EXHIBIT 10.6
EXECUTION COPY
PLEDGE AND SECURITY AGREEMENT, dated as of February 15, 2006 (as the
same may be amended, supplemented or otherwise modified from time to time, this
"Agreement"), made by each of the Pledgors referred to below, in favor of PLKS
Funding, LLC, a Delaware limited liability company, in its capacity as the Agent
for the Lenders (as such terms are defined below) party to the Financing
Agreement referred to below (in such capacity, together with its successors and
permitted assigns, the "Agent").
WITNESSETH:
WHEREAS, Lakes Entertainment, Inc., a Minnesota corporation (the
"Parent"), the subsidiaries of the Parent listed as a "Borrower" on the
signature pages thereto (together with the Parent, each a "Borrower" and
collectively, the "Borrowers"), each other subsidiary of the Parent that becomes
a "Guarantor" in accordance with the terms thereof (collectively, the
"Guarantors" and, together with the Borrowers, each a "Pledgor" and collectively
the "Pledgors"), the lenders from time to time party thereto (each a "Lender"
and collectively, the "Lenders"), and the Agent are parties to a Financing
Agreement, dated as of February 15, 2006 (such agreement, as amended, restated,
supplemented or otherwise modified from time to time, including any replacement
agreement therefor, being hereinafter referred to as the "Financing Agreement");
WHEREAS, pursuant to the Financing Agreement, the Lenders have agreed
to make a certain Loans (each, a "Loan" and collectively, the "Loans") to the
Borrowers in an aggregate principal amount at any one time outstanding not to
exceed the Total Commitment (as defined in the Financing Agreement);
WHEREAS, it is a condition precedent to the Lenders making any Loan to
the Borrowers pursuant to the Financing Agreement that each Pledgor shall have
executed and delivered to the Agent a pledge and security agreement providing
for the pledge to the Agent, for the benefit of the Agent and the Lenders, and
the grant to the Agent, for the benefit of the Agent and the Lenders, of a
security interest in and Lien on the outstanding shares of Capital Stock (as
defined in the Financing Agreement) and indebtedness from time to time owned by
such Pledgor of each Person now or hereafter existing and in which such Pledgor
has any interest at any time;
WHEREAS, the Pledgors are mutually dependent on each other in the
conduct of their respective businesses as an integrated operation, with the
credit needed from time to time by each Pledgor often being provided through
financing obtained by the other Pledgors and the ability to obtain such
financing being dependent on the successful operations of all of the Pledgors as
a whole; and
WHEREAS, each Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefit, and are in the best interest of,
such Pledgor;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans to the
Borrowers pursuant to the Financing Agreement, the Pledgors hereby jointly and
severally agree with the Agent, for the benefit of the Agent and the Lenders, as
follows:
SECTION 1. Definitions.
(a) Reference is hereby made to the Financing Agreement for a
statement of the terms thereof. All terms used in this Agreement which are
defined in the Financing Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the "Code") as in effect from time to time in the State of New
York and which are not otherwise defined herein shall have the same meanings
herein as set forth therein; provided, that terms used herein which are defined
in the Code as in effect in the State of New York on the date hereof shall
continue to have the same meaning notwithstanding any replacement or amendment
of such statute except as the Agent may otherwise determine.
(b) As used in this Agreement, the following term shall have the
meaning indicated below:
"Excluded Debt" means, subject to the last sentence of Section 4,
(i) any indebtedness in respect of Shingle Springs, Jamul, Iowa or Pawnee (but
not including indebtedness in respect of Pokagon), and (ii) any other
indebtedness of an Indian Tribe payable to a Loan Party, however evidenced,
identified by the Parent as such upon the written good faith representation of
the Parent to the Agent (upon Parent's consultation with a reputable law firm
with expertise in gaming matters) that the grant of security interest therein
would reasonably be expected to subject a secured party to review by or approval
of an Indian Gaming Authority.
"Indian Gaming Authority" means the National Indian Gaming
Commission and such state and tribal gaming authorities as authorized by the
applicable tribal-state gaming compact.
SECTION 2. Pledge and Grant of Security Interest. As collateral
security for all of the Obligations (as defined in Section 3 hereof), each
Pledgor hereby pledges and assigns to the Agent, and grants to the Agent, for
the benefit of the Agent and the Lenders, a continuing security interest in, and
Lien on such Pledgor's right, title and interest in and to the following
(collectively, the "Pledged Collateral"):
(a) the indebtedness described in Schedule I hereto and all
indebtedness from time to time required to be pledged to the Agent pursuant to
the terms of the Financing Agreement, in any event to exclude the Excluded Debt
(the "Pledged Debt"), the promissory notes and other instruments evidencing the
Pledged Debt, and all interest, cash, instruments, investment property and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Debt;
(b) the shares of Capital Stock described in Schedule II hereto
(the "Pledged Shares"), whether or not evidenced or represented by any stock
certificate, certificated security or other instrument, issued by the Persons
described in such Schedule II (the "Existing Issuers"), the certificates
representing the Pledged Shares, all options and other rights,
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contractual or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property (including, but not
limited to, any stock dividend and any distribution in connection with a stock
split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares; but such Pledged
Shares in any event to exclude the shares of any Excluded Subsidiaries.
(c) the shares of Capital Stock at any time and from time to time
acquired by such Pledgor of any and all Persons now or hereafter existing (such
Persons, together with the Existing Issuers, being hereinafter referred to
collectively as the "Pledged Issuers" and individually as a "Pledged Issuer")
other than the shares of Capital Stock of any Excluded Subsidiary which shall
not be subject to any security interest under this Agreement or any other Loan
Document, the certificates representing such Capital Stock, all options and
other rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property
(including, but not limited to, any stock dividend and any distribution in
connection with a stock split) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
foregoing;
(d) except for Excluded Debt and Capital Stock of the Excluded
Subsidiaries all investment property, financial assets, securities, Capital
Stock, other equity interests, stock options and commodity contracts of such
Pledgor, all notes, debentures, bonds, promissory notes or other evidences of
indebtedness of such Pledgor, and all other assets now or hereafter received or
receivable with respect to the foregoing;
(e) except for Excluded Debt and Capital Stock of the Excluded
Subsidiaries all security entitlements of such Pledgor in any and all of the
foregoing; and
(f) all proceeds (including proceeds of proceeds) of any and all
of the foregoing;
in each case, whether now owned or hereafter acquired by such Pledgor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, Lien, claim or otherwise).
Notwithstanding the foregoing, if any Pledged Issuer, is organized or formed
under the laws of a jurisdiction other than the District of Columbia or any
State or territory of the United States of America, such Pledgor shall pledge
not more than 65% of the Capital Stock of such Pledged Issuer.
SECTION 3. Security for Obligations. The security interest created
hereby in the Pledged Collateral constitutes continuing collateral security for
all of the following obligations, whether now existing or hereafter incurred
(the "Obligations"):
(a) the prompt payment by each Pledgor, as and when due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), of all amounts from time to time owing by it in respect of
the Financing Agreement and the other Loan Documents, including, without
limitation, (i) all Obligations (as defined in the Financing Agreement)
(including, without limitation, all interest, fees and expenses that accrue
after the commencement of any Insolvency Proceeding of any Loan Party whether or
not the payment of
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such interest, fees or expenses are unenforceable or are not allowable, in whole
or in part, due to the existence of such Insolvency Proceeding), (ii) in the
case of a Guarantor, all amounts from time to time owing by such Pledgor in
respect of its guaranty made pursuant to a Guaranty to which it is a party,
including all obligations guaranteed by such Pledgor and (iii) all commissions,
charges, indemnifications and all other amounts due or to become due under any
Loan Document; and
(b) the due performance and observance by each Pledgor of all of
its other obligations from time to time existing in respect of the Loan
Documents.
SECTION 4. Delivery of the Pledged Collateral.
(a) (i) All promissory notes currently evidencing the Pledged
Debt and all certificates currently representing the Pledged Shares shall be
delivered to the Agent on or prior to the execution and delivery of this
Agreement. All other promissory notes, certificates and instruments constituting
Pledged Collateral from time to time required to be pledged to the Agent
pursuant to the terms of this Agreement or the Financing Agreement (the
"Additional Collateral") shall be delivered to the Agent promptly upon, but in
any event within five (5) days of, receipt thereof by or on behalf of any of the
Pledgors. All such promissory notes, certificates and instruments shall be held
by or on behalf of the Agent pursuant hereto and shall be delivered in suitable
form for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment or undated stock powers executed in blank,
all in form and substance reasonably satisfactory to the Agent. If any Pledged
Collateral consists of uncertificated securities, unless the immediately
following sentence is applicable thereto, such Pledgor shall cause the Agent (or
its designated custodian or nominee) to become the registered holder thereof, or
cause each issuer of such securities to agree that it will comply with
instructions originated by the Agent with respect to such securities without
further consent by such Pledgor. If any Pledged Collateral consists of security
entitlements, such Pledgor shall transfer such security entitlements to the
Agent (or its custodian, nominee or other designee), or cause the applicable
securities intermediary to agree that it will comply with entitlement orders by
the Agent without further consent by such Pledgor. If no Event of Default has
occurred and is continuing, any Pledged Debt held by the Agent in respect of a
Project or new project developed in accordance with the Terms of the Loan
Documents shall be returned to the applicable Loan Party within two (2) Business
Days from the date such Loan Party notifies the Agent that an amendment to such
Pledge Debt is to be made it being understood that such Loan Party shall,
promptly, but in any event, within two (2) Business Days of receipt thereof,
provide the amended Pledged Debt to the Agent. It is understood that if any
Excluded Debt shall no longer be properly classified as Excluded Debt (because
the grant of a security interest therein would no longer subject a secured party
to licensing requirements or other review, approval of consent requirements
under tribal compacts or by any other Indian gaming authority) than such
Excluded Debt shall be automatically reclassified as Pledged Debt and delivered
in accordance with the terms hereof.
(ii) Within five (5) days of the receipt by a Pledgor of any
Additional Collateral, a Pledge Amendment, duly executed by such Pledgor, in
substantially the form of Annex I hereto (a "Pledge Amendment"), shall be
delivered to the Agent, in respect of the Additional Collateral which must be
pledged pursuant to this Agreement and the Financing
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Agreement. The Pledge Amendment shall from and after delivery thereof constitute
part of Schedules I and II hereto. Each Pledgor hereby authorizes the Agent to
attach each Pledge Amendment to this Agreement and agrees that all promissory
notes, certificates or instruments listed on any Pledge Amendment delivered to
the Agent shall for all purposes hereunder constitute Pledged Collateral and
such Pledgor shall be deemed upon delivery thereof to have made the
representations and warranties set forth in Section 5 hereof with respect to
such Additional Collateral.
(b) If any Pledgor shall receive, by virtue of such Pledgor's
being or having been an owner of any Pledged Collateral, any (i) stock
certificate (including, without limitation, any certificate representing a stock
dividend or distribution in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets, combination of
shares, stock split, spin-off or split-off), promissory note or other
instrument, (ii) option or right, whether as an addition to, substitution for,
or in exchange for, any Pledged Collateral, or otherwise, (iii) dividends
payable in cash (except such dividends permitted to be retained by any such
Pledgor pursuant to Section 7 hereof) or in securities or other property or (iv)
dividends, distributions, cash, instruments, investment property and other
property in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in surplus, such
Pledgor shall receive such stock certificate, promissory note, instrument,
option, right, payment or distribution in trust for the benefit of the Agent,
shall segregate it from such Pledgor's other property and shall deliver it
forthwith to the Agent, in the exact form received, with any necessary
indorsement and/or appropriate stock powers duly executed in blank, to be held
by the Agent as Pledged Collateral and as further collateral security for the
Obligations.
SECTION 5. Representations and Warranties. Each Pledgor jointly and
severally represents and warrants (but to the extent any representation or
warranty in this Section 5 is substantively the same as a representation or
warranty contained in Article V of the Financing Agreement and such
representation or warranty is qualified by a materiality or other qualifier in
the Financing Agreement, such representation or warranty herein shall be subject
to the same materiality or other qualifier as in Article V of the Financing
Agreement) as follows:
(a) Each Pledgor (i) is a corporation, limited liability company
or limited partnership duly organized, validly existing and in good standing
under the laws of the state, province or other applicable jurisdiction of its
organization, (ii) has all requisite power and authority to conduct its business
as now conducted and as presently contemplated and to execute, deliver and
perform this Agreement and each other Loan Document to be executed and delivered
by it pursuant hereto and to consummate the transactions contemplated hereby and
thereby, and (iii) is duly qualified to do business and is in good standing
(except in the case of Louisiana where a dispute regarding taxes is currently
ongoing and as to which the aggregate tax liability shall not exceed an amount
indicated in Section 5.01(k) of the Financing Agreement) in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary.
(b) The execution, delivery and performance by each Pledgor of
this Agreement and each other Loan Document to which such Pledgor is or will be
party (i) have been duly authorized by all necessary corporate, limited
liability company or limited partnership,
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as the case may be, action, (ii) do not and will not contravene its charter or
by-laws, its limited liability company or operating agreement or its certificate
of partnership or partnership agreement, as applicable, or any applicable law or
any Material Contract, (iii) do not and will not result in or require the
creation of any Lien (other than pursuant to any Loan Document) upon or with
respect to any of its properties other than pursuant to this Agreement and (iv)
do not and will not result in any default, noncompliance, suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to its operations or any of its properties.
(c) The Existing Issuers set forth in Schedule II hereto are the
Pledgors' only Subsidiaries existing on the date hereof. The Pledged Shares have
been duly authorized and validly issued and are fully paid and nonassessable and
the holders thereof are not entitled to any preemptive, first refusal or other
similar rights. Except as noted in Schedule II hereto and the last sentence of
Section 2, the Pledged Shares constitute 100% of the issued shares of Capital
Stock of the Pledged Issuers as of the date hereof. All other shares of stock
constituting Pledged Collateral will be duly authorized and validly issued,
fully paid and nonassessable.
(d) The promissory notes currently evidencing the Pledged Debt
have been, and all other promissory notes from time to time evidencing Pledged
Debt, when executed and delivered, will have been, duly authorized, executed and
delivered by the respective makers thereof, and all such promissory notes are or
will be, as the case may be, legal, valid and binding obligations of such
makers, enforceable against such makers in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws.
(e) Each Pledgor is and will be at all times the legal and
beneficial owner of its Pledged Collateral free and clear of all Liens, except
for the Lien created by this Agreement.
(f) The exercise by the Agent of any of its rights and remedies
hereunder will not contravene any law or any Material Contract and will not
result in or require the creation of any Lien upon or with respect to any of the
properties of such Pledgor other than pursuant to this Agreement or the other
Loan Documents.
(g) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority is required to be obtained
or made by any Pledgor for (i) the due execution, delivery and performance by
any Pledgor of this Agreement, (ii) the grant by any Pledgor, or the perfection,
of the Lien created hereby in the Pledged Collateral or (iii) the exercise by
the Agent of any of its rights and remedies hereunder, except as may be required
in connection with any sale of any Pledged Collateral by laws affecting the
offering and sale of securities generally.
(h) This Agreement creates a valid Lien in favor of the Agent,
for the benefit of the Agent and the Lenders, in the Pledged Collateral as
security for the Obligations. The Agent's having possession of the promissory
notes evidencing the Pledged Debt, the certificates representing the Pledged
Shares and all other certificates, instruments and cash
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constituting Pledged Collateral from time to time results in the perfection of
such Lien. Such Lien is, or in the case of Pledged Collateral in which any of
the Pledgors obtains rights after the date hereof, will be, a perfected, first
priority Lien. All action necessary or desirable to perfect and protect such
Lien has been duly taken, except for the Agent's having possession of
certificates, instruments and cash constituting Pledged Collateral after the
date hereof.
(i) This Agreement is, and each other Loan Document to which any
Pledgor is or will be a party, when executed and delivered, will be, a legal
valid and binding obligation of such Pledgor, enforceable against such Pledgor
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws.
SECTION 6. Covenants as to the Pledged Collateral. So long as any of
the Obligations shall remain outstanding or prior to the termination of the
Total Commitment, each Pledgor will, unless the Agent shall otherwise consent in
writing:
(a) keep adequate records concerning the Pledged Collateral and
permit the Agent or any agents, designees or representatives thereof at any time
or from time to time to examine and make copies of and abstracts from such
records;
(b) at the Pledgors' joint and several expense, promptly deliver
to the Agent a copy of each notice or other communication received by it in
respect of the Pledged Collateral;
(c) at the Pledgors' joint and several expense, defend the
Agent's right, title and security interest in and to the Pledged Collateral
against the claims of any Person;
(d) at the Pledgors' joint and several expense, at any time and
from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable or that
the Agent may reasonably request in order to (i) perfect and protect, or
maintain the perfection of, the security interest and Lien created hereby, (ii)
enable the Agent to exercise and enforce its rights and remedies hereunder in
respect of the Pledged Collateral or (iii) otherwise effect the purposes of this
Agreement, including, without limitation, delivering to the Agent irrevocable
proxies in respect of the Pledged Collateral;
(e) not sell, assign (by operation of law or otherwise), exchange
or otherwise dispose of any Pledged Collateral or any interest therein except as
expressly permitted by Section 6.02 of the Financing Agreement whereupon Agent
will release its security interest under the terms of the Financing Agreement;
(f) not create or suffer to exist any Lien upon or with respect
to any Pledged Collateral, except for the Lien created hereby or any Permitted
Lien.
(g) not make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral other
than pursuant to or as permitted by the Loan Documents.
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(h) not permit the issuance of (i) any additional shares of any
class of Capital Stock of any Pledged Issuer, (ii) any securities convertible
voluntarily by the holder thereof or automatically upon the occurrence or
non-occurrence of any event or condition into, or exchangeable for, any such
shares of Capital Stock or (iii) any warrants, options, contracts or other
commitments entitling any Person to purchase or otherwise acquire any such
shares of Capital Stock; and
(i) not take or fail to take any action which would in any manner
impair the validity or enforceability of the Agent's security interest in and
Lien on any Pledged Collateral.
SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Pledged
Collateral.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) each Pledgor may exercise any and all voting and other
consensual rights pertaining to any Pledged Shares for any purpose not
inconsistent with the terms of this Agreement, the Financing Agreement or the
other Loan Documents; provided, however, that (A) none of the Pledgors will
exercise or refrain from exercising any such right, as the case may be, if the
Agent gives a Pledgor notice that, in the Agent's judgment, such action (or
inaction) is reasonably likely to have a Material Adverse Effect and (B) each
Pledgor will give the Agent at least five (5) Business Days' notice of the
manner in which it intends to exercise, or the reasons for refraining from
exercising, any such right which is reasonably likely to have a Material Adverse
Effect;
(ii) each of the Pledgors may receive and retain any and all
dividends, interest or other distributions paid in respect of the Pledged
Collateral to the extent permitted by the Financing Agreement; provided,
however, that any and all (A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of or in exchange for, any Pledged
Collateral, (B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, and (C) cash paid, payable or otherwise distributed
in redemption of, or in exchange for, any Pledged Collateral, together with any
dividend, interest or other distribution or payment which at the time of such
payment was not permitted by the Financing Agreement, shall be, and shall
forthwith be delivered to the Agent, to hold as, Pledged Collateral and shall,
if received by any of the Pledgors, be received in trust for the benefit of the
Agent, shall be segregated from the other property or funds of the Pledgors, and
shall be forthwith delivered to the Agent in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Agent as Pledged Collateral and as further collateral security
for the Obligations under the terms of the Loan Documents; and
(iii) the Agent will execute and deliver (or cause to be
executed and delivered) to a Pledgor all such proxies and other instruments as
such Pledgor may
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reasonably request for the purpose of enabling such Pledgor to exercise the
voting and other rights which it is entitled to exercise pursuant to Section
7(a)(i) hereof and to receive the dividends, interest and/or other distributions
which it is authorized to receive and retain pursuant to Section 7(a)(ii)
hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) all rights of each Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to Section 7(a)(i) hereof, and to receive the dividends, distributions,
interest and other payments that it would otherwise be authorized to receive and
retain pursuant to Section 7(a)(ii) hereof, shall cease, and all such rights
shall thereupon become vested in the Agent, which shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive and
hold as Pledged Collateral such dividends and interest payments;
(ii) the Agent is authorized to notify each debtor with
respect to the Pledged Debt to make payment directly to the Agent (or its
designee) and may collect any and all moneys due or to become due to any Pledgor
in respect of the Pledged Debt, and each of the Pledgors hereby authorizes each
such debtor to make such payment directly to the Agent (or its designee) without
any duty of inquiry;
(iii) without limiting the generality of the foregoing, the
Agent may at its option exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any of the
Pledged Collateral as if it were the absolute owner thereof, including, without
limitation, the right to exchange, in its discretion, any and all of the Pledged
Collateral upon the merger, consolidation, reorganization, recapitalization or
other adjustment of any Pledged Issuer, or upon the exercise by any Pledged
Issuer of any right, privilege or option pertaining to any Pledged Collateral,
and, in connection therewith, to deposit and deliver any and all of the Pledged
Collateral with any committee, depository, transfer agent, registrar or other
designated agent upon such terms and conditions as it may determine; and
(iv) all dividends, distributions, interest and other
payments that are received by any of the Pledgors contrary to the provisions of
Section 7(b)(i) hereof shall be received in trust for the benefit of the Agent,
shall be segregated from other funds of the Pledgors, and shall be forthwith
paid over to the Agent as Pledged Collateral in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Agent as Pledged Collateral and as further collateral security
for the Obligations.
SECTION 8. Additional Provisions Concerning the Pledged Collateral.
(a) To the maximum extent permitted by applicable law, and for
the purpose of taking any action that the Agent may deem necessary or advisable
to accomplish the purposes of this Agreement, each Pledgor (i) authorizes the
Agent to execute any such agreements, instruments or other documents in such
Pledgor's name and to file such agreements, instruments or other documents in
such Pledgor's name and to file such agreements, instruments,
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or other documents in any appropriate filing office, (ii) authorizes the Agent
to file any financing statements required hereunder or under any other Loan
Document, and any continuation statements or amendment with respect thereto, in
any appropriate filing office without the signature of such Pledgor and (iii)
ratifies the filing of any financing statement, and any continuation statement
or amendment with respect thereto, filed without the signature of such Pledgor
prior to the date hereof. A photocopy or other reproduction of this Agreement or
any financing statement covering the Pledged Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(b) Each Pledgor hereby irrevocably appoints the Agent as such
Pledgor's attorney-in-fact and proxy (exercisable only during the continuance of
an Event of Default), with full authority in the place and stead of such Pledgor
and in the name of such Pledgor or otherwise, from time to time in the Agent's
discretion, to take any action and to execute any instrument that the Agent may
deem necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of such Pledgor under Section 7(a) hereof), including,
without limitation, to receive, indorse and collect all instruments made payable
to such Pledgor representing any dividend, interest payment or other
distribution in respect of any Pledged Collateral and to give full discharge for
the same. This power is coupled with an interest and is irrevocable until the
date on which all of the Obligations have been indefeasibly paid in full in cash
after the termination of the Loan Documents.
(c) If any Pledgor fails to perform any agreement or obligation
contained herein, the Agent itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Agent incurred in connection
therewith shall be jointly and severally payable by the Pledgors pursuant to
Section 10 hereof and shall be secured by the Pledged Collateral.
(d) Other than the exercise of reasonable care to assure the safe
custody of the Pledged Collateral while held hereunder, the Agent shall have no
duty or liability to preserve rights pertaining thereto and shall be relieved of
all responsibility for the Pledged Collateral upon surrendering it or tendering
surrender of it to any of the Pledgors. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Agent accords its own property, it being
understood that the Agent shall not have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relating to any Pledged Collateral, whether or not the Agent
has or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral.
(e) The powers conferred on the Agent hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon the Agent to exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for monies actually
received by it hereunder, the Agent shall have no duty as to any Pledged
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Pledged Collateral.
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(f) The Agent may at any time in its discretion (i) without
notice to any Pledgor, transfer or register in the name of the Agent or any of
its nominees any or all of the Pledged Collateral, subject only to the revocable
rights of such Pledgor under Section 7(a) hereof, and (ii) exchange certificates
or instruments constituting Pledged Collateral for certificates or instruments
of smaller or larger denominations.
SECTION 9. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Agent may exercise in respect of the Pledged Collateral,
in addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under the Code then in effect in the State of New York; and without limiting the
generality of the foregoing and without notice except as specified below, sell
the Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange or broker's board or elsewhere, at such price or
prices and on such other terms as the Agent may deem commercially reasonable.
Each Pledgor agrees that, to the extent notice of sale shall be required by law,
at least five (5) days' notice to such Pledgor of the time and place of any
public sale of Pledged Collateral owned by such Pledgor or the time after which
any private sale is to be made shall constitute reasonable notification. The
Agent shall not be obligated to make any sale of Pledged Collateral regardless
of whether or not notice of sale has been given. The Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) [Intentionally omitted]
(c) Each Pledgor recognizes that the Agent may deem it
impracticable to effect a public sale of all or any part of the Pledged Shares
or any other securities constituting Pledged Collateral and that the Agent may,
therefore, determine to make one or more private sales of any such securities to
a restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the
seller than the prices and other terms which might have been obtained at a
public sale and, notwithstanding the foregoing, agrees that such private sales
shall be deemed to have been made in a commercially reasonable manner and that
the Agent shall have no obligation to delay the sale of any such securities for
the period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act. Each Pledgor further
acknowledges and agrees that any offer to sell such securities which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York (to the
extent that such an offer may be so advertised without prior registration under
the Securities Act) or (ii) made privately in the manner described above to not
less than fifteen bona fide offerees shall be deemed to involve a "public
disposition" for the purposes of Section 9-610(c) of the Code (or any successor
or similar, applicable statutory provision) as then in effect in the State of
New York, notwithstanding that such sale may not constitute a "public offering"
under the Securities Act, and that the Agent may, in such event, bid for the
purchase of such securities.
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(d) Any cash held by the Agent as Pledged Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from,
disposition or other realization upon, all or any part of the Pledged Collateral
may, in the discretion of the Agent, be held by the Agent as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Agent pursuant to Section 10 hereof) in whole or in part by the
Agent against, all or any part of the Obligations in such order as the Agent
shall elect consistent with the provisions of the Financing Agreement. Any
surplus of such cash or cash proceeds held by the Agent and remaining after the
date on which all of the Obligations have been indefeasibly paid in full in cash
after the termination of the Loan Documents shall be paid over to the Pledgors
or to such Person as may be lawfully entitled to receive such surplus.
(e) In the event that the proceeds of any such sale, collection,
disposition or realization are insufficient to pay all amounts to which the
Agent and the Lenders are legally entitled, the Pledgors shall be jointly and
severally liable for the deficiency, together with interest thereon at the
highest rate specified in any applicable Loan Document for interest on overdue
principal thereof or such other rate as shall be fixed by applicable law,
together with the costs of collection and the reasonable fees, costs and
expenses and other client charges of any attorneys employed by the Agent to
collect such deficiency.
SECTION 10. Indemnity and Expenses.
(a) Each Pledgor jointly and severally agrees to defend, protect,
indemnify and hold harmless each Indemnitee from and against any and all claims,
damages, losses, liabilities, obligations, penalties, fees, reasonable costs and
expenses (including, without limitation, reasonable legal fees, costs, expenses
and disbursements) incurred by such Indemnitee to the extent that they arise out
of or otherwise result from this Agreement (including, without limitation,
enforcement of this Agreement), except, claims, losses or liabilities resulting
solely and directly from such Indemnitee's gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction.
(b) Each Pledgor jointly and severally agrees to pay to the Agent
upon demand the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and disbursements of the Agent's counsel and of
any experts and agents (including, without limitation, any collateral trustee
which may act as agent of the Agent) which the Agent may incur in connection
with (i) the preparation, negotiation, execution, delivery, recordation,
administration, amendment, waiver or other modification or termination of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any Pledged Collateral, (iii) the
exercise or enforcement of any of the rights of the Agent hereunder, or (iv) the
failure by any Pledgor to perform or observe any of the provisions hereof.
SECTION 11. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed, telecopied or
delivered, if to any Pledgor, to it in care of the Parent at its address
specified in the Financing Agreement; if to the Agent, to it at its address
specified in the Financing Agreement; or as to any such Person, at such other
address as shall be designated by such Person in a written notice to such other
Person complying as to delivery with the terms of this Section 11. All such
notices and other communications shall be
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effective (a) if mailed (by certified mail, postage prepaid and return receipt
requested), when received or three (3) Business Days after deposited in the
mails, whichever occurs first, (b) if telecopied, when transmitted and
confirmation received, provided same is on a Business Day and, if not, on the
next Business Day or (c) if delivered, upon delivery, provided same is on a
Business Day and, if not, on the next Business Day.
SECTION 12. Security Interest Absolute. All rights of the Agent and
the Lenders, all Liens and all obligations of each of the Pledgors hereunder
shall be absolute and unconditional irrespective of: (a) any lack of validity or
enforceability of the Financing Agreement or any other Loan Document, (b) any
change in the time, manner or place of payment of, or in any other term in
respect of, all or any of the Obligations, or any other amendment or waiver of
or consent to any departure from the Financing Agreement or any other Loan
Document, (c) any exchange or release of, or non-perfection of any Lien on any
Collateral, or any release or amendment or waiver of, or consent to or departure
from any guaranty, for all or any of the Obligations, or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any of the Pledgors in respect of the Obligations. All
authorizations and agencies contained herein with respect to any of the Pledged
Collateral are irrevocable and powers coupled with an interest.
SECTION 13. Miscellaneous.
(a) No amendment of any provision of this Agreement (including
any Schedule attached hereto) shall be effective unless it is in writing and
signed by each Pledgor and the Agent, and no waiver of any provision of this
Agreement, and no consent to any departure by any of the Pledgors therefrom,
shall be effective unless it is in writing and signed by the Agent, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
(b) No failure on the part of the Agent or the Lenders to
exercise, and no delay in exercising, any right hereunder or under any other
Loan Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of the Agent and the
Lenders provided herein and in the other Loan Documents are cumulative and are
in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of the Agent and the Lenders under any Loan Document against any
party thereto are not conditional or contingent on any attempt by the Agent or
the Lenders to exercise any of their rights under any other document against
such party or against any other Person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in
and Lien on the Pledged Collateral and shall (i) remain in full force and effect
until the date on which all of the Obligations have been indefeasibly paid in
full in cash after the termination of the Loan Documents and (ii) be binding on
each Pledgor and its respective successors and assigns, and
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shall inure, together with all rights and remedies of the Agent and the Lenders
hereunder, to the benefit of the Agent and the Lenders and their respective
successors, transferees and assigns. Without limiting the generality of clause
(ii) of the immediately preceding sentence, the Agent and the Lenders may assign
or otherwise transfer their respective rights and obligations under this
Agreement and any other Loan Document to any other Person pursuant to the terms
of the Financing Agreement, and such other Person shall thereupon become vested
with all of the benefits in respect thereof granted to the Agent and the Lenders
herein or otherwise. Upon any such assignment or transfer, all references in
this Agreement to any Agent or any Lender shall mean the assignee of the Agent
or such Lender. None of the rights or obligations of any of the Pledgors
hereunder may be assigned or otherwise transferred without the prior written
consent of the Agent, and any such assignment or transfer shall be null and
void.
(e) Upon the date on which all of the Obligations have been
indefeasibly paid in full in cash after the termination of the Loan Documents,
(i) this Agreement and the security interest and Lien created hereby shall
terminate and all rights to the Pledged Collateral shall revert to the Pledgors,
and (ii) the Agent will, upon the Pledgors' request and at the Pledgors'
expense, without any representation, warranty or recourse whatsoever, (A) return
to the Pledgors such of the Pledged Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof and (B) execute
and deliver to the Pledgors such documents as the Pledgors shall reasonably
request to evidence such termination.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND
PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF
THE SECURITY INTEREST AND LIEN CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
(g) Section headings herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
(h) This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
shall be deemed an original, but all such counterparts shall constitute one and
the same agreement. Delivery of an executed counterpart of this Agreement by
facsimile or electronic mail shall be equally effective as delivery of an
original executed counterpart.
(i) All of the obligations of the Pledgors hereunder are joint
and several. The Agent may, in its sole and absolute discretion, enforce the
provisions hereof against any of the Pledgors and shall not be required to
proceed against all Pledgors jointly or seek payment from the Pledgors ratably.
In addition, the Agent may, in its sole and absolute discretion, select the
Pledged Collateral of any one or more of the Pledgors for sale or application to
the Obligations, without regard to the ownership of such Pledged Collateral, and
shall not be required to make such selection ratably from the Pledged Collateral
owned by all of the Pledgors. The
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release or discharge of any Pledgor by the Agent shall not release or discharge
any other Pledgor from the obligations of such Person hereunder.
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IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.
PLEDGORS:
LAKES ENTERTAINMENT, INC.
By: /s/ Timothy J. Cope
-------------------------------------------
Name: Timothy J. Cope
Title: President and Chief Financial Officer
BORDERS LAND COMPANY, LLC
GREAT LAKES GAMING OF MICHIGAN, LLC
LAKES CLOVERDALE, LLC
LAKES GAMING AND RESORTS, LLC
LAKES GAME DEVELOPMENT, LLC
LAKES GAMING-MISSISSIPPI, LLC
LAKES IOWA CONSULTING, LLC
LAKES IOWA MANAGEMENT, LLC
LAKES JAMUL, INC.
LAKES JAMUL DEVELOPMENT, LLC
LAKES KAR SHINGLE SPRINGS, L.L.C.
LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, L.L.C.
LAKES KICKAPOO CONSULTING, LLC
LAKES KICKAPOO MANAGEMENT, LLC
LAKES NIPMUC, LLC
LAKES PAWNEE CONSULTING, LLC
LAKES PAWNEE MANAGEMENT, LLC
LAKES POKER TOUR, LLC
LAKES SHINGLE SPRINGS, INC.
By: /s/ Timothy J. Cope
-------------------------------------------
Name: Timothy J. Cope
Title: Chief Financial Officer of each of the
above listed entitie