares of Common Stock, par value $.00001 per share (the "Shares"), and Shares underlying certain warrants (the "Warrants" and, together with the Shares, the "Securities") of MTR Gaming Group, Inc. (formerly Winners Entertainment, Inc.) (the "Company") whose principal executive offices are located at 1461 Glenneyre Street, Suite F, Laguna Beach, California 92651. Certain capitalized terms used herein and not defined in this Amendment have the meaning ascribed to them in the 13D. ITEM 2. IDENTITY AND BACKGROUND Item 2 as reported in the 13D is hereby amended and restated as follows: (a) This statement is filed by Stephen Feinberg. Mr. Feinberg indirectly, through one or more partnerships or other entities, possesses voting and investment power over all Securities owned by (i) The Long Horizons Fund, L.P. ("Long Horizons"), Illiad, L.P. ("Illiad") and Styx Partners, L.P. ("Styx"), each of which are Delaware limited partnerships and (ii) Styx International, Ltd. ("International") and The Long Horizons Overseas Fund, Ltd. ("Overseas"), each of which are corporations organized under the laws of the Bahamas. Long Horizons, Illiad, Styx, International and Overseas are engaged in the investment in personal property of all kinds, including but not limited to capital stock, depository receipts, investment companies, mutual funds, subscriptions, warrants, bonds, notes, debentures, options and other securities of whatever kind and nature. (b) The address of the principal place of business and principal office of Stephen Feinberg is 450 Park Avenue, New York, New York, 10022. (c) The principal occupation of Stephen Feinberg is as the General Partner of Feinberg Management L.P. and other related investment firms. (d) Stephen Feinberg has not, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) Stephen Feinberg has not, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or state securities laws or finding any violation with respect to such laws. (f) Stephen Feinberg is a citizen of the United States. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Item 3 as reported on the 13D is hereby amended and restated as follows: Pursuant to the Amended and Restated Term Loan Agreement (the "Loan Agreement"), dated as of July 2, 1996, as amended and restated as of December 10, 1996, among Mountaineer Park, Inc. ("Mountaineer"), as borrower, the Company, as guarantor, and Madeleine LLC, a New York limited liability company ("Madeleine"), as lender, Madeleine agreed to extend to Mountaineer a term loan in the amount of $16.1 million. Pursuant to the Loan Agreement, on July 2, 1996, Madeleine issued to Mountaineer an initial loan (the "Initial Loan") in the amount of $5 million. In addition, pursuant to the Loan Agreement, on December 27, 1996, Madeleine issued to Mountaineer an additional loan (the "Additional Loan") in the amount of $11.1 million. Page 4 of 16 Pages Mountaineer is a wholly-owned subsidiary of the Company. In partial consideration of making the Initial Loan to Mountaineer, the Company issued in the name of Madeleine 183,206 Shares (the "Initial Shares") and Warrants for the purchase of 1,492,860 Shares (the "Initial Warrants", and together with the Initial Shares, the "Initial Securities"). In addition, in partial consideration of making the Additional Loan to Mountaineer, the Company agreed to issue in the name of Madeleine 550,000 Shares (the "Additional Shares") and Warrants for the purchase of 1,632,140 Shares (the "Additional Warrants", and, together with the Additional Shares, the "Additional Securities"). Pursuant to the Loan Agreement, the Additional Shares were issued or are to be issued, as the case may be, as follows: 42,316 Shares were delivered to Madeleine on December 27, 1996, and an additional 42,307 Shares are to be delivered to Madeleine on the first day of each calendar month beginning January 1, 1997, and ending on December 1, 1997. Pursuant to the Loan Agreement, the Additional Warrants were issued or are to be issued, as the case may be, as follows: a Warrant to purchase 125,552 Shares was delivered to Madeleine on December 27, 1996, and an additional Warrant to purchase 125,549 Shares is to be delivered to Madeleine on the first day of each calendar month beginning on January 1, 1997, and ending on December 1, 1997. All funds used to make the Initial Loan came directly from the net assets of Long Horizons, Illiad, Styx and International. All funds used to make the Additional Loan came directly from the net assets of Long Horizons, Illiad, Styx, International and upon its organization in December 1996, also from Overseas. ITEM 4. Item 4 as reported in the 13D is hereby amended and restated as follows: The purpose of the acquisition of the Securities on behalf of Long Horizons, Illiad, Styx, International and Overseas is for investment. Other than as set forth above, Stephen Feinberg does not have any plans or proposals which relate to, or could result in, any of the matters referred to in paragraphs (b) through (j), inclusive, of Item 4 of Schedule 13D. Such entities and persons may, at any time and from time to time, review or reconsider their position with respect to any of such matters, but have no present intention of doing so. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. Item 5 as reported in the 13D is hereby amended and restated as follows: (a) The approximate aggregate percentage of Shares reported beneficially owned by each person herein is based on 21,248,033 Securities, including 18,940,220 Shares outstanding at November 1, 1996, as reflected in the Form 10-Q of the Company for the period ending September 30, 1996, plus (i) the 839,734 Shares underlying the Warrants, beneficially owned by Stephen Feinberg, that were issued pursuant to the Initial Loan, (ii) the 550,000 Shares issued pursuant to the Additional Loan and (iii) the 918,079 Shares underlying the Warrants, beneficially owned by Stephen Feinberg, that were issued pursuant to the Additional Loan. For purposes of calculating the percentages herein, the number of Shares underlying the Warrants beneficially owned by the reporting person have been added to the number of Shares outstanding as though such Warrants had been exercised. In addition, for purposes of calculating the percentages herein, the number of Shares and Warrants to be delivered to Madeleine on the first of each calendar month beginning January 1, 1997, and ending on December 1, 1997, in connection with the Additional Loans have been added to the number of Securities outstanding as though such Shares and Warrants had been delivered. Although Madeleine is the record holder of 3,858,206 Securities, pursuant to participation agreements with Madeleine, as of the date hereof, Long Horizons is the beneficial owner of 1,167,125 Securities, Illiad is the beneficial owner of Page 5 of 16 Pages 358,442 Securities, Styx is the beneficial owner of 463,402 Securities, International is the beneficial owner of 52,389 Securities and Overseas is the beneficial owner of 128,882 Securities. The remaining Securities were transferred to entities over which Stephen Feinberg possesses no voting or investment power. The transactions were private transactions. Madeleine disclaims beneficial ownership of any Securities. (b) Stephen Feinberg possesses voting and investment power over all Securities owned by Long Horizons, Illiad, Styx, International and Overseas. Stephen Feinberg owns directly no Securities. By reason of the provisions of Rule 13d-3 of the Act, Stephen Feinberg may be deemed to own beneficially 2,170,241 Securities, constituting approximately 10.21% of the Securities outstanding. Madeleine disclaims beneficial ownership of any Securities. (c) Other than the Loan Agreement, as more specifically described in Item 3, Stephen Feinberg has not effected any transactions in the Securities. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Item 6 as reported on the 13D is hereby amended and restated as follows: Other than as described above, there are no contracts, understandings or relationships (legal or otherwise) among the persons named in Item 2 hereof and between such persons or any person with respect to any securities of the Company, including but not limited to transfer or voting of any of theShares, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies; other than as follows: (a) the Loan Agreement, as more specifically described in Item 3, pursuant to which the Company has agreed that the Company shall, on each November 15, commencing November 15, 1997, until all of the amounts due to Madeleine in connection with the Loan Agreement have been satisfied in full (i) deliver toMadeleine stock certificates, in such denominations as Madeleine may request,validly issued to Madeleine or its designee, representing the number of Shares equal to the quotient of (I) the product of (A) the outstanding principal amount of the loan on the day of such delivery and (B) 5%, and (II)the average daily closing price of the Shares on each business day, as reported in a publication of generally recognized standing in the securities industry, for the 30 business days immediately preceding the third business day prior to such November 15 and (ii) issue and deliver to Madeleine or its designee validly issued Warrants for the purchase of: (I) 250,000 Shares with an expiration date of five years from the date of issuance of such Warrant, and an exercise price equal to $1.06, and (II) Shares, with an Expiration Date of five years from the date issuance, for an exercise price equal to the average daily closing price of the Shares on each business day, as reported in a publication of generally recognized standing in the securities industry, for the 30 business days immediately preceding the third business day prior to the Final Term Funding Date (as defined in the Loan Agreement),rounded to the nearest penny, and for that number of Shares equal to the product of (A) the product of (x) a fraction, the numerator of which is the exercise price and the denominator of which is 1.06, and (y) 550,000, and (B) the quotient of (x) the outstanding principal amount of the loan on the day of such delivery and (y) $16,100,000; (b) Madeleine and the Company have entered into an agreement pursuant to which, in the event that (i) Madeleine shall fail to secure the approval (the "Approval") under the Company's 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, (ii) Madeleine shall fail to secure an opinion of counsel to the Commission (the "Opinion") that, in the event that the Approval is Page 6 of 16 Pages not in effect, Madeleine may own in excess of 5% of the issued and outstanding Shares at any time, and from time to time, provided that Madeleine 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 Shares, (iii) Madeleine owns more than 5% of the issued and outstanding Shares, and (iv) there is no other reasonable alternative that, in the opinion of counsel to the Company, would satisfy the Code, promptly after notice by the Company, Madeleine shall be obligated to sell to the Company and the Company obligated to purchase, from time to time, the minimum number of Shares such that, after giving effect to such purchase, Madeleine will own 5% or less of the Shares then outstanding; provided, however, that if the Shares are registered pursuant to an effective registration statement under the Securities Act of 1933, as amended, Madeleine shall use its best efforts to divest such number of Shares in the public market; ITEM 7. MATERIAL TO BE FILED AS EXHIBITS Item 7 as reported on the 13D is hereby amended and restated as follows: There is filed herewith as Exhibit 1 a written agreement relating to the sale by Madeleine and the purchase by the Company of Securities as more specifically described in Item 6(b). Page 7 of 16 Pages After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. March 31,1997 /s/ STEPEHN FEINBERG Stephen Feinberg, on behalf of The Long Horizons Fund, L.P., Illiad, L.P., Styx Partners, L.P., Styx International, Ltd. and The Long Horizons Overseas Fund, Ltd. Page 8 of 16 Pages EX-99 2 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 MADELEINE 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/ EDSON ARNEAULT Edson Arneault President 1461 Glenneyre Street, Suite F Laguna Beach, California 92651 MADELEINE LLC /s/ KEVIN GENDA Kevin Genda Power of Attorney 950 Third Avenue, 20th Floor New York, New York 10022 Attention: Mr. Kevin P. Genda Page 16 of 16 Pages -----END PRIVACY-ENHANCED MESSAGE-----