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Exhibit 10.3
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 5 OF THIS WARRANT
Warrant No.
Number of Shares: 2,000,000
(subject to adjustment)
Date of Issuance: DECEMBER 15, 2005
Original Issue Date (as defined in
subsection 2(a)):
DECEMBER 15 , 2005
LAKES ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
(VOID AFTER DECEMBER 15, 2012)
Lakes
Entertainment, Inc., a Minnesota corporation (the "COMPANY"),
for
value received, hereby certifies that LYLE
BERMAN FAMILY PARTNERSHIP, A
MINNESOTA GENERAL PARTNERSHIP, or its
registered assigns (the "REGISTERED
HOLDER"), is entitled, subject to the terms
and conditions set forth below, to
purchase from the Company, at any time or
from time to time on or after March 1,
2006 and on or before 5:00 p.m. (prevailing
Minneapolis time) on December 15,
2012 (the "EXERCISE PERIOD"), Two Million
(2,000,000) shares of Common Stock,
$0.01 par value per share, of the Company
(the "COMMON STOCK"), at a purchase
price of $7.88 per share. The shares
purchasable upon exercise of this Warrant,
and the purchase price per share, each as
adjusted from time to time pursuant to
the provisions of this Warrant, are
hereinafter referred to as the "WARRANT
SHARES" and the "PURCHASE PRICE,"
respectively. This Warrant is issued by the
Company under a Loan Agreement dated even
with the Original Issue Date (the
"LOAN AGREEMENT"). Notwithstanding the
foregoing, this Warrant and all of the
Registered Holder's rights hereunder shall
terminate and be of no further force
or effective if,(i) the Company borrows no
more than $10,000,000 under the Loan
Agreement and (ii) on or prior to February
28, 2006, the Company (i) has repaid
all amounts of principal and interest
outstanding under the Loan Agreement.
1.
EXERCISE.
(a) Exercise of Warrant. The Registered Holder may, at its
option,
elect to exercise this Warrant, in whole or
in part and at any time or from time
to time during the Exercise Period, by
either:
(i) surrendering this Warrant, with the purchase form appended
hereto as Exhibit I duly executed by or on
behalf of the Registered Holder, at
the address set forth in Section 9(a)
hereof, together with proper payment of
the aggregate Purchase Price, or the
proportionate part thereof if this Warrant
is exercised in part, with payment for
Warrant Shares made by certified or
official bank check payable to the order of
the Company or by wire transfer of
immediately available funds; or
(ii) surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed
by or on behalf of the Registered
Holder and indicating payment of the
Purchase Price pursuant to the cashless
exercise procedure, at the address set
forth in Section 9(a) hereof (a "CASHLESS
EXERCISE"). Such presentation and surrender
shall be deemed a waiver of the
Registered Holder's obligation to pay the
aggregate Purchase Price, or the
proportionate part thereof if this Warrant
is exercised in part. In the event of
a Cashless Exercise, the Registered Holder
shall exchange this Warrant for that
number of Warrant Shares subject to such
Cashless Exercise multiplied by a
fraction, the numerator of which shall be
the difference between the Fair Market
Value (as defined below) per share of
Common Stock and the per share Purchase
Price then in effect, and the denominator
of which shall be the Fair Market
Value per share of Common Stock.
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(b) Exercise Date. Each exercise of this Warrant shall be deemed
to
have been effected immediately prior to the
close of business on the day on
which this Warrant shall have been
surrendered to the Company as provided in
subsection 1(a) above (the "EXERCISE
DATE"). At such time, the person or persons
in whose name or names any certificates for
Warrant Shares shall be issuable
upon such exercise as provided in
subsection 1(c) below shall be deemed to have
become the holder or holders of record of
the Warrant Shares represented by such
certificates.
(c) Issuance of Certificates. As soon as practicable after the
exercise of this Warrant in whole or in
part, and in any event within 3 trading
days thereafter, the Company, at its
expense, will cause to be issued in the
name of, and delivered to, the Registered
Holder, or as the Registered Holder
(upon payment by the Registered Holder of
any applicable transfer taxes) may
direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which the Registered
Holder shall be entitled upon such
exercise plus, in lieu of any fractional
share to which the Registered Holder
would otherwise be entitled, cash in an
amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like
tenor, calling in the aggregate on the
face or faces thereof for the number of
Warrant Shares equal (without giving
effect to any adjustment therein) to the
number of such shares called for on the
face of this Warrant minus the number of
Warrant Shares for which this Warrant
was so exercised.
2.
ADJUSTMENTS.
(a) Adjustment for Stock Splits and Combinations. In the event
the
Company, at any time or from time to time
after the date on which this Warrant
was first issued (or, if this Warrant was
issued upon partial exercise of, or in
replacement of, another warrant of like
tenor, then the date on which such
original warrant was first issued) (the
"ORIGINAL ISSUE DATE"), shall effect a
subdivision of the outstanding Common
Stock, the Purchase Price then in effect
immediately before that subdivision shall
be proportionately decreased. If the
Company shall at any time or from time to
time after the Original Issue Date
combine the outstanding shares of Common
Stock, the Purchase Price then in
effect immediately before the combination
shall be proportionately increased.
Any adjustment under this paragraph shall
become effective at the close of
business on the date the subdivision or
combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions. In the
event
the Company, at any time, or from time to
time after the Original Issue Date,
shall make or issue, or fix a record date
for the determination of holders of
Common Stock entitled to receive, a
dividend or other distribution payable in
additional shares of Common Stock, then and
in each such event the Purchase
Price then in effect immediately before
such event shall be decreased as of the
time of such issuance or, in the event such
a record date shall have been fixed,
as of the close of business on such record
date, by multiplying the Purchase
Price then in effect by a fraction:
(i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding
immediately prior to the time of such
issuance or the close of business on such
record date; and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and
outstanding immediately prior to the time of
such issuance or the close of business on
such record date plus the number of
shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, that if such record date
shall have been fixed and such
dividend is not fully paid or if such
distribution is not fully made on the date
fixed therefor, the Purchase Price shall be
recomputed accordingly as of the
close of business on such record date and
thereafter the Purchase Price shall be
adjusted pursuant to this paragraph as of
the time of actual payment of such
dividends or distributions.
(iii) Adjustment for Reorganization. If there shall occur any
reorganization, recapitalization,
reclassification, consolidation or merger
involving the Company in which the Common
Stock is converted into or exchanged
for securities, cash or other property
(collectively, a "REORGANIZATION"), then,
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following such Reorganization, the
Registered Holder shall receive upon exercise
hereof the kind and amount of securities,
cash or other property which the
Registered Holder would have been entitled
to receive pursuant to such
Reorganization if such exercise had taken
place immediately prior to such
Reorganization. Notwithstanding the
foregoing sentence, if (x) there shall occur
any Reorganization in which the Common
Stock is converted into or exchanged for
anything other than solely equity
securities, and (y) the common stock of the
acquiring or surviving company is publicly
traded, then, as part of such
Reorganization, (i) the Registered Holder
shall have the right thereafter to
receive upon the exercise hereof such
number of shares of common stock of the
acquiring or surviving company as is
determined by multiplying (A) the number of
shares of Common Stock subject to this
Warrant immediately prior to such
Reorganization by (B) a fraction, the
numerator of which is the Fair Market
Value (as defined in subsection 2(f) below)
per share of Common Stock as of the
effective date of such Reorganization, and
the denominator of which is the fair
market value per share of common stock of
the acquiring or surviving company as
of the effective date of such transaction,
as determined in good faith by the
Board (using the principles set forth in
subsections 2(e)(i) and 2(e)(ii) to the
extent applicable), and (ii) the exercise
price per share of common stock of the
acquiring or surviving company shall be the
Purchase Price divided by the
fraction referred to in clause (B) above.
In any such case, appropriate
adjustment (as determined in good faith by
the Board) shall be made in the
application of the provisions set forth
herein with respect to the rights and
interests thereafter of the Registered
Holder, to the end that the provisions
set forth in this Section 2 (including
provisions with respect to changes in and
other adjustments of the Purchase Price)
shall thereafter be applicable, as
nearly as reasonably may be, in relation to
any securities, cash or other
property thereafter deliverable upon the
exercise of this Warrant.
(c) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Purchase
Price pursuant to this Section 2, the
Company at its expense shall, as promptly
as reasonably practicable but in any
event not later than 10 days thereafter,
compute such adjustment or readjustment
in accordance with the terms hereof and
furnish to the Registered Holder a
certificate setting forth such adjustment
or readjustment (including the kind
and amount of securities, cash or other
property for which this Warrant shall be
exercisable and the Purchase Price) and
showing in detail the facts upon which
such adjustment or readjustment is based.
The Company shall, as promptly as
reasonably practicable after the written
request at any time of the Registered
Holder (but in any event not later than 10
days thereafter), furnish or cause to
be furnished to the Registered Holder a
certificate setting forth (i) the
Purchase Price then in effect and (ii) the
number of shares of Common Stock and
the amount, if any, of other securities,
cash or property which then would be
received upon the exercise of this
Warrant.
(d)
Definition of Fair Market Value. The Fair Market Value per
share
of Common Stock shall be determined as
follows:
(i) If the Common Stock is listed on a national securities
exchange, the Nasdaq National Market, the
Nasdaq SmallCap Market, the
Over-the-Counter Bulletin Board, or another
nationally recognized trading system
as of the Exercise Date, the Fair Market
Value per share of Common Stock shall
be deemed to be the average of the high and
low reported sale prices per share
of Common Stock thereon on the trading day
immediately preceding the Exercise
Date (provided that if no such price is
reported on such day, the Fair Market
Value per share of Common Stock shall be
determined pursuant to clause (ii)
below).
(ii) If the Common
Stock is not listed on a national
securities exchange, the Nasdaq National
Market, the Nasdaq SmallCap Market or
another nationally recognized trading
system as of the Exercise Date, the Fair
Market Value per share of Common Stock
shall be deemed to be the amount most
recently determined by the Board of
Directors of the Company (the "BOARD") to
represent the fair market value per share
of the Common Stock (including without
limitation a determination for purposes of
granting Common Stock options or
issuing Common Stock under any plan,
agreement or arrangement with employees of
the Company); and, upon request of the
Registered Holder, the Board (or a
representative thereof) shall, as promptly
as reasonably practicable but in any
event not later than 30 days after such
request, notify the Registered Holder of
the Fair Market Value per share of Common
Stock and furnish the Registered
Holder with reasonable documentation of the
Board's determination of such Fair
Market Value. Notwithstanding the
foregoing, if the Board has not made such a
determination within the three-month period
prior to the Exercise Date, then (A)
the Board shall make, and shall provide or
cause to be provided to the
Registered Holder notice of, a
determination of the Fair Market Value per share
of the Common Stock within 30 days of a
request by the Registered Holder that it
do so, and (B) the exercise of this Warrant
pursuant to Section 1 shall be
delayed until such determination is made
and notice thereof is provided to the
Registered Holder.
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3.
FRACTIONAL SHARES. The Company shall not be required upon the
exercise
of this Warrant to issue any fractional
shares, but shall pay the value thereof
to the Registered Holder in cash on the
basis of the Fair Market Value per share
of Common Stock, as determined pursuant to
subsection 2(e) above.
4.
REGISTRATION RIGHTS.
(a) Demand Registration. If the Company shall receive, at any
time
after February 28,
