Document:

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                                                                    EXHIBIT 10.2
                                                                  EXECUTION COPY

                          SECURITIES PURCHASE AGREEMENT

          SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of February
__, 2006, by and among Lakes Entertainment, Inc., a Minnesota corporation, with
headquarters located at 130 Cheshire Lane, Suite 101, Minnetonka, MN 55305 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").

          WHEREAS:

          A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.

          B. The Company has authorized a new series of preferred shares of the
Company designated as Series A Convertible Preferred Stock, the terms of which
are set forth in the certificate of designations for such series of convertible
preferred shares (the "CERTIFICATE OF DESIGNATIONS") in the form attached hereto
as Exhibit A (together with any convertible preferred shares issued in
replacement thereof in accordance with the terms thereof, the "PREFERRED
SHARES"), which Preferred Shares shall be convertible into shares of the
Company's Common Stock, par value $0.01 per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), in accordance with the terms of the
Certificate of Designations.

          C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, at the Initial Closing (as
defined in Section 1(a)(i) below), a warrant, in substantially the form attached
hereto as Exhibit B (collectively, the "WARRANTS"), to acquire that number of
shares of Common Stock set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers (as exercised, collectively, the "WARRANT SHARES"). The
aggregate number of Warrant Shares for all Buyers shall be 4,457,751.

          D. Each Buyer wishes to purchase, upon the satisfaction of certain
conditions, and the Company wishes to sell, upon the terms and conditions stated
in this Agreement, at the Additional Closing (as defined in Section 1(a)(ii)
below), that aggregate number of Preferred Shares set forth opposite such
Buyer's name in column (3) on the Schedule of Buyers (which aggregate number for
all Buyers shall be 4,457,751)

          E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company will agree to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement) under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.

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          F. The Preferred Shares, the Conversion Shares, the Warrants and the
Warrant Shares collectively are referred to herein as the "SECURITIES".

          G. Contemporaneously herewith, the Company and certain of its
subsidiaries entered into financing arrangements (the "FINANCING FACILITY") with
the Buyers, as secured lenders, and as more fully set forth in a financing
agreement (the "FINANCING AGREEMENT"), by and among the Company and its
subsidiaries (as defined in the Financing Agreement), as borrowers
(collectively, the "BORROWERS"), PLKS Funding, LLC, as administrative agent and
collateral agent (in such capacity the "AGENT"), and the Buyers, as lenders, and
certain other security and ancillary documents related thereto (the "SECURITY
DOCUMENTS"), pursuant to which, subject to the satisfaction of certain borrowing
conditions, the Buyers made available to the Borrowers a $50 million secured
multiple-draw term loan (the "FINANCING").

          NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

          1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.

               (a) Purchase of Preferred Shares and Warrants.

                    (i) Subject to the satisfaction (or waiver) of the
     conditions set forth in Sections 6(a) and 7(a) below, the Company shall
     issue and sell to each Buyer, and each Buyer severally, but not jointly,
     agrees to purchase from the Company on the Initial Closing Date (as defined
     below) (the "INITIAL CLOSING"), Warrants to acquire that number of Warrant
     Shares as is set forth opposite such Buyer's name in column (4) on the
     Schedule of Buyers.

                    (ii) Subject to the satisfaction (or waiver) of the
     conditions set forth in Sections 6(b) and 7(b) below, the Company shall
     issue and sell to each Buyer, and each Buyer severally, but not jointly,
     agrees to purchase from the Company on the Additional Closing Date (as
     defined below) (the "ADDITIONAL CLOSING"), the number of Preferred Shares,
     as is set forth opposite such Buyer's name in column (3) on the Schedule of
     Buyers.

               (b) Initial Closing. The date and time of the Initial Closing
(the "INITIAL CLOSING DATE") shall be 10:00 a.m., New York City time, on the
date hereof (or such later date as is mutually agreed to by the Company and each
Buyer) after notification of satisfaction (or waiver) of the conditions to the
Initial Closing set forth in Sections 6(a) and 7(a) below at the offices of
Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.

               (c) Additional Closing Date. The date and time of the Additional
Closing (the "ADDITIONAL CLOSING DATE") shall be 10:00 a.m., New York City time,
on the second Business Day (or such later date as is mutually agreed to by the
Company and each Buyer) after the satisfaction (or waiver) of the conditions to
the Additional Closing set forth in Sections 6(b) and 7(b) below at the offices
of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.

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               (d) Purchase Price.

                    (i) The aggregate purchase price for the Warrants to be
     purchased by each such Buyer at the Closing (the "INITIAL PURCHASE PRICE")
     shall be $10.00.

                    (ii) The aggregate purchase price for the Preferred Shares
     to be purchased by each such Buyer at the Closing (the "ADDITIONAL PURCHASE
     PRICE", and together with the Initial Purchase Price, the "PURCHASE PRICE")
     shall be $44,577.51.

                    (iii) The Buyers and the Company agree that the Financing,
     the Preferred Shares and the Warrants constitute an "investment unit" for
     purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, as
     amended (the "CODE"). On the Additional Closing Date, PLKS Holdings, LLC
     ("PRENTICE") and the Company will determine the allocation of the issue
     price of such investment unit between the Financing, the Preferred Shares
     and the Warrants in accordance with Section 1273(c)(2) of the Code and
     Treasury Regulation Section 1.1273-2(h), and neither the Buyers nor the
     Company shall take any position inconsistent with such allocation in any
     tax return or in any judicial or administrative proceeding in respect of
     taxes.

               (e) Form of Payment.

                    (i) On the Initial Closing Date, each Buyer shall pay its
     portion of the Initial Purchase Price to the Company for the Warrants to be
     issued and sold to such Buyer at the Initial Closing and (B) the Company
     shall deliver to each Buyer the Warrants (exercisable for the number of
     shares of Common Stock as is set forth opposite such Buyer's name in column
     (4) on the Schedule of Buyers), each duly executed on behalf of the Company
     and registered in the name of such Buyer or its designee.

                    (ii) On the Additional Closing Date, (A) each Buyer shall
     pay its portion of the Additional Purchase Price to the Company for the
     Preferred Shares to be issued and sold to such Buyer at the Additional
     Closing and (B) the Company shall deliver to each Buyer the Preferred
     Shares (in such denominations as is set forth opposite such Buyer's name in
     column (3) on the Schedule of Buyers), each duly executed on behalf of the
     Company and registered in the name of such Buyer or its designee.

          2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and
warrants with respect to only itself that:

               (a) No Sale or Distribution. Such Buyer is acquiring the
Preferred Shares and the Warrants, and upon conversion of the Preferred Shares
and exercise of the Warrants (other than pursuant to a Cashless Exercise (as
defined in the Warrants)) will acquire the Conversion Shares issuable upon
conversion of the Preferred Shares and the Warrant Shares issuable upon exercise
of the Warrants, for its own account and not with a view towards, or for resale
in connection with, the sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term

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and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities. For
purposes hereof, "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

               (b) Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D and has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that the Buyer
is capable of evaluating the merits and risks of its investment in the Company
and has the capacity to protect its own interests.

               (c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

               (d) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk and is able to afford a complete loss of such investment.
Such Buyer has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Securities.

               (e) Experience. The Buyer has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its investment in the Company and has the capacity to protect its own
interests. The Buyer acknowledges that investment in the Securities is a
speculative risk. The Buyer is able to fend for itself in the transactions
contemplated by this Agreement, can bear the economic risk of its investment in
the Securities (including possible complete loss of such investment) for an
indefinite period of time, and has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the investment in the Securities. The Buyer understands that nothing in this
Agreement or any other materials presented to the Buyer in connection with the
purchase and sale of the Securities constitutes legal, tax or investment advice.
The Buyer has consulted such legal, tax and investment advisors as the Buyer, in
its sole discretion, has deemed necessary or appropriate.

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               (f) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

               (g) Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended, (or a successor rule thereto) (collectively,
"RULE 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 2(a)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.

               (h) Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the resale of the Conversion Shares and the Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the "blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):

          [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
          CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
          [CONVERTIBLE][EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
          THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
          1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
          MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
          ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
          COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
          REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD

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          PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
          FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
          FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
          THE SECURITIES.

Upon written request of the Buyer, the legend set forth above shall be removed
and the Company shall issue a certificate without such legend to the holder of
the Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the 1933
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that such sale, assignment or transfer of the Securities may be
made without registration under the applicable requirements of the 1933 Act, or
(iii) such holder provides the Company with reasonable assurance that the
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.

               (i) Authorization; Validity; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.

               (j) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement to which such
Buyer is a party and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a
default (or an event which 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 agreement, indenture or instrument to which
such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.

               (k) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.

          3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
reconfirms its representations and warranties made to each of the Buyers in the
Financing Agreement and each other Loan Document (as defined in the Financing
Agreement) (collectively, the "TRANSACTION DOCUMENTS") and incorporates them by
reference herein, mutatis mutandis. In addition, the Company represents and
warrants to each of the Buyers that:

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               (a) Certificate of Designations. As of the Closing, the
Certificate of Designations in the form attached as Exhibit A shall have been
filed on or prior to the Additional Closing Date with the Secretary of State of
the State of Minnesota and shall be in full force and effect, enforceable
against the Company in accordance with its terms and shall not have been
amended.

               (b) Issuance of Securities. The issuance of the Preferred Shares
and the Warrants are duly authorized and free from all taxes, liens and charges
with respect to the issue thereof, and the Preferred Shares shall be entitled to
the rights and preferences as set forth in the Certificate of Designations. As
of the Initial Closing, a number of shares of Common Stock shall have been duly
authorized and reserved for issuance which equals or exceeds 130% of the
aggregate of the maximum number of shares of Common Stock issuable upon exercise
of the Warrants as of the trading day immediately preceding the Initial Closing
Date. As of the Additional Closing Date, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or
exceeds 130% of the aggregate of the maximum number of shares of Common Stock
issuable upon conversion of the Preferred Shares of the trading day immediately
preceding the Additional Closing Date. Upon issuance, conversion or exercise in
accordance with the Preferred Shares or the Warrants, as the case may be, the
Conversion Shares and the Warrant Shares, respectively, will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. Assuming the
accuracy of each of the representations and warranties set forth in Section 2 of
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.

               (c) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Preferred Shares and Warrants and reservation for issuance and
issuance of the Conversion Shares and Warrant Shares) will not (i) result in a
violation of any Articles of Incorporation, certificate of formation, any
certificate of designations or other constituent documents of the Company or any
of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries
or bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) in any material respect under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of The OTC Bulletin Board
(the "PRINCIPAL MARKET")) applicable to the Company or any of its Subsidiaries
or any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected, except, in the case of clause
(iii), for such violations as would not be reasonably expected to have a
Material Adverse Effect. For the purpose of this Agreement, "MATERIAL ADVERSE
EFFECT" means a material adverse effect on any of (i) the operations, business,
assets, properties, condition (financial or otherwise) or prospects of the
Company or any of its Subsidiaries taken as a whole, (ii) the ability of the
Company or any of its Subsidiaries to perform any of its obligations under any
Transaction Document to which it is a party, (iii) the legality, validity or
enforceability of this Agreement or any other Transaction

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Document, (iv) the rights and remedies of the Agent or any Lender (as defined in
the Financing Agreement) under any Transaction Document, or (v) the validity,
perfection or priority of a Lien (as defined in the Financing Agreement) in
favor of the Agent for the benefit of the Lenders on any of the Collateral (as
defined in the Financing Agreement); provided, however, that, notwithstanding
the foregoing, in no event shall a Material Adverse Effect be caused by any
adverse litigation filed against the Company or any of its Subsidiaries unless
such litigation prevents or enjoins the actual construction of the Pokagon,
Shingle Springs or Jamul Projects (in each case, as defined in the Financing
Agreement).

               (d) Listing Requirements. The Company is not in violation of the
listing requirements of the Principal Market and has no knowledge of any facts
that would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.

               (e) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that no Buyer 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 hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

               (f) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company has not engaged any placement agent or other agent in
connection with the sale of the Securities.

               (g) No Integrated Offering. None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on 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 require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated as of the date of this Agreement. Except as otherwise
required by the Transaction Documents, none of the Company, its Subsidiaries,
their affiliates and any Person acting on their behalf will take any action or
steps referred to in the preceding sentence that would require registration of
any of the Securities under the 1933 Act or cause the offering of the Securities
to be integrated with other offerings.

               (h) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances in accordance with the respective terms of the
Certificate of Designations and the Warrant. The

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Company further acknowledges that, its obligation to issue Conversion Shares
upon conversion of the Preferred Shares in accordance with this Agreement and
the Certificate of Designations and its obligation to issue the Warrant Shares
upon exercise of the Warrants in accordance with this Agreement and the Warrants
is, in each case, except as provided in the Certificate of Designations and the
Warrant, respectively, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.

               (i) Application of Takeover Protections; Rights Agreement. Except
as set forth on Schedule 3(i), the Company and its 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 Articles
of Incorporation (as defined in Section 3(m)) or the laws of the state of its
incorporation which is or could become applicable to any Buyer as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company's issuance of the Securities and any Buyer's ownership of the
Securities. Except for the Company's Rights Agreement dated as of May 12, 2000,
the Company has not adopted a stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company.

               (j) SEC Documents; Financial Statements. During the three (3)
years prior to the date hereof, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to the Buyers or
their respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, 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. Except as set forth on Schedule 3(j), as
of their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may 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 its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to

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state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made and not
misleading.

               (k) Sarbanes-Oxley Act. The Company is in compliance with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof,
except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.

               (l) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least two days prior to the date hereof and other than the
grant of stock options disclosed on Schedule 3(l) or the employment agreement
required under the Transaction Documents, none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for ordinary course services as
employees, officers or 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 such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

               (m) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 200,000,000 shares, $0.01 par value per
share. After giving effect to the filing of the Certificate of Designations with
the office of the Secretary of State of the State of Minnesota, 7,500,000 of
such shares will be designated Series A Convertible Preferred Stock, of which as
of the date hereof, none are issued and outstanding. Of the remainder,
22,299,909 shares are issued and outstanding shares of Common Stock and
5,500,000 shares of Common Stock are reserved for issuance pursuant to the
Company's stock option and purchase plans. All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(m): (i) none of the Company's
share capital is subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional share capital of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries; (iii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (iv) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (iv) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of

                                       10

<PAGE>

the Securities; (vi) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement; and (vii)
the Company and its Subsidiaries have no liabilities or obligations required to
be disclosed in the SEC Documents but not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company's or its
Subsidiaries' respective businesses and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect. The Company has made
available to the Buyer true, correct and complete copies of the Company's
Amended and Restated Articles of Incorporation, as amended and as in effect on
the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as
amended and as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.

               (n) Internal Accounting and Disclosure Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed in to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is accumulated and communicated to
the Company's management, including its principal executive officer or officers
and its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.

               (o) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

               (p) Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.

               (q) Manipulation of Price. 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

                                       11

<PAGE>

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.

               (r) Acknowledgement Regarding Buyers' Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding, but
subject to compliance by the Buyers with applicable law, it is understood and
acknowledged by the Company (i) that none of the Buyers have been asked to
agree, nor has any Buyer agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) that past or future open market or other transactions by any Buyer,
including, without limitation, short sales or "derivative" transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded securities;
(iii) that any Buyer, and counter parties in "derivative" transactions to which
any such Buyer is a party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iv) that each Buyer shall not be deemed to
have any affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges that
(a) one or more Buyers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect
to Securities are being determined and (b) such hedging activities (if any)
could reduce the value of the existing stockholders' equity interests in the
Company at and after the time that the hedging activities are being conducted.

          4. COVENANTS.

               (a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

               (b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, 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 Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.

               (c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares and Warrant Shares and none of the Preferred Shares or Warrants is
outstanding, (the "REPORTING PERIOD"), the Company shall use its best efforts to
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall continue to use its best efforts to timely file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise no longer require such filings.

                                       12

<PAGE>

               (d) Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period (i) unless the following
are filed with the SEC through EDGAR and are available to the public through the
EDGAR system, within one (1) Business Day after the filing thereof with the SEC,
a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q,
any Current Reports on Form 8-K and any registration statements (other than on
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as
the release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

               (e) Listing. The Company shall use its best efforts to promptly
secure the listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon each national securities exchange and
automated quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed and in accordance with the
Preferred Shares and Warrants, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall use its best efforts to maintain the Common Stocks' authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market;
provided, however, that the Company makes no covenant regarding the trading
price of the Common Stock. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(e).

               (f) Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Securities. The
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(g) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(g) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.

               (g) Disclosure of Transactions and Other Material Information. On
or before 8:30 a.m., New York City time, on the fourth Business Day following
the date of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement), the form of the Certificate of Designations, the
form of Warrant, and the form of the Registration Rights Agreement) as exhibits
to such filing (including all attachments, the "8-K FILING"). Subject to the
foregoing, neither the Company nor any Buyer shall issue any press releases or
any other public statements with respect to the transactions

                                       13

<PAGE>

contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).

               (h) Additional Registration Statements. At any time following the
Demand Notice Date (as defined in the Registration Rights Agreement) and until
the date that the Registration Statement (as defined in the Registration Rights
Agreement) is first declared effective by the SEC (the "EFFECTIVE DATE"), the
Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Securities.

               (i) Additional Warrants; Variable Securities; Dilutive Issuances.
So long as any Buyer beneficially owns any Securities, the Company shall not
issue any other securities that would cause a breach or default under the
Financing Facility. For so long as any Preferred Shares or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for Common Stock at a
price which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price unless the
conversion, exchange or exercise price of any such security cannot be less than
the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable. For so long as any
Preferred Shares or Warrants remain outstanding, the Company shall not, in any
manner, enter into or affect any Dilutive Issuance (as defined in the Warrants)
if the effect of such Dilutive Issuance is to cause the Company to be required
to issue upon exercise of any Warrant any shares of Common Stock in excess of
that number of shares of Common Stock which the Company may issue upon exercise
of the Warrants without breaching the Company's obligations under the rules or
regulations of the Nasdaq National Market as if the Company were regulated by
such rules or regulations and irrespective as to whether the Company is listed
on the Nasdaq National Market.

               (j) Corporate Existence. So long as any Buyer beneficially owns
any Securities, the Company shall not be party to any Fundamental Transaction
(as defined in the Warrants) unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Warrants.

               (k) Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 130% of the number of shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants issued at
the Closing.

               (l) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations could not
result, either individually or in the aggregate, in a Material Adverse Effect.

               (m) Most Favored Registration Rights. If the Company at any time
grants any registration rights to any Person with respect to any securities of
the Company or any of its

                                       14

<PAGE>

Subsidiaries with terms or conditions more favorable than the terms and
conditions set forth in the Registration Rights Agreement, such more favorable
terms and conditions shall be deemed to be included in the Registration Rights
Agreement and the Buyers shall be entitled to the benefits thereof.

               (n) NASDAQ Approval. In the event the Company does not receive
the approval of Nasdaq pursuant to Section 6(b)(ii), subject to applicable
corporate law, the parties shall work in good faith to modify the terms and
conditions of the Certificate of Designations in a manner acceptable to Nasdaq
and to preserve as closely as possible the terms and conditions of the
Certificate of Designations. If, notwithstanding, such good faith efforts by the
parties, they are unable to create a certificate of designations acceptable to
Nasdaq, the parties agree to modify and file a certificate of designations which
excludes all of the items contained in the Certificate of Designations other
than Sections 16 and 19 as it existed as of the Initial Closing Date and to
amend and restate the Warrants to replace Section 16(f) of such Warrants with
Sections A.17(g) and A.17(h) of the Certificate of Designations, mutatis
mutandis.

               (o) Issuance of Preferred Shares upon Cancellation. Concurrently
with the occurrence of a Cancellation (as defined in the Warrants), the Company
shall issue to each holder of Warrants such number of additional Preferred
Shares equal to the sum of (i) such number of Warrant Shares held by such holder
on the date of such Cancellation (the "ADDITIONAL PREFERRED SHARES") and (ii)
(x) the number of Warrant Shares into which such Warrant is then exercisable
(without regard to any limitations on exercise) immediately prior to such
Cancellation less (y) the number of Preferred Shares held by such holder
immediately prior to such Cancellation.

          5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

               (a) Register. The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the Preferred
Shares and the Warrants, in which the Company shall record the name and address
of the Person in whose name the Preferred Shares and the Warrants have been
issued (including the name and address of each transferee), the face amount of
Preferred Shares held by such Person, the number of Warrant Shares issuable upon
exercise of the Warrants held by such Person and the number of Preferred Shares
held by such Person. The Company shall keep the register open and available at
all times during business hours for inspection of any Buyer or its legal
representatives.

               (b) Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates or credit shares to the applicable balance accounts
at The Depository Trust Company ("DTC"), registered in the name of each Buyer or
its respective nominee(s), for the Conversion Shares, and the Warrant Shares
issued at the Initial Closing or upon conversion of the Preferred Shares or
exercise of the Warrants in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants in the form of Exhibit D attached hereto (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(h) hereof, will be given
by the Company to its transfer agent, and that the Securities shall otherwise be
freely transferable

                                       15

<PAGE>

on the books and records of the Company as and to the extent provided in this
Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section 2(g), the
Company shall permit the transfer and shall promptly instruct its transfer agent
to issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Conversion Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer 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.

          6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

               (a) The obligation of the Company hereunder to issue and sell the
Warrants to each Buyer at the Initial Closing is subject to the satisfaction, at
or before the Initial Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:

                    (i) Such Buyer shall have executed each of the Transaction
     Documents to which it is a party and delivered the same to the Company.

                    (ii) Such Buyer and each other Buyer shall have delivered to
     the Company the Initial Purchase Price.

                    (iii) The representations and warranties of such Buyer shall
     be true and correct in all material respects (except for those
     representations and warranties that are qualified by materiality or
     Material Adverse Effect, which shall be true and correct in all respects)
     as of the date when made and as of the Closing Date as though made at that
     time (except for representations and warranties that speak as of a specific
     date), and such Buyer shall have performed, satisfied and complied in all
     material respects with the covenants, agreements and conditions required by
     this Agreement to be performed, satisfied or complied with by such Buyer at
     or prior to the Closing Date.

               (b) The obligation of the Company hereunder to issue and sell the
Preferred Shares to each Buyer at the Additional Closing is subject to the
satisfaction, at or before the Additional Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:

                    (i) Such Buyer and each other Buyer shall have delivered to
     the Company the Additional Purchase Price.

                                       16

<PAGE>

                    (ii) The Company shall have obtained the consent of Nasdaq
     to the terms and conditions of the Certificate of Designations.

          7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

               (a) The obligation of each Buyer hereunder to purchase the
Warrants at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

                    (i) The Company shall have duly executed and delivered to
     such Buyer (i) each of the Transaction Documents and (ii) the related
     Warrants (in such amounts as such Buyer shall request) being purchased by
     such Buyer at the Initial Closing pursuant to this Agreement.

                    (ii) Such Buyer shall have received the opinion of Gray
     Plant Mooty, the Company's counsel, dated as of the Initial Closing Date,
     in substantially the form of Exhibit E-1 attached hereto.

                    (iii) The Company shall have delivered to such Buyer a copy
     of the Irrevocable Transfer Agent Instructions, in the form of Exhibit D
     attached hereto, which instructions shall have been delivered to and
     acknowledged in writing by the Company's transfer agent.

                    (iv) Company shall have delivered to such Buyer a
     certificate evidencing the formation and good standing of the Company and
     each of its Subsidiaries in such entity's jurisdiction of formation issued
     by the Secretary of State (or comparable office) of such jurisdiction, as
     of a date within 10 days of the Initial Closing Date.

                    (v) The Company shall have delivered to such Buyer a
     certificate evidencing the Company's qualification as a foreign corporation
     and good standing issued by the Secretary of State of the State of
     Minnesota as of a date within 10 days of the Initial Closing Date.

                    (vi) The Company shall have delivered to such Buyer a
     certified copy of the Articles of Incorporation as certified by the
     Secretary of State of the State of Minnesota within 10 days of the Initial
     Closing Date.

                    (vii) The Company shall have delivered to such Buyer a
     certificate, executed by the Secretary of the Company and dated as of the
     Initial Closing Date, as to (i) the resolutions consistent with Section
     3(b) as adopted by the Company's Board of Directors in a form reasonably
     acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the
     Bylaws, each as in effect at the Initial Closing in the form attached
     hereto as Exhibit F.

                    (viii) The representations and warranties of the Company
     shall be true and correct in all material respects (except for those
     representations and warranties

                                       17

<PAGE>

     that are qualified by materiality or Material Adverse Effect, which shall
     be true and correct in all respects) as of the date when made and as of the
     Initial Closing Date as though made at that time (except for
     representations and warranties that speak as of a specific date) and the
     Company shall have performed, satisfied and complied in all material
     respects with the covenants, agreements and conditions required by the
     Transaction Documents to be performed, satisfied or complied with by the
     Company at or prior to the Initial Closing Date. Such Buyer shall have
     received a certificate, executed by the Chief Financial Officer of the
     Company, dated as of the Initial Closing Date, to the foregoing effect and
     as to such other matters as may be reasonably requested by such Buyer in
     the form attached hereto as Exhibit G.

                    (ix) The Company shall have delivered to such Buyer a letter
     from the Company's transfer agent certifying the number of shares of Common
     Stock outstanding as of a date within five days of the Initial Closing
     Date.

                    (x) The Common Stock (i) shall be designated for quotation
     or listed on the Principal Market and (ii) shall not have been suspended,
     as of the Initial Closing Date, by the SEC or the Principal Market from
     trading on the Principal Market nor shall suspension by the SEC or the
     Principal Market have been threatened, as of the Initial Closing Date,
     either (A) in writing by the SEC or the Principal Market or (B) by falling
     below the minimum listing maintenance requirements of the Principal Market.

                    (xi) The Company shall have obtained all governmental,
     regulatory or third party consents and approvals, if any, necessary for the
     sale of the Warrants.

                    (xii) Within six (6) Business Days prior to the Initial
     Closing, the Company shall have delivered or caused to be delivered to each
     Buyer a perfection certificate, duly completed and executed by the Company
     and each of the Subsidiaries, in form and substance satisfactory to the
     Buyers.

                    (xiii) The Company shall have delivered to such Buyer such
     other documents relating to the transactions contemplated by this Agreement
     as such Buyer or its counsel may reasonably request.

               (b) The obligation of each Buyer hereunder to purchase the
Preferred Shares at the Additional Closing is subject to the satisfaction, at or
before the Additional Closing Date, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company
with prior written notice thereof:

                    (i) The Company shall have duly executed and delivered to
     such Buyer (A) each of the Transaction Documents and (B) the Preferred
     Shares (in such numbers as is set forth across from such Buyer's name in
     column (3) of the Schedule of Buyers) being purchased by such Buyer at the
     Additional Closing pursuant to this Agreement.

                                       18

<PAGE>

                    (ii) Such Buyer shall have received the opinion of Gray
     Plant Mooty, the Company's counsel, dated as of the Additional Closing
     Date, in substantially the form of Exhibit E-2 attached hereto.

                    (iii) The Company shall have delivered to such Buyer a
     certificate, executed by the Secretary of the Company and dated as of the
     Additional Closing Date, as to (i) the resolutions consistent with Section
     3(b) as adopted by the Company's Board of Directors in a form reasonably
     acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the
     Bylaws, each as in effect at the Additional Closing Date in the form
     attached hereto as Exhibit F.

                    (iv) The representations and warranties of the Company shall
     be true and correct in all material respects (except for those
     representations and warranties that are qualified by materiality or
     Material Adverse Effect, which shall be true and correct in all respects)
     as of the date when made and as of the Additional Closing Date as though
     made at that time (except for representations and warranties that speak as
     of a specific date) and the Company shall have performed, satisfied and
     complied in all material respects with the covenants, agreements and
     conditions required by the Transaction Documents to be performed, satisfied
     or complied with by the Company at or prior to the Additonal Closing Date.
     Such Buyer shall have received a certificate, executed by the Chief
     Financial Officer of the Company, dated as of the Additional Closing Date,
     to the foregoing effect and as to such other matters as may be reasonably
     requested by such Buyer in the form attached hereto as Exhibit G.

                    (v) The Certificate of Designations in the form attached as
     Exhibit A shall have been filed on or prior to the Additional Closing Date
     with the Secretary of State of the State of Minnesota and shall be in full
     force and effect, enforceable against the Company in with its terms and
     shall not have been amended.

                    (vi) The Company shall have obtained all governmental,
     regulatory or third party consents and approvals, if any, necessary for the
     sale of the Securities, including, without limitation, the consent of
     Nasdaq to the terms and conditions of the Certificate of Designations.

                    (vii) The Company shall have delivered to such Buyer such
     other documents relating to the transactions contemplated by this Agreement
     as such Buyer or its counsel may reasonably request.

          8. TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party.

          9. MISCELLANEOUS.

                                       19

<PAGE>

               (a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. 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, 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 brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. 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 to such
party at the address for such 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 manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

               (b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

               (c) Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.

               (d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

               (e) Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the Preferred Shares, and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom

                                       20

<PAGE>

enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration 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 also is offered to all of the parties to
the Transaction Documents, holders of Preferred Shares or holders of the
Warrants, as the case may be. The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.

               (f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with an overnight courier service, in each case properly addressed
to the party to receive the same. The addresses and facsimile numbers for such
communications shall be:

          If to the Company:

          If to the Company:

          Lakes Entertainment, Inc.
          130 Cheshire Lane, Suite 101
          Minnetonka, MN 55305
          Telephone: (952) 449-9092
          Facsimile: (952 449-9353
          Attention: Damon E. Schramm, Esq. Timothy Cope

          with a copy to:

          Gray Plant Mooty
          500 IDS Center
          80 South Eighth Street
          Minneapolis, MN 55402
          Telephone: (612) 632-3050
          Facsimile: (612) 632-4050
          Attention: Daniel R. Tenenbaum, Esq.

     If to the Transfer Agent:

          Wells Fargo Bank Minnesota, N.A.
          Stock Transfer Department
          161 North Concord Exchange
          South St. Paul, MN 55075
          Telephone: (651) 306-4498
          Facsimile: (651) 450-4078

                                       21

<PAGE>

          Attention: Cindy Gesme

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,

          with a copy (for informational purposes) to:

          Schulte Roth & Zabel LLP
          919 Third Avenue
          New York, New York 10022
          Telephone: (212) 756-2000
          Facsimile: (212) 593-5955
          Attention: Eleazer N. Klein, Esq.
                     Nancy Finkelstein, Esq.

or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.

               (g) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares or the Warrants. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the holders of at least a majority of the
Preferred Shares then outstanding, including by including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Warrants). A
Buyer may assign some or all of its rights hereunder without the consent of the
Company in connection with a transfer by such Buyer of any of the Securities, in
which event such assignee shall be deemed to be a Buyer hereunder with respect
to such assigned rights

               (h) No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

               (i) Survival. Unless this Agreement is terminated under Section
8, the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9
shall survive the Additional Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.

               (j) Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as any other party may reasonably request

                                       22

<PAGE>

in order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.

               (k) Indemnification. In consideration of each Buyer's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any material inaccuracy in any representation or warranty made by the Company in
the Transaction Documents or any inaccuracy in any representation or warranty in
the Transaction Documents that is qualified by materiality or Material Adverse
Effect, (b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company) and arising out
of or resulting from (i) the execution, delivery, performance or enforcement of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of such Buyer or holder of the Securities as
an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents; provided that indemnification pursuant to this clause
(iii) shall not be available to the extent arising primarily from such Buyer's
fraud, gross negligence or willful misconduct. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities that is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.

               (l) No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

               (m) Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate

                                       23

<PAGE>

relief to the Buyers. The Company therefore agrees that the Buyers shall be
entitled to seek temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages and without posting a bond or
other security.

               (n) Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer 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 Buyer 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

               (o) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or 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, foreign, 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.

               (p) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers 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 Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitations, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.

                            [SIGNATURE PAGE FOLLOWS]

                                       24

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                        COMPANY:

                                        LAKES ENTERTAINMENT, INC.

                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: President and Chief Financial
                                               Officer

               [Signature Page to Securities Purchase Agreement]

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                        BUYERS:

                                        PLKS HOLDINGS, LLC

                                        By: Prentice Capital Management, LP,
                                            as Manager

                                        By: /S/ Michael Weiss
                                            ------------------------------------
                                        Name: Michael Weiss
                                        Title: Chief Financial Officer

               [Signature Page to Securities Purchase Agreement]

<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                                           (3)
                                                        AGGREGATE      (4)        (5)        (6)
                                                         NUMBER     AGGREGATE   INITIAL  ADDITIONAL                (7)
        (1)                        (2)                OF PREFERRED  NUMBER OF  PURCHASE   PURCHASE       LEGAL REPRESENTATIVE'S
       BUYER          ADDRESS AND FACSIMILE NUMBER       SHARES      WARRANTS    PRICE      PRICE     ADDRESS AND FACSIMILE NUMBER
------------------    ----------------------------    ------------  ---------  --------  ----------  -----------------------------
<S>                 <C>                               <C>           <C>        <C>       <C>         <C>
PLKS HOLDINGS, LLC  c/o Prentice Capital Management,    4,457,751   4,457,751   $10.00   $44,577.51  Schulte Roth & Zabel LLP
                    LP                                                                               919 Third Avenue
                    623 Fifth Avenue                                                                 New York, New York 10022
                    32nd Floor                                                                       Attention: Eleazer Klein, Esq.
                    New York, NY 10022                                                               Facsimile: (212) 593-5955
                    Attention: Michael Zimmerman                                                     Telephone: (212) 756-2376
                    Charles Phillips
                    Facsimile: 212-756-1464
</TABLE>

<PAGE>

                                    EXHIBITS

<TABLE>
<S>           <C>
Exhibit A     Form of Certificate of Designations
Exhibit B     Form of Warrant
Exhibit C     Form of Registration Rights Agreement
Exhibit D     Form of Irrevocable Transfer Agent Instructions
Exhibit E-1   Form of Initial Closing Opinion of Company's Counsel
Exhibit E-2   Form of Additional Closing Opinion of Company's Counsel
Exhibit F     Form of Secretary's Certificate
Exhibit G     Form of Officers Certificate
</TABLE>

                                      SCHEDULES

<TABLE>
<S>             <C>
Schedule 3(i)   Application of Takeover Protections; Rights Agreement
Schedule 3(j)   SEC Documents; Financial Statements
Schedule 3(l)   Transaction with Affiliates
Schedule 3(m)   Equity Capitalization
</TABLE><PAGE>
                                                                    EXHIBIT 10.3
                                                                  EXECUTION COPY

                          REGISTRATION RIGHTS AGREEMENT

          REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of February
__, 2006, by and among Lakes Entertainment, Inc., a Minnesota corporation, with
headquarters located at 130 Cheshire Lane, Suite 101, Minnetonka, MN 55305 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER", and collectively, the
"BUYERS").

          WHEREAS:

          A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions set forth
in the Securities Purchase Agreement, to issue and sell to each Buyer (i) shares
of Company's Series A Convertible Preferred Stock, par value $0.01 per share
(the "PREFERRED SHARES"), which will, among other things, be convertible into a
certain number of shares of the Company's common stock, $0.01 par value per
share (the "COMMON STOCK", as converted, the "CONVERSION SHARES") in accordance
with the terms of the certificate of designations for the Preferred Shares (the
"CERTIFICATE OF DESIGNATIONS"), and (ii) warrants (the "WARRANTS"), which will
be exercisable to purchase shares of Common Stock (as exercised collectively,
the "WARRANT SHARES").

          B. Contemporaneously herewith, the Company and certain of its
subsidiaries entered into financing arrangements (the "FINANCING FACILITY") with
the Buyers, as secured lenders, and as more fully set forth in a financing
agreement (the "FINANCING AGREEMENT"), by and among the Company and its
Subsidiaries (as defined in the Financing Agreement), as borrowers
(collectively, the "BORROWERS"), PLKS Funding, LLC, as administrative agent and
collateral agent (in such capacity the "AGENT"), and the Buyers, as lenders, and
certain other security and ancillary documents related thereto (the "SECURITY
DOCUMENTS"), pursuant to which, subject to the satisfaction of certain borrowing
conditions, the Buyers made available to the Borrowers a $50 million secured
multiple-draw term loan (the "FINANCING").

          C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:

          1. Definitions.

          Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:

<PAGE>

               a. "BUSINESS DAY" means any day other than Saturday, Sunday or
any other day on which commercial banks in the City of New York are authorized
or required by law to remain closed.

               b. "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement.

               c. "EFFECTIVE DATE" means the date the Registration Statement has
been declared effective by the SEC.

               d. "EFFECTIVENESS DEADLINE" means the date that is 120 days after
the Filing Deadline.

               e. "FILING DEADLINE" means the date that is 45 days after the
Demand Notice Date.

               f. "INVESTOR" means a Buyer or any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

               g. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

               h. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

               i. "REGISTRABLE SECURITIES" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, (ii) the Warrant
Shares issued or issuable upon exercise of the Warrants, and (iii) any shares of
Common Stock issued or issuable with respect to the Conversion Shares, the
Preferred Shares, the Warrant Shares and the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Preferred Shares or
exercises of the Warrants. Notwithstanding the foregoing, Registrable Securities
shall not mean securities sold by an Investor to the public either pursuant to a
Registration Statement or pursuant to Rule 144 under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 ACT") or securities eligible for sale pursuant
to Rule 144(k).

               j. "REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act pursuant to Rule
415 covering the Registrable Securities.

                                       2

<PAGE>

               k. "REQUIRED HOLDERS" means the holders of at least a majority of
the Registrable Securities.

               l. "REQUIRED REGISTRATION AMOUNT" for the Registration Statement
means 130% of the number of Conversion Shares and Warrant Shares issued and
issuable pursuant to the Preferred Shares and Warrants as of the trading day
immediately preceding the applicable date of determination, all subject to
adjustment as provided in Section 2(e).

               m. "RULE 415" means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous or delayed basis.

               n. "SEC" means the United States Securities and Exchange
Commission.

          2. Registration.

               a. Mandatory Registration. At any time after the date that is 180
days from the date hereof, if the Company shall at any time and from time to
time receive from the Required Holders a written request that the Required
Holders have a present intent to sell their Registrable Securities and desire
that the Company register all or a portion of the Registrable Securities (a
"DEMAND NOTICE", and the date of such Notice, the "DEMAND NOTICE DATE"), at one
or more times, then the Company shall prepare, and, as soon as practicable but
in no event later than the Filing Deadline, file with the SEC the Registration
Statement on Form S-1 or another appropriate form available for use by the
Company permitting registration of Registrable Securities for resales as
contemplated herein, covering the number of Registrable Securities as may be
requested by an Investor to be included in such Registration Statement. The
Company shall deliver a copy of the Demand Notice to all other holders of
Registrable Securities promptly following receipt of the Demand Notice. The
Registration Statement prepared pursuant hereto shall register for resale at
least the number of shares of Common Stock equal to the Required Registration
Amount determined as of date the Registration Statement is initially filed with
the SEC. The Registration Statement shall contain (except if otherwise directed
by the Required Holders) the "Selling Shareholders" and "Plan of Distribution"
sections in substantially the form attached hereto as Exhibit B. The Company
shall use its best efforts to have the Registration Statement declared effective
by the SEC as soon as practicable, but in no event later than the Effectiveness
Deadline. Promptly following effectiveness of such Registration Statement, the
Company shall file the final prospectus used in connection with such
Registration Statement, after insertion of all applicable dates and other
missing information and the removal of all notices of the preliminary nature of
the prospectus, with the SEC, which prospectus is to be filed pursuant to Rule
424 promulgated under the 1933 Act. Notwithstanding the foregoing, if the
Company has filed a registration statement (an "EXCLUDED OFFERING REGISTRATION
STATEMENT") pursuant to an Excluded Offering (as defined in the Warrant), then
the Required Holders shall not be permitted to submit a Demand Notice to the
Company until such time as the earlier to occur of (x) 270 days after the
initial filing of the Excluded Offering Registration Statement and (y) the
effective date of such Excluded Offering Registration Statement.

               b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and any increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number

                                       3

<PAGE>

of Registrable Securities held by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is declared effective by the SEC. In the event that an Investor sells or
otherwise transfers any of such Investor's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number of
Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement and
which remain allocated to any Person which ceases to hold any Registrable
Securities covered by such Registration Statement shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities then
held by such Investors which are covered by such Registration Statement. In no
event shall the Company include any securities other than Registrable Securities
on any Registration Statement without the prior written consent of the Required
Holders, which consent shall not be unreasonably withheld.

               c. Legal Counsel. Subject to Section 5 hereof, the Required
Holders shall have the right to select one legal counsel to review and oversee
any registration pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be
Schulte Roth & Zabel LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company's obligations under this Agreement.

               d. Eligibility for Form S-3. The Company shall undertake to
register the Registrable Securities on Form S-3 promptly after the Company meets
the requirements for use of such form, provided that the Company shall maintain
the effectiveness of the Registration Statement then in effect until such time
as a Registration Statement on Form S-3 covering the Registrable Securities has
been declared effective by the SEC.

               e. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities required
to be covered by such Registration Statement or an Investor's allocated portion
of the Registrable Securities pursuant to Section 2(b), the Company shall amend
the applicable Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least the Required Registration Amount as of the trading day immediately
preceding the date of the filing of such amendment or new Registration
Statement, in each case, as soon as practicable, but in any event not later than
thirty (30) days after the necessity therefor arises. The Company shall use its
best efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. For purposes of
the foregoing provision, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the number of shares of Common Stock available for
resale under the Registration Statement is less than the product determined by
multiplying (i) the Required Registration Amount as of such time by (ii) 0.90.
The calculation set forth in the foregoing sentence shall be made without regard
to any limitations on the conversion of the Preferred Shares or the exercise of
the Warrants and such calculation shall assume that the Preferred Shares are
then convertible into shares of Common Stock at the then prevailing Conversion
Price (as defined in the Certificate of Designations) and that the Warrants are
then exercisable for shares of Common Stock at the then prevailing Exercise
Price (as defined in the Warrants).

                                       4

<PAGE>

               f. Registration Rights Default. The following events shall
constitute a "REGISTRATION RIGHTS DEFAULT": (1) the Company fails to have a
Registration Statement covering all of the Registrable Securities required to be
covered thereby and required to be filed by the Company pursuant to this
Agreement declared effective by the SEC on or prior to 270 days after the Demand
Notice Date or (2) the Company's failure to use its best efforts results in any
of the following (i) a Registration Statement covering all of the Registrable
Securities required to be covered thereby and required to be filed by the
Company pursuant to this Agreement is (A) not filed with the SEC on or before
the Filing Deadline (a "FILING FAILURE") or (B) not declared effective by the
SEC on or before the Effectiveness Deadline (an "EFFECTIVENESS FAILURE") or (ii)
on any day after the Effective Date sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(r)) pursuant to
such Registration Statement (including, without limitation, because of a failure
to keep such Registration Statement effective, to disclose such information as
is necessary for sales to be made pursuant to such Registration Statement or to
register a sufficient number of shares of Common Stock) (a "MAINTENANCE
FAILURE").

          3. Related Obligations.

          At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will
use its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

               a. The Company shall submit to the SEC, promptly after the
Company learns that no review of a particular Registration Statement will be
made by the staff of the SEC or that the staff has no further comments on a
particular Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
promptly after the submission of such request. The Company shall keep each
Registration Statement effective pursuant to Rule 415 to cover Registrable
Securities until the earlier of (i) the date as of which the Investors may sell
all of the Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the "REGISTRATION
PERIOD").

               b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form
10-K or any analogous report under the Securities Exchange Act of 1934, as
amended (the "1934 ACT"), the Company shall have incorporated such

                                       5

<PAGE>

report by reference into such Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC promptly after the day on which
the 1934 Act report is filed which created the requirement for the Company to
amend or supplement such Registration Statement.

               c. The Company shall (A) deliver to Legal Counsel (i) each
Registration Statement prior to its filing with the SEC and (ii) all amendments
and supplements to all Registration Statements (except for Annual Reports on
Form 10-K, and Reports on Form 10-Q and any similar or successor reports) prior
to their filing with the SEC. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits, unless such filings
are not readily available in electronic format, and (iii) upon the effectiveness
of any Registration Statement, one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel in performing the Company's
obligations pursuant to this Section 3.

               d. The Company shall upon written request furnish to each
Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and filed
with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, all
exhibits and each preliminary prospectus, (ii) promptly after the effectiveness
of any Registration Statement, ten (10) copies of the prospectus included in
such Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

               e. The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of a number of
jurisdictions in the United States as may be reasonably requested by the
Investors, (ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection with any
of the foregoing or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(e), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction.
The Company shall

                                       6

<PAGE>

promptly notify Legal Counsel and each Investor who holds Registrable Securities
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

               f. The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware of such event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and, subject to Section
3(r), promptly prepare a supplement or amendment to such Registration Statement
to correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to Legal Counsel and each Investor (or such other
number of copies as Legal Counsel or such Investor may reasonably request). The
Company shall also promptly notify Legal Counsel and each Investor in writing
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

               g. The Company shall use its reasonable efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.

               h. At the reasonable request of any Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request an opinion, dated as of such date, of counsel representing
the Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the Investors.

               i. [omitted]

               j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws or any government regulatory authority relating to the gaming
industry, (ii) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (iii) the

                                       7

<PAGE>

release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

               k. The Company shall use its best efforts either to (i) cause all
of the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all of the Registrable Securities
covered by a Registration Statement on the Nasdaq National Market or (iii) if,
despite the Company's best efforts to satisfy, the preceding clauses (i) and
(ii) the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market for
such Registrable Securities and, without limiting the generality of the
foregoing, to use its best efforts to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
3(k).

               l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities sold pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.

               m. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor reasonably requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as practicable, supplement or make amendments to
any Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.

               n. [omitted]

               o. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of

                                       8

<PAGE>

Rule 158 under the 1933 Act) covering a period of twelve-months beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of a Registration Statement.

               p. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.

               q. Within five (5) Business Days after a Registration Statement
which covers Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in a form similar to that attached hereto as Exhibit A.

               r. Notwithstanding anything to the contrary herein, at any time
after the Registration Statement has been declared effective by the SEC, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, consistent with the recommendations of counsel to
the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed fifteen (15)
consecutive days and during any three hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of sixty (60) days and the first day
of any Grace Period must be at least two (2) trading days after the last day of
any prior Grace Period (each, an "ALLOWABLE GRACE PERIOD"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause (i)
and shall end on and include the later of the date the Investors receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period. Upon expiration of the Grace Period, the Company
shall again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material, non-public information is
no longer applicable. Notwithstanding anything to the contrary, the Company
shall use its best efforts to cause its transfer agent to deliver unlegended
shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale, and delivered a copy of the prospectus included as part of
the applicable Registration Statement, prior to the Investor's receipt of the
notice of a Grace Period and for which the Investor has not yet settled.

          4. Obligations of the Investors.

               a. At least five (5) Business Days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information

                                       9

<PAGE>

the Company requires from each such Investor. It shall be a condition precedent
to the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities and any shares of capital
stock of a particular Investor that such Investor shall furnish to the Company
in writing such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the effectiveness of the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.

               b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.

               c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities pursuant to a Registration
Statement with respect to which an Investor has entered into a contract for sale
prior to the Investor's receipt of a notice from the Company of the happening of
any event of the kind described in Section 3(g) or the first sentence of 3(f)
and for which the Investor has not yet settled.

               d. Each Investor covenants and agrees that it will comply with
the prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

          5. Expenses of Registration.

          All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $10,000
in the aggregate irrespective of the number of registrations, filings or
qualifications made pursuant to this Agreement.

                                       10

<PAGE>

          6. Indemnification.

          In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

               a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "CLAIMS") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in the light of the circumstances under which
the statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "VIOLATIONS"). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable upon receipt of documentation reasonably satisfactory to the
Company of such expenses, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information timely furnished in writing to
the Company in accordance with the terms and conditions of this Agreement by
such Indemnified Person for such Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not be available to the
extent such Claim is based on a failure of the Investor to deliver or to cause
to be delivered the prospectus made available by the Company, including a
corrected prospectus, if such prospectus or corrected prospectus was timely made
available by the Company pursuant to Section 3(d); and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written

                                       11

<PAGE>

consent of the Company, which consent shall not be unreasonably withheld or
delayed. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.

               b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, its directors, officers,
employees, agents, representatives of, and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
timely furnished to the Company upon receipt of reasonable documentation
reasonably satisfactory to the Company of such expenses by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(c), such Investor will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld or delayed; provided,
further, however, that the Investor shall be liable under this Section 6(b) for
only that amount of a Claim or Indemnified Damages as does not exceed the
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

               c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential

                                       12

<PAGE>

differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or Claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.

               d. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.

               e. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

          7. Contribution.

          To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.

                                       13

<PAGE>

          8. Reports Under the 1934 Act.

          With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to
us its best efforts to:

               a. make and keep public information available, as those terms are
understood and defined in Rule 144;

               b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and

               c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the 1933 Act and the 1934 Act, and (ii) a copy of the most recent annual
report of the Company and such other reports and documents so filed by the
Company if such filings are not readily available in electronic format.

          9. Assignment of Registration Rights.

          The rights under this Agreement shall be assignable by the Investors
to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.

          10. Amendment of Registration Rights.

          Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Required Holders. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.

                                       14

<PAGE>

          11. Holdback Arrangements.

          The Company and each Holder of Restricted Securities agrees, if
requested in writing by the sole or lead managing underwriter in connection with
an Excluded Offering, each Holder shall enter into a lock-up agreement,
reasonably satisfactory to the Required Holders (each a "LOCK-UP AGREEMENT"),
for such period of time reasonably requested by the sole or lead managing
underwriter not to exceed one hundred and eighty (180) days, beginning on the
effective date of the Registration Statement for such Excluded Offering (except
as part of such underwritten offering or pursuant to registrations on Forms S-4,
S-8 or S-3 (to the extent such form relates solely to a stock purchase or
dividend reinvestment plan)). Notwithstanding the foregoing, the Holders of
Restricted Securities shall not be obligated to enter into the Lock-Up Agreement
unless (A) all officers and directors of the Company and all Persons holding at
least 1% of the Company's voting securities and/or securities of the Company
convertible into, or exercisable or exchangeable for, voting securities of the
Company enter into identical agreements, with the agreement of the Holders
(including the proviso set forth in the immediately preceding sentence) being on
no more onerous terms than any other agreements entered into by any other Person
(the "OTHER LOCK-UP AGREEMENTS"), and (B) the Lock-Up Agreement is explicitly
conditioned on the Holder receiving the benefits of any release or modification
of any Other Lock-Up Agreement for any other Person and (ii) the Lock-Up
Agreement shall automatically terminate upon any release or termination of any
Other Lock-Up Agreement of any other Person.

          12. Miscellaneous.

               a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the such record owner of such Registrable Securities.

               b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); (iii) upon receipt, when sent by electronic
mail (provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iv) one Business Day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:

     If to the Company:

          Lakes Entertainment, Inc.
          130 Cheshire Lane, Suite 101
          Minnetonka, MN 55305
          Telephone: (952) 449-9092

                                       15

<PAGE>

          Facsimile: (952) 449-9353
          Attention: Damon E. Schramm, Esq.
                     Timothy Cope

          with a copy to:

          Gray Plant Mooty
          80 So. 8th Street, Suite 500
          Minneapolis, MN 55402
          Telephone: (612) 632-3200
          Facsimile: (612) 632-3000
          Attention: Daniel R. Tenenbaum, Esq.

     If to Legal Counsel:

          Schulte Roth & Zabel LLP
          919 Third Avenue
          New York, New York 10022
          Telephone: (212) 756-2000
          Facsimile: (212) 593-5955
          Attention: Eleazer N. Klein, Esq.
                     Nancy Finkelstein, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

               c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

               d. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. 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, and hereby irrevocably waives, and agrees

                                       16

<PAGE>

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 brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. 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 to such party at the
address for such 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 manner permitted by law. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

               e. This Agreement, the other Transaction Documents (as defined in
the Securities Purchase Agreement) and the instruments referenced herein and
therein constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

               f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

               g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

               h. This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

               i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

               j. All consents and other determinations required to be made by
the Investors pursuant to this Agreement shall be made, unless otherwise
specified in this Agreement, by the Required Holders.

                                       17

<PAGE>

               k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.

               l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

               m. The obligations of each Buyer hereunder are several and not
joint with the obligations of any other Buyer, and no provision of this
Agreement is intended to confer any obligations on any Buyer vis-a-vis any other
Buyer. Nothing contained herein, and no action taken by any Buyer pursuant
hereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated herein.

                                   * * * * * *

                                       18

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

                                        COMPANY:

                                        LAKES ENTERTAINMENT, INC.

                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: President and Chief Financial
                                               Officer

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                        BUYERS:

                                        PLKS HOLDINGS, LLC

                                        BY: PRENTICE CAPITAL MANAGEMENT, LP, AS
                                            MANAGER

                                        By: /S/ Michael Weiss
                                            ------------------------------------
                                        Name: Michael Weiss
                                        Title: Chief Financial Officer

<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                               BUYER'S ADDRESS             BUYER'S REPRESENTATIVE'S ADDRESS
       BUYER                 AND FACSIMILE NUMBER                AND FACSIMILE NUMBER
       -----                 --------------------          --------------------------------
<S>                  <C>                                   <C>
PLKS HOLDINGS, LLC   c/o Prentice Capital Management, LP   Schulte Roth & Zabel LLP
                     623 Fifth Avenue                      919 Third Avenue
                     32nd Floor                            New York, New York 10022
                     New York, NY 10022                    Attention: Eleazer Klein, Esq.
                     Attention: Michael Zimmerman          Facsimile: (212) 593-5955
                     Charles Phillips                      Telephone: (212) 756-2376
                     Facsimile: 212-756-1464
</TABLE>

<PAGE>

                                                                       EXHIBIT A

     FORM OF WRITTEN CONFIRMATION OF EFFECTIVENESS OF REGISTRATION STATEMENT

Wells Fargo Bank, N.A.
Stock Transfer Department
161 North Concord Exchange
South St. Paul, MN 55075
Fax: (651) 450-4078
Attn: Cindy Gesme

          Re: Lakes Entertainment, Inc.

Ladies and Gentlemen:

     Reference is made to the requests by the persons and entities listed on the
enclosed Exhibit A ("SHAREHOLDERS") [Exhibit A will be a list of the selling
shareholders included in the registration statement referenced below] to
transfer up to ______________ shares (the "SHARES") of the common stock, $0.01
par value, of Lakes Entertainment, Inc. (the "COMPANY") issuable upon the
conversion of the Company's Series A Convertible Preferred Stock, $0.01 par
value, held by certain of the Shareholders, and up to ___________ shares of the
Company's common stock issuable upon exercise of outstanding common stock
purchase warrants (the "WARRANT SHARES") owned by certain of the Shareholders.

     We have examined the records of the Company and such other documents as we
deemed appropriate. As a registration statement on [Form S-1] is effective with
respect to transfers of the Shares and the Warrant Shares, and we have no
objection to transfers by the Shareholders of the Shares or the Warrant Shares,
and the certificates issued in connection with such transfers need not bear the
standard restrictive legend.

                                        Very truly yours,

                                        [ISSUER'S COUNSEL]

                                        By:
                                            ------------------------------------

CC: Damon E. Schramm, Esq.
    [LIST NAMES OF HOLDERS]

                                       1

<PAGE>

                                    EXHIBIT A

<TABLE>
<CAPTION>
NAME OF SHAREHOLDER   NO. OF SHARES   NO. OF WARRANT SHARES
-------------------   -------------   ---------------------
<S>                   <C>             <C>

</TABLE>

                                       2

<PAGE>

                                                                       EXHIBIT B

                              SELLING STOCKHOLDERS

     The shares of Common Stock being offered by the selling stockholders are
issuable upon conversion of the preferred shares and upon exercise of the
warrants. For additional information regarding the issuance of those preferred
shares and warrants, see "Private Placement of Shares of Common Stock, Preferred
Shares and Warrants " above. We are registering the shares of Common Stock in
order to permit the selling stockholders to offer the shares for resale from
time to time. Except for the ownership of the Preferred Shares and the Warrants
issued pursuant to the Securities Purchase Agreement, the selling stockholders
have not had any material relationship with us within the past three years.

     The table below lists the selling stockholders and other information
regarding the beneficial ownership of the shares of Common Stock by each of the
selling stockholders. The second column lists the number of shares of Common
Stock beneficially owned by each selling stockholder, based on its ownership of
the preferred shares and warrants, as of ________, 200_, assuming conversion of
all preferred shares and exercise of the warrants held by the selling
stockholders on that date, without regard to any limitations on conversions or
exercise.

     The third column lists the shares of Common Stock being offered by this
prospectus by each selling Stockholder.

     In accordance with the terms of a registration rights agreement among the
Company and the selling stockholders, this prospectus generally covers the
resale of at least 130% of the sum of (i) the number of shares of Common Stock
issuable upon conversion of the preferred shares as of the trading day
immediately preceding the date the registration statement is initially filed
with the SEC and (ii) the number of shares of Common Stock issuable upon
exercise of the related warrants as of the trading day immediately preceding the
date the registration statement is initially filed with the SEC. Because the
conversion price of the preferred shares may be adjusted and the exercise price
of the warrants may be adjusted, the number of shares that will actually be
issued may be more or less than the number of shares being offered by this
prospectus. The fourth column assumes the sale of all of the shares offered by
the selling stockholders pursuant to this prospectus.

     Under the terms of the preferred shares and the warrants, a selling
stockholder may not convert the preferred shares or exercise the warrants to the
extent such conversion or exercise would cause such selling stockholder,
together with its affiliates, to beneficially own a number of shares of Common
Stock which would exceed 4.99% of our then outstanding shares of Common Stock
following such conversion or exercise, excluding for purposes of such
determination shares of Common Stock issuable upon conversion of the preferred
shares that have not been converted and upon exercise of the warrants that have
not been exercised. The number of shares in the second column does not reflect
this limitation. The selling stockholders may sell all, some or none of their
shares in this offering. See "Plan of Distribution."

                                       1

<PAGE>

<TABLE>
<CAPTION>
                                                       MAXIMUM NUMBER OF SHARES
                             NUMBER OF SHARES OWNED  TO BE SOLD PURSUANT TO THIS  NUMBER OF SHARES OWNED
NAME OF SELLING STOCKHOLDER     PRIOR TO OFFERING             PROSPECTUS              AFTER OFFERING
---------------------------  ----------------------  ---------------------------  ----------------------
<S>                          <C>                     <C>                          <C>
PLKS Holdings, LLC (1)
</TABLE>

(1)  Prentice Capital Management, L.P. has investment and voting power with
     respect to the securities held by PLKS Holdings, LLC. Mr. Michael Zimmerman
     controls Prentice Capital Management, L.P. Each of Prentice Capital
     Management and Mr. Zimmerman disclaim beneficial ownership of any of these
     securities.

                                       2

<PAGE>

                              PLAN OF DISTRIBUTION

     We are registering the shares of Common Stock issuable upon conversion of
the preferred shares and upon exercise of the warrants to permit the resale of
these shares of Common Stock by the holders of the preferred shares and warrants
from time to time after the date of this prospectus. We will not receive any of
the proceeds from the sale by the selling stockholders of the shares of Common
Stock. We will bear all fees and expenses incident to our obligation to register
the shares of Common Stock.

     The selling stockholders may sell all or a portion of the shares of Common
Stock beneficially owned by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of
Common Stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of Common Stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,

     -    on any national securities exchange or quotation service on which the
          securities may be listed or quoted at the time of sale;

     -    in the over-the-counter market;

     -    in transactions otherwise than on these exchanges or systems or in the
          over-the-counter market;

     -    through the writing of options, whether such options are listed on an
          options exchange or otherwise;

     -    ordinary brokerage transactions and transactions in which the
          broker-dealer solicits purchasers;

     -    block trades in which the broker-dealer will attempt to sell the
          shares as agent but may position and resell a portion of the block as
          principal to facilitate the transaction;

     -    purchases by a broker-dealer as principal and resale by the
          broker-dealer for its account;

     -    an exchange distribution in accordance with the rules of the
          applicable exchange;

     -    privately negotiated transactions;

     -    short sales;

     -    sales pursuant to Rule 144;

                                       1

<PAGE>

     -    broker-dealers may agree with the selling securityholders to sell a
          specified number of such shares at a stipulated price per share;

     -    a combination of any such methods of sale; and

     -    any other method permitted pursuant to applicable law.

     If the selling stockholders effect such transactions by selling shares of
Common Stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of Common Stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of Common Stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of Common Stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of Common
Stock short and deliver shares of Common Stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of Common
Stock to broker-dealers that in turn may sell such shares.

     The selling stockholders may pledge or grant a security interest in some or
all of the preferred shares and warrants or shares of Common Stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of Common Stock from
time to time pursuant to this prospectus or any amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of
1933, as amended, amending, if necessary, the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer
and donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.

     The selling stockholders and any broker-dealer participating in the
distribution of the shares of Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of Common Stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of Common Stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.

     Under the securities laws of some states, the shares of Common Stock may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of Common Stock may not be sold unless such
shares have been registered or qualified

                                       2

<PAGE>

for sale in such state or an exemption from registration or qualification is
available and is complied with.

     There can be no assurance that any selling stockholder will sell any or all
of the shares of Common Stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.

     The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Common Stock.

     We will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if any.
We will indemnify the selling stockholders against liabilities, including some
liabilities under the Securities Act, in accordance with the registration rights
agreements, or the selling stockholders will be entitled to contribution. We may
be indemnified by the selling stockholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling stockholder specifically for use in
this prospectus, in accordance with the related registration rights agreement,
or we may be entitled to contribution.

     Once sold under the shelf registration statement, of which this prospectus
forms a part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.

                                       3

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