EXHIBIT 4.3
CONVERTIBLE SUBORDINATED DEBENTURES
AND
WARRANTS PURCHASE AGREEMENT
BETWEEN
ACRES GAMING INCORPORATED
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE SUBORDINATED DEBENTURES AND WARRANTS PURCHASE AGREEMENT
dated as of December 21, 2001 (the "Agreement"), between the Investors signatory
hereto (each an "Investor" and together the "Investors"), and Acres Gaming
Incorporated, a corporation organized and existing under the laws of the State
of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase, in the aggregate, (i) $5,000,000 principal
amount of the Convertible Subordinated Debentures, and (ii) the Warrants; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) ("Section 4(6)") of the United
States Securities Act of 1933, as amended (the "Securities Act") and/or
Regulation D ("Regulation D") and the other rules and regulations promulgated
thereunder, and/or upon such other exemption from the registration requirements
of the Securities Act as may be available with respect to any or all of the
investments in securities to be made hereunder.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF CONVERTIBLE SUBORDINATED DEBENTURES AND WARRANTS
Section 1.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree to purchase, severally and not
jointly, the Convertible Subordinated Debentures together with the Warrants at
the Purchase Price on the Closing Date. Within five
(5) Trading Days of the execution and delivery of this Agreement, the Investors
shall purchase, severally and not jointly, in the aggregate, $5,000,000
principal amount of Convertible Subordinated Debentures together with the
Warrants at the Purchase Price. Each Investor shall deliver immediately
available funds in their proportionate amount of the aggregate Purchase Price,
as set forth on the signature pages hereto, and the Company shall deliver the
Convertible Subordinated Debentures evidencing said principal sum and the
Warrants. Upon satisfaction of the conditions set forth in Section 1.1(b), the
Closing shall occur at the offices of Xxxxxxx & Associates, Counselors at Law,
P.C., 00 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000.
(b) The Closing is subject to the satisfaction or waiver by the party to
be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement;
(ii) delivery by each Investor of immediately available funds
in their proportionate amount of the Purchase Price as
indicated and set forth on the signature pages hereto;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of the
Closing Date;
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of the
Closing Date;
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and
sale of the Convertible Subordinated Debentures and the
Warrants, or shall have the availability of exemptions
therefrom;
(vi) the sale and issuance of the Convertible Subordinated
Debentures and the Warrants hereunder, and the proposed
issuance by the Company to the Investors of Conversion
Shares or Warrant Shares upon the conversion or exercise
thereof shall be legally permitted by all laws and
regulations to which the Investors and the Company are
subject and there shall be no ruling, judgment or writ of
any court prohibiting the transactions contemplated by
this Agreement;
(vii) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the SEC
(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 such Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets 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 the Principal Market, nor
shall a banking moratorium have been declared either by
the United States or New York
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State authorities, nor shall there 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 judgment of the Investors,
make it impracticable or inadvisable to purchase the
Convertible Subordinated Debentures;
(viii) delivery of the applicable original fully executed
Convertible Subordinated Debentures and Warrants;
(ix) delivery of an opinion of Xxxxxxx Coie LLP, counsel to the
Company, in the form of Exhibit C hereto;
(x) delivery of the Irrevocable Instructions to Transfer Agent
in the form attached hereto as Exhibit E; and
(xi) delivery of the Registration Rights Agreement.
Section 1.2. Warrants. At the Closing, the Company shall issue to each Investor
a Warrant to purchase up to a number of Warrant Shares equal to 15% of the
principal amount of the Convertible Subordinated Debenture purchased by such
Investor divided by the average of the 5 VWAPs occurring immediately prior to
the Closing Date (such average price, the "Warrant Base Price"). The exercise
price of the Warrants shall be equal to 110% of the Warrant Base Price. The
Warrants shall be exercisable for a period of 5 years beginning on their
issuance date. The shares of Common Stock underlying the Warrants shall be
registered for resale on the Registration Statement for resale by the Investors
pursuant to the Registration Rights Agreement.
Section 1.3. Liquidated Damages. The parties hereto acknowledge that with
respect to the delivery of the Conversion Shares, time is of the essence and the
Company shall be liable for the liquidated damages set forth in the Convertible
Subordinated Debentures. Additionally, the parties hereto acknowledge and agree
that the sums payable pursuant to this Agreement, the Registration Rights
Agreement and the Convertible Subordinated Debentures shall constitute
liquidated damages and not penalties. The parties further acknowledge that a
breach by either party of this Agreement or exhibits hereto, (a) the amount of
loss or damages likely to be incurred is incalculable or is difficult to
precisely estimate, (b) the amounts specified in such agreements bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure of the Company to timely cause the registration of the Registrable
Securities or to deliver stock certificates upon any conversion, and (c) the
parties are sophisticated businesses and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 2.1. Organization. The Investor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization.
Section 2.2. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Convertible Subordinated Debenture, the
Warrants, the Conversion Shares or the Warrant Shares to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold such securities for any minimum or other
specific term and reserves the right to dispose of the Conversion Shares and
Warrant Shares at any time in accordance with federal and state securities laws
applicable to such disposition, and in accordance with the terms set forth in
the Convertible Subordinated Debenture or Warrant. The Investor has no agreement
with any person to distribute any of the securities subject to this Agreement.
Section 2.3. Sophisticated Investor/Broker-Dealer. The Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and Investor
has such experience in business and financial matters that it has the capacity
to protect its own interests in connection with this transaction and is capable
of evaluating the merits and risks of an investment in the Convertible
Subordinated Debentures, the Warrants and the underlying Common Stock. The
Investor has been represented by counsel of its choice. The Investor
acknowledges that an investment in the Convertible Subordinated Debentures and
the Warrants and the underlying Common Stock is speculative and involves a high
degree of risk. The Investor is not a registered broker-dealer under Section 15
of the Exchange Act.
Section 2.4. Authority. This Agreement and each agreement attached as an exhibit
hereto which is required to be executed by the Investor has been duly authorized
and validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 2.5. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
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Section 2.6. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on the Investor or (a)
violate any provision of any indenture, instrument or agreement to which the
Investor is a party or is subject, or by which the Investor or any of its assets
is bound; (b) conflict with or constitute a material default thereunder; (c)
result in the creation or imposition of any lien pursuant to the terms of any
such indenture, instrument or agreement, or constitute a breach of any fiduciary
duty owed by the Investor to any third party; or (d) require the approval of any
third-party (which has not been obtained) pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which the Investor is
subject or to which any of its assets, operations or management may be subject.
Section 2.7. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents filed within the
last 12 months or otherwise deemed relevant by Investor. No such review or other
investigation by the Investor shall diminish the Investor's right to rely on the
representations and warranties of the Company or relieve the Company's
objections with respect thereto.
Section 2.8. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as set forth
in the SEC Documents or on the Disclosure Schedule prepared by the Company and
attached hereto:
Section 3.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of Nevada
and has all requisite corporate authority to own its properties and to carry on
its business as now being conducted. The Company is duly qualified and is in
good standing as a foreign corporation to do business in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 3.2. Authority. (a) The Company has the requisite corporate power and
corporate authority to conduct its business as now conducted, to enter into and
perform its obligations under this Agreement, the Registration Rights Agreement
and the Warrants, and to issue the
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Convertible Subordinated Debentures, the Conversion Shares, the Warrants and the
Warrant Shares pursuant to their respective terms, (b) the execution, issuance
and delivery of this Agreement, the Registration Rights Agreement, the
Convertible Subordinated Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (c) this Agreement, the Registration Rights Agreement, the
Warrants and the Convertible Subordinated Debentures have been duly executed and
delivered by the Company and at the Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the conversion of
the Convertible Subordinated Debentures and the exercise of the Warrants. The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of the Conversion Shares and Warrant Shares. The
Company further acknowledges that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Convertible Subordinated Debentures and
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
and the Convertible Subordinated Debentures, subject to Section 5.2 hereunder,
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company and notwithstanding the commencement of any case under 11 U.S.C. Section
101 et seq. (the "Bankruptcy Code"), the Company shall not seek judicial relief
from its obligations to convert the Convertible Subordinated Debentures or
exercise the Warrants except pursuant to the Bankruptcy Code. In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.
Section 362 in respect of the conversion of the Convertible Subordinated
Debentures and the exercise of the Warrants. The Company agrees, without cost or
expense to the Investors, to the fullest extent permitted by law, to take or
consent to any and all action necessary to effectuate relief under 11 U.S.C.
Section 362.
Section 3.3. Capitalization. As of November 30, 2001, the authorized capital
stock of the Company consists of (a) 50,000,000 shares of Common Stock of which
9,274,981 shares are issued and outstanding and there have been no additional
issuances since such date except pursuant to the Company's employee stock option
plan, and (b) 20 million shares of Preferred Stock of which 1,038,961 shares are
designated Series A Convertible Preferred Stock of which 519,481 are issued and
outstanding. There are no outstanding Capital Shares Equivalents nor any
agreements or understandings pursuant to which any Capital Shares Equivalents
may become outstanding. The Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable and have been issued pursuant to registration statements or valid
exemptions from registration under the Securities Act and all applicable state
"blue sky" laws.
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Section 3.4. Common Stock/Listing of Shares. The Company has registered its
Common Stock pursuant to Section 12(b) or (g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act, and the Company
is in compliance with all requirements for the continued listing or quotation of
its Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. The Company has not received any notice from any trading
market or exchange on which the Common stock has been listed to the effect that
the Company is not in compliance with the rules and regulations of such trading
market or exchange and that the Common Stock may be delisted from trading
thereon. Subject to compliance with Section 5.2 hereunder, the issuance and
delivery of the Convertible Subordinated Debentures, Conversion Shares, Warrants
and Warrant Shares does not violate any of the rules or regulations of such
trading market or exchange or require shareholder approval.
Section 3.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did 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,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto or (b) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements. The Company is eligible to use Form S-3 to register
for resale with the SEC the Conversion Shares and Warrant Shares based in part
upon the representations of the Investors in Section 2.3.
Section 3.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article II, the sale of the
Convertible Subordinated Debentures and the Conversion Shares, the Warrants and
Warrant Shares will not require registration under the
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Securities Act and/or any applicable state securities law. When validly
converted in accordance with the terms of the Convertible Subordinated
Debentures and purchased in accordance with the terms of the Warrants, the
Conversion Shares and Warrant Shares will be duly and validly issued, fully
paid, and non-assessable. Neither the sales of the Convertible Subordinated
Debentures, the Conversion Shares, the Warrants and Warrant Shares pursuant to,
nor the Company's performance of its obligations under, this Agreement, the
Registration Rights Agreement or the Convertible Subordinated Debentures and the
Warrants will (a) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Convertible Subordinated
Debentures, the Warrants or the Conversion Shares and Warrant Shares or, except
as contemplated herein or therein, any of the assets of the Company, or (b)
entitle the holders of Outstanding Capital Shares to preemptive or other rights
to subscribe for or acquire the Capital Shares or other securities of the
Company. The Convertible Subordinated Debentures, the Warrants and the
Conversion Shares and Warrant Shares, shall not subject the Investors to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 3.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (a) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Subordinated Debentures or the Warrants, or (b) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Convertible Subordinated Debentures or
the Conversion Shares and the Warrants and Warrant Shares, under the Securities
Act.
Section 3.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
interest upon the Convertible Subordinated Debentures, Warrants and the
Conversion Shares and Warrant Shares, do not and will not (a) result in a
violation of the Company's Articles of Incorporation or By-Laws or (b) conflict
with, or constitute a material default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument, or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not have, individually or in the
aggregate, a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not have a Material Adverse Effect. The Company is not required under any
federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement
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or issue and sell the Convertible Subordinated Debentures or the Warrants in
accordance with the terms hereof (other than any SEC or state securities filings
that may be required to be made by the Company subsequent to the Closing, or any
registration statement that may be filed pursuant hereto); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investors herein.
Section 3.9. No Material Adverse Change. Since the date of the financial
statements contained in the Company's most recently filed Form 10-Q or Form
10-K, no Material Adverse Effect has occurred or exists with respect to the
Company. No material supplier has given notice, oral or written, that it intends
to cease or reduce the volume of its business with the Company from historical
levels.
Section 3.10. No Undisclosed Events or Circumstances. Since the date of the
financial statements contained in the Company's most recently filed Form 10-Q or
Form 10-K, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under any applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in writing to the Investors.
Section 3.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options or in connection with certain acquisitions,
or pursuant to its discussion with the Investors in connection with the
transactions contemplated hereby, the Company has not issued, offered or sold
the Convertible Subordinated Debentures, the Warrants or any shares of Common
Stock (including for this purpose any securities of the same or a similar class
as the Convertible Subordinated Debentures, Warrants or Common Stock, or any
securities convertible into a exchangeable or exercisable for the Convertible
Subordinated Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, and the Company shall not
permit any of its directors, officers or affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
Person of the Convertible Subordinated Debentures or shares of Common Stock), so
as to make unavailable the exemption from Securities Act registration being
relied upon by the Company for the offer and sale to Investors of the
Convertible Subordinated Debentures (and the Conversion Shares) and the Warrants
(and the Warrant Shares) as contemplated by this Agreement.
Section 3.12. Litigation and Other Proceedings. There are no lawsuits or
proceedings pending or, to the knowledge of the Company, threatened, against the
Company or any subsidiary, nor has the Company received any written or oral
notice of any such action, suit, proceeding or investigation, which could
reasonably be expected to have a Material Adverse Effect. No judgment, order,
writ, injunction or decree or award has been issued by or, to the knowledge of
the Company, requested of any court, arbitrator or governmental agency which
could result in a Material Adverse Effect.
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Section 3.13. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance, as necessary to conduct
its business, with financially sound and reputable insurers that is adequate,
consistent with industry standards and the Company's historical claims
experience. The Company has not received notice from, and has no knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy currently in force.
Section 3.14. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns,
which it is required to file under applicable laws; all such Tax Returns
are true and accurate in all material respects and have been prepared in
compliance with all applicable laws except as could not reasonably be
expected to have a Material Adverse Effect; the Company has paid all
material Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld
and paid over to the appropriate taxing authorities all material Taxes
which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third parties; and since June
30, 2000, the charges, accruals and reserves for material Taxes with
respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are adequate to cover any
Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the
Company or any subsidiary is or may be subject to taxation by that
jurisdiction. There are, to the Company's knowledge, no foreign,
federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company or
any subsidiary; no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an audit
or other review has been received by the Company or any subsidiary from
any foreign, federal, state or local taxing authority. There are no
material unresolved questions or claims concerning the Company's Tax
liability.
(c) For purposes of this Section 3.14:
"Tax" or "Taxes" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage
or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on
minimum, estimated and other material taxes of any kind
whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
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"Tax Return" means any return, information report or
filing with respect to Taxes, including any schedules
attached thereto and including any amendment thereof.
Section 3.15. Property. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such 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 to the Company's knowledge any real
property and buildings held under lease by the Company as tenant are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made of such
property and buildings by the Company. The Company's present facilities are
adequate for the Company's reasonably foreseeable needs.
Section 3.16. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, neither the Company
nor any of its subsidiaries is infringing upon or in conflict with any right of
any other person with respect to any Intangibles. No adverse claims have been
asserted by any person as to the ownership or use of any Intangibles and the
Company has no knowledge of any basis for such claim.
Section 3.17. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(a) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization; (b)
the recorded accounting of the Company's consolidated assets is compared with
existing assets at regular intervals; (c) access to the Company's consolidated
assets is permitted only in accordance with management's authorization; and (d)
all transactions to which the Company or any subsidiary is a party or by which
its properties are bound are recorded as necessary to permit preparation of the
financial statements of the Company in accordance with U.S. generally accepted
accounting principles.
Section 3.18. Payments and Contributions. Neither the Company, any subsidiary,
nor, to the Company's knowledge, any of its directors, officers or other
employees has (a) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (b) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (c) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (d) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
11
Section 3.19. Permits and Licenses. The Company holds all necessary permits and
licenses to conduct its business as currently conducted, except where the
failure to possess such permits or licenses could not, individually, or in the
aggregate, have a Material Adverse Effect. All of such permits and licenses are
in full force and effect and the Company is not in material violation of any
thereof.
Section 3.20. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
instrument or certificate furnished by the Company to the Investors pursuant to
this Agreement, when taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Section 3.21. Related Party Transactions. The Company is not a party to any
agreement or transaction with any of its officers, directors, greater than 5%
shareholders or any "Affiliate" (as defined in SEC Rule 405) of any of said
persons that would require disclosure under Item 404 of Regulation S-K that was
not disclosed on the Company's most recent annual report on Form 10-K for its
most recently ended fiscal year or that will not be disclosed in the Company's
Form 10-K for its current fiscal year.
Section 3.22. 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.
ARTICLE IV
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Limitations on Short Sales. The Investor agrees that it will not enter into any
Short Sales (as hereinafter defined) from the period commencing on the Closing
Date and ending on the date which all of the Convertible Subordinated Debenture
has been converted and all of the Warrant has been exercised and such Conversion
Shares and Warrant Shares are covered by the Registration Statement. For
purposes of this Section 4.1, a "Short Sale" by the Investor shall mean a sale
of Common Stock by the Investor that is marked as a short sale and that is made
at a time when there is no equivalent offsetting long position in Common Stock
held by the Investor. For purposes of determining whether there is an equivalent
offsetting long position in Common Stock held by the Investor, Conversion Shares
that have not yet been converted pursuant to the Convertible Subordinated
Debenture and Warrant Shares that have not yet been issued upon exercise of the
Warrant shall be deemed to be held long by the Investor, and the amount of
shares of Common Stock held in a long position shall be the number of Conversion
Shares issuable pursuant to the Convertible Subordinated Debenture assuming such
holder converted all the outstanding principal amount of the Convertible
Subordinated Debenture on such date, and (ii) with respect to Warrant Shares,
the number of Warrant Shares issuable pursuant to the Warrant. To the extent
that the foregoing sentence permits short sales, then such transactions
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may only be effected in accordance with Rule 10a-1 under the 1934 Act, and in
any case such transactions would not create any daily low sales prices for the
Common Stock.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
with the terms thereof.
Section 5.2. Reservation of Common Stock/Shareholder Approval. On any date
hereafter, in the event the number of Shares reserved, as to any Investor, is
less than 200% of the Conversion Shares necessary to convert all of such
Investor's Convertible Subordinated Debenture, based on the then applicable
Mandatory Conversion Price (as defined in the Convertible Subordinated
Debenture) assuming conversion of the entire outstanding principal amount of
such Convertible Subordinated Debenture at such time, and Warrant Shares to
exercise all of such Investor's Warrant (the "Trigger Amount"), then the Company
shall have seven (7) calendar days from such date to increase the number of
shares reserved as to such Investor above the Trigger Amount, unless to do so
the Company must authorize additional shares, in which case the Company shall
have sixty (60) calendar days from such date to increase the number of shares
authorized and reserved as to such Investor above the Trigger Amount. The
Company agrees to present a proposal for stockholder approval to permit the
Company to issue a number of Conversion Shares which is in excess of 19.99% of
the number of the Company's issued and outstanding shares of Common Stock on the
Closing Date ("NASD Limit") at a special meeting of the stockholders to be held
within sixty (60) calendar days of the date the Company became aware that the
number of Conversion Shares becomes greater than 125% of the NASD Limit, with
the recommendation of the Board of Directors that such proposal be approved,
unless at the date of such meeting, less than 2% of the principal amount of the
Convertible Subordinated Debentures remain issued and outstanding, in which
event the Company may withdraw such proposal from a vote by the stockholders.
Until the Company obtains shareholder approval to permit the Company to issue a
number of Conversion Shares which is in excess of 19.99% of the number of the
Company's issued and outstanding shares of Common Stock on the Closing Date, a
Convertible Subordinated Debenture shall not be convertible into that number of
Conversion Shares which will cause the Company to issue to an Investor more than
such Investor's pro-rata portion (in proportion to their respective initial
purchases of securities pursuant to this Agreement) of 19.99% of the number of
the Company's issued and outstanding shares of Common Stock on the first Closing
Date.
Section 5.3. Listing of Common Stock. The Company hereby agrees to use its
reasonable best efforts to maintain the listing of the Common Stock on a
Principal Market, and as soon as reasonably practicable following the Closing,
to apply to list the Conversion Shares and the Warrant Shares on the Principal
Market and use reasonable best efforts to get such shares listed. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Principal Market, it will include in such application the Conversion
Shares and the Warrant
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Shares, and will take such other action as is necessary or desirable in the
opinion of the Investors to cause the Conversion Shares and Warrant Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action to continue the listing and trading of its Common Stock on a
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
Section 5.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Investors have
disposed of all of their Registrable Securities.
Section 5.5. Legends. The certificates evidencing the Securities shall be free
of legends, except as set forth in Article VIII. If the Transfer Agent or the
Investor's broker-dealer requires an opinion of counsel from the Company's
counsel pursuant to the Instructions to Transfer Agent attached hereto to issue
new certificates free of the Securities Legend (as defined in Section 8.1) to an
Investor and Company's counsel fails to deliver such opinion to the Transfer
Agent within 2 Trading Days from receipt by Company's counsel of such a request
from the Transfer Agent or the Investor's broker-dealer, then the Company will
pay such Investor, pro rata on a weekly basis, as liquidated damages for such
failure and not as a penalty, 10% per week of the market value of the Common
Stock which would be issuable upon conversion of such Investor's Convertible
Subordinated Debenture upon the date of payment of such liquidated damages for
each week until such opinion is provided, notwithstanding the fact that the
Company has instructed the Transfer Agent to accept such an opinion from such
Investor's counsel.
Section 5.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 5.7. Issuance of Convertible Subordinated Debentures and Warrants. The
sale of the Convertible Subordinated Debentures, the Warrants and the issuance
of the Conversion Shares upon conversion and Warrant Shares upon the exercise of
the Warrants of the Convertible Subordinated Debentures shall be made in
accordance with the provisions and requirements of Section 4(2), 4(6) or
Regulation D and any applicable state securities law based in part on the
representations of the Investors made herein. The Company shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Convertible
Subordinated Debentures, the Warrants and the issuance of the Conversion Shares
upon conversion and Warrants shares upon exercise to the Investors. The Company
shall make any necessary SEC and "blue sky" filings as may be required to be
made by the Company in connection with the sale of the Securities to the
Investors, and shall provide a copy thereof to the Investors promptly after such
filing.
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Section 5.8. Mandatory Redemption. Subject to the terms and conditions set forth
in the Convertible Subordinated Debentures, commencing on the first Trading Day
after the later of (i) the 180th calendar day after the Closing Date, and (ii)
the first Trading Day following the 30 calendar day period after the Effective
Date and continuing on the first Trading Day after each 30 calendar day period
(a "Payment Period") thereafter (each such date, a "Mandatory Redemption Date"
and such redemption a "Mandatory Redemption"), the Company shall redeem, in the
aggregate, the greater of (i) $300,000 of the then outstanding principal balance
of the Convertible Subordinated Debentures as to the first fifteen (15) Payment
Periods and $500,000 (or such lesser amount if all outstanding principal amounts
of the Convertible Subordinated Debentures are being redeemed hereunder for such
Payment Period) of the then outstanding principal balance of the Convertible
Subordinated Debentures as to any Payment Periods thereafter, and (ii) a
pro-rata portion of the then outstanding principal balance of the Convertible
Subordinated Debentures (based on the number of full months remaining until the
Maturity Date and proportionate to the schedule in sub-section (i) above) at a
cash price equal to 100% of the principal amount of the Convertible Subordinated
Debentures being redeemed (such amount so redeemed, the "Mandatory Redemption
Amount").
Section 5.9. Pro-Rata Redemption/Forced Conversion. Upon any redemption or
forced conversion of any of the Convertible Subordinated Debentures, the Company
shall offer such redemption or forced conversion pro-rata among all Investors in
proportion to their respective current holdings of such securities pursuant to
this Agreement, except that, a redemption pursuant to Section 5.8 shall be in
proportion to their respective initial purchases of the Convertible Subordinated
Debentures, increased accordingly in the event any Convertible Subordinated
Debentures are no longer outstanding.
Section 5.10. Limitation on Future Financing. The Company agrees that, until 6
months following the Effective Date, it will not enter into any other sale of
its Capital Shares or other Capital Shares Equivalents at a discount to the
then-current market price (or securities which may be converted, exchanged,
reset or otherwise at a future discount to market price), except that, after the
Effective Date, the Company shall be permitted to enter into a fixed price sale
of its Capital Shares or Capital Shares Equivalents at a discount to the
then-current market price provided the securities may not be converted,
exchanged, reset or otherwise at a later date based on a variable market price.
The foregoing shall not prevent or limit the Company from granting equity
incentive awards pursuant to equity incentive and stock option plans approved by
the Company's Board of Directors or selling securities purchased pursuant to the
Company's Employee Stock Purchase Plan or engaging in any sale of securities (i)
pursuant to the exercise of options granted or to be granted under an employee
benefit plan which plan has been approved by the Company's Board of Directors,
(ii) pursuant to any compensatory plan for a full-time employee or key
consultant, (iii) in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise money, (iv)
in a registered public offering by the Company which is underwritten by one or
more established investment banks (not including an equity line type financing),
or (v) with the prior written approval of a majority in interest of the
Investors, which will not be unreasonably withheld.
15
Section 5.11. Redemption of Series A Convertible Preferred Stock. On the
earliest possible date hereafter, but in no even later than February 15, 2002,
the Company shall have exercised its right to redeem all of the Company's
outstanding Series A Convertible Preferred Stock, subject to the Company's
Articles of Incorporation, as amended and restated, to Nevada corporate law and
such preferred stockholders right to convert thereunder.
Section 5.12. Redemption of Stock Pursuant to Company's Articles of
Incorporation. The Company will not redeem any of the Conversion Shares or
Warrant Shares pursuant to Article IX of its Amended and Restated Articles of
Incorporation unless it is required to do so by the Nevada Gaming Commission or
any other governmental agency or, in the good faith judgment of the Board of
Directors of the Company, a failure to do so would risk disciplinary action
against the Company by the Nevada Gaming Commission or any other governmental
agency.
ARTICLE VI
SURVIVAL; INDEMNIFICATION
Section 6.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby until the date the
applicable statute of limitations have run. In the event of a breach or
violation of any of such representations, warranties or covenants, the party to
whom such representations, warranties or covenants have been made shall have all
rights and remedies for such breach or violation available to it under the
provisions of this Agreement, irrespective of any investigation made by or on
behalf of such party on or prior to the Closing Date, unless such party had
actual knowledge of such breach or violation prior to the Closing Date.
Section 6.2. Indemnity.
(a) The Company hereby agrees to indemnify and hold harmless
the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages arising from any
claims by third parties, and agrees to reimburse the Investor
Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or
in connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained
in this Agreement, the annexes, schedules or exhibits
hereto or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this
Agreement; or
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(ii) any failure by the Company to perform in any material
respect any of its material covenants, agreements,
undertakings or obligations set forth in this Agreement,
the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of
them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by this
Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their
respective officers, directors, partners and members (collectively, the
"Company Indemnitees"), from and against any and all Damages arising
from any claims by third parties, and agrees to reimburse the Company
Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or
in connection with any misrepresentation, omission of fact, or breach of
any of the Investor's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Investor
pursuant to this Agreement. Notwithstanding anything to the contrary
herein, an Investor shall be liable under this Section 6.2(b) for only
that amount as does not exceed the net proceeds to such Investor as a
result of the sale of the Registrable Securities pursuant to the
Registration Statement.
Section 6.3. Notice. Promptly after receipt by any party hereto seeking
indemnification pursuant to Section 6.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
6.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. If the Indemnifying Party so elects or at the request of an Indemnified
Party, the Indemnifying Party will assume the defense of such Claim, including
the employment of counsel reasonably satisfactory to such Indemnified Party and
the payment of all fees and expenses of such counsel. Notwithstanding the
assumption of the defense of any Claim by the Indemnifying Party, the
Indemnified Party shall have the right to employ separate legal counsel and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (a) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (b) the
Indemnified Party reasonably shall have concluded that representation of the
Indemnified Party and the Indemnifying Party by the same legal counsel would not
be appropriate due to actual or, as reasonably determined by legal counsel to
the Indemnified Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be legal
17
defenses available to the Indemnified Party that are in addition to or disparate
from those available to the Indemnifying Party, or (c) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (a), (b) or (c)
above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
All fees and expenses of the Indemnified Party (including reasonable
costs of defense and investigation in a manner not inconsistent with this
Section and all reasonable attorneys' fees and expenses) shall be paid to the
Indemnified Party, as incurred, within ten (10) Trading Days of written notice
thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
Section 6.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnifying Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or in accordance with Article IX. Judgment upon any award
rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
ARTICLE VII
DUE DILIGENCE REVIEW
Section 7.1. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public
information to the Investors, advisors to or representatives of the
Investors unless prior to disclosure of such information the Company
identifies such information as being non-public information and provides
the Investors, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. Other
than disclosure of a portion of any comment letters received from the
SEC staff with respect to the Registration Statement that pertain
specifically to this transaction or the selling shareholders and their
plan of distribution, the Company may, as a condition to disclosing
18
any non-public information hereunder, require the Investors' advisors
and representatives to enter into a confidentiality agreement in form
and content reasonably satisfactory to the Company and the Investors.
(b) The Company will promptly notify the advisors and
representatives of the Investors and, if any, underwriters, of any event
or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware,
constituting material non-public information (whether or not requested
of the Company specifically or generally during the course of due
diligence by such persons or entities), which, if not disclosed in the
prospectus included in the Registration Statement, would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein
in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.1 shall be construed to mean that
persons or entities other than the Investors may not obtain non-public
information in the course of conducting due diligence on behalf of the
Investors and nothing herein shall prevent any such persons or entities
from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE VIII
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 8.1. Legends.
(a) Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent (the "Securities Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT, AS AMENDED, OR ANY OTHER APPLICABLE
SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR ACRES GAMING INCORPORATED SHALL
HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
19
(b) Unless otherwise provided below, each certificate representing
Registrable Securities will bear the following legends or their equivalent (the
"Notice Legends"):
UPON WRITTEN REQUEST, THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER,
WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, PREFERENCE,
LIMITATIONS AND RELATIVE RIGHTS APPLICABLE TO THE SHARES OF EACH CLASS
OF STOCK AUTHORIZED TO BE ISSUED AND, WITH RESPECT TO ANY PREFERRED OR
SPECIAL CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE IN SERIES,
THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS FOR THE SHARES OF
EACH SUCH SERIES, SO FAR AS THE SAME HAVE BEEN FIXED AND DETERMINED, AND
THE AUTHORITY OF THE BOARD OF DIRECTORS TO FIX AND DETERMINE THE
RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
REDEMPTION BY THE COMPANY IN ACCORDANCE WITH ARTICLE IX OF THE COMPANY'S
ARTICLES OF INCORPORATION.
Section 8.2. Removal of Legends. During any periods following the Effective Date
that the Registration Statement is effective, or otherwise in accordance with
the Registration Rights Agreement, the shares of Common Stock issued hereunder
shall not bear any Securities Legend and shall otherwise be freely transferable.
In the event the Company fails to deliver or cause its transfer agent to deliver
such shares to an Investor free of any Securities Legend or remove any such
legend from already issued shares of Common Stock, such Investor shall be
entitled to, in addition to any other rights hereunder or in the Convertible
Subordinated Debentures, the liquidated damages for late delivery of shares as
set forth in the Convertible Subordinated Debentures.
Section 8.3. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit E hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be. The Company warrants that no instruction other than the
irrevocable transfer agent instructions referred to in this section shall be
given by the Company to the Company's transfer agent. After the Effective Date,
in lieu of delivering physical certificates representing the Common Stock
issuable upon the conversion of, or in lieu of interest payments on, the
Convertible Subordinated Debentures, the Company shall cause its transfer agent
to electronically transmit the Conversion Shares by crediting the account of the
Investor's prime broker with the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program through its Deposit Withdrawal Agent Commission
("DWAC") system no later than the applicable date of delivery.
20
Section 8.4. No Other Legend or Stock Transfer Restrictions. No legend other
than those specified in Section 8.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VIII. The Company acknowledges
that a breach by it of its obligation to remove any restrictive legends under
this Article VIII will cause irreparable harm to the Investors by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligation
hereunder will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provision under this Article VIII, that the
Investors shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
Section 8.5. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock.
Section 8.6. Rule 144. Subject to the applicable securities laws, for the
purpose of calculating the holding period of the Shares under Rule 144, the
Conversion Shares and the Warrant Shares shall be deemed to have been acquired
on the Closing Date.
ARTICLE IX
CHOICE OF LAW
Section 9.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
in New York by persons domiciled in New York City and without regard to its
principles of conflicts of laws. The Company and each of the Investors agree to
submit themselves to the in personam jurisdiction of the state and federal
courts situated within the Southern District of the State of New York with
regard to any controversy arising out of or relating to this Agreement. Any
party shall be entitled to obtain injunctive relief from a court in any case
where such relief is available, and the prevailing party in such injunctive
action shall be entitled to its reasonable attorneys' fees in connection
therewith. The non-prevailing party to any dispute hereunder shall pay the
expenses of the prevailing party, including reasonable attorneys' fees, in
connection with any such dispute.
Section 9.2. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement or any of the exhibits hereto were not performed in accordance with
their specific terms or were otherwise breached, notwithstanding any reasons the
Company may have to the contrary in the future, including claims of solvency or
that the Investor is not put at risk absent performance by the Company. It is
accordingly agreed that the Investors shall be entitled to an injunction or
injunctions to prevent or cure material breaches of the provisions of this
Agreement and to
21
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity. The prevailing party in such injunctive action shall be entitled to its
reasonable attorneys' fees in connection with any such specific performance.
ARTICLE X
ASSIGNMENT
Section 10.1. Assignment. Neither this Agreement nor any rights of the Company
hereunder may be assigned by the Company to any other person. The provisions of
this Agreement shall inure to the benefit of, and be enforceable by, any
permitted transferee of any of the Convertible Subordinated Debentures and
Warrants purchased or acquired by any Investor hereunder with respect to the
Convertible Subordinated Debentures and Warrants held by such person.
ARTICLE XI
NOTICES
Section 11.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (a) hand delivered, (b) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(c) delivered by reputable air courier service with charges prepaid, or (d)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: 0000 Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: Chief Financial Officer
Tel: (000)-000-0000
Fax: (000) 000-0000
With copies to: Xxxxxxx Coie LLP
(which shall not constitute 0000 X.X. Xxxxx Xxxxxx, Xxxxx 0000
notice to the Company) Xxxxxxxx, XX 00000-0000
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Attn: Xxxxxxx X. Xxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
if to the Investors: As set forth on the signature pages hereto
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 11.1 by giving written notice of
such changed address or facsimile number to the other party hereto as provided
in this Section 11.1.
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ARTICLE XII
MISCELLANEOUS
Section 12.1. Counterparts/Facsimile/Amendments. This Agreement may be executed
in multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. Except for the
Convertible Subordinated Debentures or Warrants or as otherwise stated herein,
in lieu of the original documents, a facsimile transmission or copy of the
original documents shall be as effective and enforceable as the original. This
Agreement may be amended only by a writing executed by a majority in interest of
the Convertible Subordinated Debentures.
Section 12.2. Entire Agreement. This Agreement, the agreements attached as
exhibits hereto, which include the Convertible Subordinated Debentures, the
Warrants and the Registration Rights Agreement, set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof.
Section 12.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 12.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 12.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 12.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg Financial, L.P. or any successor thereto. The written mutual consent
of the Investors and the Company shall be required to employ any other reporting
entity.
Section 12.7. Replacement of Certificates. Upon (a) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Subordinated Debentures
or any Conversion Shares or Warrants or any Warrant Shares and (b) in the case
of any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
or as may
24
be required by the Company's Transfer Agent or (c) in the case of any such
mutilation, on surrender and cancellation of such certificate, the Company at
its expense will execute and deliver, in lieu thereof, a new certificate of like
tenor.
Section 12.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of the
Investors; provided, however, that the Company shall pay $25,000 for the legal,
due diligence and administrative fees, expenses and disbursements of the
Investors, which, net of $12,500 of which the parties acknowledge has already
been advanced to the Investors by the Company, shall be deducted from the amount
payable by the Investors at the Closing.
Section 12.9. Finder's and Broker's Fees. Each of the parties hereto represents
that it has had no dealings in connection with this transaction with any finder
or broker who will demand payment of any fee or commission from the other party
except for the fees payable to Xxxx Capital Partners, LLC which fees shall be
paid by the Company out of the proceeds of the sale of the Convertible
Subordinated Debentures and Warrants to the Company. The Company on the one
hand, and the Investors, severally and not jointly, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 12.10. Publicity. The Company agrees that it will not issue any press
release or other public announcement, except as required by law, of the
transactions contemplated by this Agreement without the prior consent of the
Investors, which shall not be unreasonably withheld nor delayed by more than two
(2) Trading Days from their receipt of such proposed release. No release shall
name the Investors or any of their respective affiliates, representatives,
members, agents, associates, employees, consultants, companies, subsidiaries,
businesses and/or entities or agents without their express written consent.
ARTICLE XIII
CERTAIN DEFINITIONS
Section 13.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 13.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
25
Section 13.3. "Closing" shall mean the closing of the purchase and sale of the
Convertible Subordinated Debentures and Warrants pursuant to Section 1.1.
Section 13.4. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 1.1(b) hereto) and the
Closing shall have occurred.
Section 13.5. "Common Stock" shall mean the Company's common stock, par value
$.01 per share.
Section 13.6. "Conversion Shares" shall mean the shares of Common Stock issuable
upon conversion of the Convertible Subordinated Debentures and any shares
issuable as interest upon the Convertible Subordinated Debentures.
Section 13.7. "Convertible Subordinated Debenture(s)" shall mean the 6%
Convertible Subordinated Debenture(s) issued hereunder and due 24 months from
their date of issuance, unless otherwise provided for therein, in the form of
Exhibit A hereto.
Section 13.8. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 13.9. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 13.10. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 13.11. "Legend" shall mean the legend set forth in Section 8.1.
Section 13.12. "Mandatory Redemption" shall have the meaning ascribed to such
term in Section 5.8.
Section 13.13. "Mandatory Redemption Amount" shall have the meaning ascribed to
such term in Section 5.8.
Section 13.14. "Mandatory Redemption Date" shall have the meaning ascribed to
such term in Section 5.8.
Section 13.15. "Material Adverse Effect" shall mean any effect on the business,
operations, properties or financial condition of the Company that is material
and adverse to the Company and its subsidiaries and affiliates, and/or any
condition, circumstance, or situation that would prohibit or otherwise interfere
with the ability of the Company to timely enter into and perform
26
any of its obligations under this Agreement, the Registration Rights Agreement,
the Convertible Subordinated Debentures or the Warrants in any material respect.
Section 13.16. "Maturity Date" shall mean the date on which the entire
outstanding principal amount and any accrued but unpaid interest of the
Convertible Subordinated Debentures are due and payable as set forth in the
Convertible Subordinated Debenture.
Section 13.17. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 13.18. "Person" shall mean an individual, a corporation, a partnership,
a limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 13.19. "Principal Market" shall initially mean the Nasdaq Small-Cap
Market and shall also include the NASDAQ National Market, the American Stock
Exchange and the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock, based upon share volume.
Section 13.20. "Purchase Price" shall mean the face principal amount of the
Convertible Subordinated Debentures.
Section 13.21. "Registrable Securities" shall mean the Warrant Shares and the
Conversion Shares until the earlier of the date that (i) the Registration
Statement has been declared effective by the SEC, and all Conversion Shares and
Warrant Shares have been disposed of pursuant to the Registration Statement,
(ii) all Conversion Shares and Warrant Shares have been sold under circumstances
under which all of the applicable conditions of Rule 144 (or any similar
provision then in force) under the Securities Act ("Rule 144") are met, (iii)
all Conversion Shares and Warrant Shares have been otherwise transferred to
holders who may trade such shares without restriction under the Securities Act,
and the Company has delivered a new certificate or other evidence of ownership
for such securities not bearing a restrictive legend or (iv) such time as, in
the opinion of counsel to the Company, all Conversion Shares and Warrant Shares
may be sold without any time, volume or manner limitations pursuant to Rule
144(k) (or any similar provision then in effect) under the Securities Act. In
the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be deemed to be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Agreement or the Registration Rights Agreement.
27
Section 13.22. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors, on
the date hereof in the form annexed hereto as Exhibit B.
Section 13.23. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investors of the Registrable Securities under
the Securities Act.
Section 13.24. "Regulation D" shall have the meaning set forth in the recitals
of this Agreement.
Section 13.25. "SEC" shall mean the Securities and Exchange Commission.
Section 13.26. "SEC Documents" shall mean the Company's latest Form 10-K as of
the time in question, all Forms 10-Q and 8-K filed thereafter, all registration
statements filed as of the time in question, and the Proxy Statement for its
latest fiscal year as of the time in question until such time as the Company no
longer has an obligation to maintain the effectiveness of a Registration
Statement as set forth in the Registration Rights Agreement.
Section 13.27. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 13.28. "Securities Act" shall have the meaning as set forth in the
recitals of this Agreement.
Section 13.29. "Shares" shall have the meaning set forth in the definition of
"Outstanding" herein.
Section 13.30. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 13.31. "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. ET to 4:02 p.m. Eastern
Time) using the VAP function on the date in question or if there is no such
price on such date, then the VWAP on the Principal Market on the date nearest
preceding such date, or (b) if the shares of Common Stock are not then listed or
quoted on the Principal Market, the closing sales price for a share of Common
Stock in the OTC Bulletin Board, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation
28
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period, as determined in good faith by the board of
directors of the Company and the holders of a majority in interest of the
principal amount of Convertible Subordinated Debentures then outstanding, or (d)
if the shares of Common Stock are not then publicly traded the fair market value
of a share of Common Stock as determined by an appraiser selected in good faith
by the board of directors of the Company and the holders of a majority in
interest of the principal amount of Convertible Subordinated Debentures then
outstanding.
Section 13.32. "Warrant(s)" shall mean the Warrant(s) set forth in Section 1.2,
substantially in the form of Exhibit D hereto, to be issued to the Investors
pro-rata hereunder.
Section 13.33. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
***************************
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[SIGNATURE PAGE OF CONVERTIBLE SUBORDINATED DEBENTURES AND
WARRANTS PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
ACRES GAMING INCORPORATED
By: /s/ Xxxxxxx Xxxxxxxxx
------------------------------------
Xxxxxxx Xxxxxxxxx, Senior
Vice-President, CFO
INVESTORS:
Address for Notice: RIVERVIEW GROUP, LLC
-------------------
000 0xx Xxxxxx
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 By: /s/ Xxxxx Xxxxxx
------------------------------------
Attn: Manager Name: Xxxxx Xxxxxx
Fax: (000) 000-0000 Title: Chief Operating Officer
$2,500,000 principal amount and _________ Warrant Shares.
Address for Notice: OMICRON PARTNERS, LP
------------------- By: Omicron Capital L.P., as subadvisor
c/o Omicron Capital L.P. By: Omicron Capital Inc., it general
000 X. 00xx Xxxxxx partner
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxx By: /s/ Xxxxxxx Xxxxxx
Fax: (000) 000-0000 ------------------------------------
Xxxxxxx Xxxxxx, President
$1,000,000 principal amount and _________ Warrant Shares.
Address for Notice: DEEPHAVEN PRIVATE
------------------- PLACEMENT TRADING LTD.
c/o Deephaven Capital
Management LLC
000 Xxxxxxxx Xxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx By: /s/ Xxxxx Xxxxxxxxx
Fax: (000) 000-0000 ------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Director Private Placement Trading
$1,500,000 principal amount and _________ Warrant Shares.
30
