EXHIBIT 10.4
WARRANT
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE 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 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.
LAKES ENTERTAINMENT, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: PC- 1
Number of Shares of Common Stock: 4,457,751( the "INITIAL WARRANT SHARES")
Date of Issuance: February 15, 2006 ("ISSUANCE DATE")
Lakes Entertainment, Inc., a Minnesota corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, PLKS HOLDINGS, LLC, the registered
holder hereof or its permitted assigns (the "HOLDER"), is entitled, subject to
the terms set forth below, to purchase from the Company, at the Exercise Price
(as defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "WARRANT"), at any time or times
on or after the Issuance Date, but not after 11:59 p.m., New York Time, on the
Expiration Date (as defined below), FOUR MILLION FOUR HUNDRED AND FIFTY SEVEN
THOUSAND SEVEN HUNDRED AND FIFTY ONE (4,457,751) fully paid nonassessable shares
of Common Stock (as defined below) (the "WARRANT SHARES"). Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 18. This Warrant is one of the Warrants to purchase Common
Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of February 15, 2006 (the "SUBSCRIPTION
DATE"), by and among the Company and the investors (the "BUYERS") referred to
therein (the "SECURITIES PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions
hereof (including, without limitation, the limitations set forth in Section
1(f)), this Warrant may be
exercised by the Holder on any day on or after the Issuance Date, in whole or in
part, by (i) delivery of a written notice, in the form attached hereto as
Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire
transfer of immediately available funds or (B) by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or
before the second Business Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS" and the date the
Company received the Exercise Delivery Documents, the "EXERCISE DELIVERY
DOCUMENTS DATE"), the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Delivery Documents to the Holder and the
Company's transfer agent (the "TRANSFER AGENT"). On or before the third Business
Day following the date on which the Company has received all of the Exercise
Delivery Documents (the "SHARE DELIVERY DATE"), the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer Program, upon the request of the Holder,
credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder's or its designee's balance
account with DTC through its Deposit Withdrawal Agent Commission system, or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company's
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery to the Company of properly executed and completed
Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If the original Warrant is
submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than five
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less (i) the number of Warrant Shares purchased upon such exercise plus
(ii) any Warrant Shares tendered pursuant to the cashless exercise provisions of
Section 1(d). No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant. NOTWITHSTANDING ANY PROVISION
OF THIS WARRANT TO THE CONTRARY, (I) THE HOLDER PRO RATA ALLOCATION OF 500,000
WARRANT SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK
SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
EXERCISABLE UNLESS A WPT 75% COLLATERAL
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EVENT HAS OCCURRED, (II) THE HOLDER PRO RATA ALLOCATION OF 500,000 WARRANT
SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
EXERCISABLE UNLESS A WPT 50% COLLATERAL EVENT HAS OCCURRED, (III) THE HOLDER PRO
RATA ALLOCATION OF 457,751 WARRANT SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK
DIVIDENDS, REVERSE STOCK SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS AND
SIMILAR EVENTS) SHALL NOT BE EXERCISABLE UNLESS A WPT 25% COLLATERAL EVENT HAS
OCCURRED, (IV) THE HOLDER PRO RATA ALLOCATION OF 500,000 WARRANT SHARES (AS
ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
EXERCISABLE UNLESS A WPT LEGISLATION EVENT HAS OCCURRED AND (V) AS OF ANY GIVEN
DATE, ONLY SUCH NUMBER OF THE HOLDER PRO RATA ALLOCATION OF THE OTHER 2,500,000
WARRANT SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK
SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) EQUAL TO (X)
(I) (1) THE HOLDER PRO RATA ALLOCATION OF 2,500,000 (AS ADJUSTED FOR STOCK
SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS, RECAPITALIZATIONS,
RECLASSIFICATIONS AND SIMILAR EVENTS) LESS (2) ANY WARRANT SHARES RECEIVED UPON
EXERCISE OF THIS WARRANT PURSUANT TO THIS SECTION 1(A)(II) PRIOR TO SUCH DATE
(AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) MULTIPLIED BY (II) THE
PRINCIPAL AMOUNT OF THE FINANCING FACILITY DRAWN BY THE COMPANY ON OR PRIOR TO
SUCH DATE, DIVIDED BY (Y) THE MAXIMUM PRINCIPAL AMOUNT OF THE FINANCING
FACILITY, WHICH MAY BE DRAWN BY THE COMPANY AS OF SUCH DATE OR ON OR PRIOR TO
SUCH DATE HAS BEEN DRAWN BY THE COMPANY (SUCH AMOUNT, THE "PRO RATA EXERCISABLE
AMOUNT") SHALL BE EXERCISABLE.
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
PRICE" means $7.50, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the
Company shall fail for any reason or for no reason to issue to the Holder within
three (3) Business Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company's share
register or to credit the Holder's balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder's
exercise of this Warrant, and if on or after such Business Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a "BUY-IN"), then the Company shall, within three (3) Business Days
after the Holder's request and in the Holder's discretion, either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock and pay cash to the Holder
in an amount equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on
the Exercise Delivery Documents Date.
(d) Cashless Exercise. Notwithstanding anything contained herein
to the contrary, if a Registration Statement (as defined in the Registration
Rights Agreement) covering the Warrant Shares that are the subject of the
Exercise Notice (the "UNAVAILABLE WARRANT
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SHARES") is not available for the resale of such Unavailable Warrant Shares, the
Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
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B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B= the Closing Sale Price of the shares of Common Stock (as reported
by Bloomberg) on the date immediately preceding the date of the
Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e) Disputes. In the case of a dispute as to the determination of
the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.
(f) (i) Limitations on Exercises; Beneficial Ownership. The
Company shall not effect the exercise of this Warrant, and the Holder shall not
have the right to exercise this Warrant, to the extent that after giving effect
to such exercise, such Person (together with such Person's affiliates) would
beneficially own (directly or indirectly through Warrant Shares or otherwise) in
excess of 4.99% (the "MAXIMUM PERCENTAGE") of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
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Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants, by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants; provided, that any such notice shall be deemed an
agreement by such Holder to provide the Gaming Authority information, respond to
questions and consent to the investigation, all as set forth in Article 8(A) of
the Articles of Incorporation (as defined in the Securities Purchase Agreement).
(ii) Principal Market Regulation. At all times, irrespective of
whether the Company is listed on the Principal Market, the Company shall not be
obligated to issue any shares of Common Stock upon exercise of this Warrant if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise
or otherwise, as applicable, of the SPA Securities and SPA Warrants without
breaching the rules or regulations of the Principal Market as if the Company
were regulated by such rules or regulations (the "EXCHANGE CAP"), except that
such limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of Common Stock in excess of such amount or (B)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, no purchaser of the
SPA Warrants pursuant to the Securities Purchase Agreement (individually, a
"PURCHASER" and collectively, the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or SPA Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of SPA Warrants issued to such Purchaser pursuant to the Securities
Purchase Agreement on the Initial Closing Date and the denominator of which is
the aggregate number of SPA Warrants issued to the Purchasers pursuant to the
Securities Purchase Agreement on the Initial Closing Date (with respect to each
Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's SPA Warrants, the transferee,
if a registered Holder of such SPA Warrants, shall be allocated a pro rata
portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of SPA Warrants shall exercise all of such holder's SPA Warrants into a
number of shares of Common Stock which, in the aggregate, is less than such
Holder's Exchange Cap Allocation, then the difference between such Holder's
Exchange Cap Allocation and the number of shares of Common Stock actually issued
to such Holder shall be allocated to the respective Exchange Cap
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Allocations of the remaining registered Holders of SPA Warrants on a pro rata
basis in proportion to the aggregate number of SPA Warrants then held by each
such Holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.
Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered Holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If and
whenever on or after the Subscription Date (i) the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities for a consideration per share (the "NEW ISSUANCE PRICE") less than a
price (the "APPLICABLE PRICE") equal to the Exercise Price in effect immediately
prior to such issue or sale or deemed issuance or sale (the foregoing a
"DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance the Exercise
Price then in effect shall be reduced to an amount equal to the New Issuance
Price. Upon each such adjustment of the Exercise Price hereunder, the number of
Warrant Shares shall be adjusted to the number of shares of Common Stock equal
to (x) the product of (i) the Common Stock Deemed Outstanding immediately
following such adjustment and Dilutive Issuance and (ii) the number of Warrant
Shares acquirable upon exercise of this Warrant immediately prior to such
adjustment and Dilutive Issuance, divided by (y) the Common Stock Deemed
Outstanding immediately prior to such adjustment and Dilutive Issuance. For
purposes of determining the adjusted Exercise Price under this Section 2(a), the
following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or
upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for
such price per share. For purposes of this Section 2(a)(i), the
"lowest price per share for which one share of Common Stock is
issuable upon exercise of such Options or upon conversion,
exercise or exchange of such Convertible Securities" shall be
equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one
share of Common Stock upon the
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granting or sale of the Option, upon exercise of the Option and
upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of
the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable
upon the conversion, exercise or exchange thereof is less than
the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
Section 2(a)(ii), the "lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or
exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. No further adjustment of
the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of
this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or
sale.
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant
are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the
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shares of Common Stock deemed issuable upon exercise, conversion
or exchange thereof shall be deemed to have been issued as of the
date of such increase or decrease. No adjustment pursuant to this
Section 2(a) shall be made if such adjustment would result in an
increase of the Exercise Price then in effect or a decrease in
the number of Warrant Shares.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by
the parties thereto, the Options will be deemed to have been
issued for a consideration of $0.01. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by
the Company therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the
Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case
the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt. If
any shares of Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the
non-surviving entity as is attributable to such shares of Common
Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities
will be determined in good faith by the Company's Board of
Directors. If the Required Holders disagree with such fair value
determination they shall, within ten (10) days of receipt of
notice of such determination (the "VALUATION EVENT"), provide
notice of such disagreement and the fair value of such
consideration will be determined within five (5) Business Days
after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company
and the Required Holders. The determination of such appraiser
shall be final and binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the
Company.
(v) Record Date. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of
Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase shares of Common Stock, Options or
Convertible Securities, then such record date will be deemed to
be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the
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declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(b) Adjustment upon Subdivision or Combination of shares of
Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of Warrant Shares
will be proportionately decreased. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated by
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of Warrant Shares so as to protect the rights of the
Holder; provided that no such adjustment pursuant to this Section 2(c) will
increase the Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "DISTRIBUTION"), at any time after the issuance of this
Warrant, then, in each such case:
(a) any Exercise Price in effect immediately prior to the close
of business on the record date fixed for the determination of holders of shares
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Closing Bid Price of the shares of Common Stock on the Trading Day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the Trading Day immediately preceding such
record date; and
(b) the number of Warrant Shares shall be increased to a number
of shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders of shares of Common Stock
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entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding paragraph (a).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to
Section 2 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
(b) Fundamental Transactions. If the Company enters into or is
party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of this Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of this Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) Trading Days after
such request, equal to the Black Scholes Value of the remaining unexercised
portion of this Warrant on the date of such request. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity and Holder to comply with the
provisions of this Section 4(b). The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the exercise of this Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from
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time to time be necessary to effect the exercise of the SPA Warrants then
outstanding (without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the shareholders of the
Company generally, contemporaneously with the giving thereof to the
shareholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. Subject to compliance
with applicable state and/or federal securities laws, this Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
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(d) Issuance of New Warrants. Whenever the Company is required to
issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent, as indicated on
the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.
8. NOTICES. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) as soon as
practicable upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least ten days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. SEVERABILITY. If any provision of this Warrant or the application
thereof becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of the terms of this Warrant will
continue in full force and effect.
11. GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant 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.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
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drafted by the Company and all the Buyers and shall not be construed against any
person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within five Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within five Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the Securities Purchase
Agreement, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the right of the
Holder right to pursue actual damages for any failure by the Company to comply
with the terms of this Warrant. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach of this
Warrant, the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
15. TRANSFER. Subject to compliance with applicable state and/or
federal securities laws, this Warrant may be offered for sale, sold, transferred
or assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.
16. DISQUALIFYING CLAIM; CANCELLATION.
(a) The Company shall take no action without reasonable
justification, either alone or together with any regulatory agency, that would
impair the Holder's right to lawfully hold this Warrant, Warrant Shares or any
other rights in connection with the Company. In the event the Company or any of
its officers, agents, employees or representatives are notified or obtain
knowledge from any source, including but not limited to a Gaming Authority (as
defined in the Articles of Incorporation), that the Holder is or may be in
danger of being considered to be a Disqualified Holder (as defined in the
Articles of Incorporation) or the
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equivalent under any agreement or provision of law, or for any other reason it
is claimed by anyone for any reason that the Holder's Warrants or Warrant Shares
in the Company (or any warrants or other rights related to the issuance,
acquisition or holding of shares of capital stock in the Company) cannot be
issued to or held by the Holder, or will not be issued to or permitted to be
held by the Holder, based on any claim related to the Holder's suitability for
holding an interest in the Company under applicable gaming laws (collectively
and separately a "DISQUALIFICATION CLAIM"), the Holder shall be immediately
notified by the Company in writing of the Disqualification Claim and provided
with all information available to the Company and any of its officers, agents,
employees or representatives (including but not limited to information acquired
by Company's attorneys) relating to the Disqualification Claim together with any
documents related thereto.
(b) Upon obtaining knowledge of the Disqualification Claim, and
in addition to its duty to disclose its information regarding such claim to the
Holder, the Company shall immediately investigate and conduct reasonable due
diligence in good faith with respect to such Disqualification Claim and share
with the Holder all information so obtained. The Company shall not assert any
attorney-client or work product privilege in connection with such disclosure.
(c) The Company shall fully cooperate with the Holder in
presenting to any Gaming Authority or other governmental entity (including a
tribal governmental entity) that may be considering the Disqualification Claim
all evidence or other information available to it that would in any way support
the Holder's contention that the Disqualification Claim was without merit or
that requiring divesture of or a prohibition on the Holder's participation in
the Company, directly or indirectly, was unwarranted, or that would reasonably
assist the Holder in any other way in supporting its contention.
(d) So long as such Holder challenges the Disqualification Claim
in a proceeding conducted in accordance with applicable law ("PROCEEDING"), and
until such challenge is finally resolved, including the exhaustion of all
appeals (including the availability of any extraordinary writs), and if a
divestiture of the Warrants or Warrant Shares in question is required during the
pendency of the Proceeding, the Company shall be the only party acquiring the
Warrants or Warrant Shares of the Disqualified Holder (the "HELD SECURITIES")
and shall continue holding such Warrant and Warrant Shares pending the final
outcome of the Proceeding. The Held Securities shall not be sold, transferred,
assigned, encumbered or diluted in any way.
(e) In the event it is finally determined in the Proceeding that
the Holder is required to divest himself or itself of such Warrants or Warrant
Shares, the Company shall effect a Cancellation in accordance with Section 16(f)
below. In the event it is finally determined in the Proceeding that such Holder
should not have been required to divest himself or itself of such Warrant or
Warrant Shares, the Company shall cause the Company to return the Held
Securities to such Holder. Any holding or transfer of the Held Securities shall
be subject to applicable laws, provided that the Company shall fully cooperate
with a Holder, if so entitled, in recovering the Held Securities.
(f) Cancellation. If the Company is required by a Gaming
Authority to cause the Holder to divest itself of the Warrant and/or Warrant
Shares, the Company shall deliver
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a notice to each Holder (a "CANCELLATION NOTICE") with such order of such Gaming
Authority certifying that the terms of this Section 16(f) have been met. No
cancellation pursuant to this Section 16(f) shall be valid unless the Holder is
entitled to receive upon a cancellation of this Warrant, SPA Securities
exercisable into shares of Common Stock equal to the Warrant Shares exercisable
hereunder immediately prior to such event; provided, however, that nothing in
this Warrant shall be deemed to waive or amend any term in the Articles of
Incorporation. Following the Holder's receipt of a Cancellation Notice, this
Warrant shall automatically be cancelled and become null and void (a
"CANCELLATION"). Notwithstanding anything herein to the contrary, the Company
shall not be permitted to deliver a Cancellation Notice to a holder of SPA
Warrants without delivering such a notice, in proportionate amounts, to all
other holders of SPA Warrants.
17. REDEMPTION OPTION UPON PUT DATE.
(a) In addition to all other rights of the Holder contained
herein, at any time after Registration Rights Default occurs and is continuing
(as defined in the Registration Rights Agreement) (a "PUT DATE"), the Holder
shall have the right, at such Holder's option, to require the Company to redeem
all or a portion of the Holder's Warrants (a "REDEMPTION AT OPTION OF HOLDER
REQUEST") at a price per Warrant Share equal to (x) the arithmetic average of
the Closing Sale Price of the Common Stock during the ten (10) consecutive
Trading Days prior to such Redemption at Option of Holder Request less (y) the
Exercise Price (the "REDEMPTION AT OPTION OF HOLDER PRICE").
(b) Mechanics of Redemption at Option of Buyer. At any time after
the Put Date, the Holder of this Warrant may require the Company to redeem up to
all of such Holder's Warrant, in whole or in part, by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
HOLDER") to the Company, which Notice of Redemption at Option of Holder shall
indicate the number of Warrant Shares that such Holder is electing to redeem.
(c) Payment of Redemption at Option of Holder Price. Upon the
Company's receipt of a Notice(s) of Redemption at Option of Buyer from the
Holder, the Company shall within three (3) Business Days of such receipt notify
each holder of SPA Warrants by facsimile of the Company's receipt of such
notice(s). The Company shall deliver on the seventh (7th) Business Day after the
Company's receipt of the first Notice of Redemption at Option of Holder (such
date, the "REDEMPTION AT OPTION OF HOLDER DATE")the applicable Redemption at
Option of Holder Price to all holders of SPA Warrants that deliver a Notice of
Redemption at Option of Holder prior to the Redemption at Option of Holder Date.
If the Company is unable to redeem all of the Warrants submitted for redemption,
the Company shall (i) redeem a pro rata amount from each holder of SPA Warrants
on the Redemption at Option of Holder Date based on the number of Warrant Shares
of the Warrants submitted for redemption by such holder of SPA Warrants relative
to the total number of Warrant Shares of the Warrants submitted for redemption
by all holders of SPA Warrants prior to the Redemption at Option of Holder Date
and (ii) in addition to any remedy such holder of SPA Warrants may have under
this Warrant and the Securities Purchase Agreement, pay to each holder of SPA
Warrants interest at the rate of 1.5% per month (prorated for partial months) in
respect of each unredeemed Warrant until paid in full. The Holder and Company
agree that in the event of the Company's redemption of any Warrant under this
Section 17, the Holder's damages would be uncertain and difficult to
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estimate because of the parties' inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 17 is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder's actual loss of its investment opportunity and not as a
penalty.
(d) Void Redemption. In the event that the Company does not pay
the full Redemption at Option of Holder Price within the time period set forth
in Section 17(c), at any time thereafter and until the Company pays such unpaid
applicable Redemption at Option of Holder Price in full, the Holder shall have
the option to, in lieu of redemption, require the Company to promptly return to
the Holder any or all of the Warrant Shares that were submitted for redemption
by the Holder under this Section 17 and for which the applicable Redemption at
Option of Holder Price (together with any interest thereon) has not been paid,
by sending written notice thereof to the Company via facsimile (the "VOID
OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional
Redemption Notice, (i) the Notice of Redemption at Option of Holder shall be
null and void with respect to those Warrant Shares subject to the Void Optional
Redemption Notice, (ii) the Company shall immediately return any Warrant Shares
subject to the Void Optional Redemption Notice, and (iii) the Exercise Price of
such returned Warrant Shares shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional Redemption
Notice is delivered to the Company and (B) the arithmetic average of the Closing
Sale Prices of the Common Stock during the ten (10) consecutive Trading Days
prior to the date on which the Void Optional Redemption Notice is delivered to
the Company.
(e) Miscellaneous. The Holder's delivery of a Void Optional
Redemption Notice and exercise of its rights following such notice shall not
effect the Company's obligations to make any payments which have accrued prior
to the date of such notice. In the event of a redemption pursuant to this
Section 17 of less than all of the Warrant Shares represented by a particular
Warrant, the Company shall promptly cause to be issued and delivered to the
Holder of such Warrant a new Warrant representing the right to acquire the
remaining Warrant Shares which have not been redeemed, if necessary.
18. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a) "APPROVED STOCK PLAN" means any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director or
consultant for services provided to the Company.
(b) "BLACK SCHOLES VALUE" means the value of this Warrant based
on the Black and Scholes Option Pricing Model obtained from the "OV" function on
Bloomberg determined as of the day immediately following the public announcement
of the applicable Fundamental Transaction and reflecting (i) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Warrant as of such date of request and (ii) an expected
volatility equal to the greater of 60% and the 100 day volatility obtained from
the HVT function on Bloomberg.
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(c) "BLOOMBERG" means Bloomberg Financial Markets.
(d) "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.
(e) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(f) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.01 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(g) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable upon
conversion and exercise, as applicable, of the SPA Securities and the Warrants.
(h) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.
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(i) "ELIGIBLE MARKET" means the Principal Market, the American
Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital Market or
the NASD OTC Bulletin Board.
(j) "EXCLUDED SECURITIES" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon exercise of
the SPA Warrants; (iii) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of either (A) $20,000,000 (other than an
"at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and
"equity lines") and at a purchase price of no less than $6.00 per share (as
adjusted for stock splits, stock dividends, reverse stock splits,
recapitalizations, reclassifications and similar events) or (B) $30,000,000
(other than an "at-the-market offering" as defined in Rule 415(a)(4) under the
1933 Act and "equity lines") (each, an "EXCLUDED OFFERING"); (iv) in connection
with any acquisition by the Company, whether through an acquisition of stock or
a merger of any business, assets or technologies the primary purpose of which is
not to raise equity capital in an amount not to exceed, in the aggregate 20% of
the outstanding shares of Common Stock in any calendar year; and (vi) upon
conversion of any Options or Convertible Securities which are outstanding on the
day immediately preceding the Issuance Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Issuance Date.
(k) "EXPIRATION DATE" means the date seven years after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(l) "FINANCING AGREEMENT" shall have the meaning as set forth in
the Securities Purchase Agreement.
(m) "FINANCING FACILITY" shall have the meaning as set forth in
the Securities Purchase Agreement.
(n) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of either the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.
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(o) "GAMING AUTHORITY" means any of the "Gaming Authorities" as
such term is defined in the Articles of Incorporation of the Company in effect
as of the Subscription Date.
(p) "HOLDER PRO RATA ALLOCATION" means with respect to any number
of Warrant Shares, (x) such number of Warrant Shares multiplied by (y) (i) the
number of Initial Warrant Shares divided by (ii) 4,457,751.
(q) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(r) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(s) "PRINCIPAL MARKET" means the NASDAQ National Market.
(t) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(u) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(v) "SPA SECURITIES" means the Preferred Stock issued pursuant to
the Securities Purchase Agreement.
(w) "TRADING DAY" means any day on which the Common Stock are
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock are then traded; provided that
"Trading Day" shall not include any day on which the Common Stock are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock are suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).
(x) "WPT LEGISLATION EVENT" means the concurrent existence of the
following conditions: (i) any applicable federal, state, local governmental, or
tribal law or regulation (including laws or regulations of any of their
respective subdivisions or agencies) shall have been enacted that could
reasonably be expected to materially adversely affect any Loan Party (as defined
in the Financing Facility) or World Poker (as defined in the Financing
Facility), and (ii) the value of the Collateral (as defined in the Financing
Agreement) shall be less than 100% of the principal amount of the Loan (as
defined in the Securities Purchase Agreement) outstanding under the Financing
Agreement.
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(y) "WPT 25% COLLATERAL EVENT" means such date whereby the value
of the Collateral (as defined in the Financing Agreement) is less than or equal
to 25% of the principal amount of the Loan outstanding under the Financing
Agreement.
(z) "WPT 50% COLLATERAL EVENT" means such date whereby the value
of the Collateral (as defined in the Financing Agreement) is less than or equal
to 50% of the principal amount of the Loan outstanding under the Financing
Agreement.
(aa) "WPT 75% COLLATERAL EVENT" means such date whereby the value
of the Collateral (as defined in the Financing Agreement) is less than or equal
to 75% of the principal amount of the Loan outstanding under the Financing
Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
LAKES ENTERTAINMENT, INC.
By: /S/ Timothy J. Cope
------------------------------------
Name: Timothy J. Cope
Title: President and
Chief Financial Officer
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
LAKES ENTERTAINMENT, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Lakes
Entertainment, Inc., a Minnesota corporation (the "COMPANY"), evidenced by the
attached Warrant to purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:
__________ a "Cash Exercise" with respect to _________________ Warrant
Shares; and/or
__________ a "Cashless Exercise" with respect to _______________
Warrant Shares.
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________, ______
- ---------------------------------
Name of Registered Holder
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
- -------------------------------------
....Tax ID or SSN of Registered Holder
- -------------------------------------
- -------------------------------------
Street Address of Registered Holder
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
WELLS FARGO BANK, N.A. to issue the below indicated number of shares of Common
Stock of the Company to the recipient listed below and deliver the certificate
representing such shares to the address listed below in accordance with the
Transfer Agent Instructions dated February __, 2006 from the Company and
acknowledged and agreed to by WELLS FARGO BANK, N.A.
NAME, ADDRESS AND SOCIAL SECURITY OR TAX ID NO. NO. OF SHARES
- ----------------------------------------------- -------------
- ------------------------------------- -------------
Name of Recipient
- -------------------------------------
Street Address
- -------------------------------------
City, State, Zip Code
Tax ID or SSN:
----------------------
LAKES ENTERTAINMENT, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------