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Filed Pursuant to Rule 424(b)(3)
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PROSPECTUS
SUPPLEMENT NO. 2 to Post-Effective
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File No. 333-140934
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Amendment
No. 1 to Form SB-2/A on Form S-1
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(to
Prospectus Dated April 8, 2008)
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Southwest Casino Corporation
12,663,389 Shares
of
Common Stock
This Prospectus Supplement No. 2
to Post-Effective Amendment No. 1 to Form SB-2/A on Form S-1
supplements the prospectus dated April 8, 2008 relating to the 12,663,389
shares of common stock of Southwest Casino Corporation that may be offered for
sale for the account of several stockholders of Southwest Casino Corporation,
their respective pledgees, assignees or successors-in-interest, as stated under
the heading Plan of Distribution in the original prospectus.
This Prospectus Supplement No. 2
is being filed to update the original prospectus with respect to developments
in Southwest Casino Corporations business that have occurred since the date of
the original prospectus and to include in the prospectus Southwest Casino
Corporations Current Reports on Form 8-K filed June 23, 2008; July 1,
2008; July 7, 2008; and July 8, 2008. This Prospectus
Supplement No. 2 is not complete without, and may not be delivered or
utilized except in connection with, the original prospectus. This
Prospectus Supplement No. 2 is qualified by reference to the original
prospectus, except to the extent that the information contained in this
Prospectus Supplement No. 2 supersedes the information contained in the
original prospectus.
Recent
Developments
Attached hereto and incorporated
by reference herein are the Current Reports on Form 8-K as filed with the
Securities and Exchange Commission on June 23, 2008; July 1, 2008; July 7,
2008; and July 8, 2008.
The common
stock offered involves a high degree of risk. We refer you to Risk
Factors, beginning on page 2 of the original prospectus.
Neither the Securities and
Exchange Commission nor any state securities commission has approved or
disapproved of these securities or determined if this Prospectus Supplement No. 2
is truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this Prospectus Supplement No. 2 is July 9, 2008.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 17, 2008
SOUTHWEST
CASINO CORPORATION
(Exact name of registrant as specified in
its charter)
Nevada
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000-50572
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87-0686721
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.)
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2001 Killebrew Drive, Suite 350,
Minneapolis, MN
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55425
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants telephone number, including area code
952-853-9990
(Former name or former address, if changed
since last report)
Check
the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
o
Written communication pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a.12
under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFT 240.13e-4(c))
Item
1.01 Entry into a Material
Definitive Agreement
On June 17, 2008, Southwest Casino Corporation
(Southwest) entered into a Securities Purchase Agreement with certain
institutional and other accredited investors, as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended, pursuant
to which Southwest sold in a private placement an aggregate of 2,693,589 shares
of its common stock with accompanying warrants to purchase 2,154,873 shares of
its common stock at a price of $0.65 per unit, with each unit consisting of one
share of common stock and a warrant to purchase .8 shares of common stock. The warrants are exercisable for a period of
five years at an exercise price of $0.85 per share. Southwest received net proceeds from this
offering of approximately $1,644,336.00, after the deduction of estimated
offering expenses.
The Securities Purchase Agreement provides that if
Southwest determines to file a registration statement for its equity
securities, participants in this offering will have the right to request
inclusion of their common stock and shares of common stock issuable upon
exercise of their warrants in the registration statement (piggy-back
registration rights).
If Southwest issues common stock or securities
convertible into common stock at an effective price below $0.65 per share
before the 6 month anniversary of the date on which the shares sold in this
offering can be sold in the public market under an effective registration
statement or under SEC Rule 144 (the Effective Date), Southwest will
issue additional shares of common stock to participants in this offering such
that they receive the same purchase price per share as investors in the
subsequent offering (a full ratchet adjustment).
Southwest agreed that if it sells additional shares
of common stock before the 6 month anniversary of the Effective Date on terms
less favorable to the Company than the terms of the Securities Purchase
Agreement, the terms of the Securities Purchase Agreement will be amended to
incorporate those less favorable terms.
Also, if Southwest sells any debt or equity security convertible into
its common stock before the 6 month anniversary of the Effective Date,
investors in this offering may elect to exchange some or all of the common
shares acquired in this offering for the convertible securities sold in the
subsequent offering on a dollar-for-dollar basis. If an investor elects to exchange their
common shares, they will retain the right to purchase 50 percent of the
corresponding shares subject to the warrant received in this offering.
The number of shares issuable upon exercise of the
warrants and the exercise price of the warrants are adjustable upon the
occurrence of certain events, including stock splits, combinations and
reclassifications. Until the 4 month
anniversary of the Effective Date, if Southwest issues any security with an
effective price per share less than the $0.85 per share exercise price of the
warrants, the exercise price will be reduced to that lower effective price per
share and the number of shares issuable upon exercise of the warrant will be
increased so that the aggregate exercise price for the warrant remains the
same. At any time that a registration
statement covering the resale of the common shares issuable upon exercise of
the warrant is not effective, warrantholders may exercise the warrant through a
cashless or net exercise. Warrant
holders are not permitted to exercise their warrants to the extent their
ownership of Southwest common stock would exceed 9.99% of the companys
outstanding common stock.
The companys placement agent agreed to accept the
cash portion of its placement agent commission in common stock and warrants on
the same terms as the investors, which resulted in the placement agent
receiving 136,911 shares of common stock and warrants to purchase an aggregate
of 109,529 shares of common stock. In
addition, the placement agent received a warrant to purchase 88,992
shares of common stock that is exercisable for a period of five years at
an exercise price of $1.00 per share.
2
The following officers and directors of Southwest
participated in the private placement on the same terms as the other investors:
James B. Druck, Chief Executive Officer and Director; Thomas E. Fox, President
and Chief Operating Officer; Jeffrey S. Halpern, Vice President of Government
Affairs; Tracie L. Wilson, Chief Financial Officer, and Gus A. Chafoulias,
Director. Each of Mr. Druck, Mr. Fox,
Mr. Halpern and Ms. Wilson participated by investing the net proceeds
(after taxes and other withholding) from deferred bonuses owed to them by the
Company, resulting in a reduction in the Companys outstanding liabilities to
these officers of $165,000.
In addition, each of Mr. Druck, Mr. Fox, Mr. Halpern,
Ms. Wilson, Mr. Chafoulias and the other members of Southwests Board
of Directors entered into a Lock-up Agreement with Southwest under which they
agreed not to sell or transfer any of their Southwest securities (except
certain exempt transactions) until after the four month anniversary of the
Effective Date. Other than with respect to the Securities Purchase Agreement,
there are no material relationships between Southwest, on the one hand, and any
of the other investors in the private placement, on the other hand.
The securities that were issued in this private
placement were not registered under the Securities Act of 1933, as amended, and
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements of the Securities
Act. Pursuant to the Securities Purchase
Agreement, Southwest and the investor parties have made other covenants and
representations and warranties regarding matters that are customarily included
in financings of this nature. If certain
of its obligations are not met, Southwest has agreed to make pro-rata cash
payments as liquidated damages to each investor.
The foregoing description of the terms and
conditions of the Securities Purchase Agreement, Warrants and Lock-up Agreement
do not purport to be complete and is qualified in its entirety by reference to
the full text of each agreement filed as an exhibit to this Current Report on Form 8-K
and incorporated herein by reference. A
copy of the press release announcing the private placement is filed as Exhibit 99.1
to this Current Report on Form 8-K and is incorporated herein by
reference.
Item
3.02 Unregistered Sale of
Equity Securities
As described in more detail above, on June 17,
2008, Southwest entered into a Securities Purchase Agreement with certain
institutional and other accredited investors, as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended, pursuant
to which Southwest agreed to sell in a private placement an aggregate of
2,693,589 shares of its common stock and warrants to purchase an aggregate of
2,154,873 shares of its common stock, at a purchase price of $0.65 per
unit. The warrants are exercisable for a
period of five years at an exercise price of $0.85 per share. Southwest received net proceeds from this
offering of $1,644,336.00, after the deduction of estimated offering expenses.
The offer and sale of the securities was made to a
limited number of institutional and other accredited investors in reliance upon
exemptions from the registration requirements pursuant to Section 4(2) under
the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder. There was no general
solicitation or advertising with respect to the private placement and each of
the purchasers provided written representations of an intent to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of the securities.
Additional information regarding the private
placement is incorporated herein by reference to Item 1.01. Entry into a Material Definitive Agreement
of this Current Report on Form 8-K.
3
Item 9.01 Financial
Statements and Exhibits
(c)
Exhibits.
Exhibit
No.
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Description
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Method of Filing
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10.1
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Form of Securities
Purchase Agreement dated as of June 17, 2008 by and among Southwest
Casino Corporation and the purchasers named therein
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Filed herewith
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10.2
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Form of Warrant dated
June 16, 2007 issued by Southwest Casino Corporation to each of the
purchasers party to the Securities Purchase Agreement
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Filed herewith
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10.3
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Form of Lock-up Agreement
dated June 17, 2008 by and among Southwest Casino Corporation and
certain directors and executive officers
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Filed herewith
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99.1
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Southwest
Casino Corporation Press Release dated June 18, 2008.
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Filed herewith
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4
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly authorized.
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SOUTHWEST
CASINO CORPORATION
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Date:
June 23, 2008
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By:
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/s/
Thomas E. Fox
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Nasme:
Thomas E. Fox
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Title:
President
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5
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase
Agreement (this
Agreement
) is dated as of June 17, 2008, between
Southwest Casino Corporation, a Nevada corporation (the
Company
), and
each purchaser identified on the signature pages hereto (each, including
its successors and assigns, a
Purchaser
and collectively, the
Purchasers
).
WHEREAS, subject to the
terms and conditions set forth in this Agreement and pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the Securities Act), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions.
In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings set forth in this Section 1.1:
Acquiring Person
shall have the meaning ascribed to such term
in Section 4.5.
Action
shall have the meaning ascribed to such term in Section 3.1(j).
Adverse
Effect
shall have the meaning ascribed to such term in Section 4.20.
Affiliate
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.
Article XI
means Article XI of the Articles of Incorporation.
Articles
of Incorporation
means the Articles of Incorporation of the Company as
initially filed with the Secretary of State of the State of Nevada on November 28,
2001 and as amended on May 27, 2004, July 22, 2004 and July 14,
2005.
Board of
Directors
means the board of directors of the Company.
Business
Day
means any day except Saturday, Sunday, any day which is a federal
legal holiday in the United States or any day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
Closing
means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
Closing
Date
means the Trading Day when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers obligations to pay the Subscription
Amount and (ii) the Companys obligations to deliver the Securities have
been satisfied or waived.
Commission
means the United States
Securities and Exchange Commission.
Common
Stock
means the common stock of the Company, par value $0.001 per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed into.
Common
Stock Equivalents
means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
Company
Counsel
means Oppenheimer Wolff & Donnelly LLP with offices
located at Plaza VII, Suite 3300, 45 South Seventh Street, Minneapolis, MN
55402.
Disclosure
Schedules
means the Disclosure Schedules of the Company delivered
concurrently herewith.
Discounted Purchase Price
shall have
the meaning ascribed to such term in Section 4.18.
Discussion Time
shall have the
meaning ascribed to such term in Section 3.2(f).
Effective
Date
means the earlier of (a) the effective date of a Registration
Statement registering all the Shares and Warrant Shares and (b) the date
that all of Shares or Warrant Shares (assuming issuance upon cashless exercise)
are eligible for resale under Rule 144, without volume or manner-of-sale
restrictions; provided that if thereafter the requirement for the Company to be
in compliance with the current public information required under Rule 144
in order to sell the Shares and Warrant Shares (assuming issuance upon cashless
exercise) is not met, the Effective Date shall be tolled until such date that
such requirements are no longer required or met.
Escrow Agent
means Crown Bank, a
Minnesota State bank, having an office at 601 Marquette Avenue, Minneapolis, MN
55402.
Escrow Agreement
means the escrow
agreement entered into prior to the date hereof, by and among the Company and
the Escrow Agent pursuant to which the Purchasers, shall deposit Subscription
Amounts with the Escrow Agent to be applied to the transactions contemplated
hereunder.
Evaluation
Date
shall have the meaning ascribed to such term in Section 3.1(r).
Exchange Act
means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Exempt Issuance
means the issuance
of (a) shares of Common Stock or options to employees, officers or
directors of the Company pursuant to any stock or option plan duly adopted for
such purpose, by a majority of the members of the Board of Directors or a
majority of the members of a committee of non-employee directors established
for such purpose, (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, (c) the Placement Agent Warrant and
the Placement Agent Shares as described and set forth on
Schedule 3.1(s)
,
provided such securities are not amended or modified after the date hereof, (d) securities
issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the Company, provided that any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company or the owner of an operating company in a
business synergistic with the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities and (e) up to an amount of Common Stock and warrants equal
to the difference between $3.5 million and the aggregate Subscription Amounts
hereunder, on the same terms, conditions and prices as hereunder, with
investors executing definitive agreements for the purchase of such securities
and such transactions closing on or before the earlier of (i) July 15,
2008 or (ii) the date that a Registration Statement is filed with the
Commission.
FWS
means Feldman Weinstein & Smith LLP with offices located at 420
Lexington Avenue, Suite 2620, New York, New York 10170-0002.
GAAP
shall have the meaning ascribed to such term in Section 3.1(h).
Gaming
Authorities
means the Colorado Limited Gaming Control Commission (
CLGCC
),
the Minnesota Racing Commission (
MRC
) and any other tribal, state or
other domestic or foreign governmental authority that regulates any form of
gaming and has jurisdiction over the Company or the Subsidiaries.
Indebtedness
shall have the meaning ascribed to such term in Section 3.1(aa).
Intellectual Property Rights
shall
have the meaning ascribed to such term in Section 3.1(o).
Legend
Removal Date
shall have the meaning ascribed to such term in Section 4.1(c).
Liens
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.
Lock-Up
Agreement
means the Lock-Up Agreement, dated as of the date hereof, by and
among the Company and the directors and officers, in the form of
Exhibit C
attached hereto.
Losses
shall have the meaning assigned to such term in Section 4.20.
Material
Adverse Effect
shall have the meaning assigned to such term in Section 3.1(b).
Material
Permits
shall have the meaning ascribed to such term in Section 3.1(m).
Per Share
Purchase Price
equals
$0.65
, subject
to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur
after the date of this Agreement.
Person
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
Placement
Agent
shall mean the placement agent(s) to the Company in respect of
the transactions contemplated hereunder as disclosed and set forth on
Schedule
3.1(s)
attached hereto.
Placement
Agent Agreement
means the Placement Agent Agreement(s) entered into
between the Company and each Placement Agent.
Proceeding
means an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
Public Information Failure
shall
have the meaning ascribed to such term in Section 4.2(b).
Public Information Failure Payments
shall have the meaning ascribed to such term in Section 4.2(b).
Purchaser
Party
shall have the meaning ascribed to such term in Section 4.8.
Registration Statement
means a
registration statement filed pursuant to Section 4.20, registering the
resale, by the Purchasers, of all of the Shares and the Warrant Shares.
Required
Approvals
shall have the meaning ascribed to such term in Section 3.1(e).
Rule 144
means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.
SEC
Reports
shall have the meaning ascribed to such term in Section 3.1(h).
Securities
means the Shares, the Warrants and the Warrant Shares.
Securities
Act
means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
Shares
means the shares of Common Stock issued or issuable to each Purchaser pursuant
to this Agreement.
Short
Sales
means all short sales as defined in Rule 200 of Regulation
SHO under the Exchange Act (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock).
Subscription Amount
means, as to each
Purchaser, the aggregate amount to be paid for Shares and Warrants purchased
hereunder as specified below such Purchasers name on the signature page of
this Agreement and next to the heading Subscription Amount, in United States
dollars and in immediately available funds;
provided
,
however
,
that up to, in the aggregate among all of the Purchasers, not more than
$150,000 may be in the form of accrued but unpaid bonuses or other employment
compensation.
Subsidiary
means any subsidiary of the Company as set forth on
Schedule 3.1(a)
and
shall, where applicable, also include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
Trading Day
means a day on which the
principal Trading Market is open for trading.
Trading Market
means the following markets
or exchanges on which the Common Stock is listed or quoted for trading on the
date in question: the American Stock Exchange, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange or the OTC Bulletin Board.
Transaction
Documents
means this Agreement, the Warrants, the Lock-Up Agreement, the
Escrow Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
Transfer
Agent
means Interwest Transfer Co., Inc., with a mailing address of
1981 East Murray Holladay Road, Suite 100, P.O. Box 17136, Salt Lake
City, Utah 84117 and a facsimile number of (801) 277-3147, and any successor
transfer agent of the Company.
Variable
Rate Transaction
shall have the meaning ascribed to such term in Section 4.13(b).
VWAP
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m.
(New York City time)); (b) if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then listed or quoted for trading on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the Pink Sheets published by
Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected
in good faith by the Purchasers of a majority in interest of the Shares then
outstanding and reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.
Warrants
means, collectively, the Common Stock purchase warrants delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable immediately and have a term of exercise
equal to five years, in the form of
Exhibit A
attached hereto.
Warrant
Shares
means the shares of Common Stock issuable upon exercise of the
Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1
Closing.
On the Closing Date, upon the terms and
subject to the conditions set forth herein, substantially concurrent with the
execution and delivery of this Agreement by the parties hereto, the Company
agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of
$3,500,000 of Shares and Warrants. Each
Purchaser shall deliver to the Escrow Agent via wire transfer or a certified
check immediately available funds equal to its Subscription Amount and the
Company shall deliver to each Purchaser its respective Shares and a Warrant, as
determined pursuant to Section 2.2(a), and the Company and each Purchaser
shall deliver the other items set forth in Section 2.2 deliverable at the
Closing. Upon satisfaction of the
covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at the offices of FWS or such other location as the parties shall
mutually agree.
2.2
Deliveries.
(a)
On
or prior to the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i)
this Agreement duly executed by the
Company;
(ii)
a legal opinion of Company Counsel,
substantially in the form of
Exhibit B
attached hereto;
(iii)
a copy of the irrevocable instructions to the
Transfer Agent instructing the Transfer Agent to deliver, on an expedited
basis, a certificate evidencing a number of Shares equal to such Purchasers
Subscription Amount divided by the Per Share Purchase Price, registered in the
name of such Purchaser;
(iv)
a Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock equal to 80% of
such Purchasers Shares, with an exercise price equal to $
0.85,
subject
to adjustment therein; and
(v)
the Lock-Up Agreements.
(b)
On or prior to the Closing Date, each
Purchaser shall deliver or cause to be delivered to the Company the following:
(i)
this Agreement duly executed by such
Purchaser; and
(ii)
such Purchasers Subscription Amount by wire
transfer to the Escrow Agent.
2.3
Closing Conditions.
(a)
The Company has the right, for any reason or for no
reason, to reject the signature page to this Agreement and the
Subscription Amount from any Purchaser.
The obligations of the Company hereunder in connection with the Closing
are subject to the following conditions being met:
(i)
the
accuracy in all material respects on the Closing Date of the representations
and warranties of the Purchasers contained herein;
(ii)
all obligations, covenants and agreements of
each Purchaser required to be performed at or prior to the Closing Date shall
have been performed; and
(iii)
the delivery
by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b)
The respective obligations of the Purchasers
hereunder in connection with the Closing are subject to the following
conditions being met:
(i)
the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein;
(ii)
all obligations, covenants and agreements of
the Company required to be performed at or prior to the Closing Date shall have
been performed;
(iii)
the delivery
by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv)
there shall
have been no Material Adverse Effect with respect to the Company since the date
hereof;
(v)
the Company
shall have received
cash
Subscription Amounts of at least $150,000, in
the aggregate, from officers, directors, employees and/or friends or family thereof; and
(vi)
from the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by the Commission or
the Companys principal Trading Market (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the Securities at
the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1
Representations and
Warranties of the Company.
Except as set forth in the Disclosure Schedules,
which Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or warranty made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedules, the Company
hereby makes the following representations and warranties to each Purchaser:
(a)
Subsidiaries
. All of the direct and indirect subsidiaries
of the Company are set forth on
Schedule 3.1(a)
. The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all of the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase
securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them in the
Transaction Documents shall be disregarded.
(b)
Organization
and Qualification
. The Company and
each of the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to own
and use its properties and assets and to carry on
its business
as currently conducted. Neither the
Company nor any Subsidiary is in violation nor default of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents.
Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in: (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Companys ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
Material
Adverse Effect
) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
(c)
Authorization;
Enforcement
. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required
by the Company, the Board of Directors or the Companys stockholders in
connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a
party has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except: (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(d)
No Conflicts
. The execution, delivery and performance by
the Company of the Transaction Documents, the issuance and sale of the
Securities and the consummation by it of the other transactions to which it is
a party contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Companys or any Subsidiarys certificate
or articles of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, result in
the creation of any Lien upon any of the properties or assets of the Company or
any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which
any property or asset of the Company or any Subsidiary is bound or
affected or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected
to result in a Material Adverse Effect.
(e)
Filings,
Consents and Approvals
. The Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than: (i) the filings required pursuant to Section 4.4
of this Agreement, (ii) the notice and/or application(s), if any, to each
applicable Trading Market for the issuance and sale of the Securities and the
listing of the Securities for trading thereon in the time and manner required
thereby, (iii) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws and (iv) notice
to, and approvals, if any, of, MRC and CLGCC (collectively, the
Required
Approvals
).
(f)
Issuance
of the Securities
. The Securities
are duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Warrants.
(g)
Capitalization
. The capitalization of the Company is as set
forth on
Schedule 3.1(g)
, which
Schedule 3.1(g)
shall also
include the number of shares of Common Stock owned beneficially, and of record,
by Affiliates of the Company as of the date hereof. The Company has not issued
any capital stock since its most recently filed
periodic report under the Exchange Act, other than pursuant to the
exercise of employee stock options under the Companys stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Companys
employee stock purchase plans and pursuant to the conversion and/or exercise of
Common Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act.
No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire any shares of
Common Stock,
or contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Companys capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Companys stockholders.
(h)
SEC
Reports; Financial Statements
. The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the
SEC Reports
)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates,
the SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
The Company has never been an issuer subject to Rule 144(i) under
the Securities Act. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (
GAAP
),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i)
Material
Changes; Undisclosed Events, Liabilities or Developments
. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there
has been no event, occurrence or development that has had or that could
reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be
reflected in the Companys financial statements pursuant to GAAP or disclosed
in filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not
have pending before the Commission any request for confidential treatment of
information. Except for the issuance of
the Securities contemplated by this Agreement or as set forth on
Schedule
3.1(i)
, no event, liability or development has occurred or exists with respect
to the Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this representation is
made or deemed made that has not been publicly disclosed at least 1 Trading Day
prior to the date that this representation is made.
(j)
Litigation
. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an
Action
) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(k)
Labor
Relations
. No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company, which could reasonably be expected to result in a
Material Adverse Effect. None of the
Companys or its Subsidiaries employees is a member of a union that relates to
such employees relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good.
No executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive covenant in favor of any third party, and the
continued
employment of each such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(l)
Compliance
. Neither the Company nor any Subsidiary: (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is
in violation of any order of any court, arbitrator or governmental body or (iii) is
or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws applicable to its business and all such laws that affect
the environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(m)
Regulatory
Permits
. The Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits would not reasonably be expected to
result in a Material Adverse Effect (
Material Permits
), and neither
the Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(n)
Title
to Assets
. The Company and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the payment
of which is neither delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.
(o)
Patents
and Trademarks
. The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights and
similar rights as described in the SEC Reports as necessary or material for use
in connection with their respective businesses and which the failure to so have
could have a Material Adverse Effect (collectively, the
Intellectual
Property
Rights
).
Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of the Intellectual Property Rights used by the Company or
any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(p)
Insurance
. The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at least equal to the aggregate
Subscription Amount. Neither the Company
nor any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q)
Transactions
With Affiliates and Employees
.
Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r)
Sarbanes-Oxley;
Internal Accounting Controls
. The
Company is in material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 that are applicable to it as of the Closing Date. The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with managements general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with managements general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that information required to be disclosed by
the Company in the reports it files or submits under the Exchange Act
is recorded, processed, summarized and reported, within the time periods
specified in the Commissions rules and forms. The Companys certifying officers have
evaluated the effectiveness of the Companys disclosure controls and procedures
as of the end of the period covered by the Companys most recently filed
periodic report under the Exchange Act (such date, the
Evaluation Date
). The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no
changes in the Companys internal control over financial reporting (as such
term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting.
(s)
Certain
Fees
. Other than fees payable to
each Placement Agent in accordance with the Placement Agent Agreement as set
forth in detail on
Schedule 3.1(s)
, no brokerage or finders fees or
commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents.
(t)
Private
Placement
. Assuming the accuracy of the Purchasers representations and
warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading
Market.
(u)
Investment
Company.
The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the Securities, will not be or be an Affiliate of,
an investment company within the meaning of the Investment Company Act of
1940, as amended. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act of 1940, as amended.
(v)
Registration
Rights
. No Person has any right to
cause the Company to effect the registration under the Securities Act of any
securities of the Company.
(w)
Listing
and Maintenance Requirements
. The
Common Stock is registered pursuant to Section 12(b) or 12(g) of
the Exchange Act, and the Company has taken no action designed to, or which to
its knowledge is likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in
the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason
to believe
that it will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x)
Application
of Takeover Protections
. The Company
and the Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Companys certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Companys
issuance of the Securities and the Purchasers ownership of the Securities.
(y)
Disclosure
. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor, to its knowledge, any other Person acting
on its behalf has provided any of the Purchasers or their agents or counsel
with any information that it believes constitutes or might constitute material,
non-public information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of
the Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole, in
conjunction with the SEC Reports, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
(z)
No Integrated Offering
. Assuming the
accuracy of the Purchasers representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of (i) the Securities Act which
would require the registration of any such securities under the Securities Act,
or (ii) any applicable shareholder approval provisions of any Trading
Market on which any of the securities of the Company are listed or designated.
(aa)
Solvency
. Based on the consolidated financial condition
of the Company as of the Closing Date, after giving effect to the receipt by
the Company of the proceeds from the sale of the Securities hereunder: (i) the
fair saleable value of the Companys
assets exceeds the amount that will be required to be paid on or in
respect of the Companys existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Companys assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or
circumstances that lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date.
Schedule 3.1(aa) sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments. For the purposes of this Agreement,
Indebtedness
means (x) any liabilities for borrowed money or amounts owed in excess of
$50,000 (other than trade accounts payable incurred in the ordinary course of
business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are
or should be reflected in the Companys balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (z) the
present value of any lease payments in excess of $50,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.
(bb)
Tax
Status
. Except for matters that
would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary has filed
all necessary federal, state and foreign income and franchise tax returns and
has paid or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened against the
Company or any Subsidiary.
(cc)
No
General Solicitation
. Neither the
Company nor, to the Companys knowledge, any person acting on behalf of the Company
has offered or sold any of the Securities by any form of general solicitation
or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other accredited
investors within the meaning of Rule 501 under the Securities Act.
(dd)
Foreign
Corrupt Practices.
Neither the
Company, nor to the knowledge of the Company, any agent or other person acting
on behalf of the Company, has: (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any person
acting on
its behalf of
which the Company is aware) which is in violation of law or (iv) violated
in any material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended.
(ee)
Accountants
. The Companys accounting firm is set forth on
Schedule 3.1(ee)
of the Disclosure Schedules. To the knowledge and belief of the Company,
such accounting firm: (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion with
respect to the financial statements to be included in the Companys Annual
Report for the year ending December 31, 2008.
(ff)
No
Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently
existing, or reasonably anticipated by the Company to arise, between the
Company and the accountants and lawyers formerly or presently employed by the
Company and the Company is current with respect to any fees owed to its
accountants and lawyers which could affect the Companys ability to perform any
of its obligations under any of the Transaction Documents.
(gg)
Acknowledgment Regarding Purchasers
Purchase of Securities
. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arms length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated thereby is merely
incidental to the Purchasers purchase of the Securities. The Company further represents to each
Purchaser that the Companys decision to enter into this Agreement and the
other Transaction Documents has been based solely on the independent evaluation
of the transactions contemplated hereby by the Company and its representatives.
(hh)
Regulation M Compliance.
The
Company has not, and to its knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid
for, purchased, or, paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Companys placement agent in connection with the placement of the
Securities.
(ii)
Stock Option Plans
.
Each stock option granted by the Company under the Companys stock option plan
was granted (i) in accordance with the terms of the Companys stock option
plan and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered
granted under GAAP and applicable law. No stock option granted under the Companys
stock option plan has been backdated.
The Company has not knowingly granted, and
there is no
and has been no Company policy or practice to knowingly grant, stock options
prior to, or otherwise knowingly coordinate the grant of stock options with,
the release or other public announcement of material information regarding the
Company or its Subsidiaries or their financial results or prospects.
3.2
Representations and
Warranties of the Purchasers
. Each
Purchaser, for itself and for no other Purchaser, hereby represents and
warrants as of the date hereof and as of the Closing Date to the Company as
follows:
(a)
Organization;
Authority
. If such Purchaser is an
entity, such Purchaser is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization with full
right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of the Transaction Documents and performance by such Purchaser of
the transactions contemplated by the Transaction Documents have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b)
Own
Account
. Such Purchaser understands
that the Securities are restricted securities and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with a view to
or for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute or
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchasers right to sell the Securities pursuant to a
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. If such Purchaser
is not an individual, such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business. Each Purchaser who is an individual must
also fill out an individual investor questionnaire provided by the Company and
deliver such questionnaire at the Closing.
(c)
Purchaser
Status
. At the time such Purchaser
was offered the Securities, it was, and as of the date hereof it is, and on
each date on which it exercises any Warrants, it will be either: (i) an accredited
investor as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a qualified institutional buyer as defined
in Rule 144A(a) under
the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d)
Experience
of Such Purchaser
. Such Purchaser,
either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e)
General
Solicitation
. Such Purchaser is not
purchasing the Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(f)
Short
Sales and Confidentiality Prior To The Date Hereof
. Other than consummating the transactions
contemplated hereunder, such Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such
Purchaser, executed any purchases or sales, including Short Sales, of the
securities of the Company during the period commencing from the time that such
Purchaser first received a term sheet (written or oral) from the Company or any
other Person representing the Company setting forth the material terms of the
transactions contemplated hereunder until the date hereof (
Discussion Time
). Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchasers assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchasers assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons party to this
Agreement, such Purchaser has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction).
(g)
FELONIES; DENIAL OF GAMING LICENSE
. EACH PURCHASER, AND IF SUCH PURCHASER IS AN
ENTITY EACH PERSON WHO CONTROLS SUCH PURCHASER (WITHIN THE MEANING OF SECTION 15
OF THE SECURITIES ACT AND SECTION 20 OF THE EXCHANGE ACT), (A) HAS
NOT BEEN CONVICTED OF A FELONY IN ANY U.S. OR FOREIGN JURISDICTION, WHICH
CONVICTION HAS NOT BEEN SUBSEQUENTLY OVERTURNED ON APPEAL AND (B) HAS NOT
BEEN FOUND UNSUITABLE FOR, DENIED, OR, AFTER GRANT, HAD REVOKED OR SUSPENDED,
ANY LICENSE OR OTHER AUTHORIZATION TO PARTICIPATE IN THE GAMING INDUSTRY ISSUED
BY ANY GOVERNMENTAL AUTHORITY INCLUDING, WITHOUT LIMITATION, NIGC, ANY TRIBE OR
TRIBAL GAMING AUTHORITY, CLGCC OR MRC.
(h)
GAMING AUTHORITIES
. EACH PURCHASER HEREBY ACKNOWLEDGES AND AGREES
THAT SUCH PURCHASERS INVESTMENT IN THE SECURITIES PURSUANT TO THIS AGREEMENT MAY SUBJECT
SUCH PURCHASER TO SCRUTINY BY THE GAMING AUTHORITIES. EACH PURCHASER FURTHER ACKNOWLEDGES THAT IF
SUCH PURCHASER BECOMES A BENEFICIAL OWNER OF FIVE PERCENT (5%) OR MORE OF THE
OUTSTANDING COMMON STOCK, SUCH PURCHASER MAY BECOME SUBJECT TO ENHANCED
SCRUTINY BY THE GAMING AUTHORITIES.
UNDER CLGCC RULES, THE COMPANY MUST DISCLOSE TO THE CLGCC ANY HOLDER OF
FIVE PERCENT (5%) OR MORE OF THE OUTSTANDING COMMON STOCK AND CLGCC MAY THEN
DETERMINE WHETHER TO PERFORM A BACKGROUND INVESTIGATION OF THAT
STOCKHOLDER. IN ADDITION, THE COMPANY
MUST DISCLOSE TO CLGCC ANY HOLDER OF TEN PERCENT (10%) OR MORE OF ITS
OUTSTANDING COMMON STOCK AND THAT HOLDER MUST FILE AN APPLICATION FOR A FINDING
OF SUITABILITY WITH CLGCC. AS PROVIDED
IN THE ARTICLES OF INCORPORATION, EACH PURCHASER COVENANTS AND AGREES TO
PROMPTLY PROVIDE INFORMATION AND MATERIALS THAT ARE REQUIRED BY THE GAMING
AUTHORITIES AND TO COMPLY WITH ANY OTHER REQUIREMENTS OF THE GAMING AUTHORITIES
AND AGREES TO DO SO AT THE PURCHASERS EXPENSE.
(i)
REDEMPTION RIGHT OF COMPANY
. EACH PURCHASER HEREBY ACKNOWLEDGES AND AGREES
THAT, AS SET FORTH IN ARTICLE XI, (A) IF SUCH PURCHASER REFUSES TO PROVIDE
ANY INFORMATION REQUESTED BY THE GAMING AUTHORITIES, OR (B) IF THE BOARD
OF DIRECTORS OF THE COMPANY MAKES A REASONABLE, GOOD FAITH DETERMINATION, IN
RESPONSE TO A WRITTEN REQUEST OR NOTICE FROM THE GAMING AUTHORITIES TO THE
COMPANY OR SUCH PURCHASER, THAT THE CONTINUED OWNERSHIP OF THE SECURITIES BY
SUCH PURCHASER MAY RESULT IN (1) THE DISAPPROVAL OR NON-RENEWAL OF
ANY GAMING CONTRACT OR (2) THE DISAPPROVAL, LOSS, MODIFICATION,
NON-RENEWAL OR NON-REINSTATEMENT OF ANY GAMING LICENSE, APPROVAL, FRANCHISE OR
CONSENT FROM ANY GAMING AUTHORITY, THE COMPANY HAS THE RIGHT TO REDEEM ANY
SECURITIES HELD BY SUCH PURCHASER IN ACCORDANCE WITH ARTICLE XI. AS PROVIDED UNDER ARTICLE XI, THE COMPANY
MUST PROVIDE AT LEAST 30 DAYS PRIOR WRITTEN NOTICE TO THE PURCHASER BEFORE
REDEEMING THE SECURITIES AND PURCHASER HAS THE RIGHT, DURING THAT 30 DAY
PERIOD, TO DISPOSE OF THE SECURITIES OF ITS OWN ACCORD.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer
Restrictions
.
(a)
The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any
transfer of Securities other than (i) pursuant to an effective
registration statement or Rule 144, (ii) to the Company or (iii) to
an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b),
the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement
and shall have the rights of a Purchaser under this Agreement.
(b)
The
Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN ACCREDITED
INVESTOR AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN
SECURED BY SUCH SECURITIES.
ANY TRANSFER OF THIS SECURITY
OR THE SECURITIES INTO WHICH IT IS CONVERTIBLE IS, TO THE EXTENT REQUIRED,
SUBJECT TO THE PRIOR WRITTEN APPROVAL OF THE COLORADO LIMITED GAMING CONTROL
COMMISSION, THE MINNESOTA RACING COMMISSION AND ANY OTHER STATE, FEDERAL AND/OR
TRIBAL REGULATORY AUTHORITIES AS MAY HAVE JURISDICTION OVER THE ISSUER,
ITS SHAREHOLDERS AND/OR ITS SECURITIES, AND ANY ATTEMPTED TRANSFER WITHOUT SUCH
APPROVAL SHALL BE NULL AND VOID.
The Company acknowledges and agrees that a
Purchaser may from time to time pledge pursuant to a bona fide margin agreement
with a registered broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an
accredited investor as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be
required of such pledge. At the
appropriate Purchasers expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to Section 4.20,
the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.
(c)
Certificates evidencing the Shares and
Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof),
(i) while a registration statement (including a Registration Statement)
covering the resale of such security is effective under the Securities Act, (ii) following
any sale of such Shares or Warrant Shares pursuant to Rule 144, (iii) if
such Shares or Warrant Shares are eligible for sale under Rule 144,
without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Underlying Shares
and without volume or manner-of-sale restrictions, or (iv) if such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its
counsel to issue a legal opinion to the Transfer Agent promptly after the
Effective Date if required by the Transfer Agent to effect the removal of the
legend hereunder. If all or any portion
of a Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, or if such Warrant Shares
may be sold under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144
as to such Underlying Shares and without volume or manner-of-sale restrictions
or if such legend is not otherwise required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission) then such Warrant Shares shall be issued
free of all legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 4.1(c),
it will, no later than three Trading Days following the delivery by a Purchaser
to the Company or the Transfer Agent of a certificate representing Shares or
Warrant Shares, as the case may be, issued with a restrictive legend (such
third Trading Day, the
Legend Removal Date
), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is free
from all restrictive and other legends.
The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer
set forth in this Section 4.
Certificates for Securities subject to legend removal hereunder shall be
transmitted by the Transfer Agent to the Purchaser by crediting the account of
the Purchasers prime broker with the Depository Trust Company System as
directed by such Purchaser.
(d)
In addition to such Purchasers other available
remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Shares or Warrant Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Transfer Agent) delivered for removal of the restrictive
legend and subject to Section 4.1(c), $10 per Trading Day (increasing to
$20 per Trading Day five (5) Trading Days after such damages have begun to
accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit such
Purchasers right to pursue actual damages for the Companys failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
(e)
Each Purchaser, severally and not jointly with the
other Purchasers, agrees that such Purchaser will sell any Securities pursuant
to either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and
that if Securities are sold pursuant to a Registration Statement, they will be
sold in compliance with the plan of distribution set forth therein, and
acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated
upon the Companys reliance upon this understanding.
4.2
Furnishing of Information; Public
Information
.
(a)
If the Common Stock is not registered under Section 12(b) or
12(g) of the Exchange Act on the date hereof, the Company agrees to cause
the Common Stock to be registered under Section 12(g) of the Exchange
Act on or before the 60
th
calendar day following the date hereof.
Until the time that no Purchaser owns Securities, the Company covenants to
maintain the registration of the Common Stock under Section 12(b) or
12(g) of the Exchange Act and to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, to the extent required from time to time to enable such
Person to sell such Securities without registration under the Securities Act
within the requirements of the exemption provided by Rule 144.
(b)
At any time during the period commencing from the six (6) month
anniversary of the date hereof and ending at such time that all of the
Securities may be sold without the requirement for the Company to be in
compliance with Rule 144(c)(1) and otherwise without restriction or
limitation pursuant to Rule 144, if the Company shall fail for any reason
to satisfy the current public information requirement under Rule 144(c) (a
Public Information Failure
) then, in addition to such Purchasers
other available remedies, the Company shall pay to a Purchaser, in cash, as
partial liquidated
damages and not as a
penalty, by reason of any such delay in or reduction of its ability to sell the
Securities, an amount in cash equal to one percent (1.0%) of the aggregate
Subscription Amount of such Purchasers Securities on the day of a Public
Information Failure and on every thirtieth (30
th
) day thereafter an
amount equal to 2.0% until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public
information is no longer required for the Purchasers to transfer the
Underlying Shares pursuant to Rule 144. The payments to which a
Purchaser shall be entitled pursuant to this Section 4.2(b) are
referred to herein as
Public Information Failure Payments
.
Public Information Failure
Payments
shall be paid on the earlier of (i) the last day of the calendar month
during which such Public Information Failure
Payments
are incurred and (ii) the third (3
rd
) Business Day after the
event or failure giving rise to the Public Information Failure
Payments is cured. In the event the
Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate
of 1.5% per month (prorated for partial months) until paid in full. Nothing
herein shall limit such Purchasers right to pursue actual damages for the
Public Information Failure, and such Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief.
4.3
Integration
.
The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities to the Purchasers in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market such that it would
require shareholder approval prior to the closing of such other transaction
unless shareholder approval is obtained before the closing of such subsequent
transaction.
4.4
Securities Laws Disclosure; Publicity
.
The Company shall, (i) by 8:30 a.m. (New York City time) on
the Trading Day immediately following the date hereof, issue a press release
disclosing the material terms of the transactions contemplated hereby and (ii) by
8:30 a.m. New York time on the fourth Trading Day immediately following
the date hereof issue a Current Report on Form 8-K, disclosing the
material terms of the transactions contemplated hereby, and including the
Transaction Documents as exhibits thereto.
The Company and each Purchaser shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release
nor otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser,
or include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except: (a) as required by federal securities law in connection
with (i) any registration statement contemplated by Section 4.20 of
this Agreement and (ii) the filing of final Transaction Documents
(including signature pages thereto) with the Commission and (b) to
the
extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under this clause (b).
4.5
Shareholder Rights Plan
.
No claim will be made or enforced by the Company or, with the consent of
the Company, any other Person, that any Purchaser is an Acquiring Person
under any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or similar anti-takeover
plan or arrangement in effect or hereafter adopted by the Company, or that any
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchasers.
4.6
Non-Public Information
. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on
its behalf, will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company understands and confirms that
each Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company.
4.7
Use of Proceeds
.
Except as set forth on
Schedule 4.7
attached hereto, the Company
shall use the net proceeds from the sale of the Securities hereunder for
working capital purposes and shall not use such proceeds for: (a) the
satisfaction of any portion of the Companys debt (other than payment of trade
payables in the ordinary course of the Companys business and prior practices),
(b) the redemption of any Common Stock or Common Stock Equivalents (except
pursuant to Article XI or as provided in Section 2.1(c) herein)
or (c) the settlement of any outstanding litigation.
4.8
Indemnification of Purchasers
.
Subject to the provisions of this Section 4.8, the Company will
indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, shareholders, agents,
members, partners or employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling persons (each, a
Purchaser
Party
) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser in
any capacity, or any of them or their respective Affiliates, by any stockholder
of the Company who is not an Affiliate of such Purchaser, with respect to any
of the transactions contemplated by the Transaction Documents (unless such
action is based upon a breach of such Purchasers representations, warranties
or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought
pursuant to this Agreement, such Purchaser Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Purchaser
Party. Any Purchaser Party shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of such separate counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser Party,
in which case the Company shall be responsible for the reasonable fees and
expenses of no more than one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (y) for any settlement by a Purchaser
Party effected without the Companys prior written consent, which shall not be
unreasonably withheld or delayed; or (z) to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to any Purchaser
Partys breach of any of the representations, warranties, covenants or
agreements made by such Purchaser Party in this Agreement or in the other
Transaction Documents.
4.9
Reservation of Common Stock
. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.10
Listing of Common Stock
. The Company hereby agrees to use good
faith commercially reasonable efforts to maintain the listing or quotation of
the Common Stock on a Trading Market, and as soon as reasonably practicable
following the Closing (but not later than the earlier of the Effective Date and
the first anniversary of the Closing Date) to list or quote all of the Shares
and Warrant Shares on such Trading Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it
will then include in such application all of the Shares and Warrant Shares, and
will take such other action as is necessary to cause all of the Shares and
Warrant Shares to be listed on such other Trading Market as promptly as
possible. The Company will then take all
action reasonably necessary to continue the listing or quotation and trading of
its Common Stock on a Trading Market and will comply in all respects with the Companys
reporting, filing and other obligations under the bylaws or rules of the
Trading Market.
4.11
Equal Treatment of Purchasers
.
No consideration (including any modification of any Transaction
Document) shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the
Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.12
[RESERVED]
.
4.13
Subsequent Equity Sales
.
(a)
From the date hereof until 45 days after the Effective
Date and including the proceeds from the sale of Securities hereunder, neither
the Company nor any Subsidiary shall issue shares of Common Stock, Common Stock
Equivalents or Indebtedness (other than trade payables in the ordinary course)
with proceeds in excess of, in the aggregate among all sales during such
period, $3.5 million.
(b)
From the date hereof until the date that is the 12
month anniversary of the Effective Date, the Company shall be prohibited from
effecting or entering into an agreement to effect any Subsequent Financing
involving a Variable Rate Transaction.
Variable
Rate Transaction
means a transaction in which the Company (i) issues
or sells any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive, additional shares of
Common Stock either (A) at a conversion price, exercise price or exchange
rate or other price that is based upon, and/or varies with, the trading prices
of or quotations for the shares of Common Stock at any time after the initial
issuance of such debt or equity securities or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance, which
remedy shall be in addition to any right to collect damages.
(c)
From the date hereof until the 6 month anniversary of
the Effective Date, if the Company effects any issuance by the Company or any
of its Subsidiaries of Common Stock (a
Subsequent Financing
), if any
terms of such Subsequent Financing are less favorable to the Company than the
terms granted under the Transaction Documents, unless waived in writing by a
Purchaser, the terms of the Transaction Documents shall be amended to
incorporate such less favorable terms to the Company for the benefit of such
Purchaser and, if warrants, option or other consideration was paid to the
investors in connection with the Subsequent Financing that are less favorable
to the Company than the issuance of the Warrants hereunder, such additional
securities shall be issued to each Purchaser, unless waived in writing by such
Purchaser, to the extent that each Purchaser receives terms identical to the
investors in the Subsequent Financing.
By way of example, if the Company undertakes a Subsequent Financing of
$100,000 of Common Stock and 100% warrant coverage and no other terms that are
less favorable to the Company, the Company shall issue each Purchaser
additional common stock purchase warrants such that the aggregate warrant
coverage issued hereunder is 100% and the terms of the warrants issued shall
have the terms most favorable to the
Purchasers. From the date hereof until the 6 month
anniversary of the Effective Date, if the Company effects any issuance by the
Company or any of its Subsidiaries of Common Stock Equivalents or Indebtedness
(other than trade payables in the ordinary course) (a
CSE Subsequent
Financing
), each Purchaser may elect, in its sole discretion, to exchange
all or some of the Shares and 50% of the Warrants (pro-rata in proportion to
the Shares exchanged) then held by such Purchaser for any securities issued in
a CSE Subsequent Financing on a $1.00 for $1.00 basis (that is, for each $1.00
of Subscription Amount paid for the Shares on the Closing and surrendered by
the Purchaser, the Purchaser shall receive $1.00 of units in such CSE
Subsequent Financing) based on the Subscription Amount of such Shares on the
Closing, along with any liquidated damages and other amounts owing thereon, and
the effective price at which such securities were sold in such CSE Subsequent
Financing. By way of example, if the
Company undertakes a CSE Subsequent Financing of $100,000 of preferred stock
and warrants, the Purchaser shall have the right, but not the obligation, in
its sole discretion, to purchase $100,000 of preferred stock and warrants of
such CSE Subsequent Financing by surrendering Shares purchased hereunder for a
Subscription Amount of $100,000 and 50% of the Warrants issued to such
Purchaser as a result of such Subscription Amount. Notwithstanding anything to the contrary, in
lieu of surrendering any Warrants hereunder, a Purchaser may elect to keep the
Warrants otherwise required to be surrendered in lieu of a 1 for 1 set off of
warrant shares or option shares issuable to such Purchaser pursuant to a CSE
Subsequent Financing.
(d)
Notwithstanding the foregoing, Section 4.13(a) and
4.13(c) shall not apply in respect of an Exempt Issuance.
4.14
Short Sales and Confidentiality After The
Date Hereof
. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it, nor any Affiliate acting on its behalf or pursuant to any
understanding with it, will execute any Short Sales during the period
commencing with the Discussion Time until the earlier of (a) the Effective
Date and (b) the 4 month anniversary of the date hereof (the
Restriction
Period
). Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as
the transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.4, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Transaction Documents and the Disclosure
Schedules. Notwithstanding the
foregoing, no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in Short Sales in the securities of the Company after
the Restriction Period. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such Purchasers
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchasers assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.15
Form D; Blue Sky Filings
.
The Company agrees to timely file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of any Purchaser. The Company shall take such action as
the Company shall
reasonably determine is necessary in order to obtain an exemption for,
or to qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or Blue Sky laws of the states of the United States,
and shall provide evidence of such actions promptly upon request of any
Purchaser.
4.16
Capital Changes
.
Until the one-year anniversary of the Effective Date, the Company shall
not undertake a reverse or forward stock split or reclassification of the
Common Stock without the prior written consent of the Purchasers holding a
majority in interest of the Shares.
4.17
Delivery of Securities After Closing
.
The Company shall deliver, or cause to be delivered, the respective
Securities purchased by each Purchaser to such Purchaser within 3 Trading Days
of the Closing Date.
4.18
Per Share Purchase Price Protection
.
From the date hereof until the 6 month anniversary of the Effective Date,
if in connection with any issuance by the Company or any of its Subsidiaries of
Common Stock or Common Stock Equivalents, the Company or any Subsidiary shall
issue any Common Stock or Common Stock Equivalents entitling any person or
entity to acquire shares of Common Stock at an effective price per share less
than the Per Share Purchase Price (subject to reverse and forward stock splits
and the like) (the
Discounted Purchase Price
, as further defined
below), the Company shall issue to such Purchaser that number of additional
shares of Common Stock equal to (a) the Subscription Amount paid by such
Purchaser at the Closing divided by the Discounted Purchase Price, less (b) the
Shares issued to such Purchaser at the Closing pursuant to this Agreement. The term
Discounted Purchase Price
shall mean the amount actually paid in consideration by third parties for each
share of Common Stock. The sale of
Common Stock Equivalents shall be deemed to have occurred at the time of the
issuance of the Common Stock Equivalents and the Discounted Purchase Price
covered thereby shall also include the actual exercise or conversion price
thereof at the time of the conversion or exercise (in addition to the
consideration per share of Common Stock underlying the Common Stock Equivalents
received by the Company upon such sale or issuance of the Common Stock
Equivalents). If shares are issued for a
consideration other than cash, the per share selling price shall be the fair
value of such consideration as determined in good faith by the Board of
Directors. The Company shall not refuse
to issue a Purchaser additional Shares hereunder based on any claim that such
Purchaser or any one associated or affiliated with such Purchaser has been engaged
in any violation of law, agreement or for any other reason, unless an
injunction from a court, on notice, restraining and or enjoining an issuance
hereunder shall have been sought and obtained and the Company posts a surety
bond for the benefit of such Purchaser in the amount of 150% of the market
value of such Shares (based on the VWAP of the Common Stock on the date of the
event giving rise to the Companys obligation hereunder), which is subject to
the injunction, which bond shall remain in effect until the completion of
litigation of the dispute and the proceeds of which shall be payable to the
Purchaser to the extent it obtains judgment.
Nothing herein shall limit a Purchasers right to pursue actual damages
for the Companys failure to deliver Shares hereunder and such Purchaser shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief. On the date of closing of any
transaction pursuant to which securities are issued for a Discounted Purchase
Price, the Company shall give the Purchasers written notice
thereof. Notwithstanding anything to the
contrary herein, this Section 4.18 shall not apply to an Exempt Issuance.
4.19
Redemption of Common Stock In Accordance
With Article XI
. The Company shall exercise the right to
redeem the Securities, as set forth in Section 3.2(i), in accordance with Article XI. As provided in Article XI, the Company
shall provide at least 30 days prior written notice to the Purchaser prior to
redeeming the Securities and, during such 30-day period, the Purchaser has the
rights to dispose of such Securities of its own accord. The Company shall not redeem any of the
Securities unless (a) a Purchaser refuses to provide any information
requested by the Gaming Authorities or (b) the board of directors of the
Company makes a reasonable, good faith determination, in response to a written
request or notice from the Gaming Authorities to the Company or such Purchaser,
that the continued ownership of the Securities by such Purchaser may result in (1) the
disapproval or non-renewal of any gaming contract or (2) the disapproval,
loss, modification, non-renewal or non-reinstatement of any gaming license,
approval, franchise or consent from any gaming authority.
4.20
Piggy-Back Registration Rights
. If at any time after the date hereof,
the Company shall determine to prepare and file with the Commission a
Registration Statement relating to an offering for its own account or the
account of others of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act), or their then
equivalents, relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send a written notice of such determination to each Purchaser and, if
within ten calendar days after the date of delivery of such notice, any such
Purchaser shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Shares and Warrant Shares as the
Purchaser requests to be registered so long as such Shares and Warrant Shares
are proposed to be disposed in the same manner as those securities set forth in
the Registration Statement;
provided
,
however
, if the offering is
an underwritten offering and was initiated by the Company or at the request of
a shareholder, and if the managing underwriters advise the Company that the
inclusion of Shares or Warrant Shares requested to be included in the
Registration Statement would cause an adverse effect on the success of any such
offering, based on market conditions or otherwise (an
Adverse Effect
),
then the Company shall be required to include in such Registration Statement,
to the extent of the amount of securities that the managing underwriters advise
may be sold without causing such Adverse Effect, (a) first, the securities
of the Company and (b) second, the shares, including the Shares and
Warrant Shares, of all shareholders, on a pro rata basis, requesting
registration and whose shares the Company is obligated by contract to include
in the Registration Statement;
provided
,
further
,
however
,
to the extent that all of the Shares and Warrant Shares are not included in the
initial Registration Statement, the Purchaser shall have the right to request
the inclusion of its Shares and Warrant Shares in subsequent Registration
Statements until all such Shares have been registered in accordance with the
terms hereof and all such Warrant Shares have been registered in accordance
with the terms thereof. If the offering in which the Shares and Warrant
Shares is being included in a Registration Statement is a firm commitment underwritten
offering, unless otherwise agreed by the Company, the Purchaser shall sell its
Shares and Warrant Shares in such offering using the same underwriters and,
subject to the provisions hereof, on the same terms and conditions as the other
shares of Common Stock that are included in such underwritten offering.
The Company shall use its best efforts to cause any Registration Statement to
be declared
effective by the Commission as promptly as is possible following it
being filed with the Commission and to remain effective until all Shares and
Warrant Shares subject thereto have been sold.
All fees and expenses incident to the performance of or compliance with
this Section 4.20 by the Company shall be borne by the Company whether or not
any Shares or Warrant Shares are sold pursuant to the Registration
Statement. The Company shall indemnify
and hold harmless the Purchaser, the officers, directors, members, partners,
agents, brokers, investment advisors and employees of each of them, each person
who controls the Purchaser (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act), and the officers, directors, members,
shareholders, partners, agents and employees of each such controlling person,
to the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
reasonable attorneys fees) and expenses (collectively, the
Losses
),
as incurred, arising out of or relating to (i) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
prospectus included therein or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (ii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act or
any state securities law, or any rule or regulation thereunder, in connection
with the performance of its obligations under this Section 4.20, except to the
extent, but only to the extent, that such untrue statements or omissions
referred to in (i) above are based solely upon information regarding the
Purchaser furnished in writing to the Company by the Purchaser expressly for
use therein, or to the extent that such information relates to the Purchaser or
the Purchasers proposed method of distribution of Shares and Warrant Shares
and was reviewed and expressly approved in writing by the Purchaser expressly
for use in the Registration Statement, such prospectus or such form of
prospectus or in any amendment or supplement thereto. The rights of the
Purchaser under this Section 4.20 shall survive until all Shares and Warrant
Shares have been either registered under a Registration Statement or are eligible
for sale under Rule 144 (assuming cashless exercise of the Warrants) without
volume or manner-of-sale restrictions.
ARTICLE V.
MISCELLANEOUS
5.1
Termination
. This Agreement may be terminated
by any Purchaser, as to such Purchasers obligations hereunder only and without
any effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing has not been
consummated on or before June 30, 2008;
provided
,
however
,
that such termination will not affect the right of any party to sue for any
breach by the other party (or parties).
5.2
Fees and Expenses
.
At the Closing, the Company has agreed to reimburse Whalehaven Capital
Management Fund Ltd (
Whalehaven
) the non-accountable sum of $15,000
for its legal fees and expenses, $5,000 of which has been paid prior to the
Closing. Except as expressly set forth
in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and
performance of this Agreement.
The Company shall pay all Transfer Agent fees, stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to
the Purchasers.
5.3
Entire Agreement
.
The Transaction Documents, together with the exhibits and schedules
thereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
5.4
Notices
. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day
that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the second (2
nd
) Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier
service or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for
such notices and communications shall be as set forth on the signature pages attached
hereto.
5.5
Amendments; Waivers
.
No provision of this Agreement may be waived, modified, supplemented or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Purchasers holding at least 67% in interest of the Shares
then outstanding or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.
5.6
Headings
. The headings
herein are for convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof.
5.7
Successors and Assigns
.
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company may not assign this Agreement or
any rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the Purchasers.
5.8
No Third-Party Beneficiaries
.
This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.8.
5.9
Governing Law
.
All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for
such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.10
Survival
. The
representations and warranties contained herein shall survive the Closing and
the delivery of the Securities for the applicable statute of limitations.
5.11
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any
signature is delivered by facsimile transmission or by e-mail delivery of a .pdf
format data file, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) with the
same force and effect as if such facsimile or .pdf signature page were
an original thereof.
5.12
Severability
.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties hereto shall
use their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13
Rescission and Withdrawal Right
.
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) any of the other Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights;
provided
,
however
,
that in the case of a rescission of an exercise of a Warrant, the Purchaser
shall be required to return any shares of Common Stock subject to any such
rescinded exercise notice.
5.14
Replacement of Securities
.
If any certificate or instrument evidencing any Securities is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof (in the case of
mutilation), or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction.
The applicant for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs (including
customary indemnity) associated with the issuance of such replacement
Securities.
5.15
Remedies
. In addition
to being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not
be adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16
Payment Set Aside
.
To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
5.17
Independent Nature of Purchasers
Obligations and Rights
. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document.
Nothing contained herein or in any other Transaction Document, and no
action taken by any Purchaser pursuant thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its
own separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through FWS.
FWS does not represent all of the Purchasers but only Whalehaven. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.
5.18
Liquidated Damages
.
The Companys obligations to pay any partial liquidated damages or other
amounts owing under the Transaction Documents is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages and
other amounts have been paid notwithstanding the fact that the instrument or
security pursuant to which such partial liquidated damages or other amounts are
due and payable shall have been canceled.
5.19
Saturdays, Sundays, Holidays, etc.
If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein shall not be a
Business Day, then such action may be taken or such right may be exercised on
the next succeeding Business Day.
5.20
Construction
. The parties agree that each of them
and/or their respective counsel has reviewed and had an opportunity to revise
the Transaction Documents and, therefore, the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents
or any amendments hereto.
5.21
WAIVER OF JURY TRIAL
.
IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY
PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO
THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
IN WITNESS WHEREOF, the parties hereto have caused
this Securities Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
SOUTHWEST CASINO CORPORATION
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Address for Notice:
2001 Killebrew Drive, Suite 350
Minneapolis, MN 55425
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By:
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Fax:
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Name: Thomas E. Fox
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(952) 853-9991
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Title: President
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With a copy to (which shall not constitute notice):
Oppenheimer Wolff & Donnelly LLP
Attn: William Kaufman, Esq.
Plaza VII, Suite 3300
35 South Seventh Street
Minneapolis, MN 55402
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[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR
PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO SWCC SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the
undersigned have caused this Securities Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first indicated above.
Name of
Purchaser:
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Signature
of Authorized Signatory of Purchaser
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Name of
Authorized Signatory:
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Title of
Authorized Signatory:
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Email Address of
Authorized Signatory:
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Facsimile Number
of Authorized Signatory:
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Address for
Notice of Purchaser:
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Address for Delivery of
Securities for Purchaser (if not same as address for notice):
Subscription Amount: $
Number of Shares (which
shall not exceed 9.99% of the issued and outstanding Common Stock after giving
effect to the sale of Shares hereunder):
Number of Warrant Shares:
EIN Number:
[PROVIDE THIS UNDER
SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH
THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE SECURITIES ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
ANY TRANSFER OF THIS SECURITY OR THE SECURITIES INTO
WHICH IT IS EXERCISABLE IS, TO THE EXTENT REQUIRED, SUBJECT TO THE PRIOR
WRITTEN APPROVAL OF THE COLORADO LIMITED GAMING CONTROL COMMISSION, THE
MINNESOTA RACING COMMISSION AND ANY OTHER STATE, FEDERAL AND/OR TRIBAL
REGULATORY AUTHORITIES AS MAY HAVE JURISDICTION OVER THE ISSUER, ITS
SHAREHOLDERS AND/OR ITS SECURITIES, AND ANY ATTEMPTED TRANSFER WITHOUT SUCH
APPROVAL SHALL BE NULL AND VOID.
COMMON STOCK PURCHASE WARRANT
SOUTHWEST CASINO CORPORATION
Warrant Shares:
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Initial Exercise Date: June 16, 2008
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THIS COMMON STOCK PURCHASE WARRANT (the
Warrant
)
certifies that, for value received,
(the
Holder
) is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the
Initial Exercise Date
) and on or
prior to the close of business on the five year anniversary of the Initial
Exercise Date (the
Termination Date
) but not thereafter, to subscribe
for and purchase from Southwest Casino Corporation, a Nevada corporation (the
Company
),
up to
shares (the
Warrant Shares
) of Common Stock. The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1
.
Definitions
. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the
Purchase Agreement
),
dated June 17, 2008, among
the Company and the purchasers signatory thereto.
Section 2
.
Exercise
.
a)
Exercise of Warrant
. Exercise of
the purchase rights represented by this Warrant may be made, in whole or in
part, at any time or times on or after the Initial Exercise Date and on or
before the Termination Date by delivery to the Company (or such other office or
agency of the Company as it may designate by notice in writing to the
registered Holder at the address of the Holder appearing on the books of the
Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed
hereto; and, within 3 Trading Days of the date said Notice of Exercise is
delivered to the Company, the Company must have received payment of the aggregate Exercise Price of
the shares thereby purchased by wire transfer or cashiers check drawn on a
United States bank. Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full,
in which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise is
delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of such
purchases. The Company shall deliver any
objection to any Notice of Exercise Form within 2 Business Days of receipt
of such notice.
The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on the
face hereof.
b)
Exercise Price
.
The exercise price per share of the Common Stock under this Warrant
shall be
$0.85,
subject to adjustment hereunder
(the
Exercise Price
).
c)
Cashless Exercise
. From the Initial Exercise Date until the Termination
Date, if there is no effective Registration Statement registering, or no
current prospectus available for, the resale of the Warrant Shares by the
Holder, then this Warrant may be exercised by means of a cashless exercise in
which the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A) = the
VWAP on the Trading Day immediately preceding the date of such election;
(B) = the
Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon
exercise of this Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on
the Termination Date, this Warrant shall be automatically exercised via
cashless exercise pursuant to this Section 2(c).
d)
Exercise Limitations
. The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holders Affiliates, and any
other person or entity acting as a group together with the Holder or any of the
Holders Affiliates), would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except
as set forth in the preceding sentence, for purposes of this Section 2(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder, it
being acknowledged by the Holder that the Company is not representing to the
Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and the Holder is solely responsible for any schedules required
to be filed in accordance therewith. To
the extent that the limitation contained in this Section 2(d) applies,
the determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable shall be in the sole discretion of the
Holder, and the submission of a Notice of Exercise shall be deemed to be the
Holders determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable, in each case subject to the Beneficial
Ownership Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination.
In addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining
the number of outstanding shares of Common Stock, a Holder may rely on the
number of outstanding shares of Common Stock as reflected in (A) the
Companys most recent periodic or annual report, as the case may be, (B) a
more recent public announcement by the Company or (C) any other notice by
the Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of a Holder, the
Company shall within two Trading Days 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 this Warrant,
by the Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The
Beneficial Ownership Limitation
shall be 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Holder,
upon not less than 61 days prior notice to the Company, may decrease the
Beneficial Ownership Limitation provisions of this Section 2(d), provided
the provisions of this Section 2(d) shall continue to apply.
Any such
decrease
will not be
effective until the
61
st
day after such notice is delivered to the Company.
The provisions
of this paragraph shall be construed and implemented in a manner otherwise than
in strict conformity with the terms of this Section 2(d) to correct
this paragraph (or any portion hereof) which may be defective or inconsistent
with the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.
e)
Mechanics of Exercise
.
i.
Delivery of Certificates Upon Exercise
.
Certificates for shares purchased hereunder shall be transmitted by the
Transfer Agent to the Holder by crediting the account of the Holders prime
broker with the Depository Trust Company through its Deposit Withdrawal Agent
Commission (
DWAC
) system if the Company is then a participant in such
system and either (A) there is an effective Registration Statement
permitting the resale of the Warrant Shares by the Holder or (B) the
shares are eligible for resale without volume or manner-of-sale limitations
pursuant to Rule 144, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from
the delivery to the Company of the Notice of Exercise Form, surrender of this
Warrant (if required) and payment of the aggregate Exercise Price as set forth
above (the
Warrant Share Delivery Date
). This Warrant shall be deemed to have been
exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have
been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price (or by cashless exercise, if permitted) and all
taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior
to the issuance of such shares, have been paid. If the Company fails for any
reason to deliver to the Holder certificates evidencing the Warrant Shares
subject to a Notice of Exercise by the second Trading Day following the Warrant
Share Delivery Date, the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
subject to such exercise (based on the VWAP of the Common Stock on the date of
the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per
Trading Day on the fifth Trading Day after such liquidated damages begin
to accrue) for each
Trading Day after such second Trading Day following the Warrant Share Delivery
Date until such certificates are delivered.
ii.
Delivery of New Warrants Upon Exercise
.
If this Warrant shall have been exercised in part, the Company shall, at
the request of a Holder and upon surrender of this Warrant certificate, at the
time of delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
iii.
Rescission Rights
. If the
Company fails to cause the Transfer Agent to transmit to the Holder a
certificate or the certificates representing the Warrant Shares pursuant to Section 2(e)(i) by
the second Trading Day following the Warrant Share Delivery Date, then, the
Holder will have the right to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise
. In addition
to any other rights available to the Holder, if the Company fails to cause the
Transfer Agent to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to an exercise on or before the second
Trading Day following the Warrant Share Delivery Date, and if after such date
the Holder is required by its broker to purchase (in an open market transaction
or otherwise) or the Holders brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a
Buy-In
),
then the Company shall (A) pay in cash to the Holder the amount by which (x) the
Holders total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (2) the
price at which the sell order giving rise to such purchase obligation was
executed, and (B) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for which such
exercise was not honored or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with
its exercise and delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (A) of
the immediately preceding sentence the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In and, upon request of
the Company,
evidence of the amount of
such loss. Nothing herein shall limit a
Holders right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Companys failure to timely
deliver certificates representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.
v.
No Fractional Shares or Scrip
.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant.
As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall, at its election, either pay
a cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price or round up to the next whole share.
vi.
Charges, Taxes and Expenses
.
Issuance of certificates for Warrant Shares shall be made without charge
to the Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the Holder;
provided
,
however
, that in the event certificates for Warrant Shares are to be issued
in a name other than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.
vii.
Closing of Books
. The Company
will not close its stockholder books or records in any manner that prevents the
timely exercise of this Warrant, pursuant to the terms hereof.
Section 3
.
Certain
Adjustments
.
a)
Stock Dividends and Splits
. If the Company, at any time while this
Warrant is outstanding: (i) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company upon exercise of this Warrant), (ii) subdivides outstanding shares
of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a
smaller number of shares or (iv) issues by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then in each case
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after
such event and the number of
shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b)
Subsequent Equity Sales
. From the Initial Exercise Date until the 4 month
anniversary of the Effective Date, if the Company or any Subsidiary thereof, as
applicable, at any time while this Warrant is outstanding, shall sell or grant
any option to purchase, or sell or grant any right to reprice, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at an effective price
per share less than the then Exercise Price (such lower price, the
Base
Share Price
and such issuances collectively, a
Dilutive Issuance
)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection
with such issuance, be entitled to receive shares of Common Stock at an
effective price per share which is less than the Exercise Price, such issuance
shall be deemed to have occurred for less than the Exercise Price on such date
of the Dilutive Issuance), then, the Exercise Price shall be reduced and only
reduced to equal the Base Share Price and the number of Warrant Shares issuable
hereunder shall be increased such that the aggregate Exercise Price payable
hereunder, after taking into account the decrease in the Exercise Price, shall
be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments
shall be made, paid or issued under this Section 3(b) in respect of
an Exempt Issuance. The Company shall
notify the Holder, in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
Dilutive
Issuance Notice
). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 3(b), upon the occurrence of any Dilutive
Issuance, after the date of such Dilutive Issuance the Holder is entitled to
receive a number of Warrant Shares based upon the Base Share Price regardless
of whether the Holder accurately refers to the Base Share Price in the Notice
of Exercise.
c)
Subsequent Rights Offerings
.
If the Company, at any time while the Warrant is outstanding, shall
issue rights, options or warrants to all holders of Common Stock (and not to
Holders) entitling them to subscribe for or purchase shares of Common Stock at
a price per share less than the VWAP at the record date mentioned below, then,
the Exercise Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the
Common Stock outstanding
on the date of issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares so offered
(assuming receipt by the Company in full of all consideration payable upon
exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants.
d)
Pro Rata Distributions
. If the
Company, at any time while this Warrant is outstanding, shall distribute to all
holders of Common Stock (and not to Holders of the Warrants) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security other than the Common Stock
(which shall be subject to Section 3(b)), then in each such case the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the VWAP determined as of the record date mentioned above, and of
which the numerator shall be such VWAP on such record date less the then per
share fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
e)
Fundamental Transaction
. If, at any time while this Warrant is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property or (iv) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (each, a
Fundamental
Transaction
), then, upon any
subsequent exercise of this Warrant, the Holder
shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, the number of shares of
Common Stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and any additional consideration (the
Alternate
Consideration
) receivable as a result of
such merger, consolidation or disposition of assets by a holder of the number
of shares of Common Stock for which this Warrant is exercisable immediately
prior to such event. For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the
Alternate
Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this
Warrant following such Fundamental Transaction.
To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing
provisions and evidencing the Holders right to exercise such warrant into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e) and
insuring that this Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in
the event of a Fundamental Transaction that is (1) an all cash
transaction, this Warrant shall terminate at closing of the Fundamental
Transaction and the Company or any successor entity shall pay the Holder an
amount in cash equal to the difference in value between the Exercise Price and
the per share cash consideration paid for Common Stock upon consummation of the
Fundamental Transaction, and (2) in the event of a Fundamental Transaction
involving a person or entity not traded on a national securities exchange, the
Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital
Market, the Holder may elect (a) for this Warrant to terminate at closing
of the Fundamental Transaction and have the Company or any successor entity pay
an amount in cash equal to the difference in value between the Exercise Price
and the per share cash consideration paid for Common Stock upon consummation of
the Fundamental Transaction, or (b) to receive a new warrant from the Company
or any successor entity in accordance with this Section 3(e).
f)
Calculations
. All calculations under this Section 3 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
g)
Notice to Holder
.
i.
Adjustment to Exercise Price
. Whenever the Exercise Price is adjusted
pursuant to any provision of this Section 3, the Company shall promptly
mail to the Holder a notice setting forth the Exercise Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. If the Company enters into a Variable Rate Transaction, despite the
prohibition thereon in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted or
exercised.
ii.
Notice to Allow Exercise by Holder
. If (A) the Company shall declare a
dividend (or any other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring
cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or substantially all
of the assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property, or (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company
shall cause to be mailed to the Holder at its last address as it shall appear
upon the Warrant Register of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of the Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
provided that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. The
Holder is entitled to exercise this Warrant during the period commencing on the
date of such notice to the effective date of the event triggering such notice.
Section 4
.
Transfer of Warrant
.
a)
Transferability
. Subject to
compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof
and to the provisions of Section 4.1 of the Purchase Agreement, this
Warrant and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees, as applicable, and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.
b)
New Warrants
. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a),
as to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.
All Warrants issued on transfers or exchanges shall be dated the Initial
Exercise Date and shall be identical with this Warrant except as to the number
of Warrant Shares issuable pursuant thereto.
c)
Warrant Register
. The Company shall record this Warrant, upon records
to be maintained by the Company for that purpose (the
Warrant Register
),
in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.
d)
Transfer Restrictions
. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant
shall not be either (i) registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws or (ii) eligible for resale without volume or manner-of-sale
restrictions pursuant to Rule 144, the Company may require, as a condition
of allowing such transfer, that the Holder or transferee of this Warrant, as
the case may be, (i) furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such transfer may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, and (ii) comply with the provisions of Section 5.7
of the Purchase Agreement.
Section 5
.
Miscellaneous
.
a)
No Rights as Stockholder Until Exercise
.
This Warrant does not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to the exercise hereof as set
forth in Section 2(e)(i).
b)
Loss, Theft, Destruction or Mutilation of Warrant
. The Company covenants that upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant,
shall not include the posting of any bond), and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
c)
Saturdays, Sundays, Holidays, etc
. If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall
not be a Business Day, then, such action may be taken or such right may be
exercised on the next succeeding Business Day.
d)
Authorized Shares
.
The Company covenants that, during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant. The
Company will take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading Market upon
which the Common Stock may be listed.
The Company covenants that all Warrant Shares which may be issued upon
the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
Except and to the extent as waived or consented to by
the Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, 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, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment. Without limiting the generality of the
foregoing, the Company will (i) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise of this
Warrant and (iii) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof, as may be, necessary to enable the Company to perform its
obligations under this Warrant.
Before taking any action that would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or
consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
e)
Jurisdiction
. All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
f)
Restrictions
.
The Holder acknowledges that the Warrant Shares acquired upon the
exercise of this Warrant, if not registered, will have restrictions upon resale
imposed by state and federal securities laws.
g)
Nonwaiver and Expenses
. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holders rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to Holder such
amounts as shall be sufficient to cover any costs and expenses including, but
not limited to, reasonable attorneys fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto
or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)
Notices
.
Any notice, request or other document required or permitted to be given
or delivered to the Holder by the Company shall be delivered in accordance with
the notice provisions of the Purchase Agreement.
i)
Limitation of Liability
. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
j)
Remedies
.
The Holder, in addition to being entitled to exercise all rights granted
by law, including recovery of damages, will be entitled to specific performance
of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for specific
performance that a remedy at law would be adequate.
k)
Successors and Assigns
. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by the Holder or
holder of Warrant Shares.
l)
Amendment
.
This Warrant may be modified or amended or the provisions hereof waived
with the written consent of the Company and Holders holding Warrants at
least equal to 67% of the
Warrant Shares issuable upon exercise of all then outstanding Warrants.
m)
Severability
.
Wherever possible, each provision of this Warrant shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Warrant.
n)
Headings
.
The headings used in this Warrant are for the convenience of reference
only and shall not, for any purpose, be deemed a part of this Warrant.
o)
GAMING AUTHORITIES
. EACH PURCHASER HEREBY ACKNOWLEDGES AND AGREES
THAT SUCH PURCHASERS INVESTMENT IN THE WARRANT AND WARRANT SHARES PURSUANT TO
THIS AGREEMENT MAY SUBJECT SUCH PURCHASER TO SCRUTINY BY THE GAMING AUTHORITIES. EACH PURCHASER FURTHER ACKNOWLEDGES THAT IF
SUCH PURCHASER BECOMES A BENEFICIAL OWNER OF FIVE PERCENT (5%) OR MORE OF THE
OUTSTANDING COMMON STOCK, SUCH PURCHASER MAY BECOME SUBJECT TO ENHANCED
SCRUTINY BY THE GAMING AUTHORITIES. NIGC
IS CURRENTLY ENGAGED IN A BACKGROUND INVESTIGATION OF THE COMPANY AND NIGC HAS
INFORMED THE MANAGEMENT OF THE COMPANY THAT ANY HOLDER OF FIVE PERCENT (5%) OR
MORE OF THE OUTSTANDING COMMON STOCK MUST SUBMIT AN APPLICATION FOR A
BACKGROUND INVESTIGATION BY NIGC. UNDER
CLGCC RULES, THE COMPANY MUST DISCLOSE TO THE CLGCC ANY HOLDER OF FIVE PERCENT
(5%) OR MORE OF THE OUTSTANDING COMMON STOCK AND CLGCC MAY THEN DETERMINE
WHETHER TO PERFORM A BACKGROUND INVESTIGATION OF THAT STOCKHOLDER. IN ADDITION, THE COMPANY MUST DISCLOSE TO
CLGCC ANY HOLDER OF TEN PERCENT (10%) OR MORE OF ITS OUTSTANDING COMMON STOCK
AND THAT HOLDER MUST FILE AN APPLICATION FOR A FINDING OF SUITABILITY WITH
CLGCC. AS PROVIDED IN THE ARTICLES OF
INCORPORATION, EACH PURCHASER COVENANTS AND AGREES TO PROMPTLY PROVIDE
INFORMATION AND MATERIALS THAT ARE REQUIRED BY THE GAMING AUTHORITIES AND TO
COMPLY WITH ANY OTHER REQUIREMENTS OF THE GAMING AUTHORITIES AND AGREES TO DO
SO AT THE PURCHASERS EXPENSE.
p)
REDEMPTION RIGHT OF COMPANY
. EACH PURCHASER HEREBY ACKNOWLEDGES AND AGREES
THAT, AS SET FORTH IN ARTICLE XI, (A) IF SUCH PURCHASER REFUSES TO PROVIDE
ANY INFORMATION REQUESTED BY THE GAMING AUTHORITIES, OR (B) IF THE BOARD
OF DIRECTORS OF THE COMPANY MAKES A REASONABLE, GOOD FAITH DETERMINATION, IN RESPONSE
TO A WRITTEN REQUEST OR NOTICE FROM THE GAMING AUTHORITIES TO THE COMPANY OR
SUCH PURCHASER, THAT THE
CONTINUED OWNERSHIP OF THE SECURITIES BY SUCH PURCHASER MAY RESULT IN (1) THE
DISAPPROVAL OR NON-RENEWAL OF ANY GAMING CONTRACT OR (2) THE DISAPPROVAL,
LOSS, MODIFICATION, NON-RENEWAL OR NON-REINSTATEMENT OF ANY GAMING LICENSE,
APPROVAL, FRANCHISE OR CONSENT FROM ANY GAMING AUTHORITY, THE COMPANY HAS THE
RIGHT TO REDEEM ANY WARRANT AND WARRANT SHARES HELD BY SUCH PURCHASER IN
ACCORDANCE WITH ARTICLE XI. AS PROVIDED
UNDER ARTICLE XI, THE COMPANY MUST PROVIDE AT LEAST 30 DAYS PRIOR WRITTEN
NOTICE TO THE PURCHASER BEFORE REDEEMING THE WARRANT AND WARRANT SHARES AND
PURCHASER HAS THE RIGHT, DURING THAT 30 DAY PERIOD, TO DISPOSE OF THE WARRANT
AND WARRANT SHARES OF ITS OWN ACCORD.
********************
(Signature Pages Follow)
IN WITNESS WHEREOF, the
Company has caused this Warrant to be executed by its officer thereunto duly
authorized as of the date first above indicated.
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SOUTHWEST
CASINO CORPORATION
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By:
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Name:
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Title:
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NOTICE OF EXERCISE
TO: SOUTHWEST CASINO CORPORATION
(1) The undersigned hereby elects to purchase
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check
applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted] the
cancellation of such number of Warrant Shares as is necessary, in accordance
with the formula set forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue a certificate or certificates
representing said Warrant Shares in the name of the undersigned or in such
other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account
Number or by physical delivery of a certificate to:
(4)
Accredited Investor
. The undersigned is an accredited investor
as defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF
HOLDER]
Name of Investing Entity:
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Signature of Authorized Signatory of Investing
Entity
:
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Name of Authorized Signatory:
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Title of Authorized Signatory:
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Date:
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED,
[ ] all of or
[ ]
shares of the foregoing Warrant and all rights evidenced thereby are hereby
assigned to
whose address is
.
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Dated:
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,
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Holders
Signature:
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Holders
Address:
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Signature
Guaranteed:
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NOTE: The signature to this
Assignment Form must correspond with the name as it appears on the face of
the Warrant, without alteration or enlargement or any change whatsoever, and
must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
Exhibit 10.3
FORM OF LOCK-UP AGREEMENT
June 17,
2008
Each
Purchaser referenced below:
Re:
Securities Purchase
Agreement, dated as of May 30, 2008 (the
Purchase Agreement
),
between
Southwest
Casino Corporation, a Nevada corporation
(the
Company
) and
the purchasers signatory thereto (each, a
Purchaser
and, collectively,
the
Purchasers
)
Ladies
and Gentlemen:
Defined
terms not otherwise defined in this letter agreement (the
Letter Agreement
)
shall have the meanings set forth in the Purchase Agreement. Pursuant to Section 2.2 of the Purchase
Agreement and in satisfaction of a condition of the Companys obligations under
the Purchase Agreement, the undersigned irrevocably agrees with the Company
that, from the date hereof until the 4 month anniversary of the Effective Date
(such period, the
Restriction Period
), the undersigned will not offer,
sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected to,
result in the disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the undersigned or any
Affiliate of the undersigned or any person in privity with the undersigned or
any Affiliate of the undersigned), directly or indirectly, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Exchange Act with respect
to, any shares of Common Stock or Common Stock Equivalents beneficially owned,
held or hereafter acquired by the undersigned (the
Securities
)
.
Beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. In order to enforce this
covenant, the Company shall impose irrevocable stop-transfer instructions
preventing the Transfer Agent from effecting any actions in violation of this
Letter Agreement.
Notwithstanding anything
to the contrary contained in this Letter Agreement, the undersigned may
transfer her or his Common Stock or Common Stock Equivalents: (a) to his
or her trusts, or spouses and lineal descendants for estate planning purposes, (b) pursuant
to bona fide gift, or (c) to the extent any shares subject to this lock-up
agreement are held by a partnership, limited liability company or corporation
(the
Entity
), the Entity may distribute those shares to its partners,
members or shareholders in proportion to the partners, members or
shareholders proportionate ownership interest in the Entity and, only upon a
liquidation of such Entity, up to, in the aggregate among all such
distributions, 355,000 of such shares (subject to adjustment for reverse and
forward stock splits and the like, distributed to partners, members or
shareholders who are not a signatory to this Agreement (such shares,
Unrestricted
Shares
) will no longer be subject to the provisions of this
Agreement. Except with regard to the
Unrestricted Shares, as a condition to any of the aforementioned transfers, the
transferee (or the legal representative of the transferee) must first agree to
be bound by all of the terms and conditions of this Letter Agreement in
connection with any potential resale of the Common Stock or Common Stock
Equivalents so transferred.
The
undersigned acknowledges that the execution, delivery and performance of this
Letter Agreement is a material inducement to each Purchaser to complete the
transactions contemplated by the Purchase Agreement and that each Purchaser
(which shall be a third party beneficiary of this Letter Agreement) and the
Company shall be entitled to specific performance of the undersigneds
obligations hereunder. The undersigned
hereby represents that the undersigned has the power and authority to execute,
deliver and perform this Letter Agreement, that the undersigned has received
adequate consideration therefor and that the undersigned will indirectly
benefit from the closing of the transactions contemplated by the Purchase
Agreement.
This Letter Agreement may not be amended or
otherwise modified in any respect without the written consent of each of the
Company, each Purchaser and the undersigned.
This Letter Agreement shall be construed and enforced in accordance with
the laws of the State of Utah without regard to the principles of conflict of
laws. The undersigned
hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court sitting in Utah and the courts of the State of Utah, for the purposes of
any suit, action or proceeding arising out of or relating to this Letter Agreement,
and hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that (i) it is not personally subject to the
jurisdiction of such court, (ii) the suit, action or proceeding is brought
in an inconvenient forum, or (iii) the venue of the suit, action or
proceeding is improper.
The undersigned hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by receiving a copy thereof sent to the Company at the
address in effect for notices to it under the Purchase Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. The undersigned hereby
waives any right to a trial by jury.
Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The undersigned agrees and understands that
this Letter Agreement does not intend to create any relationship between the
undersigned and each Purchaser and that each Purchaser is not entitled to cast
any votes on the matters herein contemplated and that no issuance or sale of
the Securities is created or intended by virtue of this Letter Agreement.
By
its signature below, the Transfer Agent hereby acknowledges and agrees that,
reflecting this Letter Agreement, it has placed an irrevocable stop transfer
instruction on all certificated Securities beneficially owned by the
undersigned and identified as such on the stock register maintained by the
Transfer Agent until the end of the Restriction Period. Except, that Transfer Agent shall have no
liability under this Agreement in connection with any security that does not
contain a restrictive legend stating that the securities are subject to the
lock-up provisions of this Agreement.
This Letter Agreement shall be binding on successors and assigns of the
undersigned with respect to the Securities and any such successor or assign
shall enter into a similar agreement for the benefit of the Purchasers.
***
SIGNATURE PAGE FOLLOWS***
This Letter Agreement may be executed in two or more
counterparts, all of which when taken together may be considered one and the
same agreement.
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Signature
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Print
Name
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Position
in Company
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Address
for Notice:
Number
of shares of Common Stock
Number
of shares of Common Stock underlying subject to warrants, options, debentures
or other convertible securities
By
signing below, the Company agrees to enforce the restrictions on transfer set
forth in this Letter Agreement.
SOUTHWEST CASINO CORPORATION
Acknowledged and agreed to
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as of the date set forth above:
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[insert
name of Transfer Agent]
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By:
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Name:
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Title:
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Exhibit 99.1
CORPORATION
Southwest Casino Corporation Raises more than $1.6
million
in Private Placement of Securities
MINNEAPOLIS(June 18, 2008)Southwest Casino Corporation
(OTCBB:
SWCC
-
News
)
today announced that it has
raised in excess of $1.6 million from the sale of its common stock with
accompanying warrants. Southwest closed
a private placement of its securities to select institutional and accredited
investors on June 17, 2008. The
Company sold approximately 2.69 million shares of common stock at a purchase
price of $0.65 per share. In addition,
the Company issued warrants to purchase 0.8 shares of its common stock for each
share of common stock purchased, or approximately 2.15 million shares. The warrants have an exercise price of $0.85 per
share and a five-year term. Midtown
Partners & Co., LLC acted as sole placement agent in connection with
the transaction and received their fee in shares of the Companys common stock
and warrants. In consideration for their
services, Southwest will issue to Midtown Partners approximately 134,000 shares
of common stock with warrants to purchase approximately 109,000 shares on the
same terms as the offering and warrants to purchase approximately 89,000
additional shares at a price of $1.00 per share.
The
securities sold in this placement have not been registered under the Securities
Act of 1933, as amended, or state securities laws, and cannot be offered or
sold in the United States absent registration with the United States Securities
and Exchange Commission (SEC) or an applicable exemption from the registration
requirements. This Press Release does
not constitute an offer to sell or solicitation of an offer to buy any
securities and is being issued under Rule 135c of the Securities Act of
1933.
About Southwest Casino Corporation
Southwest
Casino Corporation develops, owns, operates, manages and provides consulting
services to casinos, gaming facilities and related amenities. Southwest owns and operates the Gold Rush
Hotel and Casino and Gold Diggers Casino in Cripple Creek, Colorado. Southwest owns a 50 percent membership
interest in North Metro Harness Initiative, LLC, which operates Running Aces
Harness Park in Columbus, Minnesota on the north side of the Twin Cities
Metropolitan Area. Southwests corporate
offices are located at 2001 Killebrew Drive, Suite 350, Minneapolis,
Minnesota 55425.
CONTACT:
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Southwest Casino Corporation
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Thomas E. Fox
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President
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952-853-9990
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tefox@swcasino.com
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Investor Relations
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Strategic Growth International
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Stan Altschuler or Richard Cooper
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212-838-1444 Tel.
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saltschuler@sgi-ir.com
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rcooper@sgi-ir.com
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www.sgi-ir.com
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OMB
APPROVAL
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UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
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OMB Approval:
3235-0060
Expires: April 30,
2009
Estimated average burden hours per response
5.0
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FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported)
June 25, 2008
SOUTHWEST
CASINO CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
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000-50572
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87-0686721
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.)
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2001 Killebrew Drive, Suite 350,
Minneapolis, MN 55425
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants
telephone number, including area code
952-853-9990
(Former name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
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Written
communication pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a.12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFT 240.13e-4(c))
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Item
1.01 Entry into a Material
Definitive Agreement
On June 25, 2008, Southwest Casino Corporation
entered into a Modification and Extension of Consulting Agreement (the Agreement)
with Operadora Dominicana Macao, S.A., a subsidiary of Palace Resorts, under
which Southwest will manage the casino at the Moon Palace Casino, Golf and Spa
Resort in Punta Cana, Dominican Republic.
The casino will be part of a 1700-room, all-inclusive luxury resort that
Palace Resorts is constructing on the far eastern tip of the Dominican
Republic. Palace Resorts plans to open
the resort in Fall 2008. Southwest has
been consulting with Palace Resorts on the design, development and operation of
the casino since September 2007.
Under the new Agreement, Southwest will continue to
assist Palace Resorts in all phases of design, game selection, training and
equipping the casino as a consultant and then manage the casino for five years
after it opens in late 2008 or early 2009.
As manager, Southwest will be responsible for all aspects of casino
operations including equipping and maintaining the casino, internal controls
and accounting, budgeting, casino employment, security and compliance. Southwest will work with Palace Resorts to
market the casino and the resort as a gaming destination. Southwest previously received a consulting
fee of $50,000 per month under a Consulting Agreement that would have
terminated in August 2008. Under
the Modification and Extension of Consulting Agreement, Southwest will continue
to receive a $50,0000 monthly consulting fee until the casino opens.
Beginning in the first full calendar month after the
casino opens, Southwest will receive management fees equal to 5 percent of net
casino revenue (as defined in the Agreement).
If the 5 percent management fee is less than $100,000 in any month,
Southwest will receive a minimum management fee of $100,000. The amount by which the 5 percent management
fee is less than $100,000 in any month will then be deducted from the
management fee due in any month when 5 percent of net casino revenue exceeds
$100,000. All amounts due to Southwest
in excess of $100,000 per month will be paid to Southwest by Palace Resorts
after delivery and acceptance of the annual audit of the casino operations.
Southwest or Palace Resorts may terminate the Agreement
if (a) any payment is not made within 10 days of the due date, (b) any
material default is not cured within 30 days after notice, (c) upon
bankruptcy or insolvency of the other party, (d) Southwest loses any
license required to perform its services under the agreement, or (e) after
review, Palace determines that Southwest does not have adequate insurance in
place. Palace Resorts may also terminate
the Agreement if, after the second full year of operations, net casino revenues
are more than 30 percent below budget or if at the end of a 6-month period the
casinos win percentage for certain games is 25 percent or more below the
reported win percentage for the Las Vegas strip.
Southwest has agreed to indemnify Palace Resorts
against claims rising from its bad faith, willful misconduct, willful
negligence or fraud. The foregoing
description of the terms and conditions of the Modification and Extension of
Consulting Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of the agreement, which filed as an exhibit
to this Current Report on Form 8-K and incorporated herein by
reference. A copy of the press release
announcing entry into this agreement is filed as Exhibit 99.1 to this
Current Report on Form 8-K and is incorporated herein by reference.
2
Item 9.01 Financial
Statements and Exhibits
(c)
Exhibits
.
Exhibit
No.
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Description
|
|
Method of Filing
|
10.1
|
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Modification and Extension of Consulting Agreement
between Southwest Casino Corporation and Operadora Dominicana Macao, S.A.
dated June 25, 2008.
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Filed herewith
|
99.1
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Southwest
Casino Corporation Press Release dated June 26, 2008.
|
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Filed herewith
|
3
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
|
SOUTHWEST
CASINO CORPORATION
|
|
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Date:
July 1, 2008
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By:
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/s/ Thomas E. Fox
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Name:
Thomas E. Fox
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Title: President
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4
Exhibit 10.1
MODIFICATION
AND EXTENSION
OF
CONSULTING
AGREEMENT
Southwest Casino Corporation, a Nevada corporation (Southwest), and
Operadora Dominicana Macao, S.A., a corporation organized and existing under
the laws of the Dominican Republic (PR), enter into this Modification and
Extension of Consulting Agreement (Agreement) effective June 25, 2008
(the Effective Date). This Agreement
extends and modifies the prior Consulting Agreement between Southwest and PR
that was effective September 20, 2007 (the Original Agreement). This Agreement amends and restates the
Original Agreement in its entirety.
BACKGROUND
A.
PURPOSE.
This
Agreement states the terms and conditions under which PR and Southwest agree to
extend and modify the existing consulting relationship between Palace Resorts
and Southwest, under which Southwest is providing Palace Resorts consulting
services related to a gaming operation (the Casino) owned and operated by PR
in Punta Cana in the Dominican Republic.
B.
GOAL AND OBJECTIVE.
The
goals and objectives of this Agreement are to extend the period during which
Southwest will provide consulting services resulting in the successful opening
of the Casino and to state the terms and
conditions under which Southwest will provide consulting/management services to
PR after the opening of the Casino. Southwests consulting expertise will
specifically include, but is not limited to, providing PR with advice regarding
pre-opening development of the Casino, pre-opening marketing, staffing advice,
advice regarding the Casino floor layout, and providing advice with respect to
the number and type of gaming equipment for the Casino and ensuring that all
gaming equipment, including slot machines, are ordered, installed, and
operational during the first quarter of 2009.
It is acknowledged by the parties that it is PRs responsibility to
specifically approve all plans and provide all funds for the development of the
Casino and purchase of the aforementioned gaming equipment. Upon opening, Southwest will then manage and
consult with PR regarding all operations of the Casino and endeavor to develop
and expand PRs gaming market in Punta Cana while running an efficient gaming
operation, subject to the terms and conditions contained herein.
NOW, THEREFORE,
for good and
valuable consideration, the receipt and sufficiency of which are acknowledged
by Southwest and PR, the parties hereby agree as follows:
AGREEMENT
1.
CONSULTING
AND MANAGEMENT SERVICES.
PR engages
Southwest to provide consulting and management services to PR in connection
with the Casino, and Southwest agrees to provide such consulting and management
services to PR in connection with the Casino, on the terms and conditions
stated in this Agreement. Southwests
advise given to PR during the term of this Agreement will be revised from
time-to-time, as necessary, based on changes in law, circumstances, and
prevailing industry standards.
2.
TERM
. The term of this Agreement begins on the
Effective Date and extends until the fifth anniversary of the first day of the
first full calendar month during which the Casino is open to the public (the Casino
Opening Date), unless otherwise terminated earlier under Section 14 of
this Agreement. PR and Southwest agree
to enter into discussions at least 180 days before the end of
1
the initial term regarding the possible
extension of their management relationship after the initial term.
3.
TIME
SCHEDULE.
Beginning
thirty (30) days after the Effective Date of this Agreement (or sooner if
requested by PR) and continuing on a monthly basis thereafter, Southwest and PR
will meet and discuss the progress of this engagement and the time deadlines
for the development of the Casino and the proposed Casino Opening Date. At such times the parties will agree to any
additional or modified deadlines, and modifications hereto to the extent
necessary.
4.
PRE-OPENING
CONSULTING SERVICES.
4.1
Development
.
Southwest will assist in the
development of, and review plans for, and assist in the implementation of any
capital improvement plans for the Casino, including facility design or
modifications, equipment selection and purchasing, negotiations with vendors,
ordering, set-up and testing of the gaming equipment. This review will include a cost/benefit
analysis or other appropriate method of analyzing the economic effects of all
capital improvements. Copies of any such
analysis will be provided to PR promptly.
PR will cause the Casino space to be constructed and all capital
improvements, other than installation of gaming equipment, to be completed no
later than thirty (30) days before the planned opening date so that Southwest
has adequate time to equip the Casino, interview, hire and train Casino
personal, in order to permit Casino operations to begin during the first
quarter of 2009.
4.2
Accounting, Internal Controls, Licensing and Procedures
.
4.2.A
Southwest will
advise PR regarding the establishment and implementation of accounting and
other internal control systems and operations, employee and compliance manuals,
and review and provide input to PR regarding the operation of the accounting
and internal control systems and the adequacy of the operations, employee and
compliance manuals established for the Casino. Southwests review will include working with
PR to determine all applicable legal requirements in the Dominican Republic and
any other applicable jurisdictional, governmental or quasi-governmental body
having regulatory authority over the Casino and its operations and personnel,
and licensing with respect thereto, and the implementation of adequate
procedures and practices to maintain compliance by the Casino. In addition, Southwest will provide PR with
advice and assistance during the licensing phase of the opening process, to
enable PR to commence operation in accordance with the timetable set forth
herein, in full compliance with all applicable licensing requirements.
4.2.B
Southwest will
immediately and continuously throughout the term hereof provide advice with
respect to the preparation and review of all financial projections and
pre-opening and post-opening operating budgets to ensure that PR has reliable
and accurate information with which to make its decisions. Southwest will immediately advise PR of any
deficiency in any such budget and provide PR with recommendations for
corrections and/or changes thereto. Such
advice will include, without limitation, training of appropriate personnel with
respect thereto in order to facilitate the successful operation of the Casino.
4.2.C
Southwest will
analyze and provide PR with written comments regarding any projections and all
budgets prepared (or which need to be prepared) for the Casino. Southwest will assist PR in the development
and preparation of an initial annual budget for the Casino. The initial annual
budget will be consistent with, to the extent reasonably practicable, gaming
industry standards. The Annual Budget
will cover, among other items, the following sections:
(i)
Operating
Budget:
A budget that states in
detail, among other items, anticipated income, expense and reserves on a
month-by-month basis, supported by estimates of patronage,
2
sources of income and
expense, and similar items, and is tied to the strategic plan, both short term
and long term;
(ii)
Capital
Expense Budget:
A budget that
covers, among other items, anticipated and proposed capital expenditures for
the year, with justification for each capital expenditure, and which is tied to
the strategic plan for the Casino, both short term and long term;
(iii)
Casino
Contracts:
A separate
schedule, including all anticipated material contracts for the Casino,
including the identities of anticipated contracting parties, if known, and a
detailed explanation of the purpose for each such contract (which such material
contracts will include, without limitation, all material licenses and permits,
contracts, agreements, leases and any other undertakings which may be required
and/or material to/for the operation of the Casino);
(iv)
Labor
Budget:
A separate schedule
enumerating, by job description, all employees (and the number thereof)
required to fill all necessary positions on each shift, and the hours and days
per week of employment of each such employee
;
and
(v)
Salary/Wage
Schedule:
Detailed salary
and wage schedules for each position in the Casino including the terms of any
proposed fringe benefits and paid time off such as vacations, bonuses, sick
leave, etc. Southwest shall advise PR as
to the industry norm regarding all benefits for employees (at each level)
employed to work in the Casino.
Southwest will also recommend to PR any incentives for attracting and/or
retaining top management.
4.2.D
Southwest will
advise PR on the industry standards for cash and security controls and
compliance procedures for the Casino, at all times in accordance with
applicable laws and regulations. In
conjunction therewith, Southwest will assist PR in the development, adoption,
and implementation of a written system of internal controls and compliance
procedures, including granting credit to Casino patrons, procurement and
inventory control, and the safekeeping and monitoring of all monies, inventory
and other items of value in connection with the Casinos gaming operations,
sales, receipts, prizes, gaming and other activities relating to the operation
of the Casino and the implementation of such procedures to be utilized by
Casino personnel. Southwest will also
cooperate with PR and its auditors with respect to any control recommendations
that PRs auditors may suggest and which PR has agreed to implement.
4.2.E
Southwest will
assist in the establishment of security procedures to have all gaming materials
and receipts secured at all times, including the placement of such funds in the
facility safe or vault and otherwise complying with any requirements imposed or
recommended by any insurer of PR, the Casino and its property, security,
auditing or bonding. Southwest will also
analyze whether any rooms in which a safe or vault is maintained will be
equipped with coded-access alarms, television monitors, motion detectors, or
such other security systems to maintain adequate 24-hour security, where
appropriate. Southwest shall provide PR
with its comprehensive recommendation for the security of the Casino, its
assets and its patrons.
4.3
Human
Resources
.
4.3.A
Southwest will
review and advise PR regarding staffing needs and necessary training of
personnel, and will evaluate each position, consistent with gaming industry
standards, to achieve the most efficient staffing for each shift.
4.3.B
Southwest will
advise and assist PR with respect to the development of procedures and forms
for interviewing, evaluating, hiring and maintaining Casino employees who meet
all testing, background examination and licensing standards as required by all
applicable law.
3
4.3.C
Southwest will
evaluate and advise PR regarding surveillance and security systems and personnel,
including the development of procedures, forms and training programs necessary
or appropriate for the operation of the Casino.
4.3.D
Southwest will
review, evaluate and make recommendations to PR with regard to personnel
policies and procedures, addressing, but not limited to, the following
concerns:
(i)
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Standards of personal and professional conduct;
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(ii)
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Employee and management communication guidelines;
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(iii)
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Customer and guest relations;
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(iv)
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Development and discipline standards;
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(v)
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Harassment in the workplace;
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(vi)
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Employee substance and alcohol abuse;
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(vii)
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Employee smoking and tobacco product use;
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(viii)
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Employee attendance;
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(ix)
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Standards of appearance;
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(x)
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Grievance and termination review;
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(xi)
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References and recommendations;
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(xii)
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Telephone use standards;
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(xiii)
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Employee assistance;
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(xiv)
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Outside employment;
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(xv)
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Found money;
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(xvi)
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Illegal activities;
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(xvii)
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Pre- employment and employment drug and
illegal substance testing;
and
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(xviii)
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Compliance with the gaming ordinance and regulations.
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4.4
Marketing
.
4.4.A
Southwest will
advise PR with respect to, and assist PR in the development and implementation
of a pre-opening advertising, public relations and marketing plans for the
Casino, including:
(i)
Assistance in (A) establishing
a Casino marketing department, (B) developing and using a data base
marketing system, and (C) gathering, by survey or otherwise, information
from customers to evaluate customer experiences at the Casino, including likes
and dislikes; and
(ii)
Advice and
employee training programs regarding marketing, promotion and signage for the
Casino as a whole.
4.4.B
Southwest will
advise PR regarding the use of newsletters, players clubs, mailing lists, tour
operators, or other forms of marketing, promotion and advertisement.
4.4.C
Southwest will
provide recommendations for advertising placement and purchasing. Recommended expenditures for advertising will
be in accordance with the industry standards for an operation of comparable
size. Southwest will recommend placement
of advertising and a marketing strategy that maximizes market potential for the
Casino.
4.4.D
Southwest will
provide recommendations and advice for establishing and maintaining good
relationships with the media, together with a protocol for dealing with the
media.
4.5
Advice and training regarding the mix of games offered by the Casino
.
Southwest will advise PR
regarding all factors to be considered, the weight given to each, and all other
relevant information for selecting the types and mixes of gaming to be
available in the Casino in order to maximize profits, and the manner in which
such mixes should be modified from time to time in order
4
to continue to meet customer
demand to ensure the highest return to PR from operation of the Casino.
4.6
Compliance
.
Southwest will review and
advise PR regarding all compliance systems and manuals, internal controls,
procedures and employee training and implementation of same, to ensure that the
Casino is run in compliance with all applicable laws, regulations and licensing
requirements.
4.7
Insurance
.
Southwest will advise PR regarding
appropriate insurance coverage and minimum coverage levels for all aspects of
the Casino operation, in accordance with industry standards. If requested, by PR, Southwest will provide
PR with a list of recommended insurers through which appropriate insurance
coverage for the Casino may be obtained.
5.
Management Services after Casino Opens
.
Southwest will consult with and
advise PR regarding the operation of the Casino after the Casino opens to the
public. Southwest will provide
management services to the Casino both in a corporate capacity and through the
General Manager of the Casino. Southwest
will not be involved in any way in the management of any other facilities or
services of the Punta Cana resort, including without limitation, food and
beverage services, hotel, condominiums, and any other amenities or services
provided by PR other than the Casino.
5.1
Southwests
responsibilities include management and advice regarding, but not limited to,
the following:
5.1.A
Supervising and
managing all activities necessary for the conduct of gaming at the Casino.
5.1.B
Equipping,
maintaining and improving the Casino, including management of the mix of games
offered by the Casino as described in Section 4.5 of this Agreement.
5.1.C
In conjunction
with PR, establishing the operating days and hours at the Casino.
5.1.D
Managing,
implementing and enforcing the human resources program, policies and practices
developed in accordance with Section 4.3 of this Agreement, including
hiring, firing, training and promoting employees at the Casino, which includes
overseeing the initial hiring, qualifying and training process for Casino
employees, all in accordance with practices and procedures approved by PR, in
its sole discretion.
5.1.E
Managing and
implementing the marketing and promotion activities developed in accordance
with Section 4.4 of this Agreement.
5.1.F
In conjunction
with PR, establishing, maintaining and managing appropriate security personnel,
systems and protocols with respect to the Gaming Operations at the Casino, its
customers and employees and the handling of monies related to the Gaming
Operations at the Casino; provided, however, that at no time shall Southwests
handling of monies related to the Gaming Operations of the Casino exceed the
authority granted pursuant to the policies and procedures prepared by Southwest
and agreed to in writing by PR.
5.1.G
Maintaining all
books and records necessary for the Gaming Operations at the Casino. Notwithstanding the foregoing, Southwest
shall provide PR with complete and unfettered access to the books and records
of the Casino.
5.1.H
Implementing
and managing the compliance systems developed in accordance with Section 4.6
of this Agreement to comply with laws and regulations that apply to the
operation of the Casino. This will
include providing PR with all information necessary for PR to comply with laws
and regulations that apply to the operation of the Casino.
5
5.1.I
Such other
duties agreed upon from time to time by Southwest and PR.
5.2
General Manager
.
Subject at all times to the prior consultation
with, and consent and approval of PR, Southwest will appoint and hire, as an
employee of Southwest, as the on-site General Manager of the Casino. The General Manager will have primary
authority over the operation of the Casino and all Casino personnel and who
will make, or delegate to an appropriate staff member responsibility and
authority for making, all day-to-day business decisions required for the
operation of the Casino; provided, however, that in no event shall the General
Manager delegate any responsibility expressly set forth in the General Managers
job description, prepared by Southwest and approved in writing by PR, as
non-delegable. The General Manager will
have ultimate authority over and responsibility for adequately supervising and
monitoring these delegated tasks. The General Manager will be an employee of
Southwest. The salary and costs of
benefits provided to the General Manager will be paid by Southwest, except that
any bonus paid to the General Manager based on the performance of the Casino
(which bonus must be approved by PR) will be paid by the Casino and considered
a Casino Operating Expense.
5.3
Standard
of Care
.
In the exercise of its management duties hereunder, Southwest and General
Manager shall at all times manage and maintain the Casino in a manner utilizing
standards and procedures which are comparable to the management of a first-class
casino similar in quality to existing casinos in the Caribbean, subject to such
adjustments as Southwest, in its reasonable, good-faith discretion, deems
necessary or appropriate. Southwest
shall establish such standards and procedures in consultation with PR.
6.
EMPLOYEES
AND OPERATIONS
6.1
Personnel
.
All employees of the Casino will be PR
employees assigned to the Casino under the authority and supervision of the
General Manager, who will work in conjunction with Southwest. Employees of the Casino must not be employees
of Southwest. All responsibility for
employment decisions, including, but not limited to, the hiring, firing, promotion,
transfer, compensation and discipline of employees will, however, be the sole
responsibility of Southwest, who will make these decisions in accordance with
the rules, regulations, policies and procedures and prudent employment
practices established by Southwest and approved by PR in its sole discretion,
for use in the operation of the Casino.
6.2
Security Clearance and Background Reviews
.
Southwest must conduct adequate
background reviews, at a minimum, in accordance with industry standards, as may
be necessary and appropriate to the position to be filled and the
responsibilities of that position at the Casino. Any background review must be sufficient to
meet the requirements of Applicable Law.
6.3
Limited Appointment of Southwest as Agent of PR
.
Southwest is appointed,
delegated, retained and authorized to act on behalf of PR as PRs agent in
carrying out solely those duties set forth herein which are necessary to the
proper and efficient management and operation of the Casino; provided, however,
that Southwests actions as agent hereunder shall at all times be in strict
compliance with the terms and conditions hereof and the policies and procedures
prepared by Southwest and approved in writing by PR.
6.4
Operation of General Business and Business Affairs
.
Southwest will advise and
consult with PR regarding the day-to-day operation of the gaming operations and
the Casino, including, but not limited to, the advice with respect to the
general business and business affairs of PR in connection with the operation,
equipping, management and maintenance of the Casino
6.5
Engage Other Professionals
.
Southwest
will recommend to PR
and with the
prior written consent of PR, arrange for the engagement of other advisors and
appropriate professionals
6
from time-to-time as reasonably necessary to promote the sound and
efficient operation of the Casino.
7.
BUDGETING, ACCOUNTING AND
FINANCIAL REPORTING
7.1
Budgeting
.
At
least ninety (90) days before the start of each fiscal year of the Casino,
Southwest will submit to PR a detailed proposed annual budget for the next
fiscal year as described in Section 4.2.C.
Southwest will then consult with PR regarding the proposed budget for a
period of thirty (30) days immediately following delivery thereof and negotiate
with PR during such period any requested revisions to the proposed budget. Within fifteen (15) days of the termination
of such immediately preceding thirty (30) day period, PR will provide Southwest
with a written list of all line items included thereon with respect to which
the parties have failed to agree and to which PR objects (the Objection List). Southwest and PR will negotiate in good faith
to resolve such line items prior to the start of the upcoming fiscal year;
provided, however, that PR shall have the ultimate authority to approve such
disputed line items listed in the Objection List which have not been resolved
between the parties, in a form, satisfactory to PR. Such approval must be at least ten (10) days
prior to the start of the next fiscal year (this approved budget is referred to
as the Annual Budget in this Agreement).
In the event the parties are still negotiating any disputed items on the
Objection List at the time of the start of the fiscal year, to the extent such
disputed items were on the prior years budget, until resolved, such disputed
item shall be included in the Annual Budget using the prior fiscal years
amounts until a resolution of such disputed item has been made. Southwest may submit revised budgets to PR
during the fiscal year if necessary to reflect significant unexpected events or
changes or unanticipated revenue or expenses.
Upon approval by PR, a revised budget will become the Annual Budget.
7.2
Emergency Expenses
.
Whenever, by reason of circumstances beyond
the reasonable control of the parties, emergency expenditures are required to
be made to ensure that the operations of the Casino are maintained, or to
protect life, person or property, Southwest shall immediately notify PR, or
vice versa, of such emergency and the parties will immediately negotiate in
good faith any necessary modification to the Annual Budget to enable the
parties to undertake to correct the emergency.
7.3
Accounting
.
Southwest will assist in the creation and
maintenance of, and provide oversight to, the accounting systems and procedures
described in Section 4.2. that must, at a minimum: (a) include an adequate system of
internal accounting controls; (b) permit the preparation of financial
statements in accordance with GAAP; (c) be susceptible to audit; and (d) permit
PR and Southwest to accurately calculate Southwests compensation.
7.4
Financial Records and Statements
.
Southwest will cause the Casino to maintain full and accurate books and
records pertaining to the operation of the Casino. PR and its authorized representatives shall
have full and unfettered access to the Casinos books and records. The Casinos books will be kept in compliance
with GAAP and the requirements of any other applicable laws or
regulations. Southwest will cause the
Casinos in-house accounting/bookkeeping staff to prepare and provide to PR and
Southwest a weekly revenue flash report and comparative monthly, quarterly and
annual financial statements showing all sales, revenue, other income and all
other amounts collected and received, and all expenses, deductions and
disbursements made therefrom in connection with the operation of the Casino and
in conformance with the Budget and appropriate accounting standards followed by
the Casino. PR will engage Ernst &
Young, or such other accounting firm reasonably acceptable to Southwest, to
perform an annual audit of the annual financial statements and
of the Casino revenue and of all major contracts for
supplies, services or concessions reflected in the Casino Operating
Expenses. The annual audited financial
statements
7
must be delivered to Southwest and PR as soon
as available, but in no event more than ninety (90) days after the end of each
fiscal year of the Casino.
8.
EXPERIENCE, SUITABILITY, AND AUTHORITY
8.1
Experience
.
Southwest represents and
warrants to PR that Southwest has the experience and ability to successfully
open and the experience of successfully operating, a gaming enterprise substantially
equivalent to the projected size and revenue of the Casino.
8.2
Suitability of Southwest
.
Southwest represents and warrants that each of Southwest and every
officer, director, employee or agent of Southwest, is of good repute and moral
character, and none of them (i) has been denied a gaming license by any
gaming licensing jurisdiction, (ii) currently has a gaming license which
has been suspended by any gaming licensing jurisdiction, (iii) has had a
gaming license revoked by any gaming licensing jurisdiction, or (iv) is
employed in any part-time or full-time employment with a government or private
employer in any capacity that would create a conflict of interest between
Southwests employment and the interests and objectives of PR. No officer, director, employee, agent or
shareholder of Southwest has been arrested, indicted for, convicted of, or
pleaded
nolo contendere
to any
felony or any gaming offense, nor has any such person had any association with
individuals or entities connected with organized crime, nor is any such person
or entity a person or entity whose prior activities, criminal record, if any,
or reputation, habits and associations pose a threat to the public interest or
the effective regulation of gaming, or who would create or enhance the dangers
of unsuitable, unfair or illegal practices, methods and activities in the
conduct of gaming, or the carrying on of the business and financial
arrangements incidental thereto.
8.3
Background Investigation
.
Upon execution of this Agreement, each of
Southwest and PR will have a period of thirty (30) days in which to complete
any background or other suitability investigation into the other party that
Southwest or PR deems necessary. Each of
Southwest and PR agrees to provide promptly to the other any information
reasonably requested by the other in connection with their respective
background investigations. If either
Southwest or PR concludes, each in its sole discretion, that it is unable or
unwilling to work with the other as a result of any background investigation
they choose to pursue, this Agreement will terminate immediately upon written
notice to the other party and be of no further force or effect and no
compensation will be due nor will any liability arise to or from Southwest and
PR.
8.4
Authority
.
Southwest and PR have all required corporate
power and authority to enter into and perform its respective obligations in
accordance with this Agreement. The
undersigned representatives of Southwest and PR have full power and authority
to enter into this Agreement and to bind Southwest and PR, respectively, to the
terms and conditions hereof.
8.5
Insurance
.
Southwest currently has in place the
insurance coverage listed on Schedule 8.5 hereto, which such schedule
contains the name of the insurer, a description of the coverage, the coverage
limitations and the maximum amount per claim and in the aggregate under each
such policy. Southwest warrants that
such insurance coverage will cover all potential liabilities of Southwest
arising hereunder. Southwest covenants
and agrees that at all times hereunder it will maintain the insurance policies
set forth on Schedule 8.5, on terms and conditions at least as favorable as
those described thereon, unless PR shall require a change in any of the terms
or conditions thereof in light of the facts and circumstances at such time,
upon thirty (30) days notice to Southwest.
PR shall be named an additional insured on each such policy and each
policy shall contain a provision whereby the insurer shall be required to
provide PR with prior written notice of any default hereunder, which PR in its
sole discretion may cure, and thirty (30) days prior written notice of the
termination of any such policy. Any
amounts paid by PR hereunder shall reduce
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amounts payable to Southwest
under this Agreement, unless paid by Southwest to PR within five (5) days
of payment by PR. Upon delivery to PR of
copies of all of the insurance policies for the coverage listed on Exhibit 8.5
and proof of insurance containing the terms and conditions contained herein,
with PR named as an additional insured, PR shall have fourteen business days
(14) to review such information and if deemed inadequate by PR, in its sole
discretion, to terminate this Agreement by notice to Southwest.
9.
COMPLIANCE WITH LAWS.
Southwest agrees and covenants that it
complies and will continue to comply with all applicable laws pertaining to its
status as a gaming consultant, and when applicable, manager of gaming
operations, including all applicable licensing requirements. All advice provided by Southwest to PR will
at all times, if followed by PR, be in full compliance with applicable law.
10.
COMPENSATION OF SOUTHWEST.
In consideration for the
services performed by Southwest under this Agreement, PR will pay to Southwest
the following:
10.1
Pre-opening Services
.
For consulting, advisory and training services provided by Southwest to
PR prior to the Casino Opening Date, PR agrees to pay a consulting fee to
Southwest equal to $50,000 per month for each full or partial calendar month
before the Casino Opening Date. PR will
make successive $50,000 payments to Southwest on the 1
st
day of each
month.
10.2
Management Services
.
For
continuing consulting, advisory and management services provided to PR with
respect to the Casino after the Casino Opening Date, beginning the first full
calendar month of Casino operations, Southwest will be paid a monthly fee equal
to five percent (5%) of Net Casino Revenues (as defined below), but not less
than $100,000 per month. To the extent
five percent (5%) of Net Casino Revenues is less than $100,000 in any month,
such deficiency amount will be debited to a deficit account established on the
Casinos books and records. In any month
that five percent (5%) of Net Casino Revenues exceeds $100,000, the management
fee will be reduced to $100,000 and the excess credited to the deficit
account. At year end PR will pay
Southwest the $100,000 of Net Casino Revenues as the final monthly management
fee for the then fiscal year. Following
the audit of the Casino in accordance with Section 7.4 herein, including
the deficit account so established, and within sixty (60) days of delivery of
the audited financials of the Casino, the positive balance, if any, in the fee
deficit account will be paid to Southwest as the final payment for the prior
fiscal year.
10.2.A
Net Casino Revenues means the Gross Gaming Revenues of the Casino less (a) amounts
paid out as, or paid for, prizes and (b) operating expenses of the Casino
as described below (Casino Operating Expenses). For purposes hereof, Gross Gaming Revenues
shall mean (y) in the case of machines, drop from the machines less
jackpots and fills and, (z) in the case of table games, drop less fills.
10.2.B
Net Casino Revenues will include an amount equal to eight percent (8%)
of the face value of any free play on slot machines and similar games, and
eighteen percent (18%) of the face value of any free play on table games given
to resort guests by PR. These
percentages will be adjusted annually throughout the term of this Agreement to
equal the actual % of hold to drop for machine play and table games at the
Casino.
10.2.C
Casino Operating Expenses means the following direct costs of operation
of the Casino incurred during the applicable fiscal period:
(i)
Wages,
salaries, training and benefit expenses for employees of the Casino (including
all expenses related to background checks and licensing of Casino employees and
any bonus paid to General Manager, if any);
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(ii)
Materials and supplies used in the Casino
post Casino Opening Date;
(iii)
All operational maintenance expenses of the
Casino and its gaming equipment, post Casino Opening Date;
(iv)
Any costs incurred in connection with the
licensing and regulation of the Casinos gaming operations;
(v)
All
costs of Casino-specific marketing programs;
(vi)
Actual cost of all promotional goods provided
to Casino patrons by the Casino;
(vii)
Actual costs of travel provided to Casino
patrons by the Casino; and
(viii)
Taxes and other fees imposed by the licensing
authority of the Casino.
10.2.D
Casino Operating Expenses also include the following indirect or shared
operating expenses of the Casino:
(i)
Costs
of lodging at the Moon Palace Resort provided by the Casino to Casino
patrons. Lodging costs will be charged
to the Casino at the rate of $100/person/night double occupancy, or
$150/person/night single occupancy, during the fiscal year 2009. Thereafter, PR shall be permitted to make
reasonable adjustments to such rates on an annual basis by delivery of the new
rate schedule to be used hereunder to Southwest. These rates include lodging and all other all-inclusive
amenities provided without additional charge to resort guests generally. Southwest covenants and agrees that such
rates may not be disclosed by Southwest or its Representatives to anyone, and
will be subject to the confidentiality provisions contained in Section 13.
(ii)
Costs of any other resort amenities (i.e.
golf, spa services) provided to Casino patrons by the Casino that are not
included in the resorts all-inclusive rates will be charged to the Casino at
the actual cost to the resort of providing such amenities.
(iii)
A portion of any expenses for marketing
efforts coordinated between the Casino and the resort generally. PR and Southwest will agree upon the
appropriate portion of the expenses to be charged to the Casino on a case-by-case
basis. In no event shall the shared
marketing expense be included in 10.2C above.
10.2.E
Casino Operating Expenses do not include, and no deduction will be made
when determining Net Casino Revenues for the following charges or expenses:
(i)
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The management fee (or any part thereof) paid to Southwest under this
Agreement.
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(ii)
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Any charge in the nature of overhead for the resort generally.
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(iii)
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Any charge in the nature of rent or utility expenses.
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(iv)
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Any charge in the nature of interest expense.
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(v)
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Any charge in the nature of depreciation or amortization.
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10.3
Reimbursement of Pre-Opening
Costs
.
PR
will reimburse or pay directly any and all reasonably documented pre-approved
costs incurred by Southwest in fulfilling Southwests responsibilities under
this Agreement approved in accordance with the terms of this Agreement (the Pre-Opening
Expenses); provided, however, that such costs will not include: its employees
salaries or related benefit costs, taxes on income earned hereunder, licensing
fees incurred by Southwest as a result of its doing business in the Dominican
Republic, and any other similar general business or
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overhead expenses incurred by Southwest as a
result of its entering into this Agreement.
Pre-Opening Expenses will include the pre-approved costs of architects,
interior designers, information technology, surveillance, lighting and other
consultants and advisers retained to assist in the initial design of the
Casino, as well as other pre-approved, pre-opening costs incurred in connection
with the development of the Casino.
Pre-Opening Expense also includes any pre-opening marketing and
pre-opening labor costs, including wages paid to PR employees in training, to
the extent not paid directly by PR. Southwest
will submit its Pre-Opening Expenses to PR for reimbursement in accordance with
the procedures communicated to Southwest by PR from time to time. Southwest must receive approval from PR
before incurring any single Pre-Opening Expense not included in a PR approved
budget. If Southwest incurs any single
Pre-Opening Expense before receiving written approval from PR, PR may, but is
not obligated to, reimburse such expense.
For purposes of this Agreement, the following expenses that may be
incurred by Southwest will not be Pre-Opening Expenses and will be paid by
Southwest and will not be reimbursed (in whole or in part as described below)
by PR:
10.3.A
Pre-opening Travel Expenses
.
Before
the Casino Opening Date, PR will reimburse to Southwest fifty percent (50%) of
all expenses incurred by Southwest for travel, food and lodging for Southwest
personnel providing Consulting Services under this Agreement. Total travel expenses reimbursed by PR before
the Casino Opening Date cannot exceed $50,000 plus $5,000 for each month after August 2008
that Southwest provides pre-opening consulting services, without the express
written consent of PR to such additional travel expenses.
10.3.B
Market Study
.
Southwest paid all expenses incurred in connection with the completion
of an independent third party market study for the Casino prepared by Gaming
Market Advisors.
10.4
Reimbursement of Management
Costs
.
The
Casino will reimburse or pay directly any and all pre-approved reasonable costs
incurred by Southwest in fulfilling Southwests responsibilities under this
Agreement after the Casino Opening Date (the Continuing Expenses). Except as stated below, Continuing Expenses
will include all pre-approved costs that may be incurred by Southwest in
connection with the operation of the Casino, including marketing expenses and
labor costs, which include wages paid to PR employees in training, to the
extent not paid directly by PR, as well as all expenses incurred by Southwest
for travel, food and lodging for Southwest personnel providing Services under
this Agreement after the Casino Opening Date.
Southwest will submit its Continuing Expenses to the Casino for
reimbursement in accordance with the standard expense approval procedures
established for the Casino. Southwest
must receive approval from PR before incurring any single Continuing Expense
item that is not included in the Annual Budget of the Casino. If Southwest incurs any single Continuing
Expense item that is not included in the Annual Budget before receiving
approval from PR, PR may, but is not obligated to, reimburse such expense.
10.5
Operational Consultants and
Advisors
.
The fees and expenses of any consultants and
professional advisors engaged by PR or engaged by Southwest with the approval
of PR will be paid by the Casino.
10.6
Expenses Approvals
.
All expenses requiring approval hereunder must receive the prior
written approval of Mr. Roberto Chapur or Mr. Rodrigo Chapur, or such
other person as shall be designated from time to time, in writing, by Mr. Roberto
Chapur.
11.
INDEPENDENT CONTRACTOR.
Both PR and Southwest agree that Southwest will act strictly as an
independent contractor in the performance of its duties under this
Agreement. Accordingly, Southwest will
be responsible for payment of all taxes including federal, state and local
taxes arising
11
out of Southwests activities in accordance
with this Agreement, including by way of illustration but not by limitation,
federal and state income tax, social security tax, unemployment insurance
taxes, and any other taxes or gaming or business license fees as may be
required.
12.
NO PARTNERSHIP, NO THIRD PARTY BENEFICIARIES.
Nothing in this Agreement may be deemed as creating a partnership,
joint venture or similar business relationship between Southwest and PR. Nothing in this Agreement may be construed to
create any contract right on the part of any third party or any duty or
obligation to such third party on the part of Southwest or PR whatsoever.
13.
CONFIDENTIAL INFORMATION.
Each Party agrees that any information received by it or any agent,
representative, officer, director, partner, shareholder, member, employee,
affiliate, consultant or other professional retained by it (Representatives),
concerning the other party during the performance of this Agreement, regarding
the other parties organization, financial matters, marketing plans, or other
information of a proprietary, confidential or personal nature, will be treated
by such party as Confidential Information
The Confidential Information may not be disclosed at any time to
the public or to any third party. During
the Term of this Agreement and from and after the date on which this Agreement
is terminated, each party agrees to, and agrees that its Representatives will,
keep confidential and refrain from using, divulging, disclosing or making
available or assessable to any person, employer or other entity or to use, or
permit the use of, for its own benefit or for the benefit of others, at any
time, any or all of the Confidential Information. In the event that a party or any of its
Representatives becomes legally compelled to disclose any Confidential
Information, such party agrees to provide the other party with prompt written
notice so that the such party may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Agreement. In the event that such a protective order or
other remedy is not timely obtained, or that the party owning the Confidential
Information waives compliance in writing with the provisions of this Agreement,
the other party shall furnish only that portion of the Confidential Information
which the disclosing partys counsel advises in writing is legally required,
and shall exercise its best efforts to obtain reliable assurances that the
Confidential Information so furnished shall be afforded confidential
treatment. Each party (on its own behalf
and on behalf of its Representatives) acknowledges that a breach by it or its
Representatives of the terms of this Section would cause irreparable and
irremediable injury or harm to the other party and its shareholders,
affiliates, directors, officers, members, employees and clients, the damages
for which would be difficult if not impossible to calculate or determine. Accordingly, each party (on its own behalf
and on behalf of its Representatives) acknowledges and agrees that upon the
occasion of its or its Representatives breach hereunder, the other party shall
be entitled to specific performance of the covenants of this Agreement,
including temporary or permanent injunctive relief to the extent permissible,
in addition to such other equitable and legal remedies as may be available
under the circumstances. In addition, PR acknowledges and agrees that
Southwest is a public company that is required to file periodic reports and
other information with United States Securities and Exchange Commission and
provide public information in accordance with the rules and regulations of
the Securities and Exchange Commission.
Nothing in this Agreement limits the ability of Southwest to make such
filings and announcements as Southwest reasonably determines, in its sole
discretion, are required or advisable under applicable securities laws. This provision will survive the termination
of this Agreement.
14.
TERMINATION AND DEFAULT.
14.1
Involuntary Termination Due
to Changes in or Compliance with Applicable Laws
.
It is
the understanding of the parties that the operation of the Casino will comply
with all applicable laws. If this Agreement or the Casino is determined by a
court of competent jurisdiction no longer to be lawful, the obligations of the
parties will immediately cease and this Agreement will
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be null and void. In the event that Southwest determines the
Casino or its operations may not comply with rules, regulations or laws
applicable to the Casino, PR or Southwest, Southwest may terminate this
Agreement.
14.2
Events of Default
.
14.2.A
Any one or more of the following will constitute an event of default as
that term is used in this Agreement:
(i)
Upon a default in the payment of any amount
due under this Agreement if such default continues for more than ten (10) days
after the due date thereof; or
(ii)
Upon any material default in the observance
or performance of any covenant, condition, or agreement by either party and
such default has continued for more than thirty (30) days after receipt of
written notice to cure the default; or
(iii)
Upon any breach by Southwest of any of its
representations or warranties provided herein and such breach has not been
cured within thirty (30) days after delivery of written notice to cure the
breach; or
(iv)
If either party shall become insolvent, or
shall make a transfer for the benefit of its creditors; or
(v)
If either party shall file a petition under
any section or chapter of the United States Bankruptcy Code, as amended, or
under any similar law or statute of any governmental authority, or either party
is adjudged bankrupt or insolvent in proceedings filed against such party
thereunder; or
(vi)
If a receiver or trustee shall be appointed
for a party or for all or substantially all of its assets, and such appointment
is not vacated or otherwise caused to be set aside within ninety (90) days from
the occurrence thereof; or
(vii)
Southwest shall lose any license that it
holds or is required to hold to perform its services hereunder; or
(viii)
By PR, in accordance with Section 8.5
hereof; or
(ix)
in the event the real property upon which the
Casino is built is taken by condemnation at any time during the term hereof, PR
may terminate this Agreement. .
14.3
Termination
.
14.3.A
After the end of the second full year of Casino Operations, PR may terminate
this Agreement at the end of any full year of operation of the Casino if Net
Casino Revenues during that year are more than thirty percent (30%) lower than
the Net Casino Revenues stated in the Annual Budget of the Casino for that
year. Such termination shall be
effective ninety (90) days after delivery of written notice of termination to
Southwest.
14.3.B
After the end of each successive six (6) month period of Casino
Operations, PR may terminate this Agreement by notice to Southwest if the
average Casino win percentage for the games twenty-one (blackjack), craps,
roulette and baccarat during such six (6) month period is 25 percent or
more below the average win percentages for twenty-one of 11.41%, craps of
13.35%, roulette of 17.94% and baccarat of 12.46% (as reported by the Nevada
State Gaming Control Board for the Clark County Las Vegas Strip Area during
period April 1, 2007 to March 31, 2008) (each, the Las Vegas %). For purposes of clarification, the Las Vegas
%s used herein will be changed annually, unless such percentages are changed
and available every six (6) months from the Nevada State Gaming Board for
the Clark County Las Vegas Strip Area, in which event such Las Vegas %s
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shall be changed hereunder
every six (6) months
.
For purposes of determining
whether the average Casino win percentage is 25% or more below the Las Vegas %,
actual Casino drop (cash in the table drop box plus any credit issued) for each
of twenty-one, craps, roulette and baccarat will be multiplied by the Las Vegas
% applicable to each game to determine the theoretical win for that game. The theoretical win for the four games will
then be totaled to determine the aggregate theoretical win. The aggregate theoretical win will then be
compared to the actual Casino win (drops minus fills, plus credits, plus the
net change between the opening and closing value of the dealers tray) for
twenty-one, craps, roulette and baccarat.
14.3.C
The non-defaulting party may terminate this Agreement immediately upon
an Event of Default (as defined in Section 14.2) by the other party.
14.4
Rights on Termination
.
If PR
exercises its right to terminate this Agreement, PR will pay Southwest all fees
due Southwest under this Agreement to the date of termination and reimburse all
expenses incurred by Southwest in accordance with this Agreement up to the date
this Agreement terminates as determined under Section 14.3 (the Early
Termination Date). PR will pay all such
fees on or before the Early Termination Date and reimburse all such expenses no
later than fifteen (15) days after the later of (a) the Early Termination
Date; or (b) the date Southwest submits expenses for reimbursement in
accordance with this Agreement.
15.
FORCE MAJEURE.
All obligations set forth in this Agreement
will be subject to impossibility of performance as a consequence of any strike,
lock-out, fire, destruction, acts of God, restrictions of any governmental
authority, civil commotion, unavoidable casualty or other cause beyond the
control of either party (including, but not limited to, material damage by
hurricane), and neither party shall be deemed to be in default hereunder if
such performance is delayed as a result of such impossibility and any
corresponding payment obligations arising during the suspended period shall be
waived; provided, however, that if such suspended performance cannot be
performed within nine (9) months as a result of such impossibility, PR may
terminate this Agreement, at its option, by thirty (30) days prior notice to
Southwest.
16.
SEVERABILITY.
To the extent any provision of this Agreement
is found invalid or unenforceable, it will be considered deleted from this
Agreement and the remainder of that provision and this Agreement will be
unaffected and will continue in full force and effect.
17.
GOVERNING LAW.
The parties acknowledge and agree to comply
with applicable governmental law in connection with the development and
operation of the Casino. The terms of
this Agreement shall be governed and construed under the laws of the State of
New York without regard to principles of conflicts of law. If an inconsistency or conflict between the
terms of this provision and any other provision in any document made a part of
this transaction occurs, the terms of this provision will control and prevail.
18.
NOTICES.
Any notice required to be given under this
Agreement will be delivered by hand, by nationally recognized overnight
courier, or by certified mail, return receipt requested, addressed as follows:
to PR at:
Operadora
Dominicana Macao, S.A.
c/o
PALACE RESORTS
8725
NW 18
TH
Terrace Suite 301
Miami,
Florida 33172
Attention: Lourdes Rodriguez
Fax. No.: (305) 416-6567
14
Email: lrodriguez@palaceresorts.com
With
a copy to:
Curtis,
Mallet-Prevost, Colt & Mosle LLP
101 Park Avenue
New York, New York 10178-0061
Attention: William L. Bricker, Jr.
Fax No.: (212) 697-1559
Email: wbricker@curtis.com
to Southwest at:
Southwest Casino Corporation
2001 Killebrew Drive, Suite 350
Minneapolis, Minnesota 55425
Attention: Thomas E. Fox, President
Fax. No.: 952-853-9991
Email: tefox@swcasino.com
With a copy to:
Southwest Casino Corporation
2001 Killebrew Drive, Suite 350
Minneapolis, MN 55425
Attention: General Counsel
Fax. No.: 952-853-9991
Email:
tsnook@swcasino.com
The above addresses may be changed at any
time by written notice to the other party.
19.
ASSIGNMENTS.
This Agreement is for personal services and
specialized experience and expertise of Southwest and may not be assigned by
either party without the written consent of the other party; provided, however,
that PR may assign this Agreement to an affiliate who is the assignee of the
resort and the Casino.
20.
ENTIRE AGREEMENT.
This Agreement contains the
entire agreement of the parties on the subject matters stated in this
Agreement, and neither party is relying on any statements, representations or
promises made by another (whether or not a party hereto) that are not in this
document. This document will be deemed
drafted by both parties and will not be construed against any party by virtue
of such draftsmanship.
21.
NATURE OF SERVICES AND RECOMMENDATIONS.
Southwest will use commercially reasonable efforts when providing its
services and recommendations under this agreement. Southwest and PR agree that the nature of the
services and recommendations that Southwest will provide under this agreement
require Southwest to apply its experience and expertise on behalf of PR and the
Casino, which requires the application of considerable judgment and the making
of assumptions, all of which may prove inaccurate. PR and Southwest acknowledge and agree that
in providing consulting, advisory and management services under this Agreement,
Southwest is not
15
guaranteeing the success of the Casino and
nothing in this Agreement can be construed as an assurance or guarantee of any
operating result or level of performance of the Casino. Southwest does not guarantee any level of
performance or profitability, including without limitation revenue, profits,
net income, cash flow or customer levels at the Casino. Except as set forth in Section 22, in no
event will Southwest be liable, for any payment to PR in excess of the fees
actually paid to Southwest by PR nor will Southwest be liable to PR, whether in
contract, warranty, tort or otherwise for any special, indirect, incidental or
consequential damages of any kind or nature whatsoever.
22.
INDEMNITY.
(a) Southwest
hereby indemnifies and holds PR, any of its shareholders, members, directors,
managers, officers, employees, affiliates, agents and representatives
(collectively, the Indemnified Parties) harmless from and against any and all
judgments, damages, liabilities, losses, penalties, excise taxes, fines, fees,
costs, expenses (including, but not limited to fees and expenses of attorneys
and other professionals) and awards finally determined to be due and owing, and
amounts actually paid in settlement by PR, directly or indirectly, arising out
of or related to the bad faith, willful misconduct, willful negligence or fraud
of Southwest, its shareholders, members, directors, managers, officers,
employees, affiliates, contractors or subcontractors, agents or representatives
in carrying out or failing to carry out its duties, obligations and liabilities
under the Agreement. Any amounts not
paid within five (5) days of submission of a claim therefore by PR shall
reduce any amount due to Southwest hereunder.
22.1.A
Notice of Third
Party Claim
. PR shall promptly
notify Southwest (the Indemnifying Party) in writing within fifteen (15) days
of notice of any pending or threatened claim or demand asserted by a third
party which the Indemnified Party has determined has given or could give rise
to a right of indemnification under this Agreement (Third Party Claims)
against the Indemnified Party, describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or demand; provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under this Section 22
except to the extent the Indemnifying Party is materially prejudiced by such
failure. Subject to the Indemnifying
Partys right to defend in good faith Third Party Claims as hereinafter
provided, the Indemnifying Party shall satisfy or contest its obligations under
this Section 22 within fifteen (15) days after the receipt of written
notice thereof from the Indemnified Party.
If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party hereunder against any losses that may result
from a Third Party Claim, then the Indemnifying Party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the Indemnified Party within fifteen (15) days of the receipt of such notice
from the Indemnified Party; provided,
however, that the Indemnified
Party may participate in such defense and retain separate counsel at its own
cost and expense, without prejudice to the rights of the parties to control the
defense of their respective interests.
In the event the Indemnifying Party exercises the right to undertake any
such defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with the Indemnifying Party in such defense
and make available to the Indemnifying Party, at the Indemnifying Partys
expense, all witnesses, pertinent records, materials and information in the
Indemnified Partys possession or under the Indemnified Partys control
relating thereto as is reasonably required by the Indemnifying Party. Similarly, in the event the Indemnified Party
is, directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnifying Party shall cooperate with the Indemnified Party in
such defense and make available to the Indemnified Party, at the Indemnifying
Partys expense, all such witnesses, records, materials and information in the
Indemnifying Partys possession or under the Indemnifying Partys control
relating thereto as is reasonably required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party without the written consent of the Indemnified
16
Party (which consent shall not
be unreasonably withheld); provided, however that any such settlement shall in
all cases release the Indemnified Party from all liability with respect
thereto.
22.1.B
Claims between PR and
Southwest
. PR and Southwest shall
attempt to resolve between themselves any claims for indemnification hereunder
not a result of a Third Party Claim. The
notification provisions of Section 22.1A shall also apply to claims
between PR and Southwest.
22.1.C
Survival
. This indemnity shall survive the termination
of this Agreement.
23.
AMENDMENTS.
This Agreement may only be amended in a
writing signed by both parties.
24.
USE OF INFORMATION AND MATERIALS.
This
Agreement will not be construed as granting any rights or interest to PR with
respect to the equipment of Southwest or to the use of any of the proprietary
marks of Southwest without the prior written approval of Southwest. However, project deliverables and all other
materials provided to PR as part of Southwests duties under this Agreement
will become the property of PR.
Information contained in any operations, personnel, marketing, internal
controls and other manuals, as well as operating procedures which will be
developed and utilized by Southwest for PR are the property of PR.
Southwest agrees that this Agreement will
not be construed as granting Southwest any rights or interest of whatever
nature in or to PRs proprietary information and materials provided to
Southwest in the course of this Agreement, nor to any service marks, trademarks
or other intellectual property owned or licensed by PR and used in the
operation of the Casino. Southwest
agrees that all such information is the sole and exclusive property of PR, and
Southwest will not utilize such information, nor reproduce it for use by
others, nor provide it to any other person, corporation, or business entity of
whatever kind without the express written consent of PR.
Remainder
of page intentionally blank.
Signatures
on next page.
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IN WITNESS
WHEREOF,
Southwest
and PR have executed this Agreement as of the date first stated above.
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SOUTHWEST CASINO CORPORATION
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By:
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Name:
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Title:
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OPERADORA DOMINICANA MACAO, S.A.
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By:
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Name:
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Title:
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18
Exhibit 99.1
SOUTHWEST
CASINO CORPORATION TO MANAGE DOMINICAN REPUBLIC CASINO FOR PALACE RESORTS
Minneapolis,
MN June 26, 2008 -
Southwest Casino Corporation
(OTCBB: SWCC) announced today that it has entered into an agreement with a
subsidiary of Palace Resorts to manage the casino at the Moon Palace Casino,
Golf and Spa Resort in Punta Cana, Dominican Republic. The casino will be part of a 1700-room,
all-inclusive luxury resort that Palace Resorts is constructing on the far
eastern tip of the Dominican Republic.
Palace Resorts plans to open the Moon Palace Casino, Golf and Spa Resort
in Fall 2008. Southwest has been
consulting with Palace Resorts on the design, development and operation of the
casino since September 2007.
Under
the new agreement, Southwest will continue to assist Palace Resorts in all
phases of design, game selection, training and equipping the casino as a
consultant and then manage the casino for five years after it opens in late
2008 or early 2009. As manager,
Southwest will be responsible for all aspects of casino operations and will
work with Palace Resorts to market the casino and the resort as a gaming
destination. Southwest receives a
monthly fee as a consultant and will receive management fees equal to 5 percent
of net casino income after the casino opens, subject to a minimum monthly fee.
We
are excited to announce this extension of our relationship with Palace
Resorts. We have enjoyed working with
them as consultants and know that their world-class, luxury resorts match our
model for a premier casino offering world-class customer service to its patrons
said Jim Druck, Southwests CEO. We appreciate the chance to help them develop
this facility as consultants and look forward to the opportunity and challenges
as manager of bringing our joint vision of an elegant, full-service Caribbean
casino to reality at the Moon Palace in Punta Cana.
About Southwest Casino
Corporation
Southwest
Casino Corporation develops, owns, operates, manages and provides consulting
services to casinos, gaming facilities and related amenities. Southwest owns and operates the Gold Rush
Hotel and Casino and Gold Diggers Casino in Cripple Creek, Colorado. In addition, Southwest owns a 50 percent
membership interest in North Metro Harness Initiative, LLC, which owns and
operates Running Aces Harness Park in Columbus, Minnesota. Southwests corporate offices are located at
2001 Killebrew Drive, Suite 350, Minneapolis, Minnesota 55425.
This
Press Release does not constitute an offer of to sell or solicitation of an
offer to buy any securities.
This
Press Release contains forward-looking statements about Southwests ongoing
business. These forward-looking statements involve risks and uncertainties that
could cause the statements to be incorrect or cause actual results to differ
materially. Many of those risks are
described in the Risk Factors section of Southwests Annual Report on Form 10-KSB
filed March 31, 2008. Other risks
applicable to these forward-looking statements are described
elsewhere
in the Annual Report as well as the companys other periodic reports filed with
the Securities and Exchange Commission. Southwest does not undertake to update
any forward-looking statements it makes; but may choose from time to time to
update them and, if it does, will disseminate the updates to the investing
public.
Contact:
Southwest Casino Corporation
Thomas E. Fox, 952-853-9990
President
Or
Investor Relations:
Strategic Growth International
Stan Altschuler,
212-838-1444
saltschuler@sgi-ir.com
or
Richard Cooper, 212-838-1444
rcooper@sgi-ir.com
|
|
OMB
APPROVAL
|
|
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
|
OMB Approval:
3235-0060
Expires: April 30,
2009
Estimated average burden hours per response
5.0
|
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 30, 2008
SOUTHWEST
CASINO CORPORATION
(Exact name of registrant
as specified in its charter)
Nevada
|
|
000-50572
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|
87-0686721
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(State or other jurisdiction
of incorporation)
|
|
(Commission
File Number)
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|
(IRS Employer
Identification No.)
|
2001 Killebrew Drive, Suite 350,
Minneapolis, MN
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55425
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code
952-853-9990
(Former name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
o
Written communication
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material
pursuant to Rule 14a.12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFT 240.13e-4(c))
Item
5.02 Departure of Directors
or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers
Southwest Casino Corporation and Brian Foster have
agreed that, effective June 30, 2008, Mr. Foster will no longer act
as Southwest Casino Corporations Vice President of Native American Operations
and will no longer be an executive officer of the corporation. Mr. Foster
will continue to work with Southwest in numerous capacities.
2
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly authorized.
|
SOUTHWEST
CASINO CORPORATION
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|
|
Date:
July 7, 2008
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|
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By:
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/s/
Thomas E. Fox
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Name:
Thomas E. Fox
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|
Title:
President
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3
|
UNITED
STATES
|
OMB APPROVAL
|
|
SECURITIES
AND EXCHANGE COMMISSION
|
OMB Approval:
3235-0060
Expires: April 30, 2009
Estimated average burden hours per response. . 5.0
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Washington, D.C. 20549
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|
FORM 8-K
|
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
July 1, 2008
SOUTHWEST CASINO CORPORATION
(Exact name of registrant as specified
in its charter)
Nevada
|
|
000-50572
|
|
87-0686721
|
(State or other jurisdiction
of incorporation)
|
|
(Commission
File Number)
|
|
(IRS Employer
Identification No.)
|
|
|
|
|
|
2001 Killebrew Drive, Suite 350,
Minneapolis, MN
|
|
55425
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code
952-853-9990
(Former name or former address, if changed
since last report)
Check
the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
o
Written communication pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a.12
under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFT 240.13e-4(c))
Item 1.01
Entry into a Material Definitive Agreement
On
July 1, 2008, North Metro Harness Initiative, LLC (North Metro) entered
into Amendment No. 2 to its Credit Agreement dated as of April 20,
2007 by and among North Metro, other designated Loan Parties, Black Diamond
Commercial Finance, L.L.C. (Black Diamond), as Agent, Lead Arranger and a
Lender and other Lenders (the Credit Agreement). The Credit Agreement provides financing for
the construction and opening of Running Aces Harness Park by North Metro. Amendment No. 2 amends the Credit
Agreement to, among other things, (1) increase the total amount of the
financing by $600,000 from $41.7 million to $42.3 million, (2) increase
the interest rate applicable to the financing by 0.30%, and (3) temporarily
reduce North Metros requirements for available cash from $1,250,000 to
$750,000. The available cash requirement
will increase incrementally over five months, returning to $1,250,000 as of November 30,
2008. The increase in the loan amount
and reduction in the available cash requirement were needed due to the expense
of completing 50 days of live harness racing before North Metro could open its
50-table card room, as required under state law. The card room opened on June 30, 2008.
In
connection with Amendment No. 2, on July 1, 2008, Southwest Casino
Corporation and its wholly owned subsidiary Southwest Casino and Hotel Corp.
entered into a Limited Guaranty in favor of Black Diamond, as agent under the
Credit Agreement. Southwest Casino and
Hotel Corp owns a 50 percent membership interest in North Metro. Under the Limited Guaranty, Southwest Casino
Corporation and Southwest Casino and Hotel Corp. agree to guaranty a maximum of
$1 million plus certain costs of the $42.3 million in financing provided to
North Metro under the Credit Agreement, as amended. The limited guaranty will remain in full
force and effect until the earlier of June 30, 2010 or the date on which
the North Metro financing is repaid in full.
As a condition to entry into Amendment No. 2, Southwest Casino and
Hotel Corp. and MTR-Harness, Inc., the other 50 percent member in North
Metro Harness Initiative, LLC, were required to make an aggregate of $615,000
in additional membership contributions to North Metro. These additional membership contributions
were made on or about June 20, 2008.
The foregoing description of the terms and conditions of Amendment No. 2
to Credit Agreement and the Limited Guaranty does not purport to be complete
and is qualified in its entirety by reference to the full text of these
agreements, which are filed as exhibits 10.1 and 10.2 to this Current Report on
Form 8-K and incorporated herein by reference.
2
Item 9.01 Financial Statements and Exhibits
(c)
Exhibits
.
Exhibit
No.
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|
Description
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Method of Filing
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10.1
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|
Amendment No. 2 to Credit
Agreement by and among North Metro Harness Initiative, LLC, other Loan
Parties, Lenders, and Black Diamond Commercial Finance, L.L.C. as Agent,
dated July 1, 2008.
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|
Filed herewith
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10.2
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|
Limited
Guaranty by and among Southwest Casino Corporation, Southwest Casino and
Hotel Corp. and Black Diamond Commercial Finance, L.L.C. as Agent, dated
July 1, 2008.
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Filed herewith
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3
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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SOUTHWEST
CASINO CORPORATION
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Date:
July 8, 2008
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|
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By:
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/s/
Thomas E. Fox
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Name:
Thomas E. Fox
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Title:
President
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4
Exhibit
10.1
AMENDMENT NO. 2 TO
CREDIT AGREEMENT
This LIMITED WAIVER AND AMENDMENT NO. 2 TO CREDIT
AGREEMENT (this
Agreement
) is entered into as of July 1, 2008, by
and among
NORTH METRO
HARNESS INITIATIVE, LLC, a Minnesota limited liability company (
Borrower
),
the other persons designated as Loan Parties on the signature pages hereof,
the financial institutions who are or hereafter become
parties to this Agreement as Lenders, and BLACK DIAMOND COMMERCIAL FINANCE,
L.L.C., a Delaware limited liability company (in its individual capacity,
BDCF
),
as Agent. Unless otherwise
specified herein, capitalized terms used in this Agreement shall have the
meanings ascribed to them in the Credit Agreement (as hereinafter defined).
RECITALS
WHEREAS, Borrower, the other Loan Parties, Agent and
Lenders have entered into that certain Credit Agreement, dated as of April 20,
2007 (as amended, amended and restated, supplemented or otherwise modified from
time to time, the
Credit Agreement
);
WHEREAS, Borrower, Agent and Lenders have agreed to
amend certain terms of the Credit Agreement as described herein.
NOW THEREFORE, in consideration of the mutual
execution hereof and other good and valuable consideration, the parties hereto
agree as follows:
SECTION 1.
Amendments to Credit
Agreement
.
Subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof,
the Credit Agreement is hereby amended as follows:
(a)
Clause (l)
of the definition of
Permitted
Encumbrances
is hereby amended and restated to read in its entirety as
follows:
(l) Liens arising pursuant to purchase
money mortgages or security interests securing Indebtedness representing the
purchase price (or financing of the purchase price within 90 days after the
respective purchase) of fixed assets acquired after the Closing Date,
provided
that (1) any such Liens attach only to the assets so purchased, upgrades
thereon and, if the asset so purchased is an upgrade, the original asset itself
(and such other assets financed by the same financing source), (2) the
Indebtedness (other than Indebtedness incurred from the same financing source
to purchase other assets and excluding Indebtedness representing obligations to
pay installation and delivery charges for the property so purchased) secured by
any such Lien (a) does not exceed 100% of the lesser of the fair market
value or the purchase price of the property being purchased at the time of the
incurrence of such Indebtedness and (b) is not less than 75% of fair
market value of the applicable property and (3) the Indebtedness secured
thereby is permitted to be incurred pursuant to this Agreement;
(b)
Clause (o)
of the definition of
Permitted
Encumbrances
is hereby amended and restated to read in its entirety as
follows:
(o) [reserved]; and
(c)
Section 2.1(a)
of the Credit Agreement is
hereby amended by addition the following new sentence hereto at the end of such
first paragraph:
(a) Notwithstanding
anything to the contrary contained herein, the Borrower may borrow Advances, in
an aggregate amount not to exceed $600,000, on July 1, 2008 (and the
provisions of (i)
Section 2.1(b)
(other than
Section 2.1(b)(iii)(C)
and
Section 2.1(b)(iii)(D)
) shall be not be applicable to any such
Advance and (ii)
Section 3.2 (i), (ii), (iii), (iv), (vii),
(viii), (ix), (x) and (xi)
shall not apply to any such Advance (and
the entire amount of such Advance shall be funded by
Grand Central Asset Trust, BDC Series).
(d)
Section 2.1(a)
of the Credit Agreement is
hereby amended by deleting the dollar amount $104,250 which appears therein
and replacing the same with the dollar amount $105,750.
(e)
Section 2.2
of the Credit Agreement is hereby
amended and restated to read in its entirety as follows:
2.2 Interest
and Applicable Margins
(a) Borrower shall pay interest to Agent, for the ratable
benefit of Lenders with respect to the Term Loan made by each Lender, in
arrears on each applicable Interest Payment Date, with respect to such portion
of the Term Loan designated as an Index Rate Loan, the Index Rate plus the
Applicable Term Loan Index Margin per annum or, with respect to such portion of
the Term Loan designated as a LIBOR Loan, the applicable LIBOR Rate plus the
Applicable Term Loan LIBOR Margin per annum.
As of the Closing Date, the
Applicable Margins are as follows:
Applicable Term Loan Index Margin
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4.00
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%
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Applicable Term Loan LIBOR Margin
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6.00
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%
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Applicable Unused Line Fee Margin
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4.50
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%
|
As of July 1, 2008, the
Applicable Margins shall be as follows:
Applicable Term Loan Index Margin
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4.30
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%
|
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|
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Applicable Term Loan LIBOR Margin
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6.30
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%
|
|
|
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Applicable Unused Line Fee Margin
|
|
4.80
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%
|
2
On
and after the Project Opening, the Applicable Margins shall be as follows:
Applicable
Term Loan Index Margin
|
|
2.80
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%
|
|
|
|
|
Applicable
Term Loan LIBOR Margin
|
|
4.80
|
%
|
|
|
|
|
Applicable
Unused Line Fee Margin
|
|
4.80
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%
|
(f)
Section 6.1(c)
of the Credit Agreement is
amended and restated in its entirety to read as follows:
(c) Indebtedness not to exceed $2,500,000 (less the aggregate
amount of all Indebtedness permitted pursuant to
Section 6.1(d)
hereof
that refinanced Indebtedness previously permitted pursuant to this
Section 6.1(c)
)
in an aggregate principal amount at any time outstanding secured by purchase
money Liens or incurred with respect to Capital Leases and purchase money
Indebtedness for the purchase of fixed assets;
(g)
Section 6.16
of the Credit Agreement is hereby
amended and restated to read in its entirety as follows:
6.16
Availability
. The Borrower shall at no time set forth below
permit the sum of Availability and Unrestricted Cash to be less than the amount
set forth below opposite such time.
Time
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Amount
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From and including July 1, 2008 through but
excluding August 31, 2008
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$
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750,000
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|
From and including August 31, 2008 through
but excluding September 30, 2008
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$
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850,000
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|
From and including September 30, 2008
through but excluding October 31, 2008
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$
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950,000
|
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|
From and including October 31, 2008
through but excluding November 30, 2008
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$
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1,100,000
|
|
|
|
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|
At all times on or after November 30, 2008
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$
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1,250,000
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(h)
Annex A
to the Credit Agreement is hereby
amended and restated in its entirety to read as
Annex A
hereto.
SECTION 2.
Representations
And Warranties Of Loan Parties
.
Each Loan Party represents and warrants that:
(a)
The
consummation of the transactions contemplated hereby does not and will not (i) violate
or conflict with any laws, rules, regulations or orders of any Governmental
Authority
3
or violate, conflict with, result in a breach of, or
constitute a default (with due notice or lapse of time or both) under any
Contractual Obligation or organizational documents of any Loan Party or any of
its Subsidiaries or (ii) require the consent of, or any filing with, any
Person that has not been obtained or made;
(b) The execution, delivery and
performance by such Loan Party of this Agreement has been duly authorized by
all necessary corporate action and is the legal, valid and binding obligation
of such Loan Party enforceable against such Loan Party in accordance with its
terms, except as the enforcement thereof may be subject to (i) the effect
of any applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors rights generally and (ii) general principles of
equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law);
(c)
Each of the representations
and warranties of each Loan Party contained in the Loan Documents are true,
correct and complete as of the date (except to the extent that such
representation or warranty expressly relates to an earlier date in which case
it shall be true as of such earlier date);
(d) After giving effect to this
Agreement, no Default or Event of Default shall have occurred and be continuing
under the Credit Agreement.
SECTION 3.
Condition To Effectiveness
.
This Agreement shall be effective upon
satisfaction of the following conditions precedent:
(a) Evidence satisfactory to the Agent
that the Borrower has received an aggregate cash equity capital contribution
from Sponsors on or about June 20, 2008 of at least $615,000 (it being
agreed that such equity contribution shall not, pursuant to
Section 2.5(d)
of
the Credit Agreement be required to be used to prepay the Term Loan);
(b) Execution and delivery of this
Agreement by the Borrower, Hotel, Agent and the Requisite Lenders;
(c) Each representation and warranty
contained herein shall be true and correct in all material respects;
(d) Execution and delivery by each of
MTR-Harness, Inc.
and MTR Gaming Group, Inc. of the consent and reaffirmation attached
hereto as Exhibit A;
(e) Execution and delivery by each of
Southwest Casino and Hotel Corp. and Southwest Casino Corporation of the
consent and reaffirmation attached hereto as Exhibit B; and
(f) Receipt by the Agent of each of the
documents and agreements described in
Annex I
hereto.
4
SECTION 4.
Reference To And Effect
Upon The Credit Agreement
.
(a) Except as specifically modified
above, the Credit Agreement and the other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed.
(b) The execution, delivery and
effectiveness of this Agreement shall not operate as a waiver of any right,
power or remedy of Agent or any Lender under the Credit Agreement or any Loan
Documents, nor constitute an amendment of any provision of the Credit Agreement
or any Loan Documents, except as specifically set forth herein.
SECTION 5.
Costs And Expenses
.
Borrower agrees to reimburse Agent for all
reasonable fees, costs and expenses incurred by Agent, including the reasonable
fees, costs and expenses of counsel or other advisors to Agent for advice,
assistance, or other representation in connection with this Agreement.
SECTION 6.
Governing Law
.
THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPALS.
SECTION 7.
Headings
.
Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purposes.
SECTION 8.
Counterparts
.
This Agreement may be executed in any number
of counterparts (including by means of facsimile transmission), each of which
when so executed shall be deemed an original, but all such counterparts shall
constitute one and the same instrument.
(signature pages follow)
5
IN WITNESS WHEREOF, the parties hereto hereupon set
their hands as of the date first written above.
|
BORROWER
:
|
|
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NORTH METRO HARNESS INITIATIVE,
LLC
|
|
|
|
|
|
By:
|
|
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Name:
|
|
|
Title:
|
|
|
|
|
|
|
|
OTHER LOAN PARTIES:
|
|
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|
NORTH METRO HOTEL, LLC
|
|
|
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By:
|
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|
Name:
|
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Title:
|
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BLACK DIAMOND COMMERCIAL FINANCE,
L.L.C.,
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as Agent
|
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By:
|
|
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Name:
|
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Title:
|
|
|
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BLACK DIAMOND INTERNATIONAL FUNDING,
LTD.,
|
|
as a Lender
|
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By:
|
|
|
Name:
|
|
|
Title:
|
|
|
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GRAND CENTRAL ASSET TRUST, BDC SERIES,
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|
as a Lender
|
|
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By:
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Name:
|
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Title:
|
|
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|
Exhibit 10.2
LIMITED
GUARANTY
This LIMITED GUARANTY (as amended, restated, modified
or supplemented and in effect from time to time, this
Guaranty
), dated
as of July 1, 2008, is entered into by and among Southwest Casino
Corporation, a Nevada corporation (
SCC
), Southwest Casino and Hotel
Corp., a Minnesota corporation (
SCH
) (SCC and SCH are referred to
herein each individually as a
Guarantor
and collectively, as the
Guarantors
),
and BLACK DIAMOND COMMERCIAL FINANCE, L.L.C., a Delaware limited liability
company, as Agent. Unless otherwise
specified herein, capitalized terms used in this Guaranty shall have the
meanings ascribed to them in the Credit Agreement (as hereinafter defined).
I.
RECITALS
WHEREAS, subject to the terms and conditions of that
certain Credit Agreement dated as of April 20, 2007 by and among North
Metro Harness Initiative, LLC, a Minnesota limited liability company (
Borrower
),
the other Loan Parties, Agent and the Lenders (as defined therein) (as amended,
restated, modified or supplemented and in effect from time to time, the
Credit
Agreement
), the Lenders agreed to make the Initial Advance and additional
Advances to Borrower;
WHEREAS, Borrower, the other Loan Parties, Agent and
Lenders are contemporaneously herewith executing that certain Amendment No. 2
to Credit Agreement dated as of the date hereof (the
Second Amendment
)
pursuant to which, among other things, certain of the Lenders have agreed to
make additional credit available to the Borrower;
WHEREAS, the Guarantors will derive direct and
indirect economic benefits from the making of additional credit available to
the Borrower and the continued making of Advances to Borrower; and
WHEREAS, in order to induce Agent and the Lenders to
enter into the Second Amendment and to induce certain of the Lenders to provide
additional credit to the Borrower and continue to make Advances, each Guarantor
has agreed to guarantee payment of the Obligations as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and
the covenants hereinafter contained and other good and valuable consideration,
it is agreed as follows:
II.
GUARANTY
Each Guarantor, jointly and severally, hereby
unconditionally guaranties the full and prompt payment when due, whether at
maturity or earlier, by reason of acceleration or otherwise, and at all times
thereafter, and performance of the Obligations (the
Guaranteed Obligations
). Notwithstanding the foregoing, the maximum
aggregate amount of Guaranteed Obligations that the Guarantors are guaranteeing
hereunder shall be limited to $1,000,000 plus the Additional Costs (as defined
below) related to such amount. For the
purposes of this Guaranty, the term Additional Costs shall mean all fees,
costs and expenses (including reasonable attorneys fees and expenses) incurred
by Agent or any Lender (i) in attempting to collect any amount due under
this Guaranty or (ii) in prosecuting any action against one or more
Guarantors and all interest, fees, costs and expenses owing to Agent or any
Lender after the commencement of bankruptcy proceedings with respect to any
Guarantor (whether or not the
same may be collected
while such proceedings are pending). For
the avoidance of doubt, unless one or more Guarantors fail to promptly comply
with their obligations hereunder after written notice from Agent or any Lender,
the term Additional Costs does not include fees, costs and expenses incurred
in attempting to collect any amount due from the Borrower or from any other
guarantor (other than a Guarantor) of all or part of the Guaranteed Obligations
or incurred in prosecuting any action against Borrower or any other guarantor
(other than a Guarantor) of all or part of the Guaranteed Obligations.
Each Guarantor hereby agrees that this Guaranty is a
present and continuing guaranty of payment and not of collection and that its
obligations hereunder shall be unconditional, irrespective of (i) the
validity or enforceability of the Guaranteed Obligations or any part thereof,
or of any of the Loan Documents, (ii) the waiver or consent by Agent or
any Lender with respect to any provision of any Loan Document, or any
amendment, modification or other change with respect to any Loan Document, (iii) any
merger or consolidation of Borrower, any Guarantor or any other guarantor of
all or part of the Guaranteed Obligations into or with any Person or any change
in the ownership of the equity of Borrower, any Guarantor or any other
guarantor of all or part of the Guaranteed Obligations, (iv) any
dissolution of any Guarantor or any insolvency, bankruptcy, liquidation,
reorganization or similar proceedings with respect to Borrower, any Guarantor
or any other guarantor of all or part of the Guaranteed Obligations, (v) any
action or inaction on the part of Agent or any Lender, including without
limitation the absence of any attempt to collect the Guaranteed Obligations
from Borrower, any Guarantor or any other guarantor of all or part of the
Guaranteed Obligations or other action to enforce the same or the failure by
Agent to take any steps to perfect and maintain its Lien on, or to preserve its
rights to, any security or collateral for the Guaranteed Obligations, (vi) Agents
election, in any proceeding instituted under Chapter 11 of Title 11 of the
United States Code (11 U.S.C. Section 101 et seq.), as amended (the
Bankruptcy
Code
) of the application of Section 1111(b)(2) of the Bankruptcy
Code, (vii) any borrowing or grant of a Lien by Borrower, any Guarantor or
any other guarantor of all or part of the Guaranteed Obligations, as
debtor-in-possession, under Section 364 of the Bankruptcy Code, (viii) the
disallowance, under Section 502 of the Bankruptcy Code, of all or any
portion of Agents or any Lenders claims for repayment of the Guaranteed
Obligations, (ix) Agents or any Lenders inability to enforce the
Guaranteed Obligations as a result of the automatic stay provisions under Section 362
of the Bankruptcy Code, (x) the discharge or release by Agent and/or
Lenders of any Guarantors obligations and liabilities under this Guaranty,
(xi) whether any other Person guarantees any Obligations or any Person is
released from any guaranty of any Guaranteed Obligations or (xii) any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of Borrower, any Guarantor or any other guarantor of all or part of the
Guaranteed Obligations.
No payment made by or for the account or benefit of
any Guarantor (including, without limitation, (i) a payment made by
Borrower in respect of the Guaranteed Obligations, (ii) a payment made by
any other Guarantor pursuant to this Guaranty, (iii) a payment made by any
Person under any other guaranty of the Guaranteed Obligations or (iv) a
payment made by means of set-off or other application of funds by Agent or any Lender)
pursuant to this Guaranty shall entitle such Guarantor, by subrogation or
otherwise, to any payment by Borrower or from or out of any property of
Borrower, and each Guarantor shall not exercise any right or remedy against
Borrower or any property of Borrower including, without limitation, any right
of contribution or reimbursement by reason of any performance by Guarantors
under this Guaranty, until the
2
Guaranteed Obligations
have been indefeasibly paid in full in cash and the Credit Agreement has been
terminated.
Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of any bankruptcy
proceeding (or other insolvency proceeding) of Borrower, protest or notice with
respect to the Guaranteed Obligations and all demands whatsoever, and covenants
that this Guaranty will not be discharged, except by complete and irrevocable
payment and performance of the obligations and liabilities contained
herein. No notice to Guarantors or any
other party shall be required for Agent, on behalf of Agent or any Lender, to
make demand hereunder. Such demand shall
constitute a mature and liquidated claim against Guarantors. Upon the occurrence and during the
continuance of any Event of Default, Agent may, at its sole election, proceed
directly and at once, without notice, against any Guarantor to collect and
recover the full amount or any portion of the Guaranteed Obligations, without
first proceeding against Borrower, any other Guarantor, any other Person or any
security or collateral for the Guaranteed Obligations. Agent shall have the exclusive right to
determine the application of payments and credits, if any, from Guarantors,
Borrower, any other Person, or any security or collateral for the Guaranteed
Obligations, on account of the Guaranteed Obligations.
Agent and Lenders are hereby authorized, without
notice or demand to Guarantors and without affecting or impairing the liability
of Guarantors hereunder, to, from time to time, (i) renew, extend,
accelerate or otherwise change the time for payment of, or other terms relating
to, the Guaranteed Obligations or otherwise modify, amend or change the terms
of any Loan Document, (ii) accept partial payments on the Guaranteed
Obligations, (iii) take and hold collateral for the payment of the
Guaranteed Obligations, or for the payment of this Guaranty, or for the payment
of any other guaranties of the Guaranteed Obligations or other liabilities of
Borrower, and exchange, enforce, waive and release any such collateral, (iv) apply
such collateral and direct the order or manner of sale thereof as in their sole
discretion they may determine, (v) settle, release, compromise, collect or
otherwise liquidate the Guaranteed Obligations and any collateral therefor in
any manner, (vi) take any other action under or in respect of the Loan
Documents in the exercise of any remedy, power or privilege contained therein
or available to it at law, equity or otherwise, or waive or refrain from
exercising any such remedies, powers or privileges and/or (vii) extend or
waive the time for any Loan Partys performance of, or compliance with, any
term, covenant or agreement on its part to be performed or observed under the
Loan Documents, or waive such performance or compliance or consent to a failure
of, or departure from, such performance or compliance.
At any time after maturity of the Guaranteed
Obligations, Agent and Lenders may, in their sole discretion, without notice to
Guarantors and regardless of the acceptance of any collateral for the payment
hereof, appropriate and apply toward payment of the Guaranteed Obligations (i) any
indebtedness due or to become due from Agent or any Lender to Guarantors and (ii) any
moneys, credits or other property belonging to Guarantors at any time held by
or coming into the possession of Agent or any Lender or any Affiliates thereof,
whether for deposit or otherwise.
Each Guarantor hereby assumes responsibility for
keeping itself informed of the financial condition of Borrower, and any and all
endorsers and other guarantors of all or any part of the Guaranteed Obligations
and of all other circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations or any part thereof that diligent inquiry would reveal,
3
and each Guarantor hereby
agrees that neither Agent nor any Lender shall have any duty to advise
Guarantors of information known to such Agent or Lender regarding such
condition or any such circumstances.
Each Guarantor hereby acknowledges familiarity with Borrowers financial
condition and that it has not relied on any statements by Agent or any Lender
in obtaining such information. In the
event Agent or any Lender, in its sole discretion, undertakes at any time or
from time to time to provide any such information to Guarantors, neither Agent
nor any Lender shall be under any obligation (i) to undertake any
investigation with respect thereto, (ii) to disclose any information which,
pursuant to accepted or reasonable commercial finance practices, Agent or such
Lender wishes to maintain confidential or (iii) to make any other or
future disclosures of such information, or any other information, to
Guarantors.
Each Guarantor consents and agrees that neither Agent
nor any Lender shall be under any obligation to marshal any assets in favor of
Guarantors or against or in payment of any or all of the Guaranteed
Obligations. Each Guarantor further agrees
that, to the extent that Borrower makes a payment or payments to Agent or any
Lender, or Agent or any Lender receives any proceeds of Collateral, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to
Borrower, its estate, trustee, receiver or any other party, including without
limitation any Guarantor, under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such payment or repayment,
the Guaranteed Obligations or the part thereof which has been paid, reduced or
satisfied by such amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred,
and this Guaranty shall continue to be in existence and in full force and
effect, irrespective of whether any evidence of indebtedness has been
surrendered or cancelled.
Each Guarantor also waives all set-offs and
counterclaims and all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance of
this Guaranty. Each Guarantor further
waives all notices of the existence, creation or incurring of new or additional
indebtedness, arising either from additional loans extended to Borrower or
otherwise, and also waives all notices that the principal amount, or any
portion thereof, or any interest under or on any Loan Document is due, notices
of any and all proceedings to collect from the maker, any endorser or any other
guarantor of all or any part of the Guaranteed Obligations, or from anyone
else, and, to the extent permitted by law, notices of exchange, sale, surrender
or other handling of any security or collateral given to Agent to secure
payment of the Guaranteed Obligations.
III.
MISCELLANEOUS
Each Guarantor hereby represents and warrants to Agent
and Lenders that (i) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) its
jurisdiction of organization, federal employee identification number,
organizational identification number, chief executive office and principal
place of business are as set forth in Schedule III hereto, (iii) the
execution, delivery and performance by such Guarantor of this Guaranty and the
other Loan Documents to which it is a party are within its powers, have been
duly authorized by all necessary action pursuant to its Organizational
Documents, require no further action by or in respect of, or filing with, any
governmental body, agency or official, do not violate, conflict with or cause a
breach or a default under any provision of material applicable law or
regulation, any of its organizational documents or any material agreement,
judgment, injunction, order, decree or other instrument binding upon it or any
of its properties
4
and do not result in the
creation or imposition of any Lien upon any of the property of such Guarantor,
other than those in favor of Agent, for itself and the benefit of Lenders and (iv) this
Guaranty, and each other Loan Document to which it is a party, constitutes a
valid and binding agreement or instrument of such Guarantor, enforceable
against such Guarantor in accordance with its respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or other
similar laws relating to the enforcement of creditors rights generally and by
general equitable principles.
No delay on the part of Agent in the exercise of any right
or remedy shall operate as a waiver thereof, and no single or partial exercise
by Agent of any right or remedy shall preclude any further exercise thereof;
nor shall any modification or waiver of any of the provisions of this Guaranty
be binding upon Agent or Lenders, except as expressly set forth in a writing
duly signed and delivered on Agents behalf by an authorized officer or agent
of Agent. Agents or any Lenders
failure at any time or times hereafter to require strict performance by
Guarantors of any of the provisions, warranties, terms and conditions contained
in this Guaranty shall not waive, affect or diminish any right of Agent and
Lenders at any time or times hereafter to demand strict performance thereof and
such right shall not be deemed to have been waived by any act or knowledge of
Agent or any Lender, or its respective agents, officers or employees, unless
such waiver is contained in an instrument in writing signed by an officer or
agent of Agent, and directed to Borrower or a Guarantor, as applicable,
specifying such waiver. No failure or
delay by Agent or any Lender in exercising any right, power or privilege under
this Guaranty shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
This Guaranty shall be binding upon Guarantors and their
respective successors and assigns and shall inure to the benefit of Agent and
Lenders and their respective successors and assigns, except that no Guarantor
may assign its obligations hereunder without the written consent of Agent. All notices, approvals, requests, demands and
other communications hereunder shall be given in accordance with the notice
provision of the Credit Agreement; provided, that such notices shall be given
to Guarantors at their respective address or facsimile number set forth on the
signature pages hereof.
This Guaranty is a continuing guaranty and shall
remain in full force and effect until the earlier of (x) June ,
2010 and (y)
the
date referred to in clause (b) of the defined term Maturity Date.
Each Guarantor agrees, upon the written request of
Agent or any Lender, to execute and deliver to Agent or such Lender, from time
to time, any additional instruments or documents reasonably considered
necessary by Agent or such Lender to cause this Guaranty to be, become or remain
valid and effective in accordance with its terms.
THIS
AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS WHICH DOES NOT EXPRESSLY SET
FORTH APPLICABLE LAW SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICTS OF LAW PRINCIPALS
.
5
EACH
GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN NEW YORK COUNTY, STATE OF NEW YORK AND IRREVOCABLY AGREE THAT,
SUBJECT TO AGENTS ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS GUARANTY SHALL BE LITIGATED IN SUCH COURTS. EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS
TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. EACH GUARANTOR HEREBY WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS WITH REGARD TO THIS GUARANTY AND AGREES
THAT ALL SUCH SERVICE OF PROCESS WITH REGARD TO THIS GUARANTY MAY BE MADE
UPON SUCH GUARANTOR BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO SUCH GUARANTOR, AT THE ADDRESS OF ITS CHIEF EXECUTIVE OFFICER SET
FORTH IN SCHEDULE III TO THIS GUARANTY AND SERVICE SO MADE SHALL BE COMPLETE
TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.
EACH GUARANTOR
AND AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. EACH GUARANTOR AND AGENT ACKNOWLEDGE THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS GUARANTY AND THAT EACH
WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH GUARANTOR AND AGENT WARRANT AND
REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS.
This Guaranty may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
In addition to and without limitation of any of the
foregoing, this Guaranty shall be deemed to be a Loan Document.
Notwithstanding anything in this Guaranty to the
contrary, nothing in this Guaranty may be construed to deem either Guarantor to
be a Borrower or a Loan Party under the Credit Agreement or any other Loan
Document.
6
IN WITNESS WHEREOF, the parties have executed this
Guaranty as of the date first written above.
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GUARANTORS
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SOUTHWEST CASINO CORPORATION
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By:
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Name:
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Its:
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SOUTHWEST CASINO AND HOTEL
CORP.
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By:
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Name:
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Its:
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BLACK
DIAMOND COMMERCIAL FINANCE,
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L.L.C.
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as Agent
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By:
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Name:
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Its:
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Southwest Casino (CE) (USOTC:SWCC)
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