EXHIBIT 10.2
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of February
__, 2006, by and among Lakes Entertainment, Inc., a Minnesota corporation, with
headquarters located at 130 Cheshire Lane, Suite 101, Minnetonka, MN 55305 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of preferred shares of the
Company designated as Series A Convertible Preferred Stock, the terms of which
are set forth in the certificate of designations for such series of convertible
preferred shares (the "CERTIFICATE OF DESIGNATIONS") in the form attached hereto
as Exhibit A (together with any convertible preferred shares issued in
replacement thereof in accordance with the terms thereof, the "PREFERRED
SHARES"), which Preferred Shares shall be convertible into shares of the
Company's Common Stock, par value $0.01 per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), in accordance with the terms of the
Certificate of Designations.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, at the Initial Closing (as
defined in Section 1(a)(i) below), a warrant, in substantially the form attached
hereto as Exhibit B (collectively, the "WARRANTS"), to acquire that number of
shares of Common Stock set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers (as exercised, collectively, the "WARRANT SHARES"). The
aggregate number of Warrant Shares for all Buyers shall be 4,457,751.
D. Each Buyer wishes to purchase, upon the satisfaction of certain
conditions, and the Company wishes to sell, upon the terms and conditions stated
in this Agreement, at the Additional Closing (as defined in Section 1(a)(ii)
below), that aggregate number of Preferred Shares set forth opposite such
Buyer's name in column (3) on the Schedule of Buyers (which aggregate number for
all Buyers shall be 4,457,751)
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company will agree to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement) under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.
F. The Preferred Shares, the Conversion Shares, the Warrants and the
Warrant Shares collectively are referred to herein as the "SECURITIES".
G. Contemporaneously herewith, the Company and certain of its
subsidiaries entered into financing arrangements (the "FINANCING FACILITY") with
the Buyers, as secured lenders, and as more fully set forth in a financing
agreement (the "FINANCING AGREEMENT"), by and among the Company and its
subsidiaries (as defined in the Financing Agreement), as borrowers
(collectively, the "BORROWERS"), PLKS Funding, LLC, as administrative agent and
collateral agent (in such capacity the "AGENT"), and the Buyers, as lenders, and
certain other security and ancillary documents related thereto (the "SECURITY
DOCUMENTS"), pursuant to which, subject to the satisfaction of certain borrowing
conditions, the Buyers made available to the Borrowers a $50 million secured
multiple-draw term loan (the "FINANCING").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
(a) Purchase of Preferred Shares and Warrants.
(i) Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6(a) and 7(a) below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Initial Closing Date (as defined
below) (the "INITIAL CLOSING"), Warrants to acquire that number of Warrant
Shares as is set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers.
(ii) Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6(b) and 7(b) below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Additional Closing Date (as
defined below) (the "ADDITIONAL CLOSING"), the number of Preferred Shares,
as is set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers.
(b) Initial Closing. The date and time of the Initial Closing
(the "INITIAL CLOSING DATE") shall be 10:00 a.m., New York City time, on the
date hereof (or such later date as is mutually agreed to by the Company and each
Buyer) after notification of satisfaction (or waiver) of the conditions to the
Initial Closing set forth in Sections 6(a) and 7(a) below at the offices of
Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.
(c) Additional Closing Date. The date and time of the Additional
Closing (the "ADDITIONAL CLOSING DATE") shall be 10:00 a.m., New York City time,
on the second Business Day (or such later date as is mutually agreed to by the
Company and each Buyer) after the satisfaction (or waiver) of the conditions to
the Additional Closing set forth in Sections 6(b) and 7(b) below at the offices
of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.
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(d) Purchase Price.
(i) The aggregate purchase price for the Warrants to be
purchased by each such Buyer at the Closing (the "INITIAL PURCHASE PRICE")
shall be $10.00.
(ii) The aggregate purchase price for the Preferred Shares
to be purchased by each such Buyer at the Closing (the "ADDITIONAL PURCHASE
PRICE", and together with the Initial Purchase Price, the "PURCHASE PRICE")
shall be $44,577.51.
(iii) The Buyers and the Company agree that the Financing,
the Preferred Shares and the Warrants constitute an "investment unit" for
purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, as
amended (the "CODE"). On the Additional Closing Date, PLKS Holdings, LLC
("PRENTICE") and the Company will determine the allocation of the issue
price of such investment unit between the Financing, the Preferred Shares
and the Warrants in accordance with Section 1273(c)(2) of the Code and
Treasury Regulation Section 1.1273-2(h), and neither the Buyers nor the
Company shall take any position inconsistent with such allocation in any
tax return or in any judicial or administrative proceeding in respect of
taxes.
(e) Form of Payment.
(i) On the Initial Closing Date, each Buyer shall pay its
portion of the Initial Purchase Price to the Company for the Warrants to be
issued and sold to such Buyer at the Initial Closing and (B) the Company
shall deliver to each Buyer the Warrants (exercisable for the number of
shares of Common Stock as is set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers), each duly executed on behalf of the Company
and registered in the name of such Buyer or its designee.
(ii) On the Additional Closing Date, (A) each Buyer shall
pay its portion of the Additional Purchase Price to the Company for the
Preferred Shares to be issued and sold to such Buyer at the Additional
Closing and (B) the Company shall deliver to each Buyer the Preferred
Shares (in such denominations as is set forth opposite such Buyer's name in
column (3) on the Schedule of Buyers), each duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and
warrants with respect to only itself that:
(a) No Sale or Distribution. Such Buyer is acquiring the
Preferred Shares and the Warrants, and upon conversion of the Preferred Shares
and exercise of the Warrants (other than pursuant to a Cashless Exercise (as
defined in the Warrants)) will acquire the Conversion Shares issuable upon
conversion of the Preferred Shares and the Warrant Shares issuable upon exercise
of the Warrants, for its own account and not with a view towards, or for resale
in connection with, the sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term
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and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities. For
purposes hereof, "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(b) Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D and has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that the Buyer
is capable of evaluating the merits and risks of its investment in the Company
and has the capacity to protect its own interests.
(c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk and is able to afford a complete loss of such investment.
Such Buyer has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Securities.
(e) Experience. The Buyer has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its investment in the Company and has the capacity to protect its own
interests. The Buyer acknowledges that investment in the Securities is a
speculative risk. The Buyer is able to fend for itself in the transactions
contemplated by this Agreement, can bear the economic risk of its investment in
the Securities (including possible complete loss of such investment) for an
indefinite period of time, and has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the investment in the Securities. The Buyer understands that nothing in this
Agreement or any other materials presented to the Buyer in connection with the
purchase and sale of the Securities constitutes legal, tax or investment advice.
The Buyer has consulted such legal, tax and investment advisors as the Buyer, in
its sole discretion, has deemed necessary or appropriate.
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(f) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended, (or a successor rule thereto) (collectively,
"RULE 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 2(a)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.
(h) Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the resale of the Conversion Shares and the Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the "blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE][EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
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PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
THE SECURITIES.
Upon written request of the Buyer, the legend set forth above shall be removed
and the Company shall issue a certificate without such legend to the holder of
the Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the 1933
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that such sale, assignment or transfer of the Securities may be
made without registration under the applicable requirements of the 1933 Act, or
(iii) such holder provides the Company with reasonable assurance that the
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.
(i) Authorization; Validity; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(j) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement to which such
Buyer is a party and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.
(k) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
reconfirms its representations and warranties made to each of the Buyers in the
Financing Agreement and each other Loan Document (as defined in the Financing
Agreement) (collectively, the "TRANSACTION DOCUMENTS") and incorporates them by
reference herein, mutatis mutandis. In addition, the Company represents and
warrants to each of the Buyers that:
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(a) Certificate of Designations. As of the Closing, the
Certificate of Designations in the form attached as Exhibit A shall have been
filed on or prior to the Additional Closing Date with the Secretary of State of
the State of Minnesota and shall be in full force and effect, enforceable
against the Company in accordance with its terms and shall not have been
amended.
(b) Issuance of Securities. The issuance of the Preferred Shares
and the Warrants are duly authorized and free from all taxes, liens and charges
with respect to the issue thereof, and the Preferred Shares shall be entitled to
the rights and preferences as set forth in the Certificate of Designations. As
of the Initial Closing, a number of shares of Common Stock shall have been duly
authorized and reserved for issuance which equals or exceeds 130% of the
aggregate of the maximum number of shares of Common Stock issuable upon exercise
of the Warrants as of the trading day immediately preceding the Initial Closing
Date. As of the Additional Closing Date, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or
exceeds 130% of the aggregate of the maximum number of shares of Common Stock
issuable upon conversion of the Preferred Shares of the trading day immediately
preceding the Additional Closing Date. Upon issuance, conversion or exercise in
accordance with the Preferred Shares or the Warrants, as the case may be, the
Conversion Shares and the Warrant Shares, respectively, will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. Assuming the
accuracy of each of the representations and warranties set forth in Section 2 of
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.
(c) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Preferred Shares and Warrants and reservation for issuance and
issuance of the Conversion Shares and Warrant Shares) will not (i) result in a
violation of any Articles of Incorporation, certificate of formation, any
certificate of designations or other constituent documents of the Company or any
of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries
or bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) in any material respect under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of The OTC Bulletin Board
(the "PRINCIPAL MARKET")) applicable to the Company or any of its Subsidiaries
or any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected, except, in the case of clause
(iii), for such violations as would not be reasonably expected to have a
Material Adverse Effect. For the purpose of this Agreement, "MATERIAL ADVERSE
EFFECT" means a material adverse effect on any of (i) the operations, business,
assets, properties, condition (financial or otherwise) or prospects of the
Company or any of its Subsidiaries taken as a whole, (ii) the ability of the
Company or any of its Subsidiaries to perform any of its obligations under any
Transaction Document to which it is a party, (iii) the legality, validity or
enforceability of this Agreement or any other Transaction
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Document, (iv) the rights and remedies of the Agent or any Lender (as defined in
the Financing Agreement) under any Transaction Document, or (v) the validity,
perfection or priority of a Lien (as defined in the Financing Agreement) in
favor of the Agent for the benefit of the Lenders on any of the Collateral (as
defined in the Financing Agreement); provided, however, that, notwithstanding
the foregoing, in no event shall a Material Adverse Effect be caused by any
adverse litigation filed against the Company or any of its Subsidiaries unless
such litigation prevents or enjoins the actual construction of the Pokagon,
Shingle Springs or Jamul Projects (in each case, as defined in the Financing
Agreement).
(d) Listing Requirements. The Company is not in violation of the
listing requirements of the Principal Market and has no knowledge of any facts
that would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.
(e) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(f) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company has not engaged any placement agent or other agent in
connection with the sale of the Securities.
(g) No Integrated Offering. None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated as of the date of this Agreement. Except as otherwise
required by the Transaction Documents, none of the Company, its Subsidiaries,
their affiliates and any Person acting on their behalf will take any action or
steps referred to in the preceding sentence that would require registration of
any of the Securities under the 1933 Act or cause the offering of the Securities
to be integrated with other offerings.
(h) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances in accordance with the respective terms of the
Certificate of Designations and the Warrant. The
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Company further acknowledges that, its obligation to issue Conversion Shares
upon conversion of the Preferred Shares in accordance with this Agreement and
the Certificate of Designations and its obligation to issue the Warrant Shares
upon exercise of the Warrants in accordance with this Agreement and the Warrants
is, in each case, except as provided in the Certificate of Designations and the
Warrant, respectively, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
(i) Application of Takeover Protections; Rights Agreement. Except
as set forth on Schedule 3(i), the Company and its board of directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Articles
of Incorporation (as defined in Section 3(m)) or the laws of the state of its
incorporation which is or could become applicable to any Buyer as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company's issuance of the Securities and any Buyer's ownership of the
Securities. Except for the Company's Rights Agreement dated as of May 12, 2000,
the Company has not adopted a stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company.
(j) SEC Documents; Financial Statements. During the three (3)
years prior to the date hereof, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to the Buyers or
their respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except as set forth on Schedule 3(j), as
of their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to
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state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made and not
misleading.
(k) Sarbanes-Oxley Act. The Company is in compliance with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof,
except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.
(l) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least two days prior to the date hereof and other than the
grant of stock options disclosed on Schedule 3(l) or the employment agreement
required under the Transaction Documents, none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for ordinary course services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.
(m) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 200,000,000 shares, $0.01 par value per
share. After giving effect to the filing of the Certificate of Designations with
the office of the Secretary of State of the State of Minnesota, 7,500,000 of
such shares will be designated Series A Convertible Preferred Stock, of which as
of the date hereof, none are issued and outstanding. Of the remainder,
22,299,909 shares are issued and outstanding shares of Common Stock and
5,500,000 shares of Common Stock are reserved for issuance pursuant to the
Company's stock option and purchase plans. All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(m): (i) none of the Company's
share capital is subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional share capital of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries; (iii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (iv) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (iv) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
10
the Securities; (vi) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement; and (vii)
the Company and its Subsidiaries have no liabilities or obligations required to
be disclosed in the SEC Documents but not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company's or its
Subsidiaries' respective businesses and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect. The Company has made
available to the Buyer true, correct and complete copies of the Company's
Amended and Restated Articles of Incorporation, as amended and as in effect on
the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as
amended and as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.
(n) Internal Accounting and Disclosure Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed in to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is accumulated and communicated to
the Company's management, including its principal executive officer or officers
and its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.
(o) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
(p) Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.
(q) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
11
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.
(r) Acknowledgement Regarding Buyers' Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding, but
subject to compliance by the Buyers with applicable law, it is understood and
acknowledged by the Company (i) that none of the Buyers have been asked to
agree, nor has any Buyer agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) that past or future open market or other transactions by any Buyer,
including, without limitation, short sales or "derivative" transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded securities;
(iii) that any Buyer, and counter parties in "derivative" transactions to which
any such Buyer is a party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iv) that each Buyer shall not be deemed to
have any affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges that
(a) one or more Buyers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect
to Securities are being determined and (b) such hedging activities (if any)
could reduce the value of the existing stockholders' equity interests in the
Company at and after the time that the hedging activities are being conducted.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares and Warrant Shares and none of the Preferred Shares or Warrants is
outstanding, (the "REPORTING PERIOD"), the Company shall use its best efforts to
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall continue to use its best efforts to timely file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise no longer require such filings.
12
(d) Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period (i) unless the following
are filed with the SEC through EDGAR and are available to the public through the
EDGAR system, within one (1) Business Day after the filing thereof with the SEC,
a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q,
any Current Reports on Form 8-K and any registration statements (other than on
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as
the release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
(e) Listing. The Company shall use its best efforts to promptly
secure the listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon each national securities exchange and
automated quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed and in accordance with the
Preferred Shares and Warrants, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall use its best efforts to maintain the Common Stocks' authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market;
provided, however, that the Company makes no covenant regarding the trading
price of the Common Stock. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(e).
(f) Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Securities. The
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(g) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(g) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
(g) Disclosure of Transactions and Other Material Information. On
or before 8:30 a.m., New York City time, on the fourth Business Day following
the date of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement), the form of the Certificate of Designations, the
form of Warrant, and the form of the Registration Rights Agreement) as exhibits
to such filing (including all attachments, the "8-K FILING"). Subject to the
foregoing, neither the Company nor any Buyer shall issue any press releases or
any other public statements with respect to the transactions
13
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).
(h) Additional Registration Statements. At any time following the
Demand Notice Date (as defined in the Registration Rights Agreement) and until
the date that the Registration Statement (as defined in the Registration Rights
Agreement) is first declared effective by the SEC (the "EFFECTIVE DATE"), the
Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Securities.
(i) Additional Warrants; Variable Securities; Dilutive Issuances.
So long as any Buyer beneficially owns any Securities, the Company shall not
issue any other securities that would cause a breach or default under the
Financing Facility. For so long as any Preferred Shares or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for Common Stock at a
price which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price unless the
conversion, exchange or exercise price of any such security cannot be less than
the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable. For so long as any
Preferred Shares or Warrants remain outstanding, the Company shall not, in any
manner, enter into or affect any Dilutive Issuance (as defined in the Warrants)
if the effect of such Dilutive Issuance is to cause the Company to be required
to issue upon exercise of any Warrant any shares of Common Stock in excess of
that number of shares of Common Stock which the Company may issue upon exercise
of the Warrants without breaching the Company's obligations under the rules or
regulations of the Nasdaq National Market as if the Company were regulated by
such rules or regulations and irrespective as to whether the Company is listed
on the Nasdaq National Market.
(j) Corporate Existence. So long as any Buyer beneficially owns
any Securities, the Company shall not be party to any Fundamental Transaction
(as defined in the Warrants) unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Warrants.
(k) Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 130% of the number of shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants issued at
the Closing.
(l) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations could not
result, either individually or in the aggregate, in a Material Adverse Effect.
(m) Most Favored Registration Rights. If the Company at any time
grants any registration rights to any Person with respect to any securities of
the Company or any of its
14
Subsidiaries with terms or conditions more favorable than the terms and
conditions set forth in the Registration Rights Agreement, such more favorable
terms and conditions shall be deemed to be included in the Registration Rights
Agreement and the Buyers shall be entitled to the benefits thereof.
(n) NASDAQ Approval. In the event the Company does not receive
the approval of Nasdaq pursuant to Section 6(b)(ii), subject to applicable
corporate law, the parties shall work in good faith to modify the terms and
conditions of the Certificate of Designations in a manner acceptable to Nasdaq
and to preserve as closely as possible the terms and conditions of the
Certificate of Designations. If, notwithstanding, such good faith efforts by the
parties, they are unable to create a certificate of designations acceptable to
Nasdaq, the parties agree to modify and file a certificate of designations which
excludes all of the items contained in the Certificate of Designations other
than Sections 16 and 19 as it existed as of the Initial Closing Date and to
amend and restate the Warrants to replace Section 16(f) of such Warrants with
Sections A.17(g) and A.17(h) of the Certificate of Designations, mutatis
mutandis.
(o) Issuance of Preferred Shares upon Cancellation. Concurrently
with the occurrence of a Cancellation (as defined in the Warrants), the Company
shall issue to each holder of Warrants such number of additional Preferred
Shares equal to the sum of (i) such number of Warrant Shares held by such holder
on the date of such Cancellation (the "ADDITIONAL PREFERRED SHARES") and (ii)
(x) the number of Warrant Shares into which such Warrant is then exercisable
(without regard to any limitations on exercise) immediately prior to such
Cancellation less (y) the number of Preferred Shares held by such holder
immediately prior to such Cancellation.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the Preferred
Shares and the Warrants, in which the Company shall record the name and address
of the Person in whose name the Preferred Shares and the Warrants have been
issued (including the name and address of each transferee), the face amount of
Preferred Shares held by such Person, the number of Warrant Shares issuable upon
exercise of the Warrants held by such Person and the number of Preferred Shares
held by such Person. The Company shall keep the register open and available at
all times during business hours for inspection of any Buyer or its legal
representatives.
(b) Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates or credit shares to the applicable balance accounts
at The Depository Trust Company ("DTC"), registered in the name of each Buyer or
its respective nominee(s), for the Conversion Shares, and the Warrant Shares
issued at the Initial Closing or upon conversion of the Preferred Shares or
exercise of the Warrants in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants in the form of Exhibit D attached hereto (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(h) hereof, will be given
by the Company to its transfer agent, and that the Securities shall otherwise be
freely transferable
15
on the books and records of the Company as and to the extent provided in this
Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section 2(g), the
Company shall permit the transfer and shall promptly instruct its transfer agent
to issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Conversion Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) The obligation of the Company hereunder to issue and sell the
Warrants to each Buyer at the Initial Closing is subject to the satisfaction, at
or before the Initial Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to
the Company the Initial Purchase Price.
(iii) The representations and warranties of such Buyer shall
be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all respects)
as of the date when made and as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such Buyer at
or prior to the Closing Date.
(b) The obligation of the Company hereunder to issue and sell the
Preferred Shares to each Buyer at the Additional Closing is subject to the
satisfaction, at or before the Additional Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer and each other Buyer shall have delivered to
the Company the Additional Purchase Price.
16
(ii) The Company shall have obtained the consent of Nasdaq
to the terms and conditions of the Certificate of Designations.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of each Buyer hereunder to purchase the
Warrants at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company shall have duly executed and delivered to
such Buyer (i) each of the Transaction Documents and (ii) the related
Warrants (in such amounts as such Buyer shall request) being purchased by
such Buyer at the Initial Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Gray
Plant Mooty, the Company's counsel, dated as of the Initial Closing Date,
in substantially the form of Exhibit E-1 attached hereto.
(iii) The Company shall have delivered to such Buyer a copy
of the Irrevocable Transfer Agent Instructions, in the form of Exhibit D
attached hereto, which instructions shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(iv) Company shall have delivered to such Buyer a
certificate evidencing the formation and good standing of the Company and
each of its Subsidiaries in such entity's jurisdiction of formation issued
by the Secretary of State (or comparable office) of such jurisdiction, as
of a date within 10 days of the Initial Closing Date.
(v) The Company shall have delivered to such Buyer a
certificate evidencing the Company's qualification as a foreign corporation
and good standing issued by the Secretary of State of the State of
Minnesota as of a date within 10 days of the Initial Closing Date.
(vi) The Company shall have delivered to such Buyer a
certified copy of the Articles of Incorporation as certified by the
Secretary of State of the State of Minnesota within 10 days of the Initial
Closing Date.
(vii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the
Initial Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company's Board of Directors in a form reasonably
acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the
Bylaws, each as in effect at the Initial Closing in the form attached
hereto as Exhibit F.
(viii) The representations and warranties of the Company
shall be true and correct in all material respects (except for those
representations and warranties
17
that are qualified by materiality or Material Adverse Effect, which shall
be true and correct in all respects) as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Initial Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Financial Officer of the
Company, dated as of the Initial Closing Date, to the foregoing effect and
as to such other matters as may be reasonably requested by such Buyer in
the form attached hereto as Exhibit G.
(ix) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Initial Closing
Date.
(x) The Common Stock (i) shall be designated for quotation
or listed on the Principal Market and (ii) shall not have been suspended,
as of the Initial Closing Date, by the SEC or the Principal Market from
trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of the Initial Closing Date,
either (A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum listing maintenance requirements of the Principal Market.
(xi) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the
sale of the Warrants.
(xii) Within six (6) Business Days prior to the Initial
Closing, the Company shall have delivered or caused to be delivered to each
Buyer a perfection certificate, duly completed and executed by the Company
and each of the Subsidiaries, in form and substance satisfactory to the
Buyers.
(xiii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
(b) The obligation of each Buyer hereunder to purchase the
Preferred Shares at the Additional Closing is subject to the satisfaction, at or
before the Additional Closing Date, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company
with prior written notice thereof:
(i) The Company shall have duly executed and delivered to
such Buyer (A) each of the Transaction Documents and (B) the Preferred
Shares (in such numbers as is set forth across from such Buyer's name in
column (3) of the Schedule of Buyers) being purchased by such Buyer at the
Additional Closing pursuant to this Agreement.
18
(ii) Such Buyer shall have received the opinion of Gray
Plant Mooty, the Company's counsel, dated as of the Additional Closing
Date, in substantially the form of Exhibit E-2 attached hereto.
(iii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the
Additional Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company's Board of Directors in a form reasonably
acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the
Bylaws, each as in effect at the Additional Closing Date in the form
attached hereto as Exhibit F.
(iv) The representations and warranties of the Company shall
be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all respects)
as of the date when made and as of the Additional Closing Date as though
made at that time (except for representations and warranties that speak as
of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Additonal Closing Date.
Such Buyer shall have received a certificate, executed by the Chief
Financial Officer of the Company, dated as of the Additional Closing Date,
to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit G.
(v) The Certificate of Designations in the form attached as
Exhibit A shall have been filed on or prior to the Additional Closing Date
with the Secretary of State of the State of Minnesota and shall be in full
force and effect, enforceable against the Company in with its terms and
shall not have been amended.
(vi) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the
sale of the Securities, including, without limitation, the consent of
Nasdaq to the terms and conditions of the Certificate of Designations.
(vii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party.
9. MISCELLANEOUS.
19
(a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the Preferred Shares, and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom
20
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Preferred Shares or holders of the
Warrants, as the case may be. The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
(f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with an overnight courier service, in each case properly addressed
to the party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
If to the Company:
Lakes Entertainment, Inc.
130 Cheshire Lane, Suite 101
Minnetonka, MN 55305
Telephone: (952) 449-9092
Facsimile: (952 449-9353
Attention: Damon E. Schramm, Esq. Timothy Cope
with a copy to:
Gray Plant Mooty
500 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Telephone: (612) 632-3050
Facsimile: (612) 632-4050
Attention: Daniel R. Tenenbaum, Esq.
If to the Transfer Agent:
Wells Fargo Bank Minnesota, N.A.
Stock Transfer Department
161 North Concord Exchange
South St. Paul, MN 55075
Telephone: (651) 306-4498
Facsimile: (651) 450-4078
21
Attention: Cindy Gesme
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes) to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
Nancy Finkelstein, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares or the Warrants. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the holders of at least a majority of the
Preferred Shares then outstanding, including by including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Warrants). A
Buyer may assign some or all of its rights hereunder without the consent of the
Company in connection with a transfer by such Buyer of any of the Securities, in
which event such assignee shall be deemed to be a Buyer hereunder with respect
to such assigned rights
(h) No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section
8, the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9
shall survive the Additional Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as any other party may reasonably request
22
in order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any material inaccuracy in any representation or warranty made by the Company in
the Transaction Documents or any inaccuracy in any representation or warranty in
the Transaction Documents that is qualified by materiality or Material Adverse
Effect, (b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company) and arising out
of or resulting from (i) the execution, delivery, performance or enforcement of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of such Buyer or holder of the Securities as
an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents; provided that indemnification pursuant to this clause
(iii) shall not be available to the extent arising primarily from such Buyer's
fraud, gross negligence or willful misconduct. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities that is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate
23
relief to the Buyers. The Company therefore agrees that the Buyers shall be
entitled to seek temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages and without posting a bond or
other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights
(o) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitations, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.
[SIGNATURE PAGE FOLLOWS]
24
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
LAKES ENTERTAINMENT, INC.
By: /S/ Timothy J. Cope
------------------------------------
Name: Timothy J. Cope
Title: President and Chief Financial
Officer
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
PLKS HOLDINGS, LLC
By: Prentice Capital Management, LP,
as Manager
By: /S/ Michael Weiss
------------------------------------
Name: Michael Weiss
Title: Chief Financial Officer
[Signature Page to Securities Purchase Agreement]
SCHEDULE OF BUYERS
(3)
AGGREGATE (4) (5) (6)
NUMBER AGGREGATE INITIAL ADDITIONAL (7)
(1) (2) OF PREFERRED NUMBER OF PURCHASE PURCHASE LEGAL REPRESENTATIVE'S
BUYER ADDRESS AND FACSIMILE NUMBER SHARES WARRANTS PRICE PRICE ADDRESS AND FACSIMILE NUMBER
- ------------------ ---------------------------- ------------ --------- -------- ---------- -----------------------------
PLKS HOLDINGS, LLC c/o Prentice Capital Management, 4,457,751 4,457,751 $10.00 $44,577.51 Schulte Roth & Zabel LLP
LP 919 Third Avenue
623 Fifth Avenue New York, New York 10022
32nd Floor Attention: Eleazer Klein, Esq.
New York, NY 10022 Facsimile: (212) 593-5955
Attention: Michael Zimmerman Telephone: (212) 756-2376
Charles Phillips
Facsimile: 212-756-1464
EXHIBITS
Exhibit A Form of Certificate of Designations
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Irrevocable Transfer Agent Instructions
Exhibit E-1 Form of Initial Closing Opinion of Company's Counsel
Exhibit E-2 Form of Additional Closing Opinion of Company's Counsel
Exhibit F Form of Secretary's Certificate
Exhibit G Form of Officers Certificate
SCHEDULES
Schedule 3(i) Application of Takeover Protections; Rights Agreement
Schedule 3(j) SEC Documents; Financial Statements
Schedule 3(l) Transaction with Affiliates
Schedule 3(m) Equity Capitalization